SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. 2)
Filed by the Registrant <checked-box>
Filed by a Party other than the Registrant <square>
Check the appropriate box:
<checked-box>Preliminary Proxy Statement
<square>Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
<square>Definitive Proxy Statement
<square>Definitive Additional Materials
<square>Soliciting Material Pursuant to <section> 240.14a-11(c) or <section>
24-/14a-12
THE STROBER ORGANIZATION, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<square>No fee required.
<checked-box>Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
COMMON STOCK, $.01 PAR VALUE (THE "COMMON SHARES")
2) Aggregate number of securities to which transaction applies:
5,194,198 COMMON SHARES AND OPTIONS FOR 675,687 ADDITIONAL COMMON
SHARES
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$6.00 PER SHARE
4) Proposed maximum aggregate value of transaction:
$32,363,510
5) Total fee paid:
$6472.70
<checked-box>Fee paid previously with preliminary materials.
<PAGE>
<checked-box>Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$6,472.70
2) Form, Schedule or Registration Statement No.:
PRELIMINARY SCHEDULE 14A, PRELIMINARY SCHEDULE 14A AMENDMENT NO.1
3) Filing Party:
THE STROBER ORGANIZATION, INC.
4) Date Filed:
DECEMBER 6, 1996 & JANUARY 28, 1997
<PAGE>
THE STROBER ORGANIZATION, INC.
PIER 3 - FURMAN STREET
BROOKLYN, NEW YORK 11201
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH __, 1997
To the Stockholders of The Strober Organization, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of The
Strober Organization, Inc. (the "COMPANY") will be held at the offices of Sills
Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., The Legal Center, One
Riverfront Plaza, 10th Floor, Newark, New Jersey 07102 on March __, 1997 at
10:00 a.m., New York City time (the "SPECIAL MEETING"), for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger, dated as of November 11,
1996 (the "MERGER AGREEMENT"), pursuant to which Hamilton NY Acquisition Corp.
("ACQUISITION SUB"), a Delaware corporation and a wholly-owned subsidiary of
Hamilton Acquisition LLC, a Delaware limited liability company ("PURCHASER"),
would be merged with and into the Company (the "MERGER"). The Company would be
the surviving corporation in the Merger and the entire equity interest in the
Company would be owned by Purchaser. As a result of the Merger, each
outstanding share of common stock, par value $.01 per share, of the Company
(the "COMMON SHARES"), other than those held by stockholders of the Company who
perfect their dissenters' rights in accordance with the Delaware General
Corporation Law (the "DGCL"), will be converted into the right to receive $6.00
in cash, without interest, all as more fully described in the accompanying
Proxy Statement.
2. To transact such other business as may properly be brought before
the Special Meeting or any adjournments or postponements thereof.
Only holders of the Common Shares (the "COMPANY STOCKHOLDERS") of record
at the close of business on February 5, 1997 are entitled to notice of and to
vote at the Special Meeting. Each Common Share outstanding on such date is
entitled to one vote at the Special Meeting.
If the Merger is consummated, the Company Stockholders who dissent from
the proposed Merger and comply with the requirements of Section 262 of the DGCL
will have the right to receive payment in cash of the fair value of their
Common Shares as determined in accordance with the provisions of the DGCL. See
"Appraisal -- Rights of Dissenting Stockholders; Waiver of Notice" in the
accompanying Proxy Statement and Annex C thereto for a statement of the rights
of dissenting Company Stockholders and a description of the procedures required
to be followed to obtain the fair value of the Common Shares and "The Merger --
Conditions to the Merger" for a description of a condition to the Merger that
no more than five percent (5%) of the Common Shares shall be subject to an
appraisal demand.
Pursuant to the DGCL, assuming a quorum is present, the affirmative vote
of holders of a majority of all of the outstanding Common Shares entitled to
vote is required to approve the Merger. Pursuant to a certain Proxy Agreement
dated as of November 11, 1996 (the "PROXY AGREEMENT"), eight (8) Company
Stockholders holding the right to vote 3,160,941 Common Shares, or
approximately 61% of all the issued and outstanding Common Shares, have granted
Purchaser an irrevocable proxy to vote their Common Shares in favor of the
Merger and other matters. Accordingly, it is expected that the Merger will be
approved. See "Special Factors -- Proxy Agreement."
The Board of Directors of the Company, based on the unanimous
recommendation of the Special Committee of the Board of Directors (the"SPECIAL
COMMITTEE"), which consists of directors who are not employees of the Company,
has unanimously determined that the Merger is fair to and in the best interests
of the Company Stockholders and has unanimously approved the Merger Agreement.
The Board of Directors unanimously recommends that you vote "FOR" approval of
the Merger Agreement. The Board of Directors has received a written opinion on
November 8, 1996 from Hill Thompson Capital Markets, Inc. to the effect that
the merger consideration of $6.00 per share to be paid to the Company
Stockholders is fair to such Company Stockholders from a financial point of
view. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.
CERTAIN VALUATIONS OF THE COMPANY PREPARED BY THE FINANCIAL ADVISOR WERE
LOWER THAN THE $6.00 PER SHARE MERGER CONSIDERATION THAT WOULD BE PAID TO
COMPANY STOCKHOLDERS IF THE MERGER IS APPROVED AND CONSUMMATED AND ONE
VALUATION MAY INDICATE A HIGHER VALUE. SEE "SPECIAL FACTORS -- OPINION OF
FINANCIAL ADVISOR -- HILL THOMPSON CAPITAL MARKETS, INC."
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF COMMON SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED PREPAID ENVELOPE
WITHOUT DELAY. ANY COMPANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY VOTE
PERSONALLY ON EACH MATTER BROUGHT BEFORE THE SPECIAL MEETING AND ANY PROXY
GIVEN BY A COMPANY STOCKHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED.
By Order of the Board of Directors,
Robert J. Gaites
Chairman, President and Chief Executive Officer
Brooklyn, New York
February , 1997
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
PROXY STATEMENT
THE STROBER ORGANIZATION, INC.
PIER 3 - FURMAN STREET
BROOKLYN, NEW YORK 11201
-----------------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH __, 1997
-----------------------------------
This Proxy Statement is being furnished to the stockholders of The
Strober Organization, Inc., a Delaware corporation (the "COMPANY"), in
connection with the solicitation of proxies by the Board of Directors of the
Company (the "BOARD OF DIRECTORS") from holders of outstanding shares of common
stock, par value $0.01 per share, of the Company (the "COMMON SHARES"), for use
at a Special Meeting of Stockholders of the Company to be held on March __,
1997 at 10:00 a.m., New York time, at the offices of Sills Cummis Zuckerman
Radin Tischman Epstein & Gross, P.A., The Legal Center, One Riverfront Plaza,
10th Floor, Newark, New Jersey 07102, and at any adjournments or postponements
thereof (the "SPECIAL MEETING"). This Proxy Statement and the related proxy
card are first being mailed to stockholders on or about February , 1997.
At the Special Meeting, holders of the Common Shares on the applicable
record date will consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger, dated as of November 11,
1996 (the "MERGER AGREEMENT"), pursuant to which: (a) Hamilton NY Acquisition
Corp. ("ACQUISITION SUB"), a Delaware corporation and a wholly owned subsidiary
of Hamilton Acquisition LLC, a Delaware limited liability company
("PURCHASER"), will be merged with and into the Company (the "MERGER"), and the
entire equity interest in the Company, as the surviving corporation in the
Merger (the "SURVIVING CORPORATION"), will be owned by Purchaser; and (b) each
Common Share that is outstanding at the effective time of the Merger, other
than Common Shares held by Purchaser or the Company or Common Shares in respect
of which dissenters' rights have been perfected, will be converted into the
right to receive $6.00 per share in cash, without interest (the "MERGER
CONSIDERATION"). Common Shares held by Purchaser or the Company, if any, will
be cancelled without consideration.
Pursuant to the Delaware General Corporation Law ("DGCL"), assuming a
quorum is present, the affirmative vote of holders of a majority of all of the
outstanding Common Shares entitled to vote is required to approve the Merger.
Pursuant to a certain Proxy Agreement, dated as of November 11, 1996 (the
"PROXY AGREEMENT") eight (8) Company Stockholders holding the right to vote
3,160,941 Common Shares, or approximately 61% of all the issued and outstanding
Common Shares, have granted Purchaser an irrevocable proxy to vote their Common
Shares in favor of the Merger and other matters. There can be no assurance
that the conditions to the Merger will be satisfied, or where permissible,
waived or that the Merger will be consummated. For further information
concerning the terms and conditions of the Merger, see "The Merger -- General"
and "-- Conditions to the Merger."
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN
CONNECTION WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
All information contained in this Proxy Statement relating to Purchaser,
Acquisition Sub and their affiliates has been supplied by Purchaser for
inclusion herein and has not been independently verified by the Company.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Special Meeting. Execution of the
accompanying proxy, however, confers on the designated proxy holders
discretionary authority to vote the Common Shares covered thereby in accordance
with their best judgment on such other business, if any, that may properly come
before, and all matters incident to the conduct of, the Special Meeting or any
adjournments or postponements thereof.
The date of this Proxy Statement is February , 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY ..................................................................4
INTRODUCTION.............................................................15
General............................................................15
The Special Meeting................................................15
Record Date; Quorum; Required Vote.................................15
Proxies............................................................15
Solicitation of Proxies............................................16
THE PARTIES..............................................................16
The Company........................................................16
Purchaser..........................................................16
Acquisition Sub....................................................16
SPECIAL FACTORS..........................................................17
Background of the Merger...........................................17
Purpose and Structure of the Merger................................21
Recommendation of the Special Committee and Board of Directors
of the Company; Fairness of the Merger.............................21
Opinion of Financial Advisor - Hill Thompson Capital
Markets, Inc.......................................................23
Sources and Amount of Funds; Payment for Common Shares.............26
Plans for the Company After the Merger.............................27
Subsequent Events; Stockholder Litigation..........................28
Interest of Certain Persons in the Merger..........................29
Exercise of Company Stock Options Expiring on
December 31, 1996..................................................32
Proxy Agreement....................................................33
Certain Benefits, Detriments and Effects of the Merger.............34
Certain Federal Income Tax Consequences............................35
Accounting Treatment...............................................36
Fees and Expenses..................................................36
THE MERGER...............................................................37
General............................................................37
Amended and Restated Agreement and Plan of Merger..................37
Effective Time.....................................................37
Certificate of Incorporation; By-laws..............................37
Directors..........................................................37
Stock Transfer Books...............................................37
Conversion of Common Shares........................................38
Company Stock Options..............................................38
Sources and Amount of Funds; Payment for Common Shares.............38
Surrender of Common Share Certificates.............................39
Representations and Warranties.....................................39
Conditions to the Merger...........................................40
Termination and Amendment..........................................41
Conduct of Business Pending the Merger.............................41
Additional Agreements..............................................42
No Solicitations; Fiduciary Out....................................43
Officers' and Directors' Insurance; Indemnification................43
Accounting Treatment...............................................43
Regulatory Approvals...............................................43
SUBSEQUENT EVENTS; STOCKHOLDER LITIGATION................................43
APPRAISAL................................................................45
Rights of Dissenting Stockholders; Waiver of Notice................45
MARKET PRICES AND DIVIDENDS..............................................46
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY......................48
UNAUDITED PROJECTED SELECTED CONSOLIDATED FINANCIAL DATA OF
THE COMPANY............................................................49
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
THE COMPANY............................................................50
OWNERSHIP OF COMMON SHARES...............................................54
Security Ownership of Certain Beneficial Owners....................54
Security Ownership of Management of the Company....................55
Security Ownership of Purchaser and Acquisition Sub................57
TRANSACTIONS BY CERTAIN PERSONS IN COMMON SHARES.........................57
MANAGEMENT OF PURCHASER, ACQUISITION SUB AND THE COMPANY.................59
Directors and Executive Officers (or Equivalent) of
Purchaser and Acquisition Sub....................................59
Directors and Executive Officers of the Company....................60
INDEPENDENT PUBLIC ACCOUNTANTS...........................................62
STOCKHOLDER PROPOSALS....................................................62
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..........................62
AVAILABLE INFORMATION....................................................62
MISCELLANEOUS............................................................63
ANNEX A -- Amended and Restated Agreement and Plan of Merger
ANNEX B -- Opinion of Hill Thompson Capital Markets, Inc.
ANNEX C -- Section 262 of the Delaware General Business Corporation Law
ANNEX D -- Proxy Agreement
ANNEX E -- Financial Advisor Supporting Documentation
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement (the "PROXY STATEMENT"). This summary is not
intended to be a complete description of the matters covered in this Proxy
Statement and is subject to and qualified in its entirety by reference to the
more detailed information contained elsewhere in this Proxy Statement,
including the Annexes hereto and the documents incorporated by reference
herein. Capitalized terms used but not defined in this Summary shall have the
meanings ascribed to them elsewhere in this Proxy Statement. Company
Stockholders are urged to read carefully the entire Proxy Statement, including
the Annexes.
THE PARTIES
THE COMPANY. The Company is a supplier of building materials serving
professional building contractors out of its eleven (11) building supply
centers in New York, New Jersey, Connecticut and Pennsylvania. The Company was
incorporated in 1986 in Delaware as the parent of the various affiliated
companies which had previously conducted the Strober business for more than 80
years. The Company's principal executive offices have recently been relocated
to Pier 3, Furman Street, Brooklyn, New York 11201, and its telephone number is
(718) 875-9700.
PURCHASER. Purchaser was organized as a Delaware limited liability
company in November 1996 to acquire the Company. Purchaser was formed to
acquire the Company and has conducted no activities to date except for those
related to the organization of Acquisition Sub and incident to the Merger.
Purchaser's principal executive offices are located at 82 Devonshire Street,
Boston, Massachusetts 02109 and its telephone number at such location is (617)
563-1301.
ACQUISITION SUB. Acquisition Sub was incorporated in Delaware in
November 1996 to serve as the vehicle through which Purchaser is to acquire the
Company. Acquisition Sub has conducted no activities to date except for those
incident to the Merger. Acquisition Sub's principal executive offices are
located at 82 Devonshire Street, Boston, Massachusetts 02109 and its telephone
number at such location is (617) 563-1301.
THE SPECIAL MEETING
TIME, DATE AND PLACE. A Special Meeting of Company Stockholders will be
held on March __, 1997 at 10:00 a.m., New York time, at the offices of Sills
Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., The Legal Center, One
Riverfront Plaza, 10th Floor, Newark, New Jersey 07102 (the "SPECIAL MEETING").
PURPOSE OF THE SPECIAL MEETING. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve and adopt the Merger Agreement, a
copy of which is attached to this Proxy Statement as Annex A. See
"Introduction -- The Special Meeting".
RECORD DATE; QUORUM. The close of business on February 5, 1997 (the
"RECORD DATE") has been fixed as the record date for determining holders of
Common Shares entitled to vote at the Special Meeting. Each Common Share
outstanding on such date is entitled to one vote at the Special Meeting. As of
the Record Date, 5,194,198 Common Shares were outstanding and held of record by
471 holders. The presence, in person or by proxy, of the holders of a majority
of the Common Shares entitled to vote at the Special Meeting is necessary to
constitute a quorum for the transaction of business at the Special Meeting.
See "Introduction -- Record Date; Quorum; Required Vote".
REQUIRED VOTE. Pursuant to the DGCL, assuming a quorum is present, the
affirmative vote of holders of a majority of all of the outstanding Common
Shares entitled to vote is required to approve the Merger. See "Introduction -
- - Record Date; Quorum; Required Vote" and "The Merger -- General," and
"Conditions to the Merger." Pursuant to a certain Proxy Agreement, eight (8)
Company Stockholders holding the right to vote 3,160,941 Common Shares, or
approximately 61% of all of the issued and outstanding Common Shares, have
granted Purchaser an irrevocable proxy to vote their Common Shares in favor of
the Merger and other matters. See "Special Factors -- Proxy Agreement."
PROXIES. A proxy card is enclosed for use at the Special Meeting. A
proxy may be revoked at any time prior to its exercise at the Special Meeting.
Common Shares represented by properly executed proxies received at or prior to
the Special Meeting and which have not been revoked will be voted in accordance
with the instructions indicated therein. If no instructions are indicated on a
properly executed proxy, such proxy will be voted "FOR" approval and adoption
of the Merger Agreement. See "Introduction -- Proxies".
SPECIAL FACTORS
BACKGROUND OF THE MERGER. For a description of the events leading to the
approval and adoption of the Merger Agreement by the Company's Board of
Directors, see "Special Factors -- Background of the Merger".
PURPOSE AND STRUCTURE OF THE MERGER. The Company's purpose for the
Merger is to enhance Company Stockholder value permitting the inherent value of
the Company currently held by the Company Stockholders in the form of Common
Shares to be converted into liquid cash consideration at a price which the
Special Committee and the Board of Directors have unanimously determined to be
fair to, and in the best interests of, all Company Stockholders. Purchaser's
purpose for consummating the Merger is to acquire all of the equity interest in
the Company for the reasons described in "Special Factors -- Purpose and
Structure of the Merger". As of the date of this Proxy Statement, the
Purchaser and its affiliates did not own any Common Shares. The acquisition of
the equity interest represented by the Common Shares outstanding as of the
Effective Time (as hereinafter defined) from the holders of such shares (the
"COMPANY STOCKHOLDERS") is structured as a cash merger in order to transfer
ownership of that equity interest to Purchaser in a single transaction. See
"Special Factors -- Purpose and Structure of the Merger".
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS
OF THE MERGER. A special committee (the "SPECIAL COMMITTEE") of four (4)
directors of the Company who are not officers or employees of the Company
concluded, and based on such conclusion the Board of Directors of the Company
(the "BOARD OF DIRECTORS") concluded, that the terms of the Merger are fair to,
and in the best interests of, the Company Stockholders. Accordingly, the Board
of Directors, based upon the unanimous recommendation of the Special Committee,
has unanimously approved and adopted the Merger Agreement. The Special
Committee and the Board of Directors recommend a vote "FOR" approval and
adoption of the Merger Agreement. For a discussion of the factors considered
by the Special Committee and the Board of Directors in making their
recommendations, see "Special Factors -- Recommendation of the Special
Committee and Board of Directors of the Company; Fairness of the Merger."
OPINION OF FINANCIAL ADVISOR. On November 8, 1996, Hill Thompson Capital
Markets, Inc. ("HILL THOMPSON") delivered its written opinion dated November 7,
1996 to the Board of Directors of the Company that as of such date the $6.00
per Common Share to be received by the Company Stockholders in the Merger is
fair to the Company Stockholders from a financial point of view. Hill Thompson
orally confirmed such opinion to the Board as of the date of its delivery, and
has consented to its inclusion in the Proxy Statement. Subsequently, Hill
Thompson agreed to delete from its opinion a sentence which related to
limitations on its use without the prior written consent of Hill Thompson.
CERTAIN VALUATIONS OF THE COMPANY PREPARED BY THE FINANCIAL ADVISOR WERE LOWER
THAN THE $6.00 PER SHARE MERGER CONSIDERATION THAT WOULD BE PAID TO COMPANY
STOCKHOLDERS IF THE MERGER IS APPROVED AND CONSUMMATED AND ONE VALUATION MAY
INDICATE A HIGHER VALUE. SEE "SPECIAL FACTORS -- OPINION OF FINANCIAL ADVISOR
- -- HILL THOMPSON CAPITAL MARKETS, INC." THE FULL TEXT OF THE WRITTEN OPINION
OF HILL THOMPSON, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. COMPANY
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. SEE
"SPECIAL FACTORS -- OPINION OF FINANCIAL ADVISOR - HILL THOMPSON CAPITAL
MARKETS, INC."
PLANS FOR THE COMPANY AFTER THE MERGER. Except as indicated in this
Proxy Statement, Purchaser does not have any present plans or proposals which
relate to or would result in an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the sale of the Company or any
of its subsidiaries, a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries or any material change in the Company's
capitalization. However, the directors of Acquisition Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and such directors will elect the officers of the Surviving Corporation.
Purchaser or certain related entities may also pursue various transactions,
including acquisitions of complimentary businesses and/or additional capital
raising activities, to grow the business and/or customer base although there
can be no assurance that any such transactions will be effected on terms
acceptable to Purchaser or such related entities, if at all. See "Special
Factors -- Plans for the Company after the Merger."
PROXY AGREEMENT. In connection with the Merger Agreement, the Purchaser
entered into a Proxy Agreement with eight (8) Company Stockholders holding the
right to vote 3,160,941 Common Shares, or approximately 61% of all the issued
and outstanding Common Shares of the Company. Pursuant to the Proxy Agreement,
such Company Stockholders have granted the Purchaser an irrevocable proxy by
those persons during the term of the Merger Agreement to vote their Common
Shares in favor of the Merger and other matters. In addition, the eight
Company Stockholders agreed that if the Merger Agreement were to be terminated
because the Company had entered into a binding definitive agreement to effect a
superior proposal and those Company Stockholders within six months of the
termination of the Merger Agreement subsequently were to sell their Common
Shares, then each such Company Stockholder will be obligated to pay to
Purchaser an amount in cash of 50% of the difference between the superior
proposal and the Merger Consideration provided under this Merger. See "Special
Factors -- Proxy Agreement" and "Ownership of Common Shares -- Security
Ownership of Management of the Company."
INTEREST OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendations of the Special Committee and of the Board of Directors with
respect to the Merger, the Company Stockholders should be aware that certain
officers and directors have certain interests summarized below that may present
actual or potential conflicts of interest in connection with the Merger. One
of such interests is the exercise of certain stock options (expiring on
December 31, 1996) which has been facilitated as a result of the Company
providing financing. As a result of the Company financing these options for an
aggregate of $495,070 on a secured interest bearing basis, the eight employees
have been assisted in their ability to exercise the 166,751 options and would
accordingly receive $1,000,506 in aggregate Merger Consideration, providing
them an aggregate net benefit of $492,080 after repayment of the loan and
interest of approximately $13,356. Another of such interests is the total
Merger Consideration of $8,459,860 to be received by all of the Company's
officers and directors as a group. For information regarding the Merger
Considerations to be received by each officer and director, see "Special
Factors -- Interest of Certain Persons in the Merger -- Ownership of Common
Shares." For a more detailed discussion of such interest, see "Summary --
Special Factors -- Exercise of Company Stock Options Expiring on December 31,
1996," "Special Factors -- Interest of Certain Persons in the Merger" and
"Special Factors -- Exercise of Company Stock Options Expiring on December 31,
1996." The Special Committee and the Board of Directors were aware of
potential or actual conflicts of interest and considered them along with other
matters described under "Special Factors -- Recommendation of the Special
Committee and Board of Directors of the Company; Fairness of the Merger."
Although it was originally contemplated that Purchaser might afford to
certain members of Company management the opportunity to make a limited
investment in the Purchaser, the Purchaser subsequently determined not to make
such an opportunity available. See "Special Factors -- Interests of Certain
Persons in the Merger," "Security Ownership of Purchaser and Acquisition Sub --
Company Management Participation," and "Management of Purchaser, Acquisition
Sub and the Company -- Directors and Executive Officers (or Equivalent) of
Purchaser and Acquisition Sub -- Company Management Participation."
In accordance with the Company's existing policies, members of the
Special Committee were paid the standard fees of $1,000 per meeting attended in
person and $250 per meeting held by teleconference in order to compensate the
members thereof for the significant additional time commitment required of them
in connection with fulfilling their duties and responsibilities as members of
the Special Committee and such fee is payable without regard to whether the
Special Committee approved the Merger or whether the Merger is consummated.
For a discussion of the Proxy Agreement with respect to the Purchaser's
ability to vote approximately 61% of the outstanding Common Shares in favor of
the Merger, see "Special Factors -- Proxy Agreement."
For a discussion of certain agreements by the Purchaser with respect to
indemnification of, and insurance for, directors and officers of the Company
after the Effective Time, see "The Merger -- Officers' and Directors'
Insurance; Indemnification."
For a description of current relationships and certain transactions
between the Purchaser and the Company, see "Special Factors -- Interest of
Certain Persons in the Merger".
EXERCISE OF COMPANY STOCK OPTIONS EXPIRING ON DECEMBER 31, 1996. At the
November 7, 1996 meeting of the Special Committee, the members discussed the
circumstances under which Company stock options to purchase an aggregate of
166,751 Common Shares were issued as of December 31, 1991 at an exercise price
of $1.125 and as of March 4, 1993 at an exercise price of $1.75 (which in each
case as provided in the applicable stock option plan, was the then current
market price of the Common Shares) and would expire on December 31, 1996 in
accordance with their respective terms. The Special Committee was advised by
the Company's counsel that (i) if the Merger were successfully consummated, the
trading price of the Common Shares prior to the consummation of the Merger
would typically not be expected to reach the level of the Merger Consideration;
(ii) the exercise of such options was a taxable event to the eight individuals
holding such options and that a significant tax withholding payment would by
required to be made by such option holders; (iii) closing of any possible
transaction resulting from the Company's search and evaluation process would
most likely extend beyond December 31, 1996; and (iv) several of the option
holders were insiders, who under Company policies could not then buy or sell
Common Shares on the market to fund the applicable tax withholding payment.
Accordingly, the Special Committee determined to recommend to the Board that
the Company offer to loan to these option holders the exercise price of the
options held by them together with the applicable tax withholding amount to
facilitate their exercise of the options, such loan to bear interest at the
Company's rate of borrowing and to be payable upon the sooner of the closing of
any sale transaction or one year from the date of loan. The loan would be
secured by a pledge of the purchased Common Shares pending repayment of the
loan. Upon exercise of such options, the holders of the purchased Common
Shares would be entitled to vote such shares. As of the date of this Proxy
Statement all of such holders have borrowed an aggregate of approximately
$495,071 from the Company and exercised the options for all such options to
purchase an aggregate of 166,751 Common Shares, which Common Shares are held by
the Company as collateral for the loan. As three holders of options for 57,393
Common Shares are also signatories of the Proxy Agreement, the exercise of
these options had the effect of increasing the number of shares subject to the
Proxy Agreement from 3,103,548 Common Shares at the date of execution to
3,160,941 Common Shares as of the date of this Proxy Statement. The following
table sets forth the names of the option holders who participated in Company
financed option exercises, the number of Common Shares received as a result of
such exercises, the Merger Consideration to be received for such Common Shares
financed by the Company to enable such option holders to exercise those
options, and the amount of proceeds to be received by such option holders for
such Common Shares following the repayment of such loan.
<TABLE>
<CAPTION>
Number of Common Merger Consideration AMOUNT FINANCED Amount of
Shares Received to be Received for BY THE COMPANY Proceeds After
Upon Company Such Shares Repayment of
Financed Option Company Loan
NAME/TITLE Exercises (1)
<S> <C> <C> <C> <C>
Albert C. Brower, 9,107 $ 54,642 $ 26,388 $ 28,254
Senior Vice President
Robert J. Gaites, 25,000 150,000 76,750 73,250
Chairman, CEO and
President
Robert Groeninger, 11,429 68,574 35,087 33,487
Vice President of
Brooklyn subsidiary
Robert Merkl, 3,000 18,000 9,210 8,790
Yard Manager
David J. Polishook, 15,000 90,000 43,956 46,044
Chief Financial
Officer
Richard Schaefer, 73,929 443,574 217,540 226,034
Vice President
Nicholas Tenebruso, 6,000 36,000 18,420 17,580
Vice President of
Brooklyn subsidiary
John Yanuklis, 23,286 139,716 67,719 71,997
Executive Vice
President and
Director
</TABLE>
(1) Sets forth the options exercised on December 10, 1996 of which options
for an aggregate of 40,250 Common Shares were granted on December 31, 1991, and
options for 126,501 Common Shares were granted on March 4, 1993, respectively,
at exercise prices of $1.13 per share and $1.75 per share, respectively. All
of such Common Shares are pledged to the Company as collateral to secure the
loans made by the Company to finance the option exercises.
See "Special Factors -- Exercise of Company Stock Options Expiring on December
31, 1996."
CERTAIN BENEFITS, DETRIMENTS AND EFFECTS OF THE MERGER. The Merger is
expected to provide certain benefits and detriments to the Company, its
affiliates and the Company Stockholders which should be carefully considered by
Company Stockholders. Upon consummation of the Merger, each Common Share,
other than Common Shares held by Purchaser and the Company and Common Shares as
to which dissenters' rights have been perfected pursuant to and in accordance
with the DGCL ("DISSENTING SHARES"), will be converted into the right to
receive $6.00 in cash, without interest. Following the Merger, Purchaser will
own 100% of the Surviving Corporation's outstanding capital stock and the
Company Stockholders will cease to have any ownership interest in the Company
or rights as stockholders. The Company Stockholders will no longer benefit
from any increases in the value of the Company and will no longer bear the risk
of any decreases in value of the Company.
As a result of the Merger, the Company will be privately held and there will
be no public market for the Common Shares. Upon consummation of the Merger,
the Common Shares will cease to be quoted on the NASDAQ National Market and the
registration of the Common Shares under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), will be terminated. See "Special Factors --
Certain Benefits, Detriments and Effects of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for Common
Shares pursuant to the Merger (and the receipt of cash by a Company Stockholder
who exercises dissenter's rights) will be a taxable transaction for U.S.
federal income tax purposes and may be a taxable transaction for foreign, state
and local income tax purposes as well. Company Stockholders will generally
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between the amount of cash received and their adjusted tax basis
in the Common Shares. Such gain or loss will be a capital gain or loss if the
Common Shares are held as a capital asset, and shall be long-term capital gain
or loss if, on the date of the Merger, such Common Shares were held for more
than one year. Company Stockholders should consult their own tax advisors
regarding the U.S. federal income tax consequences of the Merger, as well as
any tax consequences under the law of any state or other jurisdiction. See
"Special Factors -- Certain Federal Income Tax Consequences."
FEES AND EXPENSES. In general, each of the Company and the Purchaser will
bear its own expenses in connection with the Merger and related transactions.
Under certain limited circumstances, if the Merger is not consummated, each of
the Company and the Purchaser may be liable to the other party for
reimbursement of such other party's expenses related to the Merger. For
information regarding termination fees and expenses that could be incurred or
paid to the Company. See "Special Factors -- Fees and Expenses" and "The
Merger -- Termination and Amendment."
THE MERGER
GENERAL. Upon consummation of the Merger, Acquisition Sub will be merged
with and into the Company and the Company will be the surviving corporation
(the "SURVIVING CORPORATION"). The Surviving Corporation will succeed to all
the rights and obligations of the Company and Acquisition Sub. See "The Merger
- -- General."
EFFECTIVE TIME. Pursuant to the Merger Agreement, the Effective Time will
occur upon the filing of a certificate of merger by the Company with the
Delaware Secretary of State. See "The Merger -- Effective Time."
CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective Time, the
Certificate of Incorporation and By-Laws of Acquisition Sub will be the
Certificate of Incorporation and By-Laws of the Surviving Corporation.
DIRECTORS. The Directors of Acquisition Sub immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation.
CONVERSION OF SECURITIES. At the Effective Time: (a) each issued and
outstanding Common Share immediately prior to the Effective Time other than (i)
shares of common stock held by the Company ("TREASURY SHARES"), (ii) Common
Shares then owned by Purchaser, Acquisition Sub or any other subsidiary of
Purchaser, and (iii) Dissenting Shares, will by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and
converted into the right to receive the Merger Consideration, upon surrender of
the certificate which prior to the Effective Time evidenced such Common Share;
and (b) each Treasury Share and each Common Share outstanding immediately prior
to the Effective Time which is then owned by Purchaser, Acquisition Sub or any
other subsidiary of Purchaser will, by virtue of the Merger and without any
action on the part of the holder thereof, be canceled and retired and cease to
exist, without any conversion thereof and no payment or distribution shall be
made with respect thereto.
Holders of Common Shares who do not vote in favor of the Merger at the
Special Meeting and who shall have properly elected to dissent in the manner
provided in Section 262 of the DGCL will be entitled to payment of the fair
value of their Common Shares in accordance with, and subject to, the provisions
of Section 262. See "The Merger -- Conditions to the Merger," for a discussion
of a closing condition relating to appraisal rights of dissenting Company
Stockholders and "Appraisal -- Conversion of Common Shares."
The shares of common stock, $.01 par value per share, of Acquisition Sub
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for in the aggregate, one thousand (1,000)
validly issued, fully paid and non-assessable shares of common stock, par value
$.01 of the Surviving Corporation, which shall constitute all of the issued and
outstanding shares of the Surviving Corporation. See "The Merger -- Conversion
of Common Shares."
COMPANY STOCK OPTIONS. There are currently outstanding options to purchase
675,687 Common Shares with exercise prices ranging from $3.625 to $4.75. These
outstanding options were issued in the ordinary course of the Company's
incentive compensation programs from March 1994 to March 1996. Each option
holder shall be entitled to exercise such option through the Effective Time and
if such options are not so exercised prior to the Effective Time, each such
holder shall be entitled to receive from the Company in consideration for
cancellation of each such option, a cash payment in an amount equal to the
product of (x) the number of Common Shares provided for in such option and (y)
the excess, if any, of the Merger Consideration over the exercise price per
Common Share provided for in such option. No payment will be made for Company
options that have expired prior to the Effective Time.
Additional options to purchase 166,751 Common Shares were outstanding at the
time the Merger Agreement was executed which by their terms would have expired
on December 31, 1996. These options to purchase an aggregate of 166,751 Common
Shares have subsequently been exercised utilizing loan proceeds from the
Company. See "Special Factors -- Exercise of Company Stock Options Expiring on
December 31, 1996".
SOURCES AND AMOUNT OF FUNDS; PAYMENT FOR COMMON SHARES; EXCHANGE OF
CERTIFICATES. The Purchaser has delivered to the Company copies of commitment
letters (the "FINANCING LETTERS") from Congress Financial Corporation (the
"CONGRESS LETTER") and CoreStates Financial Corp. (the "CORESTATES LETTER").
Under the terms of the Congress Letter, the Surviving Corporation will be
provided with a $25 million revolving line of credit secured by a first
security interest in and lien upon all of the existing and future assets of the
Surviving Corporation and any of its subsidiaries. Under the terms of the
CoreStates Letter, an aggregate of $4 million of financing will be provided
through the issuance of subordinated amortizing six (6) year notes secured by
second liens on the accounts receivable and inventory of the Surviving
Corporation and any of its subsidiaries. The Financing Letters which
originally expired on February 28, 1997, were amended to expire on March 31,
1997. Although the Purchaser has agreed to use its best efforts to obtain
financing to consummate the Merger and the obtaining of such financing is not a
condition to Purchaser's obligations to consummate the Merger, there can be no
assurance that any further extension, or alternative financing in lieu of such
extension, if necessary, will be forthcoming. See "The Merger -- Sources and
Amount of Funds; Payment for Common Shares," "The Merger -- Termination and
Amendment," and "Special Factors -- Fees and Expenses." Equity investments in
the aggregate of $9 million are also being made in the Purchaser. Purchaser
has represented that, assuming satisfaction or waiver of all applicable
conditions set forth in the Financing Letters, the debt financing and the
equity investments in the Purchaser will provide sufficient funds to (i) pay
the Merger Consideration with respect to all of the Common Shares; and (ii)
prepay, redeem, refinance or renegotiate the Company's existing indebtedness,
if required to consummate the Merger, and pay any and all fees, expenses, costs
and penalties in connection with any such prepayment, redemption, refinancing
or renegotiation. Purchaser has agreed not to amend the Financing Letters
(except for possible further extensions) without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Although it was
originally contemplated that Purchaser would afford to certain members of
Company management the opportunity to make a limited investment in the
Purchaser, the Purchaser subsequently determined not to make such contemplated
opportunity available. See "Security Ownership of Purchaser and Acquisition
Sub-Company Management Participation". It is currently expected that
approximately $32 million will be required to pay the Merger Consideration to
the Company Stockholders (assuming no such holder exercises dissenters' rights)
and approximately $2.3 million will be required to pay the expenses of
Purchaser and Acquisition Sub in connection with the Merger. It is currently
expected that approximately $753,000 will be required to pay the balance of the
remaining unpaid expenses of the Company attributable to the transaction and
that such funds will be furnished from available general funds of the Company.
See "The Merger -- Sources and Amount of Funds; Payment for Common Shares."
Promptly after the Effective Time, the Surviving Corporation shall cause the
Paying Agent to mail to each person who was a record holder of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented Common Shares (the "CERTIFICATES"), a form letter of transmittal
and instructions for its use in effecting the surrender of such Certificates
for payment in accordance with the Merger Agreement. Upon the surrender to the
Paying Agent of a Certificate, together with a properly completed and duly
executed letter of transmittal, the holder thereof shall be entitled to receive
cash in an amount equal to the product of the number of Common Shares
represented by such Certificate and the Merger Consideration, less any
applicable withholding tax, and such Certificate shall then be cancelled.
Until surrendered pursuant to the procedures described above, except with
respect to Dissenting Shares, each Certificate shall represent solely the right
to receive the Merger Consideration, without interest, into which the number of
Common Shares represented by such Certificate shall have been converted. See
"The Merger -- Surrender of Common Share Certificates". COMPANY STOCKHOLDERS
SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON SHARES WITH THEIR PROXY
CARDS.
CONDITIONS TO THE MERGER; TERMINATION AND AMENDMENT. Pursuant to the Merger
Agreement, the obligations of each of Purchaser, Acquisition Sub and the
Company to effect the Merger are subject to certain conditions set forth in the
Merger Agreement. In certain circumstances, the Merger Agreement may be
terminated at any time prior to the closing of the Merger. The Merger
Agreement may be amended by the parties in writing at any time before or after
approval by the Company Stockholders except that after Company Stockholder
approval, no amendment may be made which reduces the amount or changes the form
of the Merger Consideration or in any way materially adversely affects the
rights of stockholders of the Company. See "The Merger -- Conditions to the
Mergers" and "-- Termination and Amendment."
NO SOLICITATIONS; FIDUCIARY OUT. Pursuant to the terms of the Merger
Agreement, the Company has agreed, with certain exceptions, not to, directly or
indirectly, initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer with respect to a merger, acquisition,
tender offer, exchange offer consolidation or similar transaction involving any
purchase of 10% or more of the assets or securities of the Company or any of
its subsidiaries (an "ACQUISITION PROPOSAL") or engage in any negotiations
with, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal.
OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION. Under the Merger
Agreement, the Purchaser and Acquisition Sub have agreed that all rights to
indemnification or exculpation existing in favor of, and all limitations on the
personal liability of the directors, officers, employees and agents of the
Company and its subsidiaries as provided in their respective charters or by-
laws or otherwise in effect as of the date of the Merger Agreement with respect
to matters occurring prior to the Effective Time shall survive the Merger and
continue in full force and effect. The Merger Agreement also provides that to
the maximum extent permitted by the DGCL, such indemnification shall be
mandatory rather than permissive. Pursuant to the Merger Agreement, the
Purchaser had agreed to cause the Surviving Corporation to maintain in effect
for not less than six years from the Effective Time the policies of the
directors' and officers' liability and fiduciary insurance maintained by the
Company at the date of execution of the Merger Agreement with respect to
matters occurring prior to the Effective Time. Accordingly, the Company has
obtained a rider to its existing directors' and officers' insurance policy
which, for a one-time premium payment of $178,000, would provide for such
coverage. The Company expects to pay such premium immediately prior to the
Effective Time from available general funds of the Company. See "The Merger --
Officers' and Directors' Insurance; Indemnification."
ACCOUNTING TREATMENT. The Merger will be accounted for as a "purchase" as
such term is used under generally accepted accounting principles for accounting
and financial reporting purposes. Accordingly, a determination of the fair
value of the Company's assets and liabilities will be made in order to allocate
the purchase price to the assets acquired and liabilities assumed. See "The
Merger -- Accounting Treatment".
REGULATORY APPROVALS. No federal or state regulatory approvals are required
to be obtained, nor any regulatory requirements complied with, in connection
with consummation of the Merger by any party to the Merger Agreement, except
for the requirements of the DGCL regarding Company Stockholder approvals and
consummation of the Merger, and the requirements of federal securities laws.
See "The Merger -- Conditions to the Merger".
APPRAISAL
RIGHTS OF DISSENTING STOCKHOLDERS; WAIVER OF NOTICE. Under the DGCL, all
Company Stockholders who file the required written demand for appraisal for
their Common Shares prior to the date of the Special Meeting, and who do not
consent to the Merger, will have the right to be paid the "fair value" of their
Common Shares, together with a fair rate of interest, if any, as determined by
the Delaware Court of Chancery, in lieu of the Merger Consideration, all
pursuant to the applicable provisions of the DGCL. SUCH APPRAISAL RIGHT WILL
BE LOST, HOWEVER, IF THE PROCEDURAL REQUIREMENTS OF THE DGCL ARE NOT FULLY AND
PRECISELY SATISFIED. Company Stockholders should consult their own legal
advisors regarding such appraisal. See "The Merger -- Conditions to the
Merger," for a discussion of a closing condition relating to appraisal rights
of dissenting stockholders; "Appraisal -- Rights of Dissenting Stockholders;
Waiver of Notice" and Section 262 of the Delaware General Corporation Law
attached hereto as Annex C.
MARKET PRICES AND DIVIDENDS
The Common Shares are traded on the NASDAQ National Market under the symbol
"STRB". Since going public in November 1986, the Company has not paid any
dividends. See "Market Prices and Dividends."
The following table sets forth, for the calendar periods indicated, the high
and low sales prices per Common Share, as quoted on the NASDAQ National Market:
SALES PRICES PER COMMON SHARE
CALENDAR PERIODS
HIGH LOW
1992
First Quarter $2 1/8 1 1/4
Second Quarter 2 1 5/8
Third Quarter 1 3/4 1 1/4
Fourth Quarter 2 1/8 1 5/8
1993
First Quarter $2 1/8 1 9/16
Second Quarter 2 3/8 1 5/8
Third Quarter 3 1/4 2
Fourth Quarter 6 3
1994
First Quarter $5 5/16 3 3/4
Second Quarter 4 7/8 3 1/2
Third Quarter 4 5/8 2 1/2
Fourth Quarter 3 7/8 3 1/8
1995
First Quarter $4 1/8 3
Second Quarter 4 1/2 3 1/4
Third Quarter 5 7/8 4
Fourth Quarter 4 3/4 3 1/2
1996
First Quarter $4 5/8 3 3/8
Second Quarter 4 3/4 3 7/8
Third Quarter 5 3 1/2
Fourth Quarter (10/01/96 through 11/08/96) 5 3/8 4 5/8
Fourth Quarter (11/11/96 through 12/31/96) 6 1/8 4 5/8
1997
First Quarter (1/01/97 through 2/14/97) $6 5 3/4
On November 8, 1996, the last business day before the execution of the
Merger Agreement was publicly announced, the closing price and high and low
share prices of the Common Shares on the NASDAQ National Market were $5.25,
$5.25 and $5.25, respectively per share. On February 14, 1997, the closing
price of the Common Shares on the NASDAQ National Market was $5.81 per share.
Holders of Common Shares are urged to obtain a current market quotation for
their Common Shares.
If and when the Merger is approved, it is currently anticipated that the
Merger will be completed in March, 1997.
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summarizes certain selected consolidated historical financial
data of the Company and is qualified in its entirety by the more detailed
information contained elsewhere in this Proxy Statement including "Selected
Consolidated Financial Data of the Company." Additionally, the selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements of the Company, related notes and other financial
information incorporated by reference into this Proxy Statement. The selected
consolidated financial data as of December 31 and for each of the years in the
five (5) year period ended December 31, 1995, have been derived from the
Company's consolidated financial statements, which have been audited. Results
of interim periods are not necessarily indicative of results to be expected for
the year.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
(Unaudited) (Unaudited)
Sept. 30, Sept. 30,
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $100,898 96,066 125,813 125,378 118,975 104,812 90,150
Gross profit 26,676 25,242 33,186 32,670 31,703 27,787 24,897
Net income (loss) 2,611 2,360 3,082 2,576 1,650 (763) (2,072)
Net income (loss) per share $ 0.51 0.45 0.59 0.50 0.33 (0.15) (0.41)
Weighted average number of 5,159 5,264 5,247 5,165 5,031 5,021 5,044
shares outstanding
OTHER DATA:
Ratio of earnings to fixed 6.1X 5.5X 3.2X
charges
BALANCE SHEET DATA:
Working capital 23,691 21,844 20,158 22,032 24,769
$25,985 23,593
Total assets 53,731 46,725 44,544 42,649 44,328 43,145 47,814
Long-term debt less current 2,669 1,088 1,224 1,171 2,407 8,584 11,551
installments
Stockholders' equity(1) 36,169 33,065 33,524 30,687 28,569 26,511 27,265
Book value per share(2) 7.19 6.53 6.72 6.07 5.54 5.28 5.43
Tangible book value(3) 29,600 26,287 26,798 23,751 21,424 19,098 18,942
Tangible book value per $ 5.89 5.19 5.37 4.70 4.15 3.80 3.77
share(2)
</TABLE>
(1)Does not give effect to the exercise of outstanding options.
(2)Based on Common Shares outstanding (excluding treasury shares) at the
Balance Sheet date.
(3)Stockholders' equity less intangible assets.
SUMMARY UNAUDITED PROJECTED SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following summarizes certain unaudited selected projected consolidated
financial data of the Company if the Merger was not to take place and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement including "Unaudited Projected Selected Consolidated Financial
Data of the Company." Additionally, the projected selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements of the Company, related notes and other financial information
incorporated by reference into this Proxy Statement. The Company's independent
public accountants have not examined the projected selected consolidated
financial data presented and do not express an opinion or any other form of
assurance thereon.
The projections appearing on this page are forward looking statements.
Although the projections represent the best estimate of the Company, for which
the Company believes it had a reasonable basis as of the time of the
preparation thereof, of the results of operations and financial position of the
Company, they are only an estimate, and actual results may vary considerably.
Consequently, the inclusion of the projection information herein should not be
regarded as a representation by the Company or any other entity or person that
the projection results will be achieved. Readers are cautioned not to place
undue reliance on this data.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except percentage and per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
(Unaudited) December 31,
(Unaudited)
Dec. 31, Dec. 31,
1996 1995 1997
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $37,200 29,747 143,540
Gross profit 9,900 7,943 37,607
Net income 777 721 3,796
Net income per share $ 0.14 0.14 0.70
Weighted average number of 5,394 5,195 5,394
shares outstanding
BALANCE SHEET DATA:
Working capital $25,992 23,691 30,369
Total assets 52,571 44,544 56,708
Long-term debt less current 2,498 1,224 4,338
installments
Stockholders' equity(1) 37,213 33,524 40,010
Book value per share 7.16 6.72 7.70
Tangible book value(2)(3) 33,819 28,859 36,460
Tangible book value per $ 5.76 5.14 6.23
share(3)
</TABLE>
____________________________________
(1)Assumes the exercise on October 1, 1996 of all options that expire on
December 31, 1996 for an aggregate of 166,751 Common Shares with an
aggregate exercise price of $266,658 resulting in total outstanding Common
Shares of 5,194,198.
(2)Stockholders' equity less intangible assets.
(3)Assumes the exercise, on or before the date indicated, of all options that
were then outstanding with an exercise price of $6.00 or less consisting of
(i) options for 842,438 shares at an aggregate exercise price of $3,122,458
as of December 31, 1996; (ii) options for 631,022 shares at an aggregate
exercise price of $2,061,091 as of December 31, 1995; and (iii) options for
842,438 shares at an aggregate exercise price of $3,122,458 as of December
31, 1997.
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
The following unaudited pro forma consolidated financial statements have
been prepared by presenting the consolidated financial statements of the
Company on the assumptions that the Merger was effective as of September 30,
1996 for the pro forma consolidated balance sheet and as of the beginning of
the respective year of each income statement presented below. This summary
below should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto, incorporated by
reference into this Proxy Statement. The summary unaudited pro forma
consolidated financial statements should be read in conjunction with the pro
forma consolidated financial statements and the notes thereto beginning on page
50 of this Proxy Statement. Results of the interim period are not necessarily
indicative of results to be expected for the year. The unaudited pro forma
financial statements are for illustrative purposes only and do not purport to
represent what the Company's financial position or results of operations would
actually have been had the transaction in fact occurred on the dates indicated,
or to project the Company's financial position or results of operations for any
future date or period. The adjustments for the pro forma consolidated
financial statements are based on available information and upon certain
assumptions which management believes are reasonable.
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED BALANCE
SHEET
SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Combined Pro Forma
<S> <C>
Current assets $ 36,325
Property and equipment, net 5,513
Goodwill, net 5,865
Other assets 1,628
Total assets 49,331
Current liabilities 15,066
Long-term debt, less current installments 25,265
Stockholders' equity 9,000
</TABLE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Combined Pro Forma
<S> <C>
Net sales $100,898
Gross profit 26,676
Income from operations 4,141
Interest income (expense), net (1,756)
Other income (expense) 476
Net income before tax 2,861
Net income after tax 1,660
</TABLE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Combined Pro Forma
<S> <C>
Net sales $125,813
Gross profit 33,186
Income from operations 5,049
Interest income (expense), net (2,308)
Other income (expense) (22)
Net income before tax 2,719
Net income after tax 1,567
</TABLE>
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to holders of the outstanding common
shares, par value $.01 per share (the "COMMON SHARES"), of The Strober
Organization, Inc. (the "COMPANY") in connection with the solicitation of
proxies by the Board of Directors of the Company (the "BOARD OF DIRECTORS") for
use at a Special Meeting of Stockholders of the Company to be held on March __,
1997, at 10:00 a.m., New York Time, at the offices of Sills Cummis Zuckerman
Radin Tischman Epstein & Gross, P.A., The Legal Center, One Riverfront Plaza,
10th Floor, Newark, New Jersey 07102, including any adjournments or
postponements thereof (the "SPECIAL MEETING").
THE SPECIAL MEETING
At the Special Meeting, holders of the Common Shares will consider and vote
upon a proposal to approve and adopt an Amended and Restated Agreement and Plan
of Merger, dated as of November 11, 1996 (the "MERGER AGREEMENT"), pursuant to
which: (a) Hamilton NY Acquisition Corp. ("ACQUISITION SUB"), a Delaware
corporation and a wholly owned subsidiary of Hamilton Acquisition LLC, a
Delaware limited liability company, ("PURCHASER"), will be merged with and into
the Company (the "MERGER") and the entire equity interest in the Company, as
the surviving corporation in the Merger (the "SURVIVING CORPORATION"), will be
owned by Purchaser; and (b) each Common Share that is outstanding at the
effective time of the Merger (the "EFFECTIVE TIME"), other than Common Shares
held by the Purchaser and Common Shares in respect of which dissenters' rights
have been perfected, will be converted into the right to receive $6.00 per
share in cash, without interest (the "MERGER CONSIDERATION"). Common Shares
held by Purchaser or the Company, if any, will be cancelled without
consideration. Acting on the unanimous recommendation of a special committee
of the Board of Directors comprised of four (4) directors, none of whom are
executive officers or employees of the Company (the "SPECIAL COMMITTEE"), the
Board of Directors of the Company has unanimously approved and adopted the
Merger Agreement. The Special Committee and the Board of Directors of the
Company unanimously recommend that Company Stockholders vote "FOR" approval and
adoption of the Merger Agreement. See "Special Factors -- Recommendation of the
Special Committee and Board of Directors of the Company; Fairness of the
Merger."
RECORD DATE; QUORUM; REQUIRED VOTE
The close of business on February 5, 1997 (the "RECORD DATE") has been fixed
as the record date for determining holders of Common Shares entitled to vote at
the Special Meeting. Each Common Share outstanding on such date is entitled to
one vote at the Special Meeting. As of the Record Date 5,194,198 Common Shares
were outstanding and held by approximately 471 holders of record. The
presence, in person or by proxy, of the holders of a majority of the
outstanding Common Shares entitled to vote at the Special Meeting is necessary
to constitute a quorum for the transaction of business at the Special Meeting.
Pursuant to the Delaware General Corporation Law (the "DGCL") and the
Company's Restated Certificate of Incorporation, assuming a quorum is present,
the affirmative vote of holders of a majority of all of the outstanding Common
Shares entitled to vote is required to approve the Merger. Pursuant to a
certain Proxy Agreement, dated as of November 11, 1996 (the "PROXY AGREEMENT")
eight (8) Company Stockholders holding the right to vote 3,160,941 Common
Shares, or approximately 61% of all of the issued and outstanding Common
Shares, have granted Purchaser an irrevocable proxy to vote their Common Shares
in favor of the Merger, and other matters. For additional information
regarding the irrevocable proxy held by Purchaser, see "Special Factors --
Proxy Agreement," "-- Interest of Certain Persons in the Merger" and "Ownership
of Common Shares."
PROXIES
Common Shares represented by properly executed proxies received at or prior
to the Special Meeting and which have not been revoked will be voted in
accordance with the instructions indicated thereon. If no instructions are
indicated on a properly executed proxy, such proxy will be voted "FOR" approval
and adoption of the Merger Agreement.
A Company Stockholder who has given a proxy may revoke such proxy at any
time prior to its exercise at the Special Meeting by (i) giving written notice
of revocation to the Secretary of the Company, (ii) properly submitting to the
Company a duly executed proxy bearing a later date, or (iii) attending the
Special Meeting and voting in person. Attendance at the Special Meeting will
not in and of itself revoke a proxy. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: The Strober Organization, Inc., Pier 3, Furman Street, Brooklyn,
New York 11201, Attention: Secretary.
If the Special Meeting is adjourned or postponed for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the meeting (except for any proxies which have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
COMPANY STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON
SHARES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, THE PROCEDURE FOR
THE EXCHANGE OF CERTIFICATES REPRESENTING COMMON SHARES WILL BE AS SET FORTH IN
THIS PROXY STATEMENT. SEE "THE MERGER -- CONVERSION OF COMMON SHARES" AND "--
SURRENDER OF COMMON SHARE CERTIFICATES."
SOLICITATION OF PROXIES
The cost of solicitation of the proxies from the Company Stockholders
contemplated by the Proxy Statement will be paid by the Company. Such cost
will include the reimbursement of banks, brokerage firms, nominees, fiduciaries
and custodians for the expenses of forwarding solicitation materials to
beneficial owners of Common Shares. In addition to the solicitation of proxies
by use of mail, the directors, officers and employees of the Company, may
solicit proxies personally or by telephone, telegraph or facsimile
transmission. Such directors, officers and employees will not be additionally
compensated for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. In addition, the Company has
retained Morrow & Company, New York, New York to assist in soliciting proxies
and to provide materials to banks, brokerage firms, nominees, fiduciaries and
other custodians. For such services, the Company will pay to Morrow & Company
a fee of approximately $7,500, plus expenses.
THE PARTIES
THE COMPANY
The Company is a supplier of building materials serving professional
building contractors out of its eleven (11) building Supply Centers in New
York, New Jersey, Connecticut and Pennsylvania. The Company was incorporated
in 1986 in Delaware as the parent of the various affiliated companies which had
previously conducted the Strober business for more than 80 years. The
Company's principal executive offices have recently been relocated to Pier 3,
Furman Street, Brooklyn, New York 11201, and its telephone number is (718) 875-
9700.
PURCHASER
Purchaser was organized as a Delaware limited liability company in November
1996 to acquire the Company. Purchaser was formed to acquire the Company and
has conducted no activities to date except for those related to the
organization of Acquisition Sub and incident to the Merger. Purchaser's
principal executive offices are located at 82 Devonshire Street, Boston,
Massachusetts 02109, and its telephone number at such location is (617) 563-
1301.
ACQUISITION SUB
Acquisition Sub was incorporated in Delaware in November 1996 to serve as
the vehicle through which Purchaser is to acquire the Company. Acquisition Sub
has conducted no activities to date except for those incident to the Merger.
Acquisition Sub's principal executive offices are located at 82 Devonshire
Street, Boston, Massachusetts 02109, and its telephone number at such location
is (617) 563-1301.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Board was aware that, although the Company had survived the severe
recession in the building materials industry in the beginning of the 1990's,
the recovery of the real estate market experienced in recent years may not
necessarily continue. The Company projected growth in revenues for the next
several years derived from limited growth in same store sales, opening
additional distribution yards, acquisitions of smaller participants in the
industry and expected continued consolidation of the market in the region in
which the Company operates with resulting pressure on the Company's gross
operating margins. These factors, together with the seasonality of the
building materials industry in the Northeast, and the Company's reliance upon
the professional contractor segment of the building materials industry (which
often requires the Company to provide trade financing), were all factors which
may be the basis for the Company's relatively low price to earnings ratio and
public stock price. The underlying basis for the Company undertaking the
search and evaluation process described in this section was the Board's belief
that there might be strategic alternatives to the Company's present operations
that might provide better value for the benefit of all of the Company
Stockholders.
In the third quarter of 1994, Company management prepared detailed financial
projections of Company operations through December 31, 1996, summaries of which
were circulated to different financial advisors on a confidential basis for
their informal assessment as to whether there might exist strategic
alternatives that the Company should explore in seeking to enhance value for
all of the Company Stockholders. Additional financial and operating
information was provided to those financial advisors in order to give them
insight as to the Company and to enable them to determine their ability to meet
the Company's requirements. At its November 1994 meeting, the Board of
Directors was provided with the respective backgrounds of those financial
advisors, management's analysis of their relative strengths and their initial
fee and expense requirements. Based on this review, the Board authorized
management to continue such discussions with those and other prospective
financial advisors as to retaining a financial advisor on the Company's behalf
in order to assist in evaluating strategic alternatives to the Company's
current course of independent operations and whether the Board could be able to
better enhance value for all of the Company Stockholders through alternative
means. Discussions with and presentations to such advisors continued but were
interrupted by an inquiry from a prospective strategic purchaser in March 1995.
Discussions with this strategic purchaser extended to facility tours but
finally resulted in such prospective purchaser advising the Company that the
Company's operations would prove to be too great an extension from the
prospective purchaser's existing business. Following termination of the
Company's discussions with the prospective purchaser, at its August 1995
meeting, the Board of Directors reviewed all of the prospective financial
advisors and their respective engagement letters and authorized management to
negotiate and engage a financial advisor to the Company. Accordingly, on
August 16, 1995, the Company retained Hill Thompson to assist the Board of
Directors in evaluating alternatives to enhance value for the benefit of all of
the Company Stockholders specifically by pursuing the possible sale of the
Company in its entirety to a strategic or financial purchaser. Except for the
Company's requirement that prospective purchasers enter into a confidentiality
agreement, the only other limitation imposed by the Company on the scope of
Hill Thompson's search and evaluation was that although the building materials
distributors operating in the Company's market region which were competitors of
the Company were aware of the search and evaluation process, upon their
inquiry, the information provided them was limited so as to not provide such
competitors with key inside confidential information concerning the Company's
methods of operations, manpower loading and product mix. Such limitations were
not imposed upon building materials distributors operating outside the
Company's market region.
Subsequently, the Company provided Hill Thompson with various requested
background materials describing the Company's operations and the Company
commenced the preparation of an information memorandum for future distribution
to potential prospective purchasers describing the Company's operations,
management, product mix, and competitive advantages. Prior to disseminating
this memorandum, Hill Thompson prepared an introductory letter describing the
industry and the scope of the Company's operations without specifically
identifying the Company. This letter was intended to be sent to potentially
interested parties.
In October 1995, before any introductory letters were distributed to
prospective purchasers, Frederick Marino made an unsolicited call to Robert J.
Gaites, President of the Company, and asked if the Company would be interested
in considering a proposal from Mr. Marino for the acquisition of the entire
Company. Mr. Marino was familiar with the Company's operations as his former
company, Marino Industries, was a supplier of steel products to the Company for
resale to professional contractors. After signing a confidentiality agreement
with the Company, Mr. Marino was sent a preliminary form of the informational
memorandum and Mr. Marino began evaluating the Company and soliciting
prospective third party financing participants. The Company advised Mr. Marino
that it would not enter into either a letter of intent or an exclusivity
agreement with him but would only enter into an adequately financed definitive
agreement with a strategic or financial purchaser if the Company determined
that a sale would enhance value for the benefit of all of the Company
Stockholders.
During December 1995 and simultaneously with the Company's discussions with
Mr. Marino, the Company and Hill Thompson had finalized the informational
memorandum and Hill Thompson commenced circulating the introductory letter to
prospective strategic and financial purchasers. Over the next nine months,
this letter was sent to over 245 prospective strategic and financial
purchasers. Of these prospective strategic and financial purchasers, 90
entered into a confidentiality agreement, under customary terms, in which they
agreed not to use confidential information provided them in the course of their
evaluation of the Company. Each entity signing the confidentiality agreement
was provided with copies of the informational memorandum, which set forth,
among other things, the Company's projections through 1997. Hill Thompson
asked each of the 90 initially interested parties who had been provided an
information memorandum whether they desired to continue discussions with the
Company including undertaking further due diligence, meeting with Company
management and/or viewing Company facilities in the field. Of the interested
entities receiving the informational memorandum, 12 such entities sought
additional information, review of due diligence data rooms and/or tours of the
Company facilities.
One of these 12 interested entities raised the possibility of acquiring only
a portion of the outstanding Common Shares at $6.00 per Common Share together
with a Company buyback of additional Common Shares. This approach was viewed
by the Special Committee as not being in the best interest of all of the
Company Stockholders.
As Hill Thompson continued to seek prospective strategic and financial
purchasers, the Board determined to publicly announce that it had retained Hill
Thompson to conduct a search and evaluation process with the intent of
soliciting interest from additional prospective purchasers despite its concerns
as to the possible negative effect a public announcement would have on the
morale of the Company's employees. This announcement was made on February 20,
1996 and elicited additional prospective purchaser contacts to Hill Thompson.
These additional contacts included the prospective strategic purchaser which
had contacted the Company in March 1995. The prospective strategic purchaser
again contacted the Company in February 1996, entered into a confidentiality
agreement in early March 1996 and was sent the Company's informational
memorandum for review.
On April 4, 1996, this prospective strategic purchaser wrote to Hill
Thompson enclosing a letter to Mr. Gaites which set forth a signed letter of
intent which provided for a 90 day exclusivity period in which the prospective
strategic purchaser would conduct due diligence while it sought to negotiate to
acquire the Company for $6.00 per Common Share subject to customary due
diligence and other conditions.
On April 19, 1996, the Company declined such an approach and proposed for
this prospective purchaser to conduct due diligence and seek to negotiate a
definitive agreement while the Company continued its ongoing search and
evaluation process.
This prospective strategic purchaser sent a due diligence team to review
Company facilities and documentation in late April 1996. Drafts of
transactional documents were exchanged with this party which would have
provided for a 100% tender offer for all of the Company's outstanding Common
Shares and the continued employment of Company management in Company
operations, all at a still to be negotiated price. This price was understood
to range up to as high as $6.30 per Common Share but was subsequently reduced
downwards to $6.00 per Common Share to reflect this prospective strategic
purchaser's assessment of Company operations. However, before this strategic
prospective purchaser presented more definitive transactional documents to the
Special Committee and the Company's Board of Directors, this prospective
strategic purchaser informed the Company that the Company's operations
presented an inherent conflict with its approach to its existing customer base
and terminated its discussions with the Company on May 20, 1996.
Subsequently, on May 22, 1996, the Company received a confidential letter
from an affiliate of the Purchaser setting forth the affiliate's possible
interest in the acquisition of the Company in a tender offer structure at a
mutually acceptable price in which Mr. Marino would be the Chief Executive
Officer of the Company or any successor to the Company after the proposed
acquisition.
On May 31, 1996, representatives of, and advisors to, an affiliate of the
Purchaser and the Company met. At such meeting, the affiliate expressed its
interest in effecting a transaction between the Company and a to-be-formed
purchaser which would make an offer for all of the issued and outstanding
Common Shares subject to adjustment for certain costs and liabilities,
including those related to certain environmental matters. The Purchaser's
affiliate advised the Company that such a proposal would be subject to, among
other things, certain due diligence matters, an exclusivity agreement and
recovery of transaction costs in the event the Company was subject to material
environmental remediation costs or in certain other situations. The Company
advised the Purchaser's affiliate that the Company would not enter into an
exclusivity agreement but would convey the other information to the Company's
Special Committee and Board of Directors. At this meeting, outside counsel to
the Company provided a form of draft transactional documents which it had
provided to the other prospective purchasers conducting due diligence. This
draft provided for a structure of a transaction in the form of a tender offer
and second step merger.
In early June 1996, a prospective financial purchaser discussed the
possibility of acquiring all of the Company at a to-be-determined price which
would be greater than $4.50 per Common Share but not more than $5.00 per Common
Share.
On July 1, 1996, representatives and advisors of the Company and the
Purchaser's affiliate met and the Purchaser's affiliate expressed its more
definitive interest in effecting a transaction between the Company and a to-be-
formed purchaser in a tender offer format at a price that would be acceptable
to the Special Committee and the Board of Directors and which would potentially
lead to several of the Company's significant stockholders holding at least 50%
of the outstanding Common Shares entering into a formal agreement pursuant to
which such stockholders would agree to tender their Common Shares, and (ii)
discussed the status of the structure of the Purchaser affiliate's contemplated
financing of the proposed transaction. In connection with this meeting, the
Purchaser's affiliate proposed that it enter into an agreement with the Company
with respect to certain due diligence matters, including transaction costs and
the costs of environmental testing previously incurred and to be incurred and
the reimbursement thereof if the Company entered into a definitive sale
agreement with another prospective purchaser. On an interim basis, the Company
agreed to share 50% of the costs of certain environmental investigations not to
exceed $20,000 in the aggregate, the results of which would be shared with the
parties.
During the period from July 1, 1996 until July 25, 1996, numerous telephone
conversations were held between representatives of the Company and the
Purchaser's affiliate regarding the aforementioned due diligence matters and
the effect of the results of the due diligence on a potential proposal by the
Purchaser's affiliate.
On July 25, 1996, the Purchaser's affiliate delivered a letter to the
Company which set forth a proposal with respect to the aforementioned due
diligence to be conducted in connection with any potential bid by a purchaser
to be formed by the affiliate and for such entity and the Company to jointly
pay the costs of undertaking phase I and II environmental investigations of the
Company's facilities. There were then extended discussions as to whether to
structure the transaction as a tender offer or an all-cash merger.
From late July to early August 1996, representatives of Purchaser's
affiliate continued business due diligence investigations and commenced certain
additional due diligence investigations of the Company's properties and
facilities. Upon completion of these preliminary due diligence investigations,
the Purchaser's affiliate communicated to the Company that certain additional
environmental diligence investigations would be necessary prior to submitting a
definitive proposal with respect to a tender offer.
In early August 1996, the Company proposed that an all cash merger structure
be pursued which, subject to approval of the Company's Special Committee and
Board of Directors', would require approval of Company Stockholders. The
proposed cash merger contemplated that certain environmental investigations
would be performed after execution of definitive agreements and that Company
Stockholders would receive an amount in cash less a proportionate amount (if
any) of any costs and liabilities of the Company resulting from certain
environmental matters affecting the Company's past and present facilities. The
adjustment, if any, would have been determined prior to soliciting the Company
Stockholders' vote with respect to the proposed merger. The Purchaser's
affiliate expressed an interest in pursuing such a transaction provided that an
agreement regarding certain additional diligence matters, as well as providing
for the reimbursement of expenses upon the occurrence of certain events.
During late August 1996, the Company advised the Purchaser's affiliate that
the then proposed cash merger structure might not be in the best interests of
the Company and the Company Stockholders because of the uncertainty inherent in
conducting certain environmental investigations, which could impact upon the
price to be paid to Company Stockholders after entering into definitive
agreements, as well as the possible negative effect upon customers and vendors
arising from the more lengthy cash merger process. Accordingly, the Company
proposed that a tender offer structure be revisited, subject to the approval of
the Company's Special Committee and Board of Directors, the completion of
certain limited environmental diligence testing and the negotiation and
execution of a mutually satisfactory definitive agreements respecting such a
tender officer.
At such time, the Purchaser's affiliate advised the Company that the revised
structure caused the discussions of the parties to be delayed several weeks and
that it would be willing to revisit a tender offer structure provided the
Company enter into a further agreement respecting diligence, structure and
expense reimbursement, as well as providing certain protections with respect to
the Purchaser's affiliate's review of the Company.
After numerous discussions, the Company's Special Committee approved and the
Company entered into an agreement providing for the Company and the Purchaser's
affiliate to equally share in the cost of a phase II environmental
investigation at certain of the Company's facilities and for the Company to
reimburse certain transaction costs of Purchaser's affiliate under certain
conditions.
From September 6, 1996 through late September 1996, the representatives of
the parties met numerous times and conducted a number of conference calls to
discuss terms of a definitive agreement pursuant to which an entity to be
formed by the Purchaser's affiliate would commence a tender offer for at least
ninety percent (90%) of the issued and outstanding Common Shares, on a fully
diluted basis.
In late September, representatives of the parties met to discuss the
differences and risks arising between (i) the tender offer structure where an
entity to be formed by the Purchaser's affiliate could obtain secured third
party financing on an advantageous basis to fund the transaction if it were
assured of obtaining a tender of 90% of the Common Shares and the requirements
for obtaining such financing if less than 90% of the Common Shares were
tendered, and (ii) the long form merger structure where secured third party
financing could be readily obtained upon filing of the merger certificate with
the appropriate Secretary of State's office. The Purchaser's affiliate
concluded that any forthcoming proposal it would be prepared to make to the
Company would be structured as a long form, all-cash merger. In early October,
legal counsel for the Purchaser's affiliate circulated draft definitive
agreements providing for such an all cash merger, and the parties commenced
negotiations of the provisions of these draft agreements, and prepared the
appropriate disclosure schedules under which customary representations and
warranties would be based to establish the several possible preconditions to
the execution of definitive agreements.
These discussions and negotiations continued for the next several weeks.
In early November 1996, representatives of the Purchaser's affiliate were
invited to meet and met with the Special Committee (i) to determine if the
Purchaser's affiliate would increase its indicated valuation of the Company,
(ii) for the Purchaser's affiliate to present the proposed financing for the
proposed transaction to the Special Committee, and (iii) to discuss generally
other issues concerning the Purchaser's affiliate's proposed financial
structure of the transaction; including specifically the creditworthiness of
the proposed guarantor of the Purchaser's obligations under the Merger
Agreement. The Purchaser's affiliate indicated that the it would not increase
its indicated valuation, presented the form of commitments for the complete
financing of the proposed transaction and answered the Special Committee's
various inquiries with respect to all the foregoing.
The Special Committee was aware of the foregoing discussions and background
during its series of meetings and conference calls held in October and
November 1996 prior to making its recommendation to the Board of Directors
at its November 8, 1996 meeting.
On November 8, 1996, prior to the parties to the Proxy Agreement entering
into the Proxy Agreement, the Special Committee and the Board of Directors of
the Company (i) determined that the Merger Agreement and the transactions
contemplated thereby are fair to and in the best interests of the Company and
Company Stockholders, (ii) approved the Merger Agreement and the transactions
contemplated thereby, and (iii) resolved to recommend approval and adoption of
the Merger Agreement by Company Stockholders. For a discussion of factors
considered by the Special Committee and the Board of Directors of the Company
in connection with these determinations, approvals and recommendations, see
"Special Factors -- Recommendation of the Special Committee and Board of
Directors of the Company; Fairness of the Merger."
On November 11, 1996, the Merger Agreement and Proxy Agreement were executed
and delivered by the parties and the Company issued a press release announcing
the transaction.
On November 20, 1996, the Company announced that it had received an
unsolicited third party offer to purchase the Company at $6.50 per Common Share
and pay for all termination fees and expenses that would have been incurred by
the Company in terminating the Merger Agreement with the Purchaser. In
furtherance of the Board's fiduciary duties to the Company Stockholders, and as
expressly permitted by the Merger Agreement, the Company entered into
discussions with, provided information to, and commenced negotiations with this
third party. See "The Merger -- No Solicitations; Fiduciary Out." On November
22, 1996, the third party requested that the Company consent to participation
by the third party's principal lender in the contemplated third party offer.
The Company's consent, waiver and release was sent to the third party that same
day in the same form as it was subsequently adopted by the Special Committee.
On November 27, 1996, the Company announced that it had been informed by the
third party that its unsolicited $6.50 per share offer was withdrawn because
the required financing had not been forthcoming.
On November 27, 1996, the Company announced that a purported Company
Stockholder had commenced a lawsuit against the Company and its directors
seeking certification as a class action in connection with the Merger
Agreement. See "Subsequent Events; Stockholders Litigation."
On December 5, 1996 the Company announced that it had received an
unsolicited third party offer to purchase the Company at $6.50 per Common
Share. In furtherance of the Board's fiduciary duties to the Company
Stockholders, and as expressly permitted by the Merger Agreement, Company
management and members of the Special Committee met with this third party to
discuss the implementation of this offer, and the third party and its lender
were provided access to all of the Company's due diligence materials. See "The
Merger -- No Solicitations; Fiduciary Out." On December 17, 1996, the Company
announced that it had been informed by the third party that its unsolicited
$6.50 per share offer was withdrawn. Through the date of this Proxy Statement,
the Company has not received any other bona fide acquisition proposals for the
purchase of all, or a portion of, the Company.
PURPOSE AND STRUCTURE OF THE MERGER
THE COMPANY. The Company's purpose for the Merger is to enhance Company
Stockholder value permitting the inherent value of the Company currently held
by the Company Stockholders in the form of Common Shares to be converted into
liquid cash consideration at a price which the Special Committee and the Board
of Directors have unanimously determined to be fair to, and in the best
interests of all Company Stockholders. The Board of Directors has, pursuant to
the Merger Agreement, called the Special Meeting to vote to approve and adopt
the Merger Agreement. In the Merger, each Common Share will be converted into
the right to receive an amount in cash equal to $6.00, without interest.
In addition to continuing the operation of the Company's business subject to
the risks thereof, the Board of Directors had from time to time considered
alternative means to enhance Company Stockholder value, such as a stock buyback
program or instituting a dividend, but the possible beneficial effect on the
price of the Common Shares, if any, was believed by the Board of Directors to
be offset by the risk to the Company's operations arising from the reduction of
its working capital. The Board of Directors also considered strategic
acquisitions and was aware of the effects of the Company in acquiring its
Connecticut facility in 1988 and the opening of its Kingston and Bethlehem,
Pennsylvania facilities in 1991 and 1995, respectively, and the public
announcement in March 1996 of its agreement to acquire a building material
distributor in the New York-Hudson Valley, which agreement was terminated by
the Company in November 1996.
CERTAIN BENEFITS, DETRIMENTS AND EFFECTS OF THE MERGER. The Merger is
expected to provide certain benefits, detriments and effects to and upon the
Company, its affiliates and the Company Stockholders which should be carefully
considered by Company Stockholders. See "Special Factors -- Certain Benefits,
Detriments and Effects of the Merger."
PURCHASER. Purchaser's purpose for the Merger is to acquire all of the
equity interest in the Company represented by the outstanding Common Shares.
In determining to acquire the Common Shares at this time, Purchaser focused on
a number of factors including the Company's historic financial results, its
financial condition, operation and prospects and the potential for success
and/or growth in the Company's geographic market. The acquisition of the
Common Shares has been structured as a cash merger in order to provide a prompt
and orderly transfer of ownership of the equity interest represented by Common
Shares to Purchaser.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS OF THE COMPANY;
FAIRNESS OF THE MERGER
At a meeting held on November 8, 1996, the Special Committee unanimously
determined that the terms of the Merger are fair to, and in the best interests
of, all of the Company Stockholders, including all unaffiliated Company
Stockholders, and recommended that the Board of Directors approve and adopt the
Merger Agreement and that the Board of Directors recommend to the Company
Stockholders that such Company Stockholders vote to approve and adopt the
Merger Agreement. At a meeting held immediately thereafter, at which all of
the directors of the Company were present, based on the unanimous
recommendation of the Special Committee, the Board of Directors unanimously
approved and adopted the Merger Agreement, unanimously determined to recommend
to the Company Stockholders that they vote to approve and adopt the Merger
Agreement and unanimously determined that the terms of the Merger are fair to,
and in the best interests of all of the Company Stockholders. See "Special
Factors -- Background of the Merger."
THE SPECIAL COMMITTEE. In determining to recommend to the Board of
Directors that it approve and adopt the Merger Agreement, and in determining,
the fairness of the terms of the Merger, the Special Committee considered the
following factors, each of which, in the Special Committee's view, supported
the Special Committee's determination to recommend the Merger:
(i)the financial condition, assets, results of operations, business and
prospects of the Company, and the risks inherent in achieving those prospects,
including the belief of management of the Company, as expressed to the Special
Committee and which the Special Committee found to be reasonable, that the
Company's prospects were dependent in significant part upon the actions of its
suppliers in pricing products to the Company; the ability of the Company to
either expand by opening additional distribution yards or making acquisitions
of smaller participants in the industry; the possibility of national building
material distributors serving professional contractors entering the Company's
market area; and the possibility of national building material distributions
already in the Company's market area but which essentially only service the
retail market (such as Home Depot) expanding their market by seeking to service
professional contractors;
(ii)the terms and conditions of the Merger Agreement, including the amount
and form of consideration, the nature of the parties' representations,
warranties, covenants and agreements, and the conditions to the obligations of
Purchaser and Acquisition Sub under the Merger Agreement including Purchaser's
ability to finance the transaction;
(iii)the belief of the members of the Special Committee that $6.00 per
Common Share was the best price that could be obtained from Purchaser;
(iv)the fact that the $6.00 per Common Share to be received by the Company
Stockholders in the Merger represented a substantial premium over the reported
average closing price of the Common Shares during the prior five (5) years;
(v)the opinion of Hill Thompson as to the fairness from a financial point of
view of the $6.00 per Common Share to be received by the Company Stockholders
and the analyses presented to the Special Committee by Hill Thompson. The
Special Committee noted that the Hill Thompson discounted cash flow analysis
was based on the Company's current debt/equity structure and that the results
of the discounted cash flow analysis would have been higher if a lower discount
rate had been applied. The Special Committee noted the fact that (i) the
Common Shares traded as high as $6.00 per Common Share on November 11, 1993,
and that (ii) 4 of 7 other comparable building material distributors had higher
P/E ratios and if the average P/E ratio of these four companies were applied to
the Company, this would have resulted in a higher valuation of the Company and
would not be supportive of Hill Thompson's conclusion as to the fairness of the
Merger Consideration to Company Stockholders from a financial point of view.
See "-- Opinion of Financial Advisor -- Hill Thompson Capital Markets, Inc";
(vi)the stock price and trading volume history of the Common Shares and the
fact that such Common Shares are thinly traded; and
(vii)the availability of dissenters' rights under the DGCL to dissenting
Company Stockholders in the Merger.
In reaching its determination, the Special Committee also considered the fact
that despite its efforts to be able to initiate an active auction between two
or more prospective purchasers, there were no other firm offers to be
considered by the Special Committee in connection with its evaluation of the
Merger. The Board of Directors had previously received (i) a strong indication
of interest from a prospective strategic purchaser for the purchase of all of
the Common Shares which was withdrawn subsequent to such party's due diligence
review of the Company and prior to any firm offer being made; and (ii) an
indication of interest for the purchase of all of the Common Shares from a
prospective financial purchaser which had undertaken an extensive due diligence
review with whom the Board determined not to continue discussions after such
prospective financial purchaser indicated that the price range it was
considering was more than $4.50, but no more than $5.00 per Common Share. See
"Special Factors -- Background of the Merger."
In light of the number and variety of factors the Special Committee
considered in connection with its evaluation of the Merger, the Special
Committee did not find it practicable to assign relative weights to the
foregoing factors, and, accordingly, the Special Committee did not do so.
Although the Special Committee did consider historical trading prices of the
Common Shares, the Special Committee did not consider trading prices of the
Common Shares for the period from its initial public offering in November 1986
at $12.00 per share to the commencement of the 1989 recession as the real
estate industry was significantly restructured during this period with
significantly reduced demand in turn significantly reducing the Company's gross
margins as compared to the margins it earned prior to the Company's public
offering. The Special Committee did consider the discounted cash flow value of
the Company as computed by Hill Thompson.
The Special Committee consulted with Hill Thompson during the course of the
Special Committee's deliberations regarding Hill Thompson's financial
evaluation of the Company and recognized that certain of the Hill Thompson
analyses, if reviewed in isolation, did not support the fairness determination.
The Special Committee believes that the Merger is procedurally fair because:
(i) the Special Committee consists of disinterested directors appointed to
represent the interests of, and to negotiate on an arm's length basis with
Purchaser on behalf of, the Company Stockholders; and (ii) Hill Thompson, as
financial advisor, conducted a wide ranging search for and evaluation of the
opportunities identified during this process, and is satisfied with the efforts
undertaken to seek to identify prospective purchasers. In addition, the
Special Committee believes that the Merger is procedurally fair because the
$6.00 per Common Share price and the other terms and conditions of the Merger
Agreement resulted from an extensive search and evaluation process which
identified Purchaser and from active arm's length bargaining between the
Special Committee and Purchaser.
The Special Committee recognized that the sale of a continuing business
often takes place in the ordinary course under circumstances in which (i)
operating management owns a significant amount of the business's equity prior
to the transaction; (ii) operating management continues to be employed in the
business by the purchaser after the transaction; (iii) operating management is
afforded the opportunity to invest in the continuing business; and (iv) the
prospective purchaser may obtain one or more of a variety of "lock-up"
agreements from one or more significant owners of the business to insure the
completion of the sale transaction. The interests of operating management and
certain significant Company Stockholders as discussed in this Proxy Statement
were considered by the Special Committee in its negotiation of this proposed
transaction.
The Special Committee noted that although Company management owned, in the
aggregate, approximately 24% of the Company's equity, the negotiation of the
Merger Agreement including the terms of the Merger and the amount and type of
consideration was conducted on an arm's length basis by the Special Committee
consisting solely of outside directors. Further, it was not a condition of the
Merger Agreement that terms of employment be reached between the Purchaser and
Company management and it was noted that the Company did not have any existing
employment agreements with Company management that could be assigned to the
Purchaser. Although it was originally contemplated that Purchaser might afford
to certain members of Company management the opportunity to make a limited
investment in the Purchaser, the Purchaser subsequently determined not to make
such an opportunity available. It was not a condition of the Merger Agreement
that any Company Stockholder or member of Company management make such an
investment. Further, the grant of the voting power to the Purchaser by certain
significant Company Stockholders pursuant to the Proxy Agreement was made only
after the negotiation of the terms of the Merger, and the voting power granted
to the Purchaser by the Proxy Agreement would be terminated if the Company
determined that a superior proposal existed and the Company unilaterally
terminated the Merger Agreement. Finally, the Special Committee obtained from
the Purchaser a representation and warranty that, although the Purchaser might
enter into employment arrangements with members of Company management prior to
the Effective Time, during the negotiations and prior to the execution of the
Merger Agreement, there were no agreements, arrangements or understandings
between Company management and/or Company Stockholders on the one hand, and the
Purchaser or its affiliates on the other hand that could result in any payment
(cash or otherwise) to such members of Company management or Company
Stockholder other than the Merger Consideration. Accordingly, the Special
Committee did not believe that the presence of these circumstances in the
proposed transaction impaired the fairness of the transaction.
THE BOARD OF DIRECTORS OF THE COMPANY. The Board of Directors has
determined, following the unanimous recommendation of the Special Committee and
the receipt from Hill Thompson of its written opinion dated November 7, 1996 to
the effect that the Merger is fair to the Company Stockholders from a financial
point of view, that the Merger is fair to, and in the best interests of, all of
the Company Stockholders, including all unaffiliated Company Stockholders, has
approved and adopted the Merger Agreement, and recommends that all of the
Company Stockholders vote to approve and adopt the Merger Agreement. Messrs.
Gaites and Yanuklis initially abstained from voting in the matter based on the
potential conflict arising from their ongoing interest in the Purchaser which
had been fully disclosed to the Special Committee.
After the Board approved the Merger, by a vote of five in favor and Messrs.
Gaites and Yanuklis abstaining, Messrs. Gaites and Yanuklis noted for the
minutes their determination that the Merger was fair to and in the best
interests of all of the Company Stockholders and that the minutes reflect that
the entire Board was unanimous in this determination.
The Merger is not structured so that approval of at least a majority of
unaffiliated Company Stockholders is required. A majority of directors who are
not employees of the Company did not retain an unaffiliated representative to
act solely on behalf of unaffiliated Company Stockholders for the purposes of
negotiating the terms of the Merger and/or preparing a report concerning the
fairness of the Merger.
PURCHASER. The Purchaser did not have any involvement in the Special
Committee's evaluation of the fairness of the Merger to the Company
Stockholders and did not undertake any formal evaluation of its own as to the
fairness to the Company Stockholders.
OPINION OF FINANCIAL ADVISOR -- HILL THOMPSON CAPITAL MARKETS, INC.
HILL THOMPSON CAPITAL MARKETS, INC. The Company retained Hill Thompson
Capital Markets, Inc. ("HILL THOMPSON") to act as financial advisor to the
Company in connection with the Merger and has assisted the Board of Directors
of the Company in its review of the fairness from a financial point of view of
the consideration to be received by the Company Stockholders. Hill Thompson
was retained based on its experience in connection with mergers and
acquisitions and in securities valuations generally as well as Hill Thompson's
familiarity with relevant markets and the Company. CERTAIN VALUATIONS OF THE
COMPANY PREPARED BY THE FINANCIAL ADVISOR WERE LOWER THAN THE $6.00 PER SHARE
MERGER CONSIDERATION THAT WOULD BE PAID TO COMPANY STOCKHOLDERS IF THE MERGER
IS APPROVED AND CONSUMMATED AND ONE VALUATION MAY INDICATE A HIGHER VALUE. THE
COMPLETE TEXT OF HILL THOMPSON'S OPINION IS ATTACHED HERETO AS ANNEX B AND THE
SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH OPINION. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY HILL THOMPSON.
On November 8, 1996, Hill Thompson delivered to the Company's Board its
written opinion dated November 7, 1996 to the effect that, as of such date and
based on matters described therein, the Merger is fair to the Company
Stockholders from a financial point of view. Hill Thompson orally confirmed
such opinion to the Board as of the date of its delivery, and has consented to
its inclusion in the Proxy Statement. Subsequently, Hill Thompson agreed to
delete from its opinion a sentence which related to limitations on its use
without the prior written consent of Hill Thompson. Hill Thompson did not
determine the amount of consideration to be paid in the Merger, but rather the
consideration was offered by the Purchaser and negotiated by the Special
Committee. Hill Thompson's opinion to the Company's Board addresses only the
fairness from a financial point of view of the Merger, and does not constitute
a recommendation to the Company Stockholders as to how such Company
Stockholders should vote at the Special Meeting. Hill Thompson expresses no
opinion as to the tax consequences of the Merger and Hill Thompson's opinion as
to the fairness of the Merger does not take into account the tax status or
position of any particular Company Stockholder.
In connection with its opinion, Hill Thompson reviewed, among other things,
the Merger Agreement; the Company's Annual Reports to Stockholders, Annual
Reports on Form 10-K of the Company, and related financial information for each
of the last five fiscal years ended December 31, 1995; Quarterly Reports on
Form 10-Q and the related unaudited financial information for the quarterly
periods ending March 31, 1996 and June 30, 1996 and a preliminary draft
quarterly report on Form 10-Q for the quarterly period ending September 30,
1996; certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of the Company furnished to
Hill Thompson by the Company; and certain financial information regarding
various entities affiliated with the Purchaser furnished by such entities.
Hill Thompson also held discussions with members of the senior management of
the Company regarding the Company's past and current business operations,
financial condition and future prospects. At the request of the Company, Hill
Thompson also solicited third party interest with respect to the acquisition of
the Company. Except for the Company's requirement that prospective purchasers
enter into a confidentiality agreement, the only other limitation imposed by
the Company on the scope of Hill Thompson's search and evaluation was that
although the building materials distributors operating in the Company's market
region which were competitors of the Company were aware of the search and
evaluation process, upon their inquiry, the information provided them was
limited so as to not provide such competitors with key inside confidential
information concerning the Company's methods of operations, manpower loading
and product mix. Such limitations were not imposed upon building materials
distributors operating outside the Company's market region. In addition, Hill
Thompson reviewed the reported price and trading history of the Company,
compared certain financial and stock market information for the Company with
similar information for certain other publicly traded companies deemed by it to
be comparable to the Company, reviewed the financial terms of certain recent
business combinations that Hill Thompson deemed relevant, and performed such
other studies and analyses and considered such other information as it
considered appropriate.
The financial forecasts of the Company reviewed by Hill Thompson were
prepared by the management of the Company. Such forecasts were not prepared
with a view towards public disclosure and have not been independently verified
by Hill Thompson. The forecasts were based on numerous variables and
assumptions which are inherently uncertain, including, without, limitation,
factors related to industry performance and general business, commodity and
economic forecasts. Accordingly, actual results could vary significantly from
those set forth in such forecasts.
In connection with its opinion, Hill Thompson did not independently verify
the financial, legal, tax, operating and other information provided by the
Company and the various entities affiliated with the Purchaser. Hill Thompson
relied upon the assurances of the Company and Purchaser that all such
information provided by them, respectively, is complete and accurate in all
material respects and that there is no additional information known to either
of them that would make information made available to Hill Thompson either
incomplete or misleading. Hill Thompson did not make any independent appraisal
or valuation of any asset of either company. With respect to the projected
financial data of the Company, Hill Thompson assumed that such data have been
reasonably prepared and represent the best currently available estimates and
judgements of the Company's management as to the future financial performance
of the Company.
In connection with its opinion, Hill Thompson also performed studies,
analyses and inquires and considered other information as it considered
relevant. In particular, in conducting its analysis and arriving at its
opinion as to the fairness, from a financial point of view of the consideration
to be received by the Company's Stockholders, rendered to the Company's Board
of Directors on November 8, 1996, Hill Thompson performed the following
financial analyses:
(i) DISCOUNTED CASH FLOW ANALYSIS - Based upon the forecasts
prepared by the management of the Company, Hill Thompson
performed a discounted cash flow analysis to estimate the net
present value of future free cash flows as of December 31,
1996 if the Company were to continue to operate on a stand-
alone basis. In conducting this analysis, Hill Thompson
assumed a discount rate in the range of 13%-16%, derived from
a weighted average cost of capital analysis of the Company,
and a terminal free cash flow multiple of 12, derived from a
review of market multiples of comparable publicly traded
companies, to determine the residual value of the Company.
The net present value of projected free cash flow, when
combined with the terminal values, yielded a total enterprise
value in the range of $28.0-$30.8 million. On a fully
diluted basis, which would include the proceeds from the
conversion of outstanding options, Hill Thompson derived an
implied equity value of the Company's Common Shares of $5.16
to $5.64 per share.
(ii) STOCK PRICE AND TRADING ANALYSIS - Hill Thompson reviewed the
trading activity, including price and volume of the Common
Shares since January 2, 1987. Hill Thompson noted that since
January 31, 1990, the daily closing prices of the Common
Shares ranged from a high of $6.00 per share on November 11,
1993 to a low of $.875 per share on December 18-20, 1990.
Hill Thompson also noted that from the period beginning
January 31, 1990 and ending on November 6, 1996, the Common
Shares have traded at or below $4 per share for 77% of all
trading days during this period and have traded at or below
$5 per share for 98% of all trading days during this period.
In addition, Hill Thompson compared the indexed performance
of the Common Shares and the NASDAQ Index since 1989. The
detailed information of the indexed performance of the
Company's Common Shares and the NASDAQ Index is included in
Annex E. Hill Thompson noted that the Company's Common
Shares had been under-performing the market during this
period. Hill Thompson believes that the results of the above
stock price and trading analysis support Hill Thompson's
conclusion as to the fairness of the Merger Consideration to
the Company Stockholders from a financial point of view.
(iii) ANALYSIS OF COMPARABLE PUBLICLY TRADED COMPANIES - Hill
Thompson compared certain financial data and multiples of
income statement parameters accorded to other publicly-traded
companies that Hill Thompson deemed comparable to the
Company. Financial data compared included market
capitalization, total capitalization, revenues, gross profit,
EBIT (earnings before interest and taxes), EBITDA (earnings
before interest, taxes, depreciation and amortization), net
income, book value, gross margin, EBIT margin, EBITDA margin,
net margin, and debt to equity ratio. Multiples compared
included total capitalization to revenue, total
capitalization to EBIT, total capitalization to EBITDA, price
per share to earnings per share, and market capitalization to
book value. Although the comparisons of EBIT, EBITDA and
earnings per share were less favorable than the comparisons
of revenue and book value, Hill Thompson believed that this
was due in part to differences in financial and operating
characteristics of the comparable companies and, overall,
regarded the conclusions with respect to such comparisons as
supportive of its opinion with respect to the fairness from a
financial point of view of the consideration to be received
by the Company Stockholders. A list of the publicly traded
companies that Hill Thompson deemed comparable to the Company
and a comparison of their applicable ratios to those of the
Company is attached hereto as Annex E.
(iv) ANALYSIS OF COMPARABLE TRANSACTIONS - Hill Thompson examined
publicly available information on acquisition transactions in
the past few years, including acquisitions of one comparable
public company and one public company with some of the
characteristics of the Company. Hill Thompson noted that the
premiums paid in these transactions were slightly higher than
the premium paid in this transaction (i.e. 17.8% and 17.6% as
compared to 14.3%). A summary of these two transactions is
set forth in Annex E. Overall, Hill Thompson believes that
the result of its comparable transactions analysis support
Hill Thompson's conclusion as to the fairness of the Merger
Consideration to the Company Stockholders from a financial
point of view. However, Hill Thompson concluded that these
analyses were less useful because (x) there were only two
comparable transactions where public information was
available and (y) the possible effect on the Company stock
price from the public disclosure on February 20, 1996 of Hill
Thompson's retention by the Company for the purpose of
advising on strategies to enhance Company Stockholder value.
The analysis of Comparable Publicly Traded Companies performed by Hill
Thompson indicated that the price to earnings ("P/E") ratio of the Company was
lower than that of four of the seven other comparable companies listed in Annex
E. Hill Thompson recognized that if the Company's value was determined by the
use of the average P/E ratio of these four comparable companies with positive
P/E ratios, then a higher value would be implied and that this factor taken
alone would not support the fairness determination. Specifically, the average
P/E ratio of these four comparable companies is 13.9x, which would imply a
stock value of $8.81 per share if the Common Shares were valued using this P/E
ratio. However, the other three companies have negative P/E ratios. Since the
P/E ratios of three out of the seven comparable companies are not included in
the foregoing calculation, Hill Thompson believes that this P/E ratio does not
give a true indication of the value of the Company. However, directly adding
positive P/E ratios and negative P/E ratios in an attempt to calculate an
average P/E ratio of the seven comparable companies yields a nonmeaningful
result (i.e., a negative P/E ratio of minus 21.0x). Alternatively, if the
three negative P/E ratios are given a value of zero, the average P/E ratio of
the seven comparable companies would be 7.9x, significantly lower than the
Company's P/E ratio of 9.3x. The Company's Common Shares would have an implied
value of $5.03 per share if this P/E ratio were used in the valuation. Hill
Thompson believes that none of the above methodologies satisfactorily reflects
the Company's market value. Because of the limited number of similar publicly-
traded companies in the building materials distribution industry, and the
relatively large proportion of these companies generating negative earnings,
Hill Thompson believes that comparative P/E ratio analysis is not a good
measurement of the Company's value. Further, the Company's P/E ratio could be
affected by the fact that the Company's business is concentrated in the
Northeast and essentially limited to professional contractors which often
requires the Company to provide trade financing. On balance, Hill Thompson
determined that the comparison of P/E ratios led to mixed results and,
accordingly, should be viewed as not being supportive of its conclusion as to
the fairness of the Merger Consideration to Company Stockholders from a
financial point of view.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Hill Thompson believes its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered, without considering all analyses and current factors,
could create a misleading or incomplete view of the process underlying the
opinion. In its analyses, Hill Thompson made numerous assumptions with respect
to industry performance, general business and other conditions and matters,
many of which are beyond the Company's control. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than as set forth therein. Hill Thompson's opinion is based on market,
economic and other conditions that exist and can be evaluated as of the date of
its opinion, and on information available to it as of such date.
Hill Thompson is a 65 year old, New York based investment banking firm.
As part of its investment banking business, Hill Thompson is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwriting, secondary distributions of listed
and unlisted securities, private placements and other purposes.
Pursuant to a letter agreement dated August 16, 1995 (the "ENGAGEMENT
LETTER"), the Company engaged Hill Thompson to act as the Company's financial
advisor in connection with a possible Sale Transaction (as defined in the
Engagement Letter) to enhance the value of the Company in a manner satisfactory
to the Company Stockholders. Pursuant to the terms of the Engagement Letter,
it was agreed that the Company would pay Hill Thompson (a) a $20,000 non-
refundable retainer (the "RETAINER"); (b) a fee equal to 1.5% of the first $20
million of the Aggregate Consideration (as defined in the Engagement Letter)
received in connection with any Sale Transaction and 2% of the balance of said
Aggregate Consideration (less the Retainer), with a minimum fee of $150,000;
and (c) a fee in connection with the rendering of its opinion of $62,500. It
was further agreed that the Company would reimburse Hill Thompson for its
reasonable out-of-pocket fees and expenses, including professional fees and
disbursements, and indemnify Hill Thompson against certain liabilities. In the
event the Merger is consummated, Hill Thompson will be paid an aggregate fee of
approximately $609,770 by the Company.
SOURCES AND AMOUNT OF FUNDS; PAYMENT FOR COMMON SHARES
The total amount of funds to be used to purchase the Common Shares and
terminate all then outstanding options for Common Shares following the
Effective Time of the Merger is $32,363,510. The Purchaser has delivered to
the Company copies of commitment letters (the "FINANCING LETTERS") from
Congress Financial Corporation (the "CONGRESS LETTER") and CoreStates
Financial Corp. (the "CORESTATES LETTER"). Under the terms of the Congress
Letter, the Surviving Corporation will be provided with a $25 million revolving
line of credit with a minimum three (3) year term (the "CREDIT LINE"). The
Credit Line provides an interest rate of 1% per annum above the rate announced
from time to time by CoreStates Bank, N.A. as its "prime rate" or, at the
Surviving Corporation's option, a rate of 3.25% per annum above, the adjusted
Eurodollar rate used by Congress Financial Corporation. The Credit Line will
be secured by a first security interest in and lien upon all of the existing
and future assets of the Surviving Corporation and any of its subsidiaries and
will be guaranteed by the Surviving Corporation and any of its subsidiaries.
Under the terms of the CoreStates Letter, an aggregate of $4 million will be
provided through the issuance of subordinated amortizing six (6) year notes
(the "NOTES"). The Notes provide an interest rate of 6.50% in excess of the
yield on five year treasury notes (and may be fixed by Purchaser), are secured
by a second lien on all of the accounts receivable and inventory of the
Surviving Corporation of its subsidiaries and are guaranteed by the Surviving
Corporation and any of its subsidiaries. Additionally, pursuant to the
CoreStates Letter, the Surviving Corporation will grant to CoreStates Financial
Corp. warrants representing the right to purchase up to 10% of the fully
diluted outstanding common stock of the Surviving Corporation (the "WARRANTS").
The Warrants will be exercisable for ten (10) years from the date of issuance
and will have an exercise price equal to the book value of the Surviving
Corporation's stock at the time of issuance. The Financing Letters which
originally expired on February 28, 1997, were subsequently amended to expire on
March 31, 1997. Although the Purchaser has agreed to use its best efforts to
obtain financing to consummate the Merger and the obtaining of such financing
is not a condition to Purchaser's obligations to consummate the Merger, there
can be no assurance that any further extension, or alternative financing in
lieu of such extension, if necessary, will be forthcoming. See "The Merger --
Sources and Amounts of Funds; Payment for Common Shares," and "Special Factors
- -- Fees and Expenses."
Equity investments in the aggregate of $9 million are also being made in
the Purchaser. Purchaser has represented that, assuming satisfaction or waiver
of all applicable conditions set forth in the Financing Letters, the debt
financing and the equity investment will provide sufficient funds to (i) pay
the Merger Consideration with respect to all of the Common Shares; and (ii)
prepay, redeem, refinance or renegotiate the Company's existing indebtedness,
if required to consummate the Merger, and pay any and all fees, expenses, costs
and penalties in connection with any such prepayment, redemption, refinancing
or renegotiation. Based on the Company's assets as of December 31, 1996, and
assuming the closing conditions of the Financing Letters are met, the eligible
borrowing base of the Surviving Corporation as it would be defined under the
Financing Letters would be sufficient, together with the Purchaser's $9 million
of equity and the Company's existing cash balances, so as to pay the Merger
Consideration, transaction costs and closing fees. Purchaser has agreed not to
amend the Financing Letters (except for possible further extensions) without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Although it was originally contemplated that Purchaser
might afford to certain members of Company management the opportunity to make a
limited investment in the Purchaser, the Purchaser subsequently determined not
to make such an opportunity available. See "Management of Purchaser,
Acquisition Sub and the Company -- Directors and Executive Officers (or
Equivalent) -- Company Management Participation."
PLANS FOR THE COMPANY AFTER THE MERGER
Except as indicated in this Proxy Statement, the Purchaser does not have
any present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the sale of the Company or any of its subsidiaries, a
sale or transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or any
other material changes in the Company's corporate structure. The Purchaser
may, following the consummation of the Merger, effect various mergers involving
the Surviving Corporation and certain of its subsidiaries with and into various
newly formed limited liability companies, corporations or similar entities in
order to accomplish certain financial, tax and administrative goals. Those
transactions will not result in a change in control of the Purchaser or the
Surviving Corporation. Purchaser may also pursue various transactions, both in
the Company's geographic region and in areas contiguous thereto, which may
result in growth of the Surviving Corporation's business and/or customer base
or in Purchaser's acquisition of businesses or assets which complement the
Company's existing business and customer base. Any of such transactions may
require Purchaser and/or the Surviving Corporation to pursue additional equity
investments and/or debt financing in order to consummate such transactions.
There can be no assurance that any such transactions will be consummated on
terms acceptable to Purchaser, if at all. In addition, the Board of Directors
of Acquisition Sub shall be the Board of Directors of the Surviving
Corporation. The Board of Directors of the Surviving Corporation will
subsequently elect officers of the Surviving Corporation.
Upon consummation of the Merger, Purchaser intends to retain the
Surviving Corporation as a partially-owned or wholly-owned subsidiary of
Purchaser and the executive officers of the Surviving Corporation after the
Merger will include Frederick Marino as Chairman of the Board and Chief
Executive Officer, Robert J. Gaites as Chief Operating Officer, John Yanuklis
as Executive Vice President and David Polishook as Chief Financial Officer.
Each of the Company's managers in charge of the Company's 11 facilities would
also be invited to continue their employment with the Surviving Corporation on
substantially similar terms. Purchaser anticipates that the assets, business
and operations of the Surviving Corporation will be continued substantially as
they are currently being conducted by the Company. Management of Purchaser
may, however, cause the Surviving Corporation to make such changes as are
deemed appropriate, including investigating potential transactions to enhance
the Surviving Corporation's operations after the Merger, and intends to
continue to review the Surviving Corporation and its assets, businesses,
operations, properties, policies, corporate structure, capitalization and
management and to consider if any changes would be desirable in light of the
circumstances then existing. In addition, Purchaser intends to continue to
review the business of the Surviving Corporation and identify synergies and
cost savings. See "Special Factors -- Interest of Certain Persons in the
Merger."
SUBSEQUENT EVENTS; STOCKHOLDER LITIGATION
As set forth in the Background of the Merger, the Company spent over one
year in planning and conducting a search for and evaluation of alternatives to
its independent operation to seek to enhance value for the benefit of all
Company Stockholders with the result that on November 11, 1996 the Company
announced execution of the Merger Agreement providing for the sale of the
Company at $6.00 per share.
On November 22, 1996, an action entitled VICKREY V. THE STROBER
ORGANIZATION, INC., ET AL, was commenced in New York State Supreme Court, New
York County (Index 96-605853) against the Company and each of the seven
directors of the Company seeking certification as a class action. The
plaintiff, allegedly a Company Stockholder, alleges upon information and belief
that the directors breached their fiduciary and other common law duties by
failing to act in good faith to maximize Company Stockholder value in the sale
of the Company. Substantively, the complaint alleges that the $6.00 per Common
Share sales price would constitute a price/earnings (P/E) ratio of less than 10
and that other companies allegedly within the same industry are consistently
priced by the public market at P/E multiples of 10 or higher. Pre-trial
discovery has not yet commenced in this case. The Company's management
(principal members of which are defendants in the action) believe that the
actions of the Board in undertaking its search and evaluation process has
resulted in significant enhancement of value for the benefit of all Company
Stockholders during which time the Company and its directors have only acted in
good faith in accordance with all of their fiduciary duties to the Company
Stockholders and accordingly, that the VICKREY action is without merit.
The VICKREY complaint demands judgement as follows:
(a) declaring the suit to be a proper class action and certifying
plaintiff as representative;
(b) ordering the individual defendants to carry out their fiduciary
duties to plaintiff and the other members of the alleged class by
announcing their intention to:
(i) cooperate fully with any entity or person having a BONA
FIDE interest in proposing any transaction which would maximize
Company Stockholder value, including but not limited to, a buy-out
or takeover of the Company;
(ii) immediately undertake an appropriate evaluation of the
Company's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance the Company's
value and attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose the
Company to the marketplace in an effort to create an active auction
of the Company;
(v) act independently so that the interests of the public
Company Stockholders
will be protected; and
(vi) adequately ensure that no conflicts of interest exist
between the individual defendant's own interests and their
fiduciary obligations to maximize shareholder value and act with
entire fairness or, in the event such conflicts exist, to ensure
that all conflicts of interest are resolved in the best interests
of the public Company Stockholders;
(c) enjoining the proposed transaction or, if consummated, rescinding
it;
(d) ordering the individual defendants, jointly and severally to
account to plaintiff and the alleged class for all damages suffered
and to be suffered by them as a result of the acts and transactions
alleged;
(e) awarding plaintiff the costs and disbursements of the VICKREY
action, including a reasonable allowance for plaintiff's attorneys'
and experts' fees; and
(f) granting such other and further relief as may be just and proper.
On January 8, 1997, all defendants served their answers to the VICKREY
action denying the substantive claims made and setting forth defenses including
that the complaint fails to state a claim upon which relief can be granted,
that the complaint is barred because plaintiff lacks standing to bring the
action as a class action, that the claims alleged are derivative in nature and
plaintiff has failed to make proper demand upon the Board of Directors of the
Company and that the directors have all acted in good faith. Pre-trial
discovery in the VICKREY action commenced in mid-January 1997.
The VICKREY action is a pending legal proceeding that occurred after the
execution of the Merger Agreement and may have a materially adverse effect on
the Surviving Corporation and its subsidiaries taken as a whole so as to
constitute a "Pending Legal Proceeding" as that term is defined in the Merger
Agreement. The obligation of the Purchaser to consummate the Merger is subject
to the satisfactory termination of any Pending Legal Proceeding (including the
VICKREY action) or waiver by the Purchaser of the presence of any such Pending
Legal Proceeding. Therefore, there can be no assurance that the Merger will be
consummated. In the event the Purchaser elects not to consummate the Merger as
a result of a Pending Legal Proceeding, the Purchaser would be obligated to
reimburse the Company for the Company Expenses.
On July 31, 1996, a non-profit organization of local Brooklyn, New York
civic associations sought to prevent The Port Authority of New York and New
Jersey from leasing Pier 3 on the Brooklyn, New York waterfront to a subsidiary
of the Company by filing an action against the Port Authority and the Company
in the United States District Court, Eastern District of New York. During the
pendency of this action, the Company completed its leasehold improvements at
the Pier 3 site and commenced operations there. On January 22, 1997, the
Company announced that a decision had been rendered in the case dismissing with
prejudice all of the federal claims asserted by the plaintiff. The Court also
noted that the Port Authority and the Company had made strong arguments for
dismissing the claims that were brought under state law, but the Court declined
to exercise supplemental jurisdiction over those claims. Accordingly, the
state law claims were dismissed without prejudice. Therefore, there can be no
assurance that the plaintiffs will not bring this or a similar action in state
court.
INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of the
Company, the Company Stockholders should be aware that certain officers and
directors of the Company have certain interests in the Merger, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Merger. The Special Committee and the Board of Directors
were aware of these potential or actual conflicts of interest and considered
them along with other matters described under "-- Recommendation of the Special
Committee and Board of Directors of the Company; Fairness of the Merger."
OWNERSHIP OF COMMON SHARES. As of the date of this Proxy Statement, the
executive officers and directors of the Company beneficially owned an aggregate
of 1,239,101 Common Shares, constituting approximately 24% of the total number
of Common Shares then outstanding. Such individuals have informed Purchaser
that they intend to vote all of their Common Shares in favor of the Merger. If
the Merger is consummated, such persons will receive an aggregate of
approximately $8.5 million for their Common Shares and options for Common
Shares.
The following table sets forth, as of the date of this Proxy Statement,
the number of Common Shares and options for Common Shares owned by, and the
aggregate amounts to be received by, each executive officer and director of the
Company who owns any Common Shares pursuant to the Merger. Other than the
individuals named below, no executive officer or director of the Company owns
any Common Shares.
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES MERGER CONSIDERATION
DIRECTOR/EXECUTIVE OFFICER OPTIONS TO BE RECEIVED
<S> <C> <C> <C>
Robert J. Gaites, Chairman, CEO 482,136 (1)(2)(17) 88,053 (3) $3,051,452
and President
David W. Bernstein, Director 29,100 (4) 50,000 (5) 262,881
Joseph Mangino, Sr., Director 10,500 50,000 (5) 151,281
Alvin Murstein, Director 15,000 50,000 (5) 178,281
Emil W. Solimine, Director 18,500 (6) 50,000 (5) 199,281
John Yanuklis, Director and 476,540 (1)(7)(17) 73,618 (8) 2,984,554
Executive Vice President
Eliott Zieky, Director and Senior 0(16) 20,867 (9) 39,763
Vice President
Albert Brower, Senior Vice 104,231 (1)(12)(17) 27,637(13) 674,203
President
David J. Polishook, Chief 17,000(14) 60,000(15 207,938
Financial Officer
Richard Schaefer, Vice President 77,049(10) 65,597(11) 580,880
Richard Young, Senior Vice 9,045(17) 20,000(16) 89,583
President
Edward Zieky, Senior Vice 0(17) 20,867 (9) 39,763
President
All officers and directors as a 1,239,101 576,639 $8,459,860
group (12 persons)
</TABLE>
________________________
(1) This person is a party to the Proxy Agreement with Purchaser which
permits Purchaser to vote this person's Common Shares in favor of the Merger.
See "Special Factors -- Proxy Agreement."
(2) Includes 147,180 shares held by a charitable remainder trust for the
benefit of Mr. Gaites and his spouse and for which Mr. Gaites retains an
irrevocable proxy to vote such Common Shares and 2,000 shares held by Mr.
Gaites' spouse as trustee for their son. Mr. Gaites disclaims beneficial
ownership of such shares. Includes 25,000 Common Shares as a result of the
exercise of options that would have expired December 31, 1996. See "Special
Factors -- Exercise of Company Stock Options Expiring on December 31, 1996."
(3) Consists of 25,000, 37,500 and 25,553 of Common Shares subject to
presently exercisable options held by Mr. Gaites at exercise prices of $4.75,
$3.625 and $4.50 per share which expire on December 31, 1997, March 8, 2000 and
March 12, 2001, respectively.
(4) Includes 100 Common Shares owned by Mr. Bernstein's wife. Mr.
Bernstein is also the trustee of a trust established by Sue Strober for the
benefit of her son and daughter which holds 180,960 Common Shares for which Ms.
Strober retains an irrevocable proxy to vote such Common Shares. Ms. Strober
is also a party to the Proxy Agreement. Mr. Bernstein disclaims beneficial
ownership of all such Common Shares.
(5) Consists of 12,500, 18,750 and 18,750 Common Shares subject to
presently exercisable options each held by the outside directors at an exercise
price of $4.75, $3.625 and $4.50 per share, respectively, which expire on March
9, 1997, March 8, 2000 and March 12, 2001, respectively.
(6) 1,000 of these Common Shares are owned by Emar, Ltd., of which Mr.
Solimine is the sole shareholder and 17,500 of these Common Shares are owned by
Deye Limited Partnership of which Mr. Solimine is a general partner.
(7) Includes 140,000 Common Shares held by a charitable remainder trust
for the benefit of Mr. Yanuklis and his spouse for which Mr. Yanuklis retains
an irrevocable proxy to vote such Common Shares. Mr. Yanuklis disclaims
beneficial ownership of such shares. Includes 23,286 Common Shares as a result
of the exercise of options that would have expired December 31, 1996. See
"Special Factors -- Exercise of Company Stock Options expiring on December 31,
1996."
(8) Consists of 22,737, 23,503 and 27,378 Common Shares subject to
presently exercisable options held by Mr. Yanuklis at exercise prices of $4.75,
$3.625 and $4.50 per share respectively of which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(9) Consists of 1,684, 10,152 and 9,031 of Common Shares subject to a
presently exercisable option held by each of Edward and Eliott Zieky at an
exercise price of $4.75, $3.625 and $4.50 per share respectively which expire
on December 31, 1997, March 8, 2000 and March 12, 2001, respectively.
(10) Includes 67,218 Common Shares as a result of the exercise of
options that would have expired December 31, 1996. See "Special Factors --
Exercise of Company Stock Options Expiring on December 31, 1996."
(11) Consists of 15,789, 27,586 and 22,222 Common Shares subject to
presently exercisable options held by Mr. Schaefer at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(12) Includes 25,000 Common Shares held by a charitable remainder trust
for which Mr. Brower retains an irrevocable proxy to vote such Common Shares.
Excludes 150 shares owned by a relative of Mr. Albert Brower. Mr. Brower
disclaims beneficial ownership of such shares. Includes 9,107 Common Shares as
a result of the exercise of options that would have expired December 31, 1996.
See "Special Factors -- Exercise of Company Stock Options Expiring on December
31, 1996."
(13) Consists of 8,211, 10,759 and 8,667 Common Shares subject to
presently exercisable options held by Mr. Brower at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(14) Includes 15,000 Common Shares as a result of the exercise of
options that would have expired December 31, 1996. See "Special Factors --
Exercise of Company Stock Options Expiring on December 31, 1996."
(15) Consists of 15,000, 22,500 and 22,500 of Common Shares subject to
presently exercisable options held by Mr. Polishook at exercise prices of
$4.75, $3.625 and $4.50 per share which expire on December 31, 1997, March 8,
2000 and March 12, 2001, respectively.
(16) Consists of 5,000, 7,500 and 7,500 of Common Shares subject to
presently exercisable options held by Mr. Young at exercise prices of $4.75,
$3.625 and $4.50 per share which expire on December 31, 1997, March 8, 2000 and
March 12, 2001, respectively.
(17) The above-named director or member of management is a party to a
reorganization agreement dated as of October 1, 1986, as amended, providing
such individual with a right of prior notice and first refusal to purchase
Common Shares which any other party to the agreement desires to sell. These
rights have been waived by each such individual, and by all other individuals
holding such rights, in order to enter into the Merger Agreement and the Proxy
Agreement and to consummate the transactions contemplated thereby.
_______________________________
DIRECTORS AND OFFICERS. Immediately upon consummation of the Merger, all
of the Company's directors will resign. Pursuant to the Merger Agreement, the
directors and officers of Acquisition Sub will be the directors and officers of
the Surviving Corporation, and the Purchaser will appoint their successors.
Subsequent to the closing of the Merger, all of the Company's officers are
expected to be employed by the Surviving Corporation. Although it was
originally contemplated that Purchaser might afford to certain members of
Company management the opportunity to make a limited investment in the
Purchaser, the Purchaser subsequently determined not to make such an
opportunity available. See "Special Factors -- Sources and Amount of Funds;
Payment for Common Shares," and "Management of Purchaser, Acquisition Sub and
the Company -- Directors and Executive Officers (or Equivalent) of Purchaser
and Acquisition Sub -- Company Management Participation."
SPECIAL COMMITTEE. Each member of the Board of Directors who was not,
and is not at the present time, an employee of the Company serves on the
Special Committee that approved the Merger and its recommendation to the
Company Stockholders. The Special Committee initially included Robert J.
Gaites, the Company's President and Chief Executive Officer. When it became
apparent that one of the likely prospective investors would be a financial
purchaser and might seek an equity contribution to be made by Company
management in connection with the acquisition of the Company, the Committee
overseeing the search and evaluation process was reconstituted with the
resignation of Mr. Gaites, so that the Special Committee would have only
members who were outside directors and not employees of the Company.
Accordingly, the Special Committee that approved the Merger and its
recommendation to the Company Stockholders consists of Messrs. Bernstein,
Mangino, Murstein and Solimine. In accordance with existing Board compensation
policies, each member of the Special Committee has been paid $1,000 for each
meeting attended in person and $250 for each meeting held by teleconference of
the Special Committee. From August 1995 through the date of this Proxy
Statement, the Special Committee has been paid an aggregate of $17,000 for
their efforts. This compensation arrangement is in accordance with the
Company's existing policies and is intended to compensate the members thereof
for the significant additional time commitment that would be required of them
in connection with fulfilling their duties and responsibilities as members of
the Special Committee and is payable without regard to whether the Special
Committee approved the Merger or whether the Merger is consummated.
INDEMNIFICATION AND INSURANCE. Purchaser has agreed in the Merger
Agreement that all rights to indemnification or exculpation existing in favor
of, and all limitations on the personal liability of, the directors, officers,
employees and agents of the Company provided for in the Company's Certificate
of Incorporation and in each subsidiaries' certificate of incorporation (or
similar organizational document) or their respective By-laws as in effect as of
the date of the Merger Agreement with respect to matters occurring prior to the
Effective Time shall survive the Merger and continue without amendment in full
force and effect for a period of not less than six (6) years from the Closing;
PROVIDED; HOWEVER, that all rights to indemnification in respect of any claims
(a "CLAIM") asserted or made within such period shall continue until the
disposition of such Claim. Purchaser has further agreed that at or prior to
the Effective Time, Purchaser shall also continue the Company's existing
directors' and officers' liability insurance coverage for the Company's
directors which shall provide such directors with coverage for six years
following the Effective Time; PROVIDED, HOWEVER, that the aggregate cost of
such policy may not exceed $200,000. Accordingly, the Company has obtained a
rider to its existing directors' and officers' insurance policy which, for a
one-time premium payment of $178,000 would provide for such coverage. The
Company expects to pay such premium immediately prior to the Effective Time.
See "The Merger -- Officers' and Directors' Insurance; Indemnification."
SEVERANCE ARRANGEMENTS. The Company and its Chief Financial Officer,
David J. Polishook, are parties to a Severance and Non-Competition Agreement
dated as of January 1, 1995, pursuant to which, among other things, Mr.
Polishook is entitled to certain benefits if subsequent to a Change in Control
of the Company (as defined in the agreement), (a) Mr. Polishook terminates his
employment for Good Reason (as defined in the agreement) or (b) the Company
terminates Mr. Polishook's employment. Such benefits include (a) Mr.
Polishook's base salary, as of the date of employment termination, on a bi-
weekly basis, for a period of two years (with a possible reduction under
certain circumstances); (b) the maintenance for a period of two years after
employment termination (with certain exceptions) of insurance benefits; and (c)
all outstanding and unexpired Company stock options held by Mr. Polishook that
are not then exercisable shall become immediately exercisable.
REORGANIZATION AGREEMENT. Under a reorganization agreement dated as of
October 1, 1986 entered into as part of the Company's initial public offering
among the Company, Messrs. Brower, Gaites, Yanuklis, Young, Edward Zieky and
Eliott Zieky, two other executive officers and certain other Company
stockholders and former officers, in the event the Company terminates without
cause the employment of a party to the reorganization agreement, the Company is
obligated to engage the terminated party as a consultant for two years with a
retainer equal to 75% of that individual's then current base salary. During
such period the consultant would be barred from competing against the Company
in its existing markets. The parties to the reorganization agreement have
waived their rights under the reorganization agreement and have agreed that the
reorganization agreement will be terminated as of the Effective Time of the
Merger.
EXERCISE OF COMPANY STOCK OPTIONS EXPIRING ON DECEMBER 31, 1996
At the November 7, 1996 meeting of the Special Committee, the members
discussed the circumstances under which Company stock options to purchase an
aggregate of 166,751 Common Shares were issued as of December 31, 1991 at an
exercise price of $1.125 and as of March 4, 1993 at an exercise price of $1.75
(which in each case, as provided in the applicable stock option plan, was the
then current market price of the Common Shares) and would expire on December
31, 1996 in accordance with their respective terms. The Special Committee was
advised that (i) if the Merger were successfully consummated, the trading price
of the Common Shares prior to the consummation of the Merger would typically
not be expected to reach the level of the Merger Consideration; (ii) the
exercise of such options was a taxable event to the eight individuals holding
such options and that a significant tax withholding payment would by required
to be made by such option holders; (iii) closing of any possible transaction
resulting from the search and evaluation process would most likely extend
beyond December 31, 1996; and (iv) several of the option holders were insiders,
who under Company policies could not then buy or sell Common Shares on the
market to fund the applicable tax withholding payment. Accordingly, the
Special Committee determined to recommend to the Board that the Company offer
to loan to these option holders the exercise price of the options together with
the tax withholding amount to facilitate their exercise of the options, such
loan to bear interest at the Company's rate of borrowing and to be payable upon
the sooner of the closing of any sale transaction or one year from the date of
loan. The loan would be secured by a pledge of the purchased Common Shares
pending repayment of the loan. Upon exercise of such options, the holders of
the purchased Common Shares would be entitled to vote such Common Shares. As
of the date of this Proxy Statement, all of such holders have borrowed an
aggregate of approximately $495,070 from the Company and exercised all such
options to purchase an aggregate of 166,751 Common Shares, which Common Shares
are held by the Company as collateral for the loan. As three holders of
options for 57,393 Common Shares are also signatories of the Proxy Agreement,
the exercise of these options had the effect of increasing the number of Common
Shares subject to the Proxy Agreement from 3,103,548 Common Shares at the date
of execution of the Merger Agreement to 3,160,941 Common Shares as of the date
of this Proxy Statement.
The following table sets forth the names of the option holders who
participated in Company financed option exercises, the number of Common Shares
received as a result of such exercises, the Merger Consideration to be received
for such Common Shares financed by the Company to enable such option holders to
exercise those options, and the amount of proceeds to be received by such
option holders for such Common Shares following the repayment of such loan.
<TABLE>
<CAPTION>
NAME/TITLE Number of Common Merger Consideration AMOUNT FINANCED Amount of
Shares Received to be Received for BY THE COMPANY Proceeds After
Upon Company Such Shares Repayment of
Financed Option Company Loan
Exercises (1)
<S> <C> <C> <C> <C>
Albert C. Brower, 9,107 $ 54,642 $ 26,388 $ 28,254
Senior Vice President
Robert J. Gaites, 25,000 150,000 76,750 73,250
Chairman, CEO and
President
Robert Groeninger, 11,429 68,574 35,087 33,487
Vice President of
Brooklyn subsidiary
Robert Merkl, 3,000 18,000 9,210 8,790
Yard Manager
David J. Polishook, 15,000 90,000 43,956 46,044
Chief Financial
Officer
Richard Schaefer, 73,929 443,574 217,540 226,034
Vice President
Nicholas Tenebruso, 6,000 36,000 18,420 17,580
Vice President of
Brooklyn subsidiary
John Yanuklis, 23,286 139,716 67,719 71,997
Executive Vice
President and
Director
</TABLE>
(1) Sets forth the options exercised on December 10, 1996 of which options
for an aggregate of 40,250 Common Shares were granted on December 31, 1991, and
options for 126,501 Common Shares were granted on March 4, 1993, respectively,
at exercise prices of $1.13 per share and $1.75 per share, respectively. All
of such Common Shares are pledged to the Company as collateral to secure the
loans made by the Company to finance the option exercises.
PROXY AGREEMENT
In the course of its negotiations with the Company, the Purchaser requested
that several of the significant Company Stockholders consider whether it was in
the best interests of all of the Company Stockholders for the Company to enter
into the Merger Agreement with Purchaser and if so, if such Company Stockholder
would enter into the Proxy Agreement dated as of November 11, 1996 (the "PROXY
AGREEMENT") pursuant to which the Purchaser would be entitled to vote such
Company Stockholders' Common Shares in favor of the Merger. A copy of the
Proxy Agreement is set forth in Annex D. The table set forth below identifies
each of the Company Stockholders who are a party to the Proxy Agreement; the
number of issued and outstanding Common Shares beneficially owned by such
persons; the voting power of which shall be voted by the Purchaser; the number
of options for Company Shares held by such persons and the aggregate Merger
Consideration to be received by such persons. Because any possible exercise of
the options listed below would post date the Record Date for the Special
Meeting, these options do not represent potential voting power at the Special
Meeting.
<TABLE>
<CAPTION>
NAME/CAPACITY COMMON SHARES OPTIONS MERGER
BENEFICIALLY OWNED EXERCISABLE FOR CONSIDERATION TO BE
COMMON SHARES THAT RECEIVED
CANNOT BE VOTED
<S> <C> <C> <C>
Sue Strober, Investor (1)(4)(5) 948,201 -0- $5,689,206
Robert J. Gaites, Chairman, CEO and 482,136 88,053 3,051,452
President (2)(4)(5)(6)
John Yanuklis, Director and Executive 476,540 73,618 2,984,554
Vice President (3)(4)(5)(6)
John Guerin, Investor (4)(5) 422,250 -0- 2,533,500
Gordon Sandler, Investor (4)(5) 399,486 -0- 2,396,916
Richard King, Investor (4)(5) 200,931 -0- 1,205,586
Nathan Schwartzberg, Investor (4)(5) 127,166 -0- 762,996
Albert C. Brower, Senior Vice President 104,231 27,637 674,203
(4)(5)(6)(7)
TOTAL: 3,160,941
</TABLE>
(1) Includes an aggregate of 84,650 Common Shares held in trusts of which
Ms. Strober is the trustee for her son and daughter and 180,960 Common Shares
held in a trust of which Mr. David Bernstein is a trustee for Sue Strober's son
and daughter. Includes an aggregate of 91,200 Common Shares which Ms. Strober
gave to her son and daughter but Ms. Strober retains an irrevocable proxy to
vote such Common Shares. Ms. Strober disclaims beneficial ownership of all
such Common Shares. Includes an aggregate of 1,500 Common Shares which have
previously been transferred to third parties as a gift but have not yet been
registered in such parties' names.
(2) Excludes 25,000, 37,500 and 25,553 shares of Common Stock subject to
presently exercisable options held by Mr. Gaites at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively. Includes 147,180 shares held
by a charitable remainder trust for the benefit of Mr. Gaites and his spouse
and for which Mr. Gaites retains an irrevocable proxy to vote such Common
Shares and 2,000 shares held by Mr. Gaites' spouse as trustee for their son.
Mr. Gaites disclaims beneficial ownership of such shares.
(3) Excludes 22,737, 23,503 and 27, 378 shares of Common Stock subject to
presently exercisable options held by Mr. Yanuklis at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, of which 22,737 expire on December
31, 1997, 23,503 expire on March 8, 2000 and 27,378 expire on March 12, 2001.
Includes 140,000 Common Shares held by a charitable remainder trust for the
benefit of Mr. Yanuklis and his spouse for which Mr. Yanuklis retains an
irrevocable proxy to vote such Common Shares.
(4) The above-named beneficial owner is a party to a reorganization
agreement dated as of October 1, 1986 providing such beneficial owner with a
right of prior notice and first refusal to purchase shares of the Company's
Common Stock which any other party to the agreement desires to sell. These
rights have been waived by each such individual, and by all other individuals
holding such rights, in order to enter into the Merger Agreement and the Proxy
Agreement and to consummate the transactions contemplated thereby. See
"Special Factors -- Interest of Certain Persons in the Merger."
(5) Such shares are subject to the proxy granted to Purchaser pursuant to
the Proxy Agreement. See "Special Factors -- Interest of Certain Persons in
the Merger."
(6) Additional options to purchase 166,751 Common Shares were outstanding
at the time the Merger Agreement was executed which by their terms would have
expired on December 31, 1996. These 166,751 options have subsequently been
exercised and applicable tax withholdings made utilizing loan proceeds from the
Company. Of these options, Mr. Gaites borrowed $76,750 from the Company to
exercise 25,000 options; Mr. Yanuklis borrowed $67,719 to exercise 23,286
options and Mr. Brower borrowed $26,388 from the Company to exercise 9,107
options. See "Special Factors -- Exercise of Company Stock Options Expiring on
December 31, 1996."
(7) Excludes 8,211, 10,759 and 8,667 Common Shares subject to presently
exercisable options held by Mr. Brower at exercise prices of $4.75, $3.624 and
$4.50 per share, respectively, which expire on December 31, 1997, March 8, 2000
and March 12, 2001, respectively. Includes 25,000 Common Shares held by a
charitable remainder trust for which Mr. Brower retains an irrevocable proxy to
vote such Common Shares. Excludes 150 shares owned by a relative of Mr. Albert
Brower. Mr. Brower disclaims beneficial ownership of such shares.
Sue Strober is the spouse of Eric Strober, the grandson of the Company's
founder and principal stockholder and chief executive officer of the Company
when it went public in November 1986. Ms. Strober succeeded to these Common
Shares upon Mr. Strober's death in 1988. Messrs. Guerin, King, Sandler, and
Schwartzberg are former directors and Senior Vice Presidents of the Company.
All of these persons have entered into customary confidentiality agreements
concerning the Company. Mr. Guerin, joined the Company in 1981 and resigned in
1990. Mr. King joined the Company in 1981 and resigned in 1988. Mr. Sandler
joined the Company in 1976 and resigned in 1991. Mr. Schwartzberg joined the
Company in 1980 and resigned in 1990. At the time of their respective
resignations, Messrs. Guerin, King, Sandler and Schwartzberg had 21, 26, 38,
and 38 years of experience in the industry, respectively. Each of these five
individuals have had no subsequent role in the management of the Company,
collectively own 2,098,034 Common Shares or approximately 40% of the
outstanding Common Shares and each advised the Company that they believed that
it was in the best interests of all of the Company's Stockholders for the
Company to enter into the Merger Agreement with Purchaser. In addition, the
eight Company Stockholders agreed that if the Merger Agreement were to be
terminated because the Company had entered into a binding definitive agreement
to effect a superior proposal and those Company Stockholders within six months
of the termination of the Merger Agreement subsequently were to sell their
Common Shares, then such Company Stockholder would be obligated to pay to
Purchaser an amount in cash equal to 50% of the difference between the
consideration to be paid in the superior proposal and the Merger Consideration
provided under this Merger.
CERTAIN BENEFITS, DETRIMENTS AND EFFECTS OF THE MERGER
GENERAL. The Merger is expected to provide certain benefits and detriments
to the Company, its affiliates and the Company Stockholders which should be
carefully considered by Company Stockholders.
BENEFITS, DETRIMENTS AND EFFECTS TO COMPANY STOCKHOLDERS. As a result of
the Merger, the entire equity interest of the Company will be owned by
Purchaser. Therefore, following the Merger, the Company Stockholders will no
longer benefit from any increases in the value of the Company and will no
longer bear the risk of any decreases in value of the Company. Instead, each
Common Share which, as of September 30, 1996, had (i) traded over the last five
years as high as $6.00 per share but only for one day on November 11, 1993;
(ii) a book value of $7.19; (iii) a tangible book value of $5.89 and (iv)
earnings per share of $.51 for the nine months ended September 30, 1996, will
be converted into the right to receive $6.00 in cash, without interest."
BENEFITS, DETRIMENTS AND EFFECTS TO THE COMPANY. The Company, as a
continuing entity, will experience certain benefits and detriments as a result
of the Merger. The benefits to the Company will consist of possible access to
financing (including debt financing) by reason of the avenues available to
Purchaser and the savings of compliance costs which would be otherwise required
if the Company continued as a publicly traded company. Company Stockholders
should also consider that as a result of the Merger, the Company will be become
more highly leveraged as its stockholders' equity as of September 30, 1996 of
approximately $36,169,000 as compared to $2,669,000 of long term debt less
current installments is expected to change after the Merger to stockholders'
equity of $9,000,000 as compared to long term debt less current installments of
$25,265,000.
If consummated, the Merger will also terminate the Company's public status.
Although such public status provided the Company with access to the capital
markets at the time of its initial public offering in 1986 at $12.00 per Common
Share, such access has not been subsequently used by the Company due to its
stock price ranging over the last five years, prior to the announcement of the
transaction, from a low of $1.25 per share to a high of $6.00 per share on
November 11, 1993, when the Common Shares opened at $4.875 per share, traded as
high as $6.00 per share and closed at $5.25 per share. See "Market Prices and
Dividends." The Common Shares have never become an attractive currency for
acquisitions because of the thin trading market for the Common Shares and their
trading price performance.
The Common Shares are currently registered as a class of securities under
the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). Registration of the
Common Shares under the Exchange Act may be terminated upon application of the
Company to the Securities and Exchange Commission (the "SEC") if the Common
Shares are not listed on a national securities exchange or quoted on the NASDAQ
National Market and there are fewer than 300 record holders of the Common
Shares. Termination of registration of the Common Shares under the Exchange
Act would substantially reduce the information required to be furnished by the
Company to the Company Stockholders and to the SEC and would make certain
provisions of the Exchange Act, such as the short-swing trading provisions of
Section 16(b), the requirement of furnishing a proxy statement in connection
with stockholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
no longer applicable to the Company. If registration of the Common Shares
under the Exchange Act is terminated, the Common Shares would no longer be
eligible for listing on the NASDAQ National Market. It is the present
intention of the Purchaser to seek to cause the Company to make an application
for the termination of the registration of the Common Shares under the Exchange
Act as soon as practicable after the Effective Time of the Merger.
BENEFITS, DETRIMENTS AND EFFECTS TO MEMBERS OF COMPANY MANAGEMENT. The
current management of the Company will experience certain benefits and
detriments as a result of the Merger. The continuing members of the Company
management will benefit as a result of the Merger because such individuals have
been offered continued employment, at their present annual salary levels, in
the Surviving Corporation or its operating subsidiaries. The detriments of the
Merger to continuing members of Company management consist of a reduction of
ownership interest and control in the Company's ongoing operations and a lack
of access to stock options that are exercisable for shares of publicly traded
stock which would otherwise be typically available to members of management of
a public company. See "Management of Purchaser, Acquisition Sub and the
Company -- Company Management Participation."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to the holders of the Common Shares under the law in
effect as of the date hereof. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended (the "CODE"),
existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the Company Stockholders as described herein. The following
discussion is for general information only, and may not apply to particular
categories of holders, such as financial institutions, broker-dealers, tax-
exempt entities, holders who acquired their Common Shares pursuant to the
exercise of employee stock options or other compensation arrangements with the
Company and holders who are not citizens or residents of the United States.
THE FOLLOWING SUMMARY WAS PREPARED BY SILLS CUMMIS ZUCKERMAN RADIN TISCHMAN
EPSTEIN & GROSS, P.A., OUTSIDE COUNSEL TO THE COMPANY. THE COMPANY HAS NOT
RETAINED AN INDEPENDENT TAX CONSULTANT WITH REGARD TO THE TAX CONSEQUENCES OF
THE MERGER. ALL HOLDERS OF THE COMMON SHARES SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE TAX CONSEQUENCES OF THE MERGER TO THEM WITH SPECIFIC
REFERENCE TO THEIR PARTICULAR TAX SITUATIONS, INCLUDING SUCH TAX CONSEQUENCES
UNDER STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
The receipt of cash in exchange for Common Shares pursuant to the Merger,
and the receipt of cash by a Company Stockholder who exercises his, her or its
dissenter's rights under the DGCL, will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. A Company Stockholder will generally
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between such Company Stockholder's adjusted tax basis in the
Common Shares and the amount of cash received in exchange therefor (other than
amounts received pursuant to a Company Stockholder's statutory rights of
appraisal that are denominated as interest, which amounts would be taxable as
ordinary income). Such gain or loss will be a capital gain or loss if such
Company Stockholder has held such Common Shares as capital assets within the
meaning of Section 1221 of the Code. Such capital gain or loss will be a long-
term capital gain or loss if such Company Stockholder has held such Common
Shares for more than one year as of the date of exchange. There are certain
limitations on the deductibility of capital losses. A Company Stockholder who
also owns, directly or by attribution, stock or other equity interest of
Purchaser as of the date of exchange should consult such Company Stockholder's
own tax advisor regarding the possibility that the cash received will be
treated as a dividend.
Pursuant to the Merger Agreement, either Acquisition Sub or the Company will
pay or cause to be paid any real property transfer taxes arising from the
Merger. The amount of such taxes paid by either Acquisition Sub or the Company
may result in the deemed receipt of additional consideration by Company
Stockholders. However, in that event, under Section 164(a) of the Code, a
Company Stockholder should reduce the amount realized on the sale by the amount
of the tax paid, so that the payment of the tax would have no effect on the
amount of gain or loss recognized by the Company Stockholder in the Merger.
Cash received in exchange for Common Shares in the Merger may be subject to
a backup withholding tax at a rate of 31%, unless the relevant Company
Stockholder is an exempt recipient or complies with certain identification
procedures. Upon the consummation of the Merger, the Company's Paying Agent
will forward to each Company Stockholder a Form W-9 which when properly
completed and returned would fulfill such identification procedures.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase", as such term is used under
generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
FEES AND EXPENSES
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Merger are approximately as follows:
Investment banking fees and expenses (excluding fairness opinion fee)..$547,200
Investment banking fairness opinion fee..................................62,500
Legal fees and expenses.................................................800,000
SEC filing fee............................................................6,473
Printing and mailing fees................................................24,100
Proxy Solicitation Agent fees.............................................7,500
Paying Agent fees.........................................................4,500
Special Committee fees...................................................17,000
Miscellaneous expenses....................................................3,500
Accounting expenses.......................................................7,500
____________
Total.................................................$1,480,273
For information regarding Hill Thompson's engagement by the Special
Committee, see "Special Factors -- Background of the Merger," "-- Opinion of
Financial Advisor -- Hill Thompson Capital Markets, Inc."
Estimated fees and expenses incurred or to be incurred by or on behalf of
Purchaser in connection with the Merger or which may otherwise be paid or
payable by the Company or the Surviving Corporation include financial advisory
and consulting fees and expenses of $800,000 to be paid to Proteus Financial
Group Incorporated ("PROTEUS"); legal fees and expenses of $850,000;
accounting fees and expenses of $20,000; financing commitment fees and related
expenses of $453,000; and miscellaneous fees and expenses of $190,000.
Neither Purchaser nor the Company will pay any fees or commissions to any
broker or dealer or any other person (other than Hill Thompson, Proteus, the
Proxy Solicitation Agent, and the Paying Agent) for soliciting Common Shares
pursuant to the Merger. Brokers, dealers, commercial banks and trust companies
will, upon request, be reimbursed by the Company for reasonable and necessary
costs and expenses incurred by them in forwarding materials to their customers.
THE MERGER
GENERAL
The following is a summary of the Merger Agreement. All references to and
summaries of the Merger Agreement in this Proxy Statement are qualified in
their entirety by reference to the Merger Agreement, a copy of which is
attached hereto as Annex A. The Merger Agreement provides for the merger of
Acquisition Sub with and into the Company. The Company will be the Surviving
Corporation and it will continue its corporate existence under the laws of the
State of Delaware. At the Effective Time, the separate corporate existence of
Acquisition Sub shall cease. The Surviving Corporation shall possess all the
property, rights, privileges, powers and franchise of Acquisition Sub and the
Company and shall assume and become liable for all debts, liabilities,
obligations, restrictions, disabilities and duties of the Company and
Acquisition Sub.
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
On November 11, 1996 the Company, Acquisition Sub and the Purchaser entered
into the Agreement and Plan of Merger dated November 11, 1996 (the "ORIGINAL
MERGER AGREEMENT") pursuant to which Acquisition Sub would be merged with and
into the Company with the Company being the surviving corporation in the Merger
and the entire equity interest in the Company would be owned by the Purchaser.
As a result of the Merger, each outstanding Common Share other than Dissenting
Shares would be converted into the right to receive the Merger Consideration of
$6.00 in cash, without interest all as more fully described in this Proxy
Statement. The Original Merger Agreement included a closing condition with
respect to the Hart Scott Rodino Antitrust Improvements Act of 1976 and
established a termination date of February 28, 1997. On January 22, 1997 the
Original Merger Agreement was amended and restated (the "MERGER AGREEMENT") by
the Company, Acquisition Sub and the Purchaser to delete the aforementioned
closing condition and to extend the termination date to March 31, 1997. A copy
of the Merger Agreement as amended and restated is attached hereto as Annex A.
EFFECTIVE TIME
The Effective Time will occur upon the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
is specified in the Certificate of Merger. The Certificate of Merger will be
filed as promptly as practicable after requisite approval and adoption of the
Merger Agreement and the Merger by the Company Stockholders at the Special
Meeting is obtained and the other conditions precedent to the consummation of
the Merger have been satisfied, or if permissible, waived. See "The Merger --
Conditions to the Merger," and "-- Termination and Amendment."
CERTIFICATE OF INCORPORATION; BY-LAWS
At the Effective Time, the Certificate of Incorporation and by-laws of
Acquisition Sub or, at the election of Purchaser, of the Company, shall be the
Certificate of Incorporation and By-Laws of the Surviving Corporation.
DIRECTORS
The Directors of Acquisition Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation.
STOCK TRANSFER BOOKS
At the Effective Time, the Company Share transfer books shall be closed and
no transfer of Common Shares may be made thereafter. If after the Effective
Time, Certificates are presented to the Surviving Corporation or the Paying
Agent, they shall be cancelled and exchanged for the Merger Consideration as
provided above (subject to applicable law in the case of Dissenting Shares).
CONVERSION OF COMMON SHARES
At the Effective Time: (a) each issued and outstanding Common Share
immediately prior to the Effective Time other than (i) Treasury Shares, (ii)
Common Shares then owned by Purchaser, Acquisition Sub or any other subsidiary
of Purchaser, and (iii) Dissenting Shares, shall by virtue of the Merger and
without any action on the part of the holder thereof, be cancelled and
converted into the right to receive the Merger Consideration, upon surrender of
the Certificate that immediately prior to the Effective Time evidenced such
Common Share; and (b) each Treasury Share and each Common Share outstanding
immediately prior to the Effective Time which is then owned by Purchaser,
Acquisition Sub or any other subsidiary of Purchaser shall, by virtue of the
Merger and without any action on the part of the holder thereof, be canceled
and retired and cease to exist, without any conversion thereof and no payment
or distribution shall be made with respect thereto.
Holders of Common Shares who do not vote in favor of the Merger at the
Special Meeting and who shall have properly elected to dissent in the manner
provided in Section 262 of the DGCL shall be entitled to payment of the fair
value of their Common Shares in accordance with, and subject to the provisions
of, Section 262 of the DGCL. See "Appraisal -- Rights of Dissenting
Stockholders; Waiver of Notice."
All shares of Common Stock of Acquisition Sub issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for, in the aggregate, one thousand (1,000) validly issued, fully
paid and non-assessable shares of common stock, par value $.01, of the
Surviving Corporation, which shall constitute all of the issued and outstanding
shares of the Surviving Corporation.
COMPANY STOCK OPTIONS
Commencing at least fifteen (15) days prior to the Effective Time, each
option holder shall be entitled to exercise such option and if such options are
not so exercised prior to the Effective Time, each such holder shall be
entitled to receive from the Company in consideration for cancellation of each
such option, a cash payment in an amount equal to the product of (x) the number
of Common Shares provided for in such option and (y) the excess, if any, of the
Merger Consideration over the exercise price per Common Share provided for in
such option.
SOURCE OF FUNDS; PAYMENT FOR COMMON SHARES
The Purchaser has delivered to the Company copies of commitment letters (the
"FINANCING LETTERS") from Congress Financial Corporation (the "CONGRESS
LETTER") and CoreStates Financial Corp. (the "CORESTATES LETTER"). Under the
terms of the Congress Letter, the Surviving Corporation will be provided with a
$25 million revolving line of credit secured by a first security interest in
and lien upon all of the existing and future assets of the Surviving
Corporation and any of its subsidiaries. Under the terms of the CoreStates
Letter, an aggregate of $4 million of financing will be provided through the
issuance of subordinated amortizing six (6) year notes secured by second liens
on the accounts receivable and inventory of the Surviving Corporation and any
of its subsidiaries. The Financing Letters which originally expired on
February 28, 1997, were amended to expire on March 31, 1997. Although the
Purchaser has agreed to use its best efforts to obtain financing to consummate
the Merger and the obtaining of such financing is not a condition to
Purchaser's obligations to consummate the Merger, there can be no assurance
that any further extension, or alternative financing in lieu of such extension,
if necessary, will be forthcoming. See "The Merger -- Sources and Amount of
Funds; Payment for Common Shares," and "Special Factors -- Termination Fees and
Expenses." Equity investments in the aggregate of $9 million are also being
made in the Purchaser. Purchaser has represented that, assuming satisfaction
or waiver of all applicable conditions set forth in the Financing Letters, the
debt financing and the equity investment will provide sufficient funds to (i)
pay the Merger Consideration with respect to all of the Common Shares; and (ii)
prepay, redeem, refinance or renegotiate the Company's existing indebtedness,
if required to consummate the Merger, and pay any and all fees, expenses, costs
and penalties in connection with any such prepayment, redemption, refinancing
or renegotiation. Purchaser has agreed not to amend the Financing Letters
(except for possible further extensions) without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Although it was
originally contemplated that Purchaser might afford to certain members of
Company management the opportunity to make a limited investment in the
Purchaser, the Purchaser subsequently determined not to make such an
opportunity available. See "Management of Purchaser, Acquisition Sub and the
Company -- Directors and Executive Officers (or Equivalent) of Purchaser and
Acquisition Sub -- Company Management Participation."
SURRENDER OF COMMON SHARE CERTIFICATES
The Purchaser and the Company have designated American Stock Transfer and
Trust Company to act as the Paying Agent under the Merger Agreement.
Immediately following the Effective Time, Purchaser or Acquisition Sub shall
deposit in trust with the Paying Agent, cash in an aggregate amount equal to
the product of: (x) the number of Common Shares issued and outstanding on a
fully diluted basis immediately prior to the Effective Time (other than Common
Shares owned by the Company, Purchaser or Acquisition Sub and Dissenting
Shares); and (y) the Merger Consideration (such amount being hereinafter
referred to as the "PAYMENT FUND"). The Paying Agent shall, pursuant to
irrevocable instructions, make the payments provided for under the Merger
Agreement out of the Payment Fund.
Promptly after the Effective Time, the Surviving Corporation shall cause the
Paying Agent to mail to each person who was a record holder of an outstanding
certificate or certificates that immediately prior to the Effective Time
represented Common Shares (the "CERTIFICATES"), a form letter of transmittal
(which shall specify that delivery shall be effected and risk of loss and title
to Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for its use in effecting the surrender of
such Certificates for payment in accordance with the Merger Agreement. Upon
the surrender to the Paying Agent of a Certificate, together with a properly
completed and duly executed letter of transmittal, and other documents that are
customarily required by letters of transmittal in similar situations, the
holder thereof shall be entitled to receive cash in an amount equal to the
product of the number of Common Shares formerly represented by such Certificate
and the Merger Consideration, less any applicable withholding tax, if any, and
such Certificate shall then be cancelled.
Until surrendered pursuant to the procedures described above, except with
respect to Dissenting Shares, each Certificate shall represent solely the right
to receive the Merger Consideration, without interest, into which the number of
Common Shares formerly represented by such Certificate shall have been
converted.
Promptly following the date which is one year after the Effective Time, the
Paying Agent shall return to the Surviving Corporation all cash, certificates
and other instruments in its possession that constitute any portion of the
Payment Fund and the Paying Agent's duties shall terminate.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Purchaser and Acquisition Sub to the Company including, without limitation,
with respect to the following matters: (i) the due organization, valid
existence and good standing of Purchaser and Acquisition Sub; (ii) the power
and authority of Purchaser and Acquisition Sub to enter into the Merger
Agreement and the due authorization of the execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated thereby; (iii)
that the execution and delivery of the Merger Agreement will not result in a
breach of or require any consent or constitute a default under Purchaser's or
Acquisition Sub's certificate of incorporation or by-laws or similar governing
document or any agreements or contracts to which Purchaser or any of its
subsidiaries is a party; (iv) regulatory filings and approvals; (v) the absence
of any brokerage fees (other than fees payable to Hill Thompson and Proteus);
and (vi) that Purchaser has delivered to the Company true and complete copies
of signed letters required by Purchaser with respect to the financing required
for the consummation of the transactions contemplated by the Merger Agreement.
The Merger Agreement also contains various representations and warranties of
the Company to Purchaser and Acquisition Sub including, without limitation,
with respect to the following matters: (i) the due incorporation, valid
existence and good standing of the Company; (ii) the power and authority of the
Company to enter into the Merger Agreement and the due authorization of the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby; (iii) that (except as disclosed) the
execution and delivery of the Merger Agreement will not result in a breach of
or require any consent or constitute a default under the Company's or any of
its subsidiaries certificate of incorporation or by-laws or any agreements or
contracts to which the Company or any of its subsidiaries is a party; (iv)
capitalization of the Company; (v) the accuracy of the Company's filings with
the SEC; (vi) the absence of certain changes or events with respect to the
Company since December 31, 1995; (vii) the disclosure of certain litigation
matters; (viii) the disclosure of all of the Company's and its subsidiaries'
employee benefit plans; (ix) labor matters affecting the Company or its
subsidiaries; (x) that (except as disclosed) the Company and each of its
subsidiaries has paid all material taxes except such as are reserved for in the
Company's balance sheet contained in the most recently filed Company report
with the SEC and are being contested in good faith by appropriate proceedings
and (except as disclosed) neither the IRS nor any other taxing authority or
agency is asserting against the Company or any of its subsidiaries any
deficiency or claim for additional taxes; (xi) environmental matters; (xii)
real property either owned or leased (currently or in the past) by the Company
or its subsidiaries; and (xiii) the absence of any brokerage fees (other than
fees payable to Hill Thompson). Such representations and warranties are
subject in certain cases to specified exceptions and qualifications.
CONDITIONS TO THE MERGER
Pursuant to the Merger Agreement, the obligations of each of Purchaser, the
Acquisition Sub and the Company, to effect the Merger are subject to the
following conditions: (a) the Merger Agreement and the transactions
contemplated thereby, including the Merger shall have been approved and adopted
by the affirmative vote of the Company Stockholders to the extent required by
law and the Company's Certificate of Incorporation, (b) all necessary
approvals, authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in full
force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated, except where
the failure to so obtain will not, either individually or in the aggregate,
have a material adverse effect on the Company and its subsidiaries taken as a
whole, (c) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (i) make the consummation of the
Merger illegal, or (ii) otherwise restrict, prevent or prohibit the
consummation of the transactions contemplated by the Merger Agreement,
including the Merger.
In addition, the obligation of the Company to effect the Merger is also
subject to the satisfaction, or waiver by the Company, of the following
conditions: (a) each of the representations and warranties of Purchaser and
Acquisition Sub in the Merger Agreement which is qualified as to materiality
shall be true and correct and each such representation or warranty that is not
so qualified shall be true and correct in all material respects and (b)
Purchaser and Acquisition Sub shall have performed in all material respects all
obligations and complied in all material respects with all of the respective
agreements or covenants to be performed or complied with by such party under
the Merger Agreement.
Additionally, the obligations of Purchaser and Acquisition Sub to effect the
Merger are also subject to the satisfaction, or waiver by Purchaser and
Acquisition Sub, of the following conditions: (a) each of the representations
and warranties of the Company in the Merger Agreement which is qualified as to
materiality shall be true and correct and each such representation or warranty
that is not so qualified shall be true and correct in all material respects;
(b) the Company shall have performed in all material respects all obligations
and complied in all material respects with all agreements or covenants of the
Company to be performed or complied with by it at or prior to the Effective
Date under the Merger Agreement; (c) no pending legal proceeding in (a "PENDING
LITIGATION"), or preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or pending in (together with
a Pending Litigation a "PENDING LEGAL PROCEEDING"), or issued by, a
governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect, which would have certain enumerated
effects such as restricting, preventing or prohibiting the ownership or
operation by Purchaser (or any of its subsidiaries) of any portion of its or
the Surviving Corporation's or its subsidiaries' business, properties or assets
which is material to such businesses as a whole, or compelling Purchaser (or
any of its subsidiaries) to dispose of or hold separate any portion of the
Surviving Corporation's or its subsidiaries' business, properties or assets
which is material to such businesses as a whole; (d) there shall not have
occurred (i) any general suspension of trading in, or limitation on prices for,
securities on the New York Stock Exchange, the American Stock Exchange or the
NASDAQ National Market System, (ii) the declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States (whether or
not mandatory), (iii) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States having a significant effect on the functioning of financial markets in
the United States, or (iv) any limitation (whether or not mandatory) by any
United States governmental authority or agency on the extension of credit by
banks or other financial institutions which would have a material adverse
effect on Purchaser's ability to borrow sufficient funds as contemplated by the
Financing Letters to pay the Merger Consideration; (e) since the date of the
Merger Agreement, there shall not have occurred any change having a material
adverse effect on the Company and its subsidiaries taken as a whole; (f) the
Company shall have obtained all necessary consents of third parties to the
consummation of the Merger and the other transactions contemplated by this
Agreement; (g) the Company shall have obtained waivers with respect to any
default, termination, acceleration of payment or performance or modification
clause contained in any contract, agreement, commitment, arrangement, lease,
policy or other instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries, or their respective
properties or assets is bound which is triggered or otherwise caused by reason
of the entering into the Merger Agreement or the consummation of the Merger and
the other transactions contemplated by the Merger Agreement; (h) holders of
capital stock of the Company shall not have demanded or perfected the right for
appraisal of Common Shares representing more than five percent (5%) of an
issued and outstanding shares of capital stock of the Company; and (i)
Purchaser shall have received satisfactory evidence (x) that holders of all
options have consented to the cancellation of such options and (y) that such
options and the stock option plans of the Company will terminate at or prior to
the Effective Time.
TERMINATION AND AMENDMENT
The Merger Agreement may be terminated at any time prior to the closing of
the Merger (a) by mutual written consent of Purchaser, Acquisition Sub and the
Company; (b) by either Purchaser and Acquisition Sub or the Company if the
Effective Time shall not have occurred on or before March 31, 1997 or such
later date as shall be mutually agreed to in each party's sole discretion; (c)
by either Purchaser and Acquisition Sub or the Company if there shall have been
a material breach of any of the representations or warranties set forth in the
Merger Agreement on the part of the other party, which breach by its nature
cannot be cured prior to the Effective Time or within thirty (30) business days
following receipt by the breaching party of written notice of such breach from
the other party; (d) by either Purchaser and Acquisition Sub or the Company if
any United Stated federal or state court of competent jurisdiction shall have
issued an injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger, and such injunction or other
action shall have become final and non-appealable; (e) by the Company if either
Purchaser or Acquisition Sub shall have failed to perform or has breached in
any material respect any of its covenants, obligations or agreements under or
contained in the Merger Agreement unless the failure to so perform or the
breach, as the case may be, has been caused by or results from a breach of the
Merger Agreement by the Company; (f) by the Company if the Company enters into
a binding definitive agreement to effect a Superior Proposal (as defined in the
Merger Agreement); (g) by Purchaser and Acquisition Sub if the Board of
Directors of the Company shall have failed to recommend or shall have withdrawn
its recommendation or approval of the Merger, or if the Board shall have
recommended to the Company Stockholders any acquisition proposal of any other
person or shall have resolved to do any of the foregoing; (h) by Purchaser and
Acquisition Sub if the Company shall have failed to perform in any material
respect any of its covenants, obligations or agreements under or contained in
the Merger Agreement unless the failure to so perform or the breach, as the
case may be, has been caused by or results from a breach of the Merger
Agreement by Purchaser of Acquisition Sub; or (i) by Purchaser and Acquisition
Sub if any United States federal or state court of competent jurisdiction shall
have issued an injunction or taken any other action permanently restraining,
enjoining or otherwise prohibiting the enforcement of any of the terms of the
Proxy Agreement, and such injunction or other action shall have become final
and non-appealable.
If (x) Purchaser and Acquisition Sub terminate the Merger Agreement (A)
pursuant to (g) in the paragraph above or (B) pursuant to (h) in the paragraph
above as a result of a willful breach by the Company or (y) if the Company
terminates the Merger Agreement pursuant to (f) above, then the Company is
required to pay to Purchaser an amount in cash equal to the sum of (i)
$1,000,000, plus (ii) Purchaser's and Frederick Marino's out-of-pocket costs
and expenses (the "PURCHASER EXPENSES"). If Purchaser and Acquisition Sub
terminate the Merger Agreement pursuant to (h) in the paragraph above (except
for a termination because of a willful breach by the Company), the Company is
required to reimburse Purchaser and Mr. Marino for the Purchaser Expenses. If
the Company terminates the Merger Agreement pursuant to (e) in the paragraph
above as a result of a willful breach by Purchaser and Acquisition Sub, the
Purchaser and Acquisition Sub are required to pay to the Company an amount in
cash equal to the sum of (i) $1,000,000, plus (ii) the Company's out-of-pocket
costs and expenses (the "COMPANY EXPENSES"). If the Company terminates the
Merger Agreement pursuant to (e) in the paragraph above (except for termination
because of a willful breach by Purchaser and Acquisition Sub), Purchaser is
required to reimburse the Company for the Company Expenses.
If the Purchaser terminates the Merger Agreement on the basis that there is
Pending Litigation, the Purchaser is obligated to reimburse the Company for the
Company Expenses.
The Merger Agreement may be terminated at any time prior to the Merger and
may be amended by the parties in writing at any time before or after approval
by the Company Stockholders, provided that after Company Stockholder approval,
no amendment may be made which reduces the amount or changes the form of the
Merger Consideration or in any way materially adversely affects the rights of
the Company Stockholders.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the terms of the Merger Agreement, during the period from the
date of the Merger Agreement to the Effective Time, with certain exceptions,
the Company has agreed that it shall, and shall cause each of its subsidiaries
to carry on their respective businesses in the usual, regular and ordinary
course, reasonably consistent with past practice, and use their best efforts to
preserve intact their present business organizations, keep available the
services of their present advisors, managers, officers and employees and
preserve their relationships with customers, suppliers, licensors and others
having business dealings with them and continue existing contracts (for the
term provided in such contracts), provided that the Company shall not be
required to make any payments (cash or otherwise) outside the ordinary course
or enter into or amend any contractual arrangements or understandings to
satisfy the foregoing obligations. Without limiting the generality of the
foregoing, neither the Company nor any of its subsidiaries may, with certain
exceptions:
(a)(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, (ii) split, combine, or reclassify any of its capital
stock or (iii) repurchase, redeem or otherwise acquire any of its securities,
except, in the case of clause (iii), for the acquisition of Common Shares from
holders of the options in full or partial payment of the exercise price payable
by such holders upon exercise of the options outstanding on the date of the
Merger Agreement;
(b)acquire, sell, lease, encumber, transfer or dispose of any assets outside
the ordinary course of business which are material to the Company or any of its
subsidiaries (whether by asset acquisition, stock acquisition or otherwise);
(c)(i) incur any indebtedness for borrowed money, guarantee any
indebtedness, issue or sell debt securities or warrants or rights to acquire
any debt securities, guarantee (or become liable for) any debt of others, make
any loans, advances or capital contributions, mortgage, pledge or otherwise
encumber any material assets, or create or suffer any material lien thereupon,
other than, as to each of the foregoing, in the ordinary course of business
reasonably consistent with prior practice or (ii) incur any short-term
indebtedness for borrowed money, except, in each such case, pursuant to credit
facilities in existence on the date of the Merger Agreement under the terms
thereof on the date of the Merger Agreement, which credit facilities have been
disclosed in writing to Purchaser and Acquisition Sub prior to the date of the
Merger Agreement;
(d)except as required by law, (i) enter into, adopt, amend or terminate any
employee benefit plan, (ii) enter into, adopt, amend, or terminate any
agreement, arrangement, plan or policy between the Company or any of its
subsidiaries and one or more of their directors or officers, or (iii) except
for normal increases in the ordinary course of business reasonably consistent
with past practice, increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any
plan or arrangement as in effect as of the date of the Merger Agreement; or
(e)take certain other actions enumerated in the Merger Agreement.
ADDITIONAL AGREEMENTS
The Merger Agreement provides that the Company will, as promptly as
practicable: (i) prepare; (ii) file with the SEC; (iii) use its best efforts to
have cleared by the SEC; and (iv) promptly thereafter mail to its stockholders
a Proxy Statement with respect to the Special Meeting of the Company's
Stockholders. The Merger Agreement further provides that the Company shall (i)
give Purchaser and its counsel a reasonable opportunity to review and comment
upon the Proxy Statement prior to its being filed with the SEC; and (ii) give
Purchaser and its counsel a reasonable opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent
to, the SEC and, in the case of the Proxy Statement and any amendments or
supplements thereto, prior to its being disseminated to Company Stockholders.
Pursuant to the Merger Agreement, each of the Company, Purchaser and
Acquisition Sub shall, as promptly as practicable, prepare and file any other
filings required under the Exchange Act or any other federal or state law
relating to the Merger and the transactions contemplated therein (including
filings, if any, required under the Hart-Scott-Rodino Act) (collectively,
"OTHER FILINGS"). In accordance with this provision, each of Purchaser and the
Company are required to promptly notify the other of the receipt of any
comments on, or any request for amendments or supplements to, the Proxy
Statement or any Other Filings by the SEC or any other governmental entity, and
each of the Company and Purchaser shall supply the other with copies of all
correspondence between it and each of its subsidiaries and representatives. on
the one hand, and the SEC or any other appropriate government official, on the
other hand, with respect to the Proxy Statement and any of the Other Filings.
The Merger Agreement imposes upon each of the Company, Purchaser and
Acquisition Sub the obligation to use its respective best efforts to obtain and
furnish the information required to be included in the Proxy Statement and any
Other Filings. Additionally, the Company, after consultation with Purchaser,
is obligated to use its best efforts to respond promptly to any comments made
by the SEC with respect to the Proxy Statement and any preliminary version
thereof. The information provided and to be provided by Purchaser, Acquisition
Sub and the Company, respectively, for use in the Proxy Statement shall, on
both the date of the Proxy Statement is first mailed to the Company
Stockholders and the date such stockholders meeting is held, not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading, or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the stockholders' meeting which shall have become
false or misleading, and shall comply in all material respects as to form and
substance with all applicable requirements of law. Pursuant to the Merger
Agreement each of Purchaser, the Company, and Acquisition Sub agree to correct
promptly any such information provided by it for use in the Proxy Statement
which shall have become false or misleading.
NO SOLICITATIONS; FIDUCIARY OUT
Pursuant to the terms of the Merger Agreement, the Company has agreed not
to, directly or indirectly, initiate, solicit or encourage any inquiries or the
making or implementation of any proposal or offer with respect to a merger,
acquisition, tender offer, exchange offer consolidation or similar transaction
involving any purchase of 10% or more of the assets or securities of the
Company or any of its subsidiaries (an "ACQUISITION PROPOSAL") or engage in any
negotiations with, or provide any confidential information or data to, or have
any discussions with, any person relating to an Acquisition Proposal.
Notwithstanding the above-mentioned prohibitions, the Board of Directors may
furnish or cause to be furnished information or data to or enter into
discussions or negotiations with any person that on an unsolicited basis, makes
a bona fide Acquisition Proposal, if, and only to the extent that, the Board of
Directors (a) determines in good faith, after consideration of written advice
of its financial advisors, that the Acquisition Proposal, if consummated as
proposed, may result in a transaction more favorable to the Company
Stockholders from a financial point of view than the transactions contemplated
by the Merger Agreement (a "SUPERIOR PROPOSAL") and (b) determines in good
faith, after consultation with its outside counsel, that the failure to take
such action may be a breach of the directors' fiduciary duties under applicable
law provided that certain notice requirements are complied with. Additionally,
the Company is not precluded from entering into a definitive agreement with any
person providing a bona fide Acquisition Proposal that the Company is entitled
to negotiate.
As of the date of this Proxy Statement, the Board of Directors has exercised
its rights under this provision on two separate occasions to consider two
separate third-party offers at $6.50 per Common Share both of which have been
subsequently withdrawn. See "Special Factors -- Background of the Merger."
OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION
The Merger Agreement provides that Purchaser has agreed that all rights to
indemnification existing in favor of, and all limitations on the personal
liability of, the directors and officers of the Company provided for in the
Company's Certificate and in each subsidiary's certificate of incorporation (or
similar organizational document) or their respective by-laws as in effect as of
the date of the Merger Agreement with respect to matters occurring prior to the
Effective Time shall continue without amendment in full force and effect for a
period of not less than six (6) years from the Closing; PROVIDED; HOWEVER, that
all rights to indemnification in respect of any claims (a "CLAIM") asserted or
made within such period shall continue until the disposition of such Claim.
The Merger Agreement also provides that Purchaser has agreed that at or prior
to the Effective Time, Purchaser shall continue existing directors' and
officers' liability insurance coverage for the Company's directors and officers
which shall provide such directors and officers with coverage for six years
following the Effective Time; PROVIDED, HOWEVER, that the cost of such policy
may not exceed $200,000. Subsequently, the Company has obtained an amendment
to its existing policy which, for a premium payment of $178,000, will extend
the coverage of such policy through April 2003. This premium will be paid only
in the event of Company Stockholder approval of the Merger and prior to the
Effective Time.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase," as such term is used under
generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained, nor
any regulatory requirements complied with, in connection with consummation of
the Merger by any party to the Merger Agreement, except for the requirements of
the DGCL regarding Company Stockholder approvals and consummation of the Merger
and the requirements of federal securities law.
SUBSEQUENT EVENTS; STOCKHOLDER LITIGATION
On November 22, 1996, an action entitled VICKREY V. THE STROBER
ORGANIZATION, INC., ET AL, was commenced in New York State Supreme Court, New
York County (Index 96-605853) against the Company and each of the seven
directors of the Company seeking certification as a class action. The
plaintiff, allegedly a Company Stockholder, alleges upon information and belief
that the directors breached their fiduciary and other common law duties by
failing to act in good faith to maximize Company Stockholder value in the sale
of the Company. Substantively, the complaint alleges that the $6.00 sales
would constitute a price/earnings (P/E) ratio of less than 10 and that other
companies allegedly within the same industry are consistently priced by public
market at P/E multiples of 10 or higher. Pre-trial discovery has not yet
commenced in this case. The Company's management (principal members of which
are defendants in the action) believe that the actions of the Board in
undertaking its search and evaluation proces since August 1995 has resulted in
significant enhancement of value for the benefit of all Company Stockholders
during which time the Company and its directors have only acted in good faith
in accordance with all of their fiduciary duties to the Company Stockholders
and accordingly, that the VICKREY action is without merit.
The VICKREY complaint demands judgement as follows:
(a)declaring the suit to be a proper class action and certifying plaintiff
as representative;
(b)ordering the individual defendants to carry out their fiduciary duties to
plaintiff and the other members of the alleged class by announcing their
intention to:
(i) cooperate fully with any entity or person having a BONA FIDE
interest in proposing any transaction which would maximize Company
Stockholder value, including but not limited to, a buy-out or takeover of
the Company;
(ii) immediately undertake an appropriate evaluation of the
Company's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance the Company's value and
attractiveness as a merger/acquisition candidate;
(iv) take all appropriate steps to effectively expose the Company
to the marketplace in an effort to create an active auction of the
Company;
(v) act independently so that the interests of the public Company
Stockholders will be protected; and
(vi) adequately ensure that no conflicts of interest exist between
the individual defendants' own interests and their fiduciary obligations
to maximize shareholder value and act with entire fairness or, in the
event such conflicts exist, to ensure that all conflicts of interest are
resolved in the best interests of the public Company Stockholders;
(c)enjoining the proposed transaction or, if consummated, rescinding it;
(d)ordering the individual defendants, jointly and severally to account to
plaintiff and the alleged class for all damages suffered and to be
suffered by them as a result of the acts and transactions alleged;
(e)awarding plaintiff the costs and disbursements of the VICKREY action,
including a reasonable allowance for plaintiff's attorneys' and experts'
fees; and
(f)granting such other and further relief as may be just and proper.
On January 8, 1997, all defendants served their answers to the VICKREY
action denying the substantive claims made and setting forth defenses including
that the complaint fails to state a claim upon which relief can be granted,
that the complaint is barred because plaintiff lacks standing to bring the
action as a class action, that the claims alleged are derivative in nature and
plaintiff has failed to make proper demand upon the Board of Directors of the
Company and that the directors have all acted in good faith. Pre-trial
discovery in the VICKREY action commenced in mid-January 1997.
The VICKREY action is a pending legal proceeding that occurred after the
execution of the Merger Agreement and may have a materially adverse effect on
the Surviving Corporation and its subsidiaries taken as a whole so as to
constitute a "Pending Legal Proceeding" as that term is defined in the Merger
Agreement. The obligation of the Purchaser to consummate the Merger is subject
to the satisfactory termination of any Pending Legal Proceeding (including the
VICKREY action) or waiver by the Purchaser of the presence of any such Pending
Legal Proceeding. Therefore, there can be no assurance that the Merger will be
consummated. In the event the Purchaser elects not to consummate the Merger as
a result of a Pending Legal Proceeding, the Purchaser would be obligated to
reimburse the Company for the Company Expenses.
On July 31, 1996, a non-profit organization of local Brooklyn, New York
civic associations sought to prevent The Port Authority of New York and New
Jersey from leasing Pier 3 on the Brooklyn, New York waterfront to a subsidiary
of the Company by filing an action against the Port Authority and the Company
in the United States District Court, Eastern District of New York. During the
pendency of this action, the Company completed its leasehold improvements at
the Pier 3 site and commenced operations there. On January 22, 1997, the
Company announced that a decision had been rendered in the case dismissing with
prejudice all of the federal claims asserted by the plaintiff. The Court also
noted that the Port Authority and the Company had made strong arguments for
dismissing the claims that were brought under state law, but the Court declined
to exercise supplemental jurisdiction over those claims. Accordingly, the
state law claims were dismissed without prejudice. Therefore, there can be no
assurance that the plaintiffs will not bring this or a similar action in state
court.
APPRAISAL
RIGHTS OF DISSENTING STOCKHOLDERS; WAIVER OF NOTICE
Company Stockholders who follow the procedures specified in Section 262 of
the DGCL ("SECTION 262") will be entitled to have their Common Shares appraised
by the Delaware Court of Chancery and to receive payment of the "fair value" of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, as
determined by such Court. THE PROCEDURES SET FORTH IN SECTION 262 SHOULD BE
STRICTLY COMPLIED WITH. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN
A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262.
The following discussion of the provisions of Section 262 is not intended to
be a complete statement of its provisions and is qualified in its entirety by
reference to the full text of that section, a copy of which is attached as
Annex C to this Proxy Statement.
Under Section 262, a Company Stockholder electing to exercise appraisal
rights must both:
(a) deliver to the Company, before the date of the Special Meeting, a
written demand for appraisal of his or her Common Shares which reasonably
informs the Company of the identity of the stockholder of record and that
such record stockholder intends thereby to demand the appraisal of his or
her Common Shares. This written demand is in addition to and separate from
any proxy relating to the Merger. Voting against, abstaining from voting or
failing to vote on the Merger will not constitute a demand for appraisal
within the meaning of Section 262. Such written demand for appraisal should
be delivered either in person to the Secretary of the Company or by mail
(certified mail, return receipt requested, being the recommended form of
transmittal) to the Secretary, at Pier 3 - Furman Street, Brooklyn, New York
11201, prior to the Effective Date; and
(b) not vote in favor of the Merger. Neither an abstention from voting
with respect to, nor failure to vote in person or by proxy against approval
of the Merger constitutes a waiver of the rights of a dissenting
stockholder.
Within 10 days after the Effective Time, the Surviving Corporation is
required to, and will, notify each Company Stockholder who has satisfied the
conditions of Section 262 of the date on which the Merger became effective.
Within 120 days after the Effective Time of the Merger, the Surviving
Corporation or any such Company Stockholder who has satisfied the conditions of
Section 262 and is otherwise entitled to appraisal rights under Section 262,
may file a petition in the Delaware Court of Chancery demanding a determination
of the value of the Company Shares held by all Company Stockholders entitled to
appraisal rights. If no such petition is filed, appraisal rights will be lost
for all Company Stockholders who had previously demanded appraisal of their
Common Shares. Company Stockholders seeking to exercise appraisal rights
should not assume that the Surviving Corporation will file a petition with
respect to the appraisal of the value of their Common Shares or that the
Surviving Corporation will initiate any negotiations with respect to the "fair
value" of such shares. ACCORDINGLY, COMPANY STOCKHOLDERS WHO WISH TO EXERCISE
THEIR APPRAISAL RIGHTS SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL STEPS
NECESSARY TO PERFECT THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN SECTION
262.
Within 120 days after the Effective Time, any Company Stockholder who has
complied with the provisions of Section 262 is entitled, upon written request,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of Common Shares not approving the Merger and with respect to
which demands for appraisal were received by the Surviving Corporation and the
number of holders of such shares. Such statement must be mailed within 10 days
after the written request therefor has been received by the Surviving
Corporation or within 10 days after expiration of the time for delivery of
demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing to determine
the Company Stockholders entitled to appraisal rights, the Delaware Court of
Chancery will appraise the Common Shares owned by such Company Stockholders,
determining its fair value, exclusive of any element of value arising from the
accomplishment or expectation of the Merger. The Court will direct the payment
of the fair value of such Common Shares together with a fair rate of interest,
if any, on such fair value to Company Stockholders entitled thereto upon
surrender to the Surviving Corporation of share certificates. Upon application
of a Company Stockholder, the Court may, in its discretion, order that all or a
portion of the expenses incurred by any Company Stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, be charged pro-rata against the
value of all the shares entitled to an appraisal.
Although the Company, Purchaser and Acquisition Sub believe that the Merger
Consideration is fair, none of such parties can make any representation as to
the outcome of the appraisal of fair value as determined by the Delaware Court
of Chancery, and Company Stockholders should recognize that such an appraisal
could result in a determination of a value that is lower, higher or equivalent
to the Merger Consideration.
Any Company Stockholder who has demanded an appraisal in compliance with
Section 262 will not, from and after the Effective Time, be entitled to vote
his or her Common Shares for any purpose nor be entitled to the payment of
dividends or other distributions on his or her Common Shares (other than those
payable to stockholders of record at a date prior to the date of the Effective
Time).
If no petition for an appraisal is filed within the time provided, or if a
Company Stockholder delivers to the Company a written withdrawal of his or her
demand for an appraisal within 60 days after the Effective Time, then the right
of such Company Stockholder to an appraisal will cease and such Company
Stockholder shall be entitled to receive the Merger Consideration which he or
she would have been entitled had he or she not demanded appraisal of his or her
shares. Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery will be dismissed as to any Company Stockholder without the approval
of the Court, which approval may be conditioned on such terms as the Court
deems just.
MARKET PRICES AND DIVIDENDS
The Common Shares are traded on the NASDAQ National Market under the symbol
"STRB". Since going public in November 1986, the Company has not paid any
dividends. Pursuant to a Credit Agreement dated as of December 9, 1994 between
and among the Company, its subsidiaries, and The Chase Manhattan Bank (N.A.),
the Company's ability to make and declare dividend payments is conditioned upon
the Company not being in default under the Credit Agreement and certain other
financial conditions being satisfied, including the conditions that: (i) the
fixed charges ratio as of the last day of the fiscal quarter most recently
ended prior to the date of dividend payment shall not exceed the ratio of 1 to
1; and (ii) the leverage ratio as at the last day of the fiscal quarter most
recently ended prior to the date of dividend payment shall not exceed the ratio
of 2 to 1. The Credit Agreement by its terms was to expire on January 31, 1997
but was extended on January 8, 1997 for an additional year ending January 31,
1998. Although there can be no assurance that the proposed transaction will be
effected, it is currently anticipated that the Merger will be completed in
February, 1997, at which time the Company expects that the Credit Agreement
will be terminated by the Surviving Corporation and replaced by the $25 million
revolving credit line being obtained by Purchaser to finance the Merger. See
"Special Factors -- Sources and Amount of Funds; Payment for Common Shares" and
"The Merger -- Sources and Amount of Funds; Payment for Common Shares".
The following table sets forth, for the calendar periods indicated, the high
and low sales prices per Common Share, as quoted on the NASDAQ National Market.
SALES PRICES PER COMMON SHARE
CALENDAR PERIODS
HIGH LOW
1992
First Quarter $2 1/8 1 1/4
Second Quarter 2 1 5/8
Third Quarter 1 3/4 1 1/4
Fourth Quarter 2 1/8 1 5/8
1993
First Quarter $2 1/8 1 9/16
Second Quarter 2 3/8 1 5/8
Third Quarter 3 1/4 2
Fourth Quarter 6 3
1994
First Quarter $5 5/16 3 3/4
Second Quarter 4 7/8 3 1/2
Third Quarter 4 5/8 2 1/2
Fourth Quarter 3 7/8 3 1/8
SALES PRICES PER COMMON SHARE
CALENDAR PERIODS
HIGH LOW
1995
First Quarter $4 1/8 3
Second Quarter 4 1/2 3 1/4
Third Quarter 5 7/8 4
Fourth Quarter 4 3/4 3 1/2
1996
First Quarter $4 5/8 3 3/8
Second Quarter 4 3/4 3 7/8
Third Quarter 5 3 1/2
Fourth Quarter (10/01/96 through 11/08/96) 5 3/8 4 5/8
Fourth Quarter (11/11/96 through 12/31/96) 6 1/8 4 5/8
1997
First Quarter (1/01/97 through 2/14/97)$6 5 3/4
On November 8, 1996, the last full trading day prior to the public
announcement that the parties had entered into the Merger Agreement, the last
reported closing sale price and high and low share prices per Common Share on
the were $5.25, $5.25, and $5.25, respectively. On February 14, 1997, the last
reported sale price per Common Share on the NASDAQ National Market was $5.81.
Holders of Common Shares are urged to obtain a current market quotation for the
Common Shares.
The Common Shares could be considered to be thinly traded as of the
5,194,198 Common Shares outstanding as of the date of this Proxy Statement,
approximately 60% of the Common Shares are held by prior or existing officers
and directors of the Company, or by their heirs, and are subject to the
Reorganization Agreement dated as of October 1, 1986 which imposes an
obligation to provide prior notice of any proposed sale of such Common Shares
and provides each of the parties thereto a right of first refusal with respect
to the subsequent sale of any such Common Shares. The Company believes that
the effect of this has been to tend to limit the number of Common Shares
available for active trading on the public market and thus the Common Shares
may be characterized as being "thinly-traded" or "illiquid." The
Reorganization Agreement has been waived with respect to this proposed
transaction. See "Special Factors -- Interest of Certain Persons in the Merger
- -- Reorganization Agreement."
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated historical financial
data of the Company. The selected financial data should be read in conjunction
with the Consolidated Financial Statements of the Company, related notes and
other financial information incorporated by reference into this Proxy
Statement. The selected financial data at September 30, 1996 and 1995 for the
nine month periods then ended is unaudited but includes, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
operations and the financial position at and for each of the interim periods
presented. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
The selected consolidated financial data as of December 31 and for each of the
years in the five (5) year period ended December 31, 1995, have been derived
from the Company's consolidated financial statements, which have been audited.
The following summary is qualified in its entirety by reference to such
financial statements, related notes and other financial information.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except percentage and per share data)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
(Unaudited) (Unaudited)
Sept. 30, Sept. 30, 1995 1994 1993 1992 1991
1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $100,898 96,066 125,813 125,378 118,975 104,812 90,150
Gross profit 26,676 25,242 33,186 32,670 31,703 27,787 24,897
Gross profit percentage 26% 26% 26% 26% 27% 27% 28%
Selling, general and
administrative 22,692 21,276 27,858 28,395 28,090 26,955 26,707
expenses
Amortization of acquisition 157 157 210 210 268 910 910
costs
Income (loss) from operations 3,827 3,809 5,118 4,065 3,345 (78) (2,720)
Other income (expense) 675 191 230 (332) (787) (812) (686)
Income (loss) before income 4,502 4,000 5,348 3,733 2,558 (890) (3,406)
tax
Net income (loss) 2,611 2,360 3,082 2,576 1,650 (763) (2,072)
Net income (loss) per share $ 0.51 0.45 0.59 0.50 0.33 (0.15) (0.41)
Weighted average number of 5,159 5,264 5,247 5,165 5,031 5,021 5,044
shares outstanding
OTHER DATA:
Ratio of earnings to fixed 6.1X 5.5X 3.2X
charges
BALANCE SHEET DATA:
Working capital $25,985 23,593 23,691 21,844 20,158 22,032 24,769
Total assets 53,731 46,725 44,544 42,649 44,328 43,145 47,814
Long-term debt less current 2,669 1,088 1,224 1,171 2,407 8,584 11,551
installments
Stockholders' equity(1) 36,169 33,065 33,524 30,687 28,569 26,511 27,265
Book value per share(2) 7.19 6.53 6.72 6.07 5.54 5.28 5.43
Tangible book value(3) 29,600 26,287 26,798 23,751 21,424 19,098 18,942
Tangible book value per $ 5.89 5.19 5.37 4.70 4.15 3.80 3.77
share(2)
</TABLE>
(1)Does not give effect to the exercise of outstanding options.
(2)Based on Common Shares outstanding (excluding treasury shares) at the
Balance Sheet Date.
(3)Stockholders' equity less intangible assets.
<PAGE>
UNAUDITED PROJECTED SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The Company does not ordinarily make public forecasts as to future sales,
earnings or cash flows. However, in connection with its discussions with
Purchaser and others concerning the feasibility of the Merger, the Company
prepared certain projections of financial performance summarized below for the
three months ended December 31, 1996 and 1995, and the year ended December 31,
1997.
The projections appearing on this page are forward looking statements. The
projections are unaudited and were not prepared with a view to complying with
published guidelines of the SEC or the American Institute of Certified Public
Accountants regarding forecasts or generally accepted accounting principles
regarding projections. In addition, because the projections are based on a
number of assumptions and are subject to significant uncertainties and
contingencies, many of which are beyond the Company's control, there can be no
assurance that they will be realized, and actual results may be higher or lower
than those shown, possibly by material amounts. The projections were not
prepared with a view toward public disclosure and information concerning the
projections is included in this Proxy Statement because they were furnished to
prospective purchasers and their respective advisors. Although the projections
represent the best estimate of the Company, for which the Company believes it
had a reasonable basis as of the time of the preparation thereof, of the
results of operations and financial position of the Company, they are only an
estimate, and actual results may vary considerably. Consequently, the
inclusion of the projection information herein should not be regarded as a
representation by the Company or any other entity or person that the projection
results will be achieved. Readers are cautioned not to place undue reliance on
this data. The Company's independent public accountants have not examined the
project selected consolidated financial data presented and do not express an
opinion or any other form of assurance thereon.
The projections should be read together with the information contained in
the consolidated financial statements and the pro forma selected consolidated
financial data incorporated by reference into this Proxy Statement.
THE STROBER ORGANIZATION, INC.
(In thousands of dollars, except percentage and per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
(Unaudited) December 31,
(Unaudited)
Dec. 31, Dec. 31, 1997
1996 1995
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $37,200 29,747 143,540
Gross profit 9,900 7,943 37,607
Net income 777 721 3,796
Net income per share $ 0.14 0.14 0.70
Weighted average number of 5,394 5,195 5,394
shares outstanding
BALANCE SHEET DATA:
Working capital $25,992 23,691 30,369
Total assets 52,571 44,544 56,708
Long-term debt less current 2,498 1,224 4,338
installments
Stockholders' equity(1) 37,213 33,524 40,010
Book value per share 7.16 6.72 7.70
Tangible book value(2)(3) 33,819 28,859 36,460
Tangible book value per $ 5.76 5.14 6.23
share(3)
</TABLE>
____________________________________
(1)Assumes the exercise on October 1, 1996 of all options that expire on
December 31, 1996 for an aggregate of 166,751 Common Shares with an
aggregate exercise price of $266,658 resulting in total outstanding Common
Shares of 5,194,198.
(2)Stockholders' equity less intangible assets.
(3)Assumes the exercise, on or before the date indicated, of all options that
were then outstanding with an exercise price of $6.00 or less consisting of
(i) options for 842,438 shares at an aggregate exercise price of $3,122,458
as of December 31, 1996; (ii) options for 631,022 shares at an aggregate
exercise price of $2,061,091 as of December 31, 1995; and (iii) options for
842,438 shares at an aggregate exercise price of $3,122,458 as of December
31, 1997.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
Pursuant to the Merger Agreement, Acquisition Sub, a Delaware corporation
and a wholly-owned subsidiary of the Purchaser, a Delaware limited liability
company, would be merged with and into the Company. The Company would be the
surviving corporation in the Merger and the entire equity interest in the
Company would be owned by Purchaser. Upon the consummation of the Merger, each
Common Share, other than Common Shares held by Purchaser and the Company and
Dissenting Shares will be converted into the right to receive $6.00 in cash,
without interest. Following the Merger, Purchaser will own 100% of the
Surviving Corporation's outstanding capital stock and the Company Stockholders
will cease to have any ownership interest in the Company or rights as Company
Stockholders.
The acquisition was accounted for using the purchase method of accounting.
The excess of the cost over the book value of net assets acquired ($5,865,000)
has been allocated to goodwill as the fair value of the assets acquired
approximates their historic value.
The pro forma consolidated financial statements refer to the period in time
after the Merger. The pro forma consolidated financial statements are
presented on a different basis of accounting than the historical financial
statements and therefore, are not comparable to the historical financial
information of the Company. The pro forma consolidated financial statements
reflect the effects of purchase accounting, whereby assets and liabilities were
adjusted to their estimated fair values at the date of the Merger.
The following unaudited pro forma consolidated financial statements of the
Company have been prepared on the assumptions that the Merger was effective as
of September 30, 1996 for the pro forma consolidated balance sheet and as of
the beginning of the respective year of each income statement presented below.
The pro forma consolidated financial statements are for illustrative purposes
only and do not purport to represent what the Company's financial position or
results of operations would actually have been had the transaction in fact
occurred on the dates indicated, or to project the Company's financial position
or results of operations for any future date or period. The adjustments for
the pro forma consolidated financial statements are based on available
information and upon certain assumptions which management believes are
reasonable. The pro forma consolidated financial statements presented below
should be read in conjunction with the historical consolidated financial
statements of the Company and the related notes thereto, incorporated by
reference into this Proxy Statement.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Strober Hamilton NY Pro Forma Combined Pro
Historical Acquisition Adjustments Forma
Corp.
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 4,553 0 (4,553)(a) 0
Accounts receivable, net 21,988 0 21,988
Inventory 12,880 0 12,880
Deferred income taxes 921 0 921
Other current assets 536 0 536
Total current assets 40,878 0 36,325
Property and equipment, net 5,513 0 5,513
Goodwill, net 6,569 0 (6,569)(b) 5,865
5,865 (c)
Other assets 771 0 445 (e) 1,628
412 (d)
Total assets $53,731 0 49,331
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current installments of long-term debt $ 725 0 725
Accounts payable 8,982 0 8,982
Accrued expenses and taxes 5,186 0 173 (d) 5,359
Total current liabilities 14,893 0 15,066
Long-term debt, less current installments 2,669 0 22,596 (a) 25,265
Total liabilities 17,562 0 40,331
Stockholders' equity:
Preferred stock 0 0 0
Common stock 52 0 (52)(c) 0
9,000 (a) 9,000
Additional paid-in capital 7,099 0 (7,099)(c) 0
Retained earnings 29,801 0 (29,801)(c) 0
Less: Treasury stock at cost (783) 0 783 (c) 0
Total stockholders' equity 36,169 0 9,000
Total liabilities and stockholders' equity $53,731 0 49,331
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE
SHEET
(in thousands)
(a)To record the following estimated funds to finance the merger:
<TABLE>
<CAPTION>
<S> <C> <C>
Company cash on hand $ 4,553
Purchaser's equity 9,000
New revolving credit facility 18,596
New subordinated note 4,000
$36,149
</TABLE>
(b)Represents the elimination of historical goodwill.
(c)Represents the excess of merger consideration and transaction costs in
excess of the fair value of the assets and liabilities acquired.
(d)Reclassify a transaction cost previously treated as an operating expense net
of income tax effect.
(e)To record deferred financing charges associated to the borrowings under the
new revolving credit facility and subordinated note.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF
OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Strober Hamilton NY Pro Forma
Historical Acquisition Adjustments Combined Pro
(Unaudited) Corp. Forma
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $100,898 0 100,898
Cost of goods sold 74,222 74,222
Gross profit 26,676 0 26,676
Selling, general and administrative 22,849 0 49 (a) 22,535
expenses 63 (b)
(426)(c)
Income from operations 3,827 0 4,141
Interest expense (156) 0 (1,759)(d) (1,915)
Interest income 355 0 (196)(e) 159
Equity in earnings of joint venture 182 0 182
Gain on sale of fixed assets and 294 0 294
other income
Net income before income taxes 4,502 0 2,861
Provision for income taxes 1,891 0 (690)(f) 1,201
Net income $ 2,611 0 1,660
See Notes To Unaudited Pro Forma Consolidated Statement of Operations
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Strober Hamilton NY Pro Forma Combined Pro
Historical Acquisition Adjustments Forma
(Unaudited) Corp.
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $125,813 0 125,813
Cost of goods sold 92,627 92,627
Gross profit 33,186 0 33,186
Selling, general and administrative 28,068 0 66 (a) 28,137
expenses 83 (b)
(80)(c)
Income from operations 5,118 0 5,049
Interest expense (228) 0 (2,339)(d) (2,567)
Interest income 480 0 (221)(e) 259
Equity in earnings of joint venture 0 0 0
Gain on sale of fixed assets and (22) 0 (22)
other income
Net income before income taxes 5,348 0 2,719
Provision for income taxes 2,266 0 (1,114)(f) 1,152
Net income $ 3,082 0 1,567
See Notes To Unaudited Pro Forma Consolidated Statements of Operations
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(a)Represents additional management, servicing and finance auditing fees
associated with the financing to fund the merger transaction.
(b)Represents additional amortization of goodwill resulting from the merger.
It has been assumed that the merger consideration and transaction costs in
excess of the fair value of the Company's assets and liabilities creates
goodwill to be amortized over 20 years.
(c)Reflects the elimination of costs associated with the Company's managed sale
process.
(d)The following table presents a reconciliation of pro forma interest
expenses:
<TABLE>
<CAPTION>
(in thousands) Nine Months Ended Year Ended 12/31/95
9/30/96
<S> <C> <C>
Historical interest expense $ 156 228
Add:
Interest on revolving line of credit at the assumed rate of 1313 1751
9.25%
Interest on subordinated note at the assumed rate of 13.25% 403 530
Amortization of deferred financing costs on new debt 94 125
Deduct:
Unused line fee and amortization of deferred financing costs -51 -67
on retired debt
Proforma adjustment 1759 2339
Proforma interest expense $1915 2567
</TABLE>
(e)Reflects the elimination of interest earned.
(f)Represents reduction in the provision for income taxes resulting from
certain pro forma adjustments.
<PAGE>
OWNERSHIP OF COMMON SHARES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of the date of this
Proxy Statement concerning the beneficial ownership of Common Shares by each
person known by the Company to own more than 5% of its Common Shares.
NAME AND ADDRESS OF COMMON SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
Hamilton Acquisition LLC(1) 3,160,941 60.9%
82 Devonshire Street
Boston, Massachusetts 02109
Sue Strober (2)(5)(6) 948,201 18.3%
133 Jericho Turnpike
Old Westbury, New York 11568
Robert J. Gaites (3)(5)(6)(7) 570,189 10.8%
c/o The Strober Organization, Inc.
Pier 3 - Furman Street
Brooklyn, New York 11201
John Yanuklis (4)(5)(6)(7) 550,158 10.4%
c/o The Strober Organization, Inc.
Pier 3 - Furman Street
Brooklyn, New York 11201
John T. Guerin (5)(6) 422,250 8.1%
14 Summit Road
Morristown, New Jersey 07960
Gordon Sandler (5)(6) 399,486 7.7%
6468 Via Rosa
Boca Raton, Florida 33433
___________________
(1) Beneficial ownership arises from Purchaser's irrevocable proxy to vote
these Common Shares pursuant to the Proxy Agreement and Purchaser's ownership
of the Surviving Corporation upon consummation of the Merger. See "Special
Factors -- Proxy Agreement."
(2) Includes an aggregate of 84,650 Common Shares held in trusts of which
Ms. Strober is the trustee for her son and daughter and 180,960 Common Shares
held in a trust of which Mr. David Bernstein is a trustee for Sue Strober's son
and daughter. Includes an aggregate of 91,200 Common Shares which Ms. Strober
gave to her son and daughter but Ms. Strober retains an irrevocable proxy to
vote such Common Shares. Ms. Strober disclaims beneficial ownership of all
such Common Shares. Includes an aggregate of 1,500 Common Shares which have
previously been transferred to third parties as a gift but have not yet been
registered in such parties' names.
(3) Includes 25,000, 37,500 and 25,553 Common Shares subject to presently
exercisable options held by Mr. Gaites at exercise prices of $4.75, $3.625 and
$4.50 per share, respectively, which expire on December 31, 1997, March 8, 2000
and March 12, 2001, respectively. Includes 147,180 Common Shares held by a
charitable remainder trust for the benefit of Mr. Gaites and his spouse and for
which Mr. Gaites retains an irrevocable proxy to vote such Common Shares and
2,000 Common Shares held by Mr. Gaites' spouse as trustee for their son. Mr.
Gaites disclaims beneficial ownership of such Common Shares.
(4) Includes 22,737, 23,503 and 27,378 Common Shares subject to presently
exercisable options held by Mr. Yanuklis at exercise prices of $4.75, $3.625
and $4.50 per share, respectively, which expire on December 31, 1997, March 8,
2000 and March 12, 2001, respectively. Includes 140,000 Common Shares held by
a charitable remainder trust for the benefit of Mr. Yanuklis and his spouse for
which Mr. Yanuklis retains an irrevocable proxy to vote such Common Shares.
Mr. Yanuklis disclaims beneficial ownership of such shares.
(5) The above-named beneficial owner is a party to a reorganization
agreement dated as of October 1, 1986, as amended, providing such beneficial
owner with a right of prior notice and first refusal to purchase Common Shares
which any other party to the agreement desires to sell. These rights have been
waived by each such individual, and by all other individuals holding such
rights, in order to enter into the Merger Agreement and the Proxy Agreement and
to consummate the transactions contemplated thereby. See "Special Factors --
Interest of Certain Persons in the Merger."
(6) Such Common Shares are subject to the proxy granted to Purchaser
pursuant to the Proxy Agreement. See "Special Factors -- Proxy Agreement."
(7) Additional options to purchase 166,751 Common Shares were outstanding
at the time the Merger Agreement was executed which by their terms would have
expired on December 31, 1996. These 166,751 options have subsequently been
exercised and applicable tax withholdings made utilizing loan proceeds from the
Company. Of these options, Mr. Gaites borrowed $78,812 from the Company to
exercise 25,000 options and Mr. Yanuklis borrowed $69,640 to exercise 23,286
options. See "Special Factors -- Exercise of Company Stock Options Expiring on
December 31, 1996."
SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANY
The following table, prepared from the records of the Company and from
information furnished to it, sets forth, as of the date of this Proxy
Statement, the number of Common Shares beneficially owned by each director, the
chief executive officer and the four other most highly compensated executive
officers (collectively, the "NAMED EXECUTIVE OFFICERS"), all directors and
executive officers of the Company as a group, and The Strober Organization,
Inc. Retirement Plan. Unless otherwise indicated, the persons/entities listed
below have sole voting and investment power with respect to all Common Shares
shown as beneficially owned by them.
<TABLE>
<CAPTION>
COMMON SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
<S> <C> <C>
Robert J. Gaites, Chairman, CEO and 570,189 (1)(8)(10) 10.8%
President
David W. Bernstein, Director 79,100 (2)(3) 1.5%
Joseph Mangino, Sr., Director 60,500 (3) 1.2%
Alvin Murstein, Director 65,000 (3) 1.2%
Emil W. Solimine, Director 68,500 (3)(4) 1.3%
John Yanuklis, Director and Executive 550,158 (5)(8)(10) 10.4%
Vice President
Edward Zieky, Senior Vice President 20,867 (6)(8) *
Eliott Zieky, Director and Senior Vice 20,867 (6)(8) *
President
Richard Schaefer, Senior Vice President 142,646 (7) 2.7%
All officers and directors as a group 1,815,740 31.5%
(12 persons) (9)
The Strober Organization, Inc. 23,500(11) *
Retirement Plan
</TABLE>
________________________
* Less than one percent of the outstanding Common Shares.
(1) Includes 25,000, 37,500 and 25,553 Common Shares subject to presently
exercisable options held by Mr. Gaites at exercise prices of $4.75, $3.625 and
$4.50 per share, respectively, which expire on December 31, 1997, March 8, 2000
and March 12, 2001, respectively. Includes 147,180 Common Shares held by a
charitable remainder trust for the benefit of Mr. Gaites and his spouse for
which Mr. Gaites retains an irrevocable proxy to vote such Common Shares and
2,000 Common Shares held by Mr. Gaites' spouse as trustee for their son. Mr.
Gaites disclaims beneficial ownership of such Common Shares.
(2) Includes 100 Common Shares owned by Mr. Bernstein's wife. Mr.
Bernstein is also the trustee of a trust established by Sue Strober for the
benefit of her son and daughter which holds 180,960 Common Shares for which Ms.
Strober retains an irrevocable proxy to vote such Common Shares. Mr. Bernstein
disclaims beneficial ownership of such shares.
(3) Includes 12,500, 18,750 and 18,750 Common Shares subject to presently
exercisable options each held by the outside directors at an exercise price of
$4.75, $3.625 and $4.50 per share, respectively, which expire on March 9, 1997,
March 8, 2000 and March 12, 2001, respectively.
(4) 1,000 of these Common Shares are owned by Emar, Ltd., of which Mr.
Solimine is the sole shareholder and 17,500 of these Common Shares are owned by
Deye Limited Partnership of which Mr. Solimine is a general partner.
(5) Includes 22,737, 23,503 and 27,378 Common Shares subject to presently
exercisable options held by Mr. Yanuklis at exercise prices of $4.75, $3.625
and $4.50 per share, respectively, which expire on December 31, 1997, March 8,
2000 and March 12, 2001, respectively. Includes 140,000 Common Shares held by
a charitable remainder trust for the lifetime benefit of Mr. Yanuklis and his
spouse for which Mr. Yanuklis retains an irrevocable proxy to vote such Common
Shares. Mr. Yanuklis disclaims beneficial ownership of all such Common Shares.
(6) Includes 1,684, 10,152 and 9,031 Common Shares subject to a presently
exercisable option held by each of Edward and Eliott Zieky at an exercise price
of $4.75, $3.625 and $4.50 per share, respectively, which expire on December
31, 1997, March 8, 2000 and March 12, 2001, respectively.
(7) Includes 15,789, 27,586 and 22,222 shares of Common Stock subject to
presently exercisable options held by Mr. Schaefer at exercise prices of $4.75,
$3.625 and $4.50 per share, respectively, which expire on December 31, 1997,
March 8, 2000 and March 12, 2001, respectively.
(8) The above-named director or member of management is a party to a
reorganization agreement dated as of October 1, 1986, as amended, providing
such individual with a right of prior notice and first refusal to purchase
Common Shares which any other party to the reorganization agreement desires to
sell. These rights have been waived by each such individual, and by all other
individuals holding such rights, in order to enter into the Merger Agreement
and the Proxy Agreement and to consummate the transactions contemplated
thereby. See "Special Factors -- Interest of Certain Persons in the Merger."
(9) Includes 576,639 Common Shares subject to presently exercisable options
and warrants held by certain directors and executive officers of the Company at
exercise prices ranging from $3.625 to $4.75 per share. Excludes 150 shares
owned by a relative of Mr. Albert Brower. Mr. Brower disclaims beneficial
ownership of such shares.
(10) Such Common Shares are subject to the proxy granted to Purchaser
pursuant to the Proxy Agreement. See "Special Factors -- Proxy Agreement."
(11) The Company's Retirement Plan owns 23,500 Common Shares and will be
entitled to receive the Merger Consideration in full for each such share at the
Effective Time.
SECURITY OWNERSHIP OF PURCHASER AND ACQUISITION SUB
PURCHASER. The following table sets forth certain information as of the
date of this Proxy Statement concerning the beneficial ownership of the equity
interests in Purchaser.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER EQUITY INTERESTS PERCENT OF CLASS
BENEFICIALLY OWNED
<S> <C> <C>
FMR Corp. (1) 50%(2)
82 Devonshire Street
Boston, Massachusetts 02109
Fidelity Investors Management Corp. (1) 50%(3)
400 East Los Colinas Boulevard, Suite 470
Irving, Texas 75034
</TABLE>
(1) Equity interests in Purchaser, a Delaware limited liability company,
are currently stated as a percentage of Purchaser's total members' equity
rather than as a number of shares or units.
(2) Represents interests owned by Fidelity Ventures Limited Partnership
("FVLP"), a member of Purchaser. FMR Corp, ("FMR") may be deemed to be an
indirect beneficial owner of such interests as sole owner of Fidelity Capital
Associates, Inc. ("FCA"), the general partner of FVLP.
(3) Represents interests owned by Fidelity Investors Limited Partnership
("FILP"), a member of Purchaser. Fidelity Investors Management Corp. ("FIMC")
may be deemed to be an indirect beneficial owner of such interests as the
general partner of FILP.
Prior to the Effective Date, Frederick M. Marino, the proposed Chairman of
the Board of Directors and Chief Executive Officer of the Surviving
Corporation, who is not affiliated with the Company, will make an equity
investment of at least $250,000 in Purchaser, which will reduce the percentage
interests of the current members of Purchaser on a pro rata basis. The dollar
amount of this investment, and the percentage equity interest in Purchaser to
be received by Mr. Marino prior to the Effective Date were negotiated
concurrently with Purchaser's discussions with the Company regarding a proposed
transaction. Mr. Marino is not a director, or officer or otherwise an
affiliate of the Company.
Although it was originally contemplated that Purchaser might afford to
certain members of Company management the opportunity to make a limited
investment in the Purchaser, the Purchaser subsequently determined not to make
such an opportunity available. See "Management of Purchaser, Acquisition Sub
and the Company -- Directors and Executive Officers (or Equivalent) of
Purchaser and Acquisition Sub -- Company Management Participation."
ACQUISITION SUB. Acquisition Sub is a wholly owned subsidiary of Purchaser
and has one (1) class of stock outstanding, common stock, par value $.01 per
share.
TRANSACTIONS BY CERTAIN PERSONS IN COMMON SHARES
EXERCISE OF COMPANY STOCK OPTIONS EXPIRING ON DECEMBER 31, 1996. At the
November 7, 1996 meeting of the Special Committee, the members discussed the
circumstances under which Company stock options to purchase an aggregate of
166,751 Common Shares were issued as of December 31, 1991 at an exercise price
of $1.125 and as of March 4, 1993 at an exercise price of $1.75 (which in each
case, as provided in the applicable stock option plan, was the then current
market price of the Common Shares) and would expire on December 31, 1996 in
accordance with their respective terms. The Committee was advised that (i) if
the Merger were successfully consummated, the trading price of the Common
Shares prior to the consummation of the Merger would typically not be expected
to reach the level of the Merger consideration; (ii) the exercise of such
options was a taxable event to the eight individuals holding such options and
that a significant tax withholding payment would by required to be made by such
option holders; (iii) closing of any possible transaction resulting from the
search and evaluation process would most likely extend beyond December 31,
1996; and (iv) several of the option holders were insiders, who under Company
policies could not then buy or sell Common Shares on the market, to fund the
applicable tax withholding payment. Accordingly, the Special Committee
determined to recommend to the Board that the Company offer to loan to these
option holders the exercise price of the options together with the tax
withholding amount to facilitate their exercise of the options, such loan to
bear interest at the Company's rate of borrowing and to be payable upon the
sooner of the closing of any sale transaction or one year from the date of
loan. The loan would be secured by a pledge of the purchased shares pending
repayment of the loan. Upon exercise of such options, the holders of the
purchased shares would be entitled to vote such shares. Accordingly, as of the
date of this Proxy Statement, all of such holders have borrowed an aggregate of
approximately $495,070 from the Company and exercised all such options to
purchase an aggregate of 166,751 Common Shares which are held by the Company as
collateral for the loan. As three of the option holders for 57,393 Common
Shares are also signatories of the Proxy Agreement, the exercise of these
options had the effect of increasing the number of Common Shares subject to the
Proxy Agreement from 3,103,548 at the date of execution to 3,160,941 Common
Shares as of the date of this Proxy Statement.
On October 4, 1996, Sue Strober made a gift of 45,600 Common Shares to each
of her son and daughter and 180,960 Common Shares to a trust for the benefit of
her son and daughter, naming David Bernstein as trustee. Ms. Strober retains
an irrevocable proxy to vote all of the foregoing Common Shares.
On November 8, 1996, Messrs. Brower, Gaites and Yanuklis made respective
gifts of 25,000, 147,180 and 140,000 Common Shares to separate charitable
annuity remainder trusts for the lifetime benefit of their respective selves
and spouses and each retains an irrevocable proxy to vote all of the foregoing
Common Shares.
The Company, Sue Strober, certain current executive officers of the Company
and certain former executive officers and directors of the Company are parties
to the Reorganization Agreement providing such parties with prior notice and a
right of first refusal to purchase shares of the Company's Common Stock which
any of the parties desires to sell. The remaining parties of the
Reorganization Agreement (including the Company) have waived and/or terminated
their rights under the Reorganization Agreement.
The following table sets forth the purchases of Common Shares by the Company
and members of Company Management from January 1, 1995 through December 31,
1996, including the amount of Common Shares purchased, the range of prices paid
for such Common Shares, and the average purchase price during the quarterly
period such purchase(s) occurred.
<TABLE>
<CAPTION>
ISSUER/AFFILIATE AMOUNT PURCHASED RANGE OF PRICES AVERAGE PURCHASE PRICE PER QUARTERLY
(SHARES) ($) PERIOD
($)
<S> <C> <C> <C> <C>
The Company 78,812(1) 3.63 - 4.00 3.77 N/A
Robert J. Gaites 25,000(3) 1.75(2) N/A 1.75
John Yanuklis 23,286(4) 1.13 - 1.75(2) N/A 1.51
Albert C. Brower 9,107(5) 1.13 - 1.75(2) N/A 1.49
David J. Polishook 15,000(6) 1.13 - 1.75(2) N/A 1.54
Richard Schaefer 73,929(7) 1.13 - 1.75(2) N/A 1.56
</TABLE>
(1) On May 22, 1995, the Company announced that management believed the
Company to be undervalued by the market and that it had authorized a repurchase
program to repurchase from time to time up to 250,000 Common Shares. On the
business day immediately prior to such announcement, the Company's shares had
closed at $3.625 per share. Pursuant to such plan, on November 10 and December
28, 1995, the Company purchased on the open market 5,000 Common Shares and
10,000 Common Shares, respectively, at purchase prices of $4.00 per share and
$3.63 per share, respectively. As the result of the death of the Company's
founder, Eric D. Strober, in 1988, the Company was obligated in 1990 to utilize
life insurance proceeds to purchase Common Shares from Mr. Strober's estate.
To offset the effect of withholding to pay estimated federal alternative
minimum tax in that transaction, the Company was required to offer to purchase
additional Common Shares from Mr. Strober's estate for so long as the tax
benefit was outstanding. For 1994, the Company's regular income tax was
reduced by $241,000 due to the alternative minimum tax carryover and Ms.
Strober, as beneficiary of the estate, required the Company to redeem 63,182
Common Shares in October 1995. As the alternative minimum carryover was fully
exhausted during 1994, no further Common Shares were eligible for redemption
from Mr. Strober's estate.
(2) Price represents exercise price of option to purchase Common Shares
received pursuant to the Company's stock incentive plan(s).
(3) On December 10, 1996, Mr. Gaites exercised an option to purchase 25,000
Common Shares at an exercise price of $1.75 per share.
(4) On December 10, 1996, Mr. Yanuklis exercised options for 9,000 and
14,286 Common Shares at exercise prices of $1.13 and $1.75 per share,
respectively.
(5) On December 10, 1996, Mr. Brower exercised options for 3,750 and 5,357
Common Shares at exercise prices of $1.13 and $1.75 per share, respectively.
(6) On December 10, 1996, Mr. Polishook exercised options for 5,000 and
10,000 Common Shares at exercise prices of $1.13 and $1.75 per share,
respectively.
(7) On December 10, 1996, Mr. Schaefer exercised options for 22,500 and
51,429 Common Shares at exercise prices of $1.13 and $1.75 per share,
respectively.
MANAGEMENT OF PURCHASER, ACQUISITION SUB AND THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS (OR EQUIVALENT) OF PURCHASER AND ACQUISITION
SUB
Set forth below is the name and business address of each person who is a
manager of Purchaser, which is a Delaware limited liability company, and who is
a director or officer of Acquisition Sub, the present principal occupation or
employment of each such person and the name and principal business of the
corporation or other organization in which such occupation or employment of
each such person is conducted and the material occupations, positions, office
or employment that each such person has held during the last five years. Each
such person is presently employed by either Fidelity Capital Associates, Inc.
("FIDELITY CAPITAL"), a private venture capital and related asset management
firm, or Fidelity Management & Research Company ("FMR CO."). The principal
executive officers of Fidelity Capital and FMR Co. are located at 82 Devonshire
Street, Boston, Massachusetts 02109. Each person listed below has a business
address at 82 Devonshire Street, Boston, Massachusetts 02109 and is a citizen
of the United States.
<TABLE>
<CAPTION>
NAME POSITION WITH PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
AND FIVE-YEAR EMPLOYMENT HISTORY
<S> <C> <C>
John J. Remondi Purchaser - Manager Mr. Remondi has served as Managing
Acquisition Sub - President and Director of Fidelity Capital and as a Vice
Director President of FMR Co. since 1983.
Warren T. Morrison Purchaser - Manager Mr. Morrison has served as a Vice
Acquisition Sub - Treasurer and President of Fidelity Capital since
Director November 1995. Prior to joining Fidelity
Capital, Mr. Morrison served as Senior
Vice President and Senior Credit
Administration Officer, Asset-Based
Lending of US Trust Company from November
1991 through November 1995.
Robert M. Gervis Acquisition Sub - Secretary Mr. Gervis has served as Vice President
and Director of Investment Situations for
FMR Co. since March 1996 and served as
Associate General Counsel to FMR Co. from
July 1994 to February 1996. Prior to
joining FMR Co., Mr. Gervis was a Partner
with the law firm of Weil, Gotshal &
Manges from January 1993 to June 1994 and
was an associate attorney with Weil,
Gotshal & Manges from August 1985 to
December 1992.
</TABLE>
It is proposed that prior to or concurrent with the Effective Date,
Frederick M. Marino, who is not affiliated with the Company, will be elected
the Chairman of the Board of Directors and Chief Executive Officer of
Acquisition Sub and/or the Surviving Corporation, as the case may be. In
addition, it is currently proposed that existing members of the Company's
management will continue their employment with the Surviving Corporation and/or
its subsidiaries, as the case may be, on terms substantially similar to the
terms of each such individual's employment with the Company and/or its
subsidiaries as of the date hereof. See "Special Factors -- Interests of
Certain Persons in the Merger."
COMPANY MANAGEMENT PARTICIPATION. Immediately upon consummation of the
Merger, all of the Company's directors will resign. Pursuant to the Merger
Agreement, the directors and officers of Acquisition Sub will be the directors
and officers of the Surviving Corporation, and the Purchaser will appoint their
successors. Subsequent to the closing of the Merger, all of the Company's
officers are expected to be employed by the Surviving Corporation.
Although it was originally contemplated that Purchaser might afford certain
members of Company management the opportunity to invest up to an aggregate of
$750,000 of the anticipated $9 million of Purchaser capital, for which such
members of Company management would have received approximately 8.1% of
Purchaser's equity on a fully diluted basis solely as a means to align the
interests of management of the Surviving Corporation with the interests of its
stockholders, the Purchaser subsequently determined not to make such an
opportunity available. See "Special Factors -- Sources and Amount of Funds;
Payment for Common Shares" and "Special Factors -- Certain Benefits, Detriments
and Effects of the Merger."
Neither the Purchaser's initial proposal, nor the negotiations between the
Purchaser and the Company which followed, required any member of Company's
management to invest in the Purchaser as a condition to a proposed transaction
between the Purchaser and the Company. None of the directors serving on the
Special Committee have been, nor will be, afforded investment opportunities in
the Purchaser.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is the name and business address of each person who is a
director or executive officer of the Company and, unless disclosed elsewhere
herein, the present principal occupation or employment of each such person and
the name, principal business and address of the corporation or other
organization in which such occupation or employment of each such person is
conducted and the material occupation, positions, offices and employment and
the name, principal business and address of any corporation or other
organization in which any material occupational position, office or employment
of each such person was held during the last five years. Unless otherwise
indicated, each person listed below has a business address care of the Company
at Pier 3, Furman Street, Brooklyn, New York 11201 and is a citizen of the
United States.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE-YEAR EMPLOYMENT HISTORY
DAVID W. BERNSTEIN Mr. Bernstein is an attorney engaged in
14 Aliso Road private practice and had served as general
Carmel Valley, CA 93924 counsel to the DirectorCompany from 1953
through 1990.
ALBERT C. BROWER Mr. Brower was elected as Senior Vice
President in October 1986.
Senior Vice President
ROBERT J. GAITES Mr. Gaites has been with the Company since
Chief Executive Officer, and 1976. He was Senior Vice President the
President Board, since Chairman of the Board,1986 and
CEO since June 1991. He has 29 years of
experience in the industry.
JOSEPH MANGINO, SR. Mr. Mangino has been the President of
Director Metropolitan Trucking, Inc. a privately held
75 Broad Avenue company since 1980. He is a regional director
Fairview, NJ 07022 of Bank of New York, National Community
Division.
ALVIN MURSTEIN Mr. Murstein has been Chairman of the Board of
Directors of Medallion Financial Corp., the parent
205 East 42nd Street corporation of Medallion Funding Corp., since
New York, NY 10017 1996 and the Chairman of the Board of Directors
of Medallion Funding Corp. since 1979.
DAVID J. POLISHOOK Mr. Polishook was elected to the Board of
Chief Financial Officer, Directors on January 31, 1988, elected Chief
Secretary and Treasurer Financial Officer and Treasurer of the Company
on June 28, 1988 and was elected Secretary on
November 12, 1991. He resigned as a Director
on February 28, 1991.
RICHARD SCHAEFER Mr. Schaefer was elected as Vice President of
the Company on July 20, 1989.
EMIL W. SOLIMINE Mr. Solimine is the Chairman of the Board of
Director and Chief Executive Officer of Emar Group,
354 Eisenhower Parkway Inc., an insurance brokerage concern which he
Livingston, NJ 07037 started in 1971 and which has served as
insurance broker for the Company's property
and casualty insurance since 1983. Mr.
Solimine is also a director of DiGiorgio
Corporation, an independent wholesale food
distributor.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE YEAR EMPLOYMENT HISTORY
JOHN YANUKLIS Mr. Yanuklis has been with the Company since
1981 and manages its Hudson Valley, New York
region. He was a Director and Senior Vice
President since 1986 and an Executive Vice
President since June 1992. He has over
30 years of experience in the and Director
industry.
RICHARD W. YOUNG Mr. Young was elected as Senior Vice President
Senior Vice President in October 1986.
EDWARD N. ZIEKY Mr. Zieky was elected as Senior Vice President
Senior Vice President and Director of the Company as of January 25,
1988 Company as of January 25, 1988 and with
his cousin, Eliott Zieky, managesthe Company's
Hartford, Connecticut region. Mr. Zieky
resigned as a Director on February 28, 1991.
He was an officer of The General Building
Supply Company prior to its acquisition by the
Company in 1988. He has over 20 years of
experience in the industry.
ELIOTT ZIEKY Mr. Zieky was elected as Senior Vice President
and Director of the Company as of January 25,
1988, and with his cousin, Edward Zieky,
and Director manages its Hartford, Connecticut
region. He was an officer of The General
Building Supply Company prior to its
acquisition by the Company in 1988. He has
over 20 years of experience in the industry.
The members of the Special Committee which has unanimously recommended the
Merger Agreement for approval and adoption by the Company Stockholders consists
of Messrs. Bernstein, Mangino, Murstein and Solimine.
Immediately after consummation of the Merger, all of the Company's directors
will resign and the Purchaser will appoint their successors.
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 30, 1995
and 1994, and for each of the years in the three year period ended December 31,
1995 incorporated by reference into this Proxy Statement were audited by KPMG
Peat Marwick LLP, the Company's independent certified public accountants. A
representative of KPMG Peat Marwick LLP will be at the Special Meeting to
answer questions by Company Stockholders and will have the opportunity to make
a statement if so desired.
STOCKHOLDER PROPOSALS
Under the DGCL and the By-Laws of the Company, no other business may be
transacted at the Special Meeting. If the Merger is not for any reason
consummated, then, in accordance with regulations issued by the SEC, Company
Stockholder proposals intended for presentation at the Company's 1997 annual
meeting of stockholders must be received by the Secretary of the Company no
later than March 17, 1997, if such proposals are to be considered for inclusion
in the Company's proxy statement. Proposals should be mailed via certified
mail and addressed to: Corporate Secretary, The Strober Organization, Inc.,
Pier 3 - Furman Street, Brooklyn, New York 11201.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by the Company are
incorporated by reference into this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 as provided to each Company Stockholder together
with this Proxy Statement;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996; June 30, 1996; and September 30, 1996, as provided
to each Company Stockholder together with this Proxy Statement;
3. The Company's Current Reports on Form 8-K filed on February 20,
1996; June 27, 1996; November 20, 1996; November 27, 1996;
November 29, 1996; December 5, 1996; December 17, 1996 and January
22, 1997.
All documents and reports filed by the Company with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and to be a part hereof
from the respective dates of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNERS, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON
WRITTEN OR ORAL REQUEST TO DAVID POLISHOOK, CHIEF FINANCIAL OFFICER, THE
STROBER ORGANIZATION, INC., PIER 3 - FURMAN STREET, BROOKLYN, NEW YORK 11201.
IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING,
REQUESTS MUST BE RECEIVED BY [ , 1997.]
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities of the SEC at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the regional offices of the SEC located at 7 World Trade Center, 13th Floor,
Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center, 14th
Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected at the offices of NASDAQ National Market, 1735 K
Street, Washington, D.C. 20006.
MISCELLANEOUS
Where information contained in this Proxy Statement rests particularly
within the knowledge of a person other than the Company, the Company has relied
upon information furnished by such person or contained in filings made by such
person with the SEC.
By Order of the Board of Directors
Robert J. Gaites
Chairman, President and Chief Executive
Officer
<PAGE>
- -------------------------------------------------------------------------------
REVOCABLE PROXY
THE STROBER ORGANIZATION, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE STROBER
ORGANIZATION, INC.
The undersigned hereby appoints Emil W. Solimine, David J. Polishook, or
any of them, each with full power of substitution, as the lawful proxies of the
undersigned and hereby authorizes such persons to represent and to vote as
designated below all shares of the common stock of The Strober Organization,
Inc. ("STROBER") which the undersigned would be entitled to vote if personally
present at the Special Meeting of Stockholders of Strober to be held on March
__, 1997, and at any adjournments or postponements thereof (the "SPECIAL
MEETING").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEM 1.
IMPORTANT -- PLEASE SIGN AND DATE ON THE OTHER SIDE AND RETURN PROMPTLY.
(Continued on other side)
- -------------------------------------------------------------------------------
PLEASE MARK BOXES IN BLUE OR BLACK INK.
1. Approval of Amended and Restated Agreement and Plan of Merger dated as of
November 11, 1996, by and among Hamilton Acquisition LLC, Hamilton NY
Acquisition Corp., and The Strober Organization, Inc.
FOR AGAINST ABSTAIN
{__} {__} {__}
2. To transact such other business as may properly come before the Special
Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
ITEM 1.
The undersigned acknowledges receipt of the Notice of Special Meeting and
Proxy Statement for the Special Meeting.
When signed as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
<PAGE>
Whether or not you plan to attend the Special Meeting, you are urged to
execute, date and return this proxy, which may be revoked at any time prior to
its use.
Dated: , 1997
------------------------
(Signature of Company
Stockholder)
------------------------
(Signature of Additional
Company Stockholder(s))
Please sign your name
exactly
as it appears hereon, date
and
return this proxy in the
reply
envelope provided. If you
receive more than one proxy
card, please sign, date and
return all cards received.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE>
ANNEX A
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"),
dated as of November 11, 1996, as amended and restated as of January 17,
1997, by and among Hamilton Acquisition LLC, a Delaware limited liability
company ("PARENT"), Hamilton NY Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("ACQUISITION SUB"), and The
Strober Organization, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Board of Directors of the Company (the "BOARD") has, in
light of and subject to the terms and conditions set forth herein, (i)
determined that the consideration to be received by the stockholders of the
Company for each of the issued and outstanding shares of common stock, par
value $.01 per share, of the Company (the "COMPANY COMMON STOCK"), in the
Merger (as defined below) is fair to and in the best interests of the
Company and its stockholders and (ii) resolved to approve this Agreement
and the transactions contemplated hereby and to recommend approval and
adoption of this Agreement and approval of the Merger by the stockholders
of the Company;
WHEREAS, also in furtherance of such transactions, the manager or
managers, as the case may be, of Parent (as the case may be, the "MANAGER"
or "MANAGERS") and the Board of Directors of Acquisition Sub have each
unanimously approved the merger of Acquisition Sub with and into the
Company (the "MERGER") in accordance with the General Corporation Law of
the State of Delaware (the "CORPORATION LAW") and the provisions of this
Agreement pursuant to which Merger the holders of Company Common Stock
(other than the Company, Acquisition Sub, Parent and any direct or indirect
subsidiary of any them) shall receive the Merger Consideration (as defined
in Section 2.7(b) hereof); and
WHEREAS, as a condition to the willingness of Parent and Acquisition
Sub to enter into this Agreement, certain stockholders of the Company (each
individually a "PRINCIPAL STOCKHOLDER" and collectively the "PRINCIPAL
STOCKHOLDERS") have entered into a Proxy Agreement, dated as of the date
hereof, with Parent and Acquisition Sub (the "PROXY AGREEMENT") pursuant to
which each Principal Stockholder has, among other things, granted to Parent
an irrevocable proxy to vote all shares of Company Common Stock owned
(beneficially or otherwise) by such Principal Stockholder in favor of the
Merger, all upon the terms and conditions set forth in the Proxy Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, Parent, Acquisition Sub and the Company hereby
agree as follows:
1. [INTENTIONALLY OMITTED]
2. THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with the relevant provisions
of the Corporation Law, at the Effective Time (as hereinafter defined),
Acquisition Sub shall be merged with and into the Company. Following the
Merger, the Company shall continue its corporate existence as the surviving
corporation in the Merger (the "SURVIVING CORPORATION") under the laws of
the State of Delaware, and the separate corporate existence of Acquisition
Sub shall cease. The name of the Surviving Corporation shall continue to
be "The Strober Organization, Inc."
2.2 EFFECTIVE TIME. As promptly as practicable after all of the
conditions set forth in Section 8 shall have been satisfied or, if
permissible, waived by the party entitled to the benefit of the same,
Acquisition Sub and the Company shall duly execute and file a certificate
of merger in form and substance satisfactory to the parties hereto (the
"CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware in accordance with the Corporation Law. The Merger shall become
effective at such time as the Certificate of Merger is filed with the
Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "EFFECTIVE TIME"). Prior to
such filing, a closing shall be held at the offices of Goodwin, Procter &
Hoar LLP, Exchange Place, Boston, Massachusetts 02109, or at such other
place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Section 8 (the date of such closing being, the "EFFECTIVE DATE").
2.3 EFFECTS OF THE MERGER. At the Effective Time, the Merger shall
have the effects set forth herein and in the Corporation Law. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises
of the Company and Acquisition Sub shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and
duties of the Company and Acquisition Sub shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
2.4 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Acquisition Sub, or at the election of Parent, the Company's Restated
Certificate of Incorporation (the "COMPANY'S CERTIFICATE"), in each case as
in effect at the Effective Time, which shall in either case include the
provisions required by Section 7.6 hereof, shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with applicable law and such Certificate of Incorporation, PROVIDED,
HOWEVER, that at the Effective Time, Article First of the Certificate of
Incorporation of Acquisition Sub shall be amended to read as follows:
"FIRST, the name of the corporation is The Strober Organization, Inc. (the
"CORPORATION")."
(b) At the Effective Time, the By-laws of Acquisition Sub, or at
the election of Parent, the By-laws of the Company, in each case as in
effect at the Effective Time, which shall in either case include the
provisions required by Section 7.6 hereof, shall be the By-laws of the
Surviving Corporation, until duly amended in accordance with applicable
law, the Certificate of Incorporation of the Surviving Corporation and such
By-laws.
2.5 DIRECTORS. The directors of Acquisition Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
2.6 OFFICERS. The officers of the Surviving Corporation shall be
appointed by the directors of the Surviving Corporation.
2.7 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Acquisition Sub, the
Company or the holders of Company Common Stock:
(a) Each issued and outstanding share of Company Common Stock
held by the Company as a treasury share or held by any direct or indirect
subsidiary of the Company (which does not include the 23,500 shares of
Company Common Stock held by the Company's profit-sharing plan as of the
date hereof (the "PROFIT SHARING PLAN SHARES")) and each issued and
outstanding share of Company Common Stock owned by Parent, Acquisition Sub
or any other direct or indirect subsidiary of Parent immediately prior to
the Effective Time shall be canceled and retired and cease to exist without
any conversion thereof and no payment or distribution shall be made with
respect thereto;
(b) Each issued and outstanding share of Company Common Stock
immediately prior to the Effective Time, other than (i) those shares of
Company Common Stock referred to in Section 2.7(a) and (ii) Dissenting
Shares (as defined in Section 3.2 below), shall be canceled and shall be
converted automatically into and represent the right to receive an amount
equal to six dollars ($6.00) in cash (such amount of cash being referred to
herein as the "MERGER CONSIDERATION") payable, without interest, to the
holder of such share of Company Common Stock upon surrender, in the manner
provided in Section 3.1, of the certificate that formerly evidenced such
share of Company Common Stock;
(c) The shares of common stock, par value $.01 per share, of
Acquisition Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchangeable for, in the aggregate, One
Thousand (1,000) validly issued, fully paid and non-assessable shares of
common stock, par value $.01, of the Surviving Corporation, which shall
constitute all of the issued and outstanding shares of the Surviving
Corporation; and
(d) All of the certificates evidencing shares of Company Common
Stock, by virtue of the Merger and without any action on the part of the
stockholders of the Company or the Company, shall be deemed to be no longer
outstanding, shall not be transferable on the books of the Surviving
Corporation, and shall represent solely the right to receive the amount set
forth in Section 2.7(b) hereof.
2.8 COMPANY STOCK OPTIONS AND RELATED MATTERS. Commencing at least
fifteen (15) days prior to the Effective Time, each holder of a then
outstanding option to purchase shares of Company Common Stock (an "OPTION")
granted under the Company's stock option plans identified on SCHEDULE 2.8
hereto (collectively, the "STOCK OPTION PLANS") (it being understood that
the aggregate number of shares of Company Common Stock subject to purchase
under such Stock Option Plans is not, or shall not at the Effective Time,
be more than 842,438 shares) shall be entitled to exercise such Option
(whether or not such Option would otherwise have been exercisable), and if
such Options are not so exercised prior to the Effective Time, immediately
prior to the Effective Time, each such holder shall be entitled to receive
from the Company in consideration for cancellation of each such Option, a
cash payment (the "OPTION CONSIDERATION") in an amount equal to the product
of (w) the number of shares provided for in such Option and (x) the excess,
if any, of the Merger Consideration over the exercise price per share of
Company Common Stock provided for in such Option, provided that the
foregoing shall be subject to the obtaining of any necessary consents of
the holders of such Options (the "OPTIONEES") and that, to the extent
required by applicable law, such Option Consideration shall be treated as
compensation and shall be net of any applicable federal or state
withholding tax. All such Option Consideration shall be deemed allocable
to the period immediately prior to the Effective Time to the extent
permitted by applicable law. Subject to the foregoing, the Stock Option
Plans and all Options issued thereunder shall terminate at the Effective
Time. In connection with the foregoing, the Company shall obtain the
consent of the Optionees to the cancellation of such Options and the
cancellation of any right to acquire equity securities of the Company from
and after the Effective Time in consideration for the payment provided
herein.
2.9 TAKING OF NECESSARY ACTION; FURTHER ACTION. Parent, Acquisition
Sub and the Company, respectively, shall each use its best efforts to take
all such action as may be necessary or appropriate in order to effectuate
the Merger under the Corporation Law as promptly as practicable. If at any
time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of both of the Company and
Acquisition Sub, the officers of the Surviving Corporation are fully
authorized in the name of the Surviving Corporation, as successor by merger
to such corporations, or otherwise to take, and shall take, all such lawful
and necessary action.
3. PAYMENT FOR SHARES; DISSENTING SHARES
3.1 PAYMENT FOR SHARES OF COMPANY COMMON STOCK.
(a) Prior to the Effective Time, Parent shall designate a U.S.
bank or trust company having at least $50,000,000 in capital, surplus and
undivided profits that shall be subject to the Company's approval, such
approval to not be unreasonably withheld, to act as paying agent in the
Merger (the "PAYING AGENT") for purposes of effecting the exchange for the
Merger Consideration of certificates which, prior to the Effective Time,
represented shares of Company Common Stock entitled to receive the Merger
Consideration pursuant to Section 2.7(b). The Paying Agent shall not be
changed without the prior written consent of the Company, which shall not
be unreasonably withheld. Immediately following the Effective Time, Parent
or Acquisition Sub shall deposit in trust with the Paying Agent cash in an
aggregate amount equal to the product of (i) the number of shares of
Company Common Stock issued and outstanding on a fully diluted basis
immediately prior to the Effective Time (other than shares owned by, or
issuable to, upon conversion of other securities, the Company, Parent,
Acquisition Sub or any direct or indirect subsidiary of Parent or the
Company (which shall be deemed to exclude the Profit Sharing Plan Shares);
and shares of Company Common Stock known immediately prior to the Effective
Time to be Dissenting Shares (as defined in Section 3.2 below)) and (ii)
the Merger Consideration (such aggregate amount being hereinafter referred
to as the "PAYMENT FUND"). The parties hereto acknowledge that fully
diluted shares of Company Common Stock shall be determined in accordance
with generally accepted accounting principles. The Payment Fund shall be
invested by the Paying Agent as directed by the Surviving Corporation (so
long as such directions do not impair the rights of the holders of
certificates that formerly evidenced shares of Company Common Stock) in:
direct obligations of the United States of America or obligations for which
the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest and any net earnings with
respect thereto shall be paid to the Surviving Corporation as and when
requested by the Surviving Corporation. The Paying Agent shall, pursuant
to irrevocable instructions, make the payments referred to in Section
2.7(b) out of the Payment Fund. The Payment Fund shall not be used for any
other purpose except as provided herein.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause the Paying Agent to mail to each person who was a record holder
of an outstanding certificate or certificates which immediately prior to
the Effective Time represented shares of Company Common Stock (the
"CERTIFICATES") a form letter of transmittal (which shall specify that
delivery shall be effected and risk of loss and title to Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent)
and instructions for its use in surrendering Certificates and receiving
payment therefor. Upon the surrender to the Paying Agent of such a
Certificate, together with such properly completed and duly executed letter
of transmittal and other documents that are customarily required by letters
of transmittal in similar situations, the holder thereof shall be paid,
without interest thereon, the Merger Consideration to which such holder is
entitled hereunder, and such Certificate shall forthwith be canceled.
Until so surrendered, except with respect to Dissenting Shares, each such
Certificate shall, after the Effective Time, represent solely the right to
receive the Merger Consideration, without interest, into which the shares
of Company Common Stock such Certificate theretofore represented shall have
been converted pursuant to Section 2.7(b), and the holder thereof shall not
be entitled to be paid any cash to which such holder otherwise would be
entitled. In case any payment pursuant to this Section 3.1 is to be made
to a holder other than the registered owner of a surrendered certificate,
it shall be a condition of such payment that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer and
that the person requesting such exchange shall pay to the Paying Agent any
transfer or other taxes required by reason of the payment of such cash to a
person other than the registered holder of the Certificate surrendered, or
that such person shall establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable.
(c) Promptly following the date which is one year after the
Effective Time, the Paying Agent shall return to the Surviving Corporation
all cash, certificates and other instruments in its possession that
constitute any portion of the Payment Fund (including, without limitation,
all interest and other income received by the Paying Agent in respect of
all funds made available to it), and the Paying Agent's duties shall
terminate. Thereafter, each holder of a Certificate shall be entitled to
look to the Surviving Corporation (subject to applicable abandoned
property, escheat and similar laws) only as a general creditor thereof with
respect to any Merger Consideration, without interest, that may be payable
upon due surrender of the Certificate or Certificates held by them.
Notwithstanding the foregoing, neither the Paying Agent nor any party
hereto shall be liable to a holder of certificates that prior to the
Effective Time evidenced shares of Company Common Stock for any Merger
Consideration delivered pursuant hereto to a public official pursuant to
applicable abandoned property, escheat or other similar laws.
(d) At the Effective Time, the Company Common Stock transfer
books shall be closed and no transfer of shares of Company Common Stock
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent, they shall be
canceled and exchanged for the Merger Consideration as provided in Section
2.7(b), subject to applicable law in the case of Dissenting Shares (as
defined below).
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact in form and
substance reasonably satisfactory to the Surviving Corporation by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent or the Surviving Corporation in their sole discretion,
upon the posting by such person of a bond in such amount as Parent or the
Surviving Corporation may reasonably direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying
Agent will issue in exchange for such lost, stolen or destroyed
Certificate, the cash representing the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
3.2 DISSENTING SHARES.
(a) Any shares of Company Common Stock outstanding immediately
prior to the Effective Time as to which the holder thereof shall have not
voted in favor of the Merger or consented thereto in writing and as to
which the holder thereof shall have validly exercised such holder's
appraisal rights, if any, under Section 262 of the Corporation Law
("DISSENTING SHARES") shall not, after the Effective Time, be entitled to
vote for any purpose or be entitled to the payment of dividends or other
distributions (except dividends or other distributions payable to
stockholders of record prior to the Effective Time), nor shall such
Dissenting Shares be converted into the right to receive the Merger
Consideration hereunder. Such holders of Dissenting Shares duly making
demand for appraisal (hereinafter referred to as "DISSENTING STOCKHOLDERS")
shall be entitled to receive payment of the appraised value of such
Dissenting Shares in accordance with the provisions of such Section 262 of
the Corporation Law, except that all shares of Company Common Stock held by
stockholders who shall fail to perfect, or shall have effectively withdrawn
or lost, such stockholders' right to appraisal of such shares of Company
Common Stock under Section 262 of the Corporation Law shall thereupon be
deemed to have been converted into and to have become exchangeable for, as
of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon. The Company shall give Parent (i) prompt
notice of any demands for appraisal received by the Company, withdrawals of
such demands and any other instrument served pursuant to Section 262 of the
Corporation Law and received by the Company, and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for
appraisal under the Corporation Law. The Company shall not, except with
the written consent of Parent, make any payment with respect to any demands
for appraisal, or settle or offer to settle or negotiate, any such demands.
(b) Each Dissenting Stockholder who becomes entitled under the
Corporation Law to payment for the Dissenting Shares shall receive payment
therefor after the Effective Time from the Surviving Corporation (but only
after the amount thereof shall have been agreed upon or finally determined
pursuant to the Corporation Law) and such shares of Company Common Stock
shall be canceled.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub jointly and severally hereby represent and
warrant to the Company as follows:
4.1 ORGANIZATION AND QUALIFICATION. Parent is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Delaware. Acquisition Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Sub has the requisite
power and authority to carry on its business as it is now being conducted.
Each of Parent and Acquisition Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the character of its
properties, owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or
prospects (a "MATERIAL ADVERSE EFFECT") of Parent and its subsidiaries
taken as a whole. Neither Parent nor Acquisition Sub has conducted any
business prior to the date hereof other than in furtherance of the
transactions contemplated hereby and has any assets and liabilities other
than those incident to its formation and to the consummation of the
transactions contemplated hereby. Copies of the Certificate of Formation
of Parent and the Certificate of Incorporation and By-laws of Acquisition
Sub heretofore delivered to the Company are true, complete and correct as
of the date hereof.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition Sub has the requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Manager or Managers
(as the case may be) and, if necessary, the member or members of Parent and
by the Board of Directors and the sole stockholder of Acquisition Sub, and
no other corporate proceedings on the part of Parent or Acquisition Sub are
necessary to authorize this Agreement and the transactions contemplated
hereby (other than, with respect to the Merger, the filing and recordation
of the appropriate merger documents as required by the Corporation Law).
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition Sub and, assuming this Agreement constitutes a valid
and binding obligation of the Company, constitutes the legal, valid and
binding obligation of each of Parent and Acquisition Sub enforceable
against each of Parent and Acquisition Sub in accordance with its terms.
4.3 NO VIOLATIONS.
(a) Neither the execution and delivery of this Agreement by
Parent or Acquisition Sub nor the consummation of the transactions
contemplated hereby nor compliance by Parent or Acquisition Sub with any of
the provisions hereof will: (i) violate, conflict with, or result in a
breach of any provision of, require any consent, approval or notice under,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (x) their respective Certificates of Incorporation, as
amended, or By-laws or (y) any note, bond, mortgage, indenture, deed of
trust, lease, agreement, lien, contract or other instrument or obligation
to which Parent or any of its subsidiaries is a party or to which any of
them, or any of their respective properties or assets, may be subject or by
which Parent or any of its subsidiaries is bound; or (ii) subject to
compliance with the statutes and regulations referred to in Section 4.3(b),
violate any judgment, ruling, order, writ, injunction, determination,
award, decree, statute, ordinance, rule or regulation applicable to Parent
or any of its subsidiaries or any of their respective properties or assets
(except, in the case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances which, or
any consents, approvals or notices which if not given or received, would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent and its subsidiaries taken as a whole or on the ability of Parent or
Acquisition Sub to consummate the transactions contemplated hereby or which
are cured, waived or terminated prior to the Effective Time and, except in
the case of (i) above, for those liens, security interests, charges and
encumbrances as may be imposed or otherwise created in connection with
financing the Merger and the other transactions contemplated hereby); or
(iii) cause the suspension or revocation of any authorization, consent,
approval or license currently in effect, which suspension or revocation
would have a Material Adverse Effect on Parent and its subsidiaries taken
as a whole.
(b) There is no legal impediment to Parent's or Acquisition
Sub's consummation of the transactions contemplated by this Agreement. No
filing or registration with, or authorization, consent or approval of, any
domestic public body or authority is necessary for the consummation by
Parent or Acquisition Sub of the transactions contemplated by this
Agreement, except (i) for applicable requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state securities
laws and regulations ("BLUE SKY LAWS") and the filing and recordation of
the Certificate of Merger, as required by the Corporation Law, and (ii) for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received, would not,
individually or in the aggregate, have a Material Adverse Effect on Parent
and its subsidiaries taken as a whole or on the ability of Parent and
Acquisition Sub to consummate the transactions contemplated hereby.
(c) There is no "person" which "controls" Parent, in each case
within the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HART-SCOTT-RODINO ACT") and Parts 801 through 803 of
Title 16 of the Code of Federal Regulations (the "HSR REGULATIONS"), and,
accordingly, no "person" has (1) the right to fifty percent (50%) or more
of the profits of Parent, (2) the right in the event of dissolution of
Parent to fifty percent (50%) or more of the assets of Parent, or (3) the
contractual power currently to designate fifty percent (50%) or more of the
members effecting management control of Parent
4.4 BROKERAGE FEES. Neither Parent nor Acquisition Sub has retained
any financial adviser, broker, agent or finder or paid or agreed to pay any
financial adviser, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, except that Proteus International
Group Incorporated has been retained as Frederick M. Marino's financial
adviser, each in connection with the transactions contemplated hereby.
Other than the foregoing arrangements and the Company's arrangements with
Hill Thompson Capital Markets, Inc., neither Parent nor Acquisition Sub is
aware of any claim for payment of any finder's fee, brokerage or agent's
commissions or other like payments in connection with the negotiations
leading to the Merger, this Agreement or the consummation of the
transactions contemplated hereby.
4.5 FINANCING. Parent has delivered to the Company true and correct
copies of signed letters received by Parent with respect to the financing
(the "FINANCING LETTERS") required for the consummation of the transactions
contemplated hereby. Assuming satisfaction or waiver of all applicable
conditions set forth in the Financing Letters, such financing (the
"FINANCING") will, together with equity investments in the aggregate of
$9,000,000 being made in connection with the transactions contemplated
hereby, provide sufficient funds to (i) pay, with respect to all shares of
Company Common Stock in the Merger, the Merger Consideration pursuant to
Section 2.7(b); and (ii) prepay, redeem, refinance or renegotiate the
Company's existing indebtedness, if required to consummate the Merger, and
pay any and all fees, expenses, costs and penalties in connection with any
such prepayment, redemption, refinancing or renegotiation. Parent shall
not amend the Financing Letters (excluding amendments that solely
constitute extensions thereof provided that this provision shall not impair
the rights of, or impose additional obligations upon, either party under
Section 9.1(b) hereof) without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
4.6 ARRANGEMENTS. Neither Parent nor Acquisition Sub has entered
into any employment agreements with any current officer of the Company,
provided, however, that discussions respecting continuation of current
compensation and benefit arrangements for a two year period have taken
place which discussions may, prior to the Effective Time, result in an
employment agreement or arrangement with such officer respecting employment
by the Surviving Corporation and/or any of its subsidiaries after the
Effective Time. Parent and Acquisition Sub represent and warrant that no
agreements, arrangements or understandings exist between any current
officer of the Company and Parent, Acquisition Sub or any entity that
controls, is controlled by or is under common control with Parent or
Acquisition Sub that could result in any payment (cash or otherwise) as a
result of the negotiation and execution of this Agreement and/or the
consummation of the transactions contemplated hereby including the Merger
except as specifically provided in this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition Sub as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and
has the corporate power and corporate authority to carry on its business as
it is now being conducted. Each of the Company and its subsidiaries is
duly qualified to do business and is in good standing in each jurisdiction
in which the character of its properties, owned or leased, or the nature of
its activities make such qualification necessary, except as set forth on
Schedule 5.1 hereto or where the failure to be so qualified or in good
standing would not individually or in the aggregate have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole. Copies of the
respective Certificates of Incorporation, as amended, and By-laws of the
Company and each of its subsidiaries heretofore delivered to Parent are
true, complete and correct as of the date hereof and no amendments thereto
have been effected since such copies were delivered, or are pending or
contemplated. Neither the Company nor any of its subsidiaries is in
violation of any term of its respective Certificate of Incorporation or By-
laws.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of the Company and its subsidiaries has the requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board. Except for the approval by the Company's
stockholders which is referred to in Section 7.2 below, no other corporate
proceedings on the part of the Company or any of its subsidiaries are
necessary to authorize this Agreement and the transactions contemplated
hereby (other than, with respect to the Merger, the filing and recordation
of the appropriate merger documents as required by the Corporation Law).
This Agreement has been duly and validly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding
obligation of Parent and Acquisition Sub, constitutes the legal, valid and
binding obligation of the Company enforceable against the Company and each
of its subsidiaries in accordance with its terms.
(b) The Board has, by resolutions duly adopted by unanimous
vote, approved the Merger, this Agreement and the transactions contemplated
hereby and has agreed to recommend that the stockholders of the Company
approve and adopt this Agreement and the Merger. In connection with the
foregoing, the Board has taken such actions and votes as are necessary on
its part to render the provisions of Section 203 of the Corporation Law and
all other applicable takeover statutes of the Corporation Law and any other
applicable takeover statutes of any other state, and any "fair price,"
takeover or similar provisions of the Company's Certificate, inapplicable
to this Agreement, the Merger and the transactions contemplated by this
Agreement. As of the date hereof, except as set forth on SCHEDULE 5.2(B)
hereto, all of the directors and executive officers of the Company have
indicated that they presently intend to vote their shares of Company Common
Stock to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger.
5.3 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Except as set forth in SCHEDULE 5.3 to this Agreement,
neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated hereby nor compliance by the
Company or any of its subsidiaries with any of the provisions hereof will:
(i) violate, conflict with, or result in breach of any provision of,
require any consent, approval or notice under, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries under any of the terms, conditions or provisions of (x)
their respective Certificates of Incorporation, as amended, or By-laws or
(y) any note, bond, mortgage, indenture, deed of trust, lease, agreement,
lien, contract, or other instrument or obligation to which the Company or
any of its subsidiaries is a party or to which any of them, or any of their
respective properties or assets, may be subject or by which the Company or
any of its subsidiaries is bound; or (ii) subject to compliance with the
statutes and regulations referred to in Section 5.3(b), violate any
judgment, ruling, order, writ, injunction, determination, award, decree,
statute, ordinance, rule or regulation applicable to the Company or any of
its subsidiaries or any of their respective properties or assets (except,
in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances which, or any consents,
approvals or notices which if not given or received, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby or which are
cured, waived or terminated prior to the Effective Time and, except in the
case of (i) above, for those liens, security interests, charges and
encumbrances as may be imposed or otherwise created in connection with the
financing of the Merger and the other transactions contemplated hereby); or
(iii) cause the suspension or revocation of any authorization, consent,
approval or license currently in effect, which suspension or revocation
would have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
(b) Except as set forth in SCHEDULE 5.3(B), there is no legal
impediment to the Company's consummation of the transactions contemplated
by this Agreement. No filing or registration with, or authorization,
consent or approval of, any domestic public body or authority is necessary
for the execution, delivery or consummation by the Company of the
transactions contemplated by this Agreement, except (i) for applicable
requirements of the Hart-Scott-Rodino Act (if any), the Exchange Act, Blue
Sky Laws, the NASDAQ Listing Agreement, and the filing and recordation of
the Certificate of Merger, as required by the Corporation Law, and (ii) for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby.
5.4 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Company Common Stock
and 1,000,000 shares of Preferred Stock, par value $.01 per share (the
"PREFERRED STOCK"). As of the date hereof, 5,027,447 shares of Company
Common Stock were issued and outstanding, 190,601 shares of Company Common
Stock were held by the Company as treasury shares and no shares of
Preferred Stock were issued and outstanding. As of the date hereof,
842,438 shares of Company Common Stock were reserved for issuance upon
exercise of Options granted pursuant to the Stock Option Plans and Options
to purchase 842,438 shares of Common Stock are outstanding as of the date
hereof. Except for the matters set forth on SCHEDULE 5.4 hereto, which
terminate upon or prior to the consummation of the Merger and will be of no
further force and effect after the Effective Time, and for the Options,
there are no options, warrants or other rights, agreements or commitments
of any character whatsoever requiring the issuance, sale or transfer by the
Company of any shares of capital stock of the Company or any securities
convertible into or exchangeable or exercisable for, or otherwise
evidencing the right to acquire, any shares of capital stock of the
Company. All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued, are fully paid and non-assessable and
are not subject to, nor were they issued in violation of, any preemptive
rights.
5.5 COMMISSION FILINGS.
(a) The Company has heretofore delivered to Parent true and
complete copies of its (i) Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, (ii) Quarterly Report on Form 10-Q for each of the
fiscal quarters ended March 31, June 30 and September 30, 1995, and March
31 and June 30, 1996, (iii) Proxy Statement for the annual meeting of
stockholders held on July 11, 1996, and (iv) all other reports or
registration statements filed by the Company with the Securities and
Exchange Commission (the "COMMISSION") since January 1, 1996, in each case
as filed with the Commission.
(b) Except as set forth in SCHEDULE 5.5 hereto, the Company has
filed all required forms, reports and documents with the Commission since
December 31, 1992 (collectively, the "COMMISSION REPORTS"), all of which
were prepared in accordance with the applicable requirements of the
Securities Act of 1933, as amended, and the Exchange Act in all material
respects. Except to the extent, if any, as may have been appropriately
disclosed in a Commission Report filed subsequent thereto and prior to the
date hereof as of their respective dates, the Commission Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and complied as to form and substance in all material respects
with all applicable requirements of law.
(c) The Company will deliver to Parent as soon as they become
available true and complete copies of any report or statement mailed by it
to its stockholders generally or filed by it with the Commission subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein
provided by Parent or Acquisition Sub, as to which the Company makes no
representation) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
are made, not misleading, and will comply in all material respects with all
applicable requirements of law.
(d) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Commission Reports
has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or in SCHEDULE 5.5), and
each fairly presents in accordance with generally accepted accounting
principles the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated
results of their operations and changes in cash flow for the periods
indicated, except as may be indicated in the notes thereto and/or in the
consolidated financial statements contained in a Commission Report filed
subsequent thereto and prior to the date hereof, and except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
(e) Except as set forth in SCHEDULE 5.5 hereto and except as and
to the extent set forth on the consolidated balance sheet of the Company
and its subsidiaries as at December 31, 1995, including the notes thereto
(the "1995 BALANCE SHEET"), neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected
on a consolidated balance sheet of the Company and its subsidiaries, or in
the notes thereto, prepared in accordance with generally accepted
accounting principles, except for liabilities or obligations (a) incurred
in the ordinary course of business since December 31, 1995, or (b) any
liability or obligation existing at December 31, 1995 which, individually
or in the aggregate, is not material to the Company and its subsidiaries
taken as a whole as of such date.
5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
except as set forth in SCHEDULE 5.6 or as and to the extent disclosed in
any Commission Report filed after December 31, 1995:
(a) the Company and its subsidiaries have conducted their
businesses only in the ordinary course and in a manner reasonably
consistent with past practice, and
(b) since December 31, 1995, there has not been (i) any change
in, or event affecting, the Company or any of its subsidiaries having
a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, (ii) any change by the Company in its accounting methods,
principles or practices, (iii) any entry by the Company or any of its
subsidiaries into a material contract outside the ordinary course of
business taken as a whole, (iv) any declaration, setting aside or
payment of any dividends or distributions in respect of, or any
redemption, purchase or other acquisition of, any of its securities or
(v) any increase in the benefits under or the establishment of any
bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or
other employee benefit plan, program, or arrangement for the benefit
of any director, officer or employee of the Company or any of its
subsidiaries pursuant to which employees are contractually entitled to
benefit that would be materially above those mandated by applicable
law, except in the ordinary course of business reasonably consistent
with past practice. No officer, director, or other employee other
than those disclosed in SCHEDULE 5.6 hereto are parties to any
severance pay agreements or change in control agreements.
5.7 ABSENCE OF LITIGATION. Except as disclosed in the Commission
Reports filed after December 31, 1995 or in SCHEDULE 5.7 hereto, there are
no claims, actions, proceedings or investigations pending or, to the best
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or, to the best knowledge of the Company, pending or
threatened against any of its directors, officers, employees or agents, by
any claimant or involving any properties or rights of the Company or any of
its subsidiaries, at law or in equity, before any court, arbitrator or
administrative governmental regulatory authority or body that (i)
individually or in the aggregate would have or are reasonably likely to
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole or (ii) seek to delay or prevent the consummation of the
transactions contemplated hereby. Except as set forth on SCHEDULE 5.7
hereto, to the best knowledge of the Company, there are no ongoing or
threatened claims, actions, proceedings or investigations instituted by or
on behalf of the Department of Justice or any similar foreign, federal,
state, county or local government agency against the Company, any of its
subsidiaries or any of their respective directors, officers, employees or
agents involving the business, properties, rights and/or activities of the
Company and/or any of its subsidiaries. As of the date hereof, neither the
Company nor any of its subsidiaries nor any of their respective properties
are subject to any order, writ, judgment, injunction, decree, determination
or award of any court, arbitrator or governmental authority that,
individually or in the aggregate, have or are reasonably likely to have a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole.
5.8 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 5.8 hereto includes a list of each stock option,
stock purchase, insurance, bonus, incentive compensation, severance, profit
sharing, retirement, or other material employee benefit plan, policy or
arrangement, including any employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") which the Company maintains, to which the Company or any
one of its subsidiaries contributes, or under which any of the employees or
former employees of the Company or any one of its subsidiaries are covered
(collectively, the "PLANS"). Prior to the date of this Agreement, the
Company has provided or made available to Parent a true and complete copy
of each Plan as in effect on the date hereof. Other than as specifically
disclosed in SCHEDULE 5.8 hereto, (i) none of the Plans is a multiemployer
plan within the meaning of ERISA; (ii) none of the Plans provides for or
promises retiree medical benefits or life insurance to any current or
former employee, officer or director of the Company or its subsidiaries;
(iii) each Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), is so
qualified; (iv) each Plan is now and has been operated in all material
respects in accordance with the requirements of applicable law; and (v)
with respect to Plans subject to Title IV of ERISA, the aggregate projected
benefit obligations of such Plans (determined for each such Plan as of the
date of the most recent actuarial valuation prepared for such Plan) does
not exceed the fair market value of the assets of such Plans (determined as
of the date of such valuation).
(b) Except as disclosed in SCHEDULE 5.8 hereto, the execution
of, and performance of the transactions contemplated by, this Agreement
will not (either alone or upon the occurrence of any additional subsequent
events directly related to the transactions contemplated hereby) (i)
constitute an event under any Plan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to
fund benefits with respect to any employee, director or consultant of the
Company or any of its subsidiaries pursuant to any Plan or (ii) result in
the triggering or imposition of any restrictions or limitations on the
right of the Company or Parent to amend or terminate any Plan. No payment
or benefit which will be required to be made pursuant to the terms of any
agreement, commitment or Plan, as a result of the transactions contemplated
by this Agreement, to any officer, director or employee of the Company or
any of its subsidiaries, could be characterized as an "excess parachute
payment" within the meaning of Section 280G of the Code or could be non-
deductible by reason of Section 162(m) of the Code.
(c) All contributions have been made in all material respects as
required by the terms of each of the Plans listed in SCHEDULE 5.8 and the
terms of any related collective bargaining agreements, and, except as set
forth in SCHEDULE 5.8 hereto, neither the Company nor any of its
subsidiaries has any knowledge or has received any notice that any such
plan is in reorganization, that increased contributions are required to
avoid a reduction in plan benefits or the imposition of any excise tax,
that any such plan is or has been (except as used in accordance with the
terms of such Plan and in accordance with applicable law) funded at a rate
less than required under Section 412 of the Code, or that any such plan is
insolvent.
5.9 LABOR MATTERS. Except as set forth in SCHEDULE 5.9 hereto,
neither the Company nor any of its subsidiaries is a party to, or bound by,
any collective bargaining agreement or contract or other agreement or
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries relating to their business, except for any such proceeding
which would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. There is not currently pending or, to the
best knowledge of the Company, threatened any labor dispute or labor
stoppage regarding any of the Company's, or any of its subsidiaries',
current employees or any of the labor relations or collective bargaining
contracts listed on SCHEDULE 5.9 hereto, except for that labor relations
contract listed on SCHEDULE 5.9 hereto that expires on December 31, 1996,
the negotiation of a new contract of which is expressly provided for in
Section 6.1 hereof. Except as set forth in SCHEDULE 5.9 hereto, to the
knowledge of the Company, there are no organizational efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its subsidiaries.
5.10 TAXES.
(a) Except as set forth in SCHEDULE 5.10 hereto, the Company and
each of its subsidiaries has paid or caused to be paid all material Taxes
(as defined below), owed by it through the date hereof except such as are
reserved for in the Company's balance sheet contained in the most recently
filed Commission Report and are being contested in good faith by
appropriate proceedings. Except as set forth in SCHEDULE 5.10 hereto, the
Company and its subsidiaries have timely filed and properly prepared all
foreign, federal, state and local tax returns and reports required to be
filed by any of them through the date hereof, and all such returns and
reports completely and accurately in all material respects set forth the
amount of any Taxes relating to the applicable period.
(b) Except as set forth in SCHEDULE 5.10 hereto, neither the
Internal Revenue Service (the "IRS") nor any other governmental or taxing
authority or agency is now asserting or, to the best of the Company's
knowledge, threatening to assert, against the Company or any of its
subsidiaries or any partnership, joint venture or limited liability company
in which the Company or any of its subsidiaries is a partner, joint
venturer or member, as the case may be, any deficiency or claim for any
additional material Tax or Taxes. Except as set forth in SCHEDULE 5.10
hereto, there is no dispute or claim concerning any Tax liability of the
Company or any subsidiary, either claimed or raised by any governmental or
taxing authority, or as to which any director or officer of the Company or
any of its subsidiaries has reason to believe may be claimed or raised by
any governmental or taxing authority that is material, either individually
or in the aggregate, to the Company and its subsidiaries taken as a whole.
Except as set forth in SCHEDULE 5.10, no claim has ever been made by a
taxing authority in a jurisdiction where the Company does not file reports
and returns that the Company is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Company or any of its subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Taxes. The Company has never
entered into a closing agreement pursuant to Section 7121 of the Code.
(c) Except as set forth in SCHEDULE 5.10 hereto, neither the
Company nor any of its subsidiaries has received written notice of any
audit of any tax return filed by the Company or its subsidiaries, and
neither the Company nor any of its subsidiaries has been notified by any
governmental or taxing authority that any such audit is contemplated or
pending. Except as set forth in SCHEDULE 5.10 hereto, neither the Company
nor any of its subsidiaries has executed or filed with the IRS or any other
governmental or taxing authority any agreement now in effect extending the
period for assessment or collection of any Taxes, and no extension of time
with respect to any date on which a tax return was or is to be filed by the
Company is in force. True, correct and complete copies of all foreign,
federal, state and local income or franchise tax returns filed by the
Company and each of its subsidiaries for those tax years or periods for
which the applicable statute of limitations, or an extension or waiver
thereof, has not lapsed, expired, or otherwise terminated, and all
communications relating thereto have been delivered to the Parent or made
available to representatives of the Parent. Except as set forth in
SCHEDULE 5.10, neither the Company nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension
of a period for the assessment of, any foreign, federal, state or local
income tax.
(d) The accruals and reserves for taxes reflected in the 1995
Balance Sheet are adequate to cover all Taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with
generally accepted accounting principles.
(e) None of the Company and its subsidiaries has filed a consent
under Section 341(f) of the Code concerning collapsible corporations. None
of the Company and its subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. None of the Company and its
subsidiaries has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. Each of the
Company and its subsidiaries has disclosed on its federal income tax
returns all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662 of
the Code. None of the Company and its subsidiaries is a party to any tax
allocation or sharing agreement. Except as set forth in SCHEDULE 5.10,
none of the Company and its subsidiaries (A) has, except as set forth in
SCHEDULE 5.10 hereto, been a member of an affiliated group filing a
consolidated federal income tax return (other than a group the common
parent of which was the Company) or (B) has any liability for the Taxes of
any person (other than any of the Company and its subsidiaries) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(f) The term "TAXES" shall mean, for purposes of this Agreement,
all foreign, federal, state, local, and other taxes, including without
limitation income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or
in part by net income, and all deficiencies or other additions to tax,
interest, fines and penalties relating to any such taxes.
5.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in SCHEDULE 5.11 hereto and for the
matters specifically identified in environmental reports received by Parent
or Acquisition Sub, and except for any other matters which, either
individually or in the aggregate, would not have a Material Adverse Effect
on the Company and its subsidiaries taken as a whole, to the Company's
knowledge, the Company and its subsidiaries are in compliance with all
applicable federal, state and local statutes, laws, codes, regulations,
ordinances, rules, judgements, judicial decisions, decrees, injunctions,
permits, and orders relating to (i) emissions, discharges or releases to
the environment of Hazardous Substances (as hereinafter defined), (ii) the
use, storage, handling, transport or disposal of Hazardous Substances, or
(iii) any matters of environmental regulation or control or similar
protection of human health and safety (collectively, "ENVIRONMENTAL LAWS").
Except as disclosed in SCHEDULE 5.11 hereto, the Company has not received
any written notice of any pending civil or criminal litigation, violation
or formal administrative proceeding relating to the Environmental Laws
involving the Company or any of its subsidiaries. Except as disclosed in
SCHEDULE 5.11 hereto and for the matters specifically identified in
environmental reports received by Parent or Acquisition Sub, and except for
any other matters which, either individually or in the aggregate, would not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, to the Company's knowledge, no conditions exist which could
reasonably be expected to result in any litigation, notice or
administrative proceeding described in the preceding sentence. Except as
disclosed in SCHEDULE 5.11, and for the matters specifically identified in
environmental reports received by Parent or Acquisition Sub and except for
any other matters which, either individually or in the aggregate, would not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, to the Company's knowledge, the Company and each of its
subsidiaries have all permits, licenses, consents and approvals required by
Environmental Laws ("ENVIRONMENTAL PERMITS") for the conduct and operation
of their respective businesses, all such Environmental Permits are in good
standing and the Company and each of its subsidiaries are in compliance
with all material terms and conditions of such Environmental Permits.
(b) Except as disclosed in SCHEDULE 5.11 hereto and for the
matters specifically identified in the environmental reports received by
Parent and Sub, neither the Company nor any of its subsidiaries has
received any written notice (A) of any actual or alleged violation of
Environmental Laws by the Company or any of its subsidiaries, (B) of the
institution or pendency of any action, claim, proceeding or investigation
of the Company or any of its subsidiaries by any third party or
governmental entity pursuant to Environmental Laws, (C) requiring the
investigation, remediation or removal of Hazardous Substances from any of
the Company's or any of its subsidiaries' properties or any part thereof,
or (D) alleging that the Company or any of its subsidiaries are potentially
responsible parties with respect to the release or threat of release of
Hazardous Substances to the environment at any location. Except as
disclosed in SCHEDULE 5.11 hereto, and for the matters specifically
identified in environmental reports received by Parent or Acquisition Sub,
and except for any other matters which, either individually or in the
aggregate, would not have a Material Adverse Effect on the Company or its
subsidiaries, to the Company's knowledge neither the Company nor any of its
subsidiaries (i) has held, stored, released, transported or disposed of any
Hazardous Substances on, under or at any of the Company's or any of its
subsidiaries' properties or any part thereof, whether currently or formerly
leased, owned or used for any purpose; (ii) has arranged for the disposal
of Hazardous Substances at any location owned, leased or operated by any
third party; or (iii) owns or operates real or personal property that has
been the subject of any lien imposed by a governmental entity or a deed
notice or restriction, which lien, notice or restriction relates to
Hazardous Substances or the violation of any Environmental Laws. For
purposes of this Agreement, the term "HAZARDOUS SUBSTANCES" shall mean any
toxic or hazardous materials or substances or hazardous wastes, including
but not limited to oil and petroleum products, defined as, or included in
the definition of, "hazardous substances," "hazardous waste," "hazardous
materials" or "toxic substances" under any Environmental Law and any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation.
(c) No filing, approval or other action required under the New
Jersey Industrial Site Remediation Act, commonly known as ISRA or any
similar federal or State Environmental Law is required to consummate the
transactions contemplated hereby.
(d) Notwithstanding anything to the contrary in this Agreement,
(i) the representations and warranties made in Sections 5.11(a) and 5.11(b)
hereof which are qualified as to the knowledge of the Company speak as of
the date of this Agreement, (ii) to the extent any of the representations
and warranties in Sections 5.5, 5.6, 5.7, 5.11 and 5.13 would otherwise be
deemed incorrect by reason of the existence of any environmental matters or
conditions existing as of the date hereof as to which the Company does not
have knowledge as of the date hereof, such representations and warranties
shall not be deemed to be incorrect; and (iii) any inability to bring down
the representations and warranties set forth in Sections 5.5, 5.6, 5.7,
5.11 and 5.13, because of the existing unknown environmental matters or
conditions referred to in clause (ii), as may be required by Section 8.3(a)
or 8.3(b) hereof shall not constitute a condition to Parent's and
Acquisition Sub's obligations to consummate the transactions contemplated
under this Agreement and such existing environmental matters or conditions
shall not cause a failure to satisfy Section 8.3(e). Notwithstanding the
foregoing, the foregoing shall not apply to environmental matters or
conditions (a) of which the Company has knowledge as of the date hereof, or
(b) which occur after the date hereof which do not relate to such existing
environmental matters or conditions.
5.12 BOOKS AND RECORDS.
(a) The books of account and other financial records of the
Company and each of its subsidiaries are true, complete and correct in all
material respects and have been maintained in accordance with good business
practices.
(b) Except as set forth in SCHEDULE 5.12 the minute books and
other corporate records of the Company and each of its subsidiaries have
been made available to Parent or its representatives, contain in all
material respects accurate records of all meetings, and accurately reflect
in all material respects all other corporate actions, of the stockholders
and directors and any committees of the board of directors of the Company
and each of its subsidiaries.
5.13 REAL AND PERSONAL PROPERTY.
(a) OWNED REAL PROPERTY. All of the real property which is now
owned and, to the best knowledge of the Company, has ever been owned by the
Company and each of its subsidiaries (collectively referred to herein as
the "OWNED REAL PROPERTY") is identified on SCHEDULE 5.13(A) hereto.
SCHEDULE 5.13(A) hereto also sets forth by address (i) all real property
under contract to be acquired by the Company or any of its subsidiaries
(the "ACQUISITION PROPERTY"), (ii) to the knowledge of the Company, the
owner and usage of the Owned Real Property and the Acquisition Property and
(iii) whether the Owned Real Property is currently owned by the Company or
any of its subsidiaries. The Company hereby makes the following
representations and warranties with respect to the Owned Real Property
which is currently owned by the Company:
(i) TITLE AND DESCRIPTION. Each of the Company and its
subsidiaries, as the case may be, has good, clear, record and
marketable fee simple title to the Owned Real Property, free and clear
of all (A) mortgages, deeds of trust, ground leases, assessments,
leases and tenancies, claims, covenants, conditions, restrictions,
easements, judgments or other encumbrances and free of encroachments
onto or off of the Owned Real Property, except for (w) easements,
claims, conditions, covenants, restrictions and similar encumbrances
that do not interfere with the use of the Owned Real Property as
currently used and improved, (x) encroachments that do not adversely
affect the value or use of the Owned Real Property as currently used
and improved, (y) any of same which are disclosed in any title report
or title search received by, or made available by the Company to,
Parent and Acquisition Sub or (z) matters set forth on
SCHEDULE 5.13(A) ((w), (x), (y) and (z) are collectively referred to
as "PERMITTED ENCUMBRANCES").
(ii) SECURITY INTERESTS. All of the mortgages, deeds of
trust, ground leases, security interests or similar material
encumbrances on the Owned Real Property are set forth on SCHEDULE
5.13(A) (collectively, the "MORTGAGES"). Except as set forth on
SCHEDULE 5.13(A), the Company and each of its applicable subsidiaries
has obtained the consent of the holder of any Mortgage if the
transactions contemplated hereby would otherwise cause a default under
the Mortgage, and such transactions will not give the holder of any
Mortgage any remedy, or the right to charge any premium or penalty.
SCHEDULE 5.13(A) also indicates all Mortgages which are, by their
terms, by means of a separate guaranty or otherwise, recourse, in
whole or in part, to the Company or any of its subsidiaries.
(iii) CONDITION. Except as set forth on SCHEDULE 5.13(A),
to the Company's knowledge, (A) there are no material defects in the
physical condition of any improvements constituting a part of the
Owned Real Property, including, without limitation, structural
elements, mechanical systems, roofs or parking and loading areas, and
(B) all of such improvements are in good operating condition and
repair, have been well maintained and are free from infestation by
rodents or insects except for those exceptions which individually or
in the aggregate do not have a Material Adverse Effect on the Company
or its subsidiaries taken as a whole. Except as set forth on SCHEDULE
5.13(A), none of the Owned Real Property is subject to special flood
or mudslide hazards or within the 100 year flood plain. All water,
sewer, gas, electric, telephone, drainage and other utilities required
by law or necessary for the current or planned operation of the Owned
Real Property have been connected pursuant to valid permits and are
sufficient to service the Owned Real Property.
(iv) COMPLIANCE WITH LAW; GOVERNMENT APPROVALS. Neither
the Company nor any of its subsidiaries has received any notice from
any governmental authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with respect to
any of the Owned Real Property that has not been corrected heretofore,
and to the Company's knowledge no such violation exists which could
have a material adverse effect on the operation or value of any of the
Owned Real Property. Except for those matters which do not
individually or in the aggregate have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, to the Company's
knowledge (i) all improvements constituting part of the Owned Real
Property have been completed and are now in compliance in all respects
with all applicable laws, ordinances, regulations, licenses, permits
and authorizations, and there are presently in effect all licenses,
permits and authorizations required by law, ordinance, or regulation
and (ii) the transactions contemplated hereby will not affect the
rights of the Company or any of its subsidiaries to the use of any
off-site facilities necessary to ensure compliance with all such laws,
ordinances, codes and regulations. There is at least the minimum
access required by applicable subdivision or similar law to the Owned
Real Property. Neither the Company nor any of its subsidiaries has
received any notice of any pending or threatened real estate tax
deficiency or reassessment or condemnation of all or any portion of
any of the Owned Real Property.
(b) LEASED REAL PROPERTY. SCHEDULE 5.13(B) hereto sets forth,
by address, owner, tenant, and usage, all of the real property which is now
leased or operated and, to the best knowledge of the Company, has ever been
leased or operated by the Company or any of its subsidiaries (collectively,
the "LEASED REAL PROPERTY"). The Company hereby makes the following
representations and warranties with respect to the Leased Real Property
which is now leased or operated by the Company and its subsidiaries:
(i) LEASES. The copies of the leases of the Leased Real
Property (collectively, the "LEASES") delivered by the Company to
Parent are complete, accurate, true and correct, and the information
with respect to each of the Leases set forth in SCHEDULE 5.13(B) is
complete, accurate, true and correct in all material respects as of
the date hereof. With respect to each of the Leases, except as set
forth on SCHEDULE 5.13(B):
(A) each of the Leases is in full force and
effect and has not been modified, amended, or altered, in writing
or otherwise;
(B) to the Company's knowledge, (I) all
obligations of the landlord or lessor under the Leases which have
accrued have been performed in all material respects, and (II) no
landlord or lessor is in default under any Lease in any material
respect;
(C) to the Company's knowledge, (I) all
obligations of the tenant or lessee under the Leases which have
accrued have been performed in all material respects, and neither
the Company nor any of its subsidiaries is in default under any
Lease in any material respect provided that the Company's timely
payment of its rental obligations under the Leases is not
qualified by the Company's knowledge, and (II) no circumstance
presently exists which, with notice or the passage of time, or
both, would give rise to a material default by the Company or any
of its subsidiaries; and
(D) the Company and each of its subsidiaries, as
the case may be, has obtained or will obtain prior to the Closing
the consent of each landlord or lessor under any Leases whose
consent is required to the transactions contemplated hereby and
any necessary landlord waiver or subordinations in the form
heretofore presented to the Company by Parent required by the
entities providing Parent and Acquisition Sub with the financing
to consummate the Merger and the other transactions contemplated
hereby, and, subject to obtaining the foregoing consents, the
Merger and the other transactions contemplated hereby (other than
the Financing) will not give any landlord or lessor under any
Lease any remedy, including, without limitation, any right to
declare a default under any Lease; provided, however that with
respect to those Leases marked as such on SCHEDULE 5.13(B), the
Company shall be required only to exercise its best efforts to
obtain such consent or landlord waiver.
(ii) TITLE AND DESCRIPTION. The Company and each of its
subsidiaries, as the case may be, holds a good, clear, marketable,
valid and enforceable leasehold interest in the Leased Real Property
pursuant to the Leases, subject only to the right of reversion of the
landlord or lessor under the Leases and any mortgagee thereof, free
and clear, to the Company's knowledge, of all other prior or
subordinate interests, including, without limitation, mortgages, deeds
of trust, ground leases, leases, subleases, assessments, tenancies,
claims, covenants, conditions, restrictions, easements, judgments or
other encumbrances or matters affecting title, and free of
encroachments onto or off of the Leased Real Property, except for (v)
any of the same which are disclosed in any title report or title
search received by Parent or Acquisition Sub or made available by the
Company to Parent or Acquisition Sub, (w) any rights of any person
which has been granted rights by any owner of any such property,
(x) easements, claims, conditions, covenants, restrictions and
similar encumbrances that do not materially interfere with the use of
the Leased Real Property as currently used and improved,
(y) encroachments that do not materially adversely affect the value or
use of the Leased Real Property as currently used and improved and (z)
matters set forth on SCHEDULE 5.13(B).
(iii) CONDITION. Except as set forth on SCHEDULE 5.13(B)
and except for those matters which do not individually or in the
aggregate have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole, to the Company's knowledge, (A) there
are no material defects in the physical condition of any improvements
constituting a part of the Leased Real Property, including, without
limitation, structural elements, mechanical systems, roofs or parking
and loading areas, and, (B) all of such improvements are in good
operating condition and repair, have been well maintained and are free
from infestation by rodents or insects. Except as set forth on
SCHEDULE 5.13(B), none of the Leased Real Property is subject to
special flood or mudslide hazards or within the 100 year flood plain.
Except for any which does not individually or in the aggregate have a
Material Adverse Effect on the Company or its subsidiaries taken as a
whole, all water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned
operation of the Leased Real Property have been installed and
connected pursuant to valid permits, and are sufficient to service the
Leased Real Property.
(iv) COMPLIANCE WITH LAW; GOVERNMENT APPROVALS. Neither
the Company nor any of its subsidiaries has received any written
notice from any governmental authority of any violation of any law,
ordinance, regulation, license, permit or authorization issued with
respect to any of the Leased Real Property that has not been corrected
heretofore. To the Company's knowledge, except as described on
SCHEDULE 5.13(B) and except for violations that would not have a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole, (A) no such violation now exists which could have an adverse
effect on the operation or value of any of the Leased Real Property,
and (B) all improvements constituting a part of the Leased Real
Property are in compliance in all respects with all applicable laws,
ordinances, regulations, licenses, permits and authorizations, and
there are presently in effect all licenses, permits and authorizations
required by law, ordinance, or regulation. The transactions
contemplated hereby will not affect the rights of the Company or any
of its subsidiaries to use any off-site facilities necessary to ensure
compliance with all such laws, ordinances, codes and regulations.
There is at least the minimum access required by applicable
subdivision or similar law to the Leased Real Property. Neither the
Company nor any of its subsidiaries has received any notice of any
pending or threatened real estate tax deficiency or reassessment or
condemnation of all or any portion of any of the Leased Real Property.
(c) VIOLATIONS/CONDEMNATION. Except as set forth in SCHEDULE
5.13(C) hereto, neither the Company nor any of its subsidiaries has
received, with respect to any Owned Real Property currently owned, leased
or operated by the Company or Leased Real Property currently owned, leased
or operated by the Company, any written notice of default or termination or
any written notice of noncompliance with respect to applicable federal,
state or local laws and regulations relating to zoning, building, fire, use
restriction or safety or health codes which have not been remedied in all
respects which, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. There is no pending or, to the knowledge of
the Company or any of its subsidiaries, threatened condemnation or other
governmental taking of any of the Owned Real Property or Leased Real
Property.
(d) Notwithstanding anything to the contrary contained in this
Agreement, those representations and warranties contained in this Agreement
with respect to Owned Real Property which is not currently either leased,
operated or owned by either the Company or any of its subsidiaries, and
Leased Real Property which is not currently either leased, owned or
operated by either the Company or any of its subsidiaries, is subject to
the knowledge of the Company.
5.14 CONTRACTS. Except as set forth on Schedule 5.14 hereto, neither
the Company nor any of its subsidiaries is in default, or has received any
notice that it is in default, in any respect under any contract, agreement,
commitment, arrangement, lease, policy or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any such subsidiary is bound (excluding contracts, agreements, commitments,
arrangements, leases, policies or other instruments involving total
payments not in excess of $100,000 and which may be terminated within
90 days by the Company or any of its subsidiaries) ("MATERIAL CONTRACTS"),
except for those defaults which could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, and there has not occurred
any event that, with the lapse of time or the giving of notice or both,
would constitute such a material default. To the Company's knowledge, no
other party to any such Material Contact is in material breach or default
of the terms thereunder or has refused or otherwise failed to materially
perform under the terms thereof.
5.15 TRADE NAMES.
(a) Except as set forth on SCHEDULE 5.15, the Company and each
of its applicable subsidiaries, as the case may be, owns all rights to, or
possesses a valid, subsisting and enforceable exclusive license to use (in
each case, free and clear of any liens), all trade names used by the
Company or any of its subsidiaries in the jurisdictions in which such names
are used. To the best knowledge of the Company, except as disclosed in
SCHEDULE 5.15 hereto, (i) the use of trade names by the Company and its
subsidiaries does not infringe on the rights of any person, (ii) no person
is infringing on any right of the Company or any of its subsidiaries with
respect to any of the Company's or such subsidiaries' trade names, (iii)
there is no decree, undertaking or agreement limiting the scope of the
Company's or any of its subsidiaries' right to use any of its trade names
and (iv) neither the Company nor any of its subsidiaries has granted any
license to any person for the use of the Company's or any of its
subsidiaries' trade names.
(b) Except in each case as disclosed in the Company's Commission
Reports or as set forth in SCHEDULE 5.15 hereto:
(i) to the best knowledge of the Company, the Company
owns, has the right to use, sell, license and dispose of, and has the
right to bring actions for the infringement of, and, where necessary,
has made timely and proper application for all Intellectual Property
Rights (as defined below) necessary or required for the conduct of its
business as currently conducted (such Intellectual Property Rights,
collectively, the "REQUISITE RIGHTS") and has such rights to use,
sell, license, dispose of and bring such actions as are sufficient for
such conduct of its business;
(ii) to the best knowledge of the Company, there are no
royalties, honoraria, fees or other payments payable by the Company to
any person by reason of the ownership, use, license, sale or
disposition of Requisite Rights; and
(iii) to the best knowledge of the Company, neither the
marketing, license, sale nor use of any product currently or proposed
to be licensed or sold by the Company materially violates or will
materially violate any license or agreement with any third party to
which the Company is a party or materially infringe any Intellectual
Property Right of any other party.
As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" shall mean all
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications,
copyrights, copyright applications, know-how, trade secrets, proprietary
processes and formulae, franchises, licenses, inventions, marketing
materials, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, memoranda and records.
5.16 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE 5.16
hereto, (i) the Company has not engaged in any transaction involving any
lease or other transaction or the transfer of any cash, property or rights
to or from the Company or any of its subsidiaries from, to or for the
benefit of any affiliate or former affiliate of the Company or any of its
subsidiaries ("AFFILIATE TRANSACTIONS") during the period commencing
January 1, 1994 through the date hereof, (ii) neither the Company nor any
of its subsidiaries has any existing commitments to engage in the future in
any material Affiliate Transactions and (iii) to the best knowledge of the
Company, no affiliate of the Company or any of its subsidiaries is party to
any contract with a third party pursuant to which (x) as a result of a
claimed breach a claim against the Company or any such subsidiary may arise
or (y) a liability (whether absolute, contingent or otherwise) might accrue
against the Company or any such subsidiary.
5.17 BROKERAGE FEES. The Company has not retained any financial
adviser, broker, agent or finder or paid or agreed to pay any financial
adviser, broker, agent or finder on account of this Agreement or any
transaction contemplated hereby, except that Hill Thompson Capital Markets,
Inc. has been retained as the Company's financial advisor in connection
with certain matters including the transactions contemplated hereby. The
Company has heretofore furnished to Parent a complete and correct copy of
all agreements between the Company and Hill Thompson Capital Markets, Inc.
pursuant to which such firm would be entitled to any payment relating to
the transactions contemplated hereby. Other than the foregoing
arrangements and Frederick Marino's arrangements with Proteus International
Group Incorporated, the Company is not aware of any claim for payment of
any finder's fee, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to the Merger, this Agreement
or the consummation of the transactions contemplated hereby.
5.18 SUBSIDIARIES. The Company's subsidiaries and investments in any
other corporation, partnership, joint venture or other business
organization are listed in SCHEDULE 5.18 hereto. The Company owns
beneficially and of record all of the outstanding shares of capital stock
or other equity interest of each of its subsidiaries, and such shares or
other equity interest are duly authorized, validly issued, fully paid and
non-assessable, and are free and clear of all preemptive rights and, except
as set forth on SCHEDULE 5.18 hereto, all liens, charges, encumbrances,
equities, claims and options whatsoever. There are not any outstanding
subscriptions, options, warrants or other rights, agreements or commitments
to purchase any additional shares of such subsidiary's capital stock or any
other securities convertible into or evidencing the right to subscribe for
any capital stock of such subsidiary. Except as disclosed in SCHEDULE 5.18,
all of the outstanding shares of capital stock or other equity interest of
each of the Company's subsidiaries are owned beneficially and of record by
the Company free of any lien, restriction or encumbrance and said shares
have been duly authorized and validly issued and are outstanding, fully
paid and non-assessable.
5.19 DISCLOSURE. The representations, warranties and statements made
by the Company in this Agreement and in the schedules and exhibits attached
hereto and in the certificates and other documents delivered pursuant to
Section 8.3(a) and 8.3(b) hereof do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material
fact necessary to make such representations, warranties and statements, in
light of the circumstances under which they are made, not misleading and
may be relied upon regardless of any investigation by or independent
inquiry or knowledge of Parent, Acquisition Sub or any of their respective
employees, consultants, advisers or affiliates. Parent and Acquisition Sub
acknowledge that they are not relying on any representations and warranties
other than the representations and warranties contained in this Agreement
and the schedules and exhibits attached hereto.
6. CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF BUSINESS BY THE COMPANY. During the period from the
date of this Agreement to the Effective Time, except as otherwise
contemplated by this Agreement or as set forth in SCHEDULE 6.1 hereto, the
Company shall, and shall cause each of its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course, reasonably
consistent with past practice in all material respects, and use their best
efforts to preserve intact their present business organizations, keep
available the services of their present advisors, managers, officers and
employees and preserve their relationships in all material respects with
customers, suppliers, licensors and others having business dealings with
them and continue existing contracts (for the term provided in such
contracts), provided that the Company shall not be required to make any
payments (cash or otherwise) outside the ordinary course or enter into or
amend any contractual arrangements or understandings to satisfy the
foregoing obligations; PROVIDED, HOWEVER, that the covenant contained in
this sentence shall not be deemed to be breached in any material respect
unless any actions or failures to act when taken together constituted
unreasonable business judgements determined on the basis of the Company's
compliances, or non-compliances, taken on the whole with this sentence; and
the Company shall have the right within ten (10) days after receipt of the
written notice from Parent to cure any such claimed breach as is reasonably
susceptible of cure. Notwithstanding the foregoing and without limiting
the generality of the foregoing, neither the Company nor any of its
subsidiaries will (except as expressly permitted by this Agreement or to
the extent that Parent shall otherwise consent in writing):
(a) (i) declare, set aside or pay any dividend or other
distribution (whether in cash, stock, or property or any combination
thereof) in respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or (iii) repurchase, redeem or
otherwise acquire any of its securities, except, in the case of clause
(iii), for the acquisition of shares of Company Common Stock from holders
of the Options in full or partial payment of the exercise price payable by
such holders upon exercise of the Options outstanding on the date of this
Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights) (other than the issuance of
Company Common Stock upon the exercise of the Options outstanding on the
date of this Agreement in accordance with their present terms);
(c) acquire, sell, lease, encumber, transfer or dispose of any
assets outside the ordinary course of business which are material to the
Company and its subsidiaries taken as a whole (whether by asset
acquisition, stock acquisition or otherwise), except pursuant to
obligations in effect on the date hereof which have been disclosed in
writing to Parent and Acquisition Sub prior to the date hereof;
(d) (i) incur any indebtedness for borrowed money, guarantee any
indebtedness, issue or sell debt securities or warrants or rights to
acquire any debt securities, guarantee (or become liable for) any debt of
others, make any loans, advances or capital contributions, mortgage, pledge
or otherwise encumber any material assets, or create or suffer any material
lien thereupon, other than, as to each of the foregoing, in the ordinary
course of business reasonably consistent with prior practice or (ii) incur
any short-term indebtedness for borrowed money, except, in each such case,
pursuant to credit facilities in existence on the date hereof under the
terms thereof on the date hereof, which credit facilities have been
disclosed in writing to Parent and Acquisition Sub prior to the date
hereof;
(e) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than any payment, discharge or satisfaction (i) in the
ordinary course of business reasonably consistent with past practice, or
(ii) in connection with the transactions contemplated by this Agreement;
(f) change any of the accounting principles or practices used by
it (except as required by generally accepted accounting principles, in
which case written notice shall be provided to Parent and Acquisition Sub
prior to any such change);
(g) except as required by law, (i) enter into, adopt, amend or
terminate any employee benefit plan, (ii) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company or
any of its subsidiaries and one or more of their directors or officers, or
(iii) except for normal increases in the ordinary course of business
reasonably consistent with past practice, increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan or arrangement as in effect as of the
date hereof;
(h) adopt any amendments to the Company's Certificate or the
Company's By-laws, except as expressly provided by the terms of this
Agreement;
(i) enter into a new agreement or amend any existing agreement
which could reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole;
(j) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(k) enter into or amend, extend or otherwise alter any
collective bargaining agreement;
(l) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements or
compromises or litigation where the amount paid (after giving effect to
insurance proceeds actually received) in settlement or compromise does not
exceed $50,000;
(m) grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date hereof, except
with respect to the Options and except to the extent provided by the terms
of any such arrangements or policies in effect on the date hereof which
arrangements or policies have been disclosed in SCHEDULE 5.8 hereto;
(n) except as set forth on SCHEDULE 6.1 hereto, enter into any
transaction, contract or arrangement with any affiliate;
(o) except as set forth on SCHEDULE 6.1 hereto, enter into any
other material agreement, arrangement or understanding, whether oral or
written, outside the ordinary course of business;
(p) enter into an agreement to take any of the foregoing actions
or enter into an agreement that would foreseeably result in the failure of
any of the conditions to the Merger set forth in Section 8 hereof to occur
or be satisfied; or
(q) authorize any of, or commit or agree to take any of, or take
any corporate action in furtherance of, any of the foregoing actions.
Notwithstanding the foregoing, the Company may negotiate and enter
into a collective bargaining agreement with Local 282, the existing
contract of which expires December 31, 1996, on terms acceptable to the
Company, without the consent of Parent or Acquisition Sub and the absence
of an agreement with Local 282 after December 31, 1996 or a resulting
strike by Local 282 shall not be deemed to have a Material Adverse Effect
on the Company or constitute the failure of any obligations under this
Agreement.
7. ADDITIONAL AGREEMENTS
7.1 PROXY STATEMENT; OTHER FILINGS. As promptly as practicable, the
Company shall prepare, shall file with the Commission under the Exchange
Act, shall use its best efforts to have cleared by the Commission and
promptly thereafter shall mail to its stockholders, a Proxy Statement with
respect to the meeting of the Company's stockholders referred to in
Section 7.2. The term "PROXY STATEMENT" shall mean such proxy statement,
as the case may be, and all related proxy materials at the time such
documents initially are mailed to the Company's stockholders, and all
amendments or supplements thereto, if any, similarly filed and mailed. The
Company shall give Parent and its counsel a reasonable opportunity to
review and comment upon the Proxy Statement prior to its being filed with
the Commission and shall give Parent and its counsel a reasonable
opportunity to review all amendments and supplements to the Proxy Statement
and all responses to requests for additional information and replies to
comments prior to their being filed with, or sent to, the Commission and,
in the case of the Proxy Statement and any amendments or supplements
thereto, prior to its being disseminated to holders of shares of Company
Common Stock. As promptly as practicable, the Company, Parent and
Acquisition Sub each shall properly prepare and file any other filings
required under the Exchange Act or any other federal or state law relating
to the Merger and the transactions contemplated herein (including filings,
if any, required under the Hart-Scott-Rodino Act) (collectively, "OTHER
FILINGS"). Each of Parent and the Company shall promptly notify the other
of the receipt of any comments on, or any request for amendments or
supplements to, the Proxy Statement or any Other Filings by the Commission
or any other governmental entity or official, and each of the Company and
Parent shall supply the other with copies of all correspondence between it
and each of its subsidiaries and representatives, on the one hand, and the
Commission or the members of its staff or any other appropriate
governmental official, on the other hand, with respect to the Proxy
Statement and any of the Other Filings. The Company, Parent and
Acquisition Sub each shall use its respective best efforts to obtain and
furnish the information required to be included in the Proxy Statement and
any Other Filings, and the Company, after consultation with Parent, shall
use its best efforts to respond promptly to any comments made by the
Commission with respect to the Proxy Statement and any preliminary version
thereof. The information provided and to be provided by Parent,
Acquisition Sub and the Company, respectively, for use in the Proxy
Statement shall, on both the date the Proxy Statement is first mailed to
the Company's stockholders as referred to in Section 7.2 hereof and the
date such stockholders meeting is held, not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the stockholders' meeting which shall have
become false or misleading, and shall comply in all material respects as to
form and substance with all applicable requirements of law. Parent, the
Company and Acquisition Sub each agree to correct promptly any such
information provided by it for use in the Proxy Statement which shall have
become false or misleading.
7.2 MEETING OF THE COMPANY'S STOCKHOLDERS. In order to consummate the
Merger, the Company, acting through the Board, shall take all action
necessary in accordance with applicable laws, the Company's Certificate and
By-laws to duly call, give notice of, convene and hold an annual or special
meeting of its stockholders as promptly as practicable to consider and vote
upon the approval and adoption of this Agreement and the approval of the
Merger and to take such other action as is necessary or desirable to
consummate the transactions contemplated hereby (the "STOCKHOLDERS'
MEETING"). Except to the extent required by law or the Company's By-Laws
(a) the Company shall not convene any meeting of its Stockholders prior to
the Stockholders' Meeting, and (b) the company shall not present any other
matter at the Stockholders' Meeting except for the matters contemplated by
this Agreement. At the Stockholders' Meeting, all the shares of Company
Common Stock owned by Parent, Acquisition Sub or any other subsidiary or
affiliate of Parent shall be voted in favor of the Merger. The stockholder
vote required for the adoption of this Agreement and the Merger shall be
the vote required by the Corporation Law. The Proxy Statement shall,
except to the extent legally required under the Corporation Law for the
discharge of the fiduciary duties of the Board as advised by its counsel,
contain the determination and the recommendation of the Board that the
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby including the Merger and the Company,
acting through the Board, shall use its best efforts to obtain such
approval and adoption. Parent and the Company shall coordinate and
cooperate with respect to the foregoing matters.
7.3 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts
(i) to take, or cause to be taken, all actions and (ii) to do, or cause to
be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to cooperate with each other in connection with the
foregoing, including the taking of such actions as are necessary to obtain
any necessary consents, approvals, orders, exemptions and authorizations by
or from any public or private third party, including without limitation any
that are required to be obtained under any federal, state or local law or
regulation or any contract, agreement or instrument to which the Company or
any subsidiary is a party or by which any of their respective properties or
assets are bound, (iii) to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions
contemplated hereby, (iv) to cause to be lifted or rescinded any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby, and (v) to
effect all necessary registrations and Other Filings, including, but not
limited to, filings under the Hart-Scott-Rodino Act, if any, and
submissions of information requested by governmental authorities. Each of
the parties hereto further agrees to use its respective best efforts to
effectuate the Merger as soon as reasonably practicable after February 28,
1997 in the event that the Merger has not been consummate on or prior to
such date. Without limiting the generality of the foregoing, Parent and
Acquisition Sub will use their best efforts to obtain appropriate financing
to consummate the Merger. For purposes of the foregoing sentence and as to
the Company's obligations under Section 5.13(b)(i)(D) hereof, the
obligation of the Company, Parent and Acquisition Sub to use their "best
efforts" to obtain waivers, consents and approvals to loan agreements,
leases and other contracts shall not include any obligation to agree to an
adverse modification of the terms of such documents or to prepay or incur
additional obligations (payment or otherwise) to such other parties.
7.4 FEES AND EXPENSES. Except as set forth in Section 9.2 below,
whether or not the Merger is consummated, all fees, costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such cost or
expense. Notwithstanding the foregoing, upon consummation of the Merger,
Parent may be reimbursed by the Company for all costs and expenses incurred
by Parent and Acquisition Sub in connection with this Agreement and the
transactions contemplated hereby.
7.5 NO SOLICITATIONS.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, the Company agrees and covenants that (i)
neither it nor any of its subsidiaries shall, and each of them shall direct
and use its best efforts to cause its respective officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) not to, directly or indirectly, initiate, solicit or
encourage any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, tender offer, exchange
offer, consolidation or similar transaction involving any purchase of 10%
or more of the assets or securities of the Company or any of its
subsidiaries, other than the transactions contemplated by this Agreement
(any such proposal or offer being hereinafter referred to as an
"ACQUISITION PROPOSAL") or engage in any negotiations with, or provide any
confidential information or data to, or have any discussions with, any
person relating to, an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; (ii) the
Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to above of the
obligations undertaken in this Section; and (iii) the Company will notify
the Parent immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company,
which notification shall include the terms of any such inquiries or
proposals.
(b) Notwithstanding anything set forth in this Agreement to the
contrary, the Board may furnish or cause to be furnished by any committee
thereof, any executive officer of the Company, the Company's counsel or the
Company's investment advisor information or data to or enter into
discussions or negotiations with any person that on an unsolicited basis,
makes a bona fide Acquisition Proposal, if, and only to the extent that,
the Board (x) determines in good faith, after consideration of written
advice of its financial advisors, that the Acquisition Proposal, if
consummated as proposed, may result in a transaction more favorable to the
Company's stockholders from a financial point of view than the transactions
contemplated by this Agreement (any such Acquisition Proposal being
referred to herein as a "SUPERIOR PROPOSAL") and (y) determines in good
faith, after consultation with its outside counsel, that the failure to
take such action may be a breach of the directors' fiduciary duties under
applicable law, provided that prior to furnishing such information to, or
entering into discussions or negotiations with, such person, the Company
provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person and the Company keeps Parent informed of the status of any such
discussions or negotiations and the principal terms of any such Acquisition
Proposal. Notwithstanding the foregoing (a) the Company and its
representatives (as set forth above) may advise any person expressing an
interest in the Company and/or making an Acquisition Proposal that such
person must review and comply with, and the Company must comply with, the
provisions of Section 7.5 hereof (as contained in this Agreement as filed
with the Commission) prior to the Company entering into any discussion or
negotiations with such person or providing any information or data to such
person, and any such statement to such effect (when initially made to such
person) shall not constitute a breach of this Agreement, and (b) nothing
contained herein shall preclude the Company from entering into a definitive
agreement with any person providing a bona fide Acquisition Proposal that
the Company is entitled to negotiate pursuant to the terms of this Section
7.5 provided that the Company and its representatives comply with the
obligations contained in this Section 7.5 and in Sections 9.1(f) and 9.2
hereof. As used in this Agreement, the word "person" means an individual,
a corporation, a partnership, an association, a joint-stock company, a
trust, a limited liability company, an unincorporated organization or any
other entity.
7.6 OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION. Parent
agrees that all rights to indemnification existing in favor of, and all
limitations on the personal liability of, the directors and officers of the
Company provided for in the Company's Certificate and in each subsidiaries'
certificate of incorporation (or similar organizational document) or their
respective By-laws as in effect as of the date hereof with respect to
matters occurring prior to the Effective Time shall continue without
amendment in full force and effect for a period of not less then six (6)
years from the Closing; PROVIDED, HOWEVER, that all rights to
indemnification in respect of any claims (a "CLAIM") asserted or made
within such period shall continue until the disposition of such Claim. At
or prior to the Effective Time, Parent also shall continue the Company's
existing directors' and officers' liability insurance coverage for the
Company's directors in a form reasonably acceptable to the Company which
shall provide such directors with coverage for six years following the
Effective Time; PROVIDED, HOWEVER, that the cost of such policy shall not
exceed $200,000 in the aggregate. Notwithstanding anything to the contrary
in this Section 7.6, nothing contained in this Section 7.6 shall at any
time be construed to limit or otherwise impair or shall at any time limit
or otherwise impair the rights of any officer or director to
indemnification for acts occurring prior to the Effective Date by the
Company, any subsidiary or the Surviving Corporation under the Corporation
Law, it being understood that the provisions of this Section 7.6 constitute
a contractual obligation.
7.7 ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof
until the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, employees and agents to, afford to Parent and to
the officers, employees and agents of Parent complete access at all
reasonable times to their officers, employees, agents, properties, books,
records and contracts, and shall furnish Parent such financial, operating
and other data and information as Parent may reasonably request PROVIDED,
HOWEVER, that the Company shall not be required to disclose or permit
access to certain information regarding the deliberations of the Company's
Board of Directors or committees thereof to the extent same relates solely
to an Acquisition Proposal or this Agreement. Prior to the Effective Time,
Parent and Acquisition Sub shall hold in confidence all such information on
the terms and subject to the conditions contained in that certain
confidentiality agreement between Fidelity Ventures Limited and the Company
(the "CONFIDENTIALITY AGREEMENT") the provisions of which shall survive the
termination of this Agreement. The parties hereto on behalf of the
signatories to the Confidentiality Agreement hereby waive the provisions of
the Confidentiality Agreement as and to the extent necessary to permit the
making and consummation of the transactions contemplated hereby. Upon the
consummation of the Merger, such Confidentiality Agreement shall terminate.
7.8 FINANCIAL AND OTHER STATEMENTS. Notwithstanding anything
contained in Section 7.7, during the term of this Agreement, the Company
shall also provide to Parent the following documents and information:
(a) As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter ending after the date of
this Agreement, the Company will deliver to Parent its Quarterly
Report on Form 10-Q as filed under the Exchange Act. The Company will
also deliver to Parent, contemporaneously with its being filed with
the SEC, a copy of all Current Reports on Form 8-K.
(b) Promptly upon receipt thereof, the Company will furnish to
Parent copies of all internal control reports submitted to the Company
or any subsidiary by independent accountants in connection with each
annual, interim or special audit of the books of the Company or any
such subsidiary made by such accountants.
(c) As soon as practicable, the Company will furnish to Parent
copies of all such financial statements and reports as it or any
subsidiary shall send to its stockholders, the Commission or any other
regulatory authority, to the extent any such reports furnished to any
such regulatory authority are not confidential and except as legally
prohibited thereby.
(d) With reasonable promptness, the Company will furnish to
Parent (i) monthly profit and loss statements, (ii) a listing of
accounts receivable, including aging, as of the end of each month,
(iii) inventory analysis as of the end of each month, (iv) a listing
of accounts payable, including aging, as of the end of each month, and
(v) such additional financial data as Parent may reasonably request.
7.9 OBSERVER RIGHTS. From the date hereof until the earlier to occur
of the Effective Time or the termination of this Agreement in accordance
with its terms, the Company shall afford a representative designated by
Parent observation rights for all meetings (whether in person, telephonic
or otherwise) of the Company's Board of Directors and shall provide Parent
and Acquisition Sub copies of all notices, minutes, consents and other
materials that it provides to its directors in the same manner and at the
same time as it provides such materials to its directors (including those
related to the committees thereof), except to the extent the same relates
solely to an Acquisition Proposal or this Agreement; provided, however,
that such representative shall agree to hold in confidence all information
so provided.
7.10 ADVICE OF CHANGE; SCHEDULE UPDATE. Each party will promptly
advise the other of (i) any change or the occurrence or non-occurrence of
any event having a Material Adverse Effect or which would be reasonably
likely to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect and (ii) any material
failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
7.11 ROWLEY BUILDING TRANSACTION. The Company shall involve Parent
and its advisors in its continued investigations of and discussions with
Rowley Building Products Corp. ("ROWLEY BUILDING PRODUCTS"), shall consult
with Parent regarding any proposed transaction involving Rowley Building
Products including the structure of the transaction, the form and substance
of the documents to be executed in connection with such transaction and the
specific nature of any post-closing obligations (payment, indemnification
or otherwise) and agrees to not consummate any such transaction without the
prior written consent of Parent.
7.12 CERTAIN LITIGATION. Notwithstanding anything to the contrary
contained in this Agreement, the outcome of the currently pending
litigation commenced against the Post Authority of New York and New Jersey
(the "PORT AUTHORITY") and the Company and/or one or more of its
subsidiaries in the United States District Court for the Eastern District
of New York (styled as Case No.: CV96-3793), and any related legal
proceeding in state or federal court including without limitation any
reasonably related legal proceedings instituted by individual members of
the coalition which is the plaintiff in the aforementioned proceeding
involving the lease dated March 29, 1996 between the Company and the Port
Authority (the "PORT AUTHORITY LEASE"), shall not constitute an event which
gives rise to a failure of a condition to Parent's and Acquisition Sub's
respective obligations under this Agreement (including without limitation,
if the Port Authority Lease is deemed unenforceable and the Company has not
secured or occupied another location prior to the expiration of the
Company's lease at 550 Hamilton Avenue, Brooklyn, New York), or which
otherwise provides Parent or Acquisition Sub with the right to decline to
consummate the Merger as a result of a failure of a closing condition. The
Company has, prior to the date hereof, delivered a true and correct copy of
the Indemnification Agreement, dated October 8, 1996, by and between the
Port Authority and the Company and/or one or more of its subsidiaries (the
"INDEMNIFICATION AGREEMENT"). The Company (a) shall keep Parent and its
counsel advised in writing of the status of, and material developments in,
the pending legal proceeding referred to above, (b) shall notify Parent and
its counsel in writing of the commencement of any related legal proceeding,
(c) shall preserve its rights under the Indemnification Agreement, and (d)
shall not settle or compromise the pending legal proceeding or any such
related legal proceeding without the prior written consent of Parent and
Acquisition Sub, which consent shall not be unreasonably withheld.
7.13 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements or announcements with respect to this Agreement or any
transaction contemplated herein and shall not issue any such press release
or make any such public statement without the prior written consent of the
other party, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that a party may, without the prior consent of the other party,
issue such press release or make such public statement or announcement as
may be required by law if it has used its reasonable best efforts to
consult with the other party and to obtain such party's consent but has
been unable to do so. Notwithstanding anything to the contrary set forth
in this Agreement, the Company shall not, and shall use its best efforts to
ensure that its stockholders, directors, officers, employees, agents,
advisors or affiliates do not, disclose any information concerning Parent
or any of its affiliates without the prior written consent of a majority of
the equity holders of Parent. Access to any information concerning Parent
and its affiliates shall be limited by the Company only to those employees,
advisors and representatives who have a need to receive any such
information for the purpose of consummating the Merger and the other
transactions contemplated by this Agreement and who are under an
enforceable obligation to the Company to hold such information in
confidence under similar terms and conditions as set forth in the
Confidentiality Agreement.
7.14 ENVIRONMENTAL MATTERS. The Company (a) shall promptly prepare
and file all such reports, notices, filings, requests for consent or
waiver, applications for permit or license and such other documents (if
any) as required by applicable federal, state and local law with respect to
those environmental matters set forth in, or referred to in, SCHEDULE 5.11
hereto, and (b) shall promptly notify Parent and its counsel in writing of
any matter, issue, discovery, notice or other event which occurs, or of
which the Company becomes aware, after the date hereof, and which would
have required disclosure on SCHEDULE 5.11 hereto had it occurred or had the
Company become aware prior to the date hereof.
7.15 STOP TRANSFER; REORGANIZATION AGREEMENT. The Company
acknowledges and agrees to be bound by and comply with the provisions of
the Proxy Agreement as if a party thereto with respect to transfers of
record ownership of shares of the Common Stock, and agrees to notify the
transfer agent of the provisions of the Proxy Agreement and to request that
the transfer agent place a stop transfer order on the shares that are
subject to the provisions of such agreement except for the transfers
permitted by Section 1(a) of the Proxy Agreement. The Company hereby
waives any and all rights that it might have under the Agreement and Plan
of Reorganization dated October 1, 1986 by and among the Company and the
Stockholders (as defined therein), as amended (the "REORGANIZATION
AGREEMENT"), to the extent necessary to consummate the transaction
contemplated hereby and in order for the Principal Stockholders to enter
into the Proxy Agreement. The Company further agrees not to take any
action under such Reorganization Agreement that would affect the Proxy
Agreement and the arrangements contained therein. Furthermore, the Company
agrees that, at the Effective Time, the Reorganization Agreement shall
terminate as to the Company and the Company shall have no further rights
thereunder.
7.16 TRANSFER TAXES. Acquisition Sub and Parent agree that either
Acquisition Sub or the Company will pay the applicable state and local
transfer taxes arising as a result of the consummation of the Merger
(collectively, the "TRANSFER TAXES") including but not limited to the New
York State Real Property Transfer Tax, the New York City Real Property
Transfer Tax and the Connecticut Real Estate Conveyance Tax, if any, and
any penalties or interest with respect to the Transfer Taxes payable as a
result of the consummation of the Merger. The Company agrees to cooperate
with Acquisition Sub in the filing of any returns with respect to the
Transfer Taxes, including supplying in a timely manner any information with
respect to the Company's real property interests that is reasonably
necessary to complete such returns.
8. CONDITIONS TO THE MERGER
8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, where permissible, at or prior to the
Effective Time, of each of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby, including the Merger, shall have been approved and
adopted by the affirmative vote of the stockholders of the Company to the
extent required by the Corporation Law and the Company's Certificate.
(b) [Intentionally Omitted]
(c) OTHER REGULATORY APPROVALS. All necessary approvals,
authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in
full force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated, except
where the failure to so obtain will not, either individually or in the
aggregate, have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole .
(d) NO INJUNCTIONS, ORDERS OR RESTRAINTS; ILLEGALITY. No
preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority shall
be in effect which would (i) make the consummation of the Merger illegal,
or (ii) otherwise restrict, prevent or prohibit the consummation of the
transactions contemplated by this Agreement, including the Merger.
8.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the
satisfaction, or waiver by the Company, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of Parent and Acquisition Sub in this Agreement which is
qualified as to materiality shall be true and correct and each such
representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Date. Parent and
Acquisition Sub shall each have delivered to the Company a certificate of
such party to such effect signed by the Manager or Managers (as the case
may be) of Parent dated as of the Effective Date.
(b) AGREEMENTS AND COVENANTS. Parent and Acquisition Sub shall
have performed in all material respects all obligations and complied in all
material respects with all of the respective agreements or covenants to be
performed or complied with by such party under this Agreement and the
Company shall have received a certificate signed by the Chief Executive or
Chief Financial Officer of Parent to such effect dated as of the Effective
Date.
8.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND
ACQUISITION SUB. The obligations of Parent and Acquisition Sub to effect
the Merger are also subject to the satisfaction, or waiver by Parent and
Acquisition Sub, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of the Company in this Agreement which is qualified as to
materiality shall be true and correct and each such representation or
warranty that is not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement, as applicable, and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Effective Time. The Company shall have delivered
to Parent a certificate of the Company to such effect signed by the Chief
Executive Officer and the Chief Financial Officer of the Company as of the
Effective Date.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed
in all material respects all obligations and complied in all material
respects with all agreements or covenants of the Company to be performed or
complied with by it at or prior to the Effective Date under this Agreement
and Parent shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer and Chief Financial Officer of the
Company to such effect dated as of the Effective Date.
(c) NO ORDERS, INJUNCTIONS OR RESTRAINTS ON OPERATION OF
BUSINESS; ILLEGALITY. No pending legal proceeding in (a "PENDING
LITIGATION"), or preliminary or permanent injunction or other order, decree
or ruling issued by, a court of competent jurisdiction or pending in
(together with a Pending Litigation a "PENDING LEGAL PROCEEDING"), or
issued by, a governmental, regulatory or administrative agency or
commission nor any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority shall be in effect, which (i)
restricts, prevents or prohibits the ownership or operation by Parent (or
any of its subsidiaries) of any portion of its or the Surviving
Corporation's or its subsidiaries' business, properties or assets which is
material to such businesses as a whole, or compels Parent (or any of its
subsidiaries) to dispose of or hold separate any portion of the Surviving
Corporation's or its subsidiaries' business, properties or assets which is
material to such businesses as a whole, (ii) imposes any material
limitation on the ability of Parent or Acquisition Sub to effect the Merger
or on the ability of Parent to hold or to exercise full rights of ownership
of the shares of common stock of the Surviving Corporation, including,
without limitation, the right to vote the shares of common stock of the
Surviving Corporation on all matters presented to the stockholders of the
Surviving Corporation, (iii) imposes any limitations on the ability of
Parent or any of its affiliates or subsidiaries to control in any material
respect the business, properties and operations of the Company or the
Surviving Corporation, or (iv) occurs after the execution of this Agreement
and is otherwise reasonably likely to have a Materially Adverse Effect on
the Surviving Corporation and its subsidiaries taken as a whole.
(d) FINANCIAL MARKETS. There shall not have occurred (i) any
general suspension of trading in, or limitation on prices for, securities
on the New York Stock Exchange, the American Stock Exchange or The Nasdaq
Stock Market, Inc.'s National Market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States having a significant effect on the
functioning of financial markets in the United States, or (iv) any
limitation (whether or not mandatory) by any United States governmental
authority or agency on the extension of credit by banks or other financial
institutions which would have a material adverse effect on Parent's ability
to borrow sufficient funds as contemplated by the Financing Letters to pay
the Merger Consideration.
(e) NO MATERIAL ADVERSE EFFECT. Since the date of the
Agreement, there shall not have occurred any change having a Material
Adverse Effect on the Company and its subsidiaries taken as a whole
PROVIDED, HOWEVER, that the financial results of the Company for the three
months ended March 31, 1997, to the extent that they are reasonably
consistent with the financial results for the three months ended March 31,
1996, shall be excluded in determining any such change.
(f) THIRD PARTY CONSENTS. The Company shall have obtained all
consents of third parties to the consummation of the Merger and the other
transactions contemplated by this Agreement (other than the Financing,
except as specifically contemplated in this Agreement) necessary under any
contract, agreement, arrangement or understanding listed on SCHEDULE 8.3(F)
hereto and under any other contract, agreement, arrangement or
understanding the failure of which to obtain would have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole.
(g) WAIVERS OF CONTRACTUAL DEFAULTS, ACCELERATIONS, ETC. The
Company shall have obtained waivers (on terms satisfactory to Parent and
Acquisition Sub) with respect to any default, termination, acceleration of
payment or performance or modification clause contained in any contract,
agreement, commitment, arrangement, lease, policy or other instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries, or their respective properties or
assets is bound which is triggered or otherwise caused by reason of the
entering into this Agreement or the consummation of the Merger and the
other transactions contemplated by this Agreement (other than the
Financing, except as specifically contemplated in this Agreement), except
where the failure to have so obtained would not have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole, on the
Surviving Corporation and its subsidiaries taken as a whole, on the Parent
or on the ability to consummate the Merger.
(h) APPRAISAL RIGHTS. Holders of capital stock of the Company
shall not have demanded or perfected the right for appraisal of shares of
Company Stock representing more than five percent (5%) of all issued and
outstanding shares of capital stock of the Company taken as a whole as of
the Effective Date in accordance with Section 262 of the Corporation Law
and the Company shall have delivered to Parent a certificate dated as of
the Effective Date certifying to the foregoing effect.
(i) STOCK OPTION PLANS. Parent shall have received satisfactory
evidence (x) that holders of all Options have consented to the cancellation
of such Options and (y) that such Options and the Stock Option Plans will
terminate at or prior to the Effective Time.
8.4 CERTAIN PAYMENTS. In the event Parent and Acquisition Sub elect
to not consummate the Merger and the other transactions contemplated under
this Agreement as a result of a Pending Legal Proceeding, Parent shall
reimburse the Company for the Company Expenses (as defined in Section
9.2(d) hereof) which payment shall be payable to the Company (by wire
transfer of immediately available funds to an account designated by the
Company) within two (2) business days after demand theretofore is made in
writing by the Company.
9. TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of Parent, Acquisition Sub and the
Company;
(b) by either Parent and Acquisition Sub or the Company if the
Effective Time shall not have occurred on or before March 31, 1997 or such
later date as shall be mutually agreed to in each party's sole discretion;
(c) by either Parent and Acquisition Sub or the Company if there
shall have been a material breach of any of the representations or
warranties set forth in this Agreement on the part of the other party,
which breach by its nature cannot be cured prior to the Effective Time or
within thirty (30) business days following receipt by the breaching party
of written notice of such breach from the other party hereto;
(d) by either Parent and Acquisition Sub or the Company if any
United States federal or state court of competent jurisdiction shall have
issued an injunction or taken any other action (which the parties shall use
their best efforts to stay or reverse) permanently restraining, enjoining
or otherwise prohibiting the Merger, and such injunction or other action
shall have become final and non-appealable;
(e) by the Company if either Parent or Acquisition Sub shall
have failed to perform or has breached in any material respect any of its
covenants, obligations or agreements under or contained in this Agreement
unless the failure to so perform or the breach, as the case may be, has
been caused by or results from a breach of this Agreement by the Company;
(f) by the Company if the Company enters into a binding
definitive agreement to effect a Superior Proposal (which entrance shall
not require Parent's or Acquisition Sub's consent); PROVIDED, HOWEVER, that
the Company shall notify Parent in writing at least three business days
prior to the exercise of its termination rights under this Section 9.1(f),
where such notice shall include the proposed terms of such agreement into
which the Company may enter;
(g) by Parent and Acquisition Sub if the Board shall have failed
to recommend or shall have withdrawn its recommendation or approval of the
Merger, or if the Board shall have recommended to stockholders of the
Company any Acquisition Proposal of any other person or shall have resolved
to do any of the foregoing, provided that any notice sent to Parent and
Acquisition Sub under Section 9.1(f) prior to the exercise of the
termination rights under such section shall not require the entrance into
such agreement or be deemed to constitute an act described in this Section
9.1(g) but the entrance into a binding definitive agreement to effect a
Superior Proposal shall constitute an act described in this Section 9.1(g);
(h) by Parent and Acquisition Sub if the Company shall have
failed to perform in any material respect any of its covenants, obligations
or agreements under or contained in this Agreement unless the failure to so
perform or the breach, as the case may be, has been caused by or results
from a breach of this Agreement by Parent or Acquisition Sub; or
(i) by Parent and Acquisition Sub if any United States federal
or state court of competent jurisdiction shall have issued an injunction or
taken any other action (which the parties shall use their best efforts to
stay or reverse) permanently restraining, enjoining or otherwise
prohibiting the enforcement of any of the terms of the Proxy Agreement, and
such injunction or other action shall have become final and non-appealable.
9.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant
to Section 9.1 hereof, this Agreement shall forthwith become void and have
no effect, without any liability on the part of any party hereto or its
affiliates, trustees, directors, officers or stockholders and all rights
and obligations of any party hereto shall cease except for the agreements
contained in Sections 7.4, 7.7, 9 and 10; PROVIDED, HOWEVER, that nothing
contained in this Section 9.2(a) shall relieve any party from liability
under this Section 9 for any breach of this Agreement.
(b) If (x) Parent and Acquisition Sub terminate this Agreement
(A) pursuant to Section 9.1(g) or (B) pursuant to Section 9.1(h) as a
result of a willful breach by the Company or (y) if the Company terminates
this Agreement pursuant to Section 9.1(f), then the Company shall pay to
Parent an amount in cash equal to the sum of (i) $1,000,000, plus (ii)
Parent's and Frederick Marino's out-of-pocket costs and expenses in
connection with this Agreement and the transactions contemplated hereby
including, without limitation, fees and disbursements of its outside
counsel, accountants and other consultants retained by or on behalf of
Parent together with the other out-of-pocket costs incurred by it in
connection with analyzing, structuring, participating in the negotiations
of the terms and conditions, arranging financing, conducting due diligence
and other activities related to the Merger and the transactions
contemplated by this Agreement and the negotiations and evaluations leading
to the Merger, including, without limitation, commitment fees and expense
reimbursements paid to potential lenders (collectively, the "PARENT
EXPENSES"). Following the Company's reasonable request, Parent and Mr.
Marino shall provide such reasonable documentation of such expenses to
enable the Company to appropriately account for such expenses in its
financial records and to report such expenses in its tax returns and
reports.
(c) If Parent and Acquisition Sub terminate this Agreement
pursuant to Sections 9.1(h) (except for a termination because of a willful
breach by the Company, in which case the provisions of Section 9.2(b) will
apply), the Company shall reimburse Parent and Mr. Marino for the Parent
Expenses.
(d) If the Company terminates this Agreement pursuant to Section
9.1(e) hereof as a result of a willful breach by Parent and Acquisition
Sub, the Parent and Acquisition Sub shall pay to the Company an amount in
cash equal to the sum of (i) $1,000,000, plus (ii) the Company's
out-of-pocket costs and expenses in connection with this Agreement and the
transactions contemplated hereby including, without limitation, fees and
disbursements of its outside counsel, accountants and other consultants
retained by or on behalf of the Company together with the other
out-of-pocket costs incurred by it in connection with participating in the
negotiations of the terms and conditions of this Agreement and the other
activities related to the Merger and the other transactions contemplated by
this Agreement and the negotiations with Parent and its affiliates leading
to the Merger (collectively, the "COMPANY EXPENSES"). Following Parent's
reasonable request, the Company shall provide such reasonable documentation
of such expenses to enable Parent to appropriately account for such
expenses in its financial records and to report such expenses in its tax
returns and reports.
(e) If the Company terminates this Agreement pursuant to Section
9.1(e) (except for termination because of a willful breach by Parent and
Acquisition Sub, in which case the provisions of Section 9.2(d) will
apply), Parent shall reimburse the Company for the Company Expenses.
(f) Any payment required by this Section 9.2 shall be payable
(i) by the Company to Parent and Mr. Marino, or (ii) by Parent to the
Company, as the case may be, (by wire transfer of immediately available
funds to accounts designated by the recipients thereof) within two business
days after demand therefore is made in writing by the person entitled to
make such demand. The parties acknowledge and agree that the provisions of
this Section 9.2 are included herein in order to induce each of the parties
hereto to enter into this Agreement and to reimburse such parties for
incurring the costs and expenses related to entering into this Agreement
and consummating the transactions contemplated by this Agreement.
(g) Notwithstanding anything to the contrary in this Agreement,
the parties hereto acknowledge and agree that the sole and exclusive
remedies available to them with respect to any proposed or actual
termination of this Agreement or any act or failure to act prior to the
consummation of the Merger and the other transactions contemplated by this
Agreement, including any misrepresentation or breach of any representation,
warranty, covenant, agreement or obligation under this Agreement shall be
the rights to payment under this Section 9.2. The parties hereto expressly
acknowledge and agree that, in light of the difficulty of accurately
determining actual damages with respect to the foregoing, the rights to
payment under this Section 9.2: (i) constitute a reasonable estimate of the
damages that will be suffered by reason of any such proposed or actual
termination of this Agreement or any such act or failure to act in
accordance with this Agreement, and (ii) shall be in full and complete
satisfaction of any and all damages arising as a result of the foregoing.
The parties agree that, except as set forth in this Section 9.2(g), they
shall not, in respect of any proposed or actual termination of this
Agreement or any act or failure to act prior to the consummation of the
Merger and the other transactions contemplated by this Agreement, exercise
or attempt to exercise any other rights or remedies, in contract, at law,
in equity or otherwise against any other party hereto.
9.3 AMENDMENT. This Agreement may be amended by the parties hereto
by an instrument in writing signed on behalf of each of the parties hereto
at any time before or after any approval hereof by the stockholders of the
Company and Acquisition Sub; provided, however, that after any such
approval of the Company's stockholders, no amendment shall be made which
reduces the amount or changes the form of the Merger Consideration or in
any way materially adversely affects the rights of stockholders of the
Company, without the further approval of such stockholders.
9.4 EXTENSION; WAIVER. At any time prior to the Closing, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed
on behalf of such party.
10. GENERAL PROVISIONS
10.1 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered personally or as of the
date sent if sent by cable, telegram or telecopier, or, as of the next
business day if sent by prepaid overnight carrier to the parties at the
following addresses (or at such other addresses as shall be specified by
the parties by like notice):
(a) if to Parent or Acquisition Sub:
c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to:c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, E2OE
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Laura C. Hodges Taylor, P.C.
Joseph L. Johnson III, Esq.
(b) if to the Company:550 Hamilton Avenue
Brooklyn, New York 11232
Attention: President
with a copy to:Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Stanley U. North, III, Esq.
10.2 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Parent, Acquisition Sub or the Company, the word
"subsidiary" means any corporation more than 50 percent of whose
outstanding voting securities, or any partnership, joint venture or other
entity more than 50 percent of whose total equity interest, is directly or
indirectly owned by Parent, Acquisition Sub or the Company, as the case may
be. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
10.3 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANT AND
AGREEMENTS. Except for Section 7.6, and the obligations contained in
Section 3 hereof, none of the representations, warranties, covenants and
agreements contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and thereafter
there shall be no liability on the part of either Parent, Acquisition Sub
or the Company or any of their respective officers, directors or
stockholders in respect thereof. Except as expressly set forth in this
Agreement, there are no representations or warranties of any party hereto,
express or implied.
10.4 MISCELLANEOUS. This Agreement (i) constitutes, together with the
Confidentiality Agreement, the entire agreement and supersedes all of the
prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (ii)
shall be binding upon and inure to the benefits of the parties hereto and
their respective successors and permitted assigns and is not intended to
confer upon any other person (except as set forth below) any rights or
remedies hereunder and (iii) may be executed in two or more counterparts
(and via facsimile) which together shall constitute a single agreement.
Section 7.6 is intended to be for the benefit of those persons described
therein and their respective legatees, distributees, heirs, estates,
executors and other personal representatives, as fully in each case as if
each such person was a party hereto and the covenants contained therein may
be enforced by such persons. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties and
each of the persons referred to Section 7.6 and this Section 10.4 shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in
the Chancery Court of the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity that is not
limited by this Agreement.
10.5 ASSIGNMENT. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties (and any assignment to a non-permitted
assignee shall be void and of no effect).
10.6 KNOWLEDGE; BEST EFFORTS. Wherever the terms "the Company's
knowledge," "the Company's best knowledge," "the receipt of notice," "the
best knowledge of the Company," and any similar term is used, in each case
each such term shall mean the knowledge or best knowledge or receipt (as
the case may be) of any of Robert Gaites, David Polishook, Richard Young,
John Yanuklis and David Bernstein and includes any fact, matters or
circumstances which any of such individuals, as an ordinary and prudent
business person employed or retained in the same capacity in the same type
and size of business as the Company should have known.
10.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be
severable.
10.8 CHOICE OF LAW/CONSENT TO JURISDICTION. The validity,
interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of Delaware. The parties hereby
irrevocably and unconditionally consent to the jurisdiction of the Chancery
Court of the State of Delaware for any action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated
hereby, and the parties agree not to commence any action, suit or
proceeding related thereto except in such court unless, as a result of
Surviving Corporation's merger with a non-Delaware entity or other similar
corporate event occurring after the Effective Time, such court
affirmatively refuses to resolve any such action, suit or proceeding. The
parties further irrevocably and unconditionally waive any objection to the
laying of venue of any action, suit or proceeding arising out of or
relating to this Agreement in the Chancery Court of the State of Delaware,
and hereby further irrevocably and unconditionally waive and agree not to
plead or claim in such court that any such action, suit or proceeding
brought in such court has been brought in an inconvenient forum. Each
party further agrees that service of any process, summons, notice or
document by U.S. registered mail to the address of such party set forth in
Section 10.1 above shall be effective service of process for any action,
suit or proceeding brought against such party in such court.
10.9 THIRD-PARTY BENEFICIARY. With respect to those provisions of
Section 9.2 pursuant to which certain expenses are to be reimbursed to
Frederick M. Marino, Mr. Marino is a direct and intended third-party
beneficiary of such Section 9.2.
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
HAMILTON ACQUISITION LLC
By:/S/ JOHN J. REMONDI
--------------------------
Name: John J. Remondi
Title: President
HAMILTON NY ACQUISITION CORP.
By:/S/ JOHN J. REMONDI
--------------------------
Name: John J. Remondi
Title: Manager
THE STROBER ORGANIZATION, INC.
By:/S/ ROBERT J. GAITES
--------------------------------
Name: Robert J. Gaites
Title:President and Chief Executive
Officer
ANNEX B
<PAGE>
HILL THOMPSON CAPITAL MARKETS
437 MADISON AVENUE
NEW YORK, NY 10022-7001
TELEPHONE 212/759-9080
FACSIMILE 212/759-0299
November 7, 1996
PERSONAL & CONFIDENTIAL
The Board of Directors
The Strober Organization, Inc.
550 Hamilton Avenue
Brooklyn, New York 11201
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding Common Shares (the "Common Shares") of
The Strober Organization, Inc. ("Strober" or the "Company"), of the
consideration to be received by such shareholders in connection with the
proposed acquisition of Strober's Common Shares by Hamilton NY Acquisition
Corporation (the "Proposed Transaction"). The terms of the Proposed
Transaction are included in the Acquisition Agreement dated November 8, 1996
and the related agreements among Strober, certain Strober shareholders and
Hamilton NY Acquisition Corporation (the "Agreement"). The Agreement provides,
among other things, that the outstanding Common Shares of Strober will be
acquired by Hamilton NY Acquisition Corporation ("Hamilton") at $6.00 per
share.
We understand that the acquisition may result in tax consequences for certain
holders of Strober Common Stock. We express no opinion as to the tax
consequences of the acquisition and our opinion as to the fairness of the stock
purchase price does not take into account the tax status or position of any
holder of Strober Common Stock.
Hill Thompson Capital Markets, Inc. has acted as financial advisor to the Board
of Directors of Strober in connection with the Proposed Transaction, and we
will receive a fee for our services including rendering this opinion. As a
customary part of its investment banking business, Hill Thompson Capital
Markets, Inc. is often engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements and
valuations for corporate and other purposes.
For purposes of this opinion we have among other things:
1. Reviewed the Agreement;
2. Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the five fiscal years ended December 31, 1995 and the
Company's Forms 10-Q and the related unaudited financial information for
the quarterly periods ending March 31, 1996 and June 30, 1996;
3. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company
furnished to Hill Thompson by the Company;
4. Reviewed financial information on Fidelity Capital furnished to us by
Fidelity Capital;
5. Held discussions with members of senior management of the Company
concerning their business, financial statements, operations and
prospects;
6. At the request of the Company, solicited third party interest with
respect to the acquisition of the Company;
7. Reviewed the stock price and trading history of the Company;
8. Reviewed the valuation of publicly traded companies we deemed comparable
to the Company;
9. Compared the financial terms of the Proposed Transaction with other
transactions which we deemed relevant; and
10. Performed such other studies, analyses and inquiries and considered such
other information as we deemed relevant.
In connection with our opinion, we have not independently verified the
financial, legal, tax, operating and other information provided by Strober and
Hamilton and have relied upon the assurances of Strober and Hamilton that all
such information provided by them, respectively, is complete and accurate in
all material respects and that there is no additional information known to
either of them that would make information made available to Hill Thompson
Capital Markets, Inc. either incomplete or misleading. We have not made any
independent appraisal or valuation of any asset of either company. With
respect to the projected financial data of Strober, we have assumed that such
data have been reasonably prepared and represent the best currently available
estimates and judgments of Strober management as to the future financial
performance of the Company.
While we believe that our review, as described herein, is an adequate basis for
the opinion we express, this opinion is necessarily based upon market, economic
and other conditions that exist and can be evaluated as of the date of this
letter, and on information available to us as of the date hereof. We also
believe our analyses must be considered as a whole and that considering any
portion of such analyses and of the factors considered, without considering all
analyses and current factors, could create a misleading or incomplete view of
the process underlying the opinion.
This opinion is addressed to the Board of Directors of the Company and does not
constitute a recommendation to any shareholder as to how such shareholder
should vote on the Proposed Transaction.
Based upon and subject to the foregoing considerations, it is our opinion, as
investment bankers, that as of the date hereof the consideration to be received
by the holders of the Common Shares of Strober in the Proposed Transaction is
fair to such holders from a financial point of view.
Very truly yours,
/S/ HILL THOMPSON CAPITAL MARKETS
HILL THOMPSON CAPITAL MARKETS, INC.
<PAGE>
ANNEX C
<PAGE>
<section>262 OF THE DELAWARE GENERAL CORPORATION LAW - APPRAISAL
RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with the provisions of subsection (d) of this
Section and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to <section>228 of this Chapter shall be
entitled to an appraisal by the Court of Chancery of the fair value of his
shares of stock under the circumstances described in subsections (b) and (c) of
this Section. As used in this Section, the word "stockholder" means a holder
of record of stock in a stock corporation and also member of record of a non-
stock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a non-stock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, or 263 of this Chapter;
(1) provided, however, that no appraisal rights under this
Section shall be available for the shares of any class or series of stock
which, at the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this
Section, appraisal rights under this Section shall be available for the shares
of any class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257 and 258 of this Chapter to accept for
such stock anything except (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation; (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 stockholders; (iii) cash in lieu of fractional shares of the corporations
described in the foregoing clauses (i) and (ii); or (iv) any combination of the
shares of stock and cash in lieu of fractional shares described in the
foregoing clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this chapter is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this Section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this Section, including those set forth in
subsections (d) and (e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this Section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) and (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this Section. Each stockholder electing
to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identify of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with the
provisions of this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this Chapter, each constituent corporation,
either before or after the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective date
of the merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights may,
within twenty days after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did
not notify stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has
been given shall, in absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the notice is
given; provided that, if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective date. If
no record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discover or other pretrial proceedings and may
proceed to trail upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this Section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and in the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
other state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this Section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
ANNEX D
<PAGE>
PROXY AGREEMENT
This is a PROXY AGREEMENT (the "Agreement"), dated as of November 11,
1996 by and among Hamilton Acquisition LLC, a Delaware limited liability
company ("Parent"), Hamilton NY Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Acquisition Sub"), and certain
stockholders of The Strober Organization, Inc., a Delaware corporation (the
"Company") who are signatories hereto (collectively, the "Stockholders" and
each, a "Stockholder").
BACKGROUND
A. As of the date hereof, each Stockholder owns (either beneficially
or of record) that number of shares of common stock, par value $.01 per
share (the "Common Stock"), of the Company set forth on EXHIBIT A hereto
(together with any shares of Common Stock acquired by such Stockholder
during the Proxy Term (as defined in Section 2 hereof), whether upon the
exercise of options, conversion of convertible securities or otherwise, the
"Stockholder Shares").
B. Parent, Acquisition Sub and the Company propose to enter into an
Agreement and Plan of Merger of even date herewith (as the same may be
amended from time to time, the "Merger Agreement") (all capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement) which provides, upon the terms and subject to the conditions
thereof, for the merger of Acquisition Sub with the Company (the "Merger").
C. As a condition to their willingness to enter into the Merger
Agreement, Parent and Acquisition Sub have requested that each Stockholder
agree, and in order to induce the Parent and Acquisition Sub to enter into
the Merger Agreement, each of the Stockholders has agreed to, among other
things, grant Parent irrevocable proxies to vote the Stockholder Shares
owned of record or beneficially by each such Stockholder on the terms and
conditions provided herein.
TERMS
In consideration of the promises and the mutual covenants herein
contained and intending to be legally bound, the parties hereto agree as
follows:
1. TRANSFER AND VOTING OF SHARES.
(a) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Each
Stockholder hereby agrees, while this Agreement is in effect, and except as
contemplated hereby, not to (i) offer to sell, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any of the Stockholder Shares or any other shares of Common
Stock; (ii) deposit any Stockholder Shares into a voting trust or enter
into a voting agreement with respect to any Stockholder Shares or grant any
proxy or power of attorney with respect to any such Stockholder Shares; or
(iii) take any action that would make any representation or warranty of
such Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing his or her
obligations under this Agreement or otherwise take any action that is
contrary to the transactions contemplated hereby and by the Merger
Agreement. Notwithstanding anything herein to the contrary, the parties
hereto shall be entitled (x) to pledge or hypothecate shares of Common
Stock to institutional lenders as security for personal or commercial
loans, or (ii) to transfer shares of Common Stock to charitable trusts,
descendants or trusts for the benefit of any spouse or descendant subject
to the condition precedent to any such transfer that the transferee (or in
the case of a pledge or hypothecation, the pledgee) shall execute and
deliver to the Company and to Parent the Proxy Agreement agreeing to be
personally bound thereby and appointing the transferor as the transferee's
proxy in voting all the transferred shares as long as the Proxy Agreement
remains in effect.
(b) VOTING OF SHARES; FURTHER ASSURANCES. Except as otherwise
provided in this Section 1(b), each Stockholder, by this Agreement, with
respect to those Stockholder Shares that such Stockholder owns of record,
does hereby constitute and appoint Parent, or any affiliate of Parent that
is a party to the Merger Agreement, with full power of substitution, during
and for the Proxy Term, as such Stockholder's true and lawful attorney and
irrevocable proxy, for and in such Stockholder's name, place and stead, to
vote each of such Stockholder Shares as such Stockholder's proxy, at every
meeting of the stockholders of the Company or any adjournment thereof or in
connection with any written consent of the Company's stockholders (A) in
favor of the approval and adoption of the Merger Agreement and approval of
the Merger and the other transactions contemplated by the Merger Agreement,
(B) against any proposal for any action or agreement that would result in a
material breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which
could result in any of the conditions of the Company's obligations under
the Merger Agreement not being fulfilled, and (C) in favor of any other
matter directly relating to consummation of the transactions contemplated
by the Merger Agreement which is considered at any such meeting of
stockholders or in such consent, and in connection therewith to execute any
documents which are necessary or appropriate in order to effectuate the
foregoing. Each Stockholder intends this proxy to be irrevocable and
coupled with an interest during the Proxy Term and will take such further
action and execute such other instruments as may be necessary to effectuate
the intent of this proxy and hereby revokes any proxy previously granted by
such Stockholder with respect to his or her Stockholder Shares. Each
Stockholder further agrees to cause the Stockholder Shares owned by such
Stockholder beneficially to be voted in accordance with the foregoing.
Notwithstanding anything to the contrary in this Agreement (including
Section 6(b) hereof), Parent is not authorized under this Agreement to, and
shall not, directly or indirectly, vote the Stockholder Shares, execute a
written consent of the Company's stockholders or otherwise act pursuant to
this Agreement in any manner (a) to elect or remove any director of the
Company, (b) which would prevent the Company from taking the actions
permitted by Section 7.5(b) of the Merger Agreement (other than approval
and adoption of the Merger Agreement and related agreements and approval of
the transactions contemplated thereby, including the Merger), (c) to amend,
supplement or otherwise modify the By-laws or Certificate of Incorporation
of the Company (except with respect to and in connection with the Merger)
or (d) to require the Board of Directors of the Company to take or refrain
from taking any action.
(c) CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to his or her Stockholder Shares
and shall be binding upon any person or entity to which legal or beneficial
ownership of his or her Stockholder Shares shall pass, whether by operation
of law or otherwise, including without limitation such Stockholder's heirs,
guardians, administrators or successors.
2. PROXY TERM. For the purposes of this Agreement, "Proxy Term"
shall mean the period from the execution of this Agreement until the
earlier of (a) the termination of the Merger Agreement or (b) the Effective
Time (as such term is defined in the Merger Agreement).
3. PAYMENTS TO PARENT.
(a) In the event that on or after the date hereof, (i) the
Merger Agreement has been terminated pursuant to the provisions of Section
9.1(f) thereof and at the time of such termination neither Parent nor
Acquisition Sub is in breach of its obligations under the Merger Agreement
and (ii) any Stockholder thereafter sells Stockholder Shares in connection
with the consummation of a Superior Proposal (as defined in Section 7.5(b)
of the Merger Agreement) within six months of the termination of the Merger
Agreement, such selling Stockholder shall pay to Parent an amount in cash
equal to fifty percent (50%) of the product of (x) the number of such
Stockholder Shares sold and (y) the excess, if any, of (A) the per share
cash (and/or if consideration is received in such sale in the form of
securities, the "fair market value" (as defined in Section 3(b) below) of
such securities) received by such Stockholder as a result of such sale (the
"Selling Stockholder Price") over (B) the Merger Consideration (as defined
in the Merger Agreement).
(b) For purposes of this Agreement, the fair market value of any
securities listed on a national securities exchange or traded on The Nasdaq
Stock Market shall be equal to the average closing price per share of such
security as reported on such exchange or The Nasdaq Stock Market for the
twenty (20) trading days immediately preceding the effective date of the
transaction pursuant to which the Stockholder is entitled to receive such
securities.
(c) Any payment required to be made pursuant to Section 3(a) of
this Agreement shall be made within two business days after the settlement
of such sale.
4. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent and Acquisition
Sub jointly and severally hereby represent and warrant to the Stockholders
as follows:
(a) ORGANIZATION AND QUALIFICATION. Parent is a limited
liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware. Acquisition Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Sub has the requisite
power and authority to carry on its business as it is now being conducted.
Each of Parent and Acquisition Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the character of its
properties, owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or
prospects (a "Material Adverse Effect") of Parent and its subsidiaries
taken as a whole. Acquisition Sub has not conducted any business prior to
the date hereof and has no assets and liabilities other than those incident
to its formation and to the consummation of the transactions contemplated
hereby and by the Merger Agreement. Copies of the Certificate of Formation
of Parent and the Certificate of Incorporation, and By-laws of Acquisition
Sub heretofore delivered to the Company are true, complete and correct as
of the date hereof.
(b) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition Sub has the requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the managers and members,
if required, of Parent and by the Board of Directors and the sole
stockholder of Acquisition Sub, if required, and no other proceedings on
the part of Parent or Acquisition Sub are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by each of Parent and
Acquisition Sub and, assuming this Agreement constitutes a valid and
binding obligation of the Stockholders, constitutes the legal, valid and
binding obligation of each of Parent and Acquisition Sub enforceable
against each of Parent and Acquisition Sub in accordance with its terms.
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by Parent or Acquisition Sub nor the
consummation of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of their respective certificates
of incorporation or by-laws; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-
R Act"), (B)pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (C) such filings and approvals as may be required
under the "blue sky," takeover or securities laws of various states, or (D)
where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not prevent or delay
consummation of the transactions contemplated by this Agreement or would
not otherwise prevent Parent or Acquisition Sub from performing their
respective obligations under this Agreement; (iii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which any of their respective assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained
or which, individually or in the aggregate, would not have a Material
Adverse Effect on Parent and its subsidiaries taken as a whole; or
(iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or Acquisition Sub, any of their respective
subsidiaries or any of their respective assets, except for violations which
would not have a Material Adverse Effect on Parent and its subsidiaries
taken as a whole.
5. REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER. Each
Stockholder hereby severally (for himself, herself or itself only)
represents and warrants to Parent and Acquisition Sub as follows:
(a) OWNERSHIP OF SHARES. Such Stockholder owns of record or
beneficially the number of shares of Common Stock set forth on EXHIBIT A
hereto and such shares constitute all of the shares of Common Stock owned
of record or beneficially by such Stockholder. Such Stockholder has sole
voting power and sole power of disposition with respect to his or her
Stockholder Shares, with no restrictions, except those that may be imposed
by applicable federal securities laws, on such Stockholder's rights of
disposition pertaining thereto. Except as specifically set forth on
EXHIBIT A hereto, such Stockholder has not granted any proxy with respect
to his or her Stockholder Shares and neither such Stockholder nor his or
her Stockholder Shares is bound by or party to any agreement or other
instrument restricting such Stockholders' voting rights with respect to
such Stockholder Shares. Such Stockholder owns of record or beneficially
the number and type of securities issued or granted by the Company,
including without limitation options, warrants and other convertible
securities, set forth on EXHIBIT A hereto and such securities constitute,
along with such shares of Common Stock set forth on EXHIBIT A hereto, all
of the securities of the Company or instruments convertible into securities
of the Company owned of record or beneficially by such Stockholder. The
Stockholder Shares are, and immediately prior to the Effective Time will
be, duly authorized, validly issued, fully paid, non-assessable and, except
for those pledges set forth on SCHEDULE 5(A) hereto, free and clear of any
and all liens, security interests, proxies, voting trusts or agreements,
encumbrances, charges or claims of any kind whatsoever except for any
encumbrance or proxy arising under this Agreement.
(b) ORGANIZATION; AUTHORITY RELATIVE TO THIS AGREEMENT. Such
Stockholder has the legal capacity, power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
such Stockholder and, assuming this Agreement constitutes a valid and
binding obligation of Parent and Acquisition Sub, this Agreement
constitutes a legal, valid and binding agreement of such Stockholder
enforceable against such Stockholder in accordance with its terms. Except
as set forth on SCHEDULE 5(B) hereto, there is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which such
Stockholder is a trustee whose consent is required for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby; PROVIDED, HOWEVER, that any such consent has been
obtained in writing prior to the execution of this Agreement.
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by such Stockholder, the performance by such
Stockholder of the obligations and transactions contemplated hereby,
including without limitation the granting of the irrevocable proxy and the
appointment of an attorney-in-fact pursuant to Section 1(b) hereof, nor the
compliance by such Stockholder with any provision hereof, will (i) require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) in
connection with the H-S-R Act, (B) pursuant to the Exchange Act, (C) such
filings and approvals as may be required under the "blue sky," takeover or
securities laws of various states, or (D) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not prevent or delay the performance by such
Stockholder of his or her obligations under this Agreement; (ii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default or give rise to any right of
termination, amendment, cancellation or acceleration) under, or result in
the creation of a lien or encumbrance on any of his or her Stockholder
Shares pursuant to, any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which such
Stockholder is party or by which such Stockholder or any of his or her
assets, including the Stockholder Shares, may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not prevent or delay the
performance by such Stockholder of his or her obligations under this
Agreement; or (iii) conflict with or violate any order, writ, injunction,
judgment, decree, statute, law, rule or regulation applicable to such
Stockholder or any of his or her assets, including the Stockholder Shares.
(d) ACKNOWLEDGMENT OF RELIANCE. Such Stockholder understands
and acknowledges that the Parent and Acquisition Sub are entering into the
Merger Agreement in reliance upon such Stockholder's execution and delivery
of this Agreement.
(e) BROKERS. No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Stockholder.
6. CERTAIN COVENANTS OF STOCKHOLDER. Except in accordance with
Subsection 6(e), each Stockholder hereby covenants and agrees (with respect
to himself or herself but not as to the other Stockholders) as follows:
(a) NEGOTIATIONS. Unless and until this Agreement shall have
been terminated in accordance with its terms, each of the Stockholders
agrees and covenants that (i) he or she will not, directly or indirectly,
initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or similar
transaction involving, or any purchase of 10% or more of the assets or
securities of the Company or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement (any such proposal or
offer being hereinafter referred to as an "ACQUISITION PROPOSAL") or engage
in any negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal; (ii) each of the Stockholders will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing; and (iii) each of the Stockholders will
notify Parent immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with any of the
Stockholders or, to the knowledge of such Stockholder, the Company, which
notification shall include the terms of any such inquiries or proposals,
PROVIDED, HOWEVER, that if the Company actually provides the information
and notice to Parent required by Section 7.5 of the Merger Agreement with
respect to any contact with the Company, such Stockholder shall not have
any obligation to provide any such duplicate information.
(b) VOTING. Each Stockholder hereby agrees that, during the
Proxy Term, at any meeting of the stockholders of the Company, however
called, or in connection with any written consent of the Company's
Stockholders, such Stockholder shall vote (or cause to be voted) his or her
Stockholder Shares, except as specifically requested by the Parent in
writing in advance: (a) in favor of the Merger; (b) against any action or
agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement
of the Company under the Merger Agreement; and (c) against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger, including, but not limited to: (i) any
extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of any of its
subsidiaries; (ii) a sale, lease or transfer of a material amount of assets
of the Company or any of its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of the Company or its
subsidiaries; (iii) any change in the management or board of directors of
the Company, except as agreed to in writing by Parent; (iv) any material
change in the present capitalization or dividend policy of the Company; (v)
any amendment of the Company's Certificate of Incorporation; or (vi) any
other material change in the Company's corporate structure, management or
business. Such Stockholder shall not enter into any agreement or
understanding with any person or entity during the Proxy Term to vote or
give instructions to vote in any manner inconsistent with the terms of this
Section 6(b). Notwithstanding the foregoing, in the event that the Company
has properly terminated the Merger Agreement pursuant to Section 9.1(f)
thereof, a Stockholder may vote (or cause to be voted) his or her
Stockholder Shares in favor of a Superior Proposal.
(c) ADDITIONAL SHARES. Each Stockholder hereby agrees, while
this Agreement is in effect, to promptly notify Parent of the number of any
new shares of Common Stock acquired, beneficially or of record, by such
Stockholder, if any, after the date hereof whether through acquisition in
the open market, upon exercise of any option, warrant or other convertible
security, or otherwise.
(d) WAIVER OF APPRAISAL AND DISSENTER'S RIGHTS. Each
Stockholder hereby waives any rights of appraisal or rights to dissent from
the Merger that such Stockholder may have.
(e) ACTING AS DIRECTOR AND EXECUTIVE OFFICER. Notwithstanding
anything in this Section 6 to the contrary, the covenants and agreements
set forth in Section 6(a) shall not be deemed to prevent any Stockholder,
while acting in his or her capacity as a director of the Company, from
taking any action that is specifically permitted under the applicable
provisions of the Merger Agreement. Further, any Stockholder may act in
his capacity as an executive officer of the Company upon direction by the
Board of Directors of the Company pursuant to Section 7.5(b) of the Merger
Agreement.
(f) STOP TRANSFER. Each Stockholder agrees with, and covenants
to, Parent and Acquisition Sub that such Stockholder may not request that
the Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of his or her
Stockholder Shares, unless such transfer is made in compliance with this
Agreement. Each Stockholder agrees, with respect to any Stockholder Shares
in certificated form, that such Stockholder will deliver to the Company
within fifteen business days after the date hereof, the certificates
representing such Stockholder Shares and the Company will inscribe upon
such certificates the following legend (the "Legend"): "The shares of
Common Stock, par value $.01 per share, of The Strober Organization, Inc.
(the "Company"), represented by this certificate are subject to a Proxy
Agreement dated as of November 11, 1996, and may not be sold or otherwise
transferred, except in accordance therewith. Copies of such Agreement may
be obtained at the principal executive offices of the Company." Each
Stockholder agrees that within ten business days after the date hereof,
such Stockholder will no longer hold any Stockholder Shares, whether
certificated or uncertificated, in "street name" or in the name of any
nominee. In the event that the Company enters into a Superior Proposal and
has terminated the Merger Agreement in accordance with Section 9.1(f)
thereof, the Company will remove the Legend from all certificates
representing Stockholder Shares and will return such certificates to the
Stockholders. Pursuant to the Merger Agreement, the Company has agreed to
notify the transfer agent of the provisions set forth in this Section and
each Stockholder agrees to provide such documentation and to take such
other actions as may be reasonably required to give effect to such
provisions with respect to such Stockholder Shares.
(g) REORGANIZATION AGREEMENT. Each Stockholder hereby agrees
that, at the Effective Time, the Reorganization Agreement shall terminate
as to such Stockholder and such Stockholder shall have no further rights
thereunder.
7. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto (as to the
Stockholders, in their capacity as stockholders) shall execute and deliver
such additional documents and take all such further action as may be
necessary or reasonably desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement and the Merger Agreement. Without limiting the generality of the
foregoing, during the Proxy Term, each Stockholder shall perform such
further acts and execute such further documents and instruments as may
reasonably be required to vest in the Parent and Acquisition Sub the power
to carry out the provisions of this Agreement including without limitation
the exercise of the power afforded by Section 1 hereof.
8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(i) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them
with respect to the subject matter hereof and (ii) shall not be assigned by
operation of law or otherwise, provided that Parent may assign any of its
rights and obligations to any wholly-owned direct or indirect subsidiary of
Parent or to any entity which controls or is under common control with
Parent, but no such assignment shall relieve Parent of its obligations
hereunder and Parent shall remain as fully and primarily liable as if there
was no such assignment.
(b) AMENDMENT. This Agreement may not be modified, amended,
altered or supplemented except by an instrument in writing signed on behalf
of all the parties hereto; PROVIDED that EXHIBIT A hereto may be
supplemented by the Parent and Acquisition Sub by adding the name and other
relevant information concerning any stockholder of the Company who agrees
to be bound by the terms of this Agreement without the agreement of any
other party hereto, and thereafter such added stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(c) ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof
in addition to any other remedy to which they are entitled at law or in
equity, and the parties hereto further agree to waive any requirement for
the posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief.
(d) VALIDITY. IF ANY TERM OR OTHER PROVISION OF THIS AGREEMENT
IS INVALID, ILLEGAL OR INCAPABLE OF BEING ENFORCED BY ANY RULE OF LAW OR
PUBLIC POLICY, ALL OTHER CONDITIONS AND PROVISIONS OF THIS AGREEMENT SHALL
NEVERTHELESS REMAIN IN FULL FORCE AND EFFECT SO LONG AS THE ECONOMIC OR
LEGAL SUBSTANCE OF THE TRANSACTIONS CONTEMPLATED HEREBY IS NOT AFFECTED IN
ANY MANNER MATERIALLY ADVERSE TO ANY PARTY. UPON SUCH DETERMINATION THAT
ANY TERM OR OTHER PROVISION IS INVALID, ILLEGAL OR INCAPABLE OF BEING
ENFORCED, THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH TO MODIFY THIS
AGREEMENT SO AS TO EFFECT THE ORIGINAL INTENT OF THE PARTIES AS CLOSELY AS
POSSIBLE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW IN AN ACCEPTABLE
MANNER TO THE END THAT THE TRANSACTIONS CONTEMPLATED HEREBY ARE FULFILLED
TO THE EXTENT POSSIBLE.
(e) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by cable, telegram, facsimile
transmission with confirmation of receipt, or telex, or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
if to Parent or Acquisition Sub:
Hamilton Acquisition LLC
c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to:
Fidelity Capital Associates, Inc.
82 Devonshire Street, E20E
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Laura C. Hodges Taylor, P.C.
Joseph L. Johnson III, Esq.
if to Stockholders:
c/o Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Stanley U. North III, Esq.
with a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Stanley U. North III, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
(f) CHOICE OF LAW/CONSENT TO JURISDICTION. The validity,
interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of Delaware without regard to its rules
of conflict of laws. The parties hereby irrevocably and unconditionally
consent to the jurisdiction of the Chancery Court of the State of Delaware
for any action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, and the parties agree
not to commence any action, suit or proceeding related thereto except in
such court. The parties further irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising
out of or relating to this Agreement in the Chancery Court of the State of
Delaware, and hereby further irrevocably and unconditionally waive and
agree not to plead or claim in such court that any such action, suit or
proceeding brought in such court has been brought in an inconvenient forum.
Each party further agrees that service of any process, summons, notice or
document by U.S. registered mail (i) in the case of Parent or Acquisition
Sub, to the address of such party set forth in Section 8(e) above; or (ii)
in the case of any Stockholder, to the address of such Stockholder set
forth on EXHIBIT A hereto, shall be effective service of process for any
action, suit or proceeding brought against such party in such court.
(g) DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts (and via Facsimile), each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
(i) PERFORMANCE BY ACQUISITION SUB. Parent hereby agrees to
cause Acquisition Sub to comply with its obligations hereunder as
contemplated in the Merger Agreement.
(j) EXPENSES. Each of the parties hereto will pay all fees and
expenses it incurs in connection with this Agreement, whether or not
consummated, including without limitation the fees and expenses of its
financial and legal advisors.
(k) PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
(l) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements of Acquisition Sub, Parent and
the Stockholders pursuant to this Agreement shall survive the consummation
of the Merger or the termination of the Merger Agreement.
(m) NO AGREEMENT UNTIL EXECUTED. Irrespective of negotiations
among the parties or the exchanging of drafts of this Agreement, this
Agreement shall not constitute or be deemed to evidence a contract,
agreement, arrangement or understanding among the parties hereto unless and
until (i) the Board of Directors of the Company has approved, for purposes
of Section 203 of the Delaware General Corporation Law and any applicable
provision of the Company's certificate of incorporation, the possible
acquisition of the Stockholder Shares by Parent and Acquisition Sub
pursuant to this Agreement and (ii) this Agreement is executed by all
parties hereto.
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Stockholders have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
HAMILTON ACQUISITION LLC
By:/S/ JOHN J. REMONDI
------------------------------
Name: JOHN J. REMONDI
Title: Manager
HAMILTON NY ACQUISITION CORP.
By:/S/ JOHN J. REMONDI
------------------------------
Name: JOHN J. REMONDI
Title: PRESIDENT
/s/ Robert J. Gaites /s/ John T. Guerin
- ------------------------------ ----------------------------------
Robert J. Gaites John T. Guerin
/s/ Sue Strober /s/ Richard D. King
- ------------------------------ ----------------------------------
Sue Strober Richard D. King
/s/ Sue Strober /s/ Steven Strober
- ------------------------------ ----------------------------------
Sue Strober, as Trustee for Steven Strober
Steven Strober
/s/ Sue Strober /s/ Hiliary Strober
- ------------------------------ ----------------------------------
Sue Strober, as Trustee for Hiliary Strober
Hilary Strober
/s/ Gordon Sandler /s/ David W. Berstein
- ------------------------------ ----------------------------------
Gordon Sandler David W. Berstein, Trustee, Trust
F/J/B/O Steven and Hilary Strober
/s/ Nathan Schwartzberg /s/ John Yanuklis
- ------------------------------ ----------------------------------
Nathan Schwartzberg John Yanuklis
/s/ Albert C. Brower
- ------------------------------
Albert C. Brower By:______________________________
Trustee, Trust F/B/O Yanuklis
Charitable Remainder Trust
<PAGE>
PROXY AGREEMENT
[SIGNATURE CONTINUATION PAGE]
/s/ Robert J. Gaites
---------------------------------
Robert J. Gaites; proxy for
Robert J. Gaites Charitable Trust
/s/ John Yanuklis
---------------------------------
John Yanuklis; proxy for
John Yanuklis Charitable trust
/s/ Albert C. Brower
---------------------------------
Albert C. Brower, proxy for
Albert C. Brower Charitable Trust
ANNEX E
<PAGE>
<GRAPH - STROBER STOCK PERFORMANCE v. NASDAQ COMPOSITE INDEX>
<PAGE>
<GRAPH - STRB - HIGH, LOW, CLOSE>
<PAGE>
<GRAPH - COMP - HIGH, LOW, CLOSE>
<PAGE>
THE STROBER ORGANIZATION, INC.
HISTORICAL STOCK PERFORMANCE
MONTHLY DATA FROM JANUARY 1989 TO OCTOBER 1996
<TABLE>
<CAPTION>
MONTH HIGH LOW VOLUME
END DATE ($) ($)
<S> <C> <C> <C> <C> <C> <C>
1/31/89 9 1/2 8 1/2 59,600
2/28/89 9 1/4 8 1/4 102,100
3/31/89 8 3/4 6 150,500
4/28/89 7 3/4 5 1/4 209,400
5/31/89 7 3/8 5 3/4 134,800
6/30/89 6 1/2 5 1/2 186,200
7/31/89 5 3/4 4 3/4 141,700
8/31/89 6 1/2 4 1/2 203,600
9/29/89 6 1/4 5 1/4 40,100
10/31/89 5 1/2 4 1/2 102,500
11/30/89 5 3 1/4 87,400
12/29/89 4 2 3/4 236,000
1/31/90 3 1/2 2 7/8 47,500
2/28/90 3 2 1/2 49,300
3/30/90 2 3/4 2 1/4 110,400
4/30/90 2 3/4 2 1/8 31,600
5/31/90 2 1/2 2 142,400
6/29/90 2 1/2 2 63,000
7/31/90 2 1/4 1 3/4 46,100
8/31/90 2 1 1/4 62,100
9/28/90 1 3/4 1 40,600
10/31/90 1 7/8 1 3/8 29,400
11/30/90 2 1 1/4 55,200
12/31/90 1 1/2 7/8 119,600
1/31/91 1 1/4 1 165,200
2/28/91 1 1/2 1 1/8 97,500
3/29/91 1 7/8 1 3/8 92,400
4/30/91 2 1/4 1 3/4 71,100
5/31/91 2 3/8 1 7/8 34,400
6/28/91 2 1/4 1 7/8 42,000
7/31/91 2 1 7/8 9,300
8/30/91 2 1 3/8 38,500
9/30/91 1 1/2 1 162,100
10/31/91 1 1/2 1 69,800
11/29/91 1 3/8 1 97,100
12/31/91 1 3/8 1 1/8 106,300
1/31/92 1 7/8 1 1/4 41,500
2/28/92 2 1/8 1 5/8 48,800
3/31/92 2 1/8 1 3/4 94,500
4/30/92 2 1 3/4 22,100
5/29/92 1 7/8 1 5/8 29,800
6/30/92 2 1 5/8 8100
7/31/92 1 5/8 1 5/8 10,600
8/31/92 1 3/4 1 1/4 19,400
9/30/92 1 1/2 1 1/4 27,200
10/30/92 1 1/2 1 1/4 35,600
11/30/92 2 1 1/4 43,100
12/31/92 2 1/8 1 1/2 45,400
1/29/93 2 1/8 1 5/8 7,800
2/26/93 2 1/8 1 3/4 25,200
3/31/93 2 1 9/16 180,000
4/30/93 1 7/8 1 5/8 30,300
5/31/93 2 1/4 1 5/8 81,700
6/30/93 2 3/8 2 26,800
7/30/93 2 1/8 2 13,500
8/31/93 3 1/4 2 208,000
9/30/93 3 1/8 2 3/4 74,500
10/29/93 4 7/8 3 294,400
11/30/93 6 4 608,700
12/31/93 4 3/8 3 1/2 218,800
1/31/94 4 3/4 3 3/4 124,400
2/28/94 5 5/16 4 1/4 201,400
3/31/94 5 1/8 3 7/8 290,900
4/29/94 4 7/8 4 1/8 91,400
5/31/94 4 3/4 3 1/2 63,800
6/30/94 4 3 1/2 29,200
7/29/94 3 3/4 3 1/4 39,500
8/31/94 3 1/2 2 1/2 212,000
9/30/94 4 5/8 3 1/4 176,000
10/31/94 4 1/4 4 62,600
11/30/94 4 1/2 3 3/8 81,700
12/30/94 3 7/8 3 1/8 93,100
1/31/95 3 4/8 3 148,800
2/28/95 4 1/8 3 1/2 40,000
3/31/95 4 3 1/2 155,700
4/28/95 3 3/4 3 3/8 45,900
5/31/95 4 1/8 3 1/4 307,200
6/30/95 4 1/2 3 3/4 75,100
7/31/95 5 7/8 4 168,300
8/31/95 5 3/4 4 5/8 131,000
9/29/95 4 7/8 4 1/4 14,000
10/31/95 4 3/4 4 11,700
11/30/95 4 1/8 3 5/8 134,100
12/29/95 4 3 1/2 59,300
1/31/96 3 7/8 3 3/8 24,100
2/29/96 4 5/8 3 1/2 73,000
3/29/96 4 5/8 4 1/4 76,000
4/30/96 4 3/4 3 7/8 70,900
5/31/96 4 5/8 4 64,500
6/28/96 4 1/2 4 135,400
7/31/96 4 1/2 3 1/2 107,000
8/30/96 4 7/8 3 7/8 163,500
9/30/96 5 4 69,300
10/31/96 5 3/8 4 5/8 129,900
11/06/96 5 1/4 4 7/8 8,200
</TABLE>
<PAGE>
SELECTED PUBLICLY-TRADED BUILDING MATERIAL DISTRIBUTORS
MARKET MULTIPLE ANALYSIS
(Figures in millions except per share data)
<TABLE>
<CAPTION>
STROBER SUNBELT BMC CAMERON GROSSMAN'S MOORE NATIONAL WOLOHAN
COMPANY ORGANIZATION COMPANIES WEST ASHLEY INC. HANDLEY HOME CTRS LUMBER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Last Fiscal Year 12/31/96(est.) 1/29/95 12/31/95 10/31/95 12/31/95 12/31/95 1/31/96 12/31/95
LAST QUARTER 12/31/96(est.) 7/29/95 6/30/96 7/31/96 6/30/96 6/30/96 7/31/96 9/28/96
SHARE PRICE $6.00 $7.95 $12.00 $13.88 $1.16 $3.38 $2.13 $12.44
SHARES OUTSTANDING 5.2 3.2 10.0 9.2 26.3 2.2 7.1 7.0
MARKET CAPITALIZATION $31.0 $25.7 $119.5 $127.1 $30.4 $7.3 $15.2 $86.9
DEBT $3.4 $9.8 $95.3 $57.9 $25.1 $12.0 $41.6 $26.5
PREF'D STOCK $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
CASH $4.6 $0.04 $4.6 $1.7 $1.7 $0.4 $0.1 $9.2
TOTAL CAPITALIZATION $29.9 $35.4 $210.2 $183.3 $53.7 $18.9 $56.6 $104.1
LTM DATA
REVENUES $136.7 $89.0 $684.1 $567.1 $549.8 $144.2 $171.4 $422.4
GROSS PROFIT $35.9 $19.7 $149.0 $109.1 $131.7 $14.3 $42.6 $102.6
EBIT $5.9 $4.3 $27.2 $20.3 ($40.6) $0.6 $0.8 $11.4
EBITDA $7.2 $5.1 $37.2 $26.1 ($32.4) $1.8 $3.8 $21.1
NET INCOME $3.3 $2.0 $9.1 $10.1 ($48.2) ($0.04) ($1.6) $5.1
BOOK VALUE (EXCL. G/W) $30.4 $13.6 $119.8 $69.4 $16.7 $16.4 $28.1 $107.3
EQUITY $30.4 $13.6 $138.8 $91.1 $16.7 $16.4 $28.1 $107.3
MARGIN ANALYSIS
GROSS MARGIN 26.3% 22.1% 21.8% 19.2% 24.0% 9.9% 24.8% 24.3%
EBIT MARGIN 4.3% 4.8% 4.0% 3.6% NM 0.4% 0.5% 2.7%
EBITDA MARGIN 5.3% 5.8% 5.4% 4.6% NM 1.2% 2.2% 5.0%
NET MARGIN 2.4% 2.3% 1.3% 1.8% NM NM NM 1.2%
TOTAL DEBT/EQUITY 11.2% 71.8% 68.6% 63.6% 149.7% 72.8% 148.1% 24.6%
MARKET MULTIPLES
TOTAL CAP. / SALES 0.22 x 0.40 x 0.31 x 0.32 x 0.10 x 0.13 x 0.33 x 0.25
TOTAL CAP. / EBIT 5.0 8.3 7.7 9.0 NM 29.6 69.5 9.1
TOTAL CAP. / EBITDA 4.1 6.9 5.6 7.0 NM 10.6 14.8 4.9
PRICE / EARNINGS 9.3 12.6 13.2 12.6 NM NM NM 17.1
MARKET CAP./BK. VALUE 1.02 1.88 1.00 1.83 1.82 0.44 0.54 0.81
ACQ. PRICE/BK. VALUE 1.09
</TABLE>
<PAGE>
COMPARATIVE ANALYSIS OF THE STROBER TRANSACTION
AND RECENTLY COMPLETED ACQUISITIONS OF BUILDING MATERIAL
DISTRIBUTORS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Date of Acquirer/Target Transaction Purchase Stock Price Premium Sales
Announcement Value Price Before
($ Million) Per Share Announcement
<S> <C> <C> <C> <C> <C> <C>
9/8/95 Pelican/Sunbelt $24.9 $ 7.95 $ 6.75 17.8% $ 89.0
(LTM)
8/15/96 Sears/Orchard $415.0 $35.00 $29.75 17.6% $532.4
(FYE
1/28/96)
11/11/96 Fidelity/Strober $32.0 $ 6.00 $ 5.25 14.3% $133.0
(LTM)
</TABLE>
LTM - Latest Twelve Months
<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ................ TO ................
COMMISSION FILE NUMBER: 0-15339
THE STROBER ORGANIZATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2822910
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
550 HAMILTON AVENUE
BROOKLYN, NEW YORK 11232
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (718) 832-1212
_________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value on March 14, 1996 of the voting stock held by non-
affiliates of the Registrant was approximately $9,805,414 based upon the $4.50
per share closing price of the Common Stock on that date. (For this purpose
all outstanding shares of Common Stock have been considered held by non-
affiliates, other than those owned by directors, officers, and 5% stockholders
of the Registrant; certain of such persons disclaim that they are affiliates of
the Registrant.)
The number of shares of Common Stock outstanding at March 14, 1996 was
5,027,447.
<PAGE>
PART 1
ITEM 1. BUSINESS
GENERAL
The Strober Organization, Inc., is a supplier of building materials
serving professional building contractors out of its eleven building supply
centers in New York, New Jersey, Connecticut, and Pennsylvania.
The Company was incorporated in Delaware in 1986 as the parent of the
various affiliated companies which had previously conducted the Strober
business for more than 80 years. Unless the context otherwise requires, the
terms "STROBER" and "COMPANY" refer to The Strober Organization, Inc. and its
subsidiaries and predecessors.
Strober's marketing strategy is to provide professional customers with
one-stop shopping by offering a broad selection of inventory, technical product
advice, timely delivery and extension of credit. Builders, carpenters,
drywall, roofing and acoustical contractors and other professional customers
account for an estimated 90 to 95% of the Company's sales, with the balance to
the "do-it-yourself" market. The Company carries a wide range of product
lines, such as lumber, gypsum wallboard, roofing, insulation, acoustical
materials, millwork and hardware items.
Since 1972, the Company has grown from a single location serving
primarily the New York City roofing market to a network of eleven building
supply centers in New York, New Jersey, Connecticut and Pennsylvania. The
Company also operates a Kitchen and Bath Center and a Peachtree Planning Center
(window and door showroom). The Company's expansion strategy has been to grow
by adding new locations, expanding existing locations, acquiring building
supply centers from others and adding product lines.
During the period 1993-1995, sales have increased by 14%, 5% and 3/10%,
respectively. The Company believes that sales were adversely impacted in 1995
by a decline in new residential construction in the Northeast as well as by
price deflation primarily affecting lumber products.
RETENTION OF FINANCIAL ADVISOR
In February 1996, the Company announced that it had retained Hill
Thompson Capital Markets, Inc. as its financial advisor to explore strategic
alternatives in order to maximize stockholder value, including the possible
merger or sale of all or part of the Company.
PRODUCTS, CUSTOMERS AND SUPPLIERS
Strober sells a broad selection of building materials including lumber
and plywood, gypsum wallboard and other drywall products, millwork, roofing,
acoustical materials, siding products, insulation materials, metal specialties,
hardware and tools. Lumber and related products, gypsum wallboard and related
products and millwork accounted for an estimated 32%, 27% and 14% respectively,
of the Company's total revenues during 1995; 36%, 23% and 14% respectively for
1994; and 39%, 21% and 14% respectively for 1993. The Company currently has
over 3,000 active customers, with no single customer accounting for more than
2% of the Company's total sales during 1995.
The Company's sales are generally somewhat lower during the first quarter
of each calendar year, with higher sales volumes generally occurring during the
months of April through October when most construction occurs in the markets
which the Company serves.
Strober purchases its products from a supplier group totaling over 250
manufacturers and wholesale distributors, although it believes approximately
half of the dollar amount of its purchases is from twenty principal vendors.
During 1995, gypsum wallboard and related products purchased from the Company's
largest supplier represented an estimated 12% of the dollar amount of the
Company's purchases. Strober has not experienced significant delays in
obtaining products from its current suppliers, but should such delays occur,
management believes that similar products would be available from other
sources. There are no written agreements between the Company and its
suppliers.
MARKETING
Strober's marketing strategy focuses on the professional contractor. The
Company provides "one-stop shopping" by offering a broad selection of
inventory, technical product advice, timely delivery and extension of credit.
The Company currently operates from eleven building supply centers, a
Kitchen and Bath Center, and a Peachtree Planning Center (window and door
showroom), with a total of approximately 460,000 square feet of covered space
on sites totaling approximately 42 acres. Strober maintains inventories of
over 15,000 products. This level of inventory is important to professional
contractors in that it permits the purchase of a wide variety of building
supplies from a single source.
Prompt delivery is particularly important to the Company's customers, as
meeting tight time schedules in the construction industry is often more
important than other considerations. In order to deliver on a timely and
convenient basis, the Company maintains a fleet of trucks, many of which are
equipped with booms capable of hoisting materials in excess of six stories.
The Company's sales force and management have a high level of expertise
regarding products and relevant construction techniques. The sales force has
access through the Company's management information systems to data about
customer sales, purchasing and credit histories as well as detailed inventory
information. Strober believes that its responsiveness to its customers' needs
has contributed to its ability to maintain long-term customer relationships.
Extension of credit is an important factor in selling to professional
contractors. Through established credit procedures, credit limits are
determined and outstanding balances are continuously monitored for such
customer. Although management believes that such procedures help avoid
potential credit problems, there can be no assurance that such procedures will
prevent failures or delays in the collection of customer receivables.
Each building supply center contains a showroom where the professional
contractor and the "do-it-yourself" customer can examine and purchase a wide
variety of products. These areas also provide an opportunity for such
customers to meet with sales personnel.
ORGANIZATION AND MANAGEMENT CONTROL
The Company's operations are organized into six regions: New York City;
Long Island, New York; New York's Hudson Valley; New Jersey; East Hartford,
Connecticut and Scranton/Wilkes-Barre and Allentown/Bethlehem, Pennsylvania.
The Company's regions have regional managers whose focus is to achieve greater
sales and more efficient operations in those regions.
The Company's regions and building supply centers are operated as
independent profit centers, with individually targeted earnings and performance
goals (covering, for example, sales by product, margins, individual items of
overhead and operating expense and other financial and management information),
which are monitored and reviewed on a monthly basis. The regions and centers
have senior managers who are responsible for their day-to-day business,
including sales, customer relations, personnel, collections, inventory
management and cost control. Major decisions affecting Company policy,
facilities and capital outlays are made by the Company's Board of Directors and
central management.
The Company, its regions and its building supply centers are headed by
senior managers with extensive experience in the building supply industry and
who have an incentive compensation stake in the performance of the Company and
its respective building supply centers. These managers have extensive years of
experience in the building supply industry. In the aggregate, senior managers
own approximately 20% of the outstanding shares of the Company's Common Stock.
Because inventory and accounts receivable constitute a substantial
portion of the Company's total assets, efficient control of inventory and
receivables is an important management priority. The Company regularly
monitors detailed computer-generated reports showing sales, inventory turnover,
margins and quantities on hand for each item in the Company's inventory, as
well as aging and other pertinent information regarding accounts receivable.
The Company believes that it maintains management reports that are standard in
the industry.
EXPANSION AND MARKET
Since 1980, the Company has grown from three to presently eleven building
supply centers located in New York, New Jersey, Connecticut and Pennsylvania,
today serving customers in these four states and Massachusetts. The Company
also operates a Kitchen and Bath Center in East Hartford, Connecticut and a
Peachtree Planning Center (window and door showroom) in Brooklyn, New York.
During 1995, due to a lease termination, the Company relocated its
Farmingdale, New York facility to a larger facility also located in
Farmingdale, New York. In November, 1995, the Company opened its second
facility in the eastern Pennsylvania region, a 30,000 square foot facility
located in Bethlehem, Pennsylvania.
In October 1995, the Company formed Architectural Wall Systems LLC, a
joint venture with Architectural Wall Systems, Inc. of Basking Ridge, New
Jersey. This new venture has become an exclusive distributor of Dryvit
Systems, Inc. (of West Warwick, Rhode Island) to market and sell "Dryvit"
exterior wall systems and other related products to certified commercial and
residential applicators in designated counties located in New York State, New
Jersey and all of New York City and Long Island.
Among the avenues for expansion which may be considered by the Company
are the opening of new building supply centers in geographic areas constituting
natural extensions of its existing markets and the acquisition of centers or
groups of centers from others. The Company does not anticipate that any newly
opened centers (other than those replacing other facilities) will be profitable
during their first year of operation.
In addition to expanding geographically, the Company may expand its
product lines as well as its customer groups. The Company frequently
re-evaluates its product lines to expand the range of products offered to
generate sales to new customers and to add, modify or delete product lines to
seek to increase sales, profit margins and inventory turnover. New products
are presented regularly to the Company by manufacturers and the Company chooses
those which it believes fit within its marketing strategy.
COMPETITION
The sale of building supplies is highly competitive. The principal
methods by which the Company competes are selection of inventory, availability
of technical product advice, timely delivery and extension of credit. The
Company believes that with respect to each of these factors it effectively
competes in its market. The Company competes with companies which carry one or
more product lines similar to, or the same as, those sold by Strober, including
building supply centers, lumber yards, hardware stores, home center chains and
manufacturers who sell directly to builders, professional contractors and other
customers. One such competitor is the country's largest producer of gypsum
wallboard, which makes such direct sales and since 1970 has operated building
supply centers in the Company's market. Although some of the Company's
competitors have significantly greater resources than Strober, the Company
believes that the majority of sales to building contractors and other customers
in its market are made by companies which are smaller than Strober.
EMPLOYEES
The Company employs approximately 339 persons, of whom approximately 77
employees in four of the Company's eleven building supply centers are subject
to collective bargaining agreements expiring December 1996, December 1997 and
December 2000. The Company has generally had satisfactory relations with the
unions representing its unionized employees and considers its relationship with
all of its employees to be good.
EXECUTIVE OFFICERS OF REGISTRANT{(1)}
The executive officers of Strober are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert J. Gaites 54 Chairman of the Board,
Chief Executive Officer and
President
John Yanuklis 59 Executive Vice President and Director
Albert C. Brower 61 Senior Vice President
Richard W. Young 45 Senior Vice President
Edward N. Zieky 44 Senior Vice President
Eliott S. Zieky 44 Senior Vice President and Director
Richard Schaefer 48 Vice President
David J. Polishook 54 Chief Financial Officer, Secretary and Treasurer
</TABLE>
(1) Robert J. Gaites was elected Chief Executive Officer and President on
July 10, 1991. He was elected Chairman of the Board on March 12, 1992.
John Yanuklis served as Senior Vice President since 1986 and was elected
Executive Vice President on May 28, 1992. Messrs. Brower and Young were
elected as Senior Vice Presidents in October 1986. Richard Schaefer was
elected as Vice President of the Company on July 20, 1989. Edward N.
Zieky and Eliott S. Zieky were elected as Senior Vice Presidents and
Directors of the Company as of January 25, 1988. Edward N. Zieky
resigned as a Director on February 28, 1991. David J. Polishook was
elected to the Board of Directors on January 31, 1988, elected Chief
Financial Officer and Treasurer of the Company on June 28, 1988 and was
elected Secretary on November 12, 1991. He resigned as a Director on
February 28, 1991.
<PAGE>
ITEM 2. PROPERTIES
The Company has eleven building supply centers, of which one is located
in New York City, two on Long Island, two in New York's Hudson Valley, two in
New Jersey, two in the Hartford, Connecticut region and two in Pennsylvania.
Each of the centers has showroom, office and warehouse space, as well as
outside storage areas, except for the center in Kingston, Pennsylvania. The
Company's showroom, office and warehouse space totals approximately 460,000
square feet on sites totaling approximately 42 acres. In the opinion of
management, these premises are suitable and adequate to meet the Company's
requirements. All of the Company's locations are leased.
The following table describes certain terms of the Company's leases:
<TABLE>
<CAPTION>
LOCATIONS Last Expiration Approximate Approx- Current
Date Assuming Square Footage imate Annual
Initial Exercise of all of Showroom, Acreage Rent{(2)}
Expiration Renewal Office and of
Date Option Warehouse Space Site
<S> <C> <C> <C> <C> <C> <C>
1. *550 Hamilton Avenue
Brooklyn, New York{(1)} 12/31/96 12/31/96 59,100 4.0 $709,400
Long Island Region
1. 1294 Route 110 04/01/00 04/30/05 37,500 3.0 $140,100
Farmingdale, New York
2. *370 West Merrick Road 12/31/96 12/31/96 30,000 1.8 $262,000
Valley Stream, New York{(3)}
*345 West Merrick Road 12/31/96 12/31/96 16,000 0.6 $137,700
Valley Stream, New York{(3)}
362 West Merrick Road 07/31/89 12/31/96 -- 0.2 $26,400
Valley Stream, New York{(3)}
HUDSON VALLEY REGION
1. *102 N. Route 9W 12/31/98 12/31/08 32,350 5.0 $260,900
Congers, New York
2. *125 Temple Hill Road 09/01/00 09/01/00 27,100 4.5 $69,500
Vails Gate, New York
NEW JERSEY REGION
1. 20 Truman Drive So. 04/30/99 04/30/09 60,000 6.0 $337,000
Edison, NJ
2. *Route 173 West 04/30/98 04/30/08 37,300 5.3 $328,700
Hampton, NJ
CONNECTICUT REGION
1. *363, 367 and 405 01/31/93 01/31/08 81,000 8.2 $350,400
Ellington Road
East Hartford, CT
*580 Tolland Street 04/30/93 04/30/98 31,000 2.0 $138,200
East Hartford, CT
2. 75 John Fitch Boulevard 02/29/88 12/31/99 3,100 -- $32,900
South Windsor, CT
PENNSYLVANIA REGION
1. 695 Wyoming Avenue 05/31/92 06/30/04 17,250 -- $33,500
Kingston, PA
2. 1005-C West Lehigh Street 11/30/97 11/30/07 28,500 1.5 $59,900
Bethlehem, PA
460,200 42.1 $2,886,600
</TABLE>
* The lessors for these facilities are entities owned in whole or in part
by members of management and their families. The terms of the leases with such
affiliated parties, at the time the leases were entered into, were believed to
be no less favorable to the Company than it could have obtained in arm's-length
negotiations with unrelated third parties.
(1) The Company is currently negotiating a ten year lease agreement for a new
location within approximately two miles of the existing location but
there can be no assurance that such new lease agreement will be entered
into.
(2) All the Company's real estate leases require the Company to pay liability
insurance, some or all real estate taxes and all utilities. Rental
payments for the Brooklyn and 345 and 370 West Merrick Rd., Valley Stream
centers increase annually by 3% during the terms of the leases. The
rental payments for the Farmingdale center for the initial five year
lease term are $140,070, $150,844, $161,618, $172,393 and $183,168
respectively. The annual rental payments during the first three years of
the option period is $193,942 and increases to $205,914 during the last
two years of the option period. The rent payable on the Edison center
increases to $400,500 per year in the first five year renewal term and
$425,000 in the second five year renewal term. Rental payments for the
Congers and Hampton centers increase annually by the percentage increase
in the applicable consumer price index or 4%, whichever is lower. Rental
payments for the Vails Gate center are in amounts sufficient to service
industrial development bond financing by the lessor of such facility and
fluctuate with changes in interest and tax rates. Rental payments for
the Ellington Road, East Hartford center increase to the then fair market
rental at the commencement of the second five year option renewal period.
Rental payments for the Kingston center increase by the percentage
increase in the applicable consumer price index or by 5%, whichever is
lower. Rental payments for the Bethlehem center increase in the fourth
year of the first five year renewal option (December 1, 2000) determined
by the average annual percentage increases in the applicable consumer
price index that occurred since the lease inception date, such increase
capped at 3% per year. The rent is further increased in the second five
year renewal term commencing December 1, 2002 as determined by increasing
the annual rental at November 30, 2002 by the annual percentage increases
in the applicable consumer price index that occurred between December 1,
2000 and December 1, 2002 such increase capped at 3% per year.
(3) The Company is currently negotiating with the landlord to extend the
lease term for an additional ten years but there can be no assurance that
such lease term will be extended.
[The balance of this page is intentionally blank]
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Strober is not a party to any material legal proceedings. The Company
is, however, involved in litigation relating to claims arising out of its
operations in the normal course of business. Such claims against Strober are
generally covered by insurance. It is the opinion of management that any
uninsured liability resulting from any such litigation would not have a
material adverse effect on Strober's business, financial position or earnings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders through
solicitation of proxies or otherwise during the fourth quarter of 1995.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the NASDAQ National Market under the
symbol: STRB.
The high and low sales price for the first quarter of 1996 (through March
14, 1996) and each of the four quarters of 1995 and 1994 as reported by the
National Association of Securities Dealers, Inc., are set forth below. Such
quotations reflect interdealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
1996* HIGH LOW
First Quarter* $4-5/8 $3-1/2
1995 HIGH LOW
1st Quarter $4-1/8 $3
2nd Quarter 4-1/2 3-1/4
3rd Quarter 5-7/8 4
4th Quarter 4-3/4 3-1/2
1994 HIGH LOW
1st Quarter $5-5/16 $3-3/4
2nd Quarter 4-7/8 3-1/2
3rd Quarter 4-5/8 2-1/2
4th Quarter 3-7/8 3-1/8
* through March 14, 1996
There were 495 holders of record at March 14, 1996.
The Company intends to reinvest all of its earnings for use in its
business and to finance future growth. Accordingly, the Company does not
anticipate paying cash dividends in the foreseeable future. Any further
determination as to the payment of dividends will depend upon the Company's
financial condition, results of operations, commitments and such other factors
as the Board of Directors deems relevant. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands of dollars, except percentage and per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
INCOME STATEMENT DATA:
Net sales $125,812 $125,378 $118,975 $104,812 $90,150
Gross profit 33,186 32,670 31,703 27,787 24,897
Gross profit percentage 26% 26% 27% 27% 28%
Selling, general and administrative
expenses 27,858 28,395 28,090 26,955 26,707
Amortization of acquisition
costs 210 210 268 910 910
Income (loss) from operations 5,118 4,065 3,345 (78) (2,720)
Net interest (income) and other (230) 332 787 812 686
expenses
Income (loss) before income tax 5,348 3,733 2,558 (890) (3,406)
Net income (loss) $ 3,082 $ 2,576 $ 1,650 $ (763) $(2,072)
Net income (loss) per share $0.59 $0.50 $ 0.33 $(0.15) $(0.41)
Weighted average number of 5,247 5,165 5,031 5,021 5,044
shares outstanding
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital $23,691 $21,844 $20,158 $22,032 $24,769
Total assets 44,544 42,649 44,328 43,145 47,814
Long-term debt less current 1,224 1,171 2,407 8,584 11,551
installments
Stockholders' Equity $33,524 $30,687 $28,569 $26,511 $27,265
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain income statement amounts
expressed as a percentage of sales:
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
INCOME STATEMENT DATA:
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 73.6% 73.9% 73.4% 73.5% 72.4%
Gross profit percentage 26.4% 26.1% 26.6% 26.5% 27.6%
Selling, general and 22.1% 22.6% 23.6% 25.7% 29.6%
administrative expenses
Amortization of acquisition 0.2% 0.2% 0.2% 0.9% 1.0%
costs
Income (loss) from operations 4.1% 3.3% 2.8% 0.0% (3.0)%
Net interest (income) and (0.2)% 0.3% 0.7% 0.8% 0.8%
other expenses
Income (loss) before income 4.3% 3.0% 2.1% (0.8)% (3.8)%
taxes
Provision (benefit) for income 1.8% 0.9% 0.7% (0.1)% (1.5)%
tax
Net income (loss) 2.5% 2.1% 1.4% (0.7)% (2.3)%
</TABLE>
1995 COMPARED TO 1994
Net sales for 1995 increased by $434,000 (less than 1%) compared to net
sales for 1994. Sales benefited by a milder winter season during 1995 compared
to 1994 and were negatively impacted by a reduction in new residential
construction in the Northeast as well as by price deflation in lumber products.
Cost of goods sold as a percentage of sales decreased slightly from 73.9%
to 73.6% during 1995 as compared to 1994. Gross profit for 1995 increased by
$516,000 (2%) due to the increased sales volume and a higher gross profit
margin percentage. Gross profit as a percent of sales increased to 26.4% in
1995 from 26.1% in 1994.
<PAGE>
Selling, general and administrative ("SG&A") expenses decreased by
$537,000 (2%) over the prior year. The following table shows the components of
the SG&A expenses:
<TABLE>
<CAPTION>
(In thousands) Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
Delivery $10,899 $10,961
Selling 4,191 4,115
Administrative 12,768 13,319
$27,858 $28,395
</TABLE>
The decrease in delivery expense of $62,000 (less than 1%) was due to
lower truck maintenance costs offset partially by higher delivery labor costs.
The Company believes that the lower truck maintenance costs were attributable
to the replacement of older delivery vehicles in 1995. The increase in selling
expense of $76,000 (2%) was due to higher selling salaries partially offset by
lower advertising and promotional expenses.
The decrease in administrative expenses of $551,000 (4%) was attributable
to decreases in bad debt expense, insurance and facility maintenance and the
elimination of non-recurring 1994 charges for pension and closed facility
costs. These decreases were partially offset by increases in medical insurance
costs, executive salaries and legal fees.
Interest expense and other deductions decreased by $504,000 in 1995
compared to 1994, primarily due to reduced amounts outstanding on the Company's
working capital loan facility and subordinated debt. The decrease in interest
expense was partially offset by increases in interest expense associated with
newly incurred capital lease transactions to fund new delivery equipment.
The net income for 1995 reflects an income tax provision of $2,267,000
compared to $1,157,000 in 1994. The 1995 income tax provision reflects an
increase in the effective tax rate due to the full utilization prior to 1995 of
the federal alternative minimum tax carryforward and various state income tax
carryforwards. SEE NOTE 5 TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
1994 COMPARED TO 1993
Net sales for 1994 increased by $6.4 million (5%) compared to net sales
for 1993. The increase in sales was attributable to several factors including
increased construction activity and increased prices on construction materials
sold during 1994. Management believed that continued sales growth in 1995
would come from expanding product mix and continued increases in construction
activity anticipated from the Company's traditional professional contractor
customer base. Management also believed that the trend toward higher prices
for products sold by the Company should also continue throughout 1995.
Cost of goods sold as a percentage of sales increased from 73.4% to 73.9%
during 1994 as compared to 1993. This increase was largely attributable to
competitive pricing of products sold in the Company's marketing region. Gross
profit for 1994 increased by $967,000 (3%) due primarily to increased sales
volume. Gross profit as a percent of sales decreased to 26.1% in 1994 from
26.6% in 1993.
<PAGE>
Selling, general and administrative expenses increased $305,000 (1%) over
the prior year. The following table shows the components of the SG&A expenses:
<TABLE>
<CAPTION>
(In thousands) Year Ended Year Ended
12/31/94 12/31/93
<S> <C> <C>
Delivery $10,961 $10,511
Selling 4,115 4,034
Administrative 13,319 13,545
$28,395 $28,090
</TABLE>
The increase in delivery expenses of $450,000 (4%) was due to increases
in delivery labor and trucking costs associated with the increase in sales
volume. The increase in selling expenses of $81,000 (2%) was due to increased
selling salaries. The decrease in administrative expenses of $226,000 (2%) was
due to lower bad debt expenses, insurance costs and administrative salaries,
partially offset by increases in employee bonuses and employee retirement plan
expense.
Amortization of acquisition costs stems from the 1988 acquisition of The
General Building Supply Company. Commencing in 1994, the remaining portion of
the deferred acquisition costs represents goodwill and is being amortized at
the rate of $210,000 per year.
Interest expense and other deductions decreased by $386,000 in 1994 as
compared to 1993. This decrease is primarily attributable to lower loan
balances outstanding on the Company's working capital loan facility and
subordinated debt. It also reflects a lower provision for interest in 1994 as
compared to 1993 associated with a proposed disallowance of losses by the
Internal Revenue Service deducted by the Company on its 1980 and 1981 Federal,
New York State and New York City income tax returns.
The net income for the year ended 1994 reflects an income tax provision
of $1,157,000 compared to an income tax provision of $908,000 in 1993. The
income tax provision for 1994 was decreased by a reduction in the deferred
valuation allowance of $644,000. This decrease is primarily attributable to
the utilization of the federal alternative minimum tax carryforward and state
tax income tax carryforwards. SEE NOTE 5 TO THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $1.8 million to $23.7 million at December
31, 1995. The Company financed its operations in 1995 with cash generated from
operations and capital lease transactions to fund capital expenditures.
The Company has a $10,000,000 working capital line of credit with the
Chase Manhattan Bank, N.A. Borrowings under the credit facility are made as
needed, up to a maximum of 75% of eligible accounts receivable and bear
interest at the rate of 1/2 a percentage point over the prime rate of interest
or, at the option of the Company, at various fixed London Interbank Offered
Rate interest rates. The Company pledged as collateral for the credit facility
its accounts receivable and is required to maintain certain financial
covenants. The credit facility expires January 31, 1997 and may be extended at
the option of the Company for an additional one year period. At December 31,
1995 and December 31, 1994, there were no balances owed under this credit line.
The Company believes that this credit facility will provide sufficient working
capital to support current and future operations. SEE NOTE 4 TO THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS.
In March 1995, the Company entered into a master lease agreement with
Chase Equipment Leasing Inc. to lease certain trucks and forklift equipment.
The agreement provides for a monthly rental payment adjusted upon changes in
the one month London Interbank Offered Rate. The current lease term is 60
months. SEE NOTE 4 TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS.
At December 31, 1995, the Company's outstanding balance of subordinated
notes payable was $583,000 compared to $2,042,000 at December 31, 1994. These
notes were issued pursuant to the acquisition of The General Building Supply
Company in January 1988. The notes are due September 1, 1996 and are paid with
36 consecutive monthly payments of $97,222 plus interest at 8% per annum.
During 1995, the Company prepaid three monthly principal payments on the notes
amounting to $292,000. SEE NOTE 4 TO THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS.
In November 1990, the Company received insurance proceeds from policies
on the life of the Company's late chairman, Mr. Eric D. Strober. The Company
was obligated under a stock repurchase agreement to use $8,448,000 of the
proceeds to purchase the Company's common stock from Mr. Strober's estate. In
accordance with the agreement, the Company withheld $845,000 to pay the
estimated Federal alternative minimum tax related to the insurance proceeds.
To the extent the actual alternative tax paid on the Company's 1990 Federal tax
return was less than the $845,000 withheld and to the extent the alternative
minimum tax was used in subsequent years to reduce current Federal taxes
payable, the Company was required to offer to purchase additional shares from
Mr. Strober's estate at the then-market price. The alternative minimum tax
paid on the Company's 1990 Federal tax return was $116,790 less than the
$845,000 withheld and the Company during 1991 purchased 55,667 shares at $2.098
per share which represented the market price of the Company's stock when the
amount of the alternative minimum tax for 1990 was determined. For the year
1993, the Company's regular income tax was reduced by $485,000 due to the
alternative minimum tax carryover and the Company during 1994 purchased 111,789
shares at $4.33 per share. For 1994, the Company's regular income tax was
reduced by $241,000 due to the alternative minimum tax carryover and the
Company during 1995 purchased 63,812 shares at $3.78 per share. As the
alternative minimum tax carryover was fully exhausted during 1994, no further
shares are eligible for redemption by Mr. Strober's estate.
Capital expenditures, net of dispositions, amounted to $576,000 and
$424,000 for 1995 and 1994 respectively. Such expenditures in 1995 were
principally attributable to leasehold improvements and business fixtures.
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" must be adopted by the Company in 1996. Statement No. 121
requires, among other things, that long-lived assets held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Management does
not believe that the implementation of Statement No. 121 will have a material
impact on the Company's financial position or results of operations.
In October 1995, FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" which must be adopted by the Company in 1996. The Company
has elected not to implement the fair value based accounting method for
employee stock options, but has elected to disclose, commencing in 1996, the
pro forma net income and earnings per share as if such method had been used to
account for stock-based compensation cost as described in Statement No. 123.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Table of Contents to Financial Statements and Schedule in Item 14
below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no events or conditions requiring reporting under the
requirements of this item.
<PAGE>
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT.
<TABLE>
<CAPTION>
NAME AND POSITION AGE BIOGRAPHICAL DATA (1)
<S> <C> <C>
ROBERT J. GAITES 54 Mr. Gaites has been with the
Class II Director, Chairman of Company since 1976. He was
the Board, Chief Executive Senior Vice President since
Officer and President of the 1986 and CEO since June
Company; Director since 1986; 1991. He has 29 years of
Current term to expire at 1997 experience in the industry.
Stockholder Meeting
JOHN YANUKLIS 59 Mr. Yanuklis has been with
Executive Vice President and the Company since 1981 and
Class III Director of the manages its Hudson Valley,
Company; Director since 1986; New York region. He was a
Current term to expire at 1998 Senior Vice President since
Stockholder Meeting 1986 and an Executive Vice
President since June 1992.
He has over 30 years of
experience in the industry.
ELIOTT ZIEKY 44 Mr. Zieky has been with the
Senior Vice President Company since 1988 as a
and Class I Director of the Senior Vice President and
Company; Director since 1988; with his cousin, Edward
Current term to expire at 1996 Zieky, manages its Hartford,
Stockholder Meeting Connecticut region. He was
an officer of The General
Building Supply Company
prior to its acquisition by
the Company. He has over 20
years of experience in the
industry.
DAVID W. BERNSTEIN 70 Mr. Bernstein is an attorney
Class III Director of the engaged in private practice
Company; Director since 1986; and served as general
Current term to expire at 1998 counsel to the Company from
Stockholder Meeting 1953 through 1990.
JOSEPH MANGINO, SR. 59 Mr. Mangino has been the
Class II Director of the President of Metropolitan
Company; Director since 1992; Trucking, Inc. a privately
Current term to expire at 1997 held trucking company since
Stockholder Meeting 1980. He is a regional
director of Bank of New
York, National Community
Division.
ALVIN MURSTEIN 61 Mr. Murstein has been
Class III Director of the President and Chairman of
Company; Director since 1989; the Board of Directors of
Current term to expire at 1998 Tri-Magna Corporation, the
Stockholder Meeting parent corporation of
Medallion Funding Corp.,
since 1989 and the President
and Chairman of the Board of
Directors of Medallion
Funding Corp. since 1979.
EMIL W. SOLIMINE 51 Mr. Solimine is the Chairman
Class I Director of the of the Board of Directors
Company; Director since 1989; and Chief Executive Officer
Current term to expire at 1996 of Emar Group, Inc., an
Stockholder Meeting insurance brokerage concern
which he started in 1971 and
which has served as
insurance broker for the
Company's property and
casualty insurance since
1983. Mr. Solimine is also
a director of Di Giorgio
Corporation, an independent
wholesale food distributor.
</TABLE>
________________________
(1) The Strober Organization, Inc. was organized in connection with the
Company's initial public offering in 1986 to act as the parent of the companies
previously conducting the Strober business. References to employment with the
"Company" in the table above, where appropriate, include positions with
Strober's predecessor companies.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
Officers, directors and greater than ten percent beneficial owners are required
by applicable regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely upon a review of the copies of the forms furnished to the
Company, or written representations from certain reporting persons that no
Forms 5 were required, the Company believes that during the 1995 fiscal year
all of its officers and directors complied with all applicable filing
requirements.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
by those persons who were, at December 31, 1995, the Named Executive Officers.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
<S> <C> <C> <C> <C> <C> <C>
NAME AND PRINCIPAL POSITION FISCAL SALARY ($) BONUS ($) OTHER ANNUAL STOCK ALL OTHER
YEAR COMPENSATION OPTION COMPENSATION
($)(1) GRANTS(#) ($)(1)(3)
ROBERT J. GAITES 1995 $275,000 $225,000 -- 37,500 $795
Chairman, President, 1994 $250,000 $225,000 -- 25,000 $900
Chief Executive Officer 1993 $250,000 $160,000 -- 25,000 $814
JOHN YANUKLIS 1995 $154,000 $184,905 -- 23,503 $409
Executive Vice President, 1994 $142,000 $136,186 -- 22,737 $505
Director 1993 $135,000 $149,745 -- 14,286 $503
RICHARD SCHAEFER 1995 $125,000 $116,988 -- 27,586 $397
Vice President 1994 $125,000 $136,619 -- 15,789 $450
1993 $125,000 $108,950 -- 51,429 $475
EDWARD ZIEKY 1995 $127,000 $93,214 -- 10,152 $511
Senior Vice President 1994 $115,000 $91,923 -- 1,684 $580
1993 $100,000 $25,268 $18,300(2) -- $546
ELIOTT ZIEKY 1995 $127,000 $93,214 -- 10,152 $511
Senior Vice President, 1994 $115,000 $91,923 -- 1,684 $580
Director 1993 $100,000 $25,268 $18,300(2) -- $546
</TABLE>
(1) Amounts for "Other Annual Compensation" are not shown in the table as
none of these perquisites exceed the lesser of (i) $50,000 or (ii) 10%
of the Named Executive Officer's combined Salary and Bonus, except for
Messrs. Edward and Eliott Zieky in 1993.
(2) Indicates a $10,200 car allowance which accounts for more than 25% of
the perquisites of Messrs. Edward and Eliott Zieky.
(3) Includes only premiums paid by the Company attributable to term life
insurance coverage for the Named Executive Officers.
OPTION GRANTS TABLE
The following table sets forth information on grants of stock options to
the Named Executive Officers pursuant to the Company's Restated 1986 Non-
Qualified Stock Option Plan during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
Name Options % of Total Exercise Expiration Potential Realizable Value at Assumed
Granted(#) Options Price ($/Share) Date Annual Rates of Stock Price
Granted to Appreciation for Option Term
Employees
in Fiscal
Year
<S> <C> <C> <C> <C> <C> <C>
5%($) 10%($)
Robert J. Gaites 37,500 20.43% $3.625 03/08/00 $37,560 $82,990
John Yanuklis 23,503 12.81% $3.625 03/08/00 $23,540 $52,014
Richard Schaefer 27,586 15.03% $3.625 03/08/00 $27,630 $61,050
Edward Zieky 10,152 5.53% $3.625 03/08/00 $10,168 $22,467
Eliott Zieky 10,152 5.53% $3.625 03/08/00 $10,168 $22,467
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE TABLE
The following table sets forth information concerning the aggregate
number and value of unexercised options to purchase Common Stock held by each
of the Named Executive Officers as of December 31, 1995.
<TABLE>
<CAPTION>
SHARES ACQUIRED ON VALUE NUMBER OF VALUE OF
EXERCISE (#) REALIZED ($) UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
NAME AT FY-END(#) OPTIONS
ALL AT FY-END ($)
EXERCISABLE ALL
EXERCISABLE
<S> <C> <C> <C> <C>
Robert J. Gaites -- -- 87,500 $45,312
John Yanuklis -- -- 69,526 $47,831
Richard Schaefer -- -- 117,304 $148,059
Edward Zieky -- -- 11,836 --
Eliott Zieky -- -- 11,836 --
</TABLE>
<PAGE>
COMPENSATION OF DIRECTORS
During 1995, members of the Board who were not employees of the Company
received an annual retainer of $12,500, plus a fee of $1,000 for each Board and
Board committee meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during the fiscal
year ended December 31, 1995 were Messrs. Bernstein, Gaites, Yanuklis, Mangino
and Solimine. Mr. Gaites also served as President and Chief Executive Officer
during the fiscal year ended December 31, 1995.
Mr. Gaites and Mr. Yanuklis are owners in entities that lease facilities
to the Company in Brooklyn, New York; Congers, New York; Vails Gate, New York
and Hampton, New Jersey. Mr. Gaites' equity interests in these entities are
10%, 2%, 2% and 2%, respectively. Mr. Yanuklis' equity interests in these
entities are 0%, 16%, 16% and 16%, respectively. The current annual rent on
these facilities is $709,400, $260,900, $69,500 and $328,700, respectively.
The lessors of such facilities have granted the Company a right of first
refusal in the event that any of the lessors desire to sell their respective
properties to a third party. The Company believes that the leases with such
affiliated parties are on terms no less favorable to the Company than it could
obtain in arms-length negotiations with unrelated parties for similar locations
in similar geographic areas.
During 1995, the Company paid $1,052,080 in insurance premiums for the
Company's property and casualty insurance to Emar Group, Inc., the insurance
broker of which Mr. Solimine is president. The Company believes that the
insurance premiums it pays to Emar Group, Inc. are on terms no less favorable
to the Company than it could obtain in arms-length negotiations with unrelated
parties for similar property and casualty insurance.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Under a stockholder agreement entered into as part of the 1986 IPO (as
described hereinafter) among the Company, Messrs. Gaites, Yanuklis, Edward
Zieky and Eliott Zieky, two other executive officers and other Company
stockholders and former officers, in the event the Company terminates without
cause the employment of a party to such stockholder agreement, the Company is
obligated to engage the terminated party as a consultant for two years with a
retainer equal to 75% of that individual's then current base salary. During
such period the consultant would be barred from competing against the Company
in its existing markets.
The Company has employment agreements with each of Edward Zieky and
Eliott Zieky, Named Executive Officers, providing for a current base salary of
$127,000. Under their respective employment agreements, Messrs. Edward and
Eliott Zieky are entitled to such group life insurance, pension, medical
insurance, hospitalization, disability and similar employee benefit plans as
may exist for the benefit of the executive officers of the Company generally.
The employment agreements bar solicitation of similar business to that of the
Company during Messrs. Edward and Eliott Zieky's respective employment and for
three years thereafter. They are also barred from directly or indirectly
competing with the business of the Company in a 75 mile radius for a period of
two years after ceasing to be employed by the Company. If either Messrs.
Edward or Eliott Zieky leave the Company for a reason other than termination
for cause, at the option of the Board, they may become a consultant to the
Company for a term of two years. If either or both are terminated without
cause, the Company is obligated to engage them as a consultant for two years
for a retainer equal to 75% of their then current base salary.
Except as set forth above, the Company has no other termination of
employment or change-in-control arrangements for the remaining Named Executive
Officers.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table, prepared from the records of the Company and from
information furnished to it, sets forth, as of March 14, 1996, the name and
holdings of each person (including any "group" as defined in Section 13(d) of
the Securities Exchange Act of 1934) known by the Company to be the beneficial
owner of more than five percent of its Common Stock. Unless otherwise
indicated, the persons listed below have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
Sue Strober(1)(4) 948,951 18.9%
c/o The Strober Organization, Inc.
550 Hamilton Avenue
Brooklyn, New York 11232
Robert J. Gaites (2)(4) 457,135 9.1%
c/o The Strober Organization, Inc.
550 Hamilton Avenue
Brooklyn, New York 11232
John Yanuklis (3)(4) 453,255 9.0%
c/o The Strober Organization, Inc.
550 Hamilton Avenue
Brooklyn, New York 11232
John T. Guerin (4) 422,250 8.4%
14 Summit Road
Morristown, New Jersey 07960
Gordon Sandler (4) 384,486 7.6%
6468 Via Rosa
Boca Raton, Florida 33433
</TABLE>
___________________
(1) Ms. Strober is the trustee with respect to an aggregate of 84,650
shares held in trusts for her son and daughter. Ms. Strober disclaims
beneficial ownership of such shares.
(2) Excludes 25,000, 25,000, 37,500 and 25,553 shares of Common Stock
subject to presently exercisable options held by Mr. Gaites at exercise prices
of $1.75, $4.75, $3.625 and $4.50 per share which expire on December 31, 1996,
1997, March 8, 2000 and March 12, 2001, respectively. Includes 2,000 shares
held by Mr. Gaites' spouse as trustee for their son. Mr. Gaites disclaims
beneficial ownership of such shares.
(3) Excludes 9,000, 14,286, 22,737, 23,503 and 27,378 shares of Common
Stock subject to presently exercisable options held by Mr. Yanuklis at exercise
prices of $1.125, $1.75, $4.75,$3.625 and $4.50 per share of which 23,286
expire on December 31, 1996, 22,737 expire on December 31, 1997, 23,503 expire
on March 8, 2000 and 27,378 expire on March 12, 2001.
(4) The above-named beneficial owner is a party to an agreement providing
such beneficial owner with a right of prior notice and first refusal to
purchase shares of the Company's Common Stock which any other party to the
agreement desires to sell. (See "Certain Transactions")
(B) SECURITY OWNERSHIP OF MANAGEMENT.
The following table, prepared from the records of the Company and from
information furnished to it, sets forth, as of March 14, 1996, the number of
shares of Common Stock beneficially owned by each director, the chief executive
officer and the four other most highly compensated executive officers
(collectively, the "Named Executive Officers") and all directors and executive
officers of the Company as a group. Unless otherwise indicated, the persons
listed below have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
<S> <C> <C>
Robert J. Gaites 457,135 (1)(8) 9.1%
David W. Bernstein 29,100 (2)(3) *
Joseph Mangino, Sr. 10,500 (3) *
Alvin Murstein 15,000 (3) *
Emil W. Solimine 18,500 (3)(4) *
John Yanuklis 453,255 (5)(8) 9.0%
Edward Zieky 0 (6)(8) *
Eliott Zieky 0 (6)(8) *
Richard Schaefer 3,120 (7) *
All Officers and Directors as a group 1,092,779 21.7%
(12 persons) (9)
</TABLE>
________________________
* Less than one percent of the outstanding shares of Common Stock.
<PAGE>
(1) Excludes 25,000, 25,000, 37,500 and 25,553 shares of Common Stock
subject to presently exercisable options held by Mr. Gaites at exercise prices
of $1.75, $4.75, $3.625 and $4.50 per share which expire on December 31, 1996,
1997, March 8, 2000 and March 12, 2001, respectively. Includes 2,000 shares
held by Mr. Gaites' spouse as trustee for their son. Mr. Gaites disclaims
beneficial ownership of such shares.
(2) Includes 100 shares owned by Mr. Bernstein's wife. Mr. Bernstein
disclaims beneficial ownership of such shares. Excludes 100,000 shares of
Common Stock subject to a presently exercisable warrant held by Mr. Bernstein
at an exercise price of $12.00 per share which expires on November 7, 1996.
(3) Excludes 12,500 and 18,750 shares subject to presently exercisable
options and 18,750 shares subject to options still requiring Stockholder
ratification each held by the outside directors at an exercise price of $4.75,
$3.625 and $4.50 per share which expire on March 9, 1997, March 8, 2000 and
March 12, 2001, respectively.
(4) 1,000 of these shares are owned by Emar, Ltd., of which Mr. Solimine
is the sole shareholder and 17,500 of these shares are owned by Deye Limited
Partnership of which Mr. Solimine is a general partner.
(5) Excludes 9,000, 14,286, 22,737, 23,503 and 27,378 shares of Common
Stock subject to presently exercisable options held by Mr. Yanuklis at exercise
prices of $1.125, $1.75, $4.75,$3.625 and $4.50 per share of which 23,286
expire on December 31, 1996, 22,737 expire on December 31, 1997, 23,503 expire
on March 8, 2000 and 27,378 expire on March 12, 2001.
(6) Excludes 1,684, 10,152 and 9,031 shares of Common Stock subject to a
presently exercisable option held by each of Edward and Eliott Zieky at an
exercise price of $4.75, $3.625 and $4.50 per share which expire on December
31, 1997, March 8, 2000 and March 12, 2001, respectively.
(7) Excludes 22,500, 51,429, 15,789, 27,586 and 22,222 shares of Common
Stock subject to presently exercisable options held by Mr. Schaefer at exercise
prices of $1.125, $1.75, $4.75, $3.625 and $4.50 per share, respectively. Of
these options, 73,929 expire on December 31, 1996, 15,789 expire on December
31, 1997, 27,586 expire on March 8, 2000 and 22,222 expire on March 12, 2001.
(8) The above-named director or member of management is a party to an
agreement providing such individual with a right of prior notice and first
refusal to purchase shares of Common Stock which any other party to the
agreement desires to sell. (See "Certain Transactions")
(9) Excludes 942,438 shares of Common Stock subject to presently
exercisable options and warrants held by certain directors and executive
officers of the Company at exercise prices ranging from $12.00 to $1.125 per
share. Excludes 150 shares owned by a relative of Mr. Albert Brower. Mr.
Brower disclaims beneficial ownership of such shares..
_______________________________
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the Company's building supply centers are leased from
corporations or partnerships wholly-owned by existing and former members of
management, major stockholders and their families, including Messrs. Brower,
Gaites, Guerin, Schaefer, Yanuklis, Young, Edward N. Zieky, Eliott Zieky and
Ms. Sue Strober, as follows: 550 Hamilton Avenue, Brooklyn, New York, (current
annual rental of $709,400); 370 West Merrick Road, Valley Stream, New York
(current annual rental of $262,000); 345 West Merrick Road, Valley Stream, New
York (current annual rental of $137,700); 102 North Route 9W, Congers, New York
(current annual rental of $260,900); 125 Temple Hill Road, Vails Gate, New York
(current annual rental of $69,500); Route 175 West, Hampton, New Jersey
(current annual rental of $328,700); 363, 367, 405 Ellington Road, East
Hartford, Connecticut (current annual rental of $350,400); and 580 Tolland
Street, East Hartford, Connecticut (current annual rental $138,200).
The Company believes that the leases with such affiliated parties, at the
time the leases were entered into, were on terms no less favorable to the
Company than it could have obtained in arms-length negotiations with unrelated
third parties for similar locations in similar geographic areas. It is
contemplated that all future locations of the Company will either be owned by
the Company or leased from unrelated third parties.
The Company, Sue Strober, certain current executive officers of the
Company and certain former executive officers and directors of the Company
(including the estate of Eric D. Strober) are parties to an agreement entered
into in 1986 and subsequently amended providing such parties with prior notice
and a right of first refusal to purchase shares of the Company's Common Stock
which any of the parties desires to sell.
During 1993, the Company refinanced its subordinated debt with the former
owners of The General Building Supply Company which the Company purchased in
1988. This debt had a maturity date of January 15, 1994 in the amount of
$3,500,000. On October 1, 1993, the subordinated noteholders exchanged
$3,500,000 of subordinated notes ("old notes") for new subordinated notes ("new
notes") in the like amount of $3,500,000. The "new notes" are due September 1,
1996 and were to be paid with 36 consecutive monthly payments of $97,222 plus
interest at 8% per annum. Also, on October 1, 1993, the accrued interest on
the "old notes" in the amount of $195,808 was paid and the noteholders
surrendered warrants to acquire 300,000 shares of common stock at an exercise
price of $2.00 per share.
At December 31, 1995 two of the noteholders, Eliott Zieky and Edward
Zieky, were employed by the Company as senior vice presidents. The amounts
owed to Eliott Zieky and Edward Zieky at December 31, 1995 were $81,083 and
$91,000, respectively. Edward Zieky's brother (who is also Eliott Zieky's
first cousin) is a building contractor who purchased $388,000 of building
supplies from the Company in 1995 on terms no less favorable to the Company
that it could obtain in arms-length negotiations with unrelated third parties.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a)(1)Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for Years Ended December 31,
1995,
1994 and 1993
Consolidated Statements of Stockholders' Equity for Years Ended
December 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for Years Ended December 31,
1995, 1994 and
1993
Notes to Consolidated Financial Statements
(2)Financial Statements Schedule required by Item 8 of this form is
filed as an exhibit to this form:
Schedule II Valuation and Qualifying Accounts
(3)Exhibits:
3(i) Restated and Amended Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3(i) to
Quarterly Report on Form 10-Q for the three months ended June
30, 1995.
3(ii) Restated and amended By-Laws of the Company incorporated by
reference to Exhibit 3(ii) to Quarterly Report on Form 10-Q
for the three months ended June 30, 1995.
4(a) Form of Common Stock Certificate incorporated by reference to
Exhibit 4(a) to Annual Report on Form 10-K for the year ended
December 31, 1986.
4(b) Amendatory Agreement dated December 14, 1990 as amended by
Amendment No. 1 dated as of October 1, 1993 together with
Amended and Restated Subordinated Note Due September 1, 1996
and form of Amendment to Employment Agreement incorporated by
reference to Exhibit 4(c) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
4(c) Reserved
4(d) Reserved
4(e) Form of Warrant Extension Amendment between Strober and David
W. Bernstein amending the Warrant Agreement between Strober
and David W. Bernstein dated November 6, 1988 incorporated by
reference to Exhibit 4(e) to Annual Report on Form 10-K for
the year ended December 31, 1991.
10(a) 1986 Non-Qualified Stock Option Plan incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 33-71968), filed
on November 16, 1993.
10(b) Form of Profit-Sharing Plans incorporated by reference to
Exhibit 10(b) to the Company's Registration Statement on Form
S-1 (Commission File No. 33-9348), filed on October 8, 1986
and Exhibit 10(b) to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Commission File No.
33-9348), filed on November 7, 1986.
10(c) Form of Target Benefit Plan incorporated by reference to
Exhibit 10(c) to the Company's Registration Statement on Form
S-1 (Commission File No. 33-9348), filed on October 8, 1986.
10(d) Restricted Stock Plan incorporated by reference to Exhibit
10(d) to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Commission File No. 33-0348), filed on
November 7, 1986.
10(e) Form of Lease between: (i) JNR Realty Company and Strober -
L.I. Bldg. - Supply Centers, Inc.; (ii) Strober Realty
Company and Strober Bros. Inc. Bldg. Supply Centers, Inc.;
(iii) SCONN Realty and Strober Connecticut Bldg. Supply
Centers, Inc.; and (iv) SY Realty Corp. and Strober - King
Bldg. Supply Centers, Inc. incorporated by reference to
Exhibit 10(f) to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Commission File No.
33-9348), filed on November 4, 1986 and Exhibit 10(f) to
Amendment No. 2 to the Company's Registration Statement on
Form S-1 (Commission File No. 33-9348), filed on November 7,
1986.
10(f) Form of Lease between: (i) General Realty Associates and
General Building Supply Company, (ii) P&Z Realty and General
Building Company; (iii) 3IS Associates and General Building
Supply Company; and (iv) Peter L. Churilo and General
Building Supply Company incorporated by reference to Exhibit
10(f) to Annual Report on Form 10-K for the year ended
December 31, 1987.
10(g) Form of Lease between: (i) SAY Realty Corp. and Strober-King
Bldg. Supply Centers, Inc.; (ii) P&Z Realty and General
Building Supply Company; and (iii) SG Realty Corp. and
Strober New Jersey Building Supply Center, Inc. incorporated
by reference to Exhibit 10(g) to Annual Report on Form 10-K
for the year ended December 31, 1988.
10(h) Form of Lease between Strober Bros. Inc. Building Supply
Centers and Elstro Company incorporated by reference to
Exhibit 10(h) to Annual Report on Form 10-K for the year
ended December 31, 1989.
10(i) Form of Agreement and Plan of Reorganization among the
Company and certain of its affiliates incorporated by
reference to Exhibit 2 to the Company's Registration
Statement on Form S-1 (Commission File No. 33-9348), filed on
October 8, 1986.
10(j) Amendment to Agreement and Plan of Reorganization dated
January 25, 1988 incorporated by reference to Exhibit 4(d) to
Current Report on Form 8-K filed by the Company to report an
event of January 25, 1988.
10(k) Purchasers' Purchase Agreement between the Company and
certain of its affiliates incorporated by reference to
Exhibit 4(e) to Current Report on Form 8-K filed by the
Company to report an event of January 25, 1988.
10(l) Amendment to Purchasers' Purchase Agreement dated January 25,
1988 incorporated by reference to Exhibit 4(v) to Current
Report on Form 8-K filed by the Company to report an event of
January 25, 1988.
10(m) Corporate Purchase Agreement dated November 7, 1986
incorporated by reference to Exhibit (g) to Current Report on
Form 8-K filed by the Company to report an event of January
25, 1988.
10(n) Metal and Roofing Contract between Strober-Price Building
Supply Corp. and Local 282 effective January 1, 1991
incorporated by reference to Exhibit 10(v) to Annual Report
on Form 10-K for the year ended December 31, 1990.
10(o) Lease dated June 14, 1991 between The Chapin Trust and
Strober Building Supply Center, Inc., incorporated by
reference to Exhibit 10(w) to Annual Report on Form 10-K for
the year ended December 31, 1991.
10(p) Agreements between The General Building Supply Company and
Grocery, Bakery, Construction Drivers and Helpers, Teamsters
Local Union 559, for the years 1995 through 1998 incorporated
by reference to Exhibit 10(p) to Annual Report on Form 10-K
for the year ended December 31, 1994.
10(q) Form of Senior Subordinated Note due September 1, 1996 and
form of Employment Agreement incorporated by reference to
Exhibit 10(q) to Annual Report on Form 10-K for the year
ended December 31, 1993.
10(r) Credit Agreement dated as of December 9, 1994 between and
among the Company, certain of its subsidiaries and The Chase
Manhattan Bank (National Association) incorporated by
reference to Exhibit 10(r) to Annual Report on Form 10-K for
the year ended December 31, 1994.
10(s) Contract between the Marda Group of Building Materials
Distributors, Inc. and International Brotherhood of
Teamsters, Chauffeurs, Warehousemen of Local 807 and Helpers
of America for the period ending December 3, 2000.
10(t) Form of The Strober Organization, Inc. Fiduciary
Reimbursement and Indemnification Agreement, incorporated by
reference to Exhibit 10(t) to Annual Report on Form 10-K for
the year ended December 31, 1992.
10(u) Addendum to Lease dated December 23, 1993 by and between The
Chapin Trust and Strober Building Supply Center, Inc.
incorporated by reference to Exhibit 10(u) to Annual Report
on Form 10-K for the year ended December 31, 1993.
10(v) Memorandum of Agreement by and between Local 282, IBT and
Strober Long Building Material Centers, Inc. incorporated by
reference to Exhibit 10(v) to Annual Report on Form 10-K for
the year ended December 31, 1993.
10(w) 1993 Outside Director Stock Option Plan incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 33-71766), filed
November 16, 1993.
10(x) Form of 1994 Non-Qualified Stock Option Agreement between the
Company and each of its outside directors incorporated by
reference to Exhibit 10(x) to Annual Report on Form 10-K for
the year ended December 31, 1993.
10(y) Lease effective May 1, 1995 by and among Carman Road Realty
Inc. and Broad Properties Inc. and Strober Long Island
Building Materials Centers, Inc. incorporated by reference to
Exhibit 10(y) to Annual Report on Form 10-K for the year
ended December 31, 1994.
10(z) Form of Master Capital Lease Agreement between the Company
and The Chase Equipment Leasing Inc. dated as of March 24,
1995 incorporated by reference to Exhibit 10(z) to Quarterly
Report on Form 10-Q for the three months ended March 31,
1995.
10(aa)1995 Outside Director Stock Option Plan incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Commission File No. 333-693), filed
February 5, 1996.
10(bb)Commercial Space Lease dated October 6, 1995 between Michael
Albarell and Strober Building Supply Center, Inc.
10(cc)Agreement dated May 15, 1995 between Carman Road Realty, Inc.
and Broad Properties, Inc. (as landlord) and Strober Long
Island Building Material Centers, Inc.
21 List of Subsidiaries of the Company incorporated by reference
to Exhibit 22(a) to Annual Report on Form 10-K for the year
ended December 31, 1994.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
During the three month period ended December 31, 1995, the Company did
not file any reports on Form 8-K with the Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE STROBER ORGANIZATION, INC.
By: /S/ ROBERT J. GAITES
Robert J. Gaites, Chief
Executive Officer and President
Dated: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/S/ ROBERT J. GAITES Chief Executive Officer, March 26, 1996
Robert J. Gaites President and Chairman
of the Board
/S/ DAVID J. POLISHOOK Principal Accounting and March 26, 1996
David J. Polishook Financial Officer, Secretary
and Treasurer
/S/ JOHN YANUKLIS Executive Vice President March 26, 1996
John Yanuklis and Director
/S/ ELIOTT S. ZIEKY Senior Vice President March 26, 1996
Eliott Zieky and Director
/S/ DAVID W. BERNSTEIN Director March 26, 1996
David W. Bernstein
/S/ JOSEPH MANGINO, SR. Director March 26, 1996
Joseph Mangino, Sr.
/S/ ALVIN MURSTEIN Director March 26, 1996
Alvin Murstein
/S/ EMIL W. SOLIMINE Director March 26, 1996
Emil W. Solimine
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Report ........................................F1
Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994......F2
Consolidated Statements of Operations for the years ended December
31, 1995, 1994 and 1993.........................................F3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993................................F4
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994 and 1993.........................................F5
Notes to Consolidated Financial Statements...........................F6
The following financial statement schedule of The Strober
Organization, Inc. and subsidiaries is included in Item 14(a)(2):
Schedule II - Valuation and Qualifying Accounts...................S1
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have not been included.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Strober Organization, Inc.:
We have audited the consolidated financial statements of The Strober
Organization, Inc. and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Strober Organization, Inc. and subsidiaries at December 31, 1995 and
1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Jericho, New York
March 1, 1996
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,007 3,890
Accounts receivable, net of allowance for doubtful accounts of
$2,321 and $2,320 in 1995 and 1994, respectively 15,907 16,651
Inventory 10,305 10,741
Deferred income taxes 921 926
Other current assets 347 350
Total current assets 33,487 32,558
Property and equipment, net 3,627 2,518
Goodwill, net of accumulated amortization of $1,661 and $1,451
in 1995 and 1994, respectively 6,726 6,936
Other assets 704 637
Total assets $ 44,544 42,649
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt 908 1,233
Accounts payable 4,738 5,056
Income taxes payable 791 834
Accrued salaries and bonuses 1,345 1,342
Accrued taxes, other than income taxes 362 615
Accrued interest 205 192
Other accrued liabilities 1,447 1,442
Total current liabilities 9,796 10,714
Long-term debt, less current installments 1,224 1,171
Deferred income taxes - 77
Total liabilities 11,020 11,962
Stockholders' equity:
Preferred stock, $.01 par value, 1,000 shares authorized
and unissued - -
Common stock, $.01 par value, 20,000 shares authorized; issued:
5,178 shares in 1995 and 5,167 shares in 1994; outstanding:
4,987 shares in 1995 and 5,055 shares in 1994 52 52
Additional paid-in capital 7,029 7,013
Retained earnings 27,189 24,107
Less: Treasury stock, at cost, 191 shares in 1995 and 112 shares
in 1994 (746) (485)
Total stockholders' equity 33,524 30,687
Commitments and contingencies
Total liabilities and stockholders' equity $ 44,544 42,649
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
(In thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C>
Net sales $ 125,813 125,378 118,975
Cost of goods sold 92,627 92,708 87,272
Gross profit 33,186 32,670 31,703
Selling, general and administrative expenses 27,858 28,395 28,090
Amortization of goodwill and non-competition
agreement 210 210 268
Income from operations 5,118 4,065 3,345
Other income (expense):
Interest expense (228) (667) (880)
Interest income 480 422 353
Other (22) (87) (260)
Income before income taxes 5,348 3,733 2,558
Provision for income taxes 2,266 1,157 908
Net income $ 3,082 2,576 1,650
Net income per common share $ .59 .50 .33
Weighted average number of shares outstanding 5,247 5,165 5,031
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK
Number Additional
of paid-in Retained Treasury
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 5,021 $ 50 6,580 19,881 - 26,511
Net income - - - 1,650 - 1,650
Exercise of stock options 139 2 406 - - 408
Balance at December 31,
1993 5,160 52 6,986 21,531 - 28,569
Net income - - - 2,576 - 2,576
Exercise of stock options 7 - 27 - - 27
Purchase of treasury stock - - - - (485) (485)
Balance at December 31,
1994 5,167 52 7,013 24,107 (485) 30,687
Net income - - - 3,082 - 3,082
Exercise of stock options 11 - 16 - - 16
Purchase of treasury stock - - - - (261) (261)
Balance at December 31,
1995 5,178 $ 52 7,029 27,189 (746) 33,524
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,082 2,576 1,650
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,129 1,226 1,159
Provision for estimated losses on accounts receivable 566 968 1,548
Amortization of goodwill and non-competition
agreement 210 210 268
Benefit for deferred income taxes (72) (423) (478)
Changes in operating assets and liabilities:
Accounts receivable 178 (296) (2,442)
Inventory 436 (574) (740)
Other assets (84) 454 (51)
Accounts payable (318) (394) 758
Income taxes payable (43) (838) 1,222
Accrued expenses (232) (250) 1,795
Net cash provided by operating activities 4,852 2,659 4,689
Cash flows from investing activities:
Additions to property and equipment, net (576) (424) (287)
Cash flows from financing activities:
Repayment of long-term debt (1,914) (1,969) (4,500)
Proceeds from long-term debt - - 92
Proceeds from exercise of stock options 16 27 408
Change in restricted cash - 1,000 -
Payment for treasury stock (261) (485) -
Net cash used for financing activities (2,159) (1,427) (4,000)
Net increase in cash 2,117 808 402
Cash at beginning of year 3,890 3,082 2,680
Cash at end of year 6,007 3,890 3,082
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Strober Organization, Inc. and its subsidiaries (the Company) supply
building materials to professional building contractors from eleven
building supply centers in New York, New Jersey, Connecticut and
Pennsylvania.
The Company currently has over 3,000 active customers, with no single
customer accounting for more than 2% of the Company's total sales during
1995. The Company sells a broad selection of building materials
including lumber and plywood, gypsum wallboard and other drywall
products, millwork, roofing, acoustical materials, siding products,
insulation materials, metal specialties, hardware and tools. The sales
of lumber, gypsum wallboard and millwork collectively accounted for an
estimated 73%, 73% and 74% of the Company's total sales in 1995, 1994 and
1993, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Strober
Organization, Inc. and its wholly-owned subsidiaries. Significant
intercompany balances and transactions have been eliminated.
INVENTORIES
Inventories consist of finished goods held for resale and are stated at the
lower of cost or market, utilizing the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation and amortization utilizing the straight-line method by
charges to operations over the estimated useful lives or, with respect
to leasehold improvements, the shorter of the useful life or remaining
lease term. The established useful lives are seven to ten years for
delivery equipment, machinery, furniture and fixtures and two to ten
years for leasehold improvements.
GOODWILL AND DEFERRED COSTS
Goodwill and deferred costs resulted from the Company's acquisition of The
General Building Supply Company in 1988. Of the total purchase price,
$3.5 million was allocated to a non-competition provision with certain
present and former officers of General, which was amortized on a
straight-line basis over the five year period ending in January 1993.
Approximately $8.4 million of excess of acquisition costs over fair
value of the net assets acquired (goodwill) is being amortized on a
straight-line basis over forty years. The Company continually evaluates
the recoverability of this intangible asset by assessing whether the
amortization of the goodwill balance over its remaining life can be
recovered through expected undiscounted future operating cash flows.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period
plus (in periods in which they have a dilutive effect) the effect of
common shares contingently issuable from stock options and warrants.
STATEMENT OF CASH FLOWS
The Company considers all short-term investments with a maturity at date of
purchase of three months or less to be cash equivalents. Cash
equivalents are $4,827,000 at December 31, 1995. There were no cash
equivalents at December 31, 1994.
Amounts paid for interest and income taxes for the years ended December 31,
1995, 1994 and 1993 (in thousands):
1995 1994 1993
Interest $ 172 524 859
Income taxes $2,256 2,418 165
In 1995, the Company acquired $1,642,000 of equipment financed by capital
leases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure 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.
The Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers, as well as general economic conditions.
Consequently, an adverse change in these factors could effect the
Company's estimate of these bad debts. The Company as a policy, does not
require collateral from its customers.
(2)PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated depreciation and amortization,
consists of the following (in thousands):
1995 1994
Delivery equipment $ 6,367 5,852
Machinery and equipment 1,706 2,054
Furniture and fixtures 2,388 2,504
Leasehold improvements 2,215 2,553
12,676 12,963
Accumulated depreciation
and amortization 9,049 10,445
$ 3,627 2,518
(3)FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is defined as the amount at which
the instrument could be exchanged in a current transaction between
willing parties. The carrying amounts of the Company's financial
instruments approximate fair value at December 31, 1995 and 1994.
(4)LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following (in
thousands):
1995 1994
Revolving credit facilities (a) $ - -
Subordinated note payable (b) 583 2,042
Installment notes payable, due monthly through
1995 with interest rates principally at the
prime rate plus 1/2%, secured by certain
equipment (c) - 11
Capital lease obligations (d) 1,493 -
Other 56 351
2,132 2,404
Less current installments 908 1,233
$1,224 1,171
(a)In December 1994, the Company entered into a $10,000,000 revolving
working capital agreement. The term of the agreement is two years
expiring January 31, 1997 and may be extended at the option of the
Company for an additional one year period. As collateral for the
agreement, the Company pledged its accounts receivable and the
available advance is based on 75% of eligible accounts receivable,
as defined. The credit facility bears interest at 1/2 of 1% over
the bank's prime rate or, at the option of the Company, at various
fixed interest rates. The credit agreement contains various
covenants including the maintenance of debt coverage and leverage
ratios. There was no outstanding balance under the credit facility
at December 31, 1995 and 1994.
(b)The subordinated note payable was issued pursuant to the acquisition of
The General Building Supply Company in January 1988 and was due on
January 15, 1994. The note bore interest at 10% per annum with 8%
payable monthly and 2% added to the notes. At the noteholders option,
the accrued interest of 2% could have been used to purchase a warrant
to acquire 300,000 shares of common stock at an exercise price of $2.00
per share. The warrants expired in December 1995 without being
exercised.
In October 1993, the Company and noteholders renegotiated the terms of
the subordinated notes payable. The new notes bear interest at 8% per
annum to be paid in 36 consecutive payments of $97,222 plus interest
through September 1996. In addition, the accrued interest on the notes
in the amount of $196,000 was paid in 1994 as the noteholders elected
not to purchase the warrant.
At December 31, 1995, two of the noteholders are employed by the Company
as senior vice presidents. The amounts owed to these individuals at
December 31, 1995 totaled $172,083 and at December 31, 1994 totaled
$602,292.
(c)The installment notes payable were funded pursuant to a secured equipment
line of credit. Under this line, the Company was able to borrow at a
floating rate of prime rate plus 1/2%. The notes are repaid in equal
monthly principal payments over 36 to 48 month periods depending on the
amount of the loan.
(d)In March 1995, the Company entered into a master lease agreement with
Chase Equipment Leasing Inc. to lease certain equipment which provides
for a monthly rental payment adjusted upon changes in the one month
London Interbank Offered Rate. The current noncancellable lease term
is 60 months. The minimum annual payments for the capital lease
obligations are as follows:
Year ended December 31:
1996 $ 384,000
1997 384,000
1998 384,000
1999 384,000
2000 217,000
Total minimum lease payments 1,753,000
Less amounts representing
interest (at rates varying
from 7.4% to 7.6%) 260,000
Present value of net minimum
lease obligations $1,493,000
(e)The aggregate annual maturities of long-term debt (excluding capital
lease obligations) are approximately as follows: 1996, $624,000; 1997,
$15,000; and none thereafter.
(5)INCOME TAXES
The components of the income tax expense (benefit) are as follows (in
thousands):
1995 1994 1993
Current:
Federal $1,849 1,356 1,139
State and local 489 224 248
Total current 2,338 1,580 1,387
Deferred:
Federal (103) 68 (246)
State and local 23 153 166
Total deferred (80) 221 (80)
Change in valuation
allowance 8 (644) (399)
$ 2,266 1,157 908
The income tax expense differs from the amount that would result by applying
the applicable Federal statutory rate of 34% to income before income
taxes due to the following (in thousands):
1995 1994 1993
Provision at the statutory
rate $1,818 1,269 870
Increases (decreases):
State and local income
taxes, net of Federal
benefit 338 323 273
Nondeductible goodwill 71 71 71
Disallowance of partnership
losses - - 220
Discharge of White Rim
note payable not taxable - - (153)
Change in valuation allowance 8 (644) (399)
Other, net 31 138 26
$ 2,266 1,157 908
During 1993, the Company recorded a provision for interest expense related
to a proposed disallowance by the Internal Revenue Service of partnership
losses deducted by the Company on its 1980 and 1981 Federal, New York
State and New York City income tax returns. These partnership losses
resulted from the Company's investment in limited partnership interests
in White Rim Oil & Gas Associates 1980-II (White Rim). A class action
lawsuit brought by White Rim's limited partners (and which the Company
was a party to) against the general partner has been settled with the
discharge of the liability of the limited partners for the balance of
their unpaid investment in the partnership as represented by the notes
payable. The interest expense provision of $710,000 has been offset by
the discharge of the Company's note payable to White Rim in the amount of
$450,000, resulting in a net expense of $260,000 which is reflected as
other expense in the accompanying consolidated statement of operations
for the year ended December 31, 1993.
The additional Federal, State and City income taxes due as the result of
the disallowances of approximately $220,000 is included in income tax
expense for the year ended December 31, 1993.
The tax effect of temporary differences that give rise to significant
portions of the net deferred tax asset at December 31, 1995 and 1994 (in
thousands):
1995 1994
Deferred tax asset:
Accounts receivable $ 960 987
Inventory 53 52
Accrued expenses 176 295
Depreciation 140 -
State net operating loss carryforwards,
net of Federal benefit 705 697
Total gross deferred tax asset2,0342,031
Valuation allowance (1,113) (1,105)
Total deferred tax asset 921 926
Deferred tax liability:
Fixed assets - (77)
Net deferred tax asset $ 921 849
The net increase in the valuation allowance for the year ended December 31,
1995 was $8,000 which was attributable to the creation, utilization and
expiration of state income tax carryforwards. The net decreases in the
valuation allowance for the years ended December 31, 1994 and 1993 were
$644,000 and $399,000, respectively, which were attributable to the
utilization of the Federal alternative minimum tax carryforwards and
state income tax carryforwards. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
those temporary differences become deductible. Management considered
the scheduled reversal of deferred tax liabilities and tax planning
strategies in making this assessment. Based upon the ability to
carryback deductible amounts that are scheduled to reverse in the next
three years, management believes it is more likely than not the Company
will realize the benefits of these deductible differences, net of the
existing valuation allowance at December 31, 1995.
(6)STOCK OPTION PLANS
The Company has a non-qualified stock option plan which provides for
granting of options to executive officers, key employees and other
persons whose efforts are expected to be of substantial benefit to the
Company. Options are granted at an exercise price equal to the market
value of the common stock at the date of grant. The options become
exercisable on the date of grant, and must be exercised within three to
five years of the grant date. The Company amended the number of shares
available under this plan from 600,000 to 800,000 shares in 1994.
In March 1993, the Company established a stock option plan for its outside
directors pursuant to which each existing director as of March 1993 and
all new outside directors upon their election to the Board shall be
granted an option for 10,000 shares of the Company's common stock.
During 1993, the Company issued 40,000 options of the 60,000 options
available under the Plan. During 1994, the Company amended the number of
options available under the Plan from 60,000 to 110,000 and granted an
additional 12,500 options to each of the Company's four outside
directors. The options are granted at an exercise price equal to the
closing market price on the date of grant, vest immediately and expire
within three years of the date of grant.
On March 8, 1995, the Company established an additional stock option plan
for its outside directors pursuant to which each outside director was
granted an option for 18,750 shares of the Company's common stock. The
options are granted at an exercise price equal to the closing market
price on the date of grant, vest immediately and expire within five years
of the date of grant.
Changes in options outstanding for the three years ended December 31, 1995
are as follows:
Number Price
OF SHARES PER SHARE
Balance - December 31, 1992 222,832 1.13 - 3.38
Options granted 173,929 1.75
Options exercised (139,092) 1.13 - 3.00
Options terminated (26,523) 3.00
Balance - December 31, 1993 231,146 1.13 - 3.38
Options granted 165,730 4.75
Options exercised (7,704) 3.38
Options terminated (5,926) 3.38
Balance - December 31, 1994 383,246 1.13-4.75
Options granted 258,542 3.63
Options exercised (10,766) 1.13-1.75
Options terminated - -
Balance - December 31, 1995 631,022 1.13-4.75
In October 1995, the Financial Accounting Standards Board issued Statement
No.123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which must be adopted
by the Company in 1996. The Company has elected not to implement the
fair value based accounting method for employee stock options, but has
elected to disclose, commencing in 1996, the pro forma net income and
earnings per share as if such method had been used to account for stock-
based compensation cost as described in the Statement.
(7)STOCKHOLDERS' EQUITY
In connection with the Company's initial public offering of its common
stock on November 7, 1986, the Company sold a warrant to a director
exercisable into 100,000 common shares at $12.00 per share.
In exchange for the director agreeing to provide advisory services for a
period of five years, the director's warrant was extended to November
1996. No expense was recorded since the exercise prices of the warrant
was above the market price of the Company's common stock ($1.00 per
share) on the date of the extension.
In December 1990, a major shareholder made a cash contribution of
$2,200,000 to the Company. In exchange, the Company issued the
shareholder a warrant to purchase 300,000 shares of common stock through
December 14, 1995 at an exercise price of $3.25 per share. The Company
valued the warrant at $300,000 and the balance of the payment received
was reflected as an additional capital contribution. The warrants
expired in December 1995 without being exercised.
In November 1990, the Company received insurance proceeds from policies on
the life of the Company's late chairman, Mr. Eric D. Strober. The
Company was obligated under a stock repurchase agreement to use
$8,448,000 of the proceeds to purchase the Company's common stock from
Mr. Strober's estate. In accordance with the agreement, the Company
withheld $845,000 to pay the estimated Federal alternative minimum tax
related to the insurance proceeds. To the extent the actual alternative
minimum tax paid on the Company's 1990 Federal tax return was less than
the $845,000 withheld and to the extent the alternative minimum tax is
used in subsequent years to reduce current Federal taxes payable, the
Company was required to offer to purchase additional shares from Mr.
Strober's estate at the then market price.
The alternative minimum tax paid on the Company's 1990 Federal tax return
attributable to the life insurance proceeds was $117,000 less than the
$845,000 withheld and the Company utilized alternative minimum tax
carryforwards of $241,000 and $485,000 in 1995 and 1993, respectively.
The Company purchased from Mr. Strober's estate 55,667 shares at $2.098
per share in June 1991, 111,789 shares at $4.33 per share in December
1994 and 63,812 shares at $3.78 per share in October 1995, which
represented the market prices of the Company's common stock when the
alternative minimum tax amounts were calculated. As the alternative
minimum tax carryover was fully exhausted during 1994, no further shares
are eligible for redemption by Mr. Strober's estate.
(8)EMPLOYEE BENEFIT PLANS
The Company has adopted a discretionary defined contribution plan for all
employees who have completed one year of service, attained age 21, and
are not a party to a collective bargaining agreement in which such
benefits are provided. The amount of the annual plan contribution is at
the sole discretion of the Board of Directors. A contribution of
$275,000, $250,000 and $175,000 was made for the years ended December
31, 1995, 1994 and 1993, respectively.
Contributions to union sponsored, multiemployer pension plans were
approximately $193,000, $186,000 and $177,000, for the years ended
December 31, 1995, 1994 and 1993, respectively. These plans are not
administered by the Company and contributions are determined in
accordance with the provisions of negotiated labor contracts. In 1994,
the Company elected to withdraw from one of the three union plans to
which it contributes, effective July 1995. The Company will be required
to contribute a withdrawal assessment of approximately $262,000 which
has been included in other accrued liabilities at December 31, 1995.
The employees covered under this plan participate in a separate Company
sponsored defined contribution plan which was established on July 1,
1995. The Company has no present intention of withdrawing from the
remaining two plans and management believes that should the Company
elect to withdraw from these plans, any withdrawal liability would not
be material to the consolidated financial position or operations of the
Company.
(9)QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth unaudited quarterly financial information for
1995 and 1994:
First Second Third Fourth
QUARTER QUARTER QUARTER QUARTER
(in thousands, except per share amounts)
1995:
Revenues $28,167 34,035 33,864 29,747
Gross profit 7,390 8,810 9,043 7,943
Net income 239 988 1,134 721
Net income per
common share .05 .19 .21 .14
1994:
Revenues $20,455 34,709 36,368 33,846
Gross profit 5,679 8,706 9,517 8,768
Net income (loss) (632) 958 1,314 936
Net income (loss)
per common share (.12) .19 .25 .18
(10)COMMITMENTS AND CONTINGENCIES
The Company has non-cancelable leases for various facilities and equipment
under operating leases. Rental expense was approximately $2.9 million,
$3.0 million and $2.8 million for the years ended December 31, 1995, 1994
and 1993, respectively. Future minimum annual rental payments for the
next five years under these leases as of December 31, 1995 are
approximately $3.1 million for 1996; $2.0 million for 1997; $1.1 million
for 1998; $.4 million for 1999 and $.1 million for 2000.
The Company's building supply centers in Brooklyn, Valley Stream, Congers,
Vails Gate, Hampton and East Hartford are leased from corporations and
partnerships that are controlled by current and past members of
management and/or their families. The terms of the leases with such
affiliated parties, at the time the leases were entered into, were
believed to be no less favorable to the Company than it could have
obtained in arm's-length negotiations with unrelated parties. The
aggregate annual rental on such properties was approximately $2.2 million
in 1995, $2.3 million in 1994 and $2.1 million in 1993.
The Internal Revenue Service is conducting examinations of the Company's
Federal income tax returns for the years 1989 through 1992. Management
believes that the ultimate resolution of these examinations will not
result in a material adverse impact on the Company's consolidated
financial position or operations.
During 1991, the prior owner of property previously leased by the Company
advised the Company that he would be seeking contribution for unspecified
costs and expenses incurred in connection with the remediation of two
leaking underground storage tanks located on the property. In May 1993,
the New Jersey Department of Environmental Protection (DEP) advised the
Company that it was jointly and severally liable, along with the prior
owner, for compliance with the New Jersey regulations governing
underground storage tanks and demanded the submission of a remedial
action workplan. To date, submissions of the workplan and any follow-up
letters have been supplied by the prior owner. The DEP has not required
separate submissions from the Company. In 1994, the prior owner filed a
complaint against the Company which seeks recovery of cleanup costs and
other damages which, at December 31, 1995, range between $300,000 and
$400,000. The Company has notified its insurers of the complaint and
they have agreed to defend the Company but reserve their right to not
indemnify the Company for any losses. The Company continues to deny any
liability and will vigorously oppose the claim. Management does not
believe the ultimate outcome of this matter will have a material adverse
effect on its consolidated financial position or operations.
The Company is a defendant in litigation arising from the normal conduct of
its affairs. Management is of the opinion that any litigation in which
the Company is a defendant is covered by its liability insurance.
<PAGE>
SCHEDULE II
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col.A Col.B Col.C Col.D Col.E
Balance at Charged to Balance at
Beginning Costs and end of
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS (1)PERIOD
<S> <C> <C> <C>
Year ended December 31, 1993:
Allowance for doubtful accounts
(deducted from accounts receivable) $1,220,000 1,548,000 732,000 2,036,000
Year ended December 31, 1994:
Allowance for doubtful accounts
(deducted from accounts receivable) $2,036,000 968,000 684,000 2,320,000
Year ended December 31, 1995:
Allowance for doubtful accounts
(deducted from accounts receivable) $2,320,000 566,000 565,000 2,321,000
(1)Deductions relate to uncollectible accounts charged off to the allowance for
doubtful accounts, net of recoveries.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION SEQUENTIALLY
NUMBER NUMBERED PAGE
<S> <C> <C>
10(s) Contract between the Marda Group of
Building Materials Distributors, Inc. and
International Brotherhood of Teamsters,
Chauffeurs, Warehousemen of Local 807 and
Helpers of America for the period ending
December 3, 2000.
10(bb) Commercial Space Lease dated October 6,
1995 between Michael Albarell and Strober
Building Supply Center, Inc.
10(cc) Agreement dated May 15, 1995 between
Carman Road Realty, Inc. and Broad
Properties, Inc. (as landlord) and Strober
Long Island Building Material Centers,
Inc.
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10(S)
Contract between the Marda Group of Building Materials Distributors, Inc.
and International Brotherhood of Teamsters, Chauffeurs,
Warehousemen of Local 807 and Helpers of America
for the period ending December 3, 2000.
<PAGE>
1995-2000
MARDA
GROUP CONTRACT
TRUCK DRIVERS LOCAL UNION
NO. 807
Affiliated with the
INTERNATIONAL BROTHERHOOD OF
TEAMSTERS, CHAUFFEURS, WAREHOUSEMEN
AND HELPERS OF AMERICA
32-43 49TH STREET
LONG ISLAND CITY, NY 11103
TELEPHONE (718) 726-2525
<PAGE>
SECTION 1. UNION SECURITY
(a)Recognition of the Union (Local 807 International Brotherhood of
Teamsters) and the Union Shop Provisions:
In order to carry out the purpose of this agreement all employees shall
be required, as a condition of employment, to be members of the Union, thirty
(30) working days after the beginning of their employment of thirty (30)
working days after the signing of this agreement, whichever is latest.
(b)The Superintendent or man in charge shall, immediately notify the Union
in writing, of the employment of any man who, under this agreement, is required
to be a member of the Union. Upon notice from the Union that any employee who
has been working for more than thirty (30) working days has failed to tender
the periodic dues and initiation fee uniformly required as a condition of
acquiring and retaining membership, the Employer agrees to discharge such
employee within seven (7) days after the receipt of written notice from a
properly authorized official of the Union.
(c)DUES CHECK-OFF. The Employer agrees to accept all appropriate
authorizations from bargaining unit employees with respect to payroll
deductions for Union dues and initiation fees and, following receipt of said
authorization(s), to deduct such dues and initiation fees for all periods of
employment following the 31st day of employment.
SECTION 2. DURATION OF AGREEMENT
This contract shall be operative commencing with the 4th day of December
1995, and shall terminate and expire five (5) years later, on the 3rd day of
December, 2000.
SECTION 3. WORK DAY & WORK WEEK
(a)The regular day's work may commence any time between 5:00 A.M. and 8:00
A.M. All work done before 5:00 A.M. shall be considered overtime. Eight (8)
hours shall constitute a minimum day's work from Monday to Friday inclusive.
All work in excess of eight (8) hours per day shall constitute overtime. The
overtime rate shall be one and one-half (1 1/2) times the straight time rate.
Overtime cannot be refused. The Employer shall give reasonable notice of
overtime where possible.
(b) One (1) hour shall be allowed for lunch
between the hours of 11:30 A.M. and 1:30 P.M.
(c)Where an employee reports for work after the scheduled starting time,
special consideration shall be given to delays caused by emergency conditions
or Acts of God.
(d)Any work done on Saturday shall be considered overtime and paid for at
the rate of time and one-half with a minimum of five (5) hours twenty (20)
minutes work guaranteed.
(e)Any work done on Sunday shall be paid for at two and one-half (2 1/2)
times the straight time rate.
(f)Any work performed on a Saturday holiday will be paid for at three (3)
times straight time plus holiday pay.
SECTION 4. SECOND AND OFF-SHIFT WORK
(a)SECOND SHIFT. In the event any Employer shall provide for and maintain a
second shift of work, which shall be defined as a full shift of work commencing
after 4:00 P.M., the employees engaged in such second-shift work shall receive
their regular rate of compensation provided for in the agreement, plus a second
shift differential of thirty (30) cents per hour.
(b)OFF SHIFT. Any shop may start an "off-shift", commencing at 11:00 A.M.,
pursuant to the following terms and conditions:
i.Seniority shall prevail in the staffing of such a shift.
ii.The shift must be for a minimum of five (5) days.
iii.The persons employed on the shift on Monday remains on the shift for
the entire week.
iv.Employees on such off-shift shall receive a thirty (30) cent per hour
differential.
v.Any shop working a second shift may not work on off-shift.
SECTION 5. TRIAL PERIOD
When an Employer hires additional or replacement employees their trial
period shall be three (3) months.
SECTION 6. REPORTING LATE FOR WORK
Each company shall provide a telephone answering device or service that
employees may access during hours where the place of business is closed.
Where an employee will report to work more than 1/2 hour after the scheduled
starting time, the employee must call said answering device or service in
advance to notify the company of such lateness, except in the case of an Act of
God or a provable extreme emergency.
If the employee fails to do so, the employer shall have the option to send
such employee home when he reports to work.
If the company fails to use the answering device or service and no
Supervisor is present to receive such call, this paragraph shall not be
effective.
SECTION 7. SENIORITY
(a)Seniority shall prevail in that the Employers and employees recognize the
general principle that senior employees shall have preference to work at the
job for which is highest, so long as they are qualified and, where there is
more than one (1) shift, to choose their shift. Seniority does not give an
employee the right to choose a specific unit, run, trip or load.
(b)The job must be manned at all times in that the qualified man or men with
the least seniority must perform the work.
(c)With respect to overtime, seniority shall prevail only as to starting
time (except as set forth in (h) below).
(d) An employee must work thirty (30) days within a sixty (60) calendar
day period before he can be placed on the seniority list.
(e)Seniority shall not apply to employees hired as summer help (employed
between May 1st and July 1st, and terminated prior to October 1st).
(f)Seniority shall be lost by:
(1)Unauthorized leave of absence.
(2)Unauthorized failure to report for work for five (5) consecutive days
when work is available.
(3)Employees who are absent because of a proven illness or injury shall
retain their seniority.
(g)When it becomes necessary to reduce the working force, the last man on
the seniority list shall be laid off first; when the force is again increased,
the man last laid off shall be first to return to work.
(h) Seniority shall not prevail:
(1)With respect to starting time, when warehousemen may be called in
first to load or unload trucks.
(2)With respect to days where there are no deliveries scheduled due to
weather conditions or other unusual circumstances, when warehousemen may be
called in to perform warehouse work only.
(i)Senior warehousemen and drivers shall be asked first to perform any work.
In the event senior men are unable to perform the work, the junior man or men
must then perform the work. The job must be manned.
(j)Drivers who have seniority and become unable to perform work as a
chauffeur shall be given warehouse work, and shall receive warehousemen's pay,
but shall retain payroll seniority.
(k)A driver who has his license revoked cannot "bump" a warehouseman unless
he is qualified to do warehouse work.
SECTION 8. SHOP STEWARD
(a)The Union shall appoint one of its members to act as Shop Steward. It
shall be his duty to see that the conditions of this agreement are not broken
by either the Employer or employees, and under no circumstances shall he be
discriminated against, nor shall he be permitted to stop the job without the
Union's consent.
(b)The Shop Steward shall be granted superseniority for all purposes
including layoffs, rehire & job preferences providing he is capable of doing
such work. The Union reserves the right to replace the Shop Steward at any
time for the good of the Union. The Shop Steward is recognized by the Employer
to have no right to as authorized by the Union.
(c)Shop Stewards shall be permitted reasonable time to investigate present
and process grievances on the employers property without loss of pay during
regular working hours.
Such time spent in handling grievances during the Steward's regular working
hours shall be considered working hours in computing daily and/or weekly
overtime if within the regular scheduled of the Steward.
(d)No Shop Steward shall be discharged without a Business Agent or his
designee being present - as long as such person is present - as long as such
person is present by the end of the workday or prior to the start of the next
business day. The employer shall have the right to suspend such Steward
without pay until such meeting.
SECTION 9. WAGES
(a)SCHEDULE OF WAGES
<TABLE>
<CAPTION>
12/1/95 12/1/96 12/1/97 12/1/98 12/1/99
<S> <C> <C> <C> <C> <C>
JOURNEYMEN $13.83 $14.33 $14.83 $15.33 $16.08
Drivers,
Warehousemen,
Hi-Lo
Operators
and Mixes
INEXPERIENCED $11.33 $11.83 $12.33 $12.83 $13.58
Straight
Truck Drivers,
Warehousemen,
Hi-Lo Operators
and Mixes
</TABLE>
(b) SPECIAL SKILLS - WAGE RATES
i.Drivers employed on tractor trailers and third axle vehicles shall
receive an additional twenty-five (25) cents per hour above the wages paid to
an experienced driver, and operators of high-lift booms going over two (2)
stories up shall receive an additional thirty-five (35) cents per hour with not
less than eight (8) hours pay at the rate on any day on which they operate such
vehicles.
ii."Crane Operator" shall receive the same rate of wages as straight
truck driver. This applies only to crane on an automotive truck. Does not
apply to overhead cranes in warehouse.
iii.Any man who performs more than two (2) hours of overtime work shall
be entitled to a twenty (20) minute meal period after the tenth hour of work.
iv.Drivers on overnight trips shall be reimbursed for all reasonable
expenses including supper and breakfast.
(c)NEW EMPLOYEES. Any new employee who does not have immediate prior
experience in the job of warehousing and distributing building materials in
Greater New York Metropolitan area shall be paid a starting wage of $2.50 per
hour below journeyman rate and shall, starting December 4, 1995, receive fifty
(50) cents increases for each four (4) months work completed, until such time
as he reaches driver's pay.
An employee who regularly operates a "boom" shall be considered an
experienced employee.
SECTION 10. PAID HOLIDAYS
(a)New Year's Day, Lincoln's Birthday*, Washington's Birthday*, Memorial
Day, July 4th, Labor Day, Thanksgiving Day, Day after Thanksgiving, Christmas
Day, and, at the election of the employee either Yom Kippur or Good Friday.
(b)An Employer, with the consent of a majority of his employees, may change
any holiday set forth above for any other holiday.
(c)If men have worked on any of the days listed as holidays, they shall be
paid twenty (20) hours pay for minimum of eight (8) hours work. If men have to
work on any of the starred holidays, they shall be paid sixteen (16) hours pay
for minimum of eight (8) hours work. Overtime work on a holiday shall be paid
for at three (3) times straight time pay.
(d)If a holiday falls on a day which would otherwise be a pay day, the
Employer shall pay wages to employees the day before the holiday.
(e)Any employee covered by this agreement shall work the entire day before
and the entire day after the holiday receive the holiday pay, unless that
employee was suffering from a bonafide illness, supported by a doctor's note or
a compensatory injury.
(i)Any man who is unable to work the day before and the day after the
holiday because his Employer has shut down his plant or warehouse for less than
a full week, shall, nevertheless receive the holiday pay.
(ii) Any man who fails to work the entire day before and the entire day
after the holiday because he has been suffering a bonafide illness or workmen's
compensation injury which keeps him out of work for five (5) consecutive work
days (excluding holidays) shall nevertheless receive the holiday pay.
(iii) Any man who suffers a bonafide illness or Workmen's Compensation
injury which keeps him out of work for more than thirty (30) consecutive days
shall receive payment for all holidays falling within the first thirty (30)
days of that continuing illness or injury.
(f)When a shop is open on a starred holiday, the job must be adequately
manned. Any employee who because of the seniority status is asked to work the
job, and refuses, or any employee who agrees to work the day and fails to show
up for work shall forfeit the holiday pay unless such failure is the result of
a compensatory injury or a bonafide illness supported by a doctor's note.
SECTION 11. PAID VACATIONS
(a)Computation. All vacation time shall be computed from the anniversary
date of the contract.
(1)Vacation benefits for any contract year (December 1 - November 30)
shall be based upon days worked during the prior contract year. An employee
shall be deemed to have worked the entire contract year once he completes 170
days of actual work.
An employee who worked less than 170 days during the prior contract year shall
receive a pro rata benefit pursuant to the following formula:
# days worked
______________ X full vacation benefit = pro rata vacation
170
(b)Vacation Schedule. The Employer shall, during the current contract year,
grant annual vacations with pay as follows:
1) Each newly hired man will receive one (1) week of vacation after one (1)
year of service.
2) Each employee with two (2) years or more of service, but less than five
(5) years of service with his Employer, shall receive two (2) weeks of
vacation.
3) Each employee with five (5) years or more of service, but less than
fifteen (15) years of service with his Employer, shall receive a third week of
vacation. The third week shall be taken during the winter months only.
4) Each employee with fifteen (15) years or more of service with his
Employer shall receive four (4) weeks of vacation, two (2) weeks of which shall
be taken in the following summer months.
5) "Summer vacation" shall commence June 21st and terminate September 21st.
"Winter vacation" shall commence December 15th and terminate February 28th.
6) With respect to any employee who is entitled to receive either three (3)
or four (4) weeks of vacation, the Employer shall have the option to schedule
one (1) week between Christmas and New Year's Day.
7) The Employer and employee, with the consent of the Union, may provide for
an alternate vacation date.
8) No more than the per cent (10%) of the working force, or one (1)
man, whichever is grater, shall be permitted to take a vacation at any time.
9) Pay for unused vacation shall be given within ten (10) days of the end of
the contract year.
10)If a paid holiday occurs during the week of vacation of any employee, he
shall receive either an additional eight (8) hours of pay or an additional day
off, with pay.
11)An employee must have received pay for 270 days during the preceding
contract year to earn his full vacation. Employees receiving pay for less than
170 days shall be entitled to pro-rated vacation, which shall be determined by
dividing the number of days paid for by 170 and multiplying the resulting
fraction by the number of days of vacation he would be entitled to had he
worked 170 days.
12)Any employee on the Seniority List whose employment is terminated for any
reason shall receive vacation pay pursuant to the provisions of this section.
13)Vacation pay shall be at the prevailing rate.
(c)Example of Holiday Pay Computation:
START WORK 6/1/95
<TABLE>
<CAPTION>
12/1/95 12/1/96 12/1/97
<S> <C> <C> <C>
VACATION EARNED 4 DAYS 5 DAYS 10 DAYS
VACATION TAKEN
12/1/95 12/1/96 12/1/97
170 DAYS WORKED
VACATION EARNED 5 DAYS 10 DAYS
VACATION TAKEN
</TABLE>
SECTION 11A. VACATION BONUS
All employees shall receive a bonus of one (10) hour's pay for each full
year of service, payable with the last week of vacation.
SECTION 12. SICK LEAVE
All sick leave shall be computed as of the contract anniversary (December
1).
(a)All employees who on an anniversary date of the contract have not
completed one (1) year of employment shall be entitled to one (1) day of sick
leave for each three (3) months they have worked during that initial year.
(b)Sick leave benefits for any contract year (December 1 - November 30)
shall be based upon days worked during the prior contract year. An employee
shall be deemed to have worked the entire contract year once he completes 170
days of actual work and shall be entitled to five (5) days sick leave.
(c)An Employee who worked less than 170 days during the prior contract year
shall receive a pro rata benefit pursuant to the following formula:
# days worked
_____________ X 5 days = pro rata sick leave
170
Any employee who has worked ninety (90) days during the contract year and
who then goes on Workmen's Compensation shall have the compensation time
included in computing sick leave.
(d)Unused sick leave to be paid within ten (10) days from the end of the
contract year.
SECTION 13. PERSONAL DAYS
Each employee, upon entitlement to Holiday Pay shall receive two personal
days to be taken at his discretion, although no more that 10% of the workforce
may take Personal Days at one time (Seniority prevails).
SECTION 14. BEREAVEMENT LEAVE
In case of death in an employee's immediate family, (i.e., spouse, mother,
father, sister, brother and children), the Employer shall grant such employees
a maximum of three (3) days off, with pay, for express purpose of attending
services for the deceased. Death certificate or other satisfactory proof of
death must be submitted to the Employer. Bereavement pay will apply only to
work days missed during the three (3) days following death of relative.
Any man attending funeral services for his father-in-law or mother-in-law
shall receive day of funeral off, with pay.
The employee Must be on the seniority list for at least six (6) months to be
entitled to this leave.
SECTION 15. MAN HURT AT WORK
B. If an employee is treated by a Workmen's Compensation doctor at the time
he sustains a compensable injury, and the doctor directs him to go to his home
or a hospital because of the seriousness of his injury, the worker shall
receive a full day's pay for that day.
SECTION 16. DRUG & ALCOHOL TESTING PROGRAM
The Union and Association agree to a Drug and Alcohol Testing Program
pursuant to the provisions of the Federal Highway & Transportation Drug Testing
Act a more fully set forth in "Addendum A" to this contract. Addendum "A"
shall be continuously updated so as to conform with all relative Federal and
State laws and all current, agreed-upon operating procedures. The Association,
with consent of the Union, may produce updated versions of said Addendum "A".
SECTION 17. PHYSICAL EXAMINATIONS
(a)ICC PHYSICALS. All employees shall be required to pass an ICC physical
examination including any drug testing as set forth in Addendum "A".
(b)PROLONGED ABSENCE - PHYSICAL EXAMINATION
1)Any employee absent for more than ten (10) consecutive days shall be
required to present a letter from his doctor to the effect that he is fit to
return to work. Such letter must acknowledge the nature of the work performed
by the employee.
2)If an employee is absent for more than thirty (30) days, the company
shall have the right to require him to submit to an examination by the
Company's physician, which may include testing for substance abuse.
SECTION 18. CALL-IN PROVISIONS
(a)Any employee who reports to work without having been notified at least
two (2) hours prior to his assigned starting time that no work was available
for him shall be entitled to eight (8) hours call-in pay.
(b)Any employee who reports in sick in the morning must phone the Employer
prior to quitting time to advise whether he will be available for work the
following day. If the employee reports for work without having phoned the
Employer, the Employer may send him home without pay.
(c)Any employee who advises his employer that he will miss more than one (1)
day of work is not required to call in each day. However, he MUST call in
prior to quitting time of the day before he wishes to return to work. If he
fails to so notify the Employer, he may be sent home without pay.
SECTION 19. LAYOFFS
(a)LAYOFF NOTICE. employees wo are laid off for a period of more than one
(1) week, shall be given notice of the layoff prior to closing time the day
before the layoff.
(b)NOTICE TO RETURN TO WORK. Any employee who is on layoff, must return to
work within three (3) working days from the time a telegram is received
advising him that work is available, provided that any employee leaving his
residence advises his Employer of the address to which notice can be delivered.
If he fails to provide said address, the three (3) working days shall be
computed from the first date delivery was attempted.
SECTION 20. STRIKE BOUND JOBS
It shall not be a violation of this agreement, and it shall not be cause for
discharge or disciplinary action, in the event an employee refuses to enter
upon any property involved in a primary labor dispute or refuses to go through
or work behind any primary picket line, including the primary picket lines at
the Employer's place of business.
SECTION 21. MILITARY SERVICE
Men called for military service by the United States Government shall resume
seniority with their form Employer when discharged from military service.
SECTION 22. EXTRA TRUCKING
The Employer agrees to refrain from using the services of any person who
does not observe at least the wages, hours and conditions of employment set
forth in this agreement.
SECTION 23. HELPER PROVISIONS
No driver will be required t make a difficult delivery above or below the
street level without assistance.
SECTION 24. COFFEE BREAK
There shall be a fifteen (15) minute break between 9:15 A.M. and 10:15 A.M.
but the shop or job shall remain manned at all times.
SECTION 25. TERMINATION OF EMPLOYMENT
Employees who are laid off or who are not otherwise employed by their
Employer, for more than one (1) year, shall be deemed to have left employ of
Employer.
SECTION 26. DISCHARGE OR SUSPENSION
(a)The Employer shall not discharge nor suspend any employee without just
cause and written notice of discharge or suspension must set forth the specific
reasons for such action. In respect to discharge or suspension, the Employer
shall give at least one (1) warning notice of the specific complaint against
such employee, in writing, and a copy of the same to the Union and the Shop
Steward, except that no warning need be given to any employee before he is
discharged or suspended for any of the causes listed in Section B below or
suspended for theft of time. The Employer shall not discipline any employee
without just cause based upon valid written warning notices sent within the
applicable time periods set forth hereinafter.
(1)No disciplinary notice shall be considered valid unless it is:
(a)in writing
(b)has been delivered to the employee
personally or by certified mail to the address given to the Employer by the
employee or his Shop Steward and sent certified mail to the Union, and,
(c)sets forth therein the specific
grounds and circumstances upon which it is based.
(2)No warning letter or letter of suspension shall be considered valid
unless issued by the Employer within seven (7) days from the date of the
Employer knew of or reasonably should have become aware of the specific grounds
and circumstances upon which it is based.
(b)CAUSES FOR IMMEDIATE DISCHARGE OR SUSPENSION SHALL BE AS FOLLOWS:
(1) Dishonesty.
(2)Under influence of liquor or drugs while on duty.
(3)Unauthorized persons on vehicle.
(4) Proven recklessness.
(5)Direct refusal to obey orders given by the proper party unless such
orders jeopardize life or health.
(6)Calling an unauthorized strike or a walkout.
(7) Assault.
(8)Failure of employee to notify his Employer within twenty-four (24)
hours of any accident in which he was involved while using company equipment
or while in employ of company.
(9)Operation of a company vehicle while having a suspended or revoked
license (provided the employee had actual knowledge of the suspension or
revocation).
(c)ABUSE OF EQUIPMENT AND MATERIALS AND VIOLATION OF SAFETY RULES
Abuse of equipment and materials or continued failure to comply with
company safety regulations which are part of the Union approved safety program
shall be grounds for discharge subject to arbitrator's award.
In the event of dispute, any matter herein shall be decided as provided
in Section 27 of this agreement.
(d) THEFT OF TIME
Although theft of time shall not be cause for immediate discharge, it is
recognized as an offense for which severe disciplinary measures may be invoked.
SECTION 27. ARBITRATION
Should any dispute arise between the Employer and the Union or any Employer
and employee the dispute shall be submitted to the New York City Trucking
Authority as impartial arbitrator and said arbitrator's decision shall be final
and binding upon parties to the dispute.
(a)THE UNION SHALL SERVE A COPY OF ITS REQUEST FOR ARBITRATION UPON THE
EMPLOYER AND THE ASSOCIATION WITHIN SEVEN (7) DAYS OF THE OCCURRENCE OF THE
ACTION THAT IS BEING ARBITRATED.
SECTION 28. JURY DUTY PAY
Each employee shall receive $40 per day for each day served on jury duty
with a maximum of ten (10) days benefit juring the life of this contract.
To receive this benefit the employee must:
(a)Notify the Employer at least one (1) week in advance that he or she is
subject to call for jury duty.
(b)Notify the Employer on each morning he or she actually serves on jury
duty and,
(c)Provide actual proof of service on a jury.
SECTION 29. SEVERANCE PAY
In the event an employer ceases operating or moves its operations more than
fifty (50) miles from its previous location and an employee is not given the
opportunity to follow the job, the Employer shall pay one (1) day's wages for
each full year of service.
SECTION 30. MAINTENANCE OF STANDARDS
The Employer agrees that all conditions of employment relating to wages,
hours of work, overtime differentials and general working conditions which are
better, higher or more favorable to the employer's employees than those
provided for by of under the Agreement shall be maintained and the Employer
agrees that its employees shall continue to enjoy these better, higher and more
favorable practices, standards and/or benefits.
SECTION 31. HEALTH BENEFITS
During the term of this agreement the Employer shall participate in Local
807 Labor-Management Health Fund ("Health Fund"). The benefits of that program
shall be those prescribed by the Trustees of the Fund.
(a)The Employer shall continue to contribute the sum of $2.59 per hour to
said fund.
SECTION 32. PENSION BENEFITS
During the term of this agreement the Employer shall participate in Local
807 Labor-Management Pension Fund ("Pension Fund"). The benefits of that
program shall be those prescribed by the Trustees of the Fund.
a)The Employer shall contribute $2.835 per hour into the fund for all men
hired prior to December 1, 1978 and $1.69 for all men hired after that date.
SECTION 33. INCREASES IN WELFARE AND PENSION CONTRIBUTIONS
The following Welfare/Pension increases shall be allocated by the Welfare
and Pension Fund Trustees amongst the two funds:
December 1, 1996 35 cents
December 1, 1997 35 cents
December 1, 1998 35 cents
December 1, 1999 15 cents
SECTION 34. CONTRIBUTION LIMITATIONS
(a)All of the Health and Pension Fund contributions as set forth in
Paragraphs 29, 30 and 31, including additional contributions, shall be made for
all hours worked with a maximum of forty (40) hours in the Monday through
Sunday week.
(b)No contribution shall be due for unused sick days for which the employee
is paid a lump sum, at the end of the contract year, on vacation pay where an
employee works during his vacation are received double pay for that period or
for jury duty pay.
SECTION 35. HEALTH AND PENSION-MISCELLANEOUS RULES
(a)The Trustees of the Health and Pension Funds shall establish rules which
shall include, among other things, the requirements for eligibility,
distribution of Health and/or Pension Fund assets and the rights to
beneficiaries thereunder. The Trustees of said Funds shall also set forth the
rules and regulations governing the administration of the Health and Pension
Funds.
(b)the Trustees of the Health and Pension Funds may assess penalties for any
and all delinquent payments in amounts which they, in their discretion, deem
justified to offset the added cost of collection.
(c)In the event any Employer defaults in the payment of Health or Pension
Fund contributions or penalties and notice of such default is forwarded to said
Employer via ordinary mail by the Administrator of Funds and, if said default
is not paid within ten (10) working days after said notice of default was
mailed, then the provisions for arbitration under this agreement shall be
deemed cancelled, withdrawn and waived by said Employer and the Union shall
thereupon order and enforce a strike against sad Employer in default which
shall not be considered a breach of the agreement.
(d) Each Employer shall within twenty (20) days following the last day of
the preceding month submit to the Administrator of the Health and Pension Funds
a statement, under oath, setting forth the names and social security number of
all employees, both Union and non-Union, who have worked during the preceding
month in any classification covered by the terms of this agreement and such
statement shall set forth the contributions made on behalf of such employees.
The Health and Pension Funds Administrators, on his own motion, shall have the
right to inspect the books and/or records relative to such statement and to
interview all covered employees of the Employers. The Administrator shall
forthwith report, in writing, the results of any inspection or interview of the
Employers and the Trustees.
SECTION 36. NON DISCRIMINATION
Al employees covered by this agreement shall be treated equally and without
discrimination as to race, creed, color, national origin, sex, age, handicap,
marital status, sexual orientation or affectional preference in all employment
decisions, including, but not limited to hiring, compensation, training,
promotion, demotion, transfer, layoff and termination, and all other terms and
conditions of employment.
SECTION 37. UNION DISCLAIMER
The Union agrees that it will neither sanction nor support any wildcat
strike, slowdown or curtailment in the operation of any MARDA member. The
Association agrees that it will not during the term of the Agreement engage in
a lockout.
SECTION 38. SEVERABILITY
In the event any court shall hold any portion of this agreement to be in
violation of either federal or state law, then the clause shall be deemed
struck from this agreement and the balance of the agreement shall remain in
full force and effect.
SECTION 39. CDL LICENSES
Any employee hired after December 4, 1995 may be required, as a condition of
employment, to obtain a Commercial Drivers License within 120 days of
employment.
Employees hired prior to December 4, 1995 shall not be required to obtain
said license unless an agreement had been reached prior to December 4, 1995 for
having to obtain said license. here possible the Employee will provide
training.
SECTION 40. MODIFICATIONS
Neither the Employer nor any worker or group of workers shall have the right
to modify or waive any provision of this agreement without the knowledge and
written consent of a business agent. Any such agreement without the consent
shall be null and void.
SECTION 41.
The following companies have authorized the MARDA GROUP OF BUILDING
MATERIALS DISTRIBUTORS, INC. to sign for them:
American Roofing & Metal Supply Corp.
Belco Steel Co.
Brothers Roofing Supplies Co., Inc.
Dryolin Corp.
Florence Corp.
H. Verby & Co., Inc.
Huntington American Building Supply Corp.
J & S Supply Corp.
Kamco Supply Corp.
Long Island Tinsmith Supply Corp.
McDonald Metal & Roofing Supply Corp.
National Tinsmith Distributors, Inc.
Roofers R.S. Supply Co., Inc.
Sheet Metal Mfg. Co., Inc.
The Stainless Place Inc.
Strober Bros., Inc.
Strober Long Island Building Material Centers, Inc.
FOR THE UNION FOR THE ASSOCIATION
International Brotherhood of The MARDA Group of Building
Teamsters, Chauffeurs, Material Distributors, Inc.
Warehousemen Local 807,
and Helpers of America
/S/ /S/
By: Business Agent By: ALLEN SWERDLICK, President
/S/
By: Asst. Trustee
<PAGE>
EXHIBIT 10(BB)
Commercial Space Lease dated October 6, 1995
between Michael Albarell and
Strober Building Supply Center, Inc.
<PAGE>
COMMERCIAL SPACE LEASE
THIS LEASE made this ___ day of _____ by and between MICHAEL ALBARELL
(hereinafter called "Lessor") and STROBER BUILDING SUPPLY CENTER, INC.,
(hereinafter called "Lessee").
WITNESSETH:
WHEREAS, Lessor is the equitable owner of a certain parcel of land at 901
WEST LEHIGH STREET, CITY OF BETHLEHEM, NORTHHAMPTON COUNTY, PENNSYLVANIA upon
which is constructed a 60,000 square foot industrial warehouse.
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to lease from
Lessor, certain space in said industrial warehouse.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound, the parties agree as follows:
1. LEASED PREMISES. Lessor demises and leases to Lessee, and Lessee hires
and takes from Lessor 28,500 square feet of warehousing space in the western
end of the building located at 901 WEST LEHIGH STREET, BETHLEHEM, PA. Said
site is hereinafter referred to as the "Building", and said 28,500 square feet
of demised area is hereinafter referred to as the "Leased Premises".
2. TERM OF LEASE. Subject to the terms and conditions of the Lease, the
initial period of the lease shall be two year term (24 months), to commence on
DECEMBER 1, 1995. Initial term shall expire at the end of 24 months from the
commencement date of the lease. Two additional 5 year options will be
available to the Lessee which will commence on December 1, 1997, if the tenant
choose to exercise said option. The first option will run from December 1, 1997
to November 30, 2002. If the second 5 year option is exercised by the Lessee,
it will commence on December 1, 2002 and will remain in effect until November
30, 2007.
Lessee will give the Lessor 60 days written notice of the Lessee's intent to
exercise any of the stated 5 year options prior to the commencement dates
stipulated above.
If Lessee chosen not to exercise first 5 year option at end of initial 24
month term, the Lessee agrees to reimburse the Lessor for all unamortized costs
incurred in constructing and finishing the Leased Premises as initially agreed
upon the Lessor and Lessee. Excluded from this cost reimbursement will be the
value of any of the materials supplied by the Lessee to the Lessor's chosen
contractor. The Lessee agrees to only reimburse for unamortized labor and
material costs that the Lessor supplied, as documented in Exhibit "A". The
amortization of the documented fitout costs will be on a 5 year schedule
commencing on the December 1, 1995
3. BASE RENT. Lessee shall pay Lessor an annual rental rate of $2.10 per
square foot based on 28,500 square feet. This translates into annual payment
of $39,850 or $4,987.50 per month. ($2.10/square foot x 28,500 square feet by
12 months) as rent for the use of the Leased Premises (hereinafter "Base
Rent"). The Base Rent shall be paid in consecutive monthly installments,
beginning on the first day of the initial lease term and continuing on the same
day of each month thereafter throughout the lease term and any options period
exercised by lessee.
In the event the Lessee executes either of the five year options subsequent
to the initial 24 month term, the base rent during the option periods will
be as follows:
FIRST FIVE YEAR OPTION PERIOD DECEMBER 1, 1997 - NOVEMBER 30, 2002
Years 1-3= Base rent remains at $2.10 per
square foot. Tenant shall pay its
pro-rate share of the annual
increase in the real estate taxes
on the leased premises in excess
if the real estate taxes assessed
in the tax year 1996.
Years 4-5= The base rent of $2.10 will be
adjusted by the percentage
increase in the Consumer Price
Index as determined by the
Department of Labor for the
Allentown-Bethlehem, Pennsylvania
area. The increase will be
determined by the average of the
annual percentage increases in the
index that occurred between
December 1, 1996 - December 1,
2000. This average increase is
capped at 3% per year. Tenant
pays its pro-rate share of the
annual increase in real estate
taxes on the leased premises.
SECOND FIVE YEAR OPTION PERIOD DECEMBER 1, 2002 - NOVEMBER 30, 2007
The base rent during this period shall be the base rent existing at the end
of the first option period increased by the percentage annual increase in
the above stated Consumer Price Index that occurred between December 1, 2000
- December 1, 2002 not to exceed an increase of 3% per year. Tenant shall
pay its pro-rata share of the annual increase in the real estate taxes
assessed on the leased premises.
In the event that the commencement date of the term of this Lease shall be
on the day other than the first day of any calendar month, Lessee's first
payment of base rent shall be prorated for the fractional month. In such
event Lessee shall pay, on the commencement date of the term, a prorated
amount for the fractional month between the commencement date and the first
day of the first full calendar month of the term hereof, prorated on a per
diem basis upon a thirty (30) day month. Tenant shall provide owner with
payment on the First (1st) of each month over the life of the lease.
4. IMPROVEMENTS. Lessor will deliver to Lessee an initial area of 28,500
square feet, which will be unfinished and open warehouse space to the extent
that there will be concrete flooring, lighting, no heat, except for the
office/showroom finish the Lessor will construct for the Lesee. Said
office/showroom area will be constructed according to all city, state, and
federal construction code requirements and will have a layout as shown in
Exhibit A. Also, the Lessor will construct an enclosed, heated storage room to
be contiguous to the office area. The storage room will be for the storage of
the Lessee' products which are subject to freezing.
The Leased Premises area will be secured and self-contained. With respect
to any future improvements of the Leased Premises beyond those defined, Lessee
will inform Lessor in writing of any proposed changes, alterations, or
improvements for Lessor's review and approval. Lessee shall make no such
change, alteration or improvement without the prior written approval of Lessor.
Any improvement will be at the Lessee's sole expense and will be mutually
exclusive of the improvements and terms previously described in this Lease.
5. EXPENSES ASSOCIATED WITH LEASED PREMISES. Lesee will be responsible for
Electricity usage and trash removal associated with the Leased Premises. Said
electrical service will be metered separately and will be the Lessee's sole
responsibility. Lessor shall be responsible for all other expenses associated
with Leased Premises including: real estate taxes and real estate insurance,
snow removal, and building maintenance beyond daily repairs. Said electrical
service will be metered separately and at Lessor's expense.
6. IMPROVEMENTS, ALTERATIONS AND TRADE FIXTURES.
A) Lessee may not without lessor's consent, make alterations to the demised
rental premises.
B) After written approval from the Lessor and in making any alterations,
additions and improvements to the demised premises and in installing such
chattels, equipment and fixtures, Lessee prior to commencing any work shall
file or cause its contractor to file in the appropriate office a waiver of
mechanic's liens binding upon contractor and all subcontractors and material
men and shall thereafter promptly pay all contractors and material men so as to
minimize the possibility of a lien attaching to the demised premises or the
Building, and should any such lien be made or filed, Lessee shall bond against
or discharge the same within ten (10) days after written request by Lessor. If
Lessee shall fail to cause such lien to be bonded against or to be discharged
within the period aforesaid, than, in addition to any other right or remedy
which Lessor may have under this Lease at law or in equity, Lessor may, but
shall not be obligated to, discharge the same either by paying the amount
claimed to be due or by procuring the discharge of such lien by deposit or by
bonding proceedings and, in any such event, Lessor shall be entitled, if Lessor
so elects, to compel the prosecution of any action for the foreclosure of such
lien by the lienor with interest, costs and expenses. Any amount so paid by
Lessor and all costs and expenses incurred by lessor in connection therewith,
together with interest thereon at the highest rate permitted by law, but in no
event higher than eighteen (18%) percent per annum from the respective dates of
Lessor's making of the payment and incurring of the cost and expense, shall
constitute additional rent payable by Lessee under this Lease and shall be paid
by Lessee to Lessor on demand.
If alternation pre-approved, all trade fixtures hereafter installed by
Lessee in the demised premises shall be new and, shall remain the property of
Lessee and shall be removable by Lessee at the expiration of the earlier
termination of the term of this Lease provided that: (1) Lessee shall not at
such time be in default under this Lease and (2) in the event of the removal of
any or all such trade fixtures Lessee shall promptly restore the damage done to
the premises by such removal. Should Lessee fail to so remove Lessee's trade
fixtures and/or to so restore the premises, Lessor may do so, collecting at
Lessor's option, the cost and expense thereof as additional rent, upon demand.
Any such trade fixtures which are not removed and those which by the terms of
the Lease are not removable by Lessee at or prior to any termination of this
Lease including, but not limited to, a termination by Lessor pursuant to this
Lease, shall unless Lessor gives Lessee notice to remove any or all of such
trade fixtures, be and become the property of Lessor (without any obligation by
Lessor to pay compensation for such trade fixtures). In the event Lessor gives
Lessee such notice to remove any or all of such trade fixtures, Lessee shall
promptly remove such of the trade fixtures as any be specified by Lessor in
such notice.
7. USE OF LEASED PREMISES.
A) Except as otherwise specifically provided herein, Lessee shall
continuously occupy and use the demised premises solely for the retail,
wholesale, warehousing, and distribution operations of BUILDING MATERIALS which
shall be the sole permitted use, and Lessee will not use or permit or suffer
the use of the demised premises for any other business or purpose.
B) The Lessee will have use of four designated parking space at the main
entrance of the Leased Premises as well as parking for 8 to 12 employees and
access to the rear portion of the lot enclosed with a chain link fence. The
chain link fence area will be used by the Lessee only for the loading/unloading
of materials/supplies in the operation of their business. See Exhibit ___.
8. SCHEDULE OF RULES AND REGULATIONS. Lessee covenants and agrees that
Lesee at its own cost and expense:
A) Will keep all exterior and interior portions of the demised premises in a
clean, orderly and sanitary condition and free of refuse and debris.
B) Will comply with all laws and ordinances and all rules and regulations of
governmental authorities and all recommendations of the Association of Fire
Underwriters, Factory Mutual Insurance Companies, the Insurance Service
Organization of Pennsylvania, or other similar premises by Lessee.
9. CASUALTY. If the Leased Premises or any portion thereof shall be
partially damaged by fire or other casualty, the same shall be repaired as
speedily as possible at the expense of Lessor. If the damages shall be so
extensive as to render the Leased Premises untenantable, or if as a consequence
of any fire or other casualty or Lessor's repair activities on the Leased
Premises, Lessee is unable to obtain access to the Leased Premises or Lessee is
unable to reasonably utilize the Leased Premises for the purposes set forth
hereinabove for a period of time in excess of twenty-four (24) hours, then all
rent hereunder shall abate until such time as the Leased Premises shall be made
tenantable or Lessee's access is unimpeded or Lessee is able to reasonably
utilize the Leased Premises for the purposes set forth hereinabove. If the
Leased Premises shall be totally destroyed by fire or other casualty, Lessee
shall pay all rent and other sums hereunder due and accrued up to the time of
such destruction, and thereafter this Lease shall terminate and come to an end.
In no event shall Lessor be liable for any damage, compensation of claim by
reason of any inconvenience or annoyance arising from the necessity of
repairing any portion of the Leased Premises or Building, or the termination of
this Lease by reason of damage to or the destruction of the Leased Premises or
any portion of the Building by fire or other casualty.
10.EMINENT DOMAIN. If during the term of this Lease, as a result of a
condemnation proceeding, the Building is taken and the Leased Premises cannot
thereafter be reasonably used for the purposes provided in this Lease, then
this Lease shall terminate and come to an end on the date Lessee is deprived of
such reasonable use of the Leased Premises. Lessee shall pay all rent and
other sums hereunder due and accrued up to the time of such termination. In
the event of a taking which does not result in the termination of this Lease,
the rent hereunder shall abate, but Lessor shall use as much of the
condemnation award as may be necessary to restore the Leased Premises and the
Building to as nearly a useful and orderly condition as they existed prior to
the taking. In the event of any condemnation or acquiring in lieu of the
exercise of eminent domain, Lessee shall have no claim against Lessor or
against the condemning authority for the value of any leasehold estate or for
the value of the unexpired term of this Lease. All compensation awarded or
paid upon a total or partial taking of the Leased Premises or the Building
shall belong to and be the exclusive property of Lessor without any
participation by Lessee. However, Lessee shall not be prohibited from
prosecuting a claim directly against the condemning authority for loss of
business, or for damage to, or cost of removal of, trade fixtures, furniture
and other personal property belonging exclusively to Lessee, provided, however,
that no such claim shall be made by Lessee which would in any manner diminish
or adversely affect any award to Lessor.
11.AFFIRMATIVE COVENANTS OF LESSEE. Lessee covenants and agrees that it
will, without demand, during the lease term:
A) Pay all Base Rent, in a timely fashion as previously stipulated.
Lessor's acceptance of any such payments after due date shall not excuse delay
upon subsequent occasions, or constitute or be construed as a waiver of any of
Lessor's rights.
B) Keep the Leased Premises clean and free of refuse matter and make all
necessary daily repairs and non-structural replacements, and generally keep the
Leased Premises in as good of order and repair as the same is on the day Lessee
assumed possession thereof, reasonable wear and tear and damage by accidental
fire or other casualty not occurring through the negligence of Lessee or those
employed by acting for Lessee alone excepted.
C) Comply with any and all requirements of any of the constituted public
authorities, including but not limited to the terms of the State or Federal
statute or local ordinance or regulation applicable to the Leased Premises or
to Lessee's use thereof. Lessee agrees to save Lessor harmless from any and
all penalties, fines, cost or damages from Lessee's breach of this covenant.
D) Use every reasonable precaution against accidents and fire, and give
Lessor prompt written notice of any accident, fire or damage occurring on or to
the Lease Premises.
E) Peaceably deliver up and surrender possession of the Leased Premises to
Lessor at the expiration or sooner termination of this Lease, promptly
delivering all keys for the Leased Premises to Lessor.
G) Give the Lessor 60 days written notice of Lessee's intent to exercise any
renewal options previously defined.
12.NEGATIVE COVENANTS OF LESSEE. Lessee covenants and agrees that it will
do none of the following things:
A) Assign, mortgage or pledge this Lease, or underlet or sub-lease the
Leased Premises, or any part thereof, or permit, any other person or entity to
occupy the Leased Premises, or any part thereof, without the prior written
consent of Lessor. The parties hereby agree and declare that any such
assignment, mortgage or pledge of this Lease, or underlet or sub-lease of the
Leased Premises, without the prior written consent of Lessor, such consent not
to be unreasonably withheld, shall be null and void, and shall constitute a
material breach of this Lease by Lessee, entitling Lessor to exercise any and
all of the remedies set forth herein.
B) Use or operate any machinery that, in Lessor's opinion, is harmful to the
Leased Premises or disturbing to other lessees occupying the Building.
C) Remove, attempt to remove, or manifest an intention to remove Lessee's
goods or property from or out of the Leased Premises without having first paid
and satisfied Lessor for all Base Rent, and other sums which are herein
provided to become due during the life of the lease term.
D) Bring into or permit to be kept in the Leased Premises and odorous,
dangerous, toxic, or explosive substance without written consent of Lessor.
E) Conduct itself or permit its agents, employees, invitees or guests to
conduct themselves in a manner which, in Lessor's reasonable judgment is
improper or unsafe, or interferes with the rights granted by Lessor to other
Lessees of the Building.
F) Do or permit to be done anything that might constitute a public or
private nuisance.
13.INSPECTION AND REPAIR OF LEASED PREMISES. Lessee covenants and agrees
that Lessor and its agents shall have the right at all times, upon reasonable
advance notice (24 hours) to Lessee, to go upon and inspect the leased Premises
and every part thereof, and at its option, to make repairs, alterations or
additions to the Leased Premise or to any other portion of the Building, so
long as lessor's presence on the Leased Premises or in the Building does not
absolutely prohibit Lessee's conduct of business on the Leased Premises.
During the Life of Lease term, Lessor shall have the right to exhibit the
Leased Premises to prospective Lessees only during the last 6 months of the
initial 24 month lease period or during the last 6 months of any exercised
lease option period.
14. SIGNS.
Lessor agrees to install signage designating the ingress and egress to Leased
Premises along with a canopy over the entrance way to the Lessee's
office/showroom area in order to designate Lessee's location within the
Building. See Exhibit ___.
15.ACTS OBJECTIONABLE TO INSURERS. Lessee agrees that it will not do, nor
suffer to be done, upon the Leased Premises, the Building, any act, matter or
thing objectionable to insurance companies, where by the fire insurance or any
other insurance now in force or hereafter placed upon such property or any part
thereof shall become void or suspended, or whereby the same shall be rated at a
more hazardous risk, or employ any person or persons objectionable to such
insurance companies. In the event of a breach of this covenant, Lessee agrees
to pay lessor, as additional rental, any increases in insurance premiums caused
in any way by the occupancy of the lessee.
16.DEFAULT BY LESSEE. In the event Lessee does not pay in full any
installment of Base Rent, or any other sum herein agreed to paid by Lessee, on
or before the day the same is due and payable hereunder, or in the event Lessee
violates or fails to perform or otherwise breaches any other term, covenant or
condition set forth in this Lease and fails to cure such default within thirty
(30) days after written notice thereof from Lessor, or in the event Lessee
shall become insolvent or makes an assignment for the benefit of creditors, or
shall file a petition under any Section or Chapter of the federal Bankruptcy
Code, as amended, or under any similar law or statute, or if such petition
shall be filed against Lessee, then Lessee shall be in default under this
Lease, and upon such a default Lessor shall have the right to exercise any one
or more, or all, of the remedies provided to Lessor in this Lease, as well as
any and all other rights and/or remedies granted or allowed to lessors by any
existing or future statute, regulation or judicial decision in the event of a
lessee's material default under the terms of a commercial lease agreement.
17.TERMINATION OF LEASE. Lessee will provide Lessor with 30 days written
notice as to the termination date of lease. Lessee shall vacate premises at
end of 30 days period. However, tenant will have right of first refusal to
negotiate longer term lease (3-5 years) at that time with terms acceptable to
Lessor and Lessee. In the event of a default by Lessee as described above,
Lessor may immediately terminate this Lease by written notice to Lessor. Upon
such a termination of this Lease, Lessee shall have no further rights or
interest in the Leased Premises and shall vacate the same within ten (10) days
after such termination. Lessor shall have the right to enter upon and take
possession of the Leased Premises and to expel or remove Lessee and Lessee's
property and any other person or property which may be occupying the Leased
Premises or any part thereof, without being liable for prosecution or any claim
of damages as a result of such actions.
18.LESSER'S COSTS AND EXPENSES. Lessee agrees to pay Lessor all costs and
expenses incurred by Lessor in enforcing this Lease, including but not limited
to the reasonable attorney's fees.
19.Liability Insurance. The Lessee shall maintain, at their own costs, a
liability insurance policy with no less than a $1,000,000 dollar coverage to
indemnify the Lessor against any injuries to Strober's employees and/or the
customers that occupy, utilities, and/or visit the Leased Premises.
20.LESSOR'S REMEDIES. All of the right and remedies herein given to Lessor
and all of the rights and remedies given Lessor by law and equity shall be
cumulative and concurrent. No termination of this Lease or taking or
recovering possession of the Leased Premises shall deprive Lessor of any
remedies or actions against Lessee for sums due from Lessee hereunder be
construed as a waiver of the right to obtain possession of the Leased Premises.
The parties hereby covenant and agree, any law, usage or custom to the contrary
notwithstanding, that Lessor shall have the right at all times to enforce each
and every one of the terms, covenants conditions of this Lease in strict
accordance with the provisions hereof, notwithstanding any conduct or custom on
the part of the Lessor in restraining from doing so at any time or times, and
further, that the failure of Lessor at any time or times to enforce any of his
rights hereunder strictly in accordance with the same shall not constitute or
be constituted as a waiver of the same or as having created a custom in any way
or manner contrary to the specific terms, covenants and conditions of this
Lease, or as having in any way or manner modified the same. No action taken by
or on behalf of Lessor shall be deemed or construed to be an acceptance of a
surrender of this Lease.
21.SURRENDER OF POSSESSION. Lessee agrees to surrender possession of the
Lease Premises to lessor upon the expiration or sooner termination of the lease
term without any notice whatsoever from Lessor. Lessee expressly waives and
releases any right or benefit Lessee may now or hereafter possess by reason of
any present or future law concerning notice to quit or lease termination,
including, but not limited to, the three (3) months notice to quit provided by
the Act of April 6, 1951, as amended.
22.WAIVERS. Notwithstanding any statute or law to the contrary, Lessee
waives and releases the benefit of all appraisement, stay of execution,
exemption, bankruptcy and insolvency laws now in force or hereafter enacted,
upon any proceeding instituted for the recovery of sums due hereunder or for
recovery of possession of the Leased Premises. Furthermore, Lessee waives and
releases any and all errors in any procedure or action to enter judgments by
confession by virtue of the warrants of attorney contained in this Lease, and
Lessee releases Lessor and any attorney who may appear for Lessee or Lessor
from liability for any such errors.
23.RELEASE AND INDEMNIFICATION. Lessee releases and forever discharges
Lessor from and agrees to indemnify and safe Lessor harmless against, all
liability by reason of injury to any person occurring on or about the Leased
Premises or by reason of any damage to any property situate on the Leased
Premises, whether belonging to Lessee or any other person or entity, caused by
force whatsoever other than the intentional act or the negligence of Lessor,
its employees or agents.
24.NO RECORDATION. Lessor and Lessee agree that neither this Lease nor any
memorandum hereof shall be recorded in any public office.
25.SECURITY DEPOSIT. Upon the execution of this Lease, Lessee shall deposit
with Lessor the sum of $__________ or 1.5 times the monthly rental, as a
security deposit. This deposit shall secure unto Lessor the full and faithful
performance by Lessee of all the terms, covenants and conditions of this Lease.
Lessee shall not be entitled to the payment of any interest on his security
deposit. In the event Lessee shall at any time be in default under any
provision of this Lease, lessor may, entirely at Lessor's option, at any time
and from time to time, apply this security deposit or any portion therefore the
purpose of curing any such default or for the purpose of reimbursing Lessor for
any costs, expenses or damages occasioned by Lessor as a result of such
default, and any such application by Lessor shall in no way affect any other
right or remedies reserved to Lessor under the terms of this Lease. If the
security deposit or any portion thereof is so applied by lessor, Lesee shall,
within ten (10) days after written demand by lessor, deposit additional funds
with Lessor so as to restore the security deposit to its original amount, and
Lessee's failure to do so shall constitute a default under this Lease. The
security deposit shall be refunded to Lessee at the expiration of the lease
term if Lessee shall have faithfully complied with all the terms, covenants and
conditions of this Lease throughout the entire lease term, provided, however,
that Lesee shall have first vacated the Leased Premises and surrendered
possession thereof to Lessor in accordance with the provisions of this Lease.
Lessor shall not be required to or be deemed to hold the security deposit in
trust, and the existence of this security deposit shall not establish any
relationship between Lessor and Lessee other than that of debtor and creditor.
In the event Lessor shall assign or otherwise transfer its interest in the
Lease, Lessor shall have the right at anytime, and without notice to Lessee, to
transfer the security deposit to the assignee or other transferee of such
interest, and upon such transfer Lessor shall be released from all liability
with respect to the security deposit and/or its return or application.
26.LESSOR'S OBLIGATIONS. Lessor's obligations under this Lease shall
be binding upon Lessor only for the period of time that Lessor is equitable or
legal and equitable owner of the Building. Upon the termination of such
ownership Lessee shall look solely to Lessor's successors in interest in the
Building for the satisfaction of each and every obligation of Lessor under this
Lease, except as to any obligations which shall have matured prior to the
termination of such ownership by Lessor.
27.NOTICES. All notices to be given hereunder shall be in writing. All
notices to be given to Lessor and Lessee shall be hand delivered or sent by
certified or registered mail to:
LESSOR LESSEE
Michael Albarell Larry Hamshock
Albarell Electric Strober Building Supply Center, Inc.
901 W. Lehigh Street 695 Wyoming Avenue
Bethlehem, PA 18018 Kingston, PA 18704
Either party may change the addresses set forth above by written notice thereof
to the other. Lessor shall at all times have the option of giving Lesee notice
hereunder by posting the same in or on the Leased Premises. All payments to be
made hereunder shall be hand delivered or sent by regular mail to the parties
at the above addresses.
28.ENTIRE AGREEMENT. It is expressly understood and agreed by the parties
hereto that this Lease sets forth all the promises, agreements, conditions and
understandings between Lessor and Lessee relative to this transaction, and that
there are no promises, agreements, conditions or understandings, either oral or
written, between them other than as are set forth herein. It is further agreed
that no alteration, amendments, change or additions to this Lease shall be
binding or effective unless reduced to writing and signed by both Lessor and
Lesee.
29.HEIRS AND ASSIGNS. Subject to any provisions hereinabove to the
contrary, all the rights, obligations, conditions and terms set forth herein
shall insure to the benefit of and shall be binding upon the parties hereto and
their respective heirs, executors, administrators, successors and assigns.
30.ASSIGNABILITY. This Lease shall not be assignable by Lessee.
31.GOVERNING LAW AND SEVERABILITY. This Lease shall be governed by the laws
of the Commonwealth of Pennsylvania. If any provision of this Lease shall be
declared invalid by judicial determination, or by Act of Pennsylvania Assembly,
or by act of any other legislative body with authority to affect this lease,
only such provision so declared invalid shall be thus affected, and all other
provisions not inconsistent therewith or directly dependent thereon shall
remain in full force and effect.
32.EFFECT OF PARAGRAPH HEADINGS. The subject headings of the paragraphs
of this Lease are included for the purpose of convenience only, and shall in no
way affect the meaning, construction or interpretation of any of the provisions
or terms hereof.
33.GENDER OR NUMBER. For the purposes of interpreting this Lease, the
masculine shall include the feminine and neuter, and the singular shall include
the plural, and vice versa, unless contrary intent appears.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
their hands and seals hereto the day and year first above written.
LESSEE: LESSOR:
/S/LARRY HAMERSHOCK /S/MICHAEL ALBARELL
Larry Hamershock, Vice President Michael Albarell, Principal
DATE: DATE:
10/6/95 OCTOBER 6, 1995
WITNESS:
_________________________
DATE:
<PAGE>
EXHIBIT 10(CC)
Agreement dated May 15, 1995 between Carman Road Realty, Inc.
and Broad Properties, Inc. (as landlord) and
Strober Long Island Building Material Centers, Inc.
<PAGE>
THIS AGREEMENT BETWEEN CARMAN ROAD REALTY, INC., and BROAD PROPERTIES, INC.,
both New York corporations with their principal place of business at 1637 Broad
Hollow Road, E. Farmingdale, N.Y. 11735 hereinafter collectively referred to as
Landlord and STROBER LONG ISLAND BUILDING MATERIAL CENTERS, INC., a domestic
corporation having its principal place of business at
as Tenant
WITNESSETH: The Landlord hereby leases to the Tenant the following
premises: the buildings known as 75, 77 and 79 E. Carmans Road and 1294 Route
110 and approximately 1 acre of vacant land (which is part of tax lot 100-48-2-
9.9), E. Farmingdale, New York 11735, as shown in the sketch annexed to this
Lease as Exhibit "A" (the "Premises") for the term os five (5) years to
commence from the 1st day of May 1995 and to end on the 30th day of April 2000
to be used and occupied only for the sale, warehousing, storage and indoor and
outdoor display of building materials including lumber, provided that Tenant,
at its sole cost and expense, shall first obtain all necessary governmental
approvals permitting said use and further provided that said use is permissible
under the Certificate of Occupancy for the premises, if any, or any zoning law
or ordinance of the Town of Babylon, State of New York or United States, upon
the conditions and covenants following:
1st.That the Tenant shall pay the annual rent as provided in Exhibit B annexed
hereto, said rent to be paid in equal monthly payments in advance on the 1st
day of each and every month during the term aforesaid, as provided in Exhibit B
annexed hereto.
2nd. That the Tenant shall take good care of the premises and shall at the
Tenant's own cost and expense make all repairs except structural repairs unless
said repairs are made necessary by the negligence of Tenant, its servants,
agents, employees, or invitees, and at the end of or other expiration of the
term, shall deliver up the demised premises in good order or condition, damages
being the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders
and regulations of the New York Board of Fire Underwriters, or any other
similar body, at the Tenant's own cost and expense. To the best of Landlord's
knowledge, there are no current violations.
4th.That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's
consent in writing, such consent shall not be unreasonably withheld, or occupy,
or permit or suffer the same to be occupied for any business or purpose deemed
disreputable or extra-hazardous on account of fire, under the penalty of
damages and forfeiture, and in the event of a breach thereof, the term herein
shall immediately cease and determine at the option of the Landlord as if it
were the expiration of the original term.
5th.Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises cannot be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises cannot be used, Tenant must pay
rent for the usable part. Landlord shall have the right to decide which part
of the Premises is usable. Landlord need only repair the damaged structural
parts of the Premises. Landlord is not required to repair or replace any
equipment, fixtures, furnishings or decorations unless originally installed by
Landlord. Landlord is not responsible for delays due to settling insurance
claims, obtaining estimates, labor and supply problems or any other cause not
fully under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time the fire or casualty Tenant is
in default in any term of this Lease then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there is
substantial damage by fire or other casualty, Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice
of Landlord's intention to demolish or rebuild. The Lease will end 30 days
after Landlord's cancellation notice to Tenant. Tenant must deliver the
Premises to Landlord on or before the cancellation date in the notice and pay
all rent due to the date of the fire or casualty. If the Lease is cancelled
Landlord is not required to repair the Premises or Building. The cancellation
does not release Tenant of liability in connection with the fire or casualty.
This Section is intended to replace the terms of New York Real Property Law
Section 227. If, during he first two (2) years of the term, more than 50% of
the Demised premises is destroyed by fire or other casualty, Landlord shall
have the option to cancel the Lease. If during the last three (3) years of the
term, more than 25% of the Demised Premises is destroyed by fire or other
casualty, Landlord shall have the option of cancelling the lease, unless Tenant
exercises its option to extend the term of the Lease no later than thirty (30)
days from the date of damage or destruction.
6th.The said Tenant agrees the said Landlord and the Landlord's agent and other
representatives shall have the right to enter into and upon said premises, or
any part thereof, at all reasonable times for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th.The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the fourth month next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any
part thereof, offering the premises "To Let" or "For Sale", and the Tenant
hereby agrees to permit the same to remain thereon without hindrance or
molestation.
8th.That if the said premises, or any part thereof shall be deserted or become
vacant during said term, and if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any
of the covenants herein contained, the Landlord or representatives may re-enter
the said premises by summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant shall
pay at the same time as the rent becomes payable under the terms hereof a sum
equivalent to the rent reserved herein, and the Landlord may rent the premises
on behalf of the Tenant, reserving the right to rent the premises for a longer
period of time than fixed in the original lease without releasing the original
Tenant from any liability, applying any moneys collected, first to the expense
of resuming or obtaining possession, second to restoring the premises to a
rentable condition, and then to the payment of the rent and all other charges
due and to grow due to the Landlord, any surplus to be paid to the Tenant, who
shall remain liable for any deficiency.
9th.Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demises premises. In the event Tenant fails to timely repair
same, Landlord may insure, and keep insured, all plate glass in the demised
premises for and in the name of Landlord. Bills, for the premiums therefor
shall be rendered by Landlord to Tenant at such times as Landlord may elect,
and shall be due from, and payable by Tenant when rendered, and the amount
thereon shall be deemed to be, and be paid as, additional rental. Damage and
injury to the said premises, caused by the carelessness, negligence or improper
conduct on the part of the said Tenant or the Tenant's agents or employees
shall be repaired as speedily as possible by the Tenant at the Tenant's own
cost and expenses.
10th. That the Tenant shall neither encumber nor obstruct the sidewalk in front
of, entrance to, or halls and stairs of said premiss, nor allow the same to be
obstructed or encumbered in any manner.
11th. The Tenant shall neither place, or cause or allow to be placed, any sign
or signs of any kind whatsoever at, in or about the entrance to said premises
or any other part of same, except in or at such place or places as may be
indicated by the Landlord and consented to by the Landlord in writing, which
consent shall not be unreasonably withheld. And in case the Landlord or the
Landlord's representatives shall deem it necessary to remove any such sign or
signs in order to paint the said premises or the building wherein same is
situated or make any other repairs, alterations or improvements in or upon and
premises or building or any part thereof, the Landlord shall have the right to
do so, providing the same be removed and replaced at the Landlord's expense,
whenever the said repairs, alterations or improvements shall be completed.
12th. That the Landlord is exempt from any and all liability for any damage or
injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of
said building or from any damage or injury resulting or arising from any other
cause or happening whatsoever unless said damage or injury be caused by or be
due to the negligence of the Landlord.
13th. [Intentionally Deleted].
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the
Landlord's assigns and legal representatives to the option of cancelling this
lease without incurring any expenses or damage and the term hereby granted is
expressly limited accordingly.
15th. The Tenant has this day deposited with the Landlord the sum of $23,345.00
as security for the full and faithful performance by the Tenant of all the
terms, covenants and conditions of the lease upon the Tenant's part to be
performed, which said sum shall be returned to the Tenant after the time fixed
as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for
the benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant
agrees to look to the new Landlord solely for the return of the said security,
and it is agreed that this shall apply to every transfer or assignment made of
the security to a new Landlord.
16th. That the security deposited under the lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, and if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default
be made in the performance of any of the covenants and agreements in this
lease contained on the part of the Tenant to be kept and performed, or if the
Tenant shall fail to comply with any of the statutes, ordinances, rules,
orders, regulations and requirements of the Federal, State and Local
Governments or of any and all their Departments and Bureaus, applicable to said
premises, or if the Tenant shall file or there by filed against Tenant a
petition for bankruptcy or arrangement, or Tenant be adjudicated a bankrupt or
make an assignment for the benefit of creditors or take advantage of any
insolvency act, the Landlord may, if the Landlord so elects, at any time
thereafter terminate this lease and the term hereof shall expire and come to
and end on the date fixed in such notice as if the said date were the date
originally fixed in this lease for the expiration hereof. Such notice may be
given by mail to the Tenant addressed to the demised premises.
18th. Tenant shall pay to Landlord the rent or charge, which may, during the
demised term, be assessed or imposed for the water used or consumed in or on
the said premises, whether determined by meter or otherwise, as soon as and
when the same may be assessed or imposed. Tenant shall pay Tenant's
proportionate part of the sewer rent or charge imposed upon the building. All
such rents or charges or expenses shall be paid as additional rent and shall be
added to the next month's rent thereafter to become due.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein,
which will in any way increase the rate of fire insurance on said demised
premises, nor use the demised premises or any part thereof, nor suffer or
permit their use for any business or purpose which would cause an increase in
the rate of the fire insurance on said building, and the Tenant agrees to pay
on demand any such increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein shall not be deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a
waiver of any subsequent breach or default in the terms, conditions and
covenants herein contained. This instrument may not be changed, modified,
discharged or terminated orally.
21th. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any
award shall belong to the Tenant. Notwithstanding anything herein to the
contrary, after any such taking, said Lease shall not terminate provided Tenant
continues to comply with all the terms of said Lease.
22nd. If after default in payment of rent or violations of any other provision
of this lease, or upon the expiration of this Lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this Lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay
in monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the differences between the rent reserved and
the rent collected and received, if any, by the Landlord during the remainder
of the unexpired term, such difference or deficiency between the rent herein
reserved and the rent collected if any, shall become due and payable in monthly
payments during the remainder of the unexpired term, as the amounts of such
difference or deficiency shall from time to time be ascertained; and it is
mutually agreed between Landlord and Tenant that the respective parties hereto
shall and hereby do waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties against the other on any matters
whatsoever arising out of or in any way connected with this lease, the Tenant's
use or occupancy of said premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from
so doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the buildings or to its appliances, nor for any
space taken to comply with any law, ordinance or order of a governmental
authority. In respect to the various "services," if any, herein expressly or
impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed
that there shall be no diminution or abatement of the rent, or any other
compensation, for interruption or curtailment of such "service" when such
interruption or curtailment shall be due to accident, alterations or repairs
desirable or necessary to be made or to inability or difficulty in securing
supplies or labor for the maintenance of such "service" or to some other cause,
not gross negligence on the part of the Landlord. No such interruption or
curtailment of any such "service" shall be deemed a constructive eviction. The
Landlord shall not be required to furnish, and the Tenant shall not be entitled
to receive, any of such "services" during any period wherein the Tenant shall
be in default in respect to the payment of rent. Neither shall there be any
abatement or diminution of rent because of making of repairs, improvements or
decorations to the demised premises after the date above fixed for the
commencement of the term, it being understood that rent shall, in any event,
commence to run at such date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
[SEE RIDER ANNEXED HERETO AND MADE A PART HEREOF]
And the said Landlord doth covenant that the said Tenant on paying the said
yearly rent, and performing the covenants aforesaid, shall and may peacefully
and quietly have, hold and enjoy the said demised premises for the term
aforesaid, provided, however, that this covenant shall be conditioned upon the
retention of title to the premises by the Landlord.
AND IT IS MUTUALLY UNDERSTOOD AND AGREED that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate officers
and caused their proper corporate seal to be hereto affixed) this 15th day of
May 1995.
Signed, sealed and delivered CARMAN ROAD REALTY, INC. and
in the presence of BROAD PROPERTIES, INC.
By:/S/L.S.
Joseph
Picone, Jr., Pres. (Landlord)
STROBER LONG ISLAND BUILDING
MATERIALS CENTERS, INC.
By:/S/L.S.
<PAGE>
RIDER TO LEASE BETWEEN CARMAN ROAD REALTY, INC. and BROAD PROPERTIES, INC. as
Landlord, and STROBER LONG ISLAND BUILDING MATERIAL CENTERS, INC. as Tenant.
DATED: May 15, 1995
- -------------------------------------------------------------------------------
28th. At the expiration or sooner termination of this Lease, or any extension
or renewal thereof, all improvements made by the Tenant in or upon the demised
premises, except trade fixtures, shall, unless the Landlord elects otherwise,
become the property of the Landlord and shall remain upon and be surrendered
with said premises as part thereof at the end of the tenancy as aforesaid.
Tenant shall remove all debris and other property of Tenant located in and
around the premises. Tenant shall repair any damage in connection with the
removal of its property and restore the premises to its original condition
after Tenant's improvements made as per drawings amended hereto as Exhibit "C",
ordinary wear and tear excepted. This provision shall survive the termination
of this lease.
29th. If the Tenant shall at any time during the term of this Lease or any
extension or renewal thereof be in default hereunder, and if the Landlord shall
institute an action or summary or other proceeding against the Tenant based on
such default and should Landlord prevail, then the Tenant shall reimburse the
Landlord for the expenses of attorneys' fees and disbursements thereby incurred
by the Landlord so far as the same are reasonable in amount. The amount of
such expenses shall be deemed to be additional rent hereunder.
30th. Tenant will keep the open areas in front of and around the Demised
Premises, including the Fire Lane as shown on Exhibit "A" annexed hereto, clean
at all times and free from weeds, snow, debris and ice at its own expense.
31th. The Tenant shall procure liability insurance and will fully protect and
indemnify the Landlord and Joseph Picone & Son, Inc., as managing agent,
against any and all damages and claims, suits or actions for damage as a result
of the injury, or any alleged injury, to any person whomsoever, or any property
whatsoever in or about the Demised Premises, in form sufficient to insure and
protect the Landlord in the sum of:
$1,000,000.00 in respect of injury or death of any one person;
$2,000,000.00 in respect of any one accident; and
$ 500,000.00 in respect to property damage.
The Tenant shall pay all premiums for such insurance policies and shall deposit
the duplicate original policies with the Landlord. The Tenant shall furnish
such policies to the Landlord no later than ten (10) days prior to the
commencement of the terms of this Lease, and a renewal certificate thereof
within ten (10) days prior to the expiration of such policy. Tenant shall
deliver to Landlord the original renewals thereof. Upon the failure of the
Tenant to procure such policies or pay such premiums, the Landlord may, but
shall not be obligated to, procure such policies upon ten (10) days prior
written notice to Tenant and pay the premium therefor, and the amount paid by
the Landlord shall be added to the next month's rent to become due. Such
insurance shall name Landlord and Joseph Picone & Son, Inc., as managing agent,
as additional insured, and shall contain an endorsement that such insurance may
not be canceled or its limits or coverage reduced, except upon fifteen (15)
days prior written notice from the insurance company to Landlord, sent by
certified or registered mail.
32nd. If by reason of the use or the conduct of the Tenant's business in the
Demised Premises or of the failure of the Tenant to comply with all of the
terms of this Lease, the fire insurance rate for the building in which the
Demised Premises are located shall at any time be higher than it otherwise
would be, then the Tenant will reimburse the Landlord, as additional rent
hereunder, for the amount over such increases in such insurance rates for the
entire building in which the Demised Premises are located. Such reimbursement
shall be additional rent and shall be paid on the first day of the month
following such outlay by the Landlord.
33rd. (a) During the term or any extension or renewal of this Lease, in
addition to the other rents herein provided, and as additional rent, Tenant
agrees to pay to Landlord a percentage of all increases in real estate taxes
assessed against the land and/or buildings of which the Demised Premises form
a part which are in excess of said taxes for the 94/95 tax year. The Premises
of which the Demised Premises are or form a part and for which real estate tax
bill or bills are rendered are presently identified as follows:
TOWN OF BABYLON, COUNTY OF SUFFOLK PERCENTAGE OF INCREASES
Dist.100 Sec.48 Block 2 Lot (s) 9.14 78.97%
Dist.100 Sec.48 Block 2 Lot (s) 9.9 60.32%
(a.1)"Real Estate Taxes" shall be deemed to include all taxes and general
and special assessments, whether ordinary or extraordinary, seen or unforeseen,
imposed, levied or assessed upon the land and the aforesaid building. Tenant
shall pay to Landlord the aforesaid real estate taxes in two (2) payments, upon
due demand thereof, in writing by the Landlord to the Tenant, after the
Landlord has received from the taxing authorities the tax bill for the Demised
Premises. Said taxes shall be deemed additional rent and the Landlord shall
have all of the rights and remedies granted to it herein for the collection
thereof as though the same were rent.
(a.2)Any future changes of description on the Tax Map shall not diminish the
tax burden chargeable to Tenant, except if any change in the description on the
Tax Map alters the District, Section, Block, Lot or Lots, or any of them as
presently constituted. Tenant shall pay the entire amount of the tax bill if
the Demised Premises constitute all the land and buildings on such changed
description on the Tax Map as aforesaid, Tenant shall pay its pro rata share
thereof which shall be equal to the amount of such tax bill multiplied by the
fraction, the numerator of which is the square foot area of that part of the
building demised to Tenant and the denominator of which is the square foot area
of the building or buildings included in such tax bill.
(b)It is further understood and agreed that the Tenant's obligation to pay,
as additional rent hereunder, the increase in real estate taxes, shall include
taxes which result in all or any part as the result of a shift or substitution
of the incidence of taxes now or ordinarily imposed on realty, including, but
not limited to, value added tax. Tenant shall also pay any tax which may be
imposed on the rents received by Landlord or any license fee measured by the
rent received by Landlord from the Tenant. Tenant shall not be liable for
Landlord's income or inheritance taxes.
34th. Tenant agrees to pay for all utilities consumed by it in the Premises
including, without limitation, electric, heating, sewer, rent, water and any
other utility. Landlord will not be obligated to supply heat or any utilities
to Tenant. Landlord represents that all utilities are separately metered.
35th. All municipal, Village, Town, City, State and Federal inspection fees,
licenses, general fees and permits for the Demised Premises and for the conduct
and operation of Tenant's business therein, are to be procured by Tenant at its
cost and expense.
36th. Except as provided in the work letter amended hereto as Exhibit "D", the
Tenant agrees to accept the Demised Premises in their present condition, "as
is".
37th. It is agreed and understood that in the event the Lease contains two (2)
provisions that are repugnant to each other, and one is printed and the other
typewritten, the typewritten provisions shall control and over-ride the printed
provisions. This Lease and the exhibits and rider set forth all the covenants,
promises and conditions and understandings between the parties herein.
38th. As an inducement to Landlord to enter into this Lease, Tenant covenants,
warrants and represents that at the inception of and at all times during the
term of this Lease, Tenant shall fully insure all its fixtures, stock and
equipment and property of others in the care and custody of Tenant against the
perils of fire, water damage or any other damages or casualty with insurance
carriers selected by Tenant and authorized to do business in New York.
38.1 Tenant shall deliver to Landlord a copy of all insurance policies
required under the terms of this Lease, together with all renewals and
extensions upon Landlord's demand or within ten (10) days prior to the
commencement of the term of this lease or ten (10) days prior to the expiration
of any said coverage. Tenant may provide insurance certificates until said
policies are made available to Tenant.
38.2 In the event Tenant fails or neglects to obtain such insurance policies
as set forth hereinbefore, or fails or neglects to pay the insurance premiums
when due, any damage sustained by Tenant to its fixtures, stock or equipment or
damage to the property of others in the care and custody of Tenant by the
perils of fire, water damage, or any other damage or casualty shall be deemed
to have been insured against by Tenant with a solvent company which had waived
its rights of subrogation against Landlord, and Tenant shall be deemed to have
been fully paid for all damages under such policy of insurance.
38.3 In no event shall Tenant make any claim or be entitled to any damages or
any part thereof for which Tenant has been reimbursed under any policy of
insurance.
39th. As a consideration for granting of this Lease in all other insurance
policies obtained by Tenant insuring Tenant against loss or damage for any fire
or other casualty, or any public liability policy, Tenant warrants and
represents that such insurance policies shall contain a waiver by the insurance
carrier of all rights of subrogation against the Landlord, and Joseph Picone &
Son, Inc., managing agent, if obtainable from Tenant's insurance carrier. If
permissible by Landlord's insurance carriers, Landlord will seek to obtain a
waiver of the rights of subrogation which Landlord's insurance carriers may
have against the Tenant under Landlord's policy of insurance. Tenant's breach
of this covenant is a default under the terms of this Lease and, in addition to
any other remedies. Landlord shall be entitled to recover from Tenant all
damages sustained by Landlord plus reasonable attorney fees, investigation
fees, and disbursements.
40th. If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized
to execute and deliver this Lease on behalf of said corporation, in accordance
with the by-laws of said corporation, and that this Lease is binding upon said
corporation.
41st. In addition to any other rights reserved to the Landlord hereunder, if
Tenant shall not have paid the rent by the fifth (5th) business day of any
month during the term of this Lease, there shall be a late charge of four (4%)
percent of the monthly rent for the handling of the delinquent account. The
said late charge is additional rent and collectible as rent.
42nd. Tenant warrants and represents that Tenant has dealt with no broker
knowing that Landlord is relying thereon.
43rd. Tenant shall not use or permit the use of the sewerage waste systems for
the disposal of cleaning fluids, solvents or any hazardous wastes.
44th. The waiver by Landlord of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same of any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be waiver of any preceding default by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular ental so accepted, regardless of Landlord's
knowledge of such preceding default at the time of the acceptance of such rent.
45th. This agreement shall not constitute an offer to create any rights in
favor of Tenant and shall not obligate or be binding upon Landlord and shall
have no force or effect unless and until this agreement is duly executed copy
of this agreement is delivered by Landlord to Tenant.
46th. The security set forth in Paragraph 15th hereof is intended to be an
amount equal to two (2) months of the then current annual rent. If the annual
rent is increased, at the beginning of each year of such increase the Tenant
shall deposit with Landlord such additional sums so that the said security will
be an amount equal to two (2) months of the then current annual rent.
47th. All notices desired or required to be given under this Lease shall be in
writing and sent by certified or registered mail, postage prepaid, return
receipt requested, as follows:
(a)If to Landlord, at Landlord's
address set forth on the first page of this Lease, or to such other
addresses as landlord may designate.
(b)If to Tenant, at Tenant's
address set forth on the first page of this Lease, or to such other
address as Tenant may designate.
48th. Except as otherwise provided in Paragraph 2nd and the work letter annexed
hereto as Exhibit "D", the Landlord shall be under no obligation to make,
repair, alter or decorate any portion or all of the Demised Premises, in
connection with the use and occupation of the Tenant; or to institute or defend
any action with respect to the Tenant's use and occupation of the Demised
Premises; and the Tenant agrees that all repairs, alterations, additional
decorations or otherwise, necessary for the Tenant's use and occupation shall
be the sole responsibility and shall be done at the sole cost and expense of
the Tenant, except as herein provided.
49th. Tenant shall have no right to occupy the Leased Premises or any portion
thereof after the expiration of the Lease. In the event Tenant or any party
claiming by, through or under Tenant, holds over, Landlord may exercise any and
all remedies available to it at law or in equity to recover possession of the
Leased Premises, and for damages. For each and every month or partial month
that Tenant or any party claiming by, through or under Tenant, remains in
occupancy of all or any portion of the Leased Premises after the expiration of
the Lease, or after termination of the Lease, Tenant shall pay, as minimum
damages and not as a penalty, monthly rental at a rate equal to double the rate
of rent and other charges payable by Tenant hereunder immediately prior to the
expiration or other termination of the Lease. The acceptance by Landlord of
any lesser sum shall be construed as a payment on account and not in
satisfaction of damages for such holding over. If the holding over occurs at
the expiration of the Lease term or by reason of a termination by mutual
agreement of the parties, the Landlord may, as an alternative remedy, elect
that such holding over shall constitute a renewal of this Lease for one (1)
year at a rental equal to 150% of the rate of the rent payable hereunder
immediately prior to the expiration of the Lease, and upon all of the other
covenants and agreements contained in this lease.
50th. The security, if any, deposited with Landlord pursuant to the provisions
of Paragraph 15 hereinabove, is deposited by the Tenant with the Landlord on
the understanding that: (a) the Security Deposit or any portion thereof not
previously applied, or from time to time such other portions thereof, may be
applied to the curing of any default that may then exist, without prejudice to
any other remedy or remedies which the Landlord may have on account thereof,
and upon such application Tenant shall pay Landlord on demand the amount so
applied which may be added to the Security Deposit so that the same may be
restored to its original amount; (b) if Tenant shall faithfully fulfill, keep,
perform and observe all of the covenants, conditions, and agreements in this
Lease set forth and contained on the part of the Tenant to be fulfilled, kept,
performed and observed, the Security Deposit or the part or portion thereof not
previously applied shall be returned to the Tenant no later than thirty (30)
days after the expiration of this Lease or any renewal or extension thereof,
provided Tenant has vacated the leased Premises and surrendered possession
thereof to the Landlord at the expiration of said term or any extension or
renewal thereof as provided herein; (c) in the event that Landlord terminates
the Lease, Landlord may apply the Security Deposit against all damages suffered
to the date of such termination and/or may retain the Security Deposit to apply
against such damages as may be suffered or shall accrue thereafter by reason of
Tenant's default; (d) in the event of any bankruptcy, insolvency or
reorganization shall be instituted by or against Tenant, or its successors or
assigns, the Security Deposit shall be deemed to be applied first to the
payment of any rents and/or other charges due Landlord for all periods prior
too the institution of such proceedings, and the balance if any, of the
Security Deposit may be retained or paid to Landlord in partial liquidation of
Landlord's damages; and (e) the provisions of Section 7-103 of the General
Obligations Law of the State of New York as amended; and to the extent that the
provisions of this Article may be inconsistent therewith, the said Section 7-
103 of the General Obligations Law shall supersede.
51st. Tenant shall pay its proportionate share of the annual water, sprinkler,
stand-by, and maintenance expenses for the Demised Premises, if any.
52nd. Whenever under the terms of this Lease any sum of money is required to be
paid by Tenant in addition to the rental herein reserved, and said additional
amount so to be paid is not designated as "additional rent", or provision is
not made in the Article covering such payment for the collection of said amount
as "additional rent", then said amount shall nevertheless, at the option of
Landlord, if not paid when due, be deemed "additional rent" and collectible as
such with any installment of rental thereafter failing due hereunder; but
nothing herein contained shall be deemed to suspend or delay the payment of any
sum at the time the same becomes due and payable hereunder, or limit any other
remedy of Landlord.
53rd. There shall be no storage of any kind or nature outside the actual
building demised to the Tenant except as permissible under applicable law, or
exceptions thereto lawfully obtained by Tenant.
54th. Tenant shall keep all areas surrounding the Demised Premises free and
clear of any dirt or debris, failing which Landlord shall have the option of
cleaning or removing said debris (but shall not have the obligation therefor)
and charge the cost thereof to Tenant, upon five (5) days written notice to
Tenant.
55th. All garbage receptacles shall be kept or maintained in accordance with
applicable law.
56th. Tenant will at no time use or occupy the Premises in violation of the
Certificate of Occupancy issued for the building. The statement in this Lease
of the nature of the business to be conducted by Tenant is neither a
representation or inference by Landlord that such use is lawful or permissible
in the Premises under the Certificate of Occupancy for the building, if any.
57th. The invalidity or unenforceability of any portion of the within Lease
Agreement shall in no way affect the validity or enforceability of any other
provision hereof.
58th. Anything in this Lease to the contrary notwithstanding, it is agreed that
there shall be no allowance to Tenant for a diminution in rental by reason of
inconvenience, annoyance, or injury to business arising from Landlord, Tenant
or others making or failing to make any portion of the building or the Demised
Premises, or in and to the fixtures, appurtenances or equipment thereof.
59th. In addition to any other insurance policy to be supplied by Tenant as set
forth in this Lease, or any endorsement or endorsements in connection
therewith, Tenant agrees to pay on demand any increase in premiums that may be
charged on insurance carried by Landlord resulting from Tenant's use or
occupancy of the Demised Premises, or from any vacancy of the Demised Premises,
whether or not Landlord has consented to same. In determining whether
increased premiums are the result of Tenant's use or occupancy or vacancy of
the Demised Premises, a schedule or "make up" rate of the organization issuing
the fire insurance, extended coverage, vandalism and malicious mischief,
special extended coverage or any all-risk insurance rates for the Premises, or
any rule books issued by the rating organization or similar bodies, or by
rating procedures or rules of Landlord's insurance companies, shall be
conclusive evidence of the several items and charges which make up the
insurance rates and the premiums of the Demised Premises. If, due to (i)
occupancy, or (ii) abandonment, or (iii) Tenant's failure to occupy the Demised
Premises as herein provided, any such insurance shall be cancelled by the
insurance carrier, then, in any such events Tenant shall indemnify and hold
Landlord harmless against any loss which would have been covered by such
insurance. Tenant shall also pay any increase in premiums or such rent
insurance as may be carried by Landlord for its protection against rent loss
through fire or other casualty, if such increase shall result from any of the
foregoing events.
60th. BANKRUPTCY
(a)EVENTS OF BANKRUPTCY. The following shall be Events of Bankruptcy under
this Lease:
(i) Tenant's becoming insolvent, as that term is defined in Title 11 of
the United States Code, entitled Bankruptcy, 11 U.S.C. <section>101 et seq.
(the "Bankruptcy Code") or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency Laws");
(ii) the appointment of a receiver or custodian for any or all of
Tenant's property or assets;
(iii) the filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(iv) the filing of any involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code of Insolvency Laws, which is either
not dismissed within sixty (60) days of filing, or results in the issuance of
an order for relief against the debtor, whichever is later; or
(v) Tenant's making or consenting to an assignment for the benefit of
creditors or a common law composition of creditors.
(b)LANDLORD'S REMEDIES
(i)TERMINATION OF LEASE. Upon the occurrence of an Event of Bankruptcy,
Landlord shall have the right to terminate this Lease by giving written notice
to Tenant, provided, however, that this <para>60(b)(i) shall have no effect
while a case in which Tenant is the subject debtor under the Bankruptcy Code is
pending, unless Tenant or its Trustee in bankruptcy is unable to comply with
the provisions of <para>60(b)(v) and <para>60(b)(vi) below. Otherwise, this
Lease shall automatically cease and terminate and Tenant shall be immediately
obligated to quit the Premises upon the giving of notice pursuant to this
<para>60(b)(i). Any other notice to quit, or notice of Landlord's intention to
re-enter is hereby expressly waived. If Landlord elects to terminate this
Lease, everything contained in this Lease on the part of Landlord to be done
and performed shall cease without prejudice, subject, however, to the right of
Landlord to recover from Tenant all rent and any other sums accrued up to the
time of termination or recovery of possession by Landlord, whichever is later,
and any other monetary damages or loss of reserved rent sustained by Landlord.
(ii)SUIT FOR POSSESSION. Upon termination of this Lease, pursuant to
<para>60(b)(i), Landlord may proceed to recover possession under and by virtue
of the provisions of the laws of the State of New York, or by such other
proceedings, as may be applicable.
(iii)RELETTING OF PREMISES. Upon termination of this Lease, pursuant to
<para>60(b)(i), the Premises may be relet by Landlord for such rent and upon
such terms as are not unreasonable under the circumstances and; if the full
rental reserved under this Lease (and any of the costs) expenses or damages
indicated below) shall not be realized by Landlord, Tenant shall be liable for
all damages sustained by Landlord, including, without limitation, deficiency in
rent, reasonable attorneys' fees, brokerage fees, and expenses of placing the
Premises in first class rentable condition. Landlord, in putting the Premises
in good order or preparing the same for rerental may, at Landlord's option,
make such alterations, repairs, or replacements in the Premises as necessary
for the purpose of reletting the Premises, and the making of such alterations,
repairs, or replacements shall not operate, or be construed to release Tenant
from liability hereunder as aforesaid. Landlord shall in no event be liable in
any way whatsoever for failure to relet the Premises, or in the event that the
Premises are relet, for failure to collect the rent thereof under such
reletting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rent collected over the sums payable by Tenant to Landlord
hereunder.
(iv)MONETARY DAMAGES. Any damage or loss or rent sustained by Landlord
as a result of an Event of Bankruptcy may be recovered by Landlord, at
Landlord's option, at the time of the reletting, or in separate actions, from
time to time, as said damage shall have been made more easily ascertainable by
successive relettings, or, in a single proceeding deferred until the expiration
of the terms of this Lease (in which event Tenant hereby agrees that the cause
of action shall not be deemed to have accrued until the date of expiration of
said term) or in a single proceeding prior to either the time of reletting or
the expiration of the term of this Lease, in which event Tenant agrees to pay
Landlord the difference between the present value of the rent reserved under
this Lease on the date of breach, discounted at eight (8%) percent per annum,
and the fair market value of the Lease on the date of breach. In the event
Tenant becomes the subject debtor in a case under the Bankruptcy Code, the
provisions of the <para>60(b)(iv) may be limited by the limitations of damage
provisions of the Bankruptcy Code.
(v)ASSUMPTION OR ASSIGNMENT BY TRUSTEE. In the event Tenant becomes the
subject debtor in a case pending under the Bankruptcy Code, Landlord's right to
terminate this Lease pursuant to this <para>60 shall be subject to the rights
of the Trustee in bankruptcy to assume or assign this Lease. The Trustee shall
not have the right to assume or assign this Lease unless the Trustee (A)
promptly cures all defaults under this Lease, (B) promptly compensates Landlord
for monetary damages incurred as a result of such default, and (C) provides
adequate assurance of future performance.
(vi)ADEQUATE ASSURANCE OF FUTURE PERFORMANCE. Landlord and Tenant hereby
agree in advance that adequate assurance of future performance, as used in
<para>60 (b) (v) above, shall mean that all of the following minimum criteria
must be met: (A) the Trustee must pay to Landlord, at the time the next
payment of rent is then due under this Lease, in addition to such payment of
rent, an amount equal to the next payment of rent due under this Lease, or the
next three (3) months rent due under this Lease, whichever is greater, said
amount to be held by Landlord in escrow until either the Trustee or Tenant
defaults in its payments of rent or other obligations under this Lease
(whereupon Landlord shall have the right to draw such escrowed funds) or until
the expiration of this Lease (whereupon the funds shall be returned to the
Trustee or Tenant); (B) the Tenant or Trustee must agree to pay to Landlord, at
any time the Landlord is authorized to and does draw on the funds escrowed
pursuant to <para>60(vi)(A) above, the amount necessary to restore such escrow
account to the original level required by said provision; (C) Tenant must pay
its estimated pro rata share of the cost of all services provided by Landlord
(whether directly or through agents or contractors, and whether or not the cost
of such services is passed through to Tenant) in advance of the performance or
provision of such services; (D) the Trustee must agree that Tenant's business
shall be conducted in a first class manner, and that no liquidating sales,
auctions, or other non first class business operations shall be conducted on
the Premises; (E) the Trustee must agree that the use of the Premises as stated
in this Lease will remain unchanged; (F) the Trustee must agree that the
assumption or assignment of this Lease will not violate or affect the rights of
other tenants in the building.
(vii)FAILURE TO PROVIDE ADEQUATE ASSURANCE. In the event Tenant is
unable to (A) cure its defaults, (B) reimburse Landlord for its monetary
damages, (C) pay the rent due under this Lease, or any other payments required
of Tenant under this Lease, on time (or within five (5) days of the due date),
or (D) meet the criteria and obligations imposed by <para>60(b)(vi) above, then
Tenant agrees in advance that it has not met its burden to provide adequate
assurance of future performance, and this Lease may be terminated by Landlord
in accordance with <para>60(b) above.
61st. Tenant shall indemnify and hold harmless from any and all claims,
lawsuits, administrative or governmental actions which may arise as a result of
the accidental or intentional spillage or discharge of any toxic or hazardous
wastes or hazardous substances in or about the Demised Premises caused by
Tenant, its servants, agents, employee or invitees, and Tenant shall bear the
entire cost for detecting, identifying and removing said substances from the
Premises, including, but not limited to, site assessment fees, environmental
audit fees, engineering fees, groundwater study fees, laboratory analysis fees,
and any other fees incurred in connection therewith, including reasonable
attorney fees in connection with the enforcement hereof.
For the purpose of this article, Hazardous Substance shall be defined as set
forth by either <section>9601(14) of Title 42 of the United States Code or any
successor or similar section, or any environmentally related statute enacted by
the State of New York (collectively called "Hazardous Substances").
Notwithstanding anything herein to the contrary, Tenant shall not be
responsible for any pre-existing conditions.
62nd. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use of or occupancy of said
Premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the Premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding, except
those that are compulsory.
63rd. In addition to any other remedies which Landlord may have, in the event
of any default or breach by Tenant, Landlord may at any time thereafter, in its
sole discretion, with notice or demand and without limiting Landlord in the
exercise of a right or remedy which Landlord may have by reason of such default
or breach:
(a)Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason
of Tenant's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises; reasonable attorney's fees; the
worth at the time of award by the court having jurisdiction thereof of the
amount by which the unpaid rent and other charges and Adjustments called for
herein for the balance of the term after the time of such award exceeds the
amount of such loss for the same period that Tenant probes could be reasonably
avoided; and that portion of any leasing commission paid by Landlord and
applicable to the unexpired term of this Lease. Unpaid installments of rent or
other sums shall bear interest from the date due at the maximum legal rate; or
(b)If Tenant shall make default in fulfilling any of the covenants of this
Lease, or other than the covenants for the payment of rent or "additional
rent", or if the Demised Premises become vacant or deserted, the Landlord may
give to the Tenant ten (10) days' notice of intention to end the term of this
Lease, and thereupon, at the expiration of said ten (10) days' (if said
condition which was the basis of said notice shall continue to exist) the term
of this Lease shall expire as fully and completely as if that day were the date
herein definitely fixed for the expiration of the term and the Tenant will then
quit and surrender the Demised Premises to the Landlord, but the Tenant shall
remain liable as hereinbefore and hereinafter provided;
(c)Upon the occurrence of any Event of Default, Landlord shall have the
election, forthwith to recover against Tenant as liquidated damages for loss
of the bargain and not as a penalty, a sum equal to the Fixed Minimum Rent
multiplied by the number of months and fractional months which would have
constituted the balance of the term, together with costs and attorneys' fees,
except that Landlord will use its best efforts to mitigate its damages.
64th. In the event that Tenant is in default in payment of any rent or any
additional rent, the Landlord is hereby authorized to apply any payments
received by Landlord to any default and in such amount or amounts as Landlord
may elect.
65th. No part of the Demised Premises shall be occupied by any person, firm or
entity other than Tenant. All goods, wares and merchandise brought into or
stored at the Demised Premises and not owned by Tenant (the "Goods"), shall not
give the Owner of such Goods (the Non-Tenant) any rights of any kind or nature
with respect to the Demised Premises or the use or occupation thereof.
65.1 In the event that all or any part of the Goods stored at the Demised
Premises are not owned by Tenant, but owned by the Non-Tenant, and the Non-
Tenant becomes insolvent while the Goods are at the Demised Premises, and a
voluntary or involuntary petition in bankruptcy is filed by or on behalf of the
Non-Tenant, or such Non-Tenant makes any assignment for the benefit of
creditors, Tenant shall within five (5) days of the filing of the said petition
or assignment by the Non-Tenant:
(a)deposit with the Landlord a sum equal to three (3) months of the then
current rent as further security and assurance to Landlord that the Tenant will
perform all the terms and covenants of this Lease to be performed by Tenant;
and
(b)remove or cause to be removed from the Demised Premises the Goods of the
Non-Tenant; and/or
(c)provide Landlord with adequate assurance, satisfactory to Landlord form
both the Tenant and Non-Tenant that at all times during the presence of the
Goods at the Demised Premises during the term of the Lease that all rent and
additional rent shall be paid when due.
66th. No memorandum of this Lease shall be recorded without the express written
consent of Landlord.
67th. At all times during the term of this Lease, or any extension or renewal
thereof, Tenant shall obtain and keep in full force and effect for the benefit
of Landlord an Tenant, with a responsible company doing business in Suffolk or
Nassau County, a service and repair and maintenance contract with respect to
the heating and air conditioning systems of the building. A copy of such
contracts and renewals thereof shall be delivered to Landlord upon the issuance
thereof (within thirty days of the commencement of the term of this Lease, or,
in the case of renewal, within ten days prior to the expiration thereof) with
proof of payment.
68th. The Tenant agrees to furnish Landlord with a financial statement or any
other instrument which may be required by a lending institution to which
Landlord has applied for a mortgage loan in accordance with SEC guidelines.
69th. As a condition to making this Lease, the Tenant agrees that it shall,
within twenty (20) days after the date of execution hereof or March 31, 1995,
whichever is later, deliver to the Landlord, in proper form, a resolution of
the Board of Directors of Tenant confirming and approving this Lease.
70th. Except as provided in Exhibit "C", Tenant shall not, without the express
written consent of Landlord, enter in or upon the roof of the Demised Premises
or install anything thereon or make any alterations thereto.
71st. Tenant shall be permitted to install a lawful sign on the existing pylon
shown on Exhibit "A", provided Tenant complies with all applicable regulations
and obtains Landlord's prior approval of design thereof, which approval shall
not be unreasonably withheld.
72nd. Tenant shall have the option to extend the term of this lease for a
period of five (5) years, to wit May 1, 2000 to April 30, 2005 (the "Extended
Term") upon condition that Tenant exercises the said option in writing on or
before DECEMBER 1, 1999. For the annual rent for the Extended Term see Exhibit
"B".
73rd. Tenant currently occupies the premises known as 1644 Route 110,
Farmingdale, New York, which premises are owned by Hollow Properties, Inc., (a
related entity to the Landlord herein), pursuant to a certain lease entered
into between the respective predecessors in interest of Hollow Properties,
Inc., and Tenant (the "1644 Lease"). At the time of the signing of this Lease,
the parties shall also sign an Amendment to the 1644 Lease, which signed
Amendment shall be annexed to this Lease as Exhibit "E" (the "1644 Amendment").
Tenant acknowledges that a default by Tenant under the terms of this Lease
shall also constitute a default under the terms of the 1644 Lease and 1644
Amendment.
74th. Tenant's performance of its obligations under the terms of this Lease
shall be expressly subject to and contingent upon Tenant receiving the
municipal permits and approvals required to permit the operation of Tenant's
business (as defined herein) at the Demised Premises. Upon the execution of
this Lease, Tenant shall immediately apply for any and all permits and
approvals so required, at Tenant's sole cost and expense. In the event Tenant
has failed to obtain said permits and approvals by July 1, 1995, either party
may cancel this Lease, upon five (5) days prior written notice to the other
party, except that Tenant may further extend the time to obtain said permits
and approvals by making prompt payment of all rent and additional rent due
under this Lease together with prompt payment to Hollow Properties, Inc. under
the terms of the 1644 Lease or the 1644 Amendment and by complying with all the
other terms and conditions of the 1644 Lease and 1644 Amendment.
75th. Landlord and Tenant acknowledge that Tenant shall make certain
improvements to the Demised Premises (Tenant's Work). Tenant, at his sole cost
and expense shall deliver to Landlord two (2) copies of complete, detailed
architectural, mechanical and electrical drawings and specifications for
Tenant's Work (Tenant's Plans). Tenant's Plans shall be prepared in accordance
with all applicable laws, ordinance, rules and regulations.
All work proposed by Tenant shall be subject to the prior approval of
Landlord, which approval shall not be unreasonably withheld. Upon Landlord's
approval of Tenant's Plans, three (3) sets of same shall be signed by Landlord
and Tenant, two (2) sets to be retained by Landlord and one (1) set by Tenant.
Thereafter, Tenant's Plans shall not be changed without the prior approval of
Landlord, which approval shall not be unreasonably withheld.
Landlord's approval of Tenant's Plans shall not constitute an opinion or
agreement by Landlord that said Plans are in compliance with applicable law,
nor shall such approval impose any present or future liability on Landlord, nor
constitute a waiver by Landlord of any of its rights under this Lease. Prior
to beginning Tenant's work, Tenant shall file said Plans with the appropriate
governmental agencies and obtain all necessary approvals for same. Tenant
shall provide Landlord with copies of all such approvals immediately upon
obtaining same.
The cost of Tenant's Work shall be paid by Tenant in cash or its equivalent,
so that the Demised Premises shall at all times be free of liens for labor and
materials supplied in connection with Tenant's Work. If at any time the
Demised Premises shall be encumbered by any mechanic's or materialmen's lien,
Tenant shall, within ten (10) days after receipt of notice of same or request
by Landlord, discharge (or post a bond in lieu thereof) said lien to the
satisfaction of Landlord. If Tenant fails to discharge or bond said lien or
liens after receiving the aforesaid notice or request by Landlord, Landlord may
discharge or bond said lien or liens, and Tenant shall be responsible for all
costs incurred by Landlord in discharging or bonding said lien or liens
including reasonable attorney's fees, with said costs to be payable to Landlord
as additional rent.
Tenant guarantees to Landlord the full, lien-free completion of Tenant's
Work in accordance with Tenant's Plans. During the course of Tenant's Work,
Tenant (and all of its contractors and subcontractors) will carry or cause to
be carried adequate Worker's Compensation Insurance, Builders Risk,
Comprehensive General Liability and such other insurance as may be required by
law to be carried by Landlord or Tenant in connection with such construction,
and such insurance (except the Worker's Compensation Insurance) shall name
Landlord, Landlord's managing agent as additional insureds.
All of Tenant's Work shall be done in such a manner so as not to impair the
structural integrity of the building nor affect the proper functioning of any
of the mechanical, electrical, HVAC, plumbing, sanitary or other systems of the
Demised Premises.
With respect to Tenant's Work, Tenant, at its sole cost and expense, shall
provide and deliver to Landlord, in form and substance satisfactory to
Landlord, (i) written partial releases of liens executed by contractors,
subcontractors, material suppliers and laborers simultaneously with and to the
extent of payment for the labor performed or materials furnished by such
contractor, subcontractor, material supplier or laborer, and (ii) final
releases of lien simultaneous with final payments to contractors,
subcontractors, material suppliers and laborers.
Promptly following the completion of all of Tenant's Work, Tenant shall
obtain and furnish to Landlord (i) all appropriate certifications from all
authorities having jurisdiction (including a certificate of occupancy or
certificate of completion, as the case may be) to the effect that all of
Tenant's Work has been performed and completed in accordance with Tenant's
Plans and with all Legal Requirements.
LANDLORD
CARMAN ROAD REALTY, INC. and
BROAD PROPERTIES, INC.
By:_________________________
Joseph Picone, Jr., Pres.
TENANT
STROBER LONG ISLAND BUILDING
MATERIAL CENTERS, INC.
By:_________________________
<PAGE>
"EXHIBIT B"
<TABLE>
<CAPTION>
PERIOD ANNUAL RENT
<S> <C>
May 1, 1995 to April 30, 1996 $140,070.00
May 1, 1996 to April 30, 1997 150,844.20
May 1, 1997 to April 30, 1998 161,618.16
May 1, 1998 to April 30, 1999 172,393.44
May 1, 1999 to April 30, 2000 183,168.00
PERIOD MONTHLY PAYMENTS
May 1, 1995 to April 30, 1996 $ 11,672.50
May 1, 1996 to April 30, 1997 12,570.35
May 1, 1997 to April 30, 1998 13,468.18
May 1, 1998 to April 30, 1999 14,366.12
May 1, 1999 to April 30, 2000 15,264.00
EXTENDED TERM
PERIOD ANNUAL RENT
May 1, 2000 to April 30, 2001 $193,942.08
May 1, 2001 to April 30, 2002 193,942.08
May 1, 2002 to April 30, 2003 193,942.08
May 1, 2003 to April 30, 2004 205,914.00
May 1, 2004 to April 30, 2005 205,914.00
PERIOD MONTHLY PAYMENTS
May 1, 2000 to April 30, 2001 $ 16,161.84
May 1, 2001 to April 30, 2002 16,161.84
May 1, 2002 to April 30, 2003 16,161.84
May 1, 2003 to April 30, 2004 17,159.50
May 1, 2004 to April 30, 2005 17,159.50
</TABLE>
It is intended hereby that upon the commencement of the term, Tenant's
obligation to pay rent hereunder will commence upon occupancy or July 1,1995
whichever is sooner.
If Tenant commences occupancy on June 1, 1995 then the annual rent for the
period June 1, 1995 to April 30, 1996 shall be $128,397.50 if the Tenant
commences occupancy on July 1, 1995 then the annual rent for the period July 1,
1995 to April 30, 1996 shall be $116,725.00.
<PAGE>
EXHIBIT "C"
Tenant's improvements to be competed at Tenant's sole cost and expense in
accordance with the terms of the Lease and all applicable law.
1. Convert 79 East Carmans Road into Office and Showroom.
2. Add overhead door to south wall of 77 East Carmans Road.
3. Add overhead door to south wall of 75 East Carmans Road.
4. Demolish block room in 79 East Carmans Road.
5. Demolish office space in 75 East Carmans Road.
6. Remove overhead door in east wall of 79 East Carmans Road.
7. Install windows and entrance in 79 East Carmans Road.
8. HVAC in 79 East Carmans Road.
9. Install two bathrooms in 79 East Carmans Road tie into new sewer line to be
run by landlord or pump up and through 77 and 75 East Carmans Road to tie
into existing sewer.
10.Close openings between 79 and 77 East Carmans Road install 6' passage door.
11.Open wall between 75 and 77 East Carmans Road.
12.Install water and waste in lunchroom.
13.Drop sprinkler heads below any finished ceilings. May convert wet sprinkler
system to dry type.
<PAGE>
EXHIBIT "D"
Picone Work Letter for Exhibit "D"
1. Relocate Fire Hydrant.
2. Finish Stucco on south wall only, as intended.
3. Fix blacktop as needed.
4. Remove concrete dividers between leased yard and fire lane.
5. Remove fence between leased yard and fire lane.
<PAGE>
State of New York )
) ss.:
County of )
On the day of 19 , before me personally came
to me known and known to me to be the individual described in, and who
executed the foregoing instrument, and acknowledged to me
that he executed the same.
State of New York )
) ss.:
County of )
On the day of 19 , before me personally came
to me known, who, being by me duly sworn, did depose and say that he
resides at No.
that he is the of
the corporation mentioned in, and which executed, the foregoing instrument that
he knows the seal of said corporation: that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of of said corporation; and that he signed his
name thereto by like order.
In Consideration of the letting of the premises within mentioned in the
within named Tenant and the sum of $1.00 paid to the undersigned by the within
named Landlord, the undersigned do hereby covenant and agree, to and with
the Landlord and the Landlord's legal representatives, that if default shall at
any time be made by the said Tenant in payment of the rent and the performance
of the covenants contained in the within lease, on the Tenant's part to be paid
and performed, that the undersigned will well and truly pay the said rent, or
any arrears thereof, that may remain due unto the said Landlord, and also pay
all damages that may arise in consequence of the non-performance of said
covenants, or either of them, without requiring notice of any such default from
the said Landlord. The undersigned hereby waives all right to trial by jury in
any action or proceeding hereinafter instituted by the Landlord, to which the
undersigned may be a party.
IN WITNESS WHEREOF, the undersigned set hand and seal this day of
, 19 .
WITNESS _____________________________________L.S.
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Strober Organization, Inc.:
We consent to incorporation by reference in the Registration Statements Nos.
33-71768, 33-71766 and 333-693 on Form S-8 of The Strober Organization, Inc. of
our report dated March 1, 1996, relating to the consolidated balance sheets of
The Strober Organization, Inc. and subsidiaries as of December 31, 1995 and
1994 and the related consolidated statements of operations, stockholders'
equity and cash flows and related financial statement schedule for each of the
years in the three-year period ended December 31, 1995 which report appears in
the December 31, 1995 annual report on Form 10-K of The Strober Organization,
Inc.
KPMG PEAT MARWICK LLP
Jericho, New York
March 26, 1996
<PAGE>
EXHIBIT 27
Financial Data Schedule
<PAGE>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STROBER
ORGANIZATION, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] Dec-31-95
[PERIOD-START] Jan-01-95
[PERIOD-END] Dec-31-95
[CASH] 6,007
[SECURITIES] 0
[RECEIVABLES] 18,228
[ALLOWANCES] 2,321
[INVENTORY] 10,305
[CURRENT-ASSETS] 33,487
[PP&E] 12,676
[DEPRECIATION] 9,049
[TOTAL-ASSETS] 44,544
[CURRENT-LIABILITIES] 9,796
[BONDS] 0
[COMMON] 52
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 44,544
[SALES] 125,813
[TOTAL-REVENUES] 125,813
[CGS] 92,627
[TOTAL-COSTS] 92,627
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 566
[INTEREST-EXPENSE] 228
[INCOME-PRETAX] 5,348
[INCOME-TAX] 2,266
[INCOME-CONTINUING] 3,082
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 3,082
[EPS-PRIMARY] 0.59
[EPS-DILUTED] 0.59
</TABLE>
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
____________ to ______________
Commission File Number 0-15339
THE STROBER ORGANIZATION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2822910
(State of Organization (IRS Employer Identification
or other Jurisdiction Number)
of Incorporation)
550 Hamilton Avenue
BROOKLYN, NEW YORK 11232
(Address of principal executive office)
(718) 832-1212
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
filing requirements for the past 90 days.
Yes X No _____
COMMON STOCK $.01 PAR - SHARES ISSUED AND OUTSTANDING AT MAY 9, 1996 -
5,027,447
(Number of shares outstanding of each class of the Registrant's Common Stock)
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
INDEX
PAGE
Face Sheet............................................................1
Index.................................................................2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995.......................3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995.................4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1996 and 1995..............................................5
Notes to Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................7
Part II Other Information..........................................9
Part III Exhibits and Reports on Form 8-K..........................10
Signature............................................................11
<PAGE>
PART 1 - FINANCIAL STATEMENTS
The Strober Organization, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands)
ASSETS MAR. 31, DEC. 31,
1996 1995
<S> <C> <C>
Current assets:
Cash $5,377 $6,007
Accounts receivable, net of allowance for 13,951 15,907
doubtful accounts of $2,501 and $2,321 in
1996 and 1995, respectively
Inventory 12,239 10,305
Deferred income taxes 921 921
Other current assets 520 347
Total current assets 33,008 33,487
Property and equipment, net 3,398 3,627
Goodwill, net of accumulated amortization of 6,674 6,726
$1,713 and $1,661 in 1996 and 1995,
respectively
Other assets 725 704
Total assets $43,805 $44,544
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $621 $908
Accounts payable 6,336 4,738
Accrued expenses and taxes 2,455 4,150
Total current liabilities 9,412 9,796
Long-term debt, less current installments 1,170 1,224
Total liabilities 10,582 11,020
Stockholders' equity:
Preferred stock, $.01 par value, 1000 -- --
shares authorized and unissued
Common stock, $.01 par value, 20,000 52 52
shares authorized; issued: 5,218 and
5,027 outstanding in 1996 and issued 5,178
and outstanding 4,987 in 1995
Additional paid-in capital 7,099 7,029
Retained earnings 26,855 27,189
Less: Treasury stock at cost, 191 shares (783) (746)
in 1996 and 1995
Total stockholders' equity 33,223 33,524
Total liabilities and stockholders' equity $43,805 $44,544
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $23,092 $28,167
Cost of goods sold 16,577 20,777
Gross profit 6,515 7,390
Selling, general and administrative 7,159 7,037
expenses
Income (loss) from operation (644) 353
Interest expense (52) (54)
Interest income 119 105
Net income (loss) before income taxes (577) 404
Provision (benefit) for income taxes (242) 165
Net income (loss) ($335) $239
Net income (loss) per share ($0.07) $0.05
Weighted average number of shares 5,132 5,208
outstanding
The computation of fully diluted earnings per share
does not materially differ from that presented above.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($335) $239
Adjustments to reconcile net income (loss) to
net cash (used by) provided by operating
activities:
Depreciation and amortization 350 346
Provision for estimated losses on accounts
receivable 180 239
Changes in operating assets and
liabilities:
Accounts receivable 1,776 1,187
Inventory (1,934) (2,192)
Other assets (198) (96)
Accounts payable 1,598 1,756
Accrued expenses and taxes (1,693) (973)
Net cash (used by) provided by operating (256) 506
activities
Cash flows from investing activities:
Additions to property and equipment, net (65) (159)
Cash flows from financing activities:
Repayment of long-term debt (342) (604)
Proceeds from exercise of stock options 70 --
Purchase of Treasury Stock (37) --
Net cash used by financing activities (309) (604)
Net decrease in cash (630) (257)
Cash at beginning of period 6,007 3,890
Cash at end of period $5,377 $3,633
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED STATEMENTS
The accompanying unaudited consolidated financial statements and other
related financial information furnished reflect all adjustments which are, in
the opinion of management, necessary to a fair presentation of the financial
position as of March 31, 1996 and the results of operations and cash flows for
the three months ended March 31, 1996 and 1995.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is suggested
that these consolidated condensed financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's December 31, 1995 financial statements. The results of operations
for the period ended March 31, 1996 are not necessarily indicative of the
operating results for the full year.
(2) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany balances and
transactions have been eliminated.
(3) STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURES
Schedule of amounts paid for interest, income taxes and capital lease
obligations.
<TABLE>
<CAPTION>
In thousands 1996 1995
<S> <C> <C>
Interest paid $32 $39
Income taxes paid $261 $219
Capital lease obligations $ 0 $271
incurred for purchase
of equipment
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain income statement amounts expressed as a
percentage of sales:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of goods sold 71.8% 73.8%
Gross Profit 28.2% 26.2%
SG&A expenses 31.0% 25.0%
Income (loss) from operations (2.8)% 1.2%
Net interest income .3% .2%
Net income (loss) before income tax (2.5)% 1.4%
Provision (benefit) for income tax 1.0% .6%
Net income (loss) (1.5)% .8%
</TABLE>
RESULT OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 1996 COMPARED TO FIRST QUARTER ENDED MARCH 31,
1995
Net sales for the quarter ended March 31, 1996 decreased by $5.1 million (18%)
compared to the same period in 1995. The decrease in sales is primarily due to
extremely severe weather conditions experienced in the Northeast this winter as
compared to milder weather conditions of the first quarter of 1995. The record
breaking snow that occurred during the first quarter of 1996 halted outside
construction activity for many of the Company's customers and greatly hampered
jobsite deliveries to those customers who could continue to work.
Gross profit decreased by $875,000 (12%) in the first quarter of 1996 as
compared to the same period in 1995 due to the lower sales volume. Gross
profit as a percentage of sales increased from 26.2% to 28.2% in the first
quarter of 1996 compared to the same period in 1995.
Selling, general and administrative expenses increased by $122,000 (2%) in the
first quarter of 1996 compared to the same period in 1995. The following table
shows the components of the SG&A expenses:
THREE MONTHS ENDED
IN THOUSANDS 3/31/96 3/31/95
Delivery $ 2,745 $ 2,688
Selling 1,033 1,002
Administrative 3,381 3,347
$7,159 $7,037
Income from operations decreased $997,000 in the first quarter of 1996 due to a
loss of $644,000 compared to income of $353,000 in the same period in 1995.
This decrease resulted primarily from the inclement weather related decrease in
sales volume. Net income before taxes decreased $981,000 in the 1996 first
quarter to a net loss of $577,000 compared to net income of $404,000 in the
same period in 1995.
The net loss for the first quarter of 1996 reflects an income tax benefit of
$242,000 compared to an income tax provision of $165,000 for the same period in
1995. Net income for the first quarter ended March 31, 1996, decreased
$574,000 to a loss of $335,000 compared to net income of $239,000 in the same
period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations in the first quarter of 1996 without the
necessity of any borrowings. The Company also maintains a revolving working
capital line of credit in the amount of $10,000,000 with the Chase Manhattan
Bank, N.A. which expires in January 1997. Borrowings under the credit facility
are made as needed, up to a maximum of 75% of eligible accounts receivable and
bear interest at the prime rate plus 1/2 a percentage point or at the option of
the Company at various fixed London Interbank Offered Rate interest rates. The
Company pledged as collateral for the credit facility its accounts receivable
and is required to maintain certain financial covenants. At March 31, 1996,
there were no balances owed under this credit line. The Company believes that
this credit facility will provide sufficient working capital to support current
and future operations and that an extension or replacement of the revolving
working capital line of credit will be obtained in the next six months.
In March 1995, the Company entered into a master lease agreement with Chase
Equipment Leasing Inc. to lease certain trucks and forklift equipment. The
agreement provides for a monthly rental payment adjusted upon changes in the
one month London Interbank Offered Rate.
At March 31, 1996, the Company's outstanding balance of subordinated notes
payable was $292,000 compared to $583,000 at December 31, 1995. These notes
were issued pursuant to the acquisition of The General Building Supply Company
in January 1988. The notes are due September 1, 1996 and are paid with 36
consecutive monthly payments of $97,222 plus interest at 8% per annum. During
1995, the Company prepaid three monthly principal payments on the notes
amounting to $292,000 and expects to make the final note payment on June 1,
1996.
Capital expenditures, net of dispositions, amounted to $65,000 in the three
month period ended March 31, 1996, compared to $430,000 in the same period in
1995. The Company plans to purchase during the 1996 fiscal year new delivery
equipment and computer equipment costing approximately $2 million.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings. It is,
however, involved in litigation relating to claims arising out of its
operations in the normal course of business. Such claims against the Company
are generally covered by insurance. It is the opinion of management that any
uninsured liability resulting from such litigation would not have a material
adverse effect on the Company's business, financial position or earnings.
<PAGE>
PART III
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
There was a Report on Form 8-K filed during the quarter which
reported that the Company issued a press release on February 20, 1996
announcing that the Company had retained Hill Thompson Capital Markets, Inc. as
its financial advisor.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE STROBER ORGANIZATION, INC.
By: /s/David J. Polishook
_________________________________
David J. Polishook
Chief Financial Officer
and Treasurer
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STROBER ORGANIZATION, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] Dec-31-1996
[PERIOD-START] Jan-01-1996
[PERIOD-END] Mar-31-1996
[CASH] 5,377
[SECURITIES] 0
[RECEIVABLES] 16,452
[ALLOWANCES] 2,501
[INVENTORY] 12,239
[CURRENT-ASSETS] 33,008
[PP&E] 12,741
[DEPRECIATION] 9,343
[TOTAL-ASSETS] 43,805
[CURRENT-LIABILITIES] 9,412
[BONDS] 0
[COMMON] 52
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 33,171
[TOTAL-LIABILITY-AND-EQUITY] 43,805
[SALES] 23,092
[TOTAL-REVENUES] 23,092
[CGS] 16,577
[TOTAL-COSTS] 16,577
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 180
[INTEREST-EXPENSE] 52
[INCOME-PRETAX] (577)
<Income-Tax) (242)
[INCOME-CONTINUING] (335)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (335)
[EPS-PRIMARY] 0.07
[EPS-DILUTED] 0.07
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
____________ to ______________
Commission File Number 0-15339
THE STROBER ORGANIZATION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2822910
(State of Organization (IRS Employer Identification Number)
or other Jurisdiction
of Incorporation)
550 Hamilton Avenue
BROOKLYN, NEW YORK 11232
(Address of principal executive office)
(718) 832-1212
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
filing requirements for the past 90 days.
Yes X No _____
COMMON STOCK $.01 PAR - SHARES ISSUED AND OUTSTANDING AT AUGUST 9, 1996 -
5,027,447
(Number of shares outstanding of each class of the Registrant's Common Stock)
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
INDEX
PAGE
Face Sheet............................................................1
Index.................................................................2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995........................3
Consolidated Statements of Operations for the
Three Months Ended June 30, 1996 and 1995..................4
Consolidated Statements of Operations
for the Six Months Ended June 30, 1996
and 1995...................................................5
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995............6
Notes to Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................8
Part II Other Information.........................................12
Part III Exhibits and Reports on Form 8-K..........................13
Signature............................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Strober Organization, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands)
ASSETS JUNE 30, DEC. 31,
1996 1995
<S> <C> <C>
Current assets:
Cash $4,000 $6,007
Accounts receivable, net of allowance for 19,549 15,907
doubtful
accounts of $2,876 and $2,321 in 1996 and 1995,
respectively
Inventory 12,548 10,305
Deferred income taxes 921 921
Other current assets 505 347
Total current assets 37,523 33,487
Property and equipment, net 4,279 3,627
Goodwill, net of accumulated amortization of 6,621 6,726
$1,765
and $1,660 in 1996 and 1995, respectively
Other assets 752 704
Total assets $49,175 $44,544
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $510 $908
Revolving line of credit - -
Accounts payable 8,120 4,738
Accrued expenses and taxes 4,139 4,150
Total current liabilities 12,769 9,796
Long-term debt, less current installments 1,837 1,224
Total liabilities 14,606 11,020
Stockholders' equity:
Preferred stock, $.01 par value, 1000 shares -- --
authorized and unissued
Common stock, $.01 par value, 20,000 shares 52 52
authorized; issued: 5,218 and 5,027
outstanding
in 1996 and issued 5,178 and outstanding 4,987
in
1995
Additional paid-in capital 7,099 7,029
Retained earnings 28,201 27,189
Less: Treasury stock at cost, 191 shares in (783) (746)
1996
and 1995
Total stockholders' equity 34,569 33,524
Total liabilities and stockholders' equity $49,175 $44,544
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $36,016 $34,035
Cost of goods sold 26,509 25,225
Gross profit 9,507 8,810
Selling, general and administrative 7,519 7,159
expenses
Income from operations 1,988 1,651
Other income (expense)
Interest expense (39) (58)
Interest income 113 84
Equity in earnings of joint venture 96 -
Gain on sale of fixed assets and other 163 (2)
income
Net income before income taxes 2,321 1,675
Provision for income taxes 975 687
Net income $1,346 $988
Net income per share $0.26 $0.19
Weighted average number of shares 5,173 5,227
outstanding
The computation of fully diluted earnings per share
does not materially differ from that presented above.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Operations
Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $59,108 $62,202
Cost of goods sold 43,086 46,002
Gross profit 16,022 16,200
Selling, general and administrative 14,708 14,226
expenses
Income from operations 1,314 1,974
Other income (expense)
Interest expense (92) (112)
Interest income 232 189
Equity in earnings of joint venture 96 -
Gain on sale of fixed assets and other 193 28
income
Net income before income taxes 1,743 2,079
Provision for income taxes 732 852
Net income $1,011 $1,227
Net income per share $0.20 $0.24
Weighted average number of shares 5,153 5,217
outstanding
The computation of fully diluted earnings per share
does not materially differ from that presented above.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $1,011 $1,227
Adjustments to reconcile net income to net cash
(used
by) provided by operating activities:
Depreciation and amortization 720 695
Provision for estimated losses on accounts 358 384
receivable
Changes in operating assets and liabilities:
Accounts receivable (4,000) (1,422)
Inventory (2,243) (1,097)
Other assets (214) 38
Accounts payable 3,382 1,699
Accrued expenses and taxes (11) (224)
Net cash provided by (used by) operating (997) 1,300
activities
Cash flows from investing activities:
Additions to property and equipment, net (316) (392)
Cash flows from financing activities:
Repayment of long-term debt (727) (931)
Proceeds from exercise of stock options 70 9
Purchase of treasury stock (37)
Net cash (used by) financing activities (694) (922)
Net decrease in cash (2,007) (14)
Cash at beginning of period 6,007 3,890
Cash at end of period $4,000 $3,876
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED STATEMENTS
The accompanying unaudited consolidated financial statements and other
related financial information furnished reflect all adjustments which are, in
the opinion of management, necessary to a fair presentation of the financial
position as of June 30, 1996 and the results of operations and cash flows for
the six months ended June 30, 1996 and 1995.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is suggested
that these consolidated condensed financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's December 31, 1995 financial statements. The results of operations
for the period ended June 30, 1996 are not necessarily indicative of the
operating results for the full year.
(2) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany balances and
transactions have been eliminated.
(3) STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURES
Schedule of amounts paid for interest, income taxes and capital lease
obligations.
In thousands
1996 1995
Interest paid $70 $ 95
Income taxes paid $280 $733
Capital lease obligations $940 $880
incurred for purchase of
equipment
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain income statement amounts expressed as a
percentage of sales:
<TABLE>
<CAPTION>
Three Three Six Months Six Months
Months Months Ended Ended
Ended Ended 6/30/96 6/30/95
6/30/96 6/30/95
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 73.6% 74.1% 72.9% 74.0%
Gross profit 26.4% 25.9% 27.1% 26.0%
SG&A expenses 20.9% 21.0% 24.9% 22.9%
Income from operations 5.5% 4.9% 2.2% 3.1%
Other income (expense) .9% .1% .7% .2%
Net income before income 6.4% 5.0% 2.9% 3.3%
taxes
Provision for income taxes 2.7% 2.0% 1.2% 1.3%
Net income 3.7% 3.0% 1.7% 2.0%
</TABLE>
RESULT OF OPERATIONS
SECOND QUARTER ENDED JUNE 30, 1996 COMPARED TO SECOND QUARTER ENDED JUNE 30,
1995
Net sales for the quarter ended June 30, 1996 increased by $2.0 million (6%)
compared to the same period in 1995. The increase in sales is primarily the
result of increased construction activity experienced in the Company's
marketing regions.
Gross profit increased by $697,000 (8%) in the second quarter of 1996 as
compared to the same period in 1995 due to the higher sales volume. Gross
profit as a percentage of sales increased from 25.9% to 26.4% in the second
quarter of 1996 compared to the same period in 1995.
Selling, general and administrative expenses increased by $360,000 (5%) in the
second quarter of 1996 compared to the same period in 1995.
The following table shows the components of the SG&A expenses:
THREE MONTHS ENDED
IN THOUSANDS 6/30/96 6/30/95
Delivery $3,004 $2,763
Selling 1,096 1,037
Administrative 3,419 3,359
$7,519 $7,159
The increase in delivery expenses of $241,000 resulted from increases in
variable delivery labor and trucking costs. Selling expenses increased by
$59,000 resulting from higher sales salaries and advertising costs.
Administrative expenses increased by $60,000 primarily due to higher legal
fees, facility maintenance and bad debt provisions (due to the higher second
quarter 1996 sales volume). The increase in administrative costs were
partially offset by reductions in insurance and health insurance benefits and
bonus provisions.
Other income-income from equity in joint venture of $96,000 represents the
Company's 50% ownership share of the earnings of Architectural Wall Systems LLC
(formed October 1995) for the six month period ended June 30, 1996. Gain on
sale of fixed assets and other income increased by $165,000 in the second
quarter of 1996 due primarily to gains on the sale of delivery equipment which
were replaced with new equipment during the quarter.
Income from operations increased $337,000 in the second quarter of 1996 to
$1,988,000 compared to $1,651,000 in the same period in 1995. This increase
resulted primarily from higher gross margin dollars resulting from higher sales
volume and partially offset by higher operating expenses. Net income before
taxes increased $646,000 in the 1996 second quarter to $2,321,000 compared to
$1,675,000 in the same period in 1995 due to increased operating income and
higher net interest and other income.
The net income for the second quarter of 1996 reflects an income tax provision
of $975,000 compared to a provision of $687,000 for the same period in 1995.
Net income for the second quarter ended June 30, 1996 increased $358,000 to
$1,346,000 compared to $988,000 in the same period in 1995.
SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX MONTH PERIOD ENDED JUNE
30, 1995
Net sales for the six month period ended June 30, 1996 decreased by $3.2
million (5%) compared to the same period in 1995. The decrease in sales is
primarily due to extremely severe weather conditions experienced in the
Northeast this winter as compared to milder weather conditions of the first
quarter of 1995. The record breaking snow that occurred during the first
quarter of 1996 halted outside construction activity for many of the Company's
customers and greatly hampered jobsite deliveries to those customers who could
continue to work.
Gross profit decreased by $178,000 (1%) in the first six months of 1996 as
compared to the same period in 1995 due to the lower first quarter sales
volume. Gross profit as a percentage of sales was 27.1% during the first six
months of 1996 compared to 26.0% in the same period in 1995.
Selling, general and administrative expenses increased by $481,000 (3%). The
following table shows the components of the SG&A expenses.
SIX MONTHS ENDED
IN THOUSANDS 6/30/96 6/30/95
Delivery $5,749 $5,452
Selling 2,129 2,039
Administrative 6,830 6,735
$14,708 $14,226
Delivery expenses increased $297,000 due primarily to higher facility rent,
delivery labor and trucking costs. Selling expenses increased by $90,000 due
to higher selling salaries partially reduced by lower advertising costs.
Administrative expenses increased $95,000 due primarily to higher legal fees,
facility maintenance and partially reduced by lower insurance, health benefits,
bad debt provisions and bonus provisions.
Income from operations decreased $660,000 in the six month period ended June
30, 1996 to $1,314,000 compared to $1,974,000 in the same period in 1995. This
decrease resulted primarily from the inclement weather related decrease in
sales volume that occurred in the first quarter of 1996. Net income before
taxes decreased $336,000 in the six month period ended June 30, 1996 to
$1,743,000 compared to $2,079,000 in the same period in 1995.
The net income for the six month period ended June 30, 1996 reflects an income
tax provision of $732,000 compared to $852,000 in the same period of 1995. Net
income for the six month period ended June 30, 1996 decreased $216,000 to
$1,011,000 compared to $1,227,000 in the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations in the first six months of 1996 without the
necessity of any borrowings other than capital lease transactions to fund
capital expenditures. The Company also maintains a revolving working capital
line of credit in the amount of $10,000,000 with the Chase Manhattan Bank, N.A.
Borrowings under the credit facility are made as needed, up to a maximum of 75%
of eligible accounts receivable and bear interest at the prime rate plus 1/2 a
percentage point or at the option of the Company at various fixed London
Interbank Offered Rate interest rates. The Company pledged as collateral for
the credit facility its accounts receivable and is required to maintain certain
financial covenants. At June 30, 1996, there were no balances owed under this
credit line. The Company believes that this credit facility will provide
sufficient working capital to support current and future operations and that an
extension or replacement of the revolving working capital line of credit will
be obtained.
In March 1995, the Company entered into a master lease agreement with Chase
Equipment Leasing Inc. to lease certain trucks and forklift equipment. The
agreement provides for a monthly rental payment adjusted upon changes in the 30
day London Interbank Offered Rate. The Company leased $804,000 of new delivery
equipment during the six month period ended June 30, 1996.
At June 30, 1996, the Company had no outstanding balance of subordinated notes
payable compared to $583,000 at December 31, 1995. These notes were issued
pursuant to the acquisition of The General Building Supply Company in January
1988. Although the notes were due September 1, 1996, a final payment was made
on June 1, 1996.
Capital expenditures, net of dispositions, amounted to $316,000 in the six
month period ended June 30, 1996, compared to $392,000 in the same period in
1995.
The Company will be relocating its Brooklyn, New York facility and corporate
headquarters when the current lease expires on December 31, 1996. The Company
has executed a new 10 year lease with The Port Authority of New York and New
Jersey covering premises at Pier 3 at the Brooklyn Marine Terminals. This
larger facility is approximately 2 miles from the present Brooklyn location.
Facility improvements and fixtures associated with the relocation is estimated
at $1,400,000. See "Other Information--Legal Proceedings."
The Company has entered into a 10 year renewal lease expiring on December 31,
2006 for its facility located at Valley Stream, New York.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On July 31, 1996, an action entitled BROOKLYN BRIDGE PARK COALITION, INC.
V. PORT AUTHORITY OF NEW YORK AND NEW JERSEY AND THE STROBER ORGANIZATION, INC.
was commenced in the United States District Court, Eastern District of New
York. The Complaint alleges, among other things, common law prospective
nuisance arising out of the Company's planned relocation of its existing
Brooklyn, New York facility from the waterfront at 550 Hamilton Avenue to Pier
3, a distance of approximately two miles. The Plaintiff is seeking to restrain
the Company from constructing a building materials supply center on Pier 3.
The Company is currently evaluating the claims and intends to aggressively
defend the claim against the Company.
The Company is not a party to any other material legal proceedings. It
is, however, involved in litigation relating to claims arising out of its
operations in the normal course of business. Such claims against the Company
are generally covered by insurance. It is the opinion of management that any
uninsured liability resulting from such litigation would not have a material
adverse effect on the Company's business, financial position or earnings.
<PAGE>
PART III
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Agreement of Lease made as of the 29th day of March, 1996 by
and between The Port Authority of New York and New Jersey and
Strober Bros., Inc. Building Supply Centers
10.2 Indenture of Lease made as of 1986 by and between JNR Realty
Company and Strober-L.I. Building Supply Centers, Inc. together
with lease amendatory agreement made as of July 1996 between
and among JNR Realty Company, Strober Long Island Building
Supply Centers, Inc. and The Strober Organization, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K:
There was a Report on Form 8-K filed on July 1, 1996 which
reported that the Company issued a press release on each of June 27,
1996 and July 1, 1996 announcing that the Company will be relocating
its Brooklyn, New York Facility and Corporate Headquarters and that
the Company had entered into a purchase agreement to acquire the
assets of Rowley Building Products Corp. and all the capital stock
of Rowley Building Products of New Jersey, Inc., respectively.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE STROBER ORGANIZATION, INC.
By: /S/ DAVID J. POLISHOOK
--------------------------------------
David J. Polishook
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
10.1 Agreement of Lease made as of the 29th day of March,
1996 by and between The Port Authority of New York and
New Jersey and Strober Bros., Inc. Building Supply
Centers
10.2 Indenture of Lease made as of 1986 by and between JNR
Realty Company and Strober-L.I. Building Supply
Centers, Inc. together with lease amendatory agreement
made as of July 1996 between and among JNR Realty
Company, Strober Long Island Building Supply Centers,
Inc. and The Strober Organization, Inc.
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10.1
Agreement of Lease made as of the 29th day of March, 1996 by and between
The Port Authority of New York and New Jersey and Strober Bros., Inc. Building
Supply Centers
<PAGE>
MLPF-11551.1 LEASE NO. BP-276
AGREEMENT
between
THE PORT AUTHORITY
OF NEW YORK AND NEW JERSEY
and
STROBER BROS., INC.
BUILDING SUPPLY CENTERS
Dated as of March 29, 1996
<PAGE>
THIS AGREEMENT OF LEASE made as of the 29th day of March, 1996 by and
between THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter called
"the Port Authority") body corporate and politic created by Compact between
the States of New York and New Jersey with the consent of the Congress of
the United States of America and having an office and place of business at
One World Trade Center, New York, New York 10048 and STROBER BROS., INC.
BUILDING SUPPLY CENTERS a New York corporation (hereinafter called "the
Lessee"), with an office and place of business at 550 Hamilton Avenue,
Brooklyn, New York 11232 whose representative is: Mr. Richard W. Young
WITNESSETH THAT:
The Port Authority and the Lessee, for and in consideration of the
covenants and mutual agreements hereinafter contained, do hereby agree as
follows:
ARTICLE I.The Port Authority hereby lets to the Lessee and the Lessee
and the Lessee hereby hires and takes from the Port Authority at Brooklyn-
Port Authority Marine Terminal (sometimes hereinafter called "the
Facility") in the City of New York, County of Kings, State of New York, the
following described premises:
The covered and enclosed are of the shed on Pier 3 shown in diagonal
crosshatching and its associated Building 174 and the open area shown in
diagonal crosshatching and stipple on the sketch attached hereto, hereby
made a part hereof and marked "Exhibit A", together with the buildings,
structures, fixtures, improvements, and other property, if any, of the Port
Authority located or to be located therein or thereon, the said areas,
buildings, structures, fixtures, improvements and other property of the
Port Authority being hereinafter called "the premises". The Port Authority
and the Lessee hereby acknowledge that the foregoing premises constitute
non-residential property.
ARTICLE II.The term of the letting shall commence at 12:01 o'clock
A.M. on July 1, 1996 and, unless sooner terminated, shall expire at 11:59
o'clock P.M. on June 30, 2006.
ARTICLE III.The Lessee shall pay a basic rental as set forth in
Special Endorsement No. 3.
ARTICLE IV.The Lessee shall use and occupy the premises for the
following purposes only, and for no other purpose whatsoever:
For the receipt, storage and/or distribution of lumber and
construction materials, a substantial portion of which is waterborne to the
Port of New York and New Jersey, as shall have the prior and continuing
consent of the Port Authority; and for the loading and unloading of
vehicles in connection with the operations being conducted by the Lessee at
the premises.
ARTICLE V.The Port Authority and the Lessee agree that the letting
shall be subject to and in accordance with, and the Lease and the Port
Authority each for itself agrees that it will perform all the obligations
imposed upon it by, the Terms and Conditions (Sections 1 through 30) hereof
and the following endorsements and attachments, all annexed hereto and made
a part hereto and made a part hereof, with the same effects as if the same
were set forth herein in full:
TITLE NUMBER DATE
Services Standard Endorsement No. L5.1 10/06/75
Brooklyn-Port Authority
Marine Terminal " " No. L19.7 10/06/64
Insurance " " No. 21.1 3/25/82
Abatement " " No. L27.4 10/06/68
Special Endorsements
Space Plan - Exhibit A
Schedule naming Rules, Regulations, Rates and Charges applying at Port
Authority Marine Terminals - Exhibit R
ARTICLE VI.The within, together with the said Terms and Conditions,
endorsements and attachments, constitutes the entire agreement of the Port
Authority and the Lessee on the subject matter, and may not be changed,
modified, discharged or extended except by written instrument duly executed
by the Port Authority and the Lessee. The Lessee agrees that no
representations or warranties shall be binding upon the Port Authority
unless expressed in writing in this agreement.
IN WITNESS WHEREOF, the Port Authority and the Lessee hereto have
executed these presents as of the date first above written.
THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY
ATTEST: By____________________________________
_________________ Title_________________________________
(SEAL)
STROBER BROS., INC. BUILDING SUPPLY CENTERS
ATTEST: By____________________________________
_________________ Title__________________________PRESIDENT
Secretary (CORPORATE SEAL)
<PAGE>
TERMS AND CONDITIONS
SECTION 1.INGRESS AND EGRESS
The Lessee shall have the right of ingress and egress between the
premises and the city streets outside the Facility. Such right shall be
exercised by means of such pedestrian or vehicular ways, to be used in
common with others having rights of passage within the Facility, as may
from time to time be designated by the Port Authority for the use of the
public. The use of any such way shall be subject to the rules and
regulations of the Port Authority which are now in effect or which may
hereafter be promulgated for the safe and efficient operation of the
Facility. The Port Authority may, at any time, temporarily or permanently
close, or consent to or request the closing of, any such way or any other
area at, in or near the Facility presently or hereafter used as such, so
long as a means of ingress and egress as provided above remains available
to the Lessee. The Lessee hereby releases and discharges the Port
Authority, and all municipalities and other governmental authorities, and
their respective successors and assigns, of and from any and all claims,
demands, or causes of action which the Lessees may now or at any time
hereafter have against any of the foregoing, arising or alleged to arise
out of the closing of any way or other area whether within or outside the
Facility. The Lessee shall not do or permit anything to be done which will
interfere with the free access and passage of others to space adjacent to
the premises or in any streets, ways and walks near the premises.
SECTION 2.GOVERNMENTAL AND OTHER REQUIREMENTS
(a) The Lessee shall procure from all governmental authorities having
jurisdiction of the operations of the Lessee hereunder, all licenses,
certificates, permits or other authorization which may be necessary for the
conduct of such operations.
(b) The Lessee shall promptly observe, comply with and execute the
provisions of any and all present and future governmental laws, rules,
regulations, requirements, orders and directions which may pertain or apply
to its operations or the use and occupancy of the premises hereunder, and
in addition shall make all improvements, repairs and alterations which may
be so required.
(c) The obligation of the Lessee to comply with governmental
requirements is provided herein for the purpose of assuring proper
safeguards for the protection of persons and property in or near the
Facility and proper operation by the Lessee. Such provision herein is not
to be construed as a submission by the Port Authority to the application to
itself of such requirements or any of them.
SECTION 3.RULES AND REGULATIONS
(a) The Lessee covenants and agrees to observe and obey (and to
compel its officers, employees and others on the premises with its consent
to observe and obey) the Rules and Regulations of the Port Authority as now
supplemented and now in effect, and such further reasonable rules and
regulations (including amendments and supplements thereto) for the
government of the conduct and operations of the Lessee as may from time to
time during the letting be promulgated by the Port Authority for reasons of
safety, health, or preservation of property, or for the maintenance of the
good and orderly appearance of the premises, or for the safe or efficient
operation of the Facility. The Port Authority agrees that, except in cases
of emergency, it will give notice to the Lessee of every such further rule
or regulation at least five (5) days before the Lessee shall be required to
comply therewith.
(b) If a copy of the Rules and Regulations is not attached, then the
Port Authority will notify the Lessee thereof by either delivery of a copy,
or by publication in a newspaper published in the Port of New York District
by making a copy available at the office of the Secretary of the Port
Authority.
(c) No statement or provision in the said Rules and Regulations shall
be deemed a representation or promise by the Port Authority that the
services or privileges described shall be or remain available, or that the
charges, prices, rates or fees stated therein shall be or remain in effect
throughout the letting, all of the same being subject to change by the Port
Authority from time to time whenever it deems a change advisable.
SECTION 4.METHOD OF OPERATION
(a) In the performance of its obligations hereunder and in the use of
the premises the Lessee shall conduct its operations in an orderly and
proper manner, so as not to annoy, disturb or be offensive to others near
the premises or at the Facility and within twenty four hours remove the
cause of any objection made by the Port Authority relative to the demeanor,
conduct or appearance of any of the employees of the Lessee or others on
the premises with the consent of the Lessee.
(b) The Lessee shall not allow any garbage, debris or other waste
materials (whether solid or liquid) to collect or accumulate on the
premises and the Lessee shall remove from the premises and from the
Facility all garbage, debris and other waste materials (whether solid or
liquid) arising out of its operations hereunder. Any such material which
may be temporarily stored shall be kept in suitable waste receptacles, the
same to be made of metal and equipped with tight-fitting covers, and in any
case to be designed and constructed to contain safely the waste material
placed by the Lessee therein. The receptacles shall be provided and
maintained by the Lessee and shall be kept covered except when being filled
or emptied. The Lessee shall use extreme care when effecting removal of
all such material, shall effect such removal at such times and by such
means as first approved by the Port Authority, and shall in no event make
use of any facilities or equipment of the Port Authority except with the
prior consent thereof.
(c) The Lessee shall not do or permit to be done anything which may
interfere with the effectiveness or accessibility of the utility,
mechanical, electrical and other systems installed or located anywhere at
the Facility.
(d) The Lessee shall not commit any nuisance or permit its employees
or others on the premises with its consent to commit or create or continue
or tend to create any nuisance on the premises or in or near the Facility.
(e) The Lessee shall take all reasonable measures to keep the sound
level of its operations as low as possible and to eliminate vibrations
tending to damage the premises or the Facility or any part thereof.
(f) The Lessee shall not cause or permit to be caused or produced
upon the premises, to permeate the same or to emanate therefrom, any
unusual, noxious or objectionable smokes, gases, vapors or odors.
(g) The Lessee shall not do or permit to be done any act or thing at
the Facility which shall or might subject the Port Authority to any
liability or responsibility for injury to any person or persons or damage
to any property.
(h) The Lessee shall not overload any floor, roof, land surface,
bulkhead, pavement, landing, pier or wharf at the Facility, and shall
repair, replace or rebuild any such, including but not limited to
supporting members, damaged by overloading. For the purpose of this
paragraph (h), any placing on the premises of a load per square foot in
excess of the number of pounds avoirdupois, if any, stated in any Special
Endorsement hereto shall constitute overloading, but an overload may be
created by a lesser weight. Nothing in this paragraph or elsewhere in this
Agreement shall be or be construed to be a representation by the Port
Authority of the weight capacity of any part of the Facility.
(i) The Lessee shall not do or permit to be done any act or thing
upon the premises or at the Facility which (1) will invalidate or conflict
with any fire insurance policies covering the premises or any part thereof,
or the Facility, or any part thereof or (2) which, in the opinion of the
Port Authority, may constitute an extra-hazardous condition, so as to
increase the risks normally attendant upon the operations permitted by this
Agreement, or (3) which will increase the rate of any fire insurance,
extended coverage or rental insurance on the Facility or any part thereof
or on the contents of any building thereon. The Lessee shall promptly
observe, comply with and execute the provisions of any and all present and
future rules and regulations, requirements, orders and directions of the
National Fire Protection Association and, if the premises are located in
New York, of the Insurance Services Office of New York, or, if the premises
are located in New Jersey, of the Insurance Services Office of New Jersey,
or of any other board or organization exercising or which may exercise
similar functions, which may pertain or apply to the operations of the
Lessee on the premises, and the Lessee shall, subject to and in accordance
with the provisions of this Agreement relating to construction by the
Lessee, make any and all structural and nonstructural improvements,
alterations or repairs of the premises that may be required at any time
hereafter by any such present or future rule, regulation, requirement,
order or direction. If by any reason of any failure on the part of the
Lessee to comply with the provisions of this paragraph any fire insurance,
extended coverage or rental insurance rate on the premises or any part
thereof, or on the Facility or any part thereof, shall at any time be
higher than it otherwise would be, then the Lessee shall pay to the Port
Authority that part of all premiums paid by the Port Authority which shall
have been charged because of such violation or failure by the Lessee.
(j) From time to time and as often as required by the Port Authority,
the Lessee shall conduct pressure, water-flow, and other appropriate tests
of the fire extinguishing system and fire-fighting equipment on the
premises whether furnished by the Port Authority or by the Lessee. The
Lessee shall keep all fire-fighting and fire extinguishing equipment well
supplied with a fresh stock of chemicals and with sand, water or other
materials as the case may be for the use of which such equipment is
designed, and shall train its employees in the use of all such equipment,
including in such training periodic drills.
SECTION 5.SIGNS
(a) Except with the prior consent of the Port Authority, the Lessee
shall not erect, maintain or display any advertising, signs, posters or
similar devices at or on the premises or elsewhere at the Facility.
(b) Upon demand by the Port Authority, the Lessee shall remove,
obliterate, or paint out any and all advertising, signs, posters and
similar devices placed by the Lessee on the premises or elsewhere on the
Facility and in connection therewith at the expiration or earlier
termination of the letting, shall restore the premises and the Facility to
the same condition as at the commencement of the letting. In the event of
a failure on the part of the Lessee so as to remove, obliterate or paint
out each and every sign or piece of advertising and so to restore the
premises and the Facility, the Port Authority may perform the necessary
work and the Lessee shall pay the costs thereof to the Port Authority on
demand.
SECTION 6.INDEMNITY
The Lessee shall indemnify and hold harmless the Port Authority, its
Commissioners, officers, employees and representatives, from all claims and
demands of third persons including but not limited to claims and demands
for death, claims and demands for personal injuries, and claims and demands
for property damages, arising out of the use or occupancy of the premises
by the Lessee or by others with its consent or out of any other acts or
omissions of the Lessee, its officers and employees on the premises or
elsewhere at the Facility, or out of the acts or omissions of others on the
premises with the consent of the Lessee, including claims and demands of
the party from which the Port Authority derives its rights in the Facility
for indemnification arising by operation of law or through agreement of the
Port Authority with such party.
SECTION 7.MAINTENANCE AND REPAIR
(a) The Lessee shall at all times keep the premises clean, and in an
orderly condition and appearance, together with all the fixtures, equipment
and personal property of the Lessee located in or on the premises.
(b) The Lessee shall repair, replace, rebuild and paint all or any
part of the premises which may be damaged or destroyed by the acts or
omissions of the Lessee or by those of its officers, employees or of other
persons on or at the premises with the consent of the Lessee.
(c) With respect to all parts of the premises, including but without
limitation thereto, such of the following as are or may be during the term
of the letting located in or on the premises: fences, the exterior and
interior of the building walls, the exterior and interior and operating
mechanisms of and attachments to windows and skylights, screens, roofs,
foundations, steel work, columns, the exterior and interior and operating
mechanisms of and attachments to doors, partitions, floors, ceilings,
inside and outside paved and unpaved areas, glass of every kind, and the
utility, mechanical, electrical and other systems, the Lessee shall take
the same good care of the premises that would be taken by a reasonably
prudent owner who desired to keep and maintain the same so that at the
expiration or termination of the letting and at all times during the
letting, the same (or a reconstruction of all or any part thereof) will be
in as good condition as at the commencement thereof (or, in the case of
improvements made during the letting hereunder, in as good condition as at
the time of the installation or construction thereof), except for
reasonable wear which does not adversely affect the watertight condition or
structural integrity of the building or other structures on the premises or
adversely affect the efficient or the proper utilization of any part of the
premises. To that end, the Lessee shall make frequent periodic inspections
and, from time to time as the necessity therefor arises and regardless of
the cause of the condition requiring the same, the Lessee shall perform all
necessary preventive maintenance including but not limited to painting (the
exterior of the building, areas of joint or common use and areas visible to
the general public to be painted in colors which have been approved by the
Port Authority), and, except under circumstances as set forth in paragraph
(a) of Section 8 of these Terms and Conditions, the Lessee shall make all
necessary repairs and replacements and do all necessary rebuilding with
respect to all parts of the premises, all of which shall be in quality
equal to the original in materials and workmanship and regardless of
whether such repairs and replacements are structural or non-structural,
ordinary or extraordinary, foreseen or unforeseen. The Lessee shall
commence to perform each of its obligations hereunder within twenty days
after notice from the Port Authority and shall thereafter continue the same
to completion with reasonable diligence.
(d) The obligation of the Lessee as set forth in paragraphs (b) and
(c) of this Section, in the event of damage or destruction covered by any
contract of insurance under which the Port Authority is the insured, is
hereby released to the extent that the loss is recouped by actual payment
to the Port Authority of the proceeds of such insurance; PROVIDED, HOWEVER,
that, if this release shall invalidate any such policy of insurance or
reduce, limit or void the rights of the Port Authority thereunder, then the
release shall be void and of no effect.
SECTION 8.CASUALTY
(a) In the event that, as a result of a casualty insured against in
favor of the Port Authority under the standard form of fire insurance
policy and extended coverage endorsement carried by it on any structure,
building or portion of a building which is or is a part of the premises,
the same is damaged (without the fault of the Lessee, its officers,
employees, or others on or at the premises with its consent) so as to
render it untenantable in whole or substantial part, then
(1) if, in the opinion of the Port Authority, the necessary
repairs or rebuilding can be completed within ninety (90) days after
the occurrence of the damage, the Port Authority shall repair or
rebuild with due diligence, and the rental hereunder shall be abated
as provided in this Agreement, for the period from the occurrence of
the damage to the completion of the repairs or rebuilding, whether or
not the work of repair or rebuilding is actually completed within the
said ninety (90) days; or
(2) if, in the opinion of the Port Authority, such repairs or
rebuilding cannot be completed within ninety (90) days after the
occurrence of the damage, or if one or more of the structures or
buildings which are a part of the premises or the entire premises
require rebuilding, then the Port Authority shall have options: (i)
to proceed with due diligence to repair or to rebuild as necessary or
(ii) to terminate the letting as to the damaged structure or
structures, building or buildings or portion thereof only; or (iii) to
cancel this Agreement and terminate the letting as to the entire
premises; and the rental payable under this Agreement shall be abated,
as provided in this Agreement, either, as the case may require, for
the period from occurrence of the damage to the completion of repairs
and rebuilding, or for the period from the occurrence of the damage to
the completion of repairs and rebuilding, or for the period from the
occurrence of the damage to the effective date of termination, for the
area or areas involved.
(b) "Substantial part" shall mean for the purposes of this Section at
least twenty-(25%) of the usable floor space in the structure or
building or part thereof comprising the premises, or, if there is more
than one structure or building on the premises, at least twenty-five
percent (25%) of the aggregate usable floor space comprising the
premises in all of the structures and buildings covered by insurance.
(c) The parties hereby stipulate that if the premises are in New
Jersey neither the provisions of Title 46:8-6 and 46:8-7 of the
Revised Statutes of New Jersey nor those of any other similar statute
shall extend or apply to this Agreement and if the premises are in New
York, neither the provisions of Section 227 of the Real Property Law
of New York nor those of any other similar statute shall extend or
apply to this Agreement.
(d) In the event of damage to or a partial or total destruction of
the premises, the Lease shall within five days of the occurrence
commence to remove all of its damaged property and all debris thereof
from the premises or from the portion thereof destroyed and thereafter
shall diligently continue such removal and if the Lessee does not
perform its obligation hereunder, the Port Authority may remove such
debris and dispose of the same and may remove such property to a
public warehouse for deposit or may retain the same in its own
possession and sell the same at public auction, the proceeds of which
shall be applied first to the expenses of removal, storage and sale,
second to any sums owed by the Lessee to the Port Authority, with any
balance remaining to be paid to the Lessee; if the expenses of such
removal, storage and sale shall exceed the proceeds of sale, the
Lessee shall pay such excess to the Port Authority upon demand.
SECTION 9.ASSIGNMENT AND SUBLEASE
(a) The Lessee covenants and agrees that it will not sell, convey,
transfer, assign, mortgage or pledge this Agreement or any part thereof, or
any rights created thereby or the letting thereunder or any part thereof.
(b) The Lessee shall not sublet the premises or any part thereof.
(c) If the Lessee assigns, sells conveys, transfers, mortgages,
pledges or sublets in violation of subdivisions (a) or (b) of this Section
or if the premises are occupied by anybody other than the Lessee, the Port
Authority may collect rent from any assignee, sublessee or anyone who
claims a right to this Agreement or letting or who occupies the premises
and shall apply the net amount collected to the rental herein reserved; and
no such collection shall be deemed a waiver by the Port Authority of the
covenants contained in subdivisions (a) and (b) of this Section nor an
acceptance by the Port Authority of any such assignee, sublessee, claimant
or occupant as tenant, nor a release of the Lessee by the Port Authority
from the further performance by the Lessee of the covenants contained
herein.
(d) The Lessee further covenants and agrees that it will not use or
permit any person whatsoever to use the premises or any portion thereof for
any purpose other than as provided in Article IV of this Agreement.
SECTION 10.CONDEMNATION
(a) In any action or other proceedings by any governmental agency or
agencies for the taking for a public use of any interest in all or part of
the premises, or in case of any deed, lease or other conveyance in lieu
thereof (all of which are in this Section referred to as "taking or
conveyance"), the Lessee shall not be entitled to assert any claim to any
compensation, award or part thereof made or to be made therein or therefor
or any claim to any consideration or rental or any part thereof paid
therefor, or to institute any action or proceeding or to assert any claim
against such agency or agencies or against the Port Authority for any such
taking or conveyance, it being understood and agreed between the parties
hereto that the Port Authority shall be entitled to all compensation or
awards made or to be made or paid, and all such considerations or rental,
free of any claim or right of the Lessee.
(b) In the event that all or any portion of the premises is required
by the Port Authority to comply with any present or future governmental
law, rule, regulation, requirement, order or direction, the Port Authority
may by notice given to the Lessee terminate the letting with respect to all
or such portion of the premises so required. Such termination shall be
effective on the date specified in the notice. The Lessee hereby agrees to
deliver possession of all or such portion of the premises so required upon
the effective date of such termination in the same condition as that
required for the delivery of the premises upon the date originally fixed by
this Agreement for the expiration of the term of the letting. No taking
authority as described in paragraph (a) of this Section, nor any delivery
by the Lessee nor taking by the Port Authority pursuant to this paragraph,
shall be or be construed to be an eviction of the Lessee or a breach of
this Agreement or be made the basis of any claim by the Lessee against the
Port Authority for damages, consequential or otherwise.
(c) In the event that the taking or conveyance covers the entire
premises, or in the event that the letting is terminated with respect to
the entire premises pursuant to paragraph (b) of this Section, then this
Agreement shall, as of the date possession is taken by such agency or
agencies from the Port Authority, or as of the effective date of such
termination, cease and determine in the same manner and with the same
effect as if the said date were the original date of expiration hereof.
(d) In the event that the taking or conveyance covers a part only of
the premises, or in the event that the letting is terminated pursuant to
paragraph (b) of this Section with respect to a part only of the premises,
then the letting as to such part shall, as of the date possession thereof
is taken by such agency or agencies, or as of the effective date of such
termination, cease and determine in the same manner and with the same
effect as if the term of the letting had on that date expired, and the
basic rental shall be abated as provided hereinafter.
(e) In the event that the taking or conveyance or the delivery by the
Lessee or taking by the Port Authority pursuant to paragraph (b) of this
Section covers fifty per cent (50%) or more of the total usable area of the
premises including both open and enclosed space, then the Lessee and the
Port Authority shall each have an option exercisable by notice given within
ten (10) days after such taking or conveyance to terminate the letting
hereunder, as of the date of such taking, and such termination shall be
effective as if the date of such taking were the original date of
expiration hereof.
SECTION 11.CONSTRUCTION BY THE LESSEE
Except with the prior consent of the Port Authority, the Lessee shall
not erect any structures, make any improvements or do any other
construction work on the premises or alter, modify, or make additions,
improvements or repairs to or replacements of, any structure now existing
or built at any time during the letting, or install any fixtures, and in
the event any construction, improvement, alteration, modification,
addition, repair or replacement is made with or without such consent and
unless the consent of the Port Authority shall expressly provide otherwise,
the same shall immediately become the property of the Port Authority, and
the Lessee shall have no right to remove the same either during the letting
or at the expiration thereof unless the Port Authority, at any time prior
to the expiration of the term of the letting, or any extension or renewal
thereof, or within sixty (60) days after expiration or earlier termination
of the term of the letting, shall give notice to the Lessee to remove the
same, or to cause the same to be changed to the satisfaction of the Port
Authority, in which case the Lessee agrees to remove the same, or change it
in compliance with such notice. In case of any failure on the part of the
Lessee to comply with such notice, the Port Authority may effect the
removal or change, and the Lessee hereby agrees to pay the cost thereof to
the Port Authority upon demand.
SECTION 12.ADDITIONAL RENT AND CHARGES
(a) If the Port Authority has paid any sum or sums or has incurred
any obligations or expense which the Lessee has agreed to pay or reimburse
the Port Authority for, or if the Port Authority is required or elects to
pay any sum or sums or incurs any obligations or expense by reason of the
failure, neglect or refusal of the Lessee to perform or fulfill any one or
more of the conditions, covenants or agreements contained in this Agreement
or as a result of an act or omission of the Lessee contrary to the said
conditions, covenants and agreements, the Lessee shall pay to the Port
Authority the sum or sums so paid or the expense so incurred, including all
interest, costs, damages and penalties and the same may be added to any
installment of rent thereafter due hereunder and each and every part of the
same shall be and become additional rent, recoverable by the Port Authority
in the same manner and with like remedies as if it were originally a part
of the basic rent as set forth in Article III hereof.
(b) For all purposes under this Section and in any suits, action or
proceeding of any kind between the parties hereto, any receipt showing any
payment of sum or sums by the Port Authority for any work done or material
furnished shall be PRIMA FACIE evidence against the Lessee that the amount
of such payment was necessary and reasonable. Should the Port Authority
elect to use its operating and maintenance staff in performing any work and
to charge the Lessee with the cost of same, any time report of any employee
of the Port Authority showing hours of labor or work allocated to such
work, or any stock requisition of the Port Authority showing the issuance
of materials for use in the performance thereof shall likewise be PRIMA
FACIE evidence against the Lessee that the amount of such charge was
necessary and reasonable.
(c) The term "cost" in this Agreement shall mean and include: (1)
Payroll costs, including contributions to the Retirement System, or the
cost of participation in other pension plans or systems, insurance costs,
sick leave pay, holiday, vacation and authorized absence pay; (2) Cost of
materials and supplies used; (3) Payments to contractors; (4) Any other
direct costs; and (5) 30% of the sum of the foregoing.
SECTION 13.RIGHTS OF ENTRY RESERVED
(a) The Port Authority, by its officers, employees, agents,
representatives and contractors shall have the right at all reasonable
times to enter upon the premises for the purpose of inspecting the same,
for observing the performance by the Lessee of its obligations under this
Agreement, and for the doing of any act or thing which the Port Authority
may be obligated or have the right to do under this Agreement or otherwise.
(b) Without limiting the generality of the foregoing, the Port
Authority, by its officers, employees, agents, representatives, and
contractors, and furnishers of utilities and other services, shall have the
right, for its own benefit, for the benefit of the Lessee, or for the
benefit of others than the Lessee at the Facility, to maintain existing and
future utility, mechanical, electrical and other systems and to enter upon
the premises at all reasonable times to make such repairs, replacements or
alterations as may be, in the opinion of the Port Authority, be deemed
necessary or advisable and, from time to time, to construct or install
over, in or under the premises new systems or parts thereof, and to use the
premises for access to other parts of the Facility otherwise not
conveniently accessible; PROVIDED, HOWEVER, that in the exercise of such
rights of access, repair, alteration or new construction the Port Authority
shall not unreasonably interfere with the use and occupancy of the premises
by the Lessee.
(c) In the event that any property of the Lessee shall obstruct the
access of the Port Authority, its employees, agents or contractors to any
of the existing or future utility, mechanical, electrical and other systems
and thus shall interfere with the inspection, maintenance or repair of any
such system, the Lessee shall move such property, as directed by the Port
Authority, in order that the access may be had to the system or part
thereof for its inspection, maintenance or repair, and, if the Lessee shall
fail to so move such property after direction from the Port Authority to do
so, the Port Authority may move it and the Lessee hereby agrees to pay the
cost of such moving upon demand.
(d) Nothing in this Section shall or shall be construed to impose
upon the Port Authority any obligations so to construct or maintain or to
make repairs, replacements, alterations or additions, or shall create any
liability for any failure so to do. The Lessee is and shall be in
exclusive control and possession of the premises and the Port Authority
shall not in any event be liable for any injury or damage to any property
or to any person happening on or about the premises nor for any injury or
damage to the premises nor to any property of the Lessee or of any other
person located in or thereon (other than those occasioned by the acts of
the Port Authority).
(e) At any time and from time to time during ordinary business hours
within the three (3) months next preceding the expiration of the letting,
the Port Authority, by its agents and employees, whether or not accompanied
by prospective lessees, occupies or users of the premises, shall have the
right to enter thereon for the purpose of exhibiting and viewing all parts
of the same and during such three-month period the Port Authority may place
and maintain on the premises, the usual "to Let" signs, which signs the
Lessee shall permit to remain without molestation.
(f) If, during the last month of the letting, the Lessee shall have
removed all or substantially all its property from the premises, the Port
Authority may immediately enter and alter, renovate and redecorate the
premises.
(g) The exercise of any or all of the foregoing rights by the Port
Authority or others shall not be or be construed to be an eviction of the
Lessee nor be made the grounds for any abatement of rental nor any claim or
demand for damages consequential or otherwise.
SECTION 14.LIMITATION OF RIGHTS AND PRIVILEGES GRANTED
(a) The premises are let to the Lessee and the Lessee takes the same
subject to all the following: (i) easements, restrictions, reservations,
covenants and agreements if any, to which the premises may be subject,
rights of the public in and to any public street (ii) rights, if any, of
any enterprise, public or private which is engaged in furnishing heating,
lighting, power, telegraph, telephone, steam, or transportation services
and of the municipality and State in which the premises are located (iii)
permits, licenses, regulations and restrictions, if any, of the United
States, the municipality or State in which the premises are located, or
other governmental authority.
(b) No greater rights or privileges with respect to the use of the
premises or of the facility or any part thereof are granted or intended to
be granted to the Lessee by this Agreement, or by any provision thereof,
than the rights and privileges expressly and specifically granted.
(c) Nothing in this Agreement contained shall grant to the Lessee any
rights whatsoever in the air space above the roof of the building or
buildings or portion of a building or buildings, if any are included in the
premises (except to the extent required in either case for the performance
of any of the obligations of the Lessee hereunder), or more than twenty
(20) feet above the present ground level of any open area included in the
premises.
SECTION 15.PROHIBITED ACTS
(a) Unless otherwise expressly permitted so to do, the Lessee shall
not install, maintain or operate, or permit the installation, maintenance
or operation on the premises of any vending machine or device designed to
dispose or sell food, beverages, tobacco, tobacco products or merchandise
of any kind, whether or not included in the above categories, or of any
restaurant, cafeteria, kitchen stand or other establishment of any type for
the preparation, dispensing or sale of food, beverages, tobacco, tobacco
products or merchandise of any kind, whether or not included in the above
categories, or of any equipment or device for the furnishing to the public
of service of any kind, including therein, without limitation thereto,
telephone pay-stations.
(b) The Port Authority, by itself or by contractors, lessees or
permittees, shall have the exclusive right to install, maintain and receive
and retain the revenues from all coin-operated or other machines or devices
for the sale of merchandise of all types, or for the rendering of services,
which may be operated on the premises; PROVIDED, HOWEVER, that no such
machine or device shall be installed except upon the request of the Lessee.
This provision shall not be construed to confer upon the Lessee any right
to have such machines installed except at the sole discretion of the Port
Authority.
SECTION 16.TERMINATION
(a) If any one or more of the following events shall occur, that is
to say:
(1) The Lessee shall become insolvent, or shall take the benefit
of any present or future insolvency statute, or shall make a general
assignment for the benefit of creditors, or file a voluntary petition
in bankruptcy or a petition or answer seeking an arrangement or its
reorganization or the readjustment of its indebtedness under the
federal bankruptcy laws or under any other law or statute of the
United States or of any State thereof, or consent to the appointment
of a receiver, trustee, or liquidator of all or substantially all of
its property; or
(2) By order or decree of a court the Lessee shall be adjudged
bankrupt or an order shall be made approving a petition filed by any
of its creditors or, if the Lessee is a corporation, by any of its
stockholders, seeking its reorganization or the readjustment of its
indebtedness under the federal bankruptcy laws or under any law or
statute of the United States or of any State thereof; or
(3) A petition under any part of the federal bankruptcy laws or
an action under any present or future insolvency law or statute shall
be filed against the Lessee and shall not be dismissed within thirty
(30) days after the filing thereof; or
(4) The letting or the interest of the Lessee under this
Agreement shall be transferred to, pass to or devolve upon, by
operation of law or otherwise, any other person, firm or corporation;
or
(5) The Lessee, if a corporation, shall, without the prior
approval of the Port Authority, become a possessor or merged
corporation in a merger, a constituent corporation in a consolidation,
or a corporation in dissolution; or
(6) If the Lessee is a partnership, and the said partnership
shall be dissolved as the result of any act or omission of its
partners or any of them, or by operation of law or the order or decree
of any court having jurisdiction, or for any other reason whatsoever;
or
(7) By or pursuant to, or under authority of any legislative
act, resolution or rule, or any other or decree of any court or
governmental board, agency or officer, a receiver, trustee, or
liquidator shall take possession or control of all or substantially
all of the property of the Lessee, and such possession or control
shall continue in effect for a period of fifteen (15) days; or
(8) The Lessee shall voluntarily abandon, desert or vacate the
premises or discontinue its operations at the premises or at the
Facility or, after exhausting or abandoning any right of further
appeal, the Lessee shall be prevented for a period of thirty (30) days
by action of any governmental agency from conducting its operations on
the premises, regardless of the fault of the Lessee; or
(9) Any lien shall be filed against the premises because of any
act or omission of the Lessee and shall not be discharged within
twenty (20) days; or
(10) The Lessee shall fail duly and punctually to pay the rental
or to make any other payment required hereunder when due to the Port
Authority; or
(11) The Lessee shall fail to keep, perform and observe each and
every other promise, covenant and agreement set forth in this
agreement, on its part to be kept, performed or observed, within ten
(10) days after its receipt of notice of default thereunder from the
Port Authority (except where fulfillment of its obligation requires
activity over a period of time, and the Lessee shall have commenced to
perform whatever may be required for fulfillment within ten (10) days
after receipt of notice and continues such performance without
interruption except for causes beyond its control);
then upon the occurrence of any such event or at any time thereafter during
the continuance thereof, the Port Authority may by five (5) days' notice
terminate the letting and the Lessee's rights hereunder, such termination
to be effective upon the date specified in such notice. Such right of
termination and the exercise thereof shall be and operates as a conditional
limitation.
(b) If any of the events enumerated in paragraph (a) of this Section
shall occur prior to the commencement of the letting, the Lessee shall not
be entitled to enter into possession of the premises, and the Port
Authority, upon the occurrence of any such event, or at any time
thereafter, during the continuance thereof, by twenty-four (24) hours'
notice, may cancel the interest of the Lessee under this agreement, such
cancellation to be effective upon the date specified in such notice.
(c) No acceptance by the Port Authority of rentals, fees, charges or
other payments in whole or in part for any period or periods after a
default of any of the terms, covenants and conditions hereof to be
performed, kept or observed by the Lessee shall be deemed a waiver of any
right on the part of the Port Authority to terminate the letting. No
waiver by the Port Authority of any default on the part of the Lessee in
performance of any of the terms, covenants or conditions hereof to be
performed, kept or observed by the Lessee shall be or be construed to be a
waiver by the Port Authority of any other or subsequent default in
performance of any of the said terms, covenants and conditions.
(d) The rights of termination described above shall be in addition to
any other rights of termination provided in this Agreement and in addition
to any rights and remedies that the Port Authority would have at law or in
equity consequent upon any breach of this Agreement by the Lessee, and the
exercise by the Port Authority of any right of termination shall be without
prejudice to any other such rights and remedies.
SECTION 17. RIGHT OF RE-ENTRY
The Port Authority shall, as an additional remedy upon the giving of a
notice of termination as provided in Section 16 of these Terms and
Conditions, have the right to re-enter the premises and every part thereof
upon the effective date of termination without further notice of any kind,
and may regain and resume possession either with or without the institution
of summary or any other legal proceedings or otherwise. Such re-entry, or
regaining or resumption of possession, however, shall not in any manner
affect, alter or diminish any of the obligations of the Lessee under this
Agreement, and shall in no event constitute an acceptance of surrender.
SECTION 18.WAIVER OF REDEMPTION
The Lessee hereby waives any and all rights to recover or regain
possession of the premises and all rights of redemption, granted by or
under any present or future law in the event it is evicted or dispossessed
for any cause, or in the event the Port Authority obtains possession of the
premises in any lawful manner.
SECTION 19.SURVIVAL OF THE OBLIGATIONS OF THE LESSEE
(a) In the event that the letting shall have been terminated in
accordance with a notice of termination as provided in Section 16 of these
Terms and Conditions, or the interest of the Lessee shall have been
cancelled pursuant thereto, or in the event that the Port Authority has re-
entered, regained or resumed possession of the premises in accordance with
the provisions of Section 17 of these Terms and Conditions, all of the
obligations of the Lessee under this Agreement shall survive such
termination or cancellation, re-entry, regaining or resumption of
possession and shall remain in full force and effect for the full term of
the letting, as originally fixed in Article II hereof, and the amount or
amounts of damages or deficiency shall become due and payable to the Port
Authority to the same extent, at the same time or times and in the same
manner as if no termination, cancellation, re-entry, regaining or
resumption of possession had taken place. The Port Authority may maintain
separate actions each month to recover the damage or deficiency then due or
at its option and at any time may sue to recover the full deficiency less
the proper discount, for the entire unexpired term.
(b) The amount of damages for the period of time subsequent to
termination or cancellation (or re-entry, regaining or resumption of
possession) on account of the Lessee's rental obligations, shall be the sum
of the following:
(1) The amount of the total of all annual rentals, less the
installments thereof prior to the effective date of termination except
that the credit to be allowed for the installment paid on the first
day of the month in which the termination is effective shall be
prorated for the part of the month the letting remains in effect on
the basis of a 30-day month; and
(2) An amount equal to all expenses incurred by the Port
Authority in connection with regaining possession and restoring and
reletting the demised premises, for legal expenses, boiler insurance
premiums, if any, putting the premises in order including without
limitation, cleaning, decorating and restoring (on failure of the
Lessee to restore), maintenance and brokerage fees.
SECTION 20.RELETTING BY THE PORT AUTHORITY
The Port Authority, upon termination or cancellation pursuant to
Section 16 of these Terms and Conditions, or upon any re-entry, regaining
or resumption of possession pursuant to Section 17 of these Terms and
Conditions, may occupy the premises or may relet the premises and shall
have the right to permit any person, firm or corporation to enter upon the
premises and use the same. Such reletting may be of part only of the
premises or of the premises or a part thereof together with other space,
and for a period of time the same as or different from the balance of the
term hereunder remaining, and on terms and conditions the same as or
different from those set forth in this Agreement. The Port Authority shall
also, upon termination or cancellation pursuant to Section 16 of these
Terms and Conditions, or upon re-entry, regaining or resumption of
possession pursuant to Section 17 of these Terms and Conditions have the
right to repair and to make structural or other changes in the premises,
including changes which alter the character of the premises and the
suitability thereof for the purposes of the Lessee under this Agreement,
without affecting, altering or diminishing the obligations of the Lease
hereunder. In the event either of any reletting or of any actual use and
occupancy by the Port Authority (the mere right to use and occupy not being
sufficient however) there shall be credited to the account of the Lessee
against its survived obligations hereunder any net amount remaining after
deducting from the amount actually received from any lessee, license,
permittee or other occupier in connection with the use of the said premises
or portion thereof during the balance of the term of the letting as the
same is originally stated in this Agreement, or from the market value of
the occupancy of such portion of the premises as the Port Authority may
itself during such period actually use and occupy, all expenses, costs and
disbursements incurred or paid by the Port Authority in connection
therewith. No such reletting or such use and occupancy shall be or be
construed to be an acceptance of a surrender.
SECTION 21.REMEDIES TO BE NONEXCLUSIVE
All remedies provided in this Agreement shall be deemed cumulative and
additional and not in lieu of or exclusive of each other or of any other
remedy available to the Port Authority at law or in equity, and the
exercise of any remedy, or the existence herein of other remedies or
indemnities shall not prevent the exercise of any other remedy.
SECTION 22.SURRENDER
(a) The Lessee covenants and agrees to yield and deliver peaceably to
the Port Authority possession of the premises on the date of the cessation
of the letting, whether such cessation be by termination, expiration or
otherwise, promptly and in the same condition as at the commencement of the
letting, reasonable wear arising from use of the premises to the extent
permitted elsewhere in this Agreement, excepted.
(b) Unless the same are required for the performance by the Lessee of
its obligations hereunder, the Lessee shall have the right at any time
during the letting to remove from the premises, and, on or before the
expiration or earlier termination of the letting, shall so remove its
equipment, removable fixtures and other personal property, and all property
of third persons for which it is responsible, repairing all damage caused
by such removal. If the Lessee shall fail to remove such property on or
before the termination or expiration of the letting, the Port Authority may
remove such property to a public warehouse for deposit or may retain the
same in its own possession and in either event may sell the same at public
auction, the proceeds of which shall be applied: first, to the expenses of
removal, including repair required thereby, and of storage and sale;
second, to any sums owed by the Lessee to the Port Authority, with any
balance remaining to be paid to the Lessee; if the expenses of such
removal, repair, storage and sale shall exceed the proceeds of sale, the
Lessee shall pay such excess to the Port Authority upon demand. The Lessee
shall indemnify the Port Authority against all claims based on Port
Authority action hereunder.
SECTION 23.ACCEPTANCE OF SURRENDER OF LEASE
No agreement of surrender or to accept a surrender shall be valid
unless and until the same shall have been reduced to writing and signed by
the duly authorized representatives of the Port Authority and of the
Lessee. Except as expressly provided in this Section, neither the doing
of, nor any omission to do, any act or thing, by any of the officers,
agents or employees of the Port Authority, shall be deemed an acceptance of
a surrender of the letting or of this Agreement.
SECTION 24.NOTICES
(a) All notices, permissions, requests, consents and approvals given
or required to be given to or by either party shall be in writing (which
shall include a telegram when delivered to the telegraph company), and all
such notices and requests shall be telegraphed or personally delivered to
the party or to the duly designated officer or representative of such party
or delivered to an office or residence of such party, officer or
representative during regular business hours, or delivered to the residence
of such party, officer or representative or delivered to the premises, or
forwarded to him or to the party at the office or residence address by
registered mail. The Lessee shall designate an office within the Port of
New York District and an officer or representative whose regular place of
business is at such office. Until further notice, the Port Authority
hereby designates its Executive Director, and the Lessee designates the
person whose name appears ons the first page of this Agreement as their
respective officers or representatives upon whom notices and requests may
be served, and the Port Authority designates its office at One World Trade
Center, New York, New York 10048, and the Lessee designates its office, the
address of which is set forth on the first page of this Agreement, as their
respective offices where notices and requests may be served.
(b) If any notice is mailed or delivered, the giving of such notice
shall be complete upon receipt or, in the event of a refusal by the
addressee, upon the first tender of the notice to the addressee or at the
permitted address. If any notice is sent by telegraph, the giving of such
notice shall be complete upon receipt or, in the event of a refusal by the
addressee, upon the first tender of the notice by the telegraph company to
the addressee or at the address thereof.
SECTION 25.GENERAL
(a) Wherever in this Agreement the Lessee agrees or is required to do
or has the rights to do, any act or thing, the following shall apply:
(1) If the Lessee is a corporation, its obligation shall be
performed by it and its rights shall be exercised only by its officers
and employees or
(2) If the Lessee is a partnership, its obligations shall be
performed and its rights shall be exercised by its partners and
employees only or
(3) If the Lessee is an individual, his obligations shall be
performed and his rights shall be exercised by himself and his
employees only;
(4) None of the provisions of this paragraph (a) shall be taken
to alter, amend or diminish any obligation of the Lessee assumed in
relation to its invitees, business visitors, agents, representatives,
contractors, customers, guests, or other persons firms or corporations
doing business with it or using or on or at the premises with its
consent.
(b) If more than one individual or other legal entity is the Lessee
under this Agreement, each and every obligation hereof shall be the joint
and several obligation of each such individual or other legal entity.
(c) Unless otherwise stated in Article IV on page 2 of this
Agreement, the rights of user thereby granted to the Lessee with respect to
the premises shall be exercised by the Lessee only for its own account and,
without limiting the generality of the foregoing, shall not be exercised as
agent, representative, factor, broker, forwarder, bailee, or consignee
without legal title to the subject matter of the consignment.
(d) The Lessee's representative, hereinbefore specified in this
Agreement (or such substitute as the Lessee may hereafter designate in
writing) shall have full authority to act for the Lessee in connection with
this Agreement and any things done or to be done hereunder, and to execute
on the Lessee's behalf any amendments or supplements to this Agreement or
any extension thereof.
(e) The Section headings in these Terms and Conditions and in the
endorsements, if any, attached hereto are inserted only as a matter of
convenience and for reference, and they in no way define or limit or
describe the scope or intent of any provisions hereof.
(f) All payments required of the Lessee by this Agreement shall be
made at the office of the Treasurer of the Port Authority, One World Trade
Center, New York, New York 10048, or to such other officer or address as
may be substituted therefor. If the commencement date of the letting under
this Agreement is other than the first day of a calendar month, the basic
rental for the portion of the month during which the letting is effective
shall be the amount of the monthly installment prorated on a daily basis
using the actual number of days in the month, and if the expiration or
termination date of the letting is other than the last day of a calendar
month, the basic rental for the portion of the month during which the
letting is effective shall be the amount of the monthly installment
similarly prorated.
(g) This Agreement does not constitute the Lessee the agent or
representative of the Port Authority for any purpose whatsoever. Neither a
partnership nor any joint adventure is hereby created, notwithstanding the
fact that all or a portion of the rental to be paid hereunder may be
determined by gross receipts from the operations of the Lessee hereunder.
(h) The phrase "utility, mechanical, electrical and other systems"
shall mean and include (without limitation thereto) the following:
machinery, engines, dynamos, boilers, elevators, escalators, incinerators
and incinerator flues, systems for the supply of fuel, electricity, water,
gas and steam, plumbing, heating, sewerage, drainage, ventilating, air
conditioning, communications, fire-alarm, fire-protection, sprinkler,
telephone, telegraph and other systems, fire hydrants, fire hoses, and
their respective wires, mains, conduits, lines, tubes, pipes, equipment,
motors, cables, fixtures and other equipment.
(i) All designations of time herein contained shall refer to the
time-system then officially in effect in the municipality wherein the
premises are located.
SECTION 26.PREMISES
(a) The Lessee acknowledges that it has not relied upon any
representation or statement of the Port Authority or its Commissioners,
officers, employees or agents as to the condition of the premises or the
suitability thereof for the operations permitted on the premises by this
Agreement. The Lessee, prior to the execution of this Agreement, has
thoroughly examined the premises and has found them to be in good order and
repair and determined them to be suitable for the Lessee's operations
hereunder. Without limiting any obligation of the Lessee to commence
operations hereunder at the time and in the manner stated elsewhere in this
Agreement, the Lessee agrees that no portion of the premises will be used
initially or at any time during the letting which is in a condition unsafe
or improper for the conduct of the Lessee's operations hereunder so that
there is possibility of injury or damage to life or property and the Lessee
further agrees that before any use it will immediately correct any such
unsafe or improper condition.
(b) The Port Authority shall not be liable to the Lessee, or to any
person, for injury or death to any person or persons whomsoever, or damage
to any property whatsoever at any time in the premises or elsewhere at the
Facility, including but not limited to any such injury, death or damage
from falling material, water, rain, hail, snow, gas, steam, or electricity,
whether the same may leak into, or fall, issue, or flow from any part of
the Facility, or from any other place or quarter.
(c) If permission is given to the Lessee to enter into the possession
of the premises or to occupy space other than the premises prior to the
date specified in Article II as the commencement of the term of the
letting, the Lessee agrees that such possession or occupancy shall be
deemed to be under all the terms, covenants, conditions and provision of
this Agreement except as to the covenant to pay rent and except as may be
expressly provided otherwise by the written instrument, if any, giving such
possession or occupancy; in either case, rent shall commence on the date
specified in the Agreement, and in the event of possession of the premises,
the date of such possession shall be the date of commencement of the term
hereunder.
SECTION 27.POSTPONEMENT
If the Port Authority shall not give possession of the premises on the
date fixed in Article II for the commencement of the term, by reason of the
fact that the premises or any part thereof are in the course of
construction, repair, alteration or improvement or by reason of the fact
that the occupant thereof failed or refused to deliver possession to the
Port Authority, or by reason of any cause or condition beyond the control
of the Port Authority, the Port Authority shall not be subject to any
liability for the failure to give possession on said date. No such failure
to give possession on the date of commencement of the term shall in any
wise affect the validity of this Agreement or the obligations of the Lessee
hereunder, nor shall the same be construed in any wise to extend the term
beyond the date stated in Article II for expiration. However, the rent
shall not commence until possession of the premises is tendered by the Port
Authority to the Lessee; the tender and in the event that such notice of
tender is not given for possession to commence on or before one hundred
eighty-five (185) days after the date stated in Article II for commencement
of the term then this Agreement shall be deemed cancelled, except that each
party shall and does hereby release the other party of and from any and all
claim or demands based on this Agreement, or a breach or alleged breach
thereof.
SECTION 28.FORCE MAJEURE
(a) The Port Authority shall not be liable for any failure, delay or
interruption in performing its obligations hereunder due to causes or
conditions beyond its control, including, without limitation thereto,
strikes, boycotts, picketing, slow-downs, work stoppages or labor troubles
of any other type (whether affecting the Port Authority, its contractors,
or subcontractors.) Further, the Port Authority shall not be liable unless
the failure, delay or interruption shall result from failure on the part of
the Port Authority to use reasonable care to prevent or reasonable efforts
to cure such failure, delay or interruption.
(b) The Port Authority shall be under no obligation to supply any
service or services if and to the extent and during any period that the
supplying of any such service or services or the use of any component
necessary therefor shall be prohibited or rationed by any federal, state or
municipal law, rule, regulation, requirement, order or direction and if the
Port Authority deems it in the public interest to comply therewith, even
though such law, rule, regulation, requirement, order or direction may not
be mandatory on the Port Authority as a public agency.
(c) No abatement, diminution or reduction of the rest or other
charges payable by the Lessee, shall be claimed by or allowed to the Lessee
for any inconvenience, interruption, cessation or loss of business or other
loss caused, directly or indirectly, by any present or future laws, rules,
requirements, orders, directions, ordinances or regulations of the United
States of America, or of the state, county or city governments, or of any
other municipal, governmental or lawful authority whatsoever, or by
priorities, rationing or curtailment of labor or materials, or by war or
any matter or thing resulting therefrom, by any other cause or causes
beyond the control of the Port Authority, nor shall this Agreement be
affected by any such causes.
SECTION 29.BROKERAGE
The Lessee represents and warrants that no broker has been concerned
in the negotiation of this Agreement and that there is no broker who is or
may be entitled to be paid a commission in connection therewith. The
Lessee shall indemnify and serve harmless the Port Authority of and from
any claim for commission or brokerage made by any and all persons, firms or
corporations whatsoever for services in connection with the negotiation and
execution of this Agreement.
SECTION 30.NON-LIABILITY OF INDIVIDUALS
Neither the Commissioners of the Port Authority nor any of them, nor
any officer, agent, or employee thereof, shall be charged personally by the
Lessee with any liability, or held liable to the Lease under any term or
provision of this Agreement, or because of its execution or attempted
execution, or because of any breach, or attempted or alleged breach,
thereof.
(a) The Port Authority agrees to grant (if requested so to do by the
Lessee), to suppliers of water, gas, electricity and telephone service
operating in the vicinity a right of way or rights of way under the
Facility from the streets outside of the Facility to the premises for the
sole purpose of supplying such service or services to the Lessee. No such
right of way shall include the right to use any system, equipment or
portion thereof constructed or owned by or leased to the Port Authority.
(b) The Lessee shall promptly pay all water bills covering its own
consumption. Such payment shall include any factor which may have been
included by the appropriate governmental authority as a sewer-rent or other
charge for the use of a sewer system. In the event that any such water
bill shall remain unpaid for a period of six (6) months after the same
becomes due and payable, or in the event that any such bill remains unpaid
at the date of expiration or earlier termination of the letting under this
Agreement, the Port Authority may pay the same and any interest or
penalties thereon, and the total payment or payments at any time so made
shall constitute an additional item for rental, payable to the Port
Authority upon demand. Where sewerage is contained in tanks periodically
cleaned by a contractor paid by the Port Authority the Lessee shall pay
such portion of the contract charge as may be reasonably determined by the
Port Authority, on demand.
(c) Unless the Port Authority has expressly undertaken to heat the
enclosed portions of the premises, if any, the Lessee agrees to heat the
enclosed portions of the premises to a sufficient temperature so that the
plumbing, fire-protection and sprinkler systems, if any, will not be
damaged by reason of low temperatures.
(d) If any federal, state, municipal or other governmental body,
authority or agency, or any public utility, assesses, levies, imposes,
makes or increases any charge, fee, rent or assessment on the Port
Authority, for any service, system or utility now or in the future supplied
to or available at the premises or to any tenant, lessee, occupant or user
thereof, or to the structures or buildings which, or a portion or portions
of which, are included in the premises, (including but not limited to any
sewer-rent or other charge for the use of a sewer system or systems), the
Lessee shall, at the option of the Port Authority exercised at any time and
from time to time by notice to the Lessee, pay, in accordance with such
notice, such charge, fee, rent or assessment or such increase thereof (or
the portion thereof allocated by the Port Authority to the premises or to
the operations of the Lessee under this Agreement) either directly to the
governmental body, authority or agency, or to the public utility, or
directly to the Port Authority, as such notice may direct. All payments to
be made by the Lessee hereunder shall constitute items of additional
rental.
(e) No failure, delay or interruption in any service or services,
whether such service or services shall be supplied by the Port Authority or
by others, shall relieve or be construed to relieve the Lessee of any of
its obligations hereunder or shall be or be construed to be an eviction of
the Lessee, or shall constitute grounds for any diminution or abatement of
the rental or rentals payable under this Agreement, or grounds for any
claim by the Lessee for damages, consequential or otherwise.
(f) In the event any one or more structures within or attached to the
premises but not accessible directly from the enclosed portion of the
premises is or are in use as a valve-room or valve-rooms for a sprinkler
system, the same shall not be deemed a portion of the premises hereunder,
and the Lessee shall afford access thereto through and across the premises
at all times as required by the Port Authority for itself or its
contractors, with or without tools, equipment, parts and supplies.
<PAGE>
(a) As used in this Agreement:
(1) "Brooklyn-Port Authority Marine Terminal", "Brooklyn-Port
Authority Piers", "Facility", or "marine terminal" shall mean the real
property, buildings, structures, fixtures, improvements and other property,
including without limitation thereto leasehold interests in property,
located in the Boroughs of Manhattan and Brooklyn, in the Counties of New
York and Kings, in the City and State of New York, transferred or assigned
to the Port Authority under the provisions of any one or more (including
all) of the following deeds and agreements:
(i) Deed dated March 1, 1956 from New York Dock Company to
the Port Authority, recorded in the office of the City Register,
New York County, on March 6, 1956 in Liber 4956 of Conveyances,
on pp. 356 et seq., and in the Office of the City Register, Kings
County, on March 6, 1956 in Liber 8422 of Conveyances on pp. 458
et seq.;
(ii) Deed dated March 1, 1956 from the Trustees and
Associates of the Brooklyn Benevolent Society to the Port
Authority, recorded in the Office of the City Register, Kings
County, on March 7, 1956 in Liber 8423 of Conveyances on pp. 96
et seq.;
(iii)Agreement of lease dated June 2, 1916, made between the
City of New York and New York Dock Company, referred to as "the
Montage Street Lease", recorded in the Office of the City
Register, Kings County, on March 7, 1956 in Liber 8423 of
Conveyances on pp. 150 et seq.;
(iv) Agreement dated March 21, 1950, made between the City
of New York and New York Dock Company renewing the lease
described in paragraph (iii) above, recorded in the Office of the
City Register, Kings County, on March 7, 1956 in Liber 8423 of
Conveyances on pp. 118 et seq.;
(v) Agreement of lease dated June 2, 1916, made between the
City of New York and New York Dock Company, referred to as "the
Joralemon Street Lease", recorded in the Office of the City
Register, Kings County, on March 7, 1956 in Liber 8423 of
Conveyances on pp. 186 et seq.;
(vi) Agreement dated October 23, 1946, made between the City
of New York and New York Dock Company renewing the lease
described in paragraph (v) above, recorded in the Office of the
City Register, Kings County, in Liber 8423 of Conveyances on pp.
111 et seq.; and
(vii)Assignment of leasehold interest mentioned in
paragraphs (iii) (iv) (v) and (vi) as of March 1, 1956 by New
York Dock Company to The Port of New York Authority, recorded in
the Office of the City Register, Kings County, on March 7, 1956
in Liber 8423 of Conveyances on pp. 130 et seq.;
and such additional property adjacent thereto (not including any property
to the sough of Conover Street as the Port Authority may have heretofore or
may hereafter acquire for marine terminal purposes and additional
buildings, structures, fixtures, improvements and other property which may
have been heretofore or may hereafter be installed or constructed for
marine terminal purposes on any property or properties heretofore
mentioned.
(2) "Letting" shall include any extension of the letting under this
Agreement, whether made by agreement or by operation of law.
(3) "Manager of the Facility" or "Manager" shall mean the person or
persons from time to time designated by the Port Authority to exercise the
powers and functions vested i the said manager or in the Superintendent of
the Facility by this Agreement; but until further notice from the Port
Authority to the Lessee, it shall mean the Manager for the Acting Manager
Port Authority Marine Terminals New York, for the time being or his duly
designated representative or representatives.
(b) The rights of the Port Authority in the Facility are those
acquired by it pursuant to the deeds and agreements described in paragraph
(a)(1) of this Standard Endorsement, and by subsequent conveyances, and no
greater rights are granted or intended to be granted to the Lessee
hereunder that the Port Authority has power thereunder to grant. In the
event the premises under this Agreement or any portion thereof constitute
all or a portion of the premises as to which the Port Authority is the
Lessee under any one or more of the agreements described in subparagraphs
(ii), (iv), (v) and (vii) of the said paragraph (a)(1), or under any other
agreement of lease, the letting under this Agreement shall in any event
terminate simultaneously with the termination or expiration of the letting
under such agreement or agreements of lease; provided, however, that in the
event only a portion of the premises hereunder is included within the
premises under such expiring agreement or agreements of lease, the letting
hereunder shall continue, as to the balance of the premises hereunder, in
accordance with the terms of this Agreement.
(c) No designation in this Agreement of any area as a street,
highway, roadway or other comparable characterization, whether or not by
name, shall be or be deemed to be an admission, recognition or
acknowledgment of any public or private rights in the area so designated,
or as a dedication for a consent to any public or private use of the same.
All use in this Agreement of names and designations in connection with such
areas is merely for the purpose of fixing geographical locations.
(d) The Port Authority covenants and agrees that as long as it
remains the owner (or the lessee) of the premises, the Lessee, upon paying
all rentals hereunder and performing all the covenants, conditions and
provisions of this Agreement on its part to be performed, shall and may
peaceably and quietly have, hold and enjoy the premises free of any act or
acts of the Port Authority except as expressly permitted in this Agreement.
(e) This Agreement and the letting hereunder are subject and
subordinate to all mortgages which may now or hereafter affect the premises
or the Facility and to all renewals, modifications, consolidations,
replacements, and extensions thereof and the Lessee agrees to execute any
instrument which may be deemed necessary or desirable further to effectuate
the subordination of this Agreement and the letting hereunder to any such
mortgage or mortgages.
(f) The rights and operations of the Lessee under this Agreement are
subject to the terms of a certain agreement of lease made between the Port
Authority and New York Dock Railway dated March 1 1956, as the same may be
extended or amended. The said agreement of lease covers premises and
rights-of-way at the Facility and grants rights and privileges at the
Facility in connection with the operations of a railway thereat. The
Lessee shall not do, or permit its employees, contractors, invitees or
those doing business with it to do, anything which will interfere or
conflict with the exercise of rights or operations under the said agreement
of lease.
(g) Without in any way limiting the obligations of the Lessee as
elsewhere stated in this Agreement, the Lessee shall be liable to the Port
Authority for any damage done to the Facility or to any part thereof or to
any property of the Port Authority thereon through any act or omission of
those in charge of or operating any vessels, steamers, barges, lighters or
other floating equipment or in charge of or operating any trucks, other
vehicles or other transportation equipment, while the same shall be a
coming to, or leaving the premises.
(h) The Lessee acknowledges that The National Cold Storage Co., Inc.,
as successor Lessee under various assignments, is occupying premises which
are part of the Facility, in accordance with certain agreements of lease
originally made between Sir William Vestey and New York Dock Company, and
that each of the said agreements of lease contains the following
provisions:
"That the Landlord shall not engage in or permit any other
person, firm or corporation other than manufacturers where cold
storage is a necessary adjunct to such business, to engage in a
refrigerating or cold storage business upon any part of its real
estate during the period of this lease or any renewal thereof."
The grant of rights and privileges to the Lessee under this Agreement
insofar as such grant relates to the portion or portions (including all) of
the premises under this Agreement, if any, which are included in the lands
and interests in land conveyed to the Port Authority by New York Dock
Company, is expressly subject to the above restriction, and the Lessee will
not do or allow to be done anything on the premises which will or may
subject the Port Authority to liability for a breach of such provision.
<PAGE>
(a) The Lessee in its own name as assured shall secure and pay the
premium or premiums for such of the following policies of insurance
affording those coverages as to which minimum limits are fixed in the
schedule set forth below. Each such policy shall be maintained in at least
the limit fixed with respect thereto, shall cover the operations of the
Lessee under this Agreement, and shall be effective throughout the terms of
the letting.
SCHEDULE
POLICY MINIMUM LIMIT
(1) Comprehensive general liability
insurance (to include contractual
liability endorsement)
(i) Bodily-injury liability:
For injury or wrongful death $2,000,000.00
to one person
For injury or wrongful death $2,000,000.00
to more than one person in any one
occurrence;
(ii) Property-damage liability: $2,000,000.00
For all damages arising out of
injury to or destruction of property in
any one occurrence:
(iii)Products liability $2,000,000.00
(2) Automotive liability insurance $2,000,000.00
(i) Bodily-injury liability
For injury or wrongful death
to one person $2,000,000.00
For injury or wrongful death $2,000,000.00
to more than one person in any
occurrence
(ii) Property-damage liability $2,000,000.00
For all damages arising out of
injury to or destruction of property in
any one occurrence
(3) Plate and mirror glass insurance, $
covering all plate and mirror glass
in the premises, and the lettering,
signs, or decorations, if any, on
such plate and mirror glass
(4) Boiler and machinery insurance, $
covering all boilers, pressure vessels
and machines operated by the Lessee in
the premises
(5) "Additional Interest" policy of $
boiler and machinery insurance,
covering all boilers, pressure
vessels and machines operated by
the Lessee in the premises
(6) Garagekeepers' legal liability $
<PAGE>
(a) If at any time the Lessee shall become entitled to an abatement
of basic rental under the provisions of this Agreement or otherwise, such
abatement shall be computed as follows:
1) For each square foot of usable open area the use of
which is denied to the Lessee, at the annual rate of$ 1.10*
2) For each square foot of usable covered area the use of
which is denied to the Lessee, at the annual rate of$ 3.30**
(b) If no rates are filled in above then the abatement of basic
rental shall be made on an equitable basis, giving effect to the amount and
character of the area the use of which is denied the Lessee, as compared
with the entire area of such character included in the premises.
(c) If an exemption amount is fixed in this Agreement, it shall be
reduced in the same proportion as the total basic rental is abated.
(d) For the purposes of this Endorsement, the number of square feet
of covered area shall be computed as follows: by measuring from the inside
surface of outer building walls to the surface of the public area side, or
of the non-exclusive area side, as the case may require, of all partitions
separating the area measured from adjoining areas designated for the use of
the public or for use by the Lessee in common with others, and to the
center of partitions separating the area measured from adjoining area
exclusively used by others; no deduction will be made for columns,
partitions, pilasters or projections necessary to the building and
contained within the area measured. Permanent partitions enclosing
elevators shafts, stairs, fire towers, vents, pipe shafts, meter closets,
flues, stacks and any vertical shafts have the same relation to the area
measured as do outer building walls.
(e) In the event that during the term of the letting under this
Agreement the Lessee shall be partially evicted (actually or
constructively) and shall remain in possession of the premises or the
balance thereof, the Lessee agrees that notwithstanding it might have the
right to suspend payment of the rent in the absence of this provision, it
will pay at the times and in the manner herein provided, the full basic
rental less only an abatement thereof computed in accordance with the
above.
* for the period from January 1, 1997 through June 30, 2000, both dates
inclusive; at the annual rate of $1.1440 for the period from July 1,
2000, through June 30, 2002, both dates inclusive; at the annual rate
of $1.2012 for the period from July 1, 2002 through June 30, 2004,
both dates inclusive; and at the annual rate of $1.2733 for the period
from July 1, 2004 through June 30, 2006, both dates inclusive.
** for the period from January 1, 1997 through June 30, 2000, both dates
inclusive; at the annual rate of $3.4320 for the period from July 1,
2000 through June 30, 2002, both dates inclusive; at the annual rate
of $3,6036 for the period from July 1, 2002 through June 30, 2004,
both dates inclusive; and at the annual rate of $3.8198 for the period
from July 1, 2004 through June 30, 2006, both dates inclusive.
<PAGE>
SPECIAL ENDORSEMENTS
1. MAINTENANCE. Notwithstanding the provisions of paragraph (c) of
Section 7 of the Terms and Conditions of this Agreement, the Lessee shall
not be obligated, except as provided in paragraph (b) of Section 7 and
except as provided hereinafter in this Special Endorsement, to make any
repairs to the sprinkler and stand pipe systems on or serving the premises,
or any structural repairs or replacements to the substructure (all
structural components below the interior floor surface) of the pier. After
receipt by the Port Authority of notice from the Lessee that repair or
replacement of any of the foregoing parts of the premises is needed
(stating precisely the items of work required), the Port Authority shall
make the same to the extent necessary to keep such part of the premises in
a reasonably good condition for the operations of the Lessee under this
Agreement; but the Port Authority shall not be obligated to make repairs or
replacements to bring the said parts of the premises to a better condition
than that existing at the commencement of the letting. The Port Authority
shall have no obligation whatsoever under this Special Endorsement to make
repairs or replacements of any structure, building, installation or
fixture, or any part of any of them, which have been brought to or built or
installed on the premises by the Lessee or its contractor, whether or not
with the prior consent of the Port Authority, whether or not the same has
become part of the premises under this Agreement and whether or not title
thereto has vested in the Port Authority. The responsibility of the Port
Authority under this Special Endorsement shall be limited to bearing the
expense of the repair or replacement and, without limitation of the
foregoing, the Port Authority shall have no obligation whatsoever with
respect to any repairs or replacements which are the obligation of the
Lessee under other provisions of this Agreement. The Port Authority shall
have no obligation with respect to any repairs or replacements required
because of a casualty, whether or not insured or insurable, except as
expressly provided in Section 8 of the said Terms and Conditions. If the
Port Authority shall fail after a reasonable time to perform its
obligations hereunder, the Lessee, as its sole remedy, shall perform the
work, and the Port Authority shall on demand pay to the Lessee its actual
certified cash expenditures therefor or, at the option of the Port
Authority, shall extend to the Lessee in an amount equal to such
expenditures a credit against its rental obligations under this Agreement.
Furthermore, prior to commencement by the Port Authority of any work set
forth in the Lessee's notice to the Port Authority, the Lessee shall take
all precautions necessary to protect persons or property at the Facility,
including the immediate performance by the Lessee of such work as may be
required to correct conditions which involve danger to persons or property,
and the Port Authority will reimburse the Lessee for such work as
hereinabove provided. Without limiting any obligation of the Lessee under
this Agreement, the Port Authority, at any time and from time to time
during the letting, may enter the premises for the purpose of making
repairs or replacements, or for the purpose of performing maintenance,
whether or not the Port Authority is obligated hereunder to do the same and
whether or not the Port Authority has received a notice, request or other
communication from the Lessee concerning any such repair or replacement,
provided that this right of the Port Authority shall not constitute or be
deemed to constitute any obligation or duty on the Port Authority either to
the Lessee or others to make any repairs or replacements, do any
maintenance or do anything else in connection therewith. The Lessee shall
indemnify and hold harmless the Port Authority, its Commissioners,
officers, agents, employees and representatives from and against all claims
and demands of any and all third persons whatsoever, including without
limitation thereto the Lessee's employees, officers, agents and
representatives, for personal injuries (including death) or property
damage, which may arise from the condition of the premises or any part
thereof or from failure of the Lessee to notify the Port Authority of
conditions requiring repair or replacement, or from failure of the Lessee
to make timely corrections of dangerous or potentially dangerous conditions
in or on the premises. The Lessee hereby releases and discharges the Port
Authority, its Commissioners, officers, agents, employees, contractors and
subcontractors, and their employees, from all liability for damage to the
Lessee, consequential or otherwise, in connection with any provision of
this Special Endorsement concerning repair or replacement of any portion of
the premises, including without limitation thereto any failure on the part
of the Port Authority for any reason whatsoever to make any repair or
replacement, and including without limitation thereto any act or omission
of the Port Authority, its officers, agents, employees, contractors of
their employees, connected with the performance of such repairs or
replacement.
2. RENTAL PAYMENT START DATE. As used herein the term "Rental
Payment Start Date" shall mean the earlier of the following dates:
(a) January 1, 1997; or
(b) such earlier date on which the Lessee makes use of any area
of the premises for any purpose set forth in Article IV of this Agreement.
3. BASIC RENTAL. The Lessee shall pay basic rental to the Port
Authority during the term of the letting as follows: (a) during the period
from the Rental Payment Start Date through June 30, 2000, both dates
inclusive, at the annual rate of Seven Hundred Ninety-four Thousand Six
Hundred Forty Dollars and No Cents ($794,640.00) payable in advance in
equal monthly installments of Sixty-six Thousand Two Hundred Twenty Dollars
and No cents ($66,220.00) on the Rental Payment Start Date and on the first
day of each calendar month thereafter during such period, PROVIDED,
HOWEVER, THAT, if the Rental Payment Start Date shall occur other than on
the first day of a calendar month the basic rental for the portion of the
month in which the Rental Payment Start Date shall occur following such
date shall be the amount of the monthly installment set forth in this
Special Endorsement prorated on a daily basis; (b) during the period from
July 1, 2000 through June 30, 2002, both dates inclusive, at the annual
rate of Eight Hundred Twenty-six Thousand Four Hundred Twenty-eight Dollars
and No Cents ($826,428.00) payable in advance in equal installments of
Sixty-eight Thousand Eight Hundred Sixty-Nine Dollars and No Cents
($68,869.00) on July 1, 2000 and on the first day of each calendar month
thereafter during such period; (c) during the period from July 1, 2002
through June 30, 2004, both dates inclusive, at the annual rate of Eight
Hundred Sixty-seven Thousand Seven Hundred Forty-four Dollars and No Cents
($867,744.00) payable in advance in equal monthly installments of Seventy-
two Thousand Three Hundred Twelve Dollars and No Cents ($72,312.00) on July
1, 2002 and on the first day of each calendar month thereafter during such
period; and (d) during the period from July 1, 2004 through June 30, 2006,
both dates inclusive, at the annual rate of Nine hundred Nineteen Thousand
Eight Hundred Twelve Dollars and No cents ($919,812.00) payable in advance
in equal monthly installments of Seventy-six Thousand Six Hundred Fifty-one
Dollars and No Cents ($76,651.00) on July 1, 2004 and on the first day of
each calendar month thereafter during such period.
4. ABATEMENT. Abatement of basic rental, if any, to which the
Lessee may be entitled shall be computed in accordance with the provisions
of Standard Endorsement No. L27.4 attached hereto and hereby made a part of
this Agreement.
5. BERTHING. The Lessee shall have no right to berth vessels in the
water area on the sides of Pier 3 except in accordance with and subject to
the Port Authority's tariff, as incorporated in FMC Schedule PA-10, as
amended from time to time, including, without limitation, payment to the
Port Authority with respect to each vessel of dockage and wharfage charges
as set forth therein from time to time.
6. PIER APRON. (a) The Lessee understands that subject to such
rules and regulations as the Port Authority may have or may hereafter
promulgate for the safe and efficient operation of the Facility, the Port
Authority hereby grants to the Lessee the exclusive right to use the pier
apron alongside the northerly, westerly and southerly exteriors of the pier
shed, as shown on Exhibit A ("Pier Apron") between the hours of 06:00
o'clock A.M. Monday to 02:00 o'clock P.M. Saturday. The Lessee hereby
agrees to provide reasonable ingress to and egress from the Pier Apron and
shall not do anything or permit anything to be done which will interfere
with the rights of the general public to have access to and use the Pier
Apron between the hours of 02:00 o'clock P.M. Saturday and 06:00 o'clock
A.M. Monday for recreational purposes; and the Port Authority agrees to
require its other authorized users not to interfere with the Lessee's to
use the Pier Apron, as set forth herein. Nothing in this paragraph shall
be deemed or construed to be a grant or letting to the Lessee of any berth,
roadway, utility lines or structures, or common area, or of any facility
forming a part of the Pier Apron.
(b) The Port Authority hereby agrees that in the event the Port
Authority (i) leases or grants permission to a third party to use and
occupy the Pier Apron or (ii) sells, conveys or transfers the fee ownership
of the pier during the term of this Lease, it shall (x) require the Lessee
or permittee or (y) use its best effort to require the new fee owner to
agree to indemnify and hold harmless the Lessee, its officers and employees
from all claims and demands of third persons including but not limited to
claims and demands for death, claims and demands for personal injuries and
claims and demands for property damages, arising out of the use of the Pier
Apron and the means of access thereto over and through the premises by such
third persons, as provided in this Lease.
7. PORT AUTHORITY'S WORK. Subject to all the provisions of this
Agreement (including but not limited to Section 28 hereof entitled "Force
Majeure"), the Port Authority, through its employees, agents,
representatives, contractors and subcontractors shall perform the following
work (hereinafter called the "Port Authority's Work") to prepare the
premises for the Lessee's use and occupancy;
(i) replacing non-working light bulbs;
(ii) patching holes in siding; and
(iii) correcting any gap between the bottom of roll-up doors
and the floor.
Except as specifically provided in this Special Endorsement, the Port
Authority shall not be obligated to make any improvements or do any
construction work in or on the premises. In addition to any other rights
of entry reserved to the Port Authority under this Agreement, the Port
Authority reserves for itself, its employees, agents, representatives,
contractors and subcontractors the right to enter the premises at any time
and from time to time during the term of the letting in order to perform
the Port Authority's Work.
8. LESSEE' CONSTRUCTION WORK. (a) The Lessee shall have the right,
subject to the provisions of this Special Endorsement, to perform
construction and installation work within the premises (which work is
hereinafter called the "Lessee's Construction Work"):
(i) installation of office and display space on the pier;
(ii) replacement of overhead doors;
(iii) installation of windows;
(iv) installation of additional lavatories; and
(v) reconfiguration of entryways.
The Lessee's Construction Work shall be performed at the Lessee's sole cost
and expense and the Port Authority shall have no obligation to make any
payment to the Lessee on account of the performance of the Lessee's
Construction Work.
(b) With respect to the Lessee's Construction Work the Lessee
shall be the insurer of the Port Authority, and its Commissioners,
officers, agents and employees against the following distinct and several
risks, whether they arise from acts or omissions of the Lessee, any
contractors of the Lessee, the Port Authority, third persons, or from acts
of God or the public enemy, or otherwise, excepting only risks which result
solely from intentional tortious acts done by the Port Authority subsequent
to commencement of the work:
(i) The risk of loss or damage to all such construction
prior to the completion thereof. In the event of such loss or
damage, the Lessee shall forthwith repair, replace and make good
the work without cost to the Port Authority;
(ii) The risk of death, injury or damage, direct or
consequential, to the Port Authority, and its Commissioners,
officers, agents and employees, and to its or their property,
arising out of or in connection with the performance of the work.
The Lessee shall indemnify the Port Authority, and its
Commissioners, officers, agents and employees, for all such
injuries and damages, and for all loss suffered by reason
thereof;
(iii) The risk of claims and demands, just or unjust, by
third persons against the Port Authority, and its Commissioners,
officers, agents and employees, arising or alleged to arise out
of the performance of the work. The Lessee shall indemnify the
Port Authority, and its Commissioners, officers, agents and
employees, against and from all such claims and demands, and for
all loss and expense incurred by it and by them in the defense,
settlement or satisfaction thereof including without limitation
thereto, claims and demands for death, for personal injury or for
property damage, direct or consequential.
(c) Prior to the commencement of any of the Lessee's
Construction Work, the Lessee shall submit to the Port Authority for its
approval a Construction Application in the form supplied by the Port
Authority, and containing such terms and conditions as the Port Authority
may include, setting forth in detail by appropriate plans and
specifications the work the Lessee proposes to perform and the manner of
and time periods for performing the same, including without limitation a
schedule listing each contract proposed to be entered into for the
performance of the work and the estimated cost of the work to be performed
under each such contract. The data to be supplied by the Lessee shall
identify each of the items constituting the Lessee's Construction Work, and
shall describe in detail the systems, improvements, fixtures and equipment
to be installed by the Lessee. The Lessee shall be responsible at its sole
expense for retaining all architectural, engineering and other technical
consultants and services as may be directed by the Port Authority and for
developing, completing and submitting detailed plans and specifications for
the work. The plans and specifications to be submitted by the Lessee shall
be in sufficient detail for a contractor to perform the work and shall bear
the seal of a qualified architect or professional engineer who shall be
responsible for the administration of the work in accordance with the Port
Authority's requirements. In connection with review by the Port Authority
of the Lessee's submissions under this paragraph, the Lessee shall submit
to the Port Authority at the Port Authority's request, such additional
data, detail or information as the Port Authority may find necessary.
Following the Port Authority's receipt of the Lessee's Construction
Application and complete plans and specifications, the Port Authority shall
give its written approval or rejection thereof, or shall request such
revisions or modifications thereto as the Port Authority may find
necessary. The Lessee shall not engage any contractor or permit the use of
any subcontractor unless and until each such contractor or subcontractor,
and the contract such contractor is operating under, have been approved by
the Port Authority. The Lessee shall include in any such contract or
subcontract such provisions as are required in accordance with the
provisions of this Agreement and the Construction Application approved by
the Port Authority. The Lessee shall obtain and maintain or cause each
contractor to obtain and maintain in force such insurance coverage as is
described in paragraphs (j) and (k) of this Special Endorsement and such
performance bonds as the Port Authority may specify. All of the Lessee's
Construction Work shall be performed by or on behalf of the Lessee in
accordance with the Construction Application and final plans and
specifications approved by the Port Authority, shall be subject to
inspection by the Port Authority during the progress of the work and after
the completion thereof, and the Lessee shall redo or replace at its own
expense any work not done in accordance therewith. Upon final completion
of all of the Lessee's Construction Work the Lessee shall deliver to the
Port Authority a certificate to such effect signed by an executive officer
of the Lessee and by the architect or engineer who sealed the Lessee's
plans pursuant to the provisions of this paragraph certifying that all of
the work has been performed in accordance with the approved plans and
specifications and the provisions of this Agreement, and the Lessee shall
supply the Port Authority with as-built drawings of the Lessee's
Construction Work in such form and number requested by the Port Authority.
The Lessee shall keep said drawings current during the term of the letting
under this Agreement. No changes or modifications to such work shall be
made without prior Port Authority consent. Following its receipt of the
Lessee's certificate, the Port Authority shall inspect the work and, unless
such certification is not correct, or the Port Authority determines that
the premises are unsuitable for occupancy and use by the Lessee, a
certificate of final completion shall be delivered to the Lessee by the
Port Authority.
(d) Except as set forth in paragraph (e) of this Special
Endorsement, the Lessee shall not commence any portion of the Lessee's
Construction Work until the Construction Application and plans and
specifications covering such work, referred to in paragraph (c) of this
Special Endorsement, have been finally approved by the Port Authority.
(e) If the Lessee desires to commence construction of portions
of the Lessee's Construction Work prior to the approval by the Port
Authority of the complete Construction Application and plans and
specifications covering all of such work pursuant to paragraph (c) of this
Special Endorsement, the Lessee shall submit to the Port Authority a
separate Construction Application for each portion of the Lessee's
Construction Work the Lessee so desires to commence (each such portion of
the Lessee's Construction Work being hereinafter designated as "Partial
Approval Work") which shall be executed by an authorized officer of the
Lessee and shall be accompanied by final and complete plans,
specifications, drawings, and data with respect to such portion of the
Lessee's Construction Work (the final and complete plans, specifications,
drawings, and data covering each such portion of the Lessee's Construction
Work are hereinafter referred to as the "Partial Approval Work Plans" with
respect to such portion of the Lessee's Construction Work) setting forth in
detail the work to be performed in connection with each such portion of the
Lessee's Construction Work. The Port Authority shall have full and
complete discretion as to whether to permit the Lessee to proceed with the
performance of any Partial Approval Work. If the Port Authority consents
to the performance of any Partial Approval Work, the Port Authority shall
review the Construction Application covering such work and shall give its
written approval or rejection of the Partial Approval Work Plans with
respect thereto or shall request such revisions or modifications thereto as
the Port Authority may find necessary. Upon the Port Authority's approval
of the Construction Application covering an item of Partial Approval Work
and its approval of the Partial Approval Work Plans with respect thereto,
the Lessee may proceed to perform such item of Partial Approval Work
subject to and in accordance with the following terms and conditions:
(1) The performance by the Lessee of any item of Partial
Approval Work in accordance with the Port Authority's approval will be at
its sole risk and if for any reason the plans and specifications for the
balance of the Lessee's Construction Work or, any part thereof, are not
approved by the Port Authority or if the approval thereof calls for
modifications or changes in any item of Partial Approval Work undertaken by
the Lessee under any approval granted by the Port Authority pursuant to
this paragraph, the Lessee will, as directed by the Port Authority, and at
the Lessee's sole cost and expense, either restore the area affected to the
condition existing prior to the commence of such item of Partial Approval
Work or make such modifications and changes to such work as may be required
by the Port Authority.
(2) Nothing contained in any approval given pursuant to
this paragraph shall constitute a determination or indication by the Port
Authority that the Lessee has complied with any laws, rules, orders,
ordinances, enactments, resolutions, regulations, statutes, requirements,
codes, directions, and executive orders, including but not limited to those
of the City of New York, which may pertain to the Partial Approval Work to
be performed and which the Lessee is required to comply with pursuant to
this Agreement.
(3) Each item of Partial Approval Work shall be performed
in accordance with and subject to the terms and provisions of this
Agreement covering the Lessee's Construction Work and in accordance with
the approved Construction Application covering such item of Partial
Approval Work and in accordance with the approved Partial Approval Work
Plans constituting a part of such Construction Application, and subject to
any requirements, stipulations, and provisions which the Port Authority may
impose in its approval of the performance of such item of Partial Approval
Work.
(4) No Partial Approval Work performed by the Lessee
pursuant to the provisions of this paragraph shall affect or limit the
obligations of the Lessee under any prior approvals it may have obtained
with respect to the Lessee's Construction Work.
(5) The fact that the Lessee has performed any item of
Partial Approval Work and that the Port Authority has consented to the
performance thereof shall not affect or limit the obligations of the Lessee
under this Agreement with respect to the Lessee's Construction Work. The
Lessee specifically understands that neither the Port Authority's approval
of any Construction Application and Partial Approval Work Plans covering
any item of Partial Approval Work nor the performance by the Lessee of any
item of Partial Approval Work pursuant to such approval shall obligate the
Port Authority to approve the Construction Application and plans and
specifications submitted by the Lessee for the balance of the Lessee's
Construction Work or shall create or be deemed to create any obligation on
the part of the Port Authority to permit subsequent Partial Approval Work
to be performed. Without limiting the generality of the provisions of this
paragraph, it is specifically understood that the Port Authority may
withhold its approval of a Construction Application and Partial Approval
Work Plans covering any item of Partial Approval Work if the Port Authority
determines that review of subsequent items of Partial Approval Work is
required before the Port Authority can approve, reject, or comment upon
such Partial Approval Work Plans.
(6) In the event that in the opinion of the Port Authority
the Lessee at any time during the performance of any portion of any item of
Partial Approval Work under the approval granted by the Port Authority
pursuant to this paragraph shall fail to comply with all of the provisions
of this Agreement with respect to such work or shall fail to comply with
the provisions of the Construction Application covering such work and the
plans and specifications forming a part thereof, or shall fail to comply
with any requirements, stipulations, or provisions imposed by the Port
Authority in its approval of the performance of such item of Partial
Approval Work, or if in the Port Authority's opinion the Lessee shall be in
breach of any of the provisions of this Agreement covering such work or
shall be in breach of any of the provisions of the Construction Application
and plans and specifications covering the performance of such work, or
shall be in breach of any requirements, stipulations, or provisions imposed
by the Port Authority in its approval of the work, the Port Authority shall
have the right to cause the Lessee to cease all or such part of such item
of the Partial Approval Work as is being performed in violation of this
Agreement, the Construction Application and plans and specifications, or
the conditions of the Port Authority's approval. Upon written direction
from the Port Authority, the Lessee shall promptly cease performance of the
portion of the Partial Approval Work specified. The Lessee shall thereupon
submit to the Port Authority for its written approval the Lessee's proposal
for making modifications, corrections or changes in or to the item of
Partial Approval Work that has been or is to be performed so that the same
will comply with the provisions of this Agreement, the Construction
Application and plans and specifications, or the conditions of the Port
Authority's approval covering such work. The Lessee shall not commence
construction of the portion of the Partial Approval Work that has been
halted until it has received written approval of the proposed
modifications, corrections or changes.
(7) It is hereby expressly understood and agreed that the
Port Authority has no duty or obligation of any kind whatsoever to inspect
or police the performance of any Partial Approval Work by the Lessee and
the rights granted to the Port Authority hereunder shall not create or be
deemed to create such a duty or obligation. Accordingly, the fact that the
Port Authority has not exercised its right to require the Lessee to cease
performance of all or any part of the Partial Approval Work shall not be or
be deemed to be an agreement or acknowledgment on the part of the Port
Authority that the Lessee has in fact performed such work in accordance
with the terms of this Agreement, the Construction Application and plans
and specifications covering such work, or the conditions of the Port
Authority's approval of such work, nor shall such fact be or be deemed to
be a waiver by the Port Authority of any of the requirements of this
Agreement with respect to such work, or any of the requirements of the
Construction Application and plans and specifications covering such work,
or any of the conditions of the Port Authority's approval of such work.
(f) Without limiting the generality of any of the provisions of
this Agreement, the Lessee's Construction Work (including any Partial
Approval Work performed by the Lessee) shall be performed in such a manner
that there will be at all times during construction a minimum of air
pollution, water pollution or any other type of pollution, and a minimum of
noise emanating from, arising out of, or resulting from construction.
Subject to the provisions of this Agreement, the Lessee shall construct
such reasonable structures, fences, equipment, devices and other facilities
as may be necessary or appropriate to accomplish the objectives set forth
in this paragraph, and, without limiting the generality of the foregoing,
such construction shall be subject to the Port Authority's review and
approval in accordance with the provisions of this Special Endorsement.
(g) Without limiting the generality of paragraph (c) of this
Special Endorsement, the Lessee shall be solely responsible for the plans
and specifications used by it and for the adequacy or sufficiency of such
plans, specifications and all the improvements, fixtures, and equipment
depicted thereon or covered thereby, regardless of the consent thereto or
approval thereof by the Port Authority or the incorporation therein of any
Port Authority requirements or recommendations. The Port Authority shall
have no obligation or liability in connection with the performance of any
of the Lessee's Construction Work or for the contracts for the performance
thereof entered into by the Lessee. Any warranties extended or available
to the Lessee in connection with the aforesaid work shall be for the
benefit of the Port Authority as well as the Lessee. The Lessee recognizes
that its obligation to pay the basic rental provided for in this Agreement
shall commence on the Rental Payment Start Date established pursuant to the
provisions of Special Endorsement 2 of this Agreement whether or not the
Lessee's Construction Work is then completed and regardless of whether the
Lessee is then conducting any public operations in the premises. The
Lessee shall conduct no public operations in the premises with respect to
any improvements, fixtures or equipment constituting the Lessee's
Construction Work until the Port Authority shall have notified the Lessee
in writing that the Lessee's Construction Work has been completed or
substantially completed to its satisfaction. In the event of any
inconsistency between the provisions of this Agreement and those of the
Construction Application referred to in paragraph (c) of this Special
Endorsement the provisions of this Agreement shall control.
(h) Without limiting or affecting any other term or provision of
this Agreement, the Lessee shall be solely responsible for the design,
adequacy and operation of all utility, mechanical, electrical,
communications and other systems installed in the premises by the Lessee
and all other improvements, additions, fixtures, finishes, decorations and
equipment made or installed by the Lessee in the premises and shall do all
preventive maintenance and make all repairs, replacements, rebuilding
(ordinary or extraordinary, structural or non-structural) and painting
necessary to keep such systems, improvements, additions, fixtures,
finishes, decorations and equipment (whether the same involves structural
or non-structural work) in the condition they were in when made or
installed except for reasonable wear which does not adversely affect the
efficient or proper utilization of any part of the premises.
(i) The Lessee shall pay all claims lawfully made against it by
its contractors, subcontractors, materialmen and workmen, and all claims
lawfully made against it by other third persons arising out of or in
connection with or because of the performance of the work, and shall cause
its contractors and subcontractors to pay all such claims lawfully made
against them. Nothing herein contained shall be deemed to constitute
consent to the creation of any lien or claim against the premises or any
part thereof, nor to prevent the Lessee from contesting claims in good
faith.
(j) In addition to all policies of insurance otherwise required
by this Agreement, the Lessee shall procure and maintain or cause to be
procured and maintained in effect during the performance of the Lessee's
Construction Work;
(i) Comprehensive General Liability Insurance including but
not limited to coverage for Products Liability-Completed
Operations and for Broad Form Property Damage and Independent
Contractor coverage, with a contractual liability endorsement
covering the obligations assumed by the Lessee under paragraph
(b) of this Special Endorsement, and which are customarily
insured under such a policy, with a minimum combined single limit
coverage for bodily injury and property damage of $2 million.
Said insurance shall also include coverage for explosion,
collapse and underground property damage hazards.
(ii) Comprehensive Automobile Liability Insurance covering
all owned, non-owned or hired vehicles used in connection with
said construction with a minimum combined single limit coverage
for bodily injury and property damage of $2 million.
(iii) Workers' Compensation and Employer's Liability
Insurance in accordance with the requirements of law.
(k) In addition to the insurance required pursuant to the
provisions of paragraph (j) of this Special Endorsement, the Lessee shall
procure or cause to be procured prior to the commencement of any work
Builder's Risk Insurance (All Risk) covering loss or damage (including any
loss or damage resulting from flood or earthquake) to any structures,
improvements, fixtures and equipment and furnishing and materials on the
premises during said construction, whether or not attached to the land, in
an amount equal to the full replacement cost. Such insurance shall name
the Port Authority as an insured and such policy shall provide that the
loss shall be adjusted with the Port Authority, and that the proceeds
thereof shall be paid to the Port Authority and shall be made available to
the Lessee for and applied strictly and solely to the payment of the cost
of the repair, replacement, rebuilding or other performance of the Lessee's
Construction Work.
(l) With the exception of the Workers' Compensation and
Employer's Liability Insurance policy each policy of insurance described in
paragraph (j) of this Special Endorsement shall include the Port Authority
as an additional insured, and no such policy shall contain any care,
custody or control exclusions, or any exclusion of bodily injury to or
sickness, disease or death of any employee of the Lessee or of any of its
contractors which would conflict with or in any way impair the coverages
resulting from the Port Authority's status as an additional insured or the
coverage under the contractual liability endorsement described in
subparagraph (i) of paragraph (__) of this Special Endorsement. Such
insurance shall also contain an endorsement providing that the protection
afforded the Lessee thereunder with respect to any claim or action against
the Lessee by a third party shall pertain and apply with like effect with
respect to any claim or action against the Lessee by the Port Authority and
against the Port Authority by the Lessee, but said endorsement shall not
limit, vary, change or affect the protections afforded the Port Authority
as an additional insured. Such insurance shall contain a provision that
the insurer shall not, without obtaining express advance permission from
the General Counsel of the Port Authority, raise any defense involving in
any way the jurisdiction of the tribunal over the person of the Port
Authority, the immunity of the Port Authority, its Commissioners, officers,
agents or employees, the governmental nature of the Port Authority or the
provisions of any statutes respecting suits against the Port Authority.
(m) Unless otherwise set forth herein, each policy of insurance
described in paragraphs (j) and (k) of this Special Endorsement shall be
subject to the applicable provisions of Standard Endorsement No. L21.1 to
this Agreement.
(n) Title to and property in all improvements and fixtures
placed, constructed or installed in or on the premises, including all such
improvements and fixtures as shall constitute the Lessee's Construction
Work, shall vest in the Port Authority upon placement, construction or
installation thereof and title to and property in any and all equipment and
trade fixtures removable without substantial injury to the premises placed
in or installed upon the premises shall vest in the Lessee upon the
installation thereof. No equipment or trade fixtures shall be removed by
the Lessee prior to the expiration date of the letting under this Agreement
unless replaced with identical property of equal or greater value. Without
limiting any other term of this Agreement, and notwithstanding the
foregoing provisions, upon notice given by the Port Authority either prior
to or within sixty (60) days after expiration or earlier termination of the
letting of the premises under this Agreement the Lessee shall remove from
the premises any improvements, fixtures, trade fixtures, or equipment as
the Port Authority may specify in its notice, and shall repair any damage
to the premises caused by such removal.
(o) In the performance of the Lessee's Construction Work the
Lessee shall not permit any situation or condition to continue that may
cause or be conducive to any labor troubles at the Facility which
interferes with the progress of other construction work at the Facility.
The determinations of the Port Authority shall be conclusive on the Lessee
and, upon notice from the Port Authority, the Lessee shall or shall cause
its contractor to immediately rectify any condition specified in the
notice. In the event of failure by the Lessee or any of its contractors to
immediately comply with the requirements of this paragraph (whether or not
such failure is due to the Lessee's fault) the Port Authority by notice
shall have the right to suspend the Port Authority's permission to the
Lessee to proceed with any portion of the Lessee's Construction Work being
performed by or on behalf of the Lessee, and the Lessee shall thereupon
immediately cease the same. When labor troubles shall be so settled that
such interference or the danger thereof no longer exists, the Port
Authority by notice to the Lessee shall reinstate the permission to the
Lessee to perform the work on all the same terms and conditions as before
the suspension. "Labor troubles" shall mean and include strikes, boycotts,
picketing, work-stoppages, slowdowns, complaints, disputes, controversies
or any other type of labor trouble, regardless of the employer of the
person involved or their employment status, if any.
(p) No contractor or third party shall or shall be deemed to
have acquired any rights against the Port Authority by virtue of the
execution of this Agreement and nothing contained herein shall operate or
give to any such contractor or third party any claim or right of action
against the Port Authority and its Commissioners, officers, agents and
employees.
9. INSURANCE. (a) The Lessee shall secure and maintain in its own
name as assured and shall pay the premiums on the following policy of
insurance in the limit set forth below, which policy shall be effective
during the term of the letting under this Agreement:
(1) All risk property damage insurance covering the
full replacement cost of any property owned, leased, or within
the care, custody or control of the Lessee and now or in the
future located on or constituting a part of the premises, except
for any personal property owned by the Port Authority. Full
replacement cost of the premises is currently estimated by the
Port Authority to be not less than $520,000.00. No omission on
the part of the Port Authority to make such determination shall
relieve the Lessee of its obligations to maintain the appropriate
insurance under this Special Endorsement. Such insurance shall
cover and insure against such hazards and risks as at least would
be insured against under the Standard Form of Fire Insurance
policy in the State of New York, or any successor thereto, and
the broadest form of extended coverage endorsement prescribed as
of the effective date of said insurance by the rating
organization having jurisdiction, including without limitation
hazards and risks of flood, earthquake, windstorm, cyclone,
tornado, hail, explosion, riot, civil commotion, aircraft,
vehicles and smoke, and, if the Port Authority so requests, also
covering nuclear property losses and contamination and boiler and
machinery hazards and risks (if said coverage regarding nuclear
property losses and contamination is or becomes available.
(2) Unless otherwise directed by the Port Authority, the
property damage insurance policy required by this Special Endorsement shall
name the Port Authority and the Lessee (with insurance clauses consistent
with the provisions of this Agreement) as the insureds, as their respective
interests may appear, and shall provide that loss, if any, shall be
adjusted with and payable to the Port Authority. As to any insurance
required by this Special Endorsement, a certificate of insurance, or
binders, shall be delivered by the Lessee to the Port Authority
simultaneously with the delivery of an executed copy of this Agreement by
the Lessee. In the event any binder is delivered, it shall be replaced
within thirty (30) days by a certificate of insurance. Each such policy
shall contain a valid provision or endorsement that the policy may not be
cancelled, terminated, changed or modified, without giving at least thirty
(30) days' written advance notice thereto to the Port Authority and an
endorsement to the effect that the insurance as to the interest of the Port
Authority shall not be invalidated by any act or negligence of the Lessee
or any other insured. Each policy of insurance shall have attached thereto
an endorsement that the Port Authority will be given at least thirty (30)
days' prior notice of any material change in the policy. A certificate of
insurance with respect to a renewal policy shall be delivered to the Port
Authority at least fifteen (15) days prior to the expiration date of each
expiring policy, except for any policy expiring after the date of
expiration of the effective term hereof. If at any time the policy
required by this Special Endorsement shall be or become unsatisfactory to
the Port Authority as to form or substance, or if the carrier issuing such
policy shall be or become unsatisfactory to the Port Authority, the Lessee
shall promptly obtain a new and satisfactory policy in replacement.
Except as may be otherwise determined by the Port Authority pursuant to the
provisions of Section 8 of the Terms and Conditions of this Agreement, the
proceeds of insurance from coverages secured in accordance with this
Special Endorsement shall be made available to the Lessee and shall be
applied by the Lessee strictly and solely to the repair, replacement, or
rebuilding of the premises as provided in this Agreement.
(b) The policy of comprehensive general liability insurance
required by Standard Endorsement No. L21.1 to this Agreement shall include
a contractual liability endorsement covering the Lessee's indemnity
obligations under this Agreement. The policy of automobile liability
insurance required by said Standard Endorsement No. L21.1 shall cover all
owned, non-owned and hired vehicles. Each policy of insurance required by
said Standard Endorsement No. L21.1 shall contain an endorsement providing
that the protections afforded the Lessee thereunder with respect to any
claim or action against the Lessee by a third party shall pertain and apply
with like effect with respect to any claim or action against the Lessee by
the Port Authority and against the Port Authority by the Lessee, but said
endorsement shall not limit, vary, change or effect the protections
afforded the Port Authority as an additional insured.
(c) Notwithstanding anything contained in Standard Endorsement
No. L21.1 annexed to this Agreement, it is specifically understood and
agreed that the Port Authority shall have the right upon notice to the
Lessee given from time to time and at any time to require the Lessee to
increase any or all of the limits set forth in said Standard Endorsement
No. L21.1 and the Lessee shall promptly comply therewith and shall promptly
submit a certificate or certificates evidencing the same to the Port
Authority.
10. LATE CHARGES. If the Lessee shall fail to pay any amount
required under this Agreement when due to the Port Authority, including
without limitation any payment of basic rental, additional rental or any
payment of utility fees or charges or other charges or fees, or if any such
amount is found to be due as the result of an audit, then, in such event,
the Port Authority may impose (by statement, bill or otherwise) a late
charge with respect to each such unpaid amount for each late charge period
hereinbelow described during the entirety of which such amount remains
unpaid, each such late charge not to exceed an amount equal to eight-tenths
of one percent of such unpaid amount for each late charge period. there
shall be twenty-four late charge periods during each calendar year; each
late charge period shall be for a period of at least fifteen (15) calendar
days except one late charge period each calendar year may be for a period
of less than fifteen (but not less than thirteen) calendar days. Without
limiting the generality of the foregoing, late charge periods in the case
of amounts found to have been owing to the Port Authority as the result of
Port Authority audit findings shall consist of each late charge period
following the date the unpaid amount should have been paid under this
Agreement. Each late charge shall be payable immediately upon demand made
at any time therefor by the Port Authority. No acceptance by the Port
Authority of payment of any unpaid amount or of any unpaid late charge
amount shall be deemed a waiver of the right of the Port Authority to
payment of any late charge or late charges payable under the provisions of
this paragraph, with respect to such unpaid amount. Each late charge shall
be and become additional rent, recoverable by the Port Authority in the
same manner and with like remedies as if it were originally a part of the
rental set forth in this Agreement. Nothing in this paragraph is intended
to, or shall be deemed to, affect, alter, modify or diminish in any way (i)
any rights of the Port Authority under this Agreement, including without
limitation the Port Authority's rights set forth in Section 16 of the Terms
and Conditions of this Agreement entitled "Termination" or (ii) any
obligations of the Lessee under this Agreement. In the event that any late
charge imposed pursuant to this paragraph shall exceed a legal maximum
applicable to such late charge, then, in such event, each such late charge
payable under this paragraph shall be payable instead at such legal
maximum.
11. ADDRESS FOR PAYMENTS. The words "shall be made at the office of
the Treasurer of the Port Authority, One World Trade Center, New York, New
York 10048" appearing int he first and second lines of paragraph (f) of
Section 25 of the Terms and Conditions of this Agreement shall be deemed
deleted and the words "shall be mailed to the Port Authority of New York
and New Jersey, P.O. Box 17309, Newark, New Jersey 07194" shall be deemed
inserted in lieu thereof.
12. CORPORATE GUARANTY. The Lessee shall cause to be executed by The
Strober Organization, Inc. simultaneously with the execution and delivery
by the Lessee of this Agreement to the Port Authority, a Contract of
Guaranty in the form attached hereto and hereby made a part hereof, which
Contract of Guaranty shall guarantee the full, faithful and prompt
performance of and compliance with, on the part of the Lessee, all of the
terms, provisions, covenants and conditions of this Agreement, and the
Lessee shall keep and maintain said Contract of Guaranty in full force and
effect. The existence of the contract of guaranty described in this
Special Endorsement shall not limit or alter any other remedies of the Port
Authority under this Agreement, and the Port Authority may from time to
time and at any time elect to pursue (or not to pursue) its rights under
this contract of guaranty without thereby limiting, voiding or
relinquishing any of its other rights or remedies under this Agreement.
13. FLOOR LOAD. The number of pounds avoirdupois contemplated in
paragraph (h) of Section 4 of the terms and Conditions of this Agreement
shall be 500 on the pier shed floor, 125 in the pier office and toilet
space, and 250 in all other portions of the premises.
14. LESSEE'S ADDITIONAL TERMINATION RIGHTS. It is specifically
understood and agreed that in the event of a casualty described in
Paragraph (a) of Section 8 of the Terms and Conditions of this Agreement
and the work of repair or rebuilding specified in Subparagraph (a)(1) or
(2) of said Paragraph (a) is not completed in 180 days after the occurrence
of the damage, then the Lessee shall have the right, on thirty (30) days's
prior written notice to the Port Authority, to terminate this Agreement and
the letting hereunder, PROVIDED, HOWEVER, that the Lessee shall not have
such right if either on the date of giving said notice it is in default
under any of the terms, covenants and conditions of this Agreement to be
performed, kept or observed by the Lessee. In the event of termination
pursuant to this provision, this Agreement and the letting hereunder shall
cease and expire as if the effective date of termination stated in said
notice were the date originally set forth therein for the expiration of
this Agreement.
15. REAL ESTATE TAXES. Notwithstanding anything contained in
Standard Endorsement No. 5.1 annexed to this Agreement, it is specifically
understood and agreed that the provisions of Paragraph (d) of said Standard
Endorsement shall not be deemed to include any real estate taxes on the
premises under this Agreement.
16. BROKERAGE. Section 29 of the Terms and Conditions of this
Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
"Section 29.BROKERAGE.
The Lessee represents and warrants that no broker has been
concerned in the negotiation of this Agreement or the letting
hereunder except Kalmon Dolgin Affiliates, Inc., a New York
corporation with an office and place of business at 101
Richardson Street, Brooklyn, New York 11211, and Robert S. Klein,
an employee of Kalmon Dolgin Affiliates, Inc., residing at 105
Church Road, Morganville, New Jersey 07751, and that there is no
broker who is or may be entitled to be paid by the Port Authority
a commission in connection with this Agreement except Kamon
Dolgin Affiliates, Inc. and Robert S. Klein, pursuant to a
separate brokerage agreement. The Lessee shall indemnify the
Port Authority and save it harmless from any and all claims which
have been or may be made by any other persons, firms or
corporations for services in connection with the negotiation and
execution of this Agreement or in connection with any letting,
expansion or renewal of the premises referred to herein."
For the Port Authority
Initialed:
For the Lessee
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On this day of , 1996, before me personally came
to me known, who,
being by me duly sworn, did depose and say that he resides at ;
that he is the of the Port Authority of New York and
New Jersey (one of) the corporations described in and which executed the
foregoing instrument; that he knows the seal of the said corporation; that the
seal affixed to the said instrument is such corporate seal; that it was so
affixed by order of the Board of Commissioners of the said corporation; and
that he signed his name thereto by like order.
(notarial seal and stamp)
STATE OF )
) SS.
COUNTY OF )
On this day of , 1996, before me personally came
to me known, who, being by me duly sworn,
did depose and say that he resides at ;
that he is the President of STROBER BROS, INC. BUILDING SUPPLY CENTERS one of
the corporations described in and which executed the foregoing instrument; that
he knows the seal of the said corporation; that the seal affixed to the said
instrument is such corporate seal; that it was so affixed by order of the Board
of Commissioners of the said corporation; and that he signed his name thereto
by like order.
(notarial seal and stamp)
STATE OF )
) SS.
COUNTY )
On this day of , 1996, before me personally came
to me known, who, being by me duly sworn, did depose
and say that he resides at ; that he is the
President of THE STROBER ORGANIZATION, INC. one of the corporations described
in and which executed the foregoing instrument; that he knows the seal of the
said corporation; that the seal affixed to the said instrument is such
corporate seal; that it was so affixed by order of the Board of Commissioners of
the said corporation; and that he signed his name thereto by like order.
(notarial seal and stamp)
<PAGE>
CONTRACT OF GUARANTY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter
called the "Port Authority"), a body corporate and politic, created by
Compact between the States of New Jersey and New York, with the consent of
the Congress of the United States of America, and having an office at One
World Trade Center, in the Borough of Manhattan, in the City, county and
State of New York 10048, has under consideration the attached agreement of
lease dated as of March 29, 1996 and bearing Port Authority file number BP-
276 covering the letting of certain premises at the Brooklyn - Port
Authority Marine Terminal (which agreement of lease is hereinafter called
the "Lease") by and between the Port Authority and Strober Bros., Inc.
Building Supply Centers (hereinafter called the "Lessee"), a corporation
organized and existing under the laws of the State of New York and having
an office and place of business at 550 Hamilton Avenue, Brooklyn, New York
11232 which said Lease includes, without limitation thereto, a provision
for the guaranty of the obligations of the Lessee under the Lease; and
WHEREAS, The Strober Organization, Inc. (hereinafter called the
"Guarantor"), a corporation organized and existing under the laws of the
State of Delaware and having an office and place of business at 550
Hamilton Avenue, brooklyn, New York 11232, in order to induce the Port
Authority to enter into the Lease, is willing to guarantee the payment by
the Lessee of the rentals and other monetary obligations which the Lessee
has under the Lease and to guarantee the performance, fulfillment and
observance by the Lessee of all the other terms, provisions, covenants and
conditions of the Lease on the part of the Lessee to be performed,
fulfilled and observed;
NOW, THEREFORE, for and in consideration of the foregoing, the
Guarantor hereby covenants and agrees with the Port Authority as follows:
1. The Guarantor hereby absolutely and unconditionally guarantees,
promises and agrees that the Lessee will duly and punctually pay all
rentals and other monetary obligations which it has or shall have under the
Lease, and that the Lessee faithfully and fully perform, fulfill and
observe all the other terms, provisions, covenants and conditions of the
Lease on the part of the Lessee to be performed, fulfilled and observed.
2. The Guarantor hereby waives and dispenses with any notice of non-
payment, non-performance or non-observance or proof of notice or demand
whereby to charge it therefor, and agrees that the validity of this
Contract of Guaranty and the obligations of the Guarantor hereunder shall
in no wise be terminated, affected or impaired by reason of any failure on
the part of the Port Authority to insist upon strict performance under the
Lease, or by the assertion by the Port Authority against the Lessee of any
of the rights or remedies reserved to the Port Authority under the
provisions of the Lease, or by the institution, prosecution, withdrawal,
discontinuance or settlement of any judicial or other proceeding by the
Port Authority against the Lessee.
3. The obligations of the Guarantor hereunder shall not be released
or affected in any way by the Port Authority's receipt, application or
release of security given for the performance and observance of the terms,
conditions and provisions to be performed, observed or fulfilled under the
Lease, and the receipt of such security shall not limit or alter the
remedies of the Port Authority under this Contract of Guaranty and the Port
Authority may from time to time and at any time elect to pursue (or not to
pursue) its rights under this Contract of Guaranty without thereby
limiting, voiding or relinquishing any of its rights or remedies under the
Lease.
4. The liability of the Guarantor hereunder shall in no way be
affected by:
(a) The release or discharge of the Lessee in any creditors',
receivership, bankruptcy or other similar proceeding; or
(b) The impairment, limitation or modification of the liability
of the Lessee or its estate in bankruptcy, or of any remedy for the
enforcement of the liability of the Lessee under the Lease, resulting from
the operation of any present or future provision of the Bankruptcy Code or
any other statute or from the decision of any court having jurisdiction
over the Lessee or its estate; or
(c) The rejection or disaffirmance of the Lease in any
creditors', receivership, bankruptcy or other similar proceeding; or
(d) Any disability or any defense of the Lessee.
5. This Contract of Guaranty shall remain and continue in full force
and effect as to any and every renewal, modification or extension of the
Lease, whether in accordance with the terms thereof or by a separate or
additional document, and notwithstanding any such renewal, modification or
extension, whether or not the Guarantor has specifically consented to such
renewal, modification or extension. The liability of the Guarantor
hereunder shall in no way be affected by the failure of the Port Authority
to obtain the Guarantor's consent to any such renewal, modification or
extension, notwithstanding that the Port Authority may have previously
obtained such consent with respect to a prior renewal, modification or
extension.
6. Acceptance of this Contract of Guaranty and reliance thereon by
the Port Authority shall be evidenced by the execution of the Lease by the
Port Authority without any further act or notice. If, for any reason, any
part of the obligations of the Guarantor hereunder shall be held invalid or
unenforceable, the balance of the said obligations shall nevertheless
remain in full force and effect. Failure physically to attach a copy of
the Lease to this Contract of Guaranty shall not void, alter or affect this
Contract of Guaranty, or alter or amend the obligations of the Guarantor
hereunder.
IN WITNESS WHEREOF, the Guarantor has caused these presents to be executed
as of the day of , 1996.
ATTEST: THE STROBER ORGANIZATION, INC.
- ---------------------- By:____________________________________
(Title) PRESIDENT
-------------------------
(Corporate Seal)
<PAGE>
EXHIBIT 10.2
Indenture of Lease made as of 1986 by and between JNR Realty Company
and Strober-L.I. Building Supply Centers, Inc. together with lease
amendatory agreement made as of July 1996 between and among JNR
Realty Company, Strober Long Island Building Supply Centers, Inc.
and The Strober Organization, Inc.
<PAGE>
THIS INDENTURE OF LEASE, made and executed as of the day of
, 1986, by and between J N R REALTY COMPANY (hereinafter referred to
as "Landlord", and STROBER-L.I. BLDG. SUPPLY CENTERS, INC. (hereinafter referred
to as "Tenant").
W I T N E S S E T H:
ARTICLE 1
Demised Premises
That the Landlord, for and in consideration of the rents, terms,
covenants, conditions, provisions and agreements herein reserved and
contained on the part of the Tenant, to be paid, kept and performed, does
by these presents demise and lease unto the Tenant, and the Tenant, does by
these presents demise and lease unto the Tenant, and the Tenant, does
hereby hire and take from the Landlord, upon and subject to the terms,
covenants, conditions, provisions and agreements, hereinafter contained,
the property more particularly described in Exhibit "A" annexed hereto,
(said premises hereinafter called the "Demised Premises", or "demised
premises") together with all right, title and interest of Landlord, if any,
in and to any street or avenues abutting the Demised Premises and the
easements appurtenant to the ownership thereof,
SUBJECT (in so far as the same may be in effect or applicable) TO:
(a) Building restrictions and regulations now in force and
present and future zoning laws, ordinances, resolutions and regulations
affecting the Demised Premises and all present and future ordinances, laws,
regulations and orders of all boards, bureaus, commissions and bodies of
any municipal, county, state or federal sovereigns, now or thereafter
having acquired jurisdiction of the Demised Premises and the use and
improvement thereof.
(b) Revocable nature of the right, if any, to maintain vaults,
vault spaces, basement and subbasement spaces, areas, marquees or signs,
beyond the building lines.
(c) Violations of law, ordinances, orders or requirements noted
as of the commencement date or that might be disclosed by an examination
and inspection or search of the Demised Premises by any federal, state or
municipal departments or authority having jurisdiction, as the same may
exist on the date of the commencement of the term of this Lease.
(d) The condition and state of repair of the Demised Premises as
the same may be on the date of the commencement of the term of this Lease.
(e) Any state of facts which an accurate survey of the Demised
Premises may show.
(f) All taxes, assessments, water charges and sewer rents,
accrued or unaccrued, fixed or not fixed (subject to the same being pro-
rated for the period prior to and after the commencement or expiration of
the demised term).
(g) Covenants, easements, restrictions, utility and other
agreements of record.
TO HAVE AND TO HOLD the Demised Premises for a term to commence
on _________, 1986 and to expire on _____________, unless this Lease shall
be sooner terminated as herein provided.
IT IS MUTUALLY COVENANTED AND AGREED by and between Landlord and
Tenant that this Indenture is made upon the foregoing and upon the
following agreements, terms, covenants and conditions:
ARTICLE 2
Rent
SECTION 2.01. The Tenant shall pay to the Landlord in lawful money of
the United States, without any offset or deductions whatsoever, a net
annual rental, in equal monthly installments, in advance on the first day
of each and every month as more particularly described in Exhibit "B"
annexed hereto.
SECTION 2.02. It is the purpose and intent of Landlord and Tenant
that the net rent shall be absolutely net to Landlord, so that this Lease
shall yield, net, to Landlord the net rent specified in Section 2.01
hereof, in each year during the term of this Lease and that all costs,
expenses and obligations of every kind and nature whatsoever relating to
the Demised premises and the appurtenances thereto and the use and
occupation thereof (except the taxes of Landlord referred to in Section
3.02 of Article 3 hereof) which may arise or become due during or out of
the term of this Lease shall be paid by Tenant, and that Landlord shall be
indemnified and saved harmless by Tenant from and against the same.
SECTION 2.03. The net rent shall be paid to Landlord without notice
or demand and without abatement, deduction or set-off, and Tenant shall
also pay without notice, except as may be required in this Lease, and
without abatement, deduction or set-off, as additional rent, all sums,
Impositions (as defined in Article 3 hereof), costs, expenses and other
payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall
have (in addition to all other rights and remedies) all the rights and
remedies provided for herein or by law in the case of non-payment of the
net rent. In the event that the term of the Lease shall commence on a date
other than the first day of the calendar month, an appropriate adjustment
shall be made and thereafter rent shall be due and payable on the first day
of each and every month.
ARTICLE 3
Payment of Utilities, Taxes, Assessments, Etc.
SECTION 3.01. Tenant shall pay as additional rent all charges for
public utilities and all water and sewer rents, rates and charges furnished
or attributable to the demised premises.
SECTION 3.02. Tenant shall also pay as additional rent Tenant's
share, as hereinafter more particularly described in Exhibit C, of all
taxes, assessments, transit taxes, excises, levies, license and permit fees
and other governmental charges, general and special, ordinary and
extraordinary, unforeseen and foreseen, of any kind and nature whatsoever
which at any time prior to or during the term of this Lease may be
assessed, levied, confirmed, imposed upon, or grow or may be assessed,
levied, confirmed, imposed upon, or grow or become due and payable out of
or in respect, or become a lien on, the Demised Premises or any part
thereof or any appurtenance thereto, the rent and income received by Tenant
from subtenants, or for any use or occupation of the Demised Premises, and
such franchises as may be appurtenant to the use of the Demised Premises,
this transaction or any document to which Tenant is a party, creating or
transferring an interest or estate in the Demised Premises (all such taxes,
assessments, transit taxes, rates and charges, excises, levies, license
fees and other governmental charges being hereinafter referred to as
"impositions", and any of the same being hereinafter referred to as an
"Imposition"); provided, however, that any Imposition, relating to a fiscal
period of the taxing authority, a part of which is included within the term
of this Lease and a part of which is included in a period of time before or
after the expiration of the term of this Lease, shall (whether or not such
Imposition shall be assessed, levied, confirmed, imposed upon or in respect
of or become a lien upon the Demised Premises, or shall become payable,
during the term of this Lease) be adjusted between Landlord and Tenant as
of the commencement or expiration of the term of this Lease, so that Tenant
shall pay that portion of such Imposition which that part of such fiscal
period included in the period of the time after the commencement or before
the expiration of the term of this Lease bears to such fiscal period, and
Landlord shall pay the remainder thereof, provided, however, that Tenant
shall not be entitled to receive any apportionment after the expiration of
the term, if Tenant shall be in default in the performance of any of
Tenant's covenants, agreements and undertakings in this lease provided.
Tenant shall pay its share of any Imposition the amount thereof become
fixed and within ten (10) days after demand therefor by Landlord and shall
be collectable as additional rent. Tax bills shall be conclusive evidence
for the purpose of determining Tenant's share of Impositions and shall be
used for the calculation of the amounts to be paid by Tenant.
SECTION 3.03 Nothing herein contained shall require Tenant to pay
municipal, state or federal income taxes assessed against Landlord,
municipal, state or federal capital levy, estate, succession, inheritance
or transfer taxes of Landlord, or corporation franchise taxes imposed upon
any corporate owner of the fee of the Demised Premises; provided, however
that if at any time during the term of this Lease the methods of taxation
prevailing at the commencement of the term hereof shall be altered so as to
cause the whole or any part of the taxes, assessments, levies, impositions
or charges now levied, assessed or imposed on real estate and the
improvements thereon to be levied, assessed and imposed, wholly or
partially as a capital levy, or otherwise, on the rents received therefrom,
and shall be imposed upon Landlord, then all such taxes, assessments,
levies, impositions or charges, or the part thereof so imposed shall be
deemed to be included within the term "Impositions" for the purposes hereof
to the extent that such Imposition would be payable if the Demised Premises
were the only property of Landlord subject to such Impositions, and Tenant
shall pay and discharge the same as herein provided in respect of the
payment of Impositions.
SECTION 3.04. Tenant may in its own name or in the name of Landlord
or both, but at Tenant's sole cost and expense, contest or review the
amount of any Imposition with respect to the Demised Premises. The
Landlord shall keep Tenant advised of the amount of such Impositions, shall
fully cooperate with Tenant, shall execute all documents reasonably
necessary for such contest or review, produce all necessary cancelled
checks showing payment of any Impositions and shall, if necessary, furnish
Tenant with written authorization for such contest or review. Nothing
herein contained shall be deemed to modify Tenant's obligation to pay its
share of the Impositions. Tenant shall be beneficiary of its pro rata
share of any refund obtained through such contest or review. This
provision shall survive the expiration of this Lease.
ARTICLE 4
Mortgage Subordination
This Lease and the lien thereof upon the Demised Premises and all
right of the Tenant hereunder are and shall at all times be subject and
subordinate to all mortgages of consolidated mortgages on the premises at
the date of commencement of this Lease, or which may hereafter be placed
upon the premises, and to any renewals or extensions or consolidations
thereof. Landlord agrees to request, from each mortgagee to which this
Lease is subordinate, a non-disturbance agreement in the lender's standard
form to the effect that this Lease shall not be cancelled or disturbed if
the Demised Premises is foreclosed, as long as Tenant is not in default
under this Lease. Tenant agrees that if any mortgagee shall become the
owner of the leasehold premises by reason of the foreclosure of any
mortgage or the acceptance of a deed or assignment in lieu of foreclosure
or otherwise, and this Lease shall not have been terminated or affected
thereby and shall continue in full force and effect as a direct lease
between the mortgagee and Tenant upon all the terms, covenants and
conditions set forth in this Lease, then and in that event Tenant agrees to
attorn to mortgagee; provided, however, that such mortgagee shall not be
liable for any accrued obligations of Landlord for any act or omission of
Landlord prior to such foreclosure or sale or subject to any offsets or
counterclaims which shall have accrued to Tenant against Landlord prior to
the date such mortgagee shall become the owner of the premises.
ARTICLE 5
Vault Space
SECTION 5.01. Vaults and areas, if any, now or hereafter built
extending beyond the building line of Demised Premises are not included
within the Demised Premises, but Tenant may occupy and use the same during
the term of this Lease, subject to such laws, permits, rules and
regulations as may be imposed by appropriate governmental authorities with
respect thereto.
SECTION 5.02. No revocation on the part of any governmental
department or authority of any license or permit to maintain and use any
such vault shall in any way affect this Lease or the amount of the rent or
any other charge payable by Tenant hereunder. If any such license or
permit shall be revoked, Tenant will, at its sole cost and expense, do and
perform all such work as may be necessary to comply with any order revoking
the same.
ARTICLE 6
Surrender
SECTION 6.01. Tenant shall and will on the last day of the term
hereof or upon any earlier termination of this Lease, or upon any reentry
by landlord upon the Demised Premises pursuant to Article 23 hereof,
willfully and truly surrender and deliver up the Demised Premises,
including the personal property as herein defined, into the possession and
use of Landlord without fraud or delay, free and clear of all lettings and
occupancies other than subleases then terminable at the option of the
Landlord thereof or sublease to which Landlord shall have specifically
consented, and free and clear of all liens and encumbrances other than
those, if any, created by landlord or subsequent owners of the Demised
Premises.
SECTION 6.02. Where furnished by or at the expense of Tenant or any
subtenant, furniture, trade fixtures and business equipment (not
constituting part of the Demised Premises) may be removed by the Tenant at
or prior to the termination of this Lease or by such subtenant at or prior
to the termination of its sublease; provided, however, that the removal
thereof will not structurally injure the buildings or improvements on the
Demised Premises (the "Building") or necessitate fundamental changes in or
repairs to the Building. Tenant shall pay or cause to be paid to landlord
the cost of repairing any damage arising from such removal.
SECTION 6.03. Any personal property of Tenant or subtenant which
shall remain in the Building after the termination of this Lease and the
removal of Tenant or such subtenant from the Building, may, at the option
of Landlord be deemed to have been abandoned by Tenant or such subtenant
and either may be retained by landlord as its property or be disposed of,
without accountability, at Tenant's cost and expense, in such manner as
Landlord may see fit.
SECTION 6.04. Landlord shall not be responsible for any loss or
damage occurring to any property owned by Tenant or subtenant.
SECTION 6.05. The provisions of this Article 6 shall survive any
termination of this Lease.
ARTICLE 7
Insurance
SECTION 7.01. Tenant, at its sole cost and expense, shall keep any
building and improvements now or hereafter erected on the demised premises,
including the personal property, as herein defined, insured for the mutual
benefit of Landlord, Tenant, and mortgagee(s), such as their interests may
appear during the term of this Lease, against loss or damage by fire and
against loss or damage by other risks now or hereafter embraced by "All-
Risk Coverage", so called, 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" (exclusive of the cost of excavations, foundations and
footings, below the lowest basement floor). Such "full replacement cost"
shall be determined from time to time (but not more frequently than once in
any twenty-four 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) and paid by Tenant. No omission on the part of the Landlord to
request any such determination shall relieve Tenant of any of its
obligations under this article.
SECTION 7.02. Tenant, at its sole cost and expense, but for the
mutual benefit of Landlord and tenant, shall maintain:
(a) personal injury and property damage liability insurance
against claims for bodily injury, death or property damage, occurring on,
in or about the Demised Premises or the elevators or any escalators therein
and on, in or about the adjoining streets, property and passageways, such
insurance to afford minimum protection during the term of this Lease, of
not less than Ten Million Dollars in respect of bodily injury or death with
respect of any one accident, and of not less than Two Hundred Fifty
Thousand Dollars for property damage;
(b) if requested by Landlord, plate glass insurance and boiler
insurance;
(c) war risk insurance upon the Building as and when such
insurance is obtainable from the United States of America, or any agency or
instrumentality thereof, in an amount equal to the "full replacement cost"
thereof or in the maximum amount of insurance obtainable;
(d) rent insurance against loss of rent due to fire and the
risks now or hereafter embraced by "All-Risk Coverage", so called, for the
full annual rental value of the Demised Premises, and in the event that the
Existing Structures or the New Building or any building or improvements now
or hereafter erected on the Demised Premises, shall be destroyed or
seriously damaged, shall assign to Landlord so much of the proceeds of such
insurance as shall equal the net rent and additional rent for one year;
such amount to be held by Landlord and applied on account of the payment of
such net rental and additional rent hereunder until the restoration of the
same; but the Tenant shall not be released of his obligation hereunder;
(e) if the demised premises are located in a flood zone, then as
and when obtainable from the United States of America, or any agency or
instrumentality thereof, flood insurance in the maximum amount of insurance
obtainable; and
(f) such other insurance, and in such amount as may from time to
time be reasonably required by landlord against other insurable hazards
which at the time are commonly insured against in the case of premises
similarly situated, due regard being, or to be given, to the type of
building, its construction, use and occupancy.
SECTION 7.03. All insurance provided for in this Article shall be
effected under valid and enforceable policies issued by insurers of
recognized responsibility which are licensed to do business in the State of
New York, are rated "very good" or better by Best, and have been approved
in writing by Landlord, such approval not to be unreasonably withheld.
Upon the execution of this Lease, and thereafter not less than thirty (30)
days prior to the expiration dates of the expiring policies theretofore
furnished pursuant to this Article, originals of the policies (or, in the
case of a blanket insurance policy, certificates of the insurers
satisfactory to Landlord) bearing notations evidencing the payment of
premiums or accompanied by other evidence satisfactory to Landlord of such
payment, shall be delivered by Tenant to Landlord.
SECTION 7.04. All policies of insurance provided for in Section 7.01
and 7.02 hereof shall name Landlord and tenant as the insureds as their
respective interests may appear. Subject to the provisions of Article 17
hereof and to the limitations set forth below in this section, such
policies shall also be payable, if either Landlord or Tenant so require, to
any Fee Mortgagee, as the interest of any such mortgagee may appear,
pursuant to a standard mortgagee clause, subject to the prior rights, if
any, of any fee mortgagee the loss, if any under any policies provided for
in such Sections shall be adjusted with the insurance companies (a) by
Tenant in the case of any particular casualty resulting in damage or
destruction not exceeding Ten Thousand (?10,000) Dollars in the aggregate,
or (b) by Landlord, and Tenant in the case of any particular casualty
resulting in damage or destruction exceeding Ten Thousand ($10,000) Dollars
in the aggregate. The proceeds of any such insurance shall be payable,
subject to the prior rights, if any, of any fee mortgagee;
(i) To Tenant in the case of any particular casualty resulting
in damage or destruction not exceeding Ten Thousand ($10,000) Dollars in
the aggregate, or
(ii) To landlord, in the case of any particular casualty
resulting in damage or destruction exceeding Ten Thousand ($10,000) Dollars
in the aggregate, for the purposes set forth in Article 17 of this Lease.
All policies provided in Section 7.01, 7.02(b), 7.02(c) and
7.02(e) hereof, if the amount insured thereunder shall exceed Ten Thousand
($10,000) Dollars and all other such policies, regardless of the amount
insured thereunder, which insure against the same risks and in respect of
which the aggregate amount of the risk insured against shall exceed Ten
Thousand ($10,000) Dollars shall provide that the loss, if any, thereunder
shall be adjusted and paid as hereinabove provided, and that any loss which
shall be payable to Landlord shall be so payable (if such provision is
obtainable without additional premium) notwithstanding any act or omission
of Tenant.
SECTION 7.05. Each such policy or certificate therefor issued by the
insurer shall to the extent obtainable contain an agreement by the insured
that such policy shall not be cancelled or modified without at least ten
(10) days prior written notice to Landlord and to any mortgage to whom a
loss thereunder may be payable.
SECTION 7.06. If, at any time during the term of this Lease, landlord
shall request that the amount of liability insurance provided by Tenant, as
required by the provisions of Section 7.02, be increased on the ground that
such coverage is inadequate properly to protect the interest of Landlord,
and Tenant shall refuse to comply with such request, the dispute shall be
submitted to arbitration as provided in Article 29 hereof. Tenant shall
thereafter carry the amount of insurance determined by such arbitration to
be adequate, but in no event less than the amounts specified in Section
7.02.
ARTICLE 8
Landlord's Right to Perform Tenant's Covenants
SECTION 8.01. If Tenant shall at any time fail to pay any Imposition
in accordance with the provisions of Article 3, or to take out, pay for,
maintain or deliver any of the insurance policies provided for in Article 7
hereof, or shall fail to make any other payment or perform any other act on
its part to be made or performed, then Landlord, after the time provided in
Article 22 for Tenant to cure such default, after notice thereof from
Landlord, has expired (or without notice in case of an emergency) and
without waiving or releasing Tenant from any obligation of Tenant contained
in this Lease, may (but shall be under no obligation to).
(a) pay any Imposition payable by Tenant pursuant to the
provisions of Article 3 hereof, or
(b) take out, pay for and maintain any of the insurance policies
provided for in Article 7 hereof, or
(c) make any other payment or perform any other act on Tenant's
part to be made or performed as in this Lease provided and may enter upon
the Demised Premises for the purpose and take all such action thereon as
may be necessary therefor.
SECTION 8.02. All sums so paid by Landlord and all cost and expenses
incurred by Landlord in connection with the performance of any such act,
together with interest thereon at the rate of twelve percent (12%) per
annum from the respective dates of Landlord's making of each such payment
or incurring of each such cost and expense shall constitute additional rent
payable by Tenant under this Lease and shall be paid by Tenant to Landlord
on demand, and Landlord shall not be limited in the proof of any damages
which Landlord may claim against Tenant arising out of or by reason of
Tenant's failure to provide and keep in force insurance as aforesaid, to
the amount of the insurance premium or premiums not paid or incurred by
Tenant and which would have been payable upon such insurance, but Landlord
shall also be entitled to recover as damages for such breach, the uninsured
amount of any loss, to the extent of any deficiency in the insurance
required by the provisions of this Lease, damages, costs and expenses of a
suit suffered or incurred by reason of damage to, or destruction of, the
Demised Premises, occurring during any period when Tenant shall have failed
or neglected to provide insurance as aforesaid. However, any such damages
so recovered by the Landlord shall be subject to the provisions of Article
17 hereof.
ARTICLE 9
Repairs and Maintenance of the Property
SECTION 9.01. Throughout the term of this Lease, Tenant, at its sole
cost and expense, will take good care of the Demised Premises and the
Personal Property as herein defined and the sidewalks, curbs and vaults
adjoining the Demised Premises and will keep the same in good order and
condition, and make all necessary repairs thereto, interior and exterior,
structural and non-structural, ordinary and extraordinary and unforeseen
and foreseen. When used in this Article, the term "repairs" shall include
all necessary replacements, renewals, alterations, additions and
betterments. All repairs made by Tenant shall be equal in quality and
class to the original work. Tenant will do or cause others to do all
necessary shoring of foundations and wall of the building and every other
act or thing for the safety and preservation thereof which may be necessary
by reason of any excavation or other building operation upon any adjoining
property or street, alley or passageway.
SECTION 9.02. The necessity for and adequacy of repairs pursuant to
Section 9.01 hereof shall be measured by the standard which is appropriate
for buildings of similar construction and class, provided that Tenant shall
in any event make all repairs necessary to avoid any structural damage or
injury to the Demised Premises and to keep premises in a rentable
condition.
SECTION 9.03. Tenant shall put, keep and maintain all portions of the
Demises Premises and the sidewalks, curbs and passageways adjoining the
same in a clean and orderly condition, free of dirt, rubbish, snow, ice,
and unlawful obstructions.
SECTION 9.04. Landlord shall not be required to furnish any services
or facilities or to make any repairs or alterations in or to the Demised
Premises. Tenant hereby assumes the full and sole responsibility for the
condition, operation, repair, replacement, maintenance and management of
the Demised Premises.
SECTION 9.05. In case any dispute shall arise at any time between
Landlord and Tenant as to the standard of care and maintenance of the
Demised Premises, such dispute shall be determined by arbitration.
ARTICLE 10
Compliance With Laws Ordinances, etc.
SECTION 10.01. Throughout the term of this Lease, Tenant at its sole
cost and expense, will promptly comply with all present and future laws,
ordinances, orders, rules, regulations and requirements of all federal,
state and municipal governments, courts, departments, commissions, boards
and officers, and all orders, rules and regulations of the National Board
of Fire Underwriters or any other body exercising similar functions,
foreseen or unforeseen, ordinary as well as extraordinary, which may be
applicable to Demised Premises and the sidewalks, curbs and vaults
adjoining the Demises Premises or to the owners, tenant or occupants
thereof, whether or not such law, ordinance, order, rule, regulation or
requirement shall necessitate structural changes or improvements or
interfere with the use and enjoyment of the Demised Premises.
SECTION 10.02. Tenant shall likewise observe and comply with the
requirements of all policies of public liability, fire and all other
policies of insurance at any time in force with respect to the Demised
Premises.
SECTION 10.03. Tenant shall have the right, after prior written
notice to Landlord, to contest by appropriate legal proceedings diligently
conducted in good faith, in the name of Tenant or Landlord or both, without
cost or expense to Landlord, the validity or application of any law,
ordinance, order, rule, regulation or requirement of the nature referred to
in Section 10.01 hereof, subject to the following:
(a) If by the terms of any such law, ordinance, order, rule,
regulation or requirement, compliance therewith pending the prosecution of
any such proceeding may legally be delayed without the incurrence of any
lien, charge of liability of any kind against the Demised Premises or
Tenant's leasehouse interest therein and without subjecting Tenant or
Landlord to any liability, civil or criminal, for failure so to comply
therewith, Tenant may, subject to the consent of any mortgagee, if required
by the mortgage terms, delay compliance therewith until the final
determination of such proceeding.
(b) If any lien, charge or civil liability would be incurred by
reason of any such delay, Tenant nevertheless, on the prior written consent
of Landlord (such consent not to be unreasonably withheld), may contest as
aforesaid and delay as aforesaid, provided that such delay would not
subject Landlord criminal liability and Tenant (i) furnishes Landlord
security, reasonably satisfactory to Landlord against any loss or injury by
reason of such contest or delay, and (ii) prosecutes the contest with due
diligence, and (iii) obtains fee mortgagee's consent if required by the
mortgage terms.
Landlord will execute and deliver any appropriate papers which
may be necessary or proper to permit Tenant so to contest the validity or
application of any such law, ordinance, order, rule, regulation or
requirement.
ARTICLE 11
Changes and Alterations by Tenant
SECTION 11.01 Tenant shall have the right at any time and from time
to time during the term of this Lease to make, at its sole cost and
expense, changes and alterations in or of the Building, subject, however,
in all cases to the following:
(a) No one change or alteration involving an estimated cost of more
than $10,000 shall be undertaken except after 20 days' prior written notice
to Landlord.
(b) No one change or alteration, involving an estimated cost of more
than $10,000, including any restoration required by Article 17 or 18
hereof, shall be made without the prior written consent of Landlord, such
consent not to be withheld if the change or alteration would not in the
reasonable opinion of the Landlord impair the value or usefulness of the
Building or any part thereof.
(c) No one change or alteration shall be undertaken until Tenant
shall have procured and paid for, so far as the same may be required from
time to time, all permits and authorization of all municipal departments
and governmental subdivisions having jurisdiction. Landlord shall join in
the application for such permits or authorizations whenever such action is
necessary.
(d) Any one structural change or alteration involving an estimated
cost of more than $10,000 shall be conducted under the supervision of an
architect or engineer selected by Tenant and approved in writing by
Landlord (such approval not to be unreasonably withheld), and no such
structural change or alteration shall be made except in accordance with
detailed plans and specifications and cost estimates prepared and approved
in writing by such architect or engineer selected by tenant and approved in
writing by Landlord (such approval not to be unreasonably withheld).
(e) Any change or alteration shall, when completed, be of such a
character as not to reduce the value of the Demised Premises below its
value immediately before such change or alteration.
(f) Any change or alteration shall be made promptly (unavoidable
delays excepted) and in a good and workmanlike manner and in compliance
with all applicable permits and authorizations and building and zoning laws
and with all other laws, ordinances, orders, rules, regulations and
requirements of all federal, state, and municipal governments, departments,
commissions, boards and officers, and in accordance with the orders, rules
and regulations of the National Board of Fire Underwriters or any other
body hereafter exercising similar functions.
(g) The cost of any such change or alteration shall be paid in cash
or its equivalent, so that the Demised Premises shall at all times be free
of liens for labor and materials supplied or claimed to have been supplied
to the Demised Premises.
(h) Workmen's compensation insurance, covering all person employed in
connection with the work and with respect to whom death or bodily injury
claims could be asserted against Landlord, Tenant or the demised premises,
and general liability insurance for the mutual benefit of Tenant and
Landlord with limits of not less than Three Million Dollars in the event of
bodily injury to one person and not less than Three Million Dollars in the
event of bodily injury to any number of persons in any one accident, and
with limits of not less than Two Hundred Fifty Thousand Dollars for
property damage, shall be maintained by Tenant at Tenant's sole cost and
expense at all times when any work is in progress in connection with any
change or alteration. All such insurance shall be in a company or
companies of recognized responsibility, and all policies or certificates
therefor issued by the respective insurers, bearing notations evidencing
the payment of premiums or accompanied by other evidence satisfactory to
Landlord of such payment, shall be delivered to Landlord. Landlord, as a
condition to its consents, may require Tenant to carry general liability
insurance greater than the amounts heretofore provided.
(i) If the estimated cost of any such one change or alteration shall
be in excess of $10,000, Tenant shall, at the request of Landlord, and
before commencement of work, at Tenant's sole cost and expense, furnish to
Landlord a surety company performance bond, issued by a surety company
acceptable to Landlord, or other security reasonably satisfactory to
Landlord, in an amount at least equal to 110% of the estimated cost of such
change or alteration, guaranteeing the completion thereof within a
reasonable time, free and clear of all liens, encumbrances, financing
agreements, and other charges, and in accordance with the plans and
specifications approved by Landlord. No performance bond or other security
shall be required except to the extent that such estimated costs exceed the
amounts deposited pursuant to Sections 17.02, 17.04 and 18.04 of this
Lease, if such change or alteration is being made in accordance with the
provisions of Section 17 and 18.
(j) For the purpose of the Article 11 the term "one change or
alteration" shall mean such change(s) or alteration(s) which under good
construction practice would be regarded as a single change, notwithstanding
how and when performed.
(k) All changes and alterations made at any time by Tenant shall
immediately become the property of Landlord and shall remain upon and be
surrendered with the Demised Premises unless Landlord, by notice to Tenant
no later than twenty (20) days prior to the date fixed for the termination
of this Lease, elects to relinquish Landlord's right thereto and to have
them removed by Tenant, in which event the same shall be removed by Tenant
prior to the expiration of the term. Nothing herein contained shall be
construed to give Landlord title to or to prevent Tenant's removal of trade
fixtures, movable office furniture and equipment, but upon removal of any
such from the Demised Premises or upon removal of any changes or
alterations as may be required by Landlord, Tenant shall immediately, and
at its expense, repair and restore the Demised Premises to the condition
existing prior to any such change or alteration and repair any damages to
the Demised Premises due to such removal. All property permitted or
required to be removed by Tenant at the end of the term remaining in the
Demised Premises after Tenant's removal shall be deemed abandoned and may,
at the election of Landlord, either be retained as Landlord's property or
be removed form the Demised Premises by Landlord, at Tenant's expense.
ARTICLE 12
Discharge of Liens
SECTION 12.01. Tenant will not create or permit to be created or to
remain, and will discharge, any lien, encumbrance or charge (levied on
account of any imposition or any mechanic's, laborer's or materialman's
lien or any mortgage, conditional sale, title retention agreement or
chattel mortgage, or otherwise) which might be or become a lien,
encumbrance or charge upon the Demised Premises or the personal property
thereof, or any part thereof or the income therefrom, having any priority
or preference over or ranking on a parity with the estate, rights and
interest of Landlord in the Demised Premises or any part thereof or the
income therefrom, and Tenant will not suffer any other matter or thing
whereby the estate, rights and interest or the income therefrom, and Tenant
will not suffer any other matter or thing whereby the estate, rights and
interest of Landlord in the Demised Premises or any part thereof might be
impaired; provided that any Imposition may, after the same becomes a lien
on the Demised Premises, be paid or contested in accordance with Article 3
hereof and any mechanic's, laborer's or materialman's lien may be
discharged in accordance with Section 12.02 hereof.
SECTION 12.02. If any mechanic's, laborer's or materialman's lien
shall at any time be filed against the Demised Premises or any part
thereof, Tenant, within 20 days after notice of the filing thereof, will
cause the same to be discharged of record by payment, deposit, bond, order
of a court of competent jurisdiction, or otherwise. If Tenant shall fail
to cause such lien to be discharged within the period aforesaid, then, in
addition to any other right or remedy, Landlord may, but shall not be
obligated to, discharge the same either by paying the amount claimed to be
due or by procuring the discharge of such lien by deposit or by bonding
proceedings, and in any such event Landlord shall be entitled, if Landlord
so elects, to compel the prosecution of any action for the foreclosure of
such lien by the lienor and to pay the amount of the judgment in favor of
the lienor with interest, costs and allowances. Any amount so paid by
Landlord and all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon at the rate of 12% per annum from
the respective dates of Landlord's making of the payment or incurring of
the cost and expense shall constitute additional rent payable by Tenant
under this Lease and shall be paid by Tenant to Landlord on demand.
SECTION 12.03. Nothing in this Lease contained shall be deemed or
construed in any way as constituting the consent or request of Landlord,
express or implied by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or
the furnishing of any materials for any specific improvement, alteration to
or repair of the Demised Premises or any part thereof, nor as giving Tenant
any right, power or authority for or permit the rendering of any services
of the furnishing of any materials that would give rise to the filing of
any lien against the Demised Premises or any part thereof.
ARTICLE 13
No Waste
SECTION 13.01 Tenant will not do, permit, or suffer any waste or
damage, disfigurement or injury of the Demised Premises or any part
thereof.
ARTICLE 14
Use of Property
SECTION 14.01. Tenant shall use the Demised Premises only as a
warehouse and for sales as an appurtenant thereto and for office purposes.
Tenant will not use or allow the Demised Premises or any part thereof to be
used or occupied for any unlawful purpose or in violation of any
certificate of occupancy or certificate of compliance covering or affecting
the use of the Demised Premises or any part thereof and will not suffer any
act to be done or any condition to exist on the Demised Premises or any
part thereof or any article to brought thereon, which may be dangerous,
unless safeguarded as required by law, or which may, in law, constitute a
nuisance, public or private, or which may make void or voidable any
insurance then in force with respect thereto.
SECTION 14.02. Tenant shall not suffer or permit the Demised Premises
or any portion thereof to be used by the public as such, without
restriction or in such manner as might reasonably tend to impair Landlord's
title to the Demised Premises or any portion thereof, or in such manner as
might reasonably make possible a claim or claims of adverse usage or
adverse possession by the public, as such, or of implied dedication of the
Demised Premises or any portion thereof.
ARTICLE 15
Entry on Property by Landlord, etc.
SECTION 15.01. Tenant will permit Landlord and its authorized
representatives to enter the Demised Premises at all reasonable times for
the purpose of (a) inspecting the same, and (b) making any necessary
repairs thereto and performing any work therein that may be necessary by
reason of Tenant's failure to make any such repairs or perform any such
work or to commence the same within the period provided in Article 23 after
written notice from Landlord. Nothing shall imply any duty upon the part
of Landlord to do any such work; and performance thereof by Landlord shall
not constitute a waiver of Tenant's default in failing to perform the same.
SECTION 15.02. Landlord may during the progress of any work in the
Demised Premises keep and store therein or elsewhere upon the Demised
Premises all necessary materials, tools, supplies and equipment. Such
right if exercised, shall not be deemed to constitute an eviction.
Landlord shall not be liable for inconvenience, annoyance, disturbance,
loss of business or other damage of Tenant or by any sub-tenant by reason
of making such work, or on account of bringing materials, tools, supplies
and equipment into or through the Demised Premises during the course
thereof and the obligations of Tenant under this Lease shall not be
affected thereby.
SECTION 15.03. Landlord shall have the right to enter the Demised
Premises at all reasonable times during usual business hours for the
purpose of showing the same to prospective purchasers thereof, and, at any
time within 15 months prior to the expiration of the term of this Lease for
the purpose of showing the same to prospective tenants.
ARTICLE 16
Indemnification of Landlord
SECTION 16.01. Tenant will indemnify and save harmless Landlord
against and from liabilities, obligations, damages, penalties, claims,
costs, charges and expenses, including reasonable architects' and attorneys
fees, which may be imposed upon or incurred by or asserted against Landlord
by reason of any of the following occurring during the term of this Lease;
(a) any matter, cause or thing arising out of use, occupancy,
control, or management of Demised Premises and any part thereof;
(b) any work or thing done in, or about the Demised Premises or any
part thereof;
(c) any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Demised Premises or any part thereof or
any street, alley, sidewalk, curb, vault, passageway or space adjacent
thereto;
(d) any negligence on the part of Tenant or any of its agents,
contractors, servants, employees, licensees or invitees;
(e) any accident, injury or damage to any person or property
occurring in, or about the Demised Premises or any part thereof or any
street, alley, sidewalk, curb, vault, passageway or space adjacent thereto;
(f) any failure on the part of Tenant to perform or comply with any
of the covenants, agreements, terms or conditions contained in this Lease,
or any sub-lease, on its part to be performed or complied with; or
(g) any tax upon in the execution, delivery or recording of this
Lease.
In case any action or proceeding is brought against Landlord by reason
of any such claim, Tenant upon timely written notice from Landlord will at
Tenant's expense resit or defend such action or proceeding by counsel
approved by Landlord in writing, such approval not to be unreasonably
withheld and will pay any judgement or perform any decree resulting
therefrom. Landlord hereby agrees, without the necessity of further
consents, to be represented by counsel designated by the insurance company
which has issued insurance policies for the benefit of Landlord.
ARTICLE 17
Damage or Destruction
SECTION 17.01. In case of casualty to the Demised Premises resulting
in damage or destruction exceeding $10,000 in the aggregate, Tenant will
promptly give written notice thereof to Landlord. Tenant, regardless of
the amount of such damage, shall at its sole cost and expense, and whether
or not the insurance proceeds, if any, shall be sufficient for the purpose,
restore, repair, replace, rebuild or alter the same as nearly as possible
to its value, condition and character immediately prior to such damage or
destruction or with such changes or alterations as may be made at Tenant's
election in conformity with and subject to the conditions of Article 11
hereof. Such restoration, repairs, replacements, rebuilding or alterations
shall be commenced promptly and prosecuted with reasonable diligence,
unavoidable delays excepted.
SECTION 17.02. Subject to the provisions of Section 17.04 hereof all
insurance money paid to Landlord on account of such damage or destruction,
less the actual cost, and reasonable fees and expenses, if any, incurred in
connection with adjustment of the loss, shall be applied by Landlord to the
payment of the cost of the aforesaid restoration, repairs, replacement,
rebuilding or alterations, including the cost of temporary repairs or for
the protection of property pending the completion of permanent restoration,
repairs, replacements, rebuilding or alterations (all of which temporary
repairs, protection of property and permanent restoration, repairs,
replacement, rebuilding or alterations are hereinafter collectively
referred to as the "restoration"), and shall be paid out from time to time
as such restoration progress upon the written request of Tenant which shall
be accompanied by the following:
(1) A certificate signed by Tenant, dated not more than 15 days prior
to such request, setting forth the following:
(A) That the sum then requested either has been paid by
Tenant, or is justly due to contractors, subcontractors,
materialmen, engineers, architects or other persons who have
rendered services or furnished materials for the restoration
therein specified, and giving a brief description of such
services and materials and the several amounts so paid or due to
each of said persons in respect thereof, and stating that no part
of such expenditures has been or is being made the basis, in any
previous or then pending request, for the withdrawal of insurance
money or has been made out of the proceeds of insurance received
by Tenant, and that the sum then requested does not exceed the
value of the services and materials described in the certificate.
(B) That except for the amount, if any, stated (pursuant to
the foregoing subclause (1) (A)) in such certificate to be due
for services or materials, there is no outstanding indebtedness
known to the person signing such certificate, after due inquiry,
which is then due for labor, wages, materials, supplies or
services in connection with such restoration which, if unpaid,
might become the basis of a vendor's, mechanic's, laborer's or
materialmen's statutory or similar lien upon such restoration or
upon the Demised Premises or any part thereof or upon the
Tenant's leasehold interest therein.
(C) That the cost, as estimated by the persons signing such
certificate, of the restoration required to be done subsequent to
the date of such certificate in order to complete the same, does
not exceed the insurance money, plus any amount deposited by
Tenant to defray such cost and remaining in the hands of Landlord
after payment of the sum requested in such certificate.
(2) An opinion of counsel or other evidence, reasonably satisfactory
to Landlord, to the effect that there has not been filed with respect to
the Demised Premises or any part thereof or upon the Tenant's leasehold
interest therein any vendor's, mechanic's, laborer's materialman's or other
lien which has not been discharged or record, except such as will be
discharged by payment or the amount then requested.
In the event that such restoration involves expenditures in excess of
$10,000 the certificate required by clause (1) of this Section shall be a
certificate signed by the architect or engineer in charge of the
restoration, who shall be selected by Tenant and approved in writing by
Landlord, such approval not to be unreasonably withheld.
Upon compliance with the foregoing provisions of this Section,
Landlord shall, out of such insurance money, pay or cause to be paid to
Tenant or the persons named (pursuant to subclause (1)(A) of this Section)
in such certificate the respective amounts stated therein to have been paid
by Tenant or to be due to them, as the case may be, less 10% thereof.
If the insurance money at the time held by Landlord, less the actual
cost, fees and expenses, if any, incurred in connection with the adjustment
of the loss, shall be insufficient to pay the entire cost of such
restoration, Tenant will pay the deficiency.
Upon receipt by Landlord of satisfactory evidence, of the character
required by clauses (1) and (2) of this Section, that the restoration has
been completed and paid for in full and that there are no liens of the
character referred to therein, any balance of the insurance money at the
time held by the Landlord shall be paid to the Tenant.
If the amount of any insurance moneys payable for damage or
destruction to the premises under policies herein provided to be carried by
Tenant are claimed by a mortgagee of the fee instead of being received by
the Landlord or Tenant, then the Landlord agrees to make a like amount
available to Tenant for repair or restoration of the damage, and if
Landlord fails to do so then Tenant may deduct such amount, with interest
at an amount equal to one percent (1%) above the prime rate of Chemical
Bank, from ensuing rent, anything elsewhere notwithstanding.
SECTION 17.03. Except as otherwise expressly provided herein, no
destruction of or damage to the Demised Premises or any part thereof by
fire or any other casualty shall permit Tenant to surrender this Lease or
shall relieve Tenant from its liability to pay the full net rent and
additional rent and other charges payable under this Lease or from any of
its other obligations under this Lease, and Tenant waives any rights now or
hereafter conferred upon it by statute or otherwise to quit or surrender
this Lease or the Demised Premises or any part thereof, or to any
suspension, diminution, abatement or reduction of rent on account of any
such destruction or damage.
SECTION 17.04. In the event that any moneys, or the equivalent
thereof, in excess of $10,000 shall be required to be deposited with
Landlord pursuant to the provisions of this Article or of Article 7, 11 and
18 of this Lease, then at the election of Tenant all such amounts shall be
deposited for the benefit of Landlord and Tenant, and of any Mortgagee, as
their respective interests may appear, with a bank or trust company having
an office in The City of New York or the county in which the Demised
Premises are located and selected by Landlord, for the purposes set forth
in said Articles 7, 11, 17 and 18, to be disbursed in accordance therewith.
Tenant shall pay all charges and fees, including attorneys' fees, of the
bank or trust company that performs the functions provided for in Article
7, 11, 17, and 18.
SECTION 17.05. Notwithstanding anything to the contrary herein
contained, in the event a total damage or total destruction shall occur
during the last year of the lease term provided herein, Tenant shall not be
required to rebuild the premises, but shall have an option, exercisable
within thirty (30) days after said total damage or total destruction of
either terminating the Lease, in which case, all rents and charges shall be
adjusted, or in the alternative, rebuilding the premises as provided for in
this section. In the event Tenant fails to notify Landlord within said 30
day period, Tenant shall be deemed to waive its option to terminate this
Lease and shall be obligated to rebuild in accordance herewith.
ARTICLE 18
Condemnation
SECTION 18.01. (a) if at any time during the term of this Lease or
any renewal thereof, the whole or materially all of the Demised Premises
shall be taken for any public or quasi-public purpose of any lawful power
or authority by the exercise of the right of condemnation or eminent domain
or by agreement between Landlord, Tenant and those authorized to exercise
such right, this Lease, the term hereby granted, any rights of renewal
hereof and any renewal terms hereof, shall terminate and expire on the date
of such taking and the net rent, additional rent and other sum or sums of
money and other charges herein reserved and provided to be paid by the
Tenant shall be apportioned and paid to the date of such taking. As used
in this paragraph, the term "materially all of the Demised Premises" shall
be deemed to mean such portion of the Demised Premises, as when so taken,
would leave remaining a balance of the Demised Premises which, due either
to the area so taken or the location of the part so taken in relation to
the part not so taken, would not under economic conditions, zoning laws or
building regulations then existing or prevailing, readily accommodate a new
building or buildings of a nature similar to the building or buildings
existing upon the Demised Premises at the date of such taking and of floor
area sufficient, together with buildings not taken in the condemnation, to
permit the Demised Premises to reasonably be used by Tenant for its
intended purposes. If there be any dispute with same, it shall be
submitted to and determined by arbitration.
(b) In the event of the taking of the whole or materially all of the
Demised Premises, the award or awards shall belong to the Landlord.
(c) The term "taking" as used in this paragraph 18 and as used in
paragraph 19(a) is defined as the time when actual possession of the
premises in whole or in part is taken by any lawful power or authority.
(d) In the event of a condemnation as in this paragraph provided, the
Tenant waives all claim for any value for its leasehold or lease.
SECTION 18.02. (a) If during the term of this Lease, less than
materially all of the Demised Premises shall be taken by virtue of eminent
domain or be condemned for any public improvement, as above defined, this
Lease shall continue in full force and effect as to the part not so taken,
and an equitable abatement of net annual rent shall be made so that the net
annual rental payable by the Tenant shall be in the proportion which the
rental value of the area remaining after all repairs and restorations have
been made bears to the rental value of the Demised Premises prior to the
aforesaid taking, but said net annual rent shall not be reduced below the
amount necessary to carry the then existing mortgages to which this lease
is subordinate; and if an equitable abatement requires a greater reduction
Landlord may terminate the Lease by at least thirty (30) days notice to
Tenant mailed within sixty (60) days after the taking and in such case (i)
the amount of the equitable abatement shall be in force until such
termination and (ii) the awards shall be apportioned as provided in Section
18.01.
(b) If the buildings and improvements now or hereafter erected on the
Demised Premises shall be damaged or partially destroyed by any such taking
of less than the whole or materially all thereof, Tenant shall give prompt
notice thereof to Landlord and Tenant shall proceed with reasonable
diligence to conduct any necessary demolition and to repair and restore, at
Tenant's own cost and expense, any remaining part of said buildings and
improvements not so taken so as to constitute such remaining part or parts
thereof of a complete, rentable building in good condition and repair.
Landlord agrees to make available to Tenant that portion, if any, of the
condemnation award received by the Landlord to the extent required by
Tenant for repairs and restoration of the leased premises as reimbursement
to Tenant for costs and expenses actually incurred by Tenant in
effectuating such repairs and restorations provided, however, that in no
event shall Landlord be obligated to make available to Tenant any sum
exceeding the amount actually received by the Landlord less all necessary
and proper expenses paid or incurred by the Landlord in the condemnation
proceedings and as a result thereof. Before the commencement of work
necessary to repair and restore the building following a condemnation,
Tenant shall comply with the requirements set forth in Article 11 of this
Lease.
(c) In the event of a condemnation as in this paragraph provided,
where less than the whole or materially all of the Demised Premises shall
be so condemned, the entire award for such condemnation shall belong to and
be the property of the Landlord, without any claim on the part of the
Tenant with respect thereto except as hereinabove set forth and Tenant
waives all claim for any value for its leasehold except as hereinabove set
forth.
(d) If the Landlord and Tenant are unable to agree upon the amount of
the rental deduction under subparagraph (a) of this paragraph within thirty
(30) days after such taking, then the matter shall be submitted to
arbitration as provided in Article 27 hereof. Pending determination by
agreement of the parties or by arbitration, rent shall be paid
provisionally in the manner and at the rate provided in this Lease subject
to adjustment upon the completion of such determination.
SECTION 18.03. If the temporary use of the whole or any part of the
Demised Premises shall be taken at any time during the term of this Lease
or of any renewal hereof for any public or quasi-public purpose by any
lawful power or authority, by the exercise of the right of condemnation or
eminent domain, or by agreement between Tenant and those authorized to
exercise such right, Tenant shall give prompt notice thereof to Landlord
and the term of this Lease and of any renewal hereof shall not be reduced
or affected in any way and Lessee shall continue to pay in full the net
rent, additional rent and other sum or sums of money and charges reserved
and provided to be paid by Tenant, but Tenant shall be entitled to, and
shall, receive the entire award for such taking (whether paid by way of
damages, rent or otherwise) unless the period of occupation and use by the
sovereign shall extend beyond the termination of this Lease and of any
renewals hereof, in which case the award made for such taking shall be
apportioned between Landlord and Tenant as of the date of such termination.
In any proceedings for such taking or condemnation Landlord shall have the
right to intervene and participate in such proceeding; provided, however,
that if such intervention shall not be permissible or permitted by the
court, Tenant shall, at Tenant's expense, consult with Landlord, its
attorneys and experts and make all reasonable efforts to cooperate with
Landlord in the prosecution or defense of such proceedings. At the
termination of any such use or occupation of the Demised Premises by the
sovereign, Tenant will, at its sole cost and expense, repair and restore
the buildings and improvements then upon the Demised Premises to the
condition, as nearly as may be reasonably possible, in which the same were
at the time of such taking, but Tenant shall not be required to make such
repairs and restoration if the term of this Lease or of any renewal hereof
shall expire prior to, or within one year after, the date of termination of
the temporary use so taken, and in any such event Landlord shall be
entitled to claim, sue for and recover from the sovereign all damages and
awards therefor arising out of the failure of the sovereign so to repair
and restore the buildings and improvements at the expiration of such
temporary taking. Any recovery or sum received by Tenant as an award or
compensation for physical damage to the premises caused by and during the
temporary taking shall be deemed a trust fund held by the party who
receives the same for the purpose of repairing or restoring such damage.
ARTICLE 19
Covenants to Bind and Benefit Respective Parties
SECTION 19.01. All of the covenants and agreements herein contained
shall bind and inure to the benefit of Landlord, its legal representatives,
successors and assigns, and Tenant, its legal representatives, successors,
and assigns, except as otherwise provided herein.
ARTICLE 20
Condition of and Title to Property
SECTION 20.01. Tenant represents that the Demised Premises, the title
thereto, the sidewalks and structures adjoining the same, any sub-surface
conditions thereof, and the present occupancies, uses and non-uses thereof,
are accepted by Tenant, in the condition or state in which they or any of
them now are, without representation or warranty, express or implied in
fact or by law, by Landlord and without recourse to Landlord, as to the
title thereto, the nature, condition or useability thereof of the use or
uses to which the Demised Premises or any part thereof may be put.
ARTICLE 21
Assigning and Subletting; Mortgaging
SECTION 21.01. Except as hereinafter specifically provided, Tenant,
for itself, its successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this Lease, nor underlet, or suffer or
permit the Demised Premises or any part thereof to be used by others,
without the prior written consent of Landlord in each instance. If this
Lease be assigned, or if the Demised Premises or any part thereof be sublet
or occupied by anybody other than Tenant, Landlord may, after default by
Tenant, collect rent from the assignee, subtenant or occupant, and apply
the net amount collected to the rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, subtenant or occupant,
and apply the net amount collected to the rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from further performance by Tenant of
covenants on the part of the Tenant herein contained. The consent of
Landlord to an assignment or subletting shall not in any wise be construed
to relieve Tenant from obtaining the express consent in writing of Owner to
any further assignment of subletting. Notwithstanding anything herein to
the contrary, Tenant shall have the right, without Landlord's consent to
assign this Lease or sublet the demised premises, in whole or in part, to a
wholly owned subsidiary.
ARTICLE 22
Conditional Limitations - Default Provisions
SECTION 22.01. If any one or more of the following events (hereinafter
sometimes called "Events of Default") shall occur:
(a) If Tenant shall desert or abandon the Demised Premises; or
(b) If this Lease or the estate of Tenant hereunder shall be
transferred, assigned sublet or mortgaged to any other person or party
without Landlord's prior consent, and Tenant shall fail to remedy or
correct the same within fifteen (15) days after notice by Landlord; or
(c) If default shall be made in the due and punctual payment of the
net rent or additional rent payable under this Lease or any part thereof
when and as the same shall become due and payable, and such default shall
continue for a ;period of ten (10) days after notice by Landlord; or
(d) If Tenant shall fail to deposit with the Landlord the real estate
taxes assessed or imposed against the Demises Premises as provided by the
provisions of Section 3.01 of Article 3, and any such default shall
continue for a period of ten (10) days after notice by Landlord; or
(e) If default shall be made by Tenant in the performance of or
compliance with any of the other covenants, agreements, terms or conditions
contained in this Lease, and such default shall continue for a period of
thirty (30 days' after written notice thereof from Landlord to Tenant,
provided, that if Tenant proceeds with due diligence during such thirty
(30) days' period to cure such default and is unable by reason of the
nature of the work involved, to cure the same within the said thirty (30)
days, its time to do so shall be extended for an additional period not to
exceed the time necessary to cure the same, provided, however, that such
extension of time shall not subject Landlord or Tenant to any liability,
civil or criminal, and the interest of Landlord in this Lease of Demised
Premises shall not be jeopardized by reason thereof; or
(f) If at any time during the term hereby demised, there shall be
filed by Tenant in any court pursuant to any statute, either of the United
States or any State, a petition in bankruptcy or insolvency, or for
reorganization, or for the appointment of a receiver or trustee of all or a
portion of Tenant's property, or if Tenant makes an assignment for the
benefit of creditors or petitions for or entering into an arrangement; or
(g) If at any time during the term hereby demised, there shall be
filed against Tenant in any court pursuant to any statute either of the
Untied States or of any State, a petition in bankruptcy or insolvency, or
for reorganization, or for appointment of a receiver or trustee of all or a
portion of Tenant's property, and if within sixty (60) days after the
commencement of any such proceedings against Tenant the same shall not have
been dismissed; then and in any such event, Landlord may serve a written
five (5) day notice of cancellation and termination of this Lease, and upon
the expiration of said five (5) days, this Lease and the term thereunder
shall end and expire as fully and completely as if the date of expiration
of such five (5) day period were the day herein definitely fixed for the
end and expiration of this Lease and the term thereof, and Tenant shall
then quit and surrender to Landlord the Demised Premises and each and every
part thereof, but Tenant shall remain liable as hereinafter provided.
SECTION 22.02. Upon any such expiration or termination of this Lease,
Tenant shall quit and peacefully surrender the Demised Premises to
Landlord, and Landlord, upon or at any time after any such expiration or
termination, may without further notice, enter upon and re-enter the
Demised Premises and possess and repossess itself thereof, by force,
summary proceedings, ejectment or otherwise; and may dispossess Tenant and
remove Tenant and all other persons and property from the Demised Premises
and may have, hold and enjoy the Demised Premises and the right to receive
all rental income of and from the same.
SECTION 22.03. At any time or from time to time after any such
expiration or termination, Landlord may relet the Demised 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
uncontrolled discretion, may determine and may collect and receive the rent
therefor. Landlord shall in no way be responsible or liable for any
failure to relet the Demised Premises or any part thereof, or for any
failure to collect any rent due upon any such reletting.
SECTION 22.04. No such expiration or termination of this Lease shall
relieve Tenant of its liability and obligations under this Lease, and such
liability and obligations shall survive any such expiration or termination.
In the event of any such expiration or termination, whether or not the
Demised Premises or any part thereof shall have been relet, Tenant shall
pay to the Landlord the net rent, additional rent and all other charges
required to be paid by Tenant up to the time of such expiration or
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 expiration or
termination, shall be liable to Landlord for, and shall pay to Landlord, as
and for liquidated and agreed current damages for Tenant's default.
(a) The equivalent of the amount of the net rent, additional rent and
the other rent charges which would be payable under this Lease by Tenant if
this Lease were still in effect, less
(b) the net proceeds of any reletting affected pursuant to the
provisions of Section 22.03 hereof, after deducting all Landlord's expenses
in connection with such reletting, including without limitation, all
repossession costs, brokerage commissions, legal expenses, reasonable
attorneys' fees, 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 net rent would have been payable
under this Lease if this 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 expiration or any monthly deficiencies as
aforesaid, Landlord shall be entitled to receive 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 difference between the
net rent and all additional rent reserved hereunder for the unexpired
portion of the term demised and the then fair and reasonable rental value
of the Demised Premises for the same period. In the computation of such
damages the difference between any installment of rent becoming due
hereunder after the date of termination and the fair and reasonable rental
value of the Demised Premises for the period for which such installment was
payable shall be discounted to the date of termination at the rate of four
percent (4%) per annum. If the Demised Premises or any part thereof by re-
let by the Landlord for the unexpired term of said Lease, or any part
thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-
letting shall be deemed prima facie to be the fair and reasonable rental
value for the part or the whole of the premises so re-let during the term
of the re-letting. Nothing herein contained shall limit or prejudice the
right of the Landlord to prove for and obtain as liquidated damages by
reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such
amount be greater, equal to, or less than the amount of the difference
referred to above.
SECTION 22.05. Tenant hereby expressly waives, so far as permitted by
law, the service of any notice of intention to re-enter provided for in any
statute, or in the institution of legal proceedings to that end, and
Tenant, for and on behalf of itself and all persons claiming through or
under Tenant also waives any and all right of redemption or re-entry or re-
possession or to restore the operation of this Lease in case Tenant shall
be dispossessed by a judgment or by warrant or any court or judge or in
case of re-entry or re-possession by Landlord or in case of any expiration
or termination of this Lease, Landlord and Tenant, so far as permitted by
law, waive and will waive trial by jury in any action, proceeding or
counterclaim brought by either of the parties hereto against the other on
any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy
of said premises, or any claim or injury or damage. The terms "enter",
"re-enter", "entry" or "re-entry", as used in this Lease are not restricted
to their technical meaning.
SECTION 22.06. No failure by either party to insist upon the strict
performance of any covenant, agreement, term or condition of this Lease or
to exercise any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial rent during the continuance of any such
breach, shall constitute a waiver of any such breach or of such covenant,
agreement, term or condition. No covenant, agreement, term or condition of
this Lease to be performed or complied with by either party and no breach
thereof, shall be waived, altered or modified except by a written
instrument executed by the party charged with such waiver or modification.
No waiver of any breach shall affect or alter this Lease, but each and
every covenant, agreement, term and condition of this Lease shall continue
in full force and effect with respect to any other then existing or
subsequently breach thereof.
SECTION 22.07. In the event of any breach or threatened breach by
either party of any of the covenants, agreements, terms or conditions
contained in this Lease, the other party shall be entitled to enjoin such
breach or threatened breach and shall have the right to invoke any right
and remedy allowed at law or in equity or by statute or otherwise as though
the remedies specified in the Lease were not provided for therein.
SECTION 22.08. Each right and remedy of Landlord and Tenant 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 either party of any one or more of the
rights or remedies provided for in this Lease or now or hereafter existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by such party of any or all other rights or
remedies provided for in this Lease or now or hereafter existing at law or
in equity or by statute or otherwise.
ARTICLE 23
Certificates by Landlord and Tenant
SECTION 23.01. Tenant agrees at any time and from time to time upon
not less than twenty (20) days' prior notice by landlord to execute,
acknowledge and deliver to Landlord a statement in writing and certifying
that this Lease is unmodified and in full force and effect (or if there
have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the net
rent and other charges have been paid in advance, if any, and stating
whether or not to the best knowledge of the signer of such certificate
Landlord is in default in performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each such default
of which the signer may have knowledge, it being intended that any such
statement delivered pursuant to this Section may be relied upon by any
prospective purchaser of the fee or any mortgagee thereof or any assignee
of any mortgage upon the fee of the Demised Premises.
SECTION 23.02. Landlord agrees at any time and from time to time upon
not less than twenty (20) days' prior notice by Tenant to execute,
acknowledge and deliver to Tenant a statement in writing certifying that
this Lease is unmodified and in full force and effect (or if there shall
have been modifications, that the same is in full force and effect as
modified and stating the modifications), and the dates to which the net
rent and other charges have been paid in advance, if any, and stating
whether or not to the best knowledge of the signer of such certificate
Tenant is in default in performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying each such default of which
the signer may have knowledge, it being intended that any such statement
delivered pursuant to this Section may be relied upon by any prospective
assignee of the Tenant's interest in this Lease or any mortgagee thereof or
any assignee of any mortgage upon the leasehold estate hereby created.
ARTICLE 24
Invalidity of Particular Provisions
SECTION 24.01 If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of
such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
ARTICLE 25
Notices
SECTION 25.01. All notices, demands and requests required under this
Lease shall be in writing. All such notices, demands and requests shall be
deemed to have been properly given if served personally, or if sent by
United States certified or registered mail, postage prepaid. Notices to
Tenant shall be sent to:
Notices to Landlord shall be sent to:
or to such other persons and addresses as Landlord and Tenant may from time
to time designate by written notice addressed to one another.
SECTION 25.02. Notices, demands and requests which shall be served by
registered or certified mail upon Landlord, or Tenant, or any Leasehold
Mortgage in the manner aforesaid, shall be deemed sufficiently served or
given for all purposes hereunder at the time such notice, demand or request
shall be mailed by United States certified or registered mail as aforesaid
in any Post Office or Branch Post Office regularly maintained by the United
States Government in the State of New York.
ARTICLE 26
Quiet Enjoyment - Conveyance by Landlord
SECTION 26.01. Tenant, upon paying the net rent and all additional
rent and other charges herein provided for and observing and keeping all
covenants, agreements and conditions of this Lease on its part to be kept,
shall quietly have and enjoy the Demised Premises during the term of this
Lease without hindrance or molestation by anyone claiming by, or through
Landlord, subject, however, to the exceptions, reservations and conditions
of this Lease, and the fee mortgages to which this Lease shall be subject
and subordinate.
SECTION 26.02. In case Landlord hereto or any successor owner of the
Demised Premises shall convey or otherwise dispose of the Demised Premises
and turn over to the transferee any funds held by it hereunder in which the
Tenant has an interest hereunder, all liabilities and obligations on the
part of Landlord or successor owner as Landlord under this Lease accruing
after such conveyance or disposal shall terminate upon such conveyance or
disposal, and thereupon all such liabilities and obligations shall be
binding upon the new owner of the Demised Premises.
SECTION 26.03. If the Landlord, or any successor in interest, shall
be an individual, joint venture, tenancy in common, firm or partnership,
general or limited, it is specifically understood and agreed that there
shall be no personal liability on such individual, or the members of that
firm, partnership or joint venture, in respect to any of the covenants or
conditions of this Lease, except that such individuals shall not be
relieved of any obligation in this Lease for the application of deposits
made by the Tenant for the real estate taxes or insurance or other specific
payments to be made by landlord. Except as provided in the preceding
sentence, in the event of any breach of the Lease each party shall look for
the satisfaction of its remedies solely to the equity of the other party in
the Demised Premises or leasehold estate, as the case may be.
ARTICLE 27
Arbitration
SECTION 27.01. In any case in which it is expressly provided by the
terms of this Lease that any matter be settled or determined by
arbitration, then any such controversy, claim or dispute shall be settled
by arbitration held in the City of New York in accordance with the rules
then obtaining of the American Arbitration Association, and judgment upon
the award rendered may be entered in any court having jurisdiction thereof.
ARTICLE 28
Waiver of Trial by Jury
SECTION 28.01. It is mutually agreed by and between Landlord and
Tenant that the respective parties hereto shall, and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other (except for personal injury or
property damage) on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant,
Tenant's use and occupancy of the Demised Premises, and any emergency
statutory or other statutory remedy. It is further mutually agreed that in
the event Landlord commences any summary proceedings for possession of the
Premises hereto, it shall not interpose in any counterclaim of whatever
nature or description in any such proceeding.
ARTICLE 29
Tax Deposits
SECTION 29.01. The Tenant shall, at the election of the Landlord,
given at any time and/or from time to time, deposit with the Landlord on
the same date that monthly installments of rent are due and payable, a sum
equal to one-twelfth of Tenant's share of real estate, school, village, and
town taxes assessed or imposed against the Demised Premises by the
appropriate tax authorities having jurisdiction over the Demised Premises.
All such deposits shall be deposited in a separate special bank account
(hereinafter referred to as the "Tax Account"). It is agreed that if by
the terms of any fee mortgage to which this Lease is subordinate, the
Landlord is required to deposit with such mortgagee any real estate taxes,
then Landlord shall make such deposits with such mortgagee out of the
moneys deposited by the Tenant with such mortgagee out of the moneys
deposited by the Tenant with the Landlord for such purpose and upon payment
of such taxes by the Landlord herein to the said mortgagee, the Landlord
shall be relieved and released from the provisions hereof. At least ten
(10) days after the date when such taxes become due and payable, and
provided Landlord has received from the Tenant sufficient moneys to pay
such taxes, Landlord shall pay the same and shall promptly forward to the
Tenant receipted bill showing such payment. In the event that the amount
of such taxes assessed or imposed against the Demised Premises has not been
definitely ascertained at the time when any such deposit should be made,
Tenant shall make the deposit based upon the amount of such taxes as
assessed or imposed against the Demised Premises for the preceding year
subject to the adjustment as and when the amount of such taxes is
ascertained. If at the time when such taxes become due and payable Tenant
has deposited an insufficient amount to pay the same, Tenant shall
forthwith upon demand deposit any deficiency with the Landlord so that such
taxes may be paid without penalty. If Tenant shall have deposited more
than sufficient funds to pay the same, the excess shall forthwith be
refunded by Landlord to Tenant. In the event that Landlord shall fail to
pay any such taxes as provided herein and provided that the Landlord has
received from Tenant sufficient moneys for the purpose of paying the same,
Tenant may, at its option, pay the same and anything elsewhere herein
notwithstanding deduct the amount so paid, with interest thereon at the
rate of 12% per annum from the date of such payment from the next
installment of net rent payable under this Lease. Landlord shall give
Tenant notice of each payment of tax within ten (10) days after the due
date thereof, and failure to give such notice shall be deemed non-payment
for the purpose of permitting the Tenant to cure such default as provided
for in this Lease.
ARTICLE 30
Definition of Certain Terms, etc.
SECTION 30.01. For purposes of this Lease, unless the context
otherwise requires:
(a) The term "Demised Premises" shall mean the land as described
in Article 1 hereof, together with any buildings or improvements now or
hereafter erected thereon and any replacements thereof, including without
limitation all machinery, dynamos, equipment, motors, elevators, heating
and hot water boilers, heating and hot water systems, plumbing fixtures,
equipment and systems, gas, steam, water and electrical fittings, fixtures
and equipment, radiators, air conditioning units, ducts and equipment, all
lighting fixtures, and decoration and landscaping, said improvements herein
referred to as "personal property".
(b) The term "Fee Mortgage" shall mean a mortgage on the fee
title, or reversionary interest and estate of the Landlord in and to the
Demised Premises, placed pursuant to Article 4 hereof, and shall be deemed
to include a Trust Indenture under which such fee title or reversionary
interest and estate shall have been mortgaged. The term "Fee Mortgagee"
shall mean the mortgagee under any such mortgage and shall be deemed to
include the Trustee under any such Trust Indenture.
(c) The term "Landlord" as used in this Lease shall be deemed to
include the plural and means only the fee owner for the time being of the
land and building constituting the Demised Premises so that in the event of
any transfer or sale of the said Demised Premises, and the turning over by
the Landlord to its successor in interest of all funds held by it hereunder
in which Tenant has an interest, the said Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties of their successors in interest that the transferee or
purchaser has assumed and agreed to carry out any and all of the covenants
and obligations of the Landlord hereunder.
(d) The term "Tenant" shall mean the person at the time in
possession of the Demised Premises pursuant to the terms of this Lease and
shall be deemed to include the plural.
(e) The term "subtenant" shall mean any tenant or licensee of
space in or on the Building (other than Tenant); the term "sublease" shall
mean any lease or other agreement for the use or occupancy of such space;
and the term "sub-rent" shall means any rent or other charge for such use
or occupancy.
(f) Any reference herein to the termination of this Lease shall
be deemed to include any termination hereof by expiration, or pursuant to
Article 17, 18 or 22 hereof, or otherwise.
(g) The term "unavoidable delays" shall mean delays due to
strikes, acts of God, the provisions of any Federal, State or Municipal
laws and regulations, or the decision or judgment of any court of competent
jurisdiction, inability to obtain labor or materials, governmental
restrictions, enemy action, weather, civil commotion, fire, unavoidable
casualty or similar causes beyond the control of Tenant.
(h) The term "person" shall mean and include an individual,
corporation, partnership, unincorporated organization or government or any
agency or political subdivision thereof.
SECTION 30.02. The captions of this Lease are for convenience and
reference only and in no way define, limit or describe the scope or intent
of this Lease nor in any way affect this Lease.
SECTION 30.03. The table of contents preceding this Lease under the
same cover is for the purpose of convenience and reference only and is not
to be deemed or construed in any way as part of this Lease, nor as
supplemental thereto or amendatory thereof.
SECTION 30.04. This Lease shall be construed and enforced in
accordance with the laws of the State of New York.
SECTION 30.05. Upon the execution and delivery hereof, this instrument
shall constitute the entire lease between the Landlord and Tenant for the
Demised Premises and any existing Lease shall be deemed modified, merged
and superseded by the terms of this agreement. This Lease cannot be
changed orally but only by an agreement in writing and signed by the party
against whom enforcement of any waiver, change, modification or discharge
is sought.
ARTICLE 31
Additional Demised Premises
SECTION 31.01. Landlord agrees to complete the construction of a
building on the property, described in Exhibit A-1, substantially in
accordance with plans to be agreed upon between the parties. The said
building shall contain approximately 16,000 square feet and is hereinafter
referred to as the "Additional Demised Premises". Upon notice from
landlord to Tenant the completion of the construction and the issuance of a
certificate of occupancy for the building (temporary or permanent) (the
"Completion Date"), to said building shall be deemed part of the Demised
Premises subject to all of the terms of this Lease, except that
(a) The net annual rental shall be increase as follows:
(i) the net annual rental from the Completion Date to the
end of the next twelve calendar months shall be an amount equal to the
actual footage in the Additional Demised Premises (calculated from the
outside of all perimeter walls) as determined by Landlord's architect,
multiplied by seven ($7) dollars.
(ii) the net annual rental during each succeeding twelve
month period and until the expiration of the fifth Lease year of the
originally demised premises shall be an amount equal to the net annual
rental payable during each preceding twelve month period multiplied by
three (3%) percent.
(iii) The net annual rental from the sixth Lease Year and
until the expiration of the term shall be determined in the same manner as
described in Exhibit B.
(b) Tenant shall notify Landlord within thirty (30) days after
the delivery of the additional premises of any incomplete or open items of
work ("punch list") and Landlord shall promptly complete such punch list
items in a manner as not to unreasonably interfere with the operation of
Tenant's business.
(c) Landlord shall assign to Tenant all guarantees of
workmanship and materials for the Additional Demised Premises. Tenant
shall look only to the guarantor for any damages Tenant may sustain by
reason of any defect in workmanship or materials. In no event shall
Landlord be liable to Tenant for any damages which Tenant for any damages
which Tenant may sustain by reason of any defect in the design, workmanship
or materials, installed in or furnished for the Additional Demised
Premises.
IN WITNESS WHEREOF the parties have executed this Lease.
By:
By:
<PAGE>
EXHIBIT A
DEMISED PREMISES
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the Incorporated
Village of Valley Stream, Town of Hempstead, County of Nassau, State of New
York, bounded and described as follows:
BEGINNING at a corner formed by the intersection of the new southerly side
of Merrick Road, with the easterly side of Montgomery Street;
RUNNING THENCE south 66 degrees 49 minutes 13 seconds east along the new
southerly side of Merrick Road, 255.88 feet;
THENCE south 20 degrees 18 minutes 50 seconds west, 157.89 feet to land now
or formerly of Joseph and Louise Buscher;
THENCE along land now or formerly of Joseph and Louise Buscher, the
following two courses and distances:
1) North 71 degrees 01 minutes 09 seconds west, 81.09 feet;
2) North 66 degrees 38 minutes 50 seconds west, 121.78 feet;
THENCE south 20 degrees 02 minutes 50 seconds west, 10.60 feet;
THENCE north 62 degrees 06 minutes 10 seconds west, 80.90 feet to the
easterly side of Montgomery Street;
THENCE north 29 degrees 53 minutes 50 seconds east along the easterly side
of Montgomery Street, 168.41 feet to the corner at the point or place of
BEGINNING.
<PAGE>
EXHIBIT A-1
ADDITIONAL DEMISED PREMISES
ALL that certain plot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the Incorporated
Village of Valley Stream, Town of Hempstead, County of Nassau, State of New
York, bounded and described as follows:
BEGINNING at a point on the new northerly line of Merrick Road, distant
198.18 feet easterly from the corner formed by the intersection of the said
northerly line of Merrick road and the easterly line of Montgomery Street,
said point of beginning being at the easterly side of land now or formerly
of John W. Gathard, and from said point of beginning;
RUNNING THENCE along said northerly side of Merrick Road south 68 degrees
33 minutes 40 seconds east, 251.68 feet to a point;
THENCE north 26 degrees 48 minutes east, 90.99 feet to a point;
THENCE north 67 degrees 54 minutes west, 250.67 feet to land now or
formerly of Gathard;
THENCE along said land south 27 degrees 15 minutes 28 seconds west, 93.96
feet to a point on the said northerly line of Merrick Road at the point or
place of BEGINNING.
<PAGE>
EXHIBIT B
NET ANNUAL RENTAL
I. The net annual rental for the term shall be as follows:
(1) For the period from the Commencement Date until December 31, 1987
at the rate of $206,800 per annum;
(2) For the period from January 1, 1988 to December 31, 1988 at the
rate of $213,000;
(3) For the period from January 1, 1989 to December 31, 1989 at the
rate of $219,395;
(4) For the period from January 1, 1990 to December 31, 1990 at the
rate of $225,975;
(5) For the period from January 1, 1991 to December 31, 1991 at the
rate of $232,750; and
(6) For the period from January 1, 1992 to December 31, 1992 (the
"sixth lease year") the net annual rent shall be the fair market
value (exclusive of any additional rent payable by Tenant) of the
Demised Premises determined as hereinafter provided as of a date
three months prior to the commencement of such sixth lease year.
Landlord shall notify Tenant in writing of Landlord's reasonable
estimate of the fair annual net market rental value of the
Demised Premises for the sixth lease year three months prior to
the commence thereof. Such estimate shall take into
consideration the size and nature of the Demised Premises as if
the same were operated in a high-class manner for its intended
purpose. Tenant shall have ten days from the date of Landlord's
notice in which to accept the same. If Tenant shall fail to
accept Landlord's estimation of the annual fair market rental
value for the sixth lease year and the parties have not agreed
upon the same within ten days after Landlord's notice then such
annual market rental value shall be determined by appraisal as
follows: within ten days thereafter Landlord and Tenant shall
each designate the arbitrator and shall notify the other party of
such designation. The two arbitrators so chosen shall meet
within ten days of their appointment and if within twenty days
from their appointment the two arbitrators shall not agree upon a
determination in accordance with the provisions of this paragraph
they shall together appoint a third arbitrator. If the two
arbitrators cannot agree upon the appointment of a third
arbitrator within ten days after such twenty-day period then
either party, on behalf of both and on notice to the other, may
request such appointment by the American Arbitration Association
(or any successor organization) shall fail to appoint the third
arbitrator within ten days after such twenty-day period then
either party, on behalf of both and on notice to the other, may
request such appointment by the American Arbitration Association
(or any successor organization) in accordance with its then
prevailing rules. If the American Arbitration Association (or
any successor organization) shall fail to appoint the third
arbitrator within ten days after such request is made then either
party may apply on notice to the other to the Supreme Court in
the county in which the Demised Premises are located for the
appointment of such third arbitrator.
Each arbitrator selected as herein provided shall have at least
five years experience in the leasing or management of similarly
situated properties.
Each party shall pay the fees and expenses of the arbitrator
selected by it. The fees and expenses of the third arbitrator
and all other expenses (including attorneys' fees, witness fees
and similar expenses of the parties shall be borne separately by
each of the parties) of the arbitrator shall be borne equally by
the parties.
The majority of the arbitrators shall determine the fair annual
net market rent value for the sixth year of the lease term.
In no event shall the net annual rental for the sixth lease year
be less than the net annual rental for the immediately preceding
calendar year.
(7) For each of the four next succeeding calendar years the net
annual rental payable in the immediately preceding lease year by
an amount equal to the net annual rental payable during each of
the immediately preceding calendar year multiplied by three (3%)
percent.
The rent with respect to the additional Demised Premises is more
particularly set forth in Article 31 hereof.
<PAGE>
This lease amendatory agreement (the "Lease Amendment"), made this
_____ day of July, 1996, between and among JNR REALTY COMPANY, a New York
partnership, having an office in care of David W. Bernstein, 14 Aliso Road,
Carmel Valley, CA 93924-9442 (hereinafter referred to as "Landlord"),
STROBER LONG ISLAND BUILDING SUPPLY CENTERS, INC. (hereinafter referred to
as "Tenant"), and THE STROBER ORGANIZATION, INC. (hereinafter referred to
as "Guarantor").
WHEREAS:
A. Landlord and Tenant entered into a lease dated November 7, 1986
(the "Lease"), which by its terms is to expire on December 31, 1996;
B. Guarantor entered into a guarantee of the Lease dated December
1986 (the "Guaranty");
C. The parties hereto desire to extend the terms of the Lease and the
Guaranty for a further period of ten (10 years until December 31, 2006 (the
"Extended Termination Date"), pursuant to the terms, conditions and
provisions as hereinafter set forth;
NOW, THEREFORE, THE PARTIES HERETO MUTUALLY AGREE AS FOLLOWS:
1. All the terms, provisions and conditions of the Lease shall
continue without modification or amendment for ten (10) years until the
extended Termination Date (hereinafter, the "Extended Term"), except as may
hereinafter be provided.
2. Exhibit B to the Lease is hereby deleted in its entirety and the
following substituted in its place and stead:
"EXHIBIT B
"NET ANNUAL RENT
"The net annual rental for the Demised Premises and the Additional
Demised Premises for the period from January 1, 1997 (hereinafter, the
"Extended Commencement Date"), to and until December 31, 2006 (hereinafter
the "Extended Termination Date") shall be as follows:
"(1). The rent for the initial period of five (5) years from the
Extended Commencement Date to and until December 31, 2001, shall be at the
rate of Four Hundred and Three Thousand Eight Hundred and Fifty and 76/100
($403,850.76) Dollars per annum, payable monthly on the first day of the
month in advance at the rate of Thirty Three Thousand Six Hundred Fifty
Four and 23/100 ($33,654.23) Dollars (hereinafter, the "Basic Rent");
"(2). As of January 1, 2002 (hereinafter, the "First Calculation
Date"), the Basic Rent shall be increased by the increase in the Consumer
Price Index (hereinafter, the "CPI") as presently published by the United
States Department of Labor. In making the determination of said increase,
the CPI as of the Extended Commencement Date will be compared to the CPI as
of the First Calculation Date, and the increase in such index, from and
between the said two dates, expressed both as a fraction of and as a
percentage rate increase of the CPI as of the Extended Commencement Date,
shall be applied to the Basic Rent, to determine the increase in the Basic
Rent for the year from January 1, 2002 to December 31, 2002. In no event
shall the Basic Rent ever be reduced.
"For example, if the CPI as of January 1, 1997, is 1000 and the CPI as
of the First Calculation Date is 1104, then the increase in the CPI between
the two dates is 104, the fraction is 104/1000 and the percentage of
increase is 10.4%, and, as so expressed, said increase shall result in an
increase in the Basic Rent for the year of 2002 to Four Hundred Forty Five
Thousand Eight Hundred Fifty One and 24/100 ($445,851.24) Dollars, payable
monthly on the first day of the month in advance at the rate of Thirty
Seven Thousand One Hundred Fifty Four and 27/100 ($37,154.27) Dollars.
(3). As of January 1, 2003, and as of each anniversary thereof during
the Extended Term (hereinafter, each, a "Subsequent Calculation Date," and
all such calculation dates and the First Calculation Date, collectively
being "Calculation Dates"), the Basic Rent paid in the prior calendar year
(for January 1, 2003, the rent paid in 2003 shall be used, for January 1,
2004, the rent paid in 2003 shall be used, etc.) shall be increased by the
increase in the CPI from the preceding Calculation Date to the Subsequent
Calculation Date for the year. In making the determination of said
increase, the CPI as of the year-earlier Calculation Date will be compared
to the CPI as of the following Subsequent Calculation Date, and the
increase in such index, from and between the said two dates, expressed both
as a fraction of and as a percentage rate increase of the CPI as of the
Calculation Date for the preceding calendar year, shall be applied to the
Basic Rent paid for the preceding calendar year, to determine the increase
in the Basic Rent for the year from January 1, 2003 to December 31, 2003.
In no event shall the Basic Rent, once increased, ever be reduced.
"For example: If the CPI as of January 1, 2002, is 1,104 and the CPI
as of January 1, 2003, is 1126, then the increase in the CPI between the
two dates is 22, the fraction is 22/1000 and the percentage of increase is
2%, and, as so expressed, said increase shall result in an increase from
the above Basic Rent to the Basic Rent for the year of 2003 to Four Hundred
Fifty Four Thousand Seven Hundred Sixty Eight and 26/100 ($454,768.26)
Dollars, payable monthly on the first day of the month in advance at the
rate of Thirty Seven Thousand Eight Hundred Ninety Seven and 36/100
($37,897.36) Dollars."
3. Exhibit C to the Lease is hereby deleted in its entirety and the
following substituted in its place and stead.
"EXHIBIT C
"IMPOSITIONS
"Landlord shall only the required to pay in each calendar year up to
the sum of One Hundred Thousand ($100,000) Dollars of all Impositions
imposed on the Demised Premises and the Additional Demised Premises.
Accordingly, Tenant's share of Impositions for each calendar year during
the Extended Term of the Lease shall be the entire amount of all
Impositions imposed on the Demised Premises and the Additional Demised
Premises in excess of said limit."
4. Article 31 of the Lease is hereby deleted in its entirety.
5. Guarantor, by executing this Lease Amendment, confirms that the
Guaranty is amended by this provision and renewed in all respects as herein
provided. The Guaranty shall continue to be effective until the Extended
Termination Date to guarantee, absolutely and unconditionally, to Fleet
Bank (formerly the National Westminster Bank) and to Landlord, their
successors and assigns, full and prompt payment and performance of any and
all obligations and liabilities o Tenant under the Lease, as renewed,
including, without limitations, payment of all rental thereunder, together
with all attorneys' fees, costs and expenses of collections incurred by
said creditors in connection with the enforcement of this Guaranty.
6. Except as so modified and amended, the Lease and the Guaranty are
hereby confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Amendment.
JNR REALTY COMPANY
By: Strober Enterprises Company
By: _____________________________
Sue Strober, Partner
STROBER LONG ISLAND BUILDING SUPPLY
CENTERS, INC.
By: _____________________________
President
THE STROBER ORGANIZATION, INC.
By: _____________________________
President
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STROBER ORGANIZATION, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] JUN-30-1996
[CASH] 4,000
[SECURITIES] 0
[RECEIVABLES] 22,425
[ALLOWANCES] 2,876
[INVENTORY] 12,548
[CURRENT-ASSETS] 37,523
[PP&E] 13,259
[DEPRECIATION] 8,980
[TOTAL-ASSETS] 49,175
[CURRENT-LIABILITIES] 12,769
[BONDS] 0
[COMMON] 52
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 34,517
[TOTAL-LIABILITY-AND-EQUITY] 49,175
[SALES] 59,108
[TOTAL-REVENUES] 59,108
[CGS] 43,086
[TOTAL-COSTS] 43,086
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 358
[INTEREST-EXPENSE] 92
[INCOME-PRETAX] 1,743
[INCOME-TAX] 732
[INCOME-CONTINUING] 1,011
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 1,011
[EPS-PRIMARY] 0.20
[EPS-DILUTED] 0.20
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from
____________ to ______________
Commission File Number 0-15339
THE STROBER ORGANIZATION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2822910
(State of Organization (IRS Employer Identification
or other Jurisdiction Number)
of Incorporation)
550 Hamilton Avenue
BROOKLYN, NEW YORK 11232
(Address of principal executive office)
(718) 832-1212
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
filing requirements for the past 90 days.
Yes X No _____
COMMON STOCK $.01 PAR - SHARES ISSUED AND OUTSTANDING AT NOVEMBER 11, 1996 -
5,027,447
(Number of shares outstanding of each class of the Registrant's Common Stock)
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
INDEX
PAGE
Face Sheet............................................................1
Index.................................................................2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995...................3
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996 and 1995.............4
Consolidated Statements of Operations
for the Nine Months Ended September 30, 1996
and 1995...................................................5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995......6
Notes to Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................8
Part II Other Information.........................................12
Part III Exhibits and Reports on Form 8-K..........................14
Signature............................................................15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Strober Organization, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In Thousands)
ASSETS SEPT. 30, DEC. 31,
1996 1995
<S> <C> <C>
Current assets:
Cash $4,553 $6,007
Accounts receivable, net of allowance for 21,988 15,907
doubtful accounts of $3,162 and $2,321 in
1996 and 1995, respectively
Inventory 12,880 10,305
Deferred income taxes 921 921
Other current assets 536 347
Total current assets 40,878 33,487
Property and equipment, net 5,513 3,627
Goodwill, net of accumulated amortization of 6,569 6,726
$1,817
and $1,660 in 1996 and 1995, respectively
Other assets 771 704
Total assets $53,731 $44,544
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $725 $908
Revolving line of credit - -
Accounts payable 8,982 4,738
Accrued expenses and taxes 5,186 4,150
Total current liabilities 14,893 9,796
Long-term debt, less current installments 2,669 1,224
Total liabilities 17,562 11,020
Stockholders' equity:
Preferred stock, $.01 par value, 1000 shares -- --
authorized and unissued
Common stock, $.01 par value, 20,000 shares 52 52
authorized; issued: 5,218 and 5,027
outstanding
in 1996 and issued 5,178 and outstanding
4,987 in
1995
Additional paid-in capital 7,099 7,029
Retained earnings 29,801 27,189
Less: Treasury stock at cost, 191 shares in (783) (746)
1996
and 1995
Total stockholders' equity 36,169 33,524
Total liabilities and stockholders' equity $53,731 $44,544
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $41,789 $33,864
Cost of goods sold 31,135 24,821
Gross profit 10,654 9,043
Selling, general and administrative 8,141 7,207
expenses
Income from operations 2,513 1,836
Other income (expense)
Interest expense (65) (58)
Interest income 123 135
Equity in earnings of joint venture 86 -
Gain on sale of fixed assets and other 101 8
income
Net income before income taxes 2,758 1,921
Provision for income taxes 1,158 787
Net income $1,600 $1,134
Net income per share $0.31 $0.21
Weighted average number of shares 5,170 5,358
outstanding
</TABLE>
The computation of fully diluted earnings per share
does not materially differ from that presented above.
See accompanying notes to consolidated financial statements.
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Operations
Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
<S> <C> <C>
Net sales $100,898 $96,066
Cost of goods sold 74,222 70,824
Gross profit 26,676 25,242
Selling, general and administrative 22,849 21,433
expenses
Income from operations 3,827 3,809
Other income (expense)
Interest expense (156) (170)
Interest income 355 325
Equity in earnings of joint venture 182 -
Gain on sale of fixed assets and other 294 36
income
Net income before income taxes 4,502 4,000
Provision for income taxes 1,891 1,640
Net income $2,611 $2,360
Net income per share $0.51 $0.45
Weighted average number of shares 5,159 5,264
outstanding
</TABLE>
The computation of fully diluted earnings per share
does not materially differ from that presented above.
See accompanying notes to consolidated financial statements.
<PAGE>
The Strober Organization, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $2,611 $2,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,097 1,004
Provision for estimated losses on accounts 598 651
receivable
Changes in operating assets and liabilities:
Accounts receivable (6,679) (1,903)
Inventory (2,575) (952)
Other assets (269) 14
Accounts payable 4,244 1,202
Accrued expenses and taxes 1,038 702
Net cash provided by operating activities 65 3,078
Cash flows from investing activities:
Additions to property and equipment, net (690) (465)
Cash flows from financing activities:
Repayment of long-term debt (862) (1,278)
Proceeds from exercise of stock options 70 17
Purchase of treasury stock (37) -
Net cash (used by) financing activities (829) (1,261)
Net (decrease) increase in cash (1,454) 1,352
Cash at beginning of period 6,007 3,890
Cash at end of period $4,553 $5,242
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
THE STROBER ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED STATEMENTS
The accompanying unaudited consolidated financial statements and other
related financial information furnished reflect all adjustments which are, in
the opinion of management, necessary to a fair presentation of the financial
position as of September 30, 1996 and the results of operations and cash flows
for the nine months ended September 30, 1996 and 1995.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is suggested
that these consolidated condensed financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's December 31, 1995 financial statements. The results of operations
for the period ended September 30, 1996 are not necessarily indicative of the
operating results for the full year.
(2) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany balances and
transactions have been eliminated.
(3) STATEMENTS OF CASH FLOWS-SUPPLEMENTAL DISCLOSURES
Schedule of amounts paid for interest, income taxes and capital lease
obligations.
In thousands
1996 1995
Interest paid $117 $137
Income taxes paid $1,135 $500
Capital lease obligations $2,123 $1,074
incurred for purchase
of equipment
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain income statement amounts expressed as a
percentage of sales:
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/96 9/30/95 9/30/96 9/30/95
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 74.5% 73.3% 73.6% 73.7%
Gross profit 25.5% 26.7% 26.4% 26.3%
SG&A expenses 19.5% 21.3% 22.6% 22.3%
Income from operations 6.0% 5.4% 3.8% 4.0%
Other income (expense) .6% .3% .7% .2%
Net income before income 6.6% 5.7% 4.5% 4.2%
taxes
Provision for income taxes 2.8% 2.3% 1.9% 1.7%
Net income 3.8% 3.4% 2.6% 2.5%
</TABLE>
RESULT OF OPERATIONS
THIRD QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO THIRD QUARTER ENDED
SEPTEMBER 30, 1995
Net sales for the quarter ended September 30, 1996 increased by $7.9 million
(23%) compared to the same period in 1995. The increase in sales is primarily
the result of increased construction activity experienced in the Company's
marketing regions.
Gross profit increased by $1.6 million (18%) in the third quarter of 1996 as
compared to the same period in 1995 due to the higher sales volume. Gross
profit as a percentage of sales decreased from 26.7% to 25.5% in the third
quarter of 1996 compared to the same period in 1995.
Selling, general and administrative expenses increased by $934,000 (13%) in the
third quarter of 1996 compared to the same period in 1995.
The following table shows the components of the SG&A expenses:
THREE MONTHS ENDED
IN THOUSANDS 9/30/96 9/30/95
Delivery $3,218 $2,784
Selling 1,213 1,078
Administrative 3,710 3,354
$8,141 $7,207
The increase in delivery expenses of $434,000 resulted from increases in
variable delivery labor and trucking costs. Selling expenses increased by
$135,000 resulting from higher sales salaries. Administrative expenses
increased by $365,000 primarily due to higher legal fees and administrative
salaries. The increase in administrative costs was partially offset by
reductions in insurance and health insurance costs.
Other income-equity in earnings of joint venture of $86,000 represents the
Company's 50% ownership share of the earnings of Architectural Wall Systems LLC
(formed October 1995) for the three month period ended September 30, 1996.
Gain on sale of fixed assets and other income increased by $93,000 in the third
quarter of 1996 due primarily to a reduction of an accrued litigation
liability. Such litigation was settled in the third quarter of 1996.
Income from operations increased $677,000 in the third quarter of 1996 to
$2,513,000 compared to $1,836,000 in the same period in 1995. This increase
resulted primarily from higher gross margin dollars resulting from higher sales
volume and was partially offset by higher operating expenses. Net income
before taxes increased $837,000 in the 1996 third quarter to $2,758,000
compared to $1,921,000 in the same period in 1995 due to increased operating
income and higher other income.
The net income for the third quarter of 1996 reflects an income tax provision
of $1,158,000 compared to a provision of $787,000 for the same period in 1995.
Net income for the third quarter ended September 30, 1996 increased $466,000 to
$1,600,000 compared to $1,134,000 in the same period in 1995.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1995
Net sales for the nine month period ended September 30, 1996 increased by $4.8
million (5%) compared to the same period in 1995 due to an increase in
construction activity in the Company's marketing regions. The nine month sales
growth was partially offset by the $5.1 million decline in sales during the
first quarter of the year due to the extremely harsh weather conditions
experienced in 1996 compared to 1995.
Gross profit increased by $1.4 million (6%) in the first nine months of 1996 as
compared to the same period in 1995 due to the increased sales volume. Gross
profit as a percentage of sales was 26.4% during the first nine months of 1996
compared to 26.3% in the same period in 1995.
Selling, general and administrative expenses increased by $1.4 million (7%).
The following table shows the components of the SG&A expenses.
NINE MONTHS ENDED
IN THOUSANDS 9/30/96 9/30/95
Delivery $8,967 $8,236
Selling 3,342 3,117
Administrative 10,540 10,080
$22,849 $21,433
Delivery expenses increased $731,000 due primarily to higher facility rent,
delivery labor and trucking costs. Selling expenses increased by $225,000 due
to higher selling salaries and related expenses partially reduced by lower
advertising costs. Administrative expenses increased $460,000 due primarily to
higher legal fees, administrative salaries, facility costs and partially
reduced by lower insurance, health insurance costs and bad debt provisions.
Other income (expenses) increased $484,000 in the nine month period ended
September 30, 1996 compared to the 1995 period. This increase is primarily
attributed to the equity in earnings of the Company's joint venture in
Architectural Wall Systems LLC (formed in October 1995), gain on sales of
delivery equipment which were replaced with new equipment and a reduction in an
accrued litigation liability. Such litigation was settled in the third quarter
of 1996.
Income from operations increased $18,000 in the nine month period ended
September 30, 1996 to $3,827,000 compared to $3,809,000 in the same period in
1995. Increases in operating income of $337,000 and $677,000 in 96Q2 and 96Q3,
respectively, was impacted by a decline in operating income of $996,000 in 96Q1
resulting from inclement weather related reduced sales volume. Net income
before taxes increased $502,000 in the nine month period ended September 30,
1996 to $4,502,000 compared to $4,000,000 in the same period in 1995 due
primarily to increases in operating income and other income.
The net income for the nine month period ended September 30, 1996 reflects an
income tax provision of $1,891,000 compared to $1,640,000 in the same period of
1995. Net income for the nine month period ended September 30, 1996 increased
$251,000 to $2,611,000 compared to $2,360,000 in the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations in the first nine months of 1996 without
the necessity of any borrowings other than capital lease transactions to fund
capital expenditures. The Company also maintains a revolving working capital
line of credit in the amount of $10,000,000 with the Chase Manhattan Bank, N.A.
Borrowings under the credit facility are made as needed, up to a maximum of 75%
of eligible accounts receivable and bear interest at the prime rate plus 1/2 a
percentage point or at the option of the Company at various fixed London
Interbank Offered Rate interest rates. The Company pledged as collateral for
the credit facility its accounts receivable and is required to
<PAGE>
maintain certain financial covenants. The credit facility expires on January
15, 1997. At September 30, 1996 there were no balances owed under this credit
line. The Company believes that this credit facility will provide sufficient
working capital to support current and future operations and also believes that
an extension or replacement of the revolving working capital line of credit
will be obtained.
In March 1995, the Company entered into a master lease agreement with Chase
Equipment Leasing Inc. to lease certain trucks and forklift equipment. The
agreement provides for a monthly rental payment adjusted upon changes in the 30
day London Interbank Offered Rate. The Company leased $1,988,000 of new
delivery equipment during the nine month period ended September 30, 1996.
These leases have been capitalized as incurred. The Company's outstanding
balances on these capitalized leases at September 30, 1996 was $3,253,000.
At September 30, 1996, the Company had no outstanding balance of subordinated
notes payable compared to $583,000 at December 31, 1995. These notes were
issued pursuant to the acquisition of The General Building Supply Company in
January 1988. Although the notes were due September 1, 1996, a final payment
was made on June 1, 1996.
Capital expenditures, net of dispositions, amounted to $690,000 in the nine
month period ended September 30, 1996, compared to $392,000 in the same period
in 1995.
The Company will be relocating its Brooklyn, New York facility and corporate
headquarters when the current lease expires on December 31, 1996. The Company
has executed a new 10 year lease with The Port Authority of New York and New
Jersey covering premises at Pier 3 at the Brooklyn Marine Terminals. This
larger facility is approximately 2 miles from the present Brooklyn location.
Facility improvements and fixtures associated with the relocation is estimated
at $1,500,000.
The Company has entered into a 10 year renewal lease for its facility located
at Valley Stream, New York. The present lease expires December 31, 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On July 31, 1996, an action entitled BROOKLYN BRIDGE PARK COALITION, INC.
V. PORT AUTHORITY OF NEW YORK AND NEW JERSEY AND THE STROBER ORGANIZATION, INC.
was commenced in the United States District Court, Eastern District of New
York. The Complaint alleges, among other things, common law prospective
nuisance arising out of the Company's planned relocation of its existing
Brooklyn, New York facility from the waterfront at 550 Hamilton Avenue to Pier
3, a distance of approximately two miles. The Plaintiff is seeking to restrain
the Company from constructing a building materials supply center on Pier 3.
The Company is currently evaluating the claims and intends to aggressively
defend the claim against the Company. In October 1996, the Port Authority and
Strober Bros., Inc. Building Supply Centers entered into an indemnity agreement
pursuant to which the Port Authority agreed, in the event that Strober Bros. is
unable to use the Pier 3 premises for the purposes set forth in the Pier 3
lease agreement as a result of this action or any action in New York State
court containing the same allegations in whole or in part as set forth in this
action, to indemnify Strober Bros. for up to $1.5 million for costs and
expenses incurred in connection with construction work at Pier 3.
In October 1996, a Settlement Agreement (the "SETTLEMENT AGREEMENT") was
entered into between Albert Sandler, the Company and Strober-N.J. Building
Supply Centers, Inc. (a Company subsidiary) resolving environmental claims
relating to underground storage tanks brought by Mr. Sandler in SANDLER V.
STROBER ORGANIZATION, INC., ET AL., Docket No. L-6840-94. Pursuant to the
Settlement Agreement, the Company paid $175,000 to Mr. Albert Sandler, $119,000
of which was contributed by the Company's insurers.
The Company is not a party to any other material legal proceedings. It
is, however, involved in litigation relating to claims arising out of its
operations in the normal course of business. Such claims against the Company
are generally covered by insurance. It is the opinion of management that any
uninsured liability resulting from such litigation would not have a material
adverse effect on the Company's business, financial position or earnings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders of the Company was held on
July 11, 1996.
(b) The following nominees were elected by the following vote as
Class I directors of the Company to serve until the 1999 Annual
Meeting of Stockholders or until their respective successors
shall be elected and shall qualify:
CLASS I DIRECTORS FOR WITHHELD
Emil W. Solimine 3,595,247 22,950
Eliott Zieky 3,595,247 22,950
(c) The following directors continued as directors of the Company:
Class II (Term to Expire at 1997 Stockholder Meeting)
Robert J. Gaites
Joseph Mangino, Sr.
Class III (Term to Expire at 1998 Stockholder Meeting)
David W. Bernstein
Alvin Murstein
John Yanuklis
(d) The proposal to ratify the appointment of KPMG Peat Marwick LLP
as independent public accountants for the Company for the
fiscal year ending December 31, 1996 received the required
favorable majority vote necessary for approval as follows:
FOR AGAINST ABSTAIN
3,597,205 20,162 830
(e) The proposal to approve the Company's 1996 Outside Director
Stock Option Plan received the required favorable majority vote
necessary for approval as follows:
FOR AGAINST ABSTAIN
3,152,958 413,646 3,130
Item 5. OTHER EVENTS.
On November 11, 1996, the Company issued a press release announcing that
it had entered into a definitive Agreement and Plan of Merger providing for the
acquisition of all of the Company's Common Stock at $6 per share, in cash, for
an aggregate fully-diluted purchase price of approximately $32 million. The
acquisition is led by Fidelity Ventures Limited Partnership, a private capital
investor. The Company also announced that in light of the pending merger, the
Company has decided not to proceed with the purchase of Rowley Building
Products Corp. and Rowley Building Products of New Jersey, Inc. Copies of the
press release and the Agreement and Plan of Merger are attached as exhibits
hereto and are incorporated herein by reference.
<PAGE>
PART III
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2.1 Agreement and Plan of Merger dated November 11, 1996
2.2 Proxy Agreement dated as of November 11, 1996 among certain
stockholders of the Company, Hamilton Acquisition LLC and
Hamilton NY Acquisition Corp.
2.3 Guaranty Agreement dated as of November 11, 1996 by Fidelity
Investors Limited Partnership in favor of the Company
20 Press Release dated November 11, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K:
There was a Report on Form 8-K filed on July 1, 1996 which
reported that the Company issued a press release on each of June 27,
1996 and July 1, 1996 announcing that the Company will be relocating
its Brooklyn, New York Facility and Corporate Headquarters and that
the Company had entered into a purchase agreement to acquire the
assets of Rowley Building Products Corp. and all the capital stock
of Rowley Building Products of New Jersey, Inc., respectively.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE STROBER ORGANIZATION, INC.
By: /S/ DAVID J. POLISHOOK
--------------------------------------
David J. Polishook
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
2.1 Agreement and Plan of Merger dated November 11, 1996
2.2 Proxy Agreement dated as of November 11, 1996 among
certain stockholders of the Company, Hamilton
Acquisition LLC and Hamilton NY Acquisition Corp.
2.3 Guaranty dated as of November 11, 1996 by Fidelity
Investors Limited Partnership in favor of the Company
20 Press Release dated November 11, 1996
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 2.1
Agreement and Plan of Merger dated November 11, 1996
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
PARENT,
ACQUISITION SUB
AND THE STROBER ORGANIZATION, INC.
Dated as of November 11, 1996
<PAGE>
TABLE OF CONTENTS
Page
1. [INTENTIONALLY OMITTED]...............................2
2. THE MERGER............................................2
2.1 The Merger............................................2
2.2 Effective Time........................................2
2.3 Effects of the Merger.................................2
2.4 Certificate of Incorporation; By-Laws.................2
2.5 Directors.............................................3
2.6 Officers..............................................3
2.7 Conversion of Securities..............................3
2.8 Company Stock Options and Related Matters.............4
2.9 Taking of Necessary Action; Further Action............4
3. PAYMENT FOR SHARES; DISSENTING SHARES......................4
3.1 Payment for Shares of Company Common Stock............4
3.2 Dissenting Shares.....................................6
4.REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB..7
4.1 Organization and Qualification........................7
4.2 Authority Relative to this Agreement..................7
4.3 No Violations.........................................8
4.4 Brokerage Fees........................................9
4.5 Financing.............................................9
4.6 Arrangements..........................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............10
5.1 Organization and Qualification.......................10
5.2 Authority Relative to this Agreement.................10
5.3 No Violations; Consents and Approvals................11
5.4 Capitalization.......................................12
5.5 Commission Filings...................................12
5.6 Absence of Certain Changes or Events.................13
5.7 Absence of Litigation................................14
5.8 Employee Benefit Plans...............................14
5.9 Labor Matters........................................15
5.10 Taxes................................................16
5.11 Environmental Matters................................17
5.12 Books and Records....................................19
5.13 Real and Personal Property...........................19
5.14 Contracts............................................23
5.15 Trade Names..........................................24
5.16 Affiliate Transactions...............................25
5.17 Brokerage Fees.......................................25
5.18 Subsidiaries.........................................25
5.19 Disclosure...........................................25
6. CONDUCT OF BUSINESS PENDING THE MERGER....................26
6.1 Conduct of Business by the Company...................26
7. ADDITIONAL AGREEMENTS.....................................28
7.1 Proxy Statement; Other Filings.......................28
7.2 Meeting of the Company's Stockholders................29
7.3 Additional Agreements................................30
7.4 Fees and Expenses....................................30
7.5 No Solicitations.....................................31
7.6 Officers' and Directors' Insurance; Indemnification..32
7.7 Access to Information; Confidentiality...............32
7.8 Financial and Other Statements.......................33
7.9 Observer Rights......................................33
7.10 Advice of Change; Schedule Update....................33
7.11 Rowley Building Transaction..........................34
7.12 Certain Litigation...................................34
7.13 Public Announcements.................................34
7.14 Environmental Matters................................35
7.15 Stop Transfer; Reorganization Agreement..............35
7.16 Transfer Taxes.......................................35
8. CONDITIONS TO THE MERGER..................................36
8.1 Conditions to the Obligations of Each Party to
Effect the Merger....................................36
8.2 Additional Conditions to the Obligations of
the Company..........................................36
8.3 Additional Conditions to the Obligations of Parent
and Acquisition Sub..................................37
8.4 Certain Payments.....................................39
9. TERMINATION, AMENDMENT AND WAIVER.........................39
9.1 Termination..........................................39
9.2 Effect of Termination................................40
9.3 Amendment............................................42
9.4 Extension; Waiver....................................42
10. GENERAL PROVISIONS........................................42
10.1 Notices..............................................42
10.2 Interpretation.......................................43
10.3 Non-Survival of Representations, Warranties,
Covenant and Agreements..............................43
10.4 Miscellaneous........................................44
10.5 Assignment...........................................44
10.6 Knowledge; Best Efforts..............................44
10.7 Severability.........................................44
10.8 Choice of Law/Consent to Jurisdiction................44
Third-Party Beneficiary..............................45
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULE TITLE
Schedule 2.8 Company Stock Options and Related Matters
Schedule 5.1 Qualification
Schedule 5.2(b) Authority Relative to this Agreement
Schedule 5.3 No Violations; Consents and Approvals
Schedule 5.4 Capitalization
Schedule 5.5 Commission Filings
Schedule 5.6 Absence of Certain Changes or Events
Schedule 5.7 Absence of Litigation
Schedule 5.8 Employee Benefit Plans
Schedule 5.9 Labor Matters
Schedule 5.10 Taxes
Schedule 5.11 Environmental Matters
Schedule 5.12 Books and Records
Schedule 5.13 Real and Personal Property
Schedule 5.14 Contracts
Schedule 5.15 Trade Names
Schedule 5.16 Affiliate Transactions
Schedule 5.18 Subsidiaries
Schedule 6.1 Conduct of Business by the Company
Schedule 8.3(f) Third Party Consents
<PAGE>
DEFINED TERM CROSS REFERENCE
(Not Part of this Agreement)
1995 Balance Sheet Section 5.5(e)
Agreement Introduction
Acquisition Property Section 5.13(a)
Acquisition Proposal Section 7.5(a)
Acquisition Sub Introduction
Affiliate Transactions Section 5.16
Blue Sky Laws Section 4.3(b)
Board Introduction
Certificate of Merger Section 2.2
Certificates Section 3.1(b)
Claim Section 7.6
Code Section 5.8(a)
Commission Section 5.5(a)
Commission Reports Section 5.5(b)
Company Introduction
Company Common Stock Introduction
Company's Certificate Section 2.4(a)
Company Expenses Section 9.2(d)
Confidentiality Agreement Section 7.7
Corporation Section 2.4(a)
Corporation Law Introduction
Dissenting Stockholders Section 3.2(a)
Dissenting Shares Section 3.2(a)
Effective Date Section 2.2
Effective Time Section 2.2
Environmental Laws Section 5.11(a)
Environmental Permits Section 5.11(a)
ERISA Section 5.8(a)
Exchange Act Section 4.3(b)
Financing Section 4.5
Financing Letters Section 4.5
Hart-Scott-Rodino Act Section 4.3(b)
Hazardous Substances Section 5.11(b)
Indemnification Agreement Section 7.12
Intellectual Property Rights Section 5.15
IRS Section 5.10(b)
ISRA Section 4.3(b)
Leases Section 5.13(b)(i)
Managee Introduction
Managees Introduction
Leased Real Property Section 5.13(b)
Material Adverse Effect Section 4.1
Material Contracts Section 5.14
Merger Introduction
Merger Consideration Section 2.7(b)
Mortgages Section 5.13(a)(ii)
Option Section 2.8
Option Consideration Section 2.8
Optionees Section 2.8
Other Filings Section 7.1
Owned Real Property Section 5.13(a)
Parent Introduction
Parent Expenses Section 9.2(b)
Paying Agent Section 3.1(a)
Payment Fund Section 3.1(a)
Pending Litigation Section 8.3(c)
Pending Legal Proceeding Section 8.3(c)
Permitted Encumbrances Section 5.13(a)(i)
Plans Section 5.8(a)
Port Authority Section 7.12
Port Authority Lease Section 7.12
Preferred Stock Section 5.4
Principal Stockholder Introduction
Principal Stockholders Introduction
Profit Sharing Plan Shares Section 2.7(a)
Proxy Agreement Introduction
Proxy Statement Section 7.1
Reorganization Agreement Section 7.15
Requisite Rights Section 5.15(b)(i)
Rowley Building Products Section 7.11
Stock Option Plans Section 2.8
Stockholders' Meeting Section 7.2
Subsidiary Section (10.2)
Superior Proposal Section 7.5(b)
Surviving Corporation Section 2.1
Taxes Section 5.10(f)
Transfer Taxes Section 7.16
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of November
11, 1996, by and among Hamilton Acquisition LLC, a Delaware limited
liability company ("PARENT"), Hamilton NY Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("ACQUISITION SUB"),
and The Strober Organization, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the Board of Directors of the Company (the "BOARD") has, in
light of and subject to the terms and conditions set forth herein, (i)
determined that the consideration to be received by the stockholders of the
Company for each of the issued and outstanding shares of common stock, par
value $.01 per share, of the Company (the "COMPANY COMMON STOCK"), in the
Merger (as defined below) is fair to and in the best interests of the
Company and its stockholders and (ii) resolved to approve this Agreement
and the transactions contemplated hereby and to recommend approval and
adoption of this Agreement and approval of the Merger by the stockholders
of the Company;
WHEREAS, also in furtherance of such transactions, the manager or
managers, as the case may be, of Parent (as the case may be, the "MANAGER"
or "MANAGERS") and the Board of Directors of Acquisition Sub have each
unanimously approved the merger of Acquisition Sub with and into the
Company (the "MERGER") in accordance with the General Corporation Law of
the State of Delaware (the "CORPORATION LAW") and the provisions of this
Agreement pursuant to which Merger the holders of Company Common Stock
(other than the Company, Acquisition Sub, Parent and any direct or indirect
subsidiary of any them) shall receive the Merger Consideration (as defined
in Section 2.7(b) hereof); and
WHEREAS, as a condition to the willingness of Parent and Acquisition
Sub to enter into this Agreement, certain stockholders of the Company (each
individually a "PRINCIPAL STOCKHOLDER" and collectively the "PRINCIPAL
STOCKHOLDERS") have entered into a Proxy Agreement, dated as of the date
hereof, with Parent and Acquisition Sub (the "PROXY AGREEMENT") pursuant to
which each Principal Stockholder has, among other things, granted to Parent
an irrevocable proxy to vote all shares of Company Common Stock owned
(beneficially or otherwise) by such Principal Stockholder in favor of the
Merger, all upon the terms and conditions set forth in the Proxy Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, Parent, Acquisition Sub and the Company hereby
agree as follows:
1. [INTENTIONALLY OMITTED]
2. THE MERGER
1 THE MERGER. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with the relevant provisions
of the Corporation Law, at the Effective Time (as hereinafter defined),
Acquisition Sub shall be merged with and into the Company. Following the
Merger, the Company shall continue its corporate existence as the surviving
corporation in the Merger (the "SURVIVING CORPORATION") under the laws of
the State of Delaware, and the separate corporate existence of Acquisition
Sub shall cease. The name of the Surviving Corporation shall continue to
be "The Strober Organization, Inc."
2 EFFECTIVE TIME. As promptly as practicable after all of the
conditions set forth in Section 8 shall have been satisfied or, if
permissible, waived by the party entitled to the benefit of the same,
Acquisition Sub and the Company shall duly execute and file a certificate
of merger in form and substance satisfactory to the parties hereto (the
"CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware in accordance with the Corporation Law. The Merger shall become
effective at such time as the Certificate of Merger is filed with the
Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "EFFECTIVE TIME"). Prior to
such filing, a closing shall be held at the offices of Goodwin, Procter &
Hoar LLP, Exchange Place, Boston, Massachusetts 02109, or at such other
place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Section 8 (the date of such closing being, the "EFFECTIVE DATE").
3 EFFECTS OF THE MERGER. At the Effective Time, the Merger shall
have the effects set forth herein and in the Corporation Law. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises
of the Company and Acquisition Sub shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and
duties of the Company and Acquisition Sub shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
4 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Acquisition Sub, or at the election of Parent, the Company's Restated
Certificate of Incorporation (the "COMPANY'S CERTIFICATE"), in each case as
in effect at the Effective Time, which shall in either case include the
provisions required by Section 7.6 hereof, shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with applicable law and such Certificate of Incorporation, PROVIDED,
HOWEVER, that at the Effective Time, Article First of the Certificate of
Incorporation of Acquisition Sub shall be amended to read as follows:
"FIRST, the name of the corporation is The Strober Organization, Inc. (the
"CORPORATION")."
(b) At the Effective Time, the By-laws of Acquisition Sub, or at
the election of Parent, the By-laws of the Company, in each case as in
effect at the Effective Time, which shall in either case include the
provisions required by Section 7.6 hereof, shall be the By-laws of the
Surviving Corporation, until duly amended in accordance with applicable
law, the Certificate of Incorporation of the Surviving Corporation and such
By-laws.
5 DIRECTORS. The directors of Acquisition Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
6 OFFICERS. The officers of the Surviving Corporation shall be
appointed by the directors of the Surviving Corporation.
7 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of Acquisition Sub, the
Company or the holders of Company Common Stock:
(a) Each issued and outstanding share of Company Common Stock
held by the Company as a treasury share or held by any direct or indirect
subsidiary of the Company (which does not include the 23,500 shares of
Company Common Stock held by the Company's profit-sharing plan as of the
date hereof (the "PROFIT SHARING PLAN SHARES")) and each issued and
outstanding share of Company Common Stock owned by Parent, Acquisition Sub
or any other direct or indirect subsidiary of Parent immediately prior to
the Effective Time shall be canceled and retired and cease to exist without
any conversion thereof and no payment or distribution shall be made with
respect thereto;
(b) Each issued and outstanding share of Company Common Stock
immediately prior to the Effective Time, other than (i) those shares of
Company Common Stock referred to in Section 2.7(a) and (ii) Dissenting
Shares (as defined in Section 3.2 below), shall be canceled and shall be
converted automatically into and represent the right to receive an amount
equal to six dollars ($6.00) in cash (such amount of cash being referred to
herein as the "MERGER CONSIDERATION") payable, without interest, to the
holder of such share of Company Common Stock upon surrender, in the manner
provided in Section 3.1, of the certificate that formerly evidenced such
share of Company Common Stock;
(c) The shares of common stock, par value $.01 per share, of
Acquisition Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchangeable for, in the aggregate, One
Thousand (1,000) validly issued, fully paid and non-assessable shares of
common stock, par value $.01, of the Surviving Corporation, which shall
constitute all of the issued and outstanding shares of the Surviving
Corporation; and
(d) All of the certificates evidencing shares of Company Common
Stock, by virtue of the Merger and without any action on the part of the
stockholders of the Company or the Company, shall be deemed to be no longer
outstanding, shall not be transferable on the books of the Surviving
Corporation, and shall represent solely the right to receive the amount set
forth in Section2.7(b) hereof.
8 COMPANY STOCK OPTIONS AND RELATED MATTERS. Commencing at least
fifteen (15) days prior to the Effective Time, each holder of a then
outstanding option to purchase shares of Company Common Stock (an "OPTION")
granted under the Company's stock option plans identified on SCHEDULE 2.8
hereto (collectively, the "STOCK OPTION PLANS") (it being understood that
the aggregate number of shares of Company Common Stock subject to purchase
under such Stock Option Plans is not, or shall not at the Effective Time,
be more than 842,438 shares) shall be entitled to exercise such Option
(whether or not such Option would otherwise have been exercisable), and if
such Options are not so exercised prior to the Effective Time, immediately
prior to the Effective Time, each such holder shall be entitled to receive
from the Company in consideration for cancellation of each such Option, a
cash payment (the "OPTION CONSIDERATION") in an amount equal to the product
of (w) the number of shares provided for in such Option and (x) the excess,
if any, of the Merger Consideration over the exercise price per share of
Company Common Stock provided for in such Option, provided that the
foregoing shall be subject to the obtaining of any necessary consents of
the holders of such Options (the "OPTIONEES") and that, to the extent
required by applicable law, such Option Consideration shall be treated as
compensation and shall be net of any applicable federal or state
withholding tax. All such Option Consideration shall be deemed allocable
to the period immediately prior to the Effective Time to the extent
permitted by applicable law. Subject to the foregoing, the Stock Option
Plans and all Options issued thereunder shall terminate at the Effective
Time. In connection with the foregoing, the Company shall obtain the
consent of the Optionees to the cancellation of such Options and the
cancellation of any right to acquire equity securities of the Company from
and after the Effective Time in consideration for the payment provided
herein.
9 TAKING OF NECESSARY ACTION; FURTHER ACTION. Parent, Acquisition
Sub and the Company, respectively, shall each use its best efforts to take
all such action as may be necessary or appropriate in order to effectuate
the Merger under the Corporation Law as promptly as practicable. If at any
time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of both of the Company and
Acquisition Sub, the officers of the Surviving Corporation are fully
authorized in the name of the Surviving Corporation, as successor by merger
to such corporations, or otherwise to take, and shall take, all such lawful
and necessary action.
3. PAYMENT FOR SHARES; DISSENTING SHARES
1 PAYMENT FOR SHARES OF COMPANY COMMON STOCK.
(a) Prior to the Effective Time, Parent shall designate a U.S.
bank or trust company having at least $50,000,000 in capital, surplus and
undivided profits that shall be subject to the Company's approval, such
approval to not be unreasonably withheld, to act as paying agent in the
Merger (the "PAYING AGENT") for purposes of effecting the exchange for the
Merger Consideration of certificates which, prior to the Effective Time,
represented shares of Company Common Stock entitled to receive the Merger
Consideration pursuant to Section 2.7(b). The Paying Agent shall not be
changed without the prior written consent of the Company, which shall not
be unreasonably withheld. Immediately following the Effective Time, Parent
or Acquisition Sub shall deposit in trust with the Paying Agent cash in an
aggregate amount equal to the product of (i) the number of shares of
Company Common Stock issued and outstanding on a fully diluted basis
immediately prior to the Effective Time (other than shares owned by, or
issuable to, upon conversion of other securities, the Company, Parent,
Acquisition Sub or any direct or indirect subsidiary of Parent or the
Company (which shall be deemed to exclude the Profit Sharing Plan Shares);
and shares of Company Common Stock known immediately prior to the Effective
Time to be Dissenting Shares (as defined in Section 3.2 below)) and (ii)
the Merger Consideration (such aggregate amount being hereinafter referred
to as the "PAYMENT FUND"). The parties hereto acknowledge that fully
diluted shares of Company Common Stock shall be determined in accordance
with generally accepted accounting principles. The Payment Fund shall be
invested by the Paying Agent as directed by the Surviving Corporation (so
long as such directions do not impair the rights of the holders of
certificates that formerly evidenced shares of Company Common Stock) in:
direct obligations of the United States of America or obligations for which
the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest and any net earnings with
respect thereto shall be paid to the Surviving Corporation as and when
requested by the Surviving Corporation. The Paying Agent shall, pursuant
to irrevocable instructions, make the payments referred to in Section
2.7(b) out of the Payment Fund. The Payment Fund shall not be used for any
other purpose except as provided herein.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause the Paying Agent to mail to each person who was a record holder
of an outstanding certificate or certificates which immediately prior to
the Effective Time represented shares of Company Common Stock (the
"CERTIFICATES") a form letter of transmittal (which shall specify that
delivery shall be effected and risk of loss and title to Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent)
and instructions for its use in surrendering Certificates and receiving
payment therefor. Upon the surrender to the Paying Agent of such a
Certificate, together with such properly completed and duly executed letter
of transmittal and other documents that are customarily required by letters
of transmittal in similar situations, the holder thereof shall be paid,
without interest thereon, the Merger Consideration to which such holder is
entitled hereunder, and such Certificate shall forthwith be canceled.
Until so surrendered, except with respect to Dissenting Shares, each such
Certificate shall, after the Effective Time, represent solely the right to
receive the Merger Consideration, without interest, into which the shares
of Company Common Stock such Certificate theretofore represented shall have
been converted pursuant to Section 2.7(b), and the holder thereof shall not
be entitled to be paid any cash to which such holder otherwise would be
entitled. In case any payment pursuant to this Section 3.1 is to be made
to a holder other than the registered owner of a surrendered certificate,
it shall be a condition of such payment that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer and
that the person requesting such exchange shall pay to the Paying Agent any
transfer or other taxes required by reason of the payment of such cash to a
person other than the registered holder of the Certificate surrendered, or
that such person shall establish to the satisfaction of the Paying Agent
that such tax has been paid or is not applicable.
(c) Promptly following the date which is one year after the
Effective Time, the Paying Agent shall return to the Surviving Corporation
all cash, certificates and other instruments in its possession that
constitute any portion of the Payment Fund (including, without limitation,
all interest and other income received by the Paying Agent in respect of
all funds made available to it), and the Paying Agent's duties shall
terminate. Thereafter, each holder of a Certificate shall be entitled to
look to the Surviving Corporation (subject to applicable abandoned
property, escheat and similar laws) only as a general creditor thereof with
respect to any Merger Consideration, without interest, that may be payable
upon due surrender of the Certificate or Certificates held by them.
Notwithstanding the foregoing, neither the Paying Agent nor any party
hereto shall be liable to a holder of certificates that prior to the
Effective Time evidenced shares of Company Common Stock for any Merger
Consideration delivered pursuant hereto to a public official pursuant to
applicable abandoned property, escheat or other similar laws.
(d) At the Effective Time, the Company Common Stock transfer
books shall be closed and no transfer of shares of Company Common Stock
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Paying Agent, they shall be
canceled and exchanged for the Merger Consideration as provided in Section
2.7(b), subject to applicable law in the case of Dissenting Shares (as
defined below).
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact in form and
substance reasonably satisfactory to the Surviving Corporation by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent or the Surviving Corporation in their sole discretion,
upon the posting by such person of a bond in such amount as Parent or the
Surviving Corporation may reasonably direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying
Agent will issue in exchange for such lost, stolen or destroyed
Certificate, the cash representing the Merger Consideration deliverable in
respect thereof pursuant to this Agreement.
2 DISSENTING SHARES.
(a) Any shares of Company Common Stock outstanding immediately
prior to the Effective Time as to which the holder thereof shall have not
voted in favor of the Merger or consented thereto in writing and as to
which the holder thereof shall have validly exercised such holder's
appraisal rights, if any, under Section 262 of the Corporation Law
("DISSENTING SHARES") shall not, after the Effective Time, be entitled to
vote for any purpose or be entitled to the payment of dividends or other
distributions (except dividends or other distributions payable to
stockholders of record prior to the Effective Time), nor shall such
Dissenting Shares be converted into the right to receive the Merger
Consideration hereunder. Such holders of Dissenting Shares duly making
demand for appraisal (hereinafter referred to as "DISSENTING STOCKHOLDERS")
shall be entitled to receive payment of the appraised value of such
Dissenting Shares in accordance with the provisions of such Section 262 of
the Corporation Law, except that all shares of Company Common Stock held by
stockholders who shall fail to perfect, or shall have effectively withdrawn
or lost, such stockholders' right to appraisal of such shares of Company
Common Stock under Section 262 of the Corporation Law shall thereupon be
deemed to have been converted into and to have become exchangeable for, as
of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon. The Company shall give Parent (i) prompt
notice of any demands for appraisal received by the Company, withdrawals of
such demands and any other instrument served pursuant to Section 262 of the
Corporation Law and received by the Company, and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for
appraisal under the Corporation Law. The Company shall not, except with
the written consent of Parent, make any payment with respect to any demands
for appraisal, or settle or offer to settle or negotiate, any such demands.
(b) Each Dissenting Stockholder who becomes entitled under the
Corporation Law to payment for the Dissenting Shares shall receive payment
therefor after the Effective Time from the Surviving Corporation (but only
after the amount thereof shall have been agreed upon or finally determined
pursuant to the Corporation Law) and such shares of Company Common Stock
shall be canceled.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub jointly and severally hereby represent and
warrant to the Company as follows:
1 ORGANIZATION AND QUALIFICATION. Parent is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Delaware. Acquisition Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Sub has the requisite
power and authority to carry on its business as it is now being conducted.
Each of Parent and Acquisition Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the character of its
properties, owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or
prospects (a "MATERIAL ADVERSE EFFECT") of Parent and its subsidiaries
taken as a whole. Neither Parent nor Acquisition Sub has conducted any
business prior to the date hereof other than in furtherance of the
transactions contemplated hereby and has any assets and liabilities other
than those incident to its formation and to the consummation of the
transactions contemplated hereby. Copies of the Certificate of Formation
of Parent and the Certificate of Incorporation and By-laws of Acquisition
Sub heretofore delivered to the Company are true, complete and correct as
of the date hereof.
2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition Sub has the requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the Manager or Managers
(as the case may be) and, if necessary, the member or members of Parent and
by the Board of Directors and the sole stockholder of Acquisition Sub, and
no other corporate proceedings on the part of Parent or Acquisition Sub are
necessary to authorize this Agreement and the transactions contemplated
hereby (other than, with respect to the Merger, the filing and recordation
of the appropriate merger documents as required by the Corporation Law).
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition Sub and, assuming this Agreement constitutes a valid
and binding obligation of the Company, constitutes the legal, valid and
binding obligation of each of Parent and Acquisition Sub enforceable
against each of Parent and Acquisition Sub in accordance with its terms.
3 NO VIOLATIONS.
(a) Neither the execution and delivery of this Agreement by
Parent or Acquisition Sub nor the consummation of the transactions
contemplated hereby nor compliance by Parent or Acquisition Sub with any of
the provisions hereof will: (i) violate, conflict with, or result in a
breach of any provision of, require any consent, approval or notice under,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (x) their respective Certificates of Incorporation, as
amended, or By-laws or (y) any note, bond, mortgage, indenture, deed of
trust, lease, agreement, lien, contract or other instrument or obligation
to which Parent or any of its subsidiaries is a party or to which any of
them, or any of their respective properties or assets, may be subject or by
which Parent or any of its subsidiaries is bound; or (ii) subject to
compliance with the statutes and regulations referred to in Section 4.3(b),
violate any judgment, ruling, order, writ, injunction, determination,
award, decree, statute, ordinance, rule or regulation applicable to Parent
or any of its subsidiaries or any of their respective properties or assets
(except, in the case of each of clauses (i) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances which, or
any consents, approvals or notices which if not given or received, would
not, individually or in the aggregate, have a Material Adverse Effect on
Parent and its subsidiaries taken as a whole or on the ability of Parent or
Acquisition Sub to consummate the transactions contemplated hereby or which
are cured, waived or terminated prior to the Effective Time and, except in
the case of (i) above, for those liens, security interests, charges and
encumbrances as may be imposed or otherwise created in connection with
financing the Merger and the other transactions contemplated hereby); or
(iii) cause the suspension or revocation of any authorization, consent,
approval or license currently in effect, which suspension or revocation
would have a Material Adverse Effect on Parent and its subsidiaries taken
as a whole.
(b) There is no legal impediment to Parent's or Acquisition
Sub's consummation of the transactions contemplated by this Agreement. No
filing or registration with, or authorization, consent or approval of, any
domestic public body or authority is necessary for the consummation by
Parent or Acquisition Sub of the transactions contemplated by this
Agreement, except (i) for applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HART-SCOTT-RODINO ACT"), the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state securities
laws and regulations ("BLUE SKY LAWS") and the filing and recordation of
the Certificate of Merger, as required by the Corporation Law, and (ii) for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received, would not,
individually or in the aggregate, have a Material Adverse Effect on Parent
and its subsidiaries taken as a whole or on the ability of Parent and
Acquisition Sub to consummate the transactions contemplated hereby.
4 BROKERAGE FEES. Neither Parent nor Acquisition Sub has retained
any financial adviser, broker, agent or finder or paid or agreed to pay any
financial adviser, broker, agent or finder on account of this Agreement or
any transaction contemplated hereby, except that Proteus International
Group Incorporated has been retained as Frederick M. Marino's financial
adviser, each in connection with the transactions contemplated hereby.
Other than the foregoing arrangements and the Company's arrangements with
Hill Thompson Capital Markets, Inc., neither Parent nor Acquisition Sub is
aware of any claim for payment of any finder's fee, brokerage or agent's
commissions or other like payments in connection with the negotiations
leading to the Merger, this Agreement or the consummation of the
transactions contemplated hereby.
5 FINANCING. Parent has delivered to the Company true and correct
copies of signed letters received by Parent with respect to the financing
(the "FINANCING LETTERS") required for the consummation of the transactions
contemplated hereby. Assuming satisfaction or waiver of all applicable
conditions set forth in the Financing Letters, such financing (the
"FINANCING") will, together with equity investments in the aggregate of
$9,000,000 being made in connection with the transactions contemplated
hereby, provide sufficient funds to (i) pay, with respect to all shares of
Company Common Stock in the Merger, the Merger Consideration pursuant to
Section 2.7(b); and (ii) prepay, redeem, refinance or renegotiate the
Company's existing indebtedness, if required to consummate the Merger, and
pay any and all fees, expenses, costs and penalties in connection with any
such prepayment, redemption, refinancing or renegotiation. Parent shall
not amend the Financing Letters (excluding amendments that solely
constitute extensions thereof provided that this provision shall not impair
the rights of, or impose additional obligations upon, either party under
Section 9.1(b) hereof) without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
6 ARRANGEMENTS. Neither Parent nor Acquisition Sub has entered
into any employment agreements with any current officer of the Company,
provided, however, that discussions respecting continuation of current
compensation and benefit arrangements for a two year period have taken
place which discussions may, prior to the Effective Time, result in an
employment agreement or arrangement with such officer respecting employment
by the Surviving Corporation and/or any of its subsidiaries after the
Effective Time. Parent and Acquisition Sub represent and warrant that no
agreements, arrangements or understandings exist between any current
officer of the Company and Parent, Acquisition Sub or any entity that
controls, is controlled by or is under common control with Parent or
Acquisition Sub that could result in any payment (cash or otherwise) as a
result of the negotiation and execution of this Agreement and/or the
consummation of the transactions contemplated hereby including the Merger
except as specifically provided in this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition Sub as follows:
1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and
has the corporate power and corporate authority to carry on its business as
it is now being conducted. Each of the Company and its subsidiaries is
duly qualified to do business and is in good standing in each jurisdiction
in which the character of its properties, owned or leased, or the nature of
its activities make such qualification necessary, except as set forth on
Schedule 5.1 hereto or where the failure to be so qualified or in good
standing would not individually or in the aggregate have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole. Copies of the
respective Certificates of Incorporation, as amended, and By-laws of the
Company and each of its subsidiaries heretofore delivered to Parent are
true, complete and correct as of the date hereof and no amendments thereto
have been effected since such copies were delivered, or are pending or
contemplated. Neither the Company nor any of its subsidiaries is in
violation of any term of its respective Certificate of Incorporation or By-
laws.
2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of the Company and its subsidiaries has the requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board. Except for the approval by the Company's
stockholders which is referred to in Section 7.2 below, no other corporate
proceedings on the part of the Company or any of its subsidiaries are
necessary to authorize this Agreement and the transactions contemplated
hereby (other than, with respect to the Merger, the filing and recordation
of the appropriate merger documents as required by the Corporation Law).
This Agreement has been duly and validly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding
obligation of Parent and Acquisition Sub, constitutes the legal, valid and
binding obligation of the Company enforceable against the Company and each
of its subsidiaries in accordance with its terms.
(b) The Board has, by resolutions duly adopted by unanimous
vote, approved the Merger, this Agreement and the transactions contemplated
hereby and has agreed to recommend that the stockholders of the Company
approve and adopt this Agreement and the Merger. In connection with the
foregoing, the Board has taken such actions and votes as are necessary on
its part to render the provisions of Section 203 of the Corporation Law and
all other applicable takeover statutes of the Corporation Law and any other
applicable takeover statutes of any other state, and any "fair price,"
takeover or similar provisions of the Company's Certificate, inapplicable
to this Agreement, the Merger and the transactions contemplated by this
Agreement. As of the date hereof, except as set forth on SCHEDULE 5.2(B)
hereto, all of the directors and executive officers of the Company have
indicated that they presently intend to vote their shares of Company Common
Stock to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger.
3 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Except as set forth in SCHEDULE 5.3 to this Agreement,
neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated hereby nor compliance by the
Company or any of its subsidiaries with any of the provisions hereof will:
(i) violate, conflict with, or result in breach of any provision of,
require any consent, approval or notice under, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries under any of the terms, conditions or provisions of (x)
their respective Certificates of Incorporation, as amended, or By-laws or
(y) any note, bond, mortgage, indenture, deed of trust, lease, agreement,
lien, contract, or other instrument or obligation to which the Company or
any of its subsidiaries is a party or to which any of them, or any of their
respective properties or assets, may be subject or by which the Company or
any of its subsidiaries is bound; or (ii) subject to compliance with the
statutes and regulations referred to in Section 5.3(b), violate any
judgment, ruling, order, writ, injunction, determination, award, decree,
statute, ordinance, rule or regulation applicable to the Company or any of
its subsidiaries or any of their respective properties or assets (except,
in the case of each of clauses (i) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances which, or any consents,
approvals or notices which if not given or received, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby or which are
cured, waived or terminated prior to the Effective Time and, except in the
case of (i) above, for those liens, security interests, charges and
encumbrances as may be imposed or otherwise created in connection with the
financing of the Merger and the other transactions contemplated hereby); or
(iii) cause the suspension or revocation of any authorization, consent,
approval or license currently in effect, which suspension or revocation
would have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
(b) Except as set forth in SCHEDULE 5.3(B), there is no legal
impediment to the Company's consummation of the transactions contemplated
by this Agreement. No filing or registration with, or authorization,
consent or approval of, any domestic public body or authority is necessary
for the execution, delivery or consummation by the Company of the
transactions contemplated by this Agreement, except (i) for applicable
requirements of the Hart-Scott-Rodino Act, the Exchange Act, Blue Sky Laws,
the NASDAQ Listing Agreement, and the filing and recordation of the
Certificate of Merger, as required by the Corporation Law, and (ii) for
such filings or registrations which, if not made, or for such
authorizations, consents or approvals, which, if not received, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or on the ability of the
Company to consummate the transactions contemplated hereby.
4 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Company Common Stock
and 1,000,000 shares of Preferred Stock, par value $.01 per share (the
"PREFERRED STOCK"). As of the date hereof, 5,027,447 shares of Company
Common Stock were issued and outstanding, 190,601 shares of Company Common
Stock were held by the Company as treasury shares and no shares of
Preferred Stock were issued and outstanding. As of the date hereof,
842,438 shares of Company Common Stock were reserved for issuance upon
exercise of Options granted pursuant to the Stock Option Plans and Options
to purchase 842,438 shares of Common Stock are outstanding as of the date
hereof. Except for the matters set forth on SCHEDULE 5.4 hereto, which
terminate upon or prior to the consummation of the Merger and will be of no
further force and effect after the Effective Time, and for the Options,
there are no options, warrants or other rights, agreements or commitments
of any character whatsoever requiring the issuance, sale or transfer by the
Company of any shares of capital stock of the Company or any securities
convertible into or exchangeable or exercisable for, or otherwise
evidencing the right to acquire, any shares of capital stock of the
Company. All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued, are fully paid and non-assessable and
are not subject to, nor were they issued in violation of, any preemptive
rights.
5 COMMISSION FILINGS.
(a) The Company has heretofore delivered to Parent true and
complete copies of its (i) Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, (ii) Quarterly Report on Form 10-Q for each of the
fiscal quarters ended March 31, June 30 and September 30, 1995, and March
31 and June 30, 1996, (iii) Proxy Statement for the annual meeting of
stockholders held on July 11, 1996, and (iv) all other reports or
registration statements filed by the Company with the Securities and
Exchange Commission (the "COMMISSION") since January 1, 1996, in each case
as filed with the Commission.
(b) Except as set forth in SCHEDULE 5.5 hereto, the Company has
filed all required forms, reports and documents with the Commission since
December 31, 1992 (collectively, the "COMMISSION REPORTS"), all of which
were prepared in accordance with the applicable requirements of the
Securities Act of 1933, as amended, and the Exchange Act in all material
respects. Except to the extent, if any, as may have been appropriately
disclosed in a Commission Report filed subsequent thereto and prior to the
date hereof as of their respective dates, the Commission Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and complied as to form and substance in all material respects
with all applicable requirements of law.
(c) The Company will deliver to Parent as soon as they become
available true and complete copies of any report or statement mailed by it
to its stockholders generally or filed by it with the Commission subsequent
to the date hereof and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein
provided by Parent or Acquisition Sub, as to which the Company makes no
representation) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
are made, not misleading, and will comply in all material respects with all
applicable requirements of law.
(d) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Commission Reports
has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or in SCHEDULE 5.5), and
each fairly presents in accordance with generally accepted accounting
principles the consolidated financial position of the Company and its
subsidiaries as at the respective dates thereof and the consolidated
results of their operations and changes in cash flow for the periods
indicated, except as may be indicated in the notes thereto and/or in the
consolidated financial statements contained in a Commission Report filed
subsequent thereto and prior to the date hereof, and except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.
(e) Except as set forth in SCHEDULE 5.5 hereto and except as and
to the extent set forth on the consolidated balance sheet of the Company
and its subsidiaries as at December 31, 1995, including the notes thereto
(the "1995 BALANCE SHEET"), neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected
on a consolidated balance sheet of the Company and its subsidiaries, or in
the notes thereto, prepared in accordance with generally accepted
accounting principles, except for liabilities or obligations (a) incurred
in the ordinary course of business since December 31, 1995, or (b) any
liability or obligation existing at December 31, 1995 which, individually
or in the aggregate, is not material to the Company and its subsidiaries
taken as a whole as of such date.
6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
except as set forth in SCHEDULE 5.6 or as and to the extent disclosed in
any Commission Report filed after December 31, 1995:
(a) the Company and its subsidiaries have conducted their
businesses only in the ordinary course and in a manner reasonably
consistent with past practice, and
(b) since December 31, 1995, there has not been (i) any change
in, or event affecting, the Company or any of its subsidiaries having
a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, (ii) any change by the Company in its accounting methods,
principles or practices, (iii) any entry by the Company or any of its
subsidiaries into a material contract outside the ordinary course of
business taken as a whole, (iv) any declaration, setting aside or
payment of any dividends or distributions in respect of, or any
redemption, purchase or other acquisition of, any of its securities or
(v) any increase in the benefits under or the establishment of any
bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or
other employee benefit plan, program, or arrangement for the benefit
of any director, officer or employee of the Company or any of its
subsidiaries pursuant to which employees are contractually entitled to
benefit that would be materially above those mandated by applicable
law, except in the ordinary course of business reasonably consistent
with past practice. No officer, director, or other employee other
than those disclosed in SCHEDULE 5.6 hereto are parties to any
severance pay agreements or change in control agreements.
7 ABSENCE OF LITIGATION. Except as disclosed in the Commission
Reports filed after December 31, 1995 or in SCHEDULE 5.7 hereto, there are
no claims, actions, proceedings or investigations pending or, to the best
knowledge of the Company, threatened against the Company or any of its
subsidiaries, or, to the best knowledge of the Company, pending or
threatened against any of its directors, officers, employees or agents, by
any claimant or involving any properties or rights of the Company or any of
its subsidiaries, at law or in equity, before any court, arbitrator or
administrative governmental regulatory authority or body that (i)
individually or in the aggregate would have or are reasonably likely to
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole or (ii) seek to delay or prevent the consummation of the
transactions contemplated hereby. Except as set forth on SCHEDULE 5.7
hereto, to the best knowledge of the Company, there are no ongoing or
threatened claims, actions, proceedings or investigations instituted by or
on behalf of the Department of Justice or any similar foreign, federal,
state, county or local government agency against the Company, any of its
subsidiaries or any of their respective directors, officers, employees or
agents involving the business, properties, rights and/or activities of the
Company and/or any of its subsidiaries. As of the date hereof, neither the
Company nor any of its subsidiaries nor any of their respective properties
are subject to any order, writ, judgment, injunction, decree, determination
or award of any court, arbitrator or governmental authority that,
individually or in the aggregate, have or are reasonably likely to have a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole.
8 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 5.8 hereto includes a list of each stock option,
stock purchase, insurance, bonus, incentive compensation, severance, profit
sharing, retirement, or other material employee benefit plan, policy or
arrangement, including any employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") which the Company maintains, to which the Company or any
one of its subsidiaries contributes, or under which any of the employees or
former employees of the Company or any one of its subsidiaries are covered
(collectively, the "PLANS"). Prior to the date of this Agreement, the
Company has provided or made available to Parent a true and complete copy
of each Plan as in effect on the date hereof. Other than as specifically
disclosed in SCHEDULE 5.8 hereto, (i) none of the Plans is a multiemployer
plan within the meaning of ERISA; (ii) none of the Plans provides for or
promises retiree medical benefits or life insurance to any current or
former employee, officer or director of the Company or its subsidiaries;
(iii) each Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), is so
qualified; (iv) each Plan is now and has been operated in all material
respects in accordance with the requirements of applicable law; and (v)
with respect to Plans subject to Title IV of ERISA, the aggregate projected
benefit obligations of such Plans (determined for each such Plan as of the
date of the most recent actuarial valuation prepared for such Plan) does
not exceed the fair market value of the assets of such Plans (determined as
of the date of such valuation).
(b) Except as disclosed in SCHEDULE 5.8 hereto, the execution
of, and performance of the transactions contemplated by, this Agreement
will not (either alone or upon the occurrence of any additional subsequent
events directly related to the transactions contemplated hereby) (i)
constitute an event under any Plan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligations to
fund benefits with respect to any employee, director or consultant of the
Company or any of its subsidiaries pursuant to any Plan or (ii) result in
the triggering or imposition of any restrictions or limitations on the
right of the Company or Parent to amend or terminate any Plan. No payment
or benefit which will be required to be made pursuant to the terms of any
agreement, commitment or Plan, as a result of the transactions contemplated
by this Agreement, to any officer, director or employee of the Company or
any of its subsidiaries, could be characterized as an "excess parachute
payment" within the meaning of Section 280G of the Code or could be non-
deductible by reason of Section 162(m) of the Code.
(c) All contributions have been made in all material respects as
required by the terms of each of the Plans listed in SCHEDULE 5.8 and the
terms of any related collective bargaining agreements, and, except as set
forth in SCHEDULE 5.8 hereto, neither the Company nor any of its
subsidiaries has any knowledge or has received any notice that any such
plan is in reorganization, that increased contributions are required to
avoid a reduction in plan benefits or the imposition of any excise tax,
that any such plan is or has been (except as used in accordance with the
terms of such Plan and in accordance with applicable law) funded at a rate
less than required under Section 412 of the Code, or that any such plan is
insolvent.
9 LABOR MATTERS. Except as set forth in SCHEDULE 5.9 hereto,
neither the Company nor any of its subsidiaries is a party to, or bound by,
any collective bargaining agreement or contract or other agreement or
understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries relating to their business, except for any such proceeding
which would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. There is not currently pending or, to the
best knowledge of the Company, threatened any labor dispute or labor
stoppage regarding any of the Company's, or any of its subsidiaries',
current employees or any of the labor relations or collective bargaining
contracts listed on SCHEDULE 5.9 hereto, except for that labor relations
contract listed on SCHEDULE 5.9 hereto that expires on December 31, 1996,
the negotiation of a new contract of which is expressly provided for in
Section 6.1 hereof. Except as set forth in SCHEDULE 5.9 hereto, to the
knowledge of the Company, there are no organizational efforts with respect
to the formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its subsidiaries.
10 TAXES.
(a) Except as set forth in SCHEDULE 5.10 hereto, the Company and
each of its subsidiaries has paid or caused to be paid all material Taxes
(as defined below), owed by it through the date hereof except such as are
reserved for in the Company's balance sheet contained in the most recently
filed Commission Report and are being contested in good faith by
appropriate proceedings. Except as set forth in SCHEDULE 5.10 hereto, the
Company and its subsidiaries have timely filed and properly prepared all
foreign, federal, state and local tax returns and reports required to be
filed by any of them through the date hereof, and all such returns and
reports completely and accurately in all material respects set forth the
amount of any Taxes relating to the applicable period.
(b) Except as set forth in SCHEDULE 5.10 hereto, neither the
Internal Revenue Service (the "IRS") nor any other governmental or taxing
authority or agency is now asserting or, to the best of the Company's
knowledge, threatening to assert, against the Company or any of its
subsidiaries or any partnership, joint venture or limited liability company
in which the Company or any of its subsidiaries is a partner, joint
venturer or member, as the case may be, any deficiency or claim for any
additional material Tax or Taxes. Except as set forth in SCHEDULE 5.10
hereto, there is no dispute or claim concerning any Tax liability of the
Company or any subsidiary, either claimed or raised by any governmental or
taxing authority, or as to which any director or officer of the Company or
any of its subsidiaries has reason to believe may be claimed or raised by
any governmental or taxing authority that is material, either individually
or in the aggregate, to the Company and its subsidiaries taken as a whole.
Except as set forth in SCHEDULE 5.10, no claim has ever been made by a
taxing authority in a jurisdiction where the Company does not file reports
and returns that the Company is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Company or any of its subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Taxes. The Company has never
entered into a closing agreement pursuant to Section 7121 of the Code.
(c) Except as set forth in SCHEDULE 5.10 hereto, neither the
Company nor any of its subsidiaries has received written notice of any
audit of any tax return filed by the Company or its subsidiaries, and
neither the Company nor any of its subsidiaries has been notified by any
governmental or taxing authority that any such audit is contemplated or
pending. Except as set forth in SCHEDULE 5.10 hereto, neither the Company
nor any of its subsidiaries has executed or filed with the IRS or any other
governmental or taxing authority any agreement now in effect extending the
period for assessment or collection of any Taxes, and no extension of time
with respect to any date on which a tax return was or is to be filed by the
Company is in force. True, correct and complete copies of all foreign,
federal, state and local income or franchise tax returns filed by the
Company and each of its subsidiaries for those tax years or periods for
which the applicable statute of limitations, or an extension or waiver
thereof, has not lapsed, expired, or otherwise terminated, and all
communications relating thereto have been delivered to the Parent or made
available to representatives of the Parent. EXCEPT AS SET FORTH IN
SCHEDULE 5.10, neither the Company nor any of its subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension
of a period for the assessment of, any foreign, federal, state or local
income tax.
(d) The accruals and reserves for taxes reflected in the 1995
Balance Sheet are adequate to cover all Taxes accruable through such date
(including interest and penalties, if any, thereon) in accordance with
generally accepted accounting principles.
(e) None of the Company and its subsidiaries has filed a consent
under Section 341(f) of the Code concerning collapsible corporations. None
of the Company and its subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. None of the Company and its
subsidiaries has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. Each of the
Company and its subsidiaries has disclosed on its federal income tax
returns all positions taken therein that could give rise to a substantial
understatement of federal income tax within the meaning of Section 6662 of
the Code. None of the Company and its subsidiaries is a party to any tax
allocation or sharing agreement. Except as set forth in SCHEDULE 5.10,
none of the Company and its subsidiaries (A) has, except as set forth in
SCHEDULE 5.10 hereto, been a member of an affiliated group filing a
consolidated federal income tax return (other than a group the common
parent of which was the Company) or (B) has any liability for the Taxes of
any person (other than any of the Company and its subsidiaries) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(f) The term "TAXES" shall mean, for purposes of this Agreement,
all foreign, federal, state, local, and other taxes, including without
limitation income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or
in part by net income, and all deficiencies or other additions to tax,
interest, fines and penalties relating to any such taxes.
11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in SCHEDULE 5.11 hereto and for the
matters specifically identified in environmental reports received by Parent
or Acquisition Sub, and except for any other matters which, either
individually or in the aggregate, would not have a Material Adverse Effect
on the Company and its subsidiaries taken as a whole, to the Company's
knowledge, the Company and its subsidiaries are in compliance with all
applicable federal, state and local statutes, laws, codes, regulations,
ordinances, rules, judgements, judicial decisions, decrees, injunctions,
permits, and orders relating to (i) emissions, discharges or releases to
the environment of Hazardous Substances (as hereinafter defined), (ii) the
use, storage, handling, transport or disposal of Hazardous Substances, or
(iii) any matters of environmental regulation or control or similar
protection of human health and safety (collectively, "ENVIRONMENTAL LAWS").
Except as disclosed in SCHEDULE 5.11 hereto, the Company has not received
any written notice of any pending civil or criminal litigation, violation
or formal administrative proceeding relating to the Environmental Laws
involving the Company or any of its subsidiaries. Except as disclosed in
SCHEDULE 5.11 hereto and for the matters specifically identified in
environmental reports received by Parent or Acquisition Sub, and except for
any other matters which, either individually or in the aggregate, would not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, to the Company's knowledge, no conditions exist which could
reasonably be expected to result in any litigation, notice or
administrative proceeding described in the preceding sentence. Except as
disclosed in SCHEDULE 5.11, and for the matters specifically identified in
environmental reports received by Parent or Acquisition Sub and except for
any other matters which, either individually or in the aggregate, would not
have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole, to the Company's knowledge, the Company and each of its
subsidiaries have all permits, licenses, consents and approvals required by
Environmental Laws ("ENVIRONMENTAL PERMITS") for the conduct and operation
of their respective businesses, all such Environmental Permits are in good
standing and the Company and each of its subsidiaries are in compliance
with all material terms and conditions of such Environmental Permits.
(b) Except as disclosed in SCHEDULE 5.11 hereto and for the
matters specifically identified in the environmental reports received by
Parent and Sub, neither the Company nor any of its subsidiaries has
received any written notice (A) of any actual or alleged violation of
Environmental Laws by the Company or any of its subsidiaries, (B) of the
institution or pendency of any action, claim, proceeding or investigation
of the Company or any of its subsidiaries by any third party or
governmental entity pursuant to Environmental Laws, (C) requiring the
investigation, remediation or removal of Hazardous Substances from any of
the Company's or any of its subsidiaries' properties or any part thereof,
or (D) alleging that the Company or any of its subsidiaries are potentially
responsible parties with respect to the release or threat of release of
Hazardous Substances to the environment at any location. Except as
disclosed in SCHEDULE 5.11 hereto, and for the matters specifically
identified in environmental reports received by Parent or Acquisition Sub,
and except for any other matters which, either individually or in the
aggregate, would not have a Material Adverse Effect on the Company or its
subsidiaries, to the Company's knowledge neither the Company nor any of its
subsidiaries (i) has held, stored, released, transported or disposed of any
Hazardous Substances on, under or at any of the Company's or any of its
subsidiaries' properties or any part thereof, whether currently or formerly
leased, owned or used for any purpose; (ii) has arranged for the disposal
of Hazardous Substances at any location owned, leased or operated by any
third party; or (iii) owns or operates real or personal property that has
been the subject of any lien imposed by a governmental entity or a deed
notice or restriction, which lien, notice or restriction relates to
Hazardous Substances or the violation of any Environmental Laws. For
purposes of this Agreement, the term "HAZARDOUS SUBSTANCES" shall mean any
toxic or hazardous materials or substances or hazardous wastes, including
but not limited to oil and petroleum products, defined as, or included in
the definition of, "hazardous substances," "hazardous waste," "hazardous
materials" or "toxic substances" under any Environmental Law and any
substance with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation.
(c) No filing, approval or other action required under the New
Jersey Industrial Site Remediation Act, commonly known as ISRA or any
similar federal or State Environmental Law is required to consummate the
transactions contemplated hereby.
(d) Notwithstanding anything to the contrary in this Agreement,
(i) the representations and warranties made in Sections 5.11(a) and 5.11(b)
hereof which are qualified as to the knowledge of the Company speak as of
the date of this Agreement, (ii) to the extent any of the representations
and warranties in Sections 5.5, 5.6, 5.7, 5.11 and 5.13 would otherwise be
deemed incorrect by reason of the existence of any environmental matters or
conditions existing as of the date hereof as to which the Company does not
have knowledge as of the date hereof, such representations and warranties
shall not be deemed to be incorrect; and (iii) any inability to bring down
the representations and warranties set forth in Sections 5.5, 5.6, 5.7,
5.11 and 5.13, because of the existing unknown environmental matters or
conditions referred to in clause (ii), as may be required by Section 8.3(a)
or 8.3(b) hereof shall not constitute a condition to Parent's and
Acquisition Sub's obligations to consummate the transactions contemplated
under this Agreement and such existing environmental matters or conditions
shall not cause a failure to satisfy Section 8.3(e). Notwithstanding the
foregoing, the foregoing shall not apply to environmental matters or
conditions (a) of which the Company has knowledge as of the date hereof, or
(b) which occur after the date hereof which do not relate to such existing
environmental matters or conditions.
12 BOOKS AND RECORDS.
(a) The books of account and other financial records of the
Company and each of its subsidiaries are true, complete and correct in all
material respects and have been maintained in accordance with good business
practices.
(b) Except as set forth in SCHEDULE 5.12 the minute books and
other corporate records of the Company and each of its subsidiaries have
been made available to Parent or its representatives, contain in all
material respects accurate records of all meetings, and accurately reflect
in all material respects all other corporate actions, of the stockholders
and directors and any committees of the board of directors of the Company
and each of its subsidiaries.
13 REAL AND PERSONAL PROPERTY.
(a) OWNED REAL PROPERTY. All of the real property which is now
owned and, to the best knowledge of the Company, has ever been owned by the
Company and each of its subsidiaries (collectively referred to herein as
the "OWNED REAL PROPERTY") is identified on SCHEDULE 5.13(A) hereto.
SCHEDULE 5.13(A) hereto also sets forth by address (i) all real property
under contract to be acquired by the Company or any of its subsidiaries
(the "ACQUISITION PROPERTY"), (ii) to the knowledge of the Company, the
owner and usage of the Owned Real Property and the Acquisition Property and
(iii) whether the Owned Real Property is currently owned by the Company or
any of its subsidiaries. The Company hereby makes the following
representations and warranties with respect to the Owned Real Property
which is currently owned by the Company:
(i) TITLE AND DESCRIPTION. Each of the Company and its
subsidiaries, as the case may be, has good, clear, record and
marketable fee simple title to the Owned Real Property, free and clear
of all (A) mortgages, deeds of trust, ground leases, assessments,
leases and tenancies, claims, covenants, conditions, restrictions,
easements, judgments or other encumbrances and free of encroachments
onto or off of the Owned Real Property, except for (w) easements,
claims, conditions, covenants, restrictions and similar encumbrances
that do not interfere with the use of the Owned Real Property as
currently used and improved, (x) encroachments that do not adversely
affect the value or use of the Owned Real Property as currently used
and improved, (y) any of same which are disclosed in any title report
or title search received by, or made available by the Company to,
Parent and Acquisition Sub or (z) matters set forth on
SCHEDULE 5.13(A) ((w), (x), (y) and (z) are collectively referred to
as "PERMITTED ENCUMBRANCES").
(ii) SECURITY INTERESTS. All of the mortgages, deeds of
trust, ground leases, security interests or similar material
encumbrances on the Owned Real Property are set forth on SCHEDULE
5.13(A) (collectively, the "MORTGAGES"). Except as set forth on
SCHEDULE 5.13(A), the Company and each of its applicable subsidiaries
has obtained the consent of the holder of any Mortgage if the
transactions contemplated hereby would otherwise cause a default under
the Mortgage, and such transactions will not give the holder of any
Mortgage any remedy, or the right to charge any premium or penalty.
SCHEDULE 5.13(A) also indicates all Mortgages which are, by their
terms, by means of a separate guaranty or otherwise, recourse, in
whole or in part, to the Company or any of its subsidiaries.
(iii) CONDITION. Except as set forth on SCHEDULE 5.13(A),
to the Company's knowledge, (A) there are no material defects in the
physical condition of any improvements constituting a part of the
Owned Real Property, including, without limitation, structural
elements, mechanical systems, roofs or parking and loading areas, and
(B) all of such improvements are in good operating condition and
repair, have been well maintained and are free from infestation by
rodents or insects except for those exceptions which individually or
in the aggregate do not have a Material Adverse Effect on the Company
or its subsidiaries taken as a whole. Except as set forth on SCHEDULE
5.13(A), none of the Owned Real Property is subject to special flood
or mudslide hazards or within the 100 year flood plain. All water,
sewer, gas, electric, telephone, drainage and other utilities required
by law or necessary for the current or planned operation of the Owned
Real Property have been connected pursuant to valid permits and are
sufficient to service the Owned Real Property.
(iv) COMPLIANCE WITH LAW; GOVERNMENT APPROVALS. Neither
the Company nor any of its subsidiaries has received any notice from
any governmental authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with respect to
any of the Owned Real Property that has not been corrected heretofore,
and to the Company's knowledge no such violation exists which could
have a material adverse effect on the operation or value of any of the
Owned Real Property. Except for those matters which do not
individually or in the aggregate have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, to the Company's
knowledge (i) all improvements constituting part of the Owned Real
Property have been completed and are now in compliance in all respects
with all applicable laws, ordinances, regulations, licenses, permits
and authorizations, and there are presently in effect all licenses,
permits and authorizations required by law, ordinance, or regulation
and (ii) the transactions contemplated hereby will not affect the
rights of the Company or any of its subsidiaries to the use of any
off-site facilities necessary to ensure compliance with all such laws,
ordinances, codes and regulations. There is at least the minimum
access required by applicable subdivision or similar law to the Owned
Real Property. Neither the Company nor any of its subsidiaries has
received any notice of any pending or threatened real estate tax
deficiency or reassessment or condemnation of all or any portion of
any of the Owned Real Property.
(b) LEASED REAL PROPERTY. SCHEDULE 5.13(B) hereto sets forth,
by address, owner, tenant, and usage, all of the real property which is now
leased or operated and, to the best knowledge of the Company, has ever been
leased or operated by the Company or any of its subsidiaries (collectively,
the "LEASED REAL PROPERTY"). The Company hereby makes the following
representations and warranties with respect to the Leased Real Property
which is now leased or operated by the Company and its subsidiaries:
(i) LEASES. The copies of the leases of the Leased Real
Property (collectively, the "LEASES") delivered by the Company to
Parent are complete, accurate, true and correct, and the information
with respect to each of the Leases set forth in SCHEDULE 5.13(B) is
complete, accurate, true and correct in all material respects as of
the date hereof. With respect to each of the Leases, except as set
forth on SCHEDULE 5.13(B):
(A) each of the Leases is in full force and
effect and has not been modified, amended, or altered, in writing
or otherwise;
(B) to the Company's knowledge, (I) all
obligations of the landlord or lessor under the Leases which have
accrued have been performed in all material respects, and (II) no
landlord or lessor is in default under any Lease in any material
respect;
(C) to the Company's knowledge, (I) all
obligations of the tenant or lessee under the Leases which have
accrued have been performed in all material respects, and neither
the Company nor any of its subsidiaries is in default under any
Lease in any material respect provided that the Company's timely
payment of its rental obligations under the Leases is not
qualified by the Company's knowledge, and (II) no circumstance
presently exists which, with notice or the passage of time, or
both, would give rise to a material default by the Company or any
of its subsidiaries; and
(D) the Company and each of its subsidiaries, as
the case may be, has obtained or will obtain prior to the Closing
the consent of each landlord or lessor under any Leases whose
consent is required to the transactions contemplated hereby and
any necessary landlord waiver or subordinations in the form
heretofore presented to the Company by Parent required by the
entities providing Parent and Acquisition Sub with the financing
to consummate the Merger and the other transactions contemplated
hereby, and, subject to obtaining the foregoing consents, the
Merger and the other transactions contemplated hereby (other than
the Financing) will not give any landlord or lessor under any
Lease any remedy, including, without limitation, any right to
declare a default under any Lease; provided, however that with
respect to those Leases marked as such on SCHEDULE 5.13(B), the
Company shall be required only to exercise its best efforts to
obtain such consent or landlord waiver.
(ii) TITLE AND DESCRIPTION. The Company and each of its
subsidiaries, as the case may be, holds a good, clear, marketable,
valid and enforceable leasehold interest in the Leased Real Property
pursuant to the Leases, subject only to the right of reversion of the
landlord or lessor under the Leases and any mortgagee thereof, free
and clear, to the Company's knowledge, of all other prior or
subordinate interests, including, without limitation, mortgages, deeds
of trust, ground leases, leases, subleases, assessments, tenancies,
claims, covenants, conditions, restrictions, easements, judgments or
other encumbrances or matters affecting title, and free of
encroachments onto or off of the Leased Real Property, except for (v)
any of the same which are disclosed in any title report or title
search received by Parent or Acquisition Sub or made available by the
Company to Parent or Acquisition Sub, (w) any rights of any person
which has been granted rights by any owner of any such property,
(x) easements, claims, conditions, covenants, restrictions and
similar encumbrances that do not materially interfere with the use of
the Leased Real Property as currently used and improved,
(y) encroachments that do not materially adversely affect the value or
use of the Leased Real Property as currently used and improved and (z)
matters set forth on SCHEDULE 5.13(B).
(iii) CONDITION. Except as set forth on SCHEDULE 5.13(B)
and except for those matters which do not individually or in the
aggregate have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole, to the Company's knowledge, (A) there
are no material defects in the physical condition of any improvements
constituting a part of the Leased Real Property, including, without
limitation, structural elements, mechanical systems, roofs or parking
and loading areas, and, (B) all of such improvements are in good
operating condition and repair, have been well maintained and are free
from infestation by rodents or insects. Except as set forth on
SCHEDULE 5.13(B), none of the Leased Real Property is subject to
special flood or mudslide hazards or within the 100 year flood plain.
Except for any which does not individually or in the aggregate have a
Material Adverse Effect on the Company or its subsidiaries taken as a
whole, all water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned
operation of the Leased Real Property have been installed and
connected pursuant to valid permits, and are sufficient to service the
Leased Real Property.
(iv) COMPLIANCE WITH LAW; GOVERNMENT APPROVALS. Neither
the Company nor any of its subsidiaries has received any written
notice from any governmental authority of any violation of any law,
ordinance, regulation, license, permit or authorization issued with
respect to any of the Leased Real Property that has not been corrected
heretofore. To the Company's knowledge, except as described on
SCHEDULE 5.13(B) and except for violations that would not have a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole, (A) no such violation now exists which could have an adverse
effect on the operation or value of any of the Leased Real Property,
and (B) all improvements constituting a part of the Leased Real
Property are in compliance in all respects with all applicable laws,
ordinances, regulations, licenses, permits and authorizations, and
there are presently in effect all licenses, permits and authorizations
required by law, ordinance, or regulation. The transactions
contemplated hereby will not affect the rights of the Company or any
of its subsidiaries to use any off-site facilities necessary to ensure
compliance with all such laws, ordinances, codes and regulations.
There is at least the minimum access required by applicable
subdivision or similar law to the Leased Real Property. Neither the
Company nor any of its subsidiaries has received any notice of any
pending or threatened real estate tax deficiency or reassessment or
condemnation of all or any portion of any of the Leased Real Property.
(c) VIOLATIONS/CONDEMNATION. Except as set forth in SCHEDULE
5.13(C) hereto, neither the Company nor any of its subsidiaries has
received, with respect to any Owned Real Property currently owned, leased
or operated by the Company or Leased Real Property currently owned, leased
or operated by the Company, any written notice of default or termination or
any written notice of noncompliance with respect to applicable federal,
state or local laws and regulations relating to zoning, building, fire, use
restriction or safety or health codes which have not been remedied in all
respects which, either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. There is no pending or, to the knowledge of
the Company or any of its subsidiaries, threatened condemnation or other
governmental taking of any of the Owned Real Property or Leased Real
Property.
(d) Notwithstanding anything to the contrary contained in this
Agreement, those representations and warranties contained in this Agreement
with respect to Owned Real Property which is not currently either leased,
operated or owned by either the Company or any of its subsidiaries, and
Leased Real Property which is not currently either leased, owned or
operated by either the Company or any of its subsidiaries, is subject to
the knowledge of the Company.
14 CONTRACTS. Except as set forth on Schedule 5.14 hereto, neither
the Company nor any of its subsidiaries is in default, or has received any
notice that it is in default, in any respect under any contract, agreement,
commitment, arrangement, lease, policy or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any such subsidiary is bound (excluding contracts, agreements, commitments,
arrangements, leases, policies or other instruments involving total
payments not in excess of $100,000 and which may be terminated within
90 days by the Company or any of its subsidiaries) ("MATERIAL CONTRACTS"),
except for those defaults which could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, and there has not occurred
any event that, with the lapse of time or the giving of notice or both,
would constitute such a material default. To the Company's knowledge, no
other party to any such Material Contact is in material breach or default
of the terms thereunder or has refused or otherwise failed to materially
perform under the terms thereof.
15 TRADE NAMES.
(a) Except as set forth on SCHEDULE 5.15, the Company and each
of its applicable subsidiaries, as the case may be, owns all rights to, or
possesses a valid, subsisting and enforceable exclusive license to use (in
each case, free and clear of any liens), all trade names used by the
Company or any of its subsidiaries in the jurisdictions in which such names
are used. To the best knowledge of the Company, except as disclosed in
SCHEDULE 5.15 hereto, (i) the use of trade names by the Company and its
subsidiaries does not infringe on the rights of any person, (ii) no person
is infringing on any right of the Company or any of its subsidiaries with
respect to any of the Company's or such subsidiaries' trade names, (iii) there
is no decree, undertaking or agreement limiting the scope of the
Company's or any of its subsidiaries' right to use any of its trade names
and (iv) neither the Company nor any of its subsidiaries has granted any
license to any person for the use of the Company's or any of its
subsidiaries' trade names.
(b) Except in each case as disclosed in the Company's Commission
Reports or as set forth in SCHEDULE 5.15 hereto:
(i) to the best knowledge of the Company, the Company
owns, has the right to use, sell, license and dispose of, and has the
right to bring actions for the infringement of, and, where necessary,
has made timely and proper application for all Intellectual Property
Rights (as defined below) necessary or required for the conduct of its
business as currently conducted (such Intellectual Property Rights,
collectively, the "REQUISITE RIGHTS") and has such rights to use,
sell, license, dispose of and bring such actions as are sufficient for
such conduct of its business;
(ii) to the best knowledge of the Company, there are no
royalties, honoraria, fees or other payments payable by the Company to
any person by reason of the ownership, use, license, sale or
disposition of Requisite Rights; and
(iii) to the best knowledge of the Company, neither the
marketing, license, sale nor use of any product currently or proposed
to be licensed or sold by the Company materially violates or will
materially violate any license or agreement with any third party to
which the Company is a party or materially infringe any Intellectual
Property Right of any other party.
As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" shall mean all
industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications,
copyrights, copyright applications, know-how, trade secrets, proprietary
processes and formulae, franchises, licenses, inventions, marketing
materials, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, memoranda and records.
16 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE 5.16
hereto, (i) the Company has not engaged in any transaction involving any
lease or other transaction or the transfer of any cash, property or rights
to or from the Company or any of its subsidiaries from, to or for the
benefit of any affiliate or former affiliate of the Company or any of its
subsidiaries ("AFFILIATE TRANSACTIONS") during the period commencing
January 1, 1994 through the date hereof, (ii) neither the Company nor any
of its subsidiaries has any existing commitments to engage in the future in
any material Affiliate Transactions and (iii) to the best knowledge of the
Company, no affiliate of the Company or any of its subsidiaries is party to
any contract with a third party pursuant to which (x) as a result of a
claimed breach a claim against the Company or any such subsidiary may arise
or (y) a liability (whether absolute, contingent or otherwise) might accrue
against the Company or any such subsidiary.
17 BROKERAGE FEES. The Company has not retained any financial
adviser, broker, agent or finder or paid or agreed to pay any financial
adviser, broker, agent or finder on account of this Agreement or any
transaction contemplated hereby, except that Hill Thompson Capital Markets,
Inc. has been retained as the Company's financial advisor in connection
with certain matters including the transactions contemplated hereby. The
Company has heretofore furnished to Parent a complete and correct copy of
all agreements between the Company and Hill Thompson Capital Markets, Inc.
pursuant to which such firm would be entitled to any payment relating to
the transactions contemplated hereby. Other than the foregoing
arrangements and Frederick Marino's arrangements with Proteus International
Group Incorporated, the Company is not aware of any claim for payment of
any finder's fee, brokerage or agent's commissions or other like payments
in connection with the negotiations leading to the Merger, this Agreement
or the consummation of the transactions contemplated hereby.
18 SUBSIDIARIES. The Company's subsidiaries and investments in any
other corporation, partnership, joint venture or other business
organization are listed in SCHEDULE 5.18 hereto. The Company owns
beneficially and of record all of the outstanding shares of capital stock
or other equity interest of each of its subsidiaries, and such shares or
other equity interest are duly authorized, validly issued, fully paid and
non-assessable, and are free and clear of all preemptive rights and, except
as set forth on SCHEDULE 5.18 hereto, all liens, charges, encumbrances,
equities, claims and options whatsoever. There are not any outstanding
subscriptions, options, warrants or other rights, agreements or commitments
to purchase any additional shares of such subsidiary's capital stock or any
other securities convertible into or evidencing the right to subscribe for
any capital stock of such subsidiary. Except as disclosed in SCHEDULE 5.18,
all of the outstanding shares of capital stock or other equity interest of
each of the Company's subsidiaries are owned beneficially and of record by
the Company free of any lien, restriction or encumbrance and said shares
have been duly authorized and validly issued and are outstanding, fully
paid and non-assessable.
19 DISCLOSURE. The representations, warranties and statements made
by the Company in this Agreement and in the schedules and exhibits attached
hereto and in the certificates and other documents delivered pursuant to
Section 8.3(a) and 8.3(b) hereof do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state any material
fact necessary to make such representations, warranties and statements, in
light of the circumstances under which they are made, not misleading and
may be relied upon regardless of any investigation by or independent
inquiry or knowledge of Parent, Acquisition Sub or any of their respective
employees, consultants, advisers or affiliates. Parent and Acquisition Sub
acknowledge that they are not relying on any representations and warranties
other than the representations and warranties contained in this Agreement
and the schedules and exhibits attached hereto.
6. CONDUCT OF BUSINESS PENDING THE MERGER
1 CONDUCT OF BUSINESS BY THE COMPANY. During the period from the
date of this Agreement to the Effective Time, except as otherwise
contemplated by this Agreement or as set forth in SCHEDULE 6.1 hereto, the
Company shall, and shall cause each of its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course, reasonably
consistent with past practice in all material respects, and use their best
efforts to preserve intact their present business organizations, keep
available the services of their present advisors, managers, officers and
employees and preserve their relationships in all material respects with
customers, suppliers, licensors and others having business dealings with
them and continue existing contracts (for the term provided in such
contracts), provided that the Company shall not be required to make any
payments (cash or otherwise) outside the ordinary course or enter into or
amend any contractual arrangements or understandings to satisfy the
foregoing obligations; PROVIDED, HOWEVER, that the covenant contained in
this sentence shall not be deemed to be breached in any material respect
unless any actions or failures to act when taken together constituted
unreasonable business judgements determined on the basis of the Company's
compliances, or non-compliances, taken on the whole with this sentence; and
the Company shall have the right within ten (10) days after receipt of the
written notice from Parent to cure any such claimed breach as is reasonably
susceptible of cure. Notwithstanding the foregoing and without limiting
the generality of the foregoing, neither the Company nor any of its
subsidiaries will (except as expressly permitted by this Agreement or to
the extent that Parent shall otherwise consent in writing):
(a) (i) declare, set aside or pay any dividend or other
distribution (whether in cash, stock, or property or any combination
thereof) in respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or (iii) repurchase, redeem or
otherwise acquire any of its securities, except, in the case of clause
(iii), for the acquisition of shares of Company Common Stock from holders
of the Options in full or partial payment of the exercise price payable by
such holders upon exercise of the Options outstanding on the date of this
Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights) (OTHER THAN THE ISSUANCE OF
COMPANY COMMON STOCK UPON THE EXERCISE OF THE OPTIONS OUTSTANDING ON THE
DATE OF THIS AGREEMENT IN ACCORDANCE WITH THEIR PRESENT TERMS);
(c) ACQUIRE, SELL, LEASE, ENCUMBER, TRANSFER OR DISPOSE OF ANY
ASSETS OUTSIDE THE ORDINARY COURSE OF BUSINESS WHICH ARE MATERIAL TO THE
COMPANY AND ITS SUBSIDIARIES TAKEN AS A WHOLE (WHETHER BY ASSET
ACQUISITION, STOCK ACQUISITION OR OTHERWISE), EXCEPT PURSUANT TO
OBLIGATIONS IN EFFECT ON THE DATE HEREOF WHICH HAVE BEEN DISCLOSED IN
WRITING TO PARENT AND ACQUISITION SUB PRIOR TO THE DATE HEREOF;
(d) (I) INCUR ANY INDEBTEDNESS FOR BORROWED MONEY, GUARANTEE ANY
INDEBTEDNESS, ISSUE OR SELL DEBT SECURITIES OR WARRANTS OR RIGHTS TO
ACQUIRE ANY DEBT SECURITIES, GUARANTEE (OR BECOME LIABLE FOR) ANY DEBT OF
OTHERS, MAKE ANY LOANS, ADVANCES OR CAPITAL CONTRIBUTIONS, MORTGAGE, PLEDGE
OR OTHERWISE ENCUMBER ANY MATERIAL ASSETS, OR CREATE OR SUFFER ANY MATERIAL
LIEN THEREUPON, OTHER THAN, AS TO EACH OF THE FOREGOING, IN THE ORDINARY
COURSE OF BUSINESS REASONABLY CONSISTENT WITH PRIOR PRACTICE OR (II) INCUR
ANY SHORT-TERM INDEBTEDNESS FOR BORROWED MONEY, EXCEPT, IN EACH SUCH CASE,
PURSUANT TO CREDIT FACILITIES IN EXISTENCE ON THE DATE HEREOF UNDER THE
TERMS THEREOF ON THE DATE HEREOF, WHICH CREDIT FACILITIES HAVE BEEN
DISCLOSED IN WRITING TO PARENT AND ACQUISITION SUB PRIOR TO THE DATE
HEREOF;
(e) PAY, DISCHARGE OR SATISFY ANY CLAIMS, LIABILITIES OR
OBLIGATIONS (ABSOLUTE, ACCRUED, ASSERTED OR UNASSERTED, CONTINGENT OR
OTHERWISE), OTHER THAN ANY PAYMENT, DISCHARGE OR SATISFACTION (I) IN THE
ORDINARY COURSE OF BUSINESS REASONABLY CONSISTENT WITH PAST PRACTICE, OR
(II) IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT;
(f) CHANGE ANY OF THE ACCOUNTING PRINCIPLES OR PRACTICES USED BY
IT (EXCEPT AS REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, IN
WHICH CASE WRITTEN NOTICE SHALL BE PROVIDED TO PARENT AND ACQUISITION SUB
PRIOR TO ANY SUCH CHANGE);
(g) EXCEPT AS REQUIRED BY LAW, (I) ENTER INTO, ADOPT, AMEND OR
TERMINATE ANY EMPLOYEE BENEFIT PLAN, (II) ENTER INTO, ADOPT, AMEND OR
TERMINATE ANY AGREEMENT, ARRANGEMENT, PLAN OR POLICY BETWEEN THE COMPANY OR
ANY OF ITS SUBSIDIARIES AND ONE OR MORE OF THEIR DIRECTORS OR OFFICERS, OR
(III) EXCEPT FOR NORMAL INCREASES IN THE ORDINARY COURSE OF BUSINESS
REASONABLY CONSISTENT WITH PAST PRACTICE, INCREASE IN ANY MANNER THE
COMPENSATION OR FRINGE BENEFITS OF ANY DIRECTOR, OFFICER OR EMPLOYEE OR PAY
ANY BENEFIT NOT REQUIRED BY ANY PLAN OR ARRANGEMENT AS IN EFFECT AS OF THE
DATE HEREOF;
(h) ADOPT ANY AMENDMENTS TO THE COMPANY'S CERTIFICATE OR THE
COMPANY'S BY-LAWS, EXCEPT AS EXPRESSLY PROVIDED BY THE TERMS OF THIS
AGREEMENT;
(i) ENTER INTO A NEW AGREEMENT OR AMEND ANY EXISTING AGREEMENT
WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE
COMPANY AND ITS SUBSIDIARIES TAKEN AS A WHOLE;
(j) ADOPT A PLAN OF COMPLETE OR PARTIAL LIQUIDATION OR
RESOLUTIONS PROVIDING FOR OR AUTHORIZING SUCH A LIQUIDATION OR A
DISSOLUTION, MERGER, CONSOLIDATION, RESTRUCTURING, RECAPITALIZATION OR
REORGANIZATION;
(k) ENTER INTO OR AMEND, EXTEND OR OTHERWISE ALTER ANY
COLLECTIVE BARGAINING AGREEMENT;
(l) SETTLE OR COMPROMISE ANY LITIGATION (WHETHER OR NOT
COMMENCED PRIOR TO THE DATE OF THIS AGREEMENT) OTHER THAN SETTLEMENTS OR
COMPROMISES OR LITIGATION WHERE THE AMOUNT PAID (AFTER GIVING EFFECT TO
INSURANCE PROCEEDS ACTUALLY RECEIVED) IN SETTLEMENT OR COMPROMISE DOES NOT
EXCEED $50,000;
(m) GRANT ANY NEW OR MODIFIED SEVERANCE OR TERMINATION
ARRANGEMENT OR INCREASE OR ACCELERATE ANY BENEFITS PAYABLE UNDER ITS
SEVERANCE OR TERMINATION PAY POLICIES IN EFFECT ON THE DATE HEREOF, EXCEPT
WITH RESPECT TO THE OPTIONS AND EXCEPT TO THE EXTENT PROVIDED BY THE TERMS
OF ANY SUCH ARRANGEMENTS OR POLICIES IN EFFECT ON THE DATE HEREOF WHICH
ARRANGEMENTS OR POLICIES HAVE BEEN DISCLOSED IN SCHEDULE 5.8 hereto;
(n) except as set forth on SCHEDULE 6.1 hereto, enter into any
transaction, contract or arrangement with any affiliate;
(o) except as set forth on SCHEDULE 6.1 hereto, enter into any
other material agreement, arrangement or understanding, whether oral or
written, outside the ordinary course of business;
(p) enter into an agreement to take any of the foregoing actions
or enter into an agreement that would foreseeably result in the failure of
any of the conditions to the Merger set forth in Section 8 hereof to occur
or be satisfied; or
(q) authorize any of, or commit or agree to take any of, or take
any corporate action in furtherance of, any of the foregoing actions.
Notwithstanding the foregoing, the Company may negotiate and enter
into a collective bargaining agreement with Local 282, the existing
contract of which expires December 31, 1996, on terms acceptable to the
Company, without the consent of Parent or Acquisition Sub and the absence
of an agreement with Local 282 after December 31, 1996 or a resulting
strike by Local 282 shall not be deemed to have a Material Adverse Effect
on the Company or constitute the failure of any obligations under this
Agreement.
7. ADDITIONAL AGREEMENTS
1 PROXY STATEMENT; OTHER FILINGS. As promptly as practicable, the
Company shall prepare, shall file with the Commission under the Exchange
Act, shall use its best efforts to have cleared by the Commission and
promptly thereafter shall mail to its stockholders, a Proxy Statement with
respect to the meeting of the Company's stockholders referred to in
Section 7.2. The term "PROXY STATEMENT" shall mean such proxy statement,
as the case may be, and all related proxy materials at the time such
documents initially are mailed to the Company's stockholders, and all
amendments or supplements thereto, if any, similarly filed and mailed. The
Company shall give Parent and its counsel a reasonable opportunity to
review and comment upon the Proxy Statement prior to its being filed with
the Commission and shall give Parent and its counsel a reasonable
opportunity to review all amendments and supplements to the Proxy Statement
and all responses to requests for additional information and replies to
comments prior to their being filed with, or sent to, the Commission and,
in the case of the Proxy Statement and any amendments or supplements
thereto, prior to its being disseminated to holders of shares of Company
Common Stock. As promptly as practicable, the Company, Parent and
Acquisition Sub each shall properly prepare and file any other filings
required under the Exchange Act or any other federal or state law relating
to the Merger and the transactions contemplated herein (including filings,
if any, required under the Hart-Scott-Rodino Act) (collectively, "OTHER
FILINGS"). Each of Parent and the Company shall promptly notify the other
of the receipt of any comments on, or any request for amendments or
supplements to, the Proxy Statement or any Other Filings by the Commission
or any other governmental entity or official, and each of the Company and
Parent shall supply the other with copies of all correspondence between it
and each of its subsidiaries and representatives, on the one hand, and the
Commission or the members of its staff or any other appropriate
governmental official, on the other hand, with respect to the Proxy
Statement and any of the Other Filings. The Company, Parent and
Acquisition Sub each shall use its respective best efforts to obtain and
furnish the information required to be included in the Proxy Statement and
any Other Filings, and the Company, after consultation with Parent, shall
use its best efforts to respond promptly to any comments made by the
Commission with respect to the Proxy Statement and any preliminary version
thereof. The information provided and to be provided by Parent,
Acquisition Sub and the Company, respectively, for use in the Proxy
Statement shall, on both the date the Proxy Statement is first mailed to
the Company's stockholders as referred to in Section 7.2 hereof and the
date such stockholders meeting is held, not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, or necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the stockholders' meeting which shall have
become false or misleading, and shall comply in all material respects as to
form and substance with all applicable requirements of law. Parent, the
Company and Acquisition Sub each agree to correct promptly any such
information provided by it for use in the Proxy Statement which shall have
become false or misleading.
2 MEETING OF THE COMPANY'S STOCKHOLDERS. In order to consummate the
Merger, the Company, acting through the Board, shall take all action
necessary in accordance with applicable laws, the Company's Certificate and
By-laws to duly call, give notice of, convene and hold an annual or special
meeting of its stockholders as promptly as practicable to consider and vote
upon the approval and adoption of this Agreement and the approval of the
Merger and to take such other action as is necessary or desirable to
consummate the transactions contemplated hereby (the "STOCKHOLDERS'
MEETING"). Except to the extent required by law or the Company's By-Laws
(a) the Company shall not convene any meeting of its Stockholders prior to
the Stockholders' Meeting, and (b) the company shall not present any other
matter at the Stockholders' Meeting except for the matters contemplated by
this Agreement. At the Stockholders' Meeting, all the shares of Company
Common Stock owned by Parent, Acquisition Sub or any other subsidiary or
affiliate of Parent shall be voted in favor of the Merger. The stockholder
vote required for the adoption of this Agreement and the Merger shall be
the vote required by the Corporation Law. The Proxy Statement shall,
except to the extent legally required under the Corporation Law for the
discharge of the fiduciary duties of the Board as advised by its counsel,
contain the determination and the recommendation of the Board that the
stockholders of the Company approve and adopt this Agreement and the
transactions contemplated hereby including the Merger and the Company,
acting through the Board, shall use its best efforts to obtain such
approval and adoption. Parent and the Company shall coordinate and
cooperate with respect to the foregoing matters.
3 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its best efforts
(i) to take, or cause to be taken, all actions and (ii) to do, or cause to
be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to cooperate with each other in connection with the
foregoing, including the taking of such actions as are necessary to obtain
any necessary consents, approvals, orders, exemptions and authorizations by
or from any public or private third party, including without limitation any
that are required to be obtained under any federal, state or local law or
regulation or any contract, agreement or instrument to which the Company or
any subsidiary is a party or by which any of their respective properties or
assets are bound, (iii) to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions
contemplated hereby, (iv) to cause to be lifted or rescinded any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby, and (v) to
effect all necessary registrations and Other Filings, including, but not
limited to, filings under the Hart-Scott-Rodino Act, if any, and
submissions of information requested by governmental authorities. Without
limiting the generality of the foregoing, Parent and Acquisition Sub will
use their best efforts to obtain appropriate financing to consummate the
Merger. For purposes of the foregoing sentence and as to the Company's
obligations under Section 5.13(b)(i)(D) hereof, the obligation of the
Company, Parent and Acquisition Sub to use their "best efforts" to obtain
waivers, consents and approvals to loan agreements, leases and other
contracts shall not include any obligation to agree to an adverse
modification of the terms of such documents or to prepay or incur
additional obligations (payment or otherwise) to such other parties.
4 FEES AND EXPENSES. Except as set forth in Section 9.2 below,
whether or not the Merger is consummated, all fees, costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such cost or
expense. Notwithstanding the foregoing, upon consummation of the Merger,
Parent may be reimbursed by the Company for all costs and expenses incurred
by Parent and Acquisition Sub in connection with this Agreement and the
transactions contemplated hereby.
5 NO SOLICITATIONS.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, the Company agrees and covenants that (i)
neither it nor any of its subsidiaries shall, and each of them shall direct
and use its best efforts to cause its respective officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) not to, directly or indirectly, initiate, solicit or
encourage any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, tender offer, exchange
offer, consolidation or similar transaction involving any purchase of 10%
or more of the assets or securities of the Company or any of its
subsidiaries, other than the transactions contemplated by this Agreement
(any such proposal or offer being hereinafter referred to as an
"ACQUISITION PROPOSAL") or engage in any negotiations with, or provide any
confidential information or data to, or have any discussions with, any
person relating to, an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; (ii) the
Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the individuals or entities referred to above of the
obligations undertaken in this Section; and (iii) the Company will notify
the Parent immediately if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company,
which notification shall include the terms of any such inquiries or
proposals.
(b) Notwithstanding anything set forth in this Agreement to the
contrary, the Board may furnish or cause to be furnished by any committee
thereof, any executive officer of the Company, the Company's counsel or the
Company's investment advisor information or data to or enter into
discussions or negotiations with any person that on an unsolicited basis,
makes a bona fide Acquisition Proposal, if, and only to the extent that,
the Board (x) determines in good faith, after consideration of written
advice of its financial advisors, that the Acquisition Proposal, if
consummated as proposed, may result in a transaction more favorable to the
Company's stockholders from a financial point of view than the transactions
contemplated by this Agreement (any such Acquisition Proposal being
referred to herein as a "SUPERIOR PROPOSAL") and (y) determines in good
faith, after consultation with its outside counsel, that the failure to
take such action may be a breach of the directors' fiduciary duties under
applicable law, provided that prior to furnishing such information to, or
entering into discussions or negotiations with, such person, the Company
provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person and the Company keeps Parent informed of the status of any such
discussions or negotiations and the principal terms of any such Acquisition
Proposal. Notwithstanding the foregoing (a) the Company and its
representatives (as set forth above) may advise any person expressing an
interest in the Company and/or making an Acquisition Proposal that such
person must review and comply with, and the Company must comply with, the
provisions of Section 7.5 hereof (as contained in this Agreement as filed
with the Commission) prior to the Company entering into any discussion or
negotiations with such person or providing any information or data to such
person, and any such statement to such effect (when initially made to such
person) shall not constitute a breach of this Agreement, and (b) nothing
contained herein shall preclude the Company from entering into a definitive
agreement with any person providing a bona fide Acquisition Proposal that
the Company is entitled to negotiate pursuant to the terms of this Section
7.5 provided that the Company and its representatives comply with the
obligations contained in this Section 7.5 and in Sections 9.1(f) and 9.2
hereof. As used in this Agreement, the word "person" means an individual,
a corporation, a partnership, an association, a joint-stock company, a
trust, a limited liability company, an unincorporated organization or any
other entity.
6 OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION. Parent
agrees that all rights to indemnification existing in favor of, and all
limitations on the personal liability of, the directors and officers of the
Company provided for in the Company's Certificate and in each subsidiaries'
certificate of incorporation (or similar organizational document) or their
respective By-laws as in effect as of the date hereof with respect to
matters occurring prior to the Effective Time shall continue without
amendment in full force and effect for a period of not less then six (6)
years from the Closing; PROVIDED, HOWEVER, that all rights to
indemnification in respect of any claims (a "CLAIM") asserted or made
within such period shall continue until the disposition of such Claim. At
or prior to the Effective Time, Parent also shall continue the Company's
existing directors' and officers' liability insurance coverage for the
Company's directors in a form reasonably acceptable to the Company which
shall provide such directors with coverage for six years following the
Effective Time; PROVIDED, HOWEVER, that the cost of such policy shall not
exceed $200,000 in the aggregate. Notwithstanding anything to the contrary
in this Section 7.6, nothing contained in this Section 7.6 shall at any
time be construed to limit or otherwise impair or shall at any time limit
or otherwise impair the rights of any officer or director to
indemnification for acts occurring prior to the Effective Date by the
Company, any subsidiary or the Surviving Corporation under the Corporation
Law, it being understood that the provisions of this Section 7.6 constitute
a contractual obligation.
7 ACCESS TO INFORMATION; CONFIDENTIALITY. From the date hereof
until the Effective
Time, the Company shall, and shall cause its subsidiaries, officers,
employees and agents to, afford to Parent and to the officers, employees
and agents of Parent complete access at all reasonable times to their
officers, employees, agents, properties, books, records and contracts, and
shall furnish Parent such financial, operating and other data and
information as Parent may reasonably request PROVIDED, HOWEVER, that the
Company shall not be required to disclose or permit access to certain
information regarding the deliberations of the Company's Board of Directors
or committees thereof to the extent same relates solely to an Acquisition
Proposal or this Agreement. Prior to the Effective Time, Parent and
Acquisition Sub shall hold in confidence all such information on the terms
and subject to the conditions contained in that certain confidentiality
agreement between Fidelity Ventures Limited and the Company (the
"CONFIDENTIALITY AGREEMENT") the provisions of which shall survive the
termination of this Agreement. The parties hereto on behalf of the
signatories to the Confidentiality Agreement hereby waive the provisions of
the Confidentiality Agreement as and to the extent necessary to
<PAGE>
permit the making and consummation of the transactions contemplated hereby.
Upon the consummation of the Merger, such Confidentiality Agreement shall
terminate.
8 Financial and Other Statements. Notwithstanding anything
contained in Section 7.7, during the term of this Agreement, the Company
shall also provide to Parent the following documents and information:
(a) As soon as reasonably available, but in no event more than
45 days after the end of each fiscal quarter ending after the date of
this Agreement, the Company will deliver to Parent its Quarterly
Report on Form 10-Q as filed under the Exchange Act. The Company will
also deliver to Parent, contemporaneously with its being filed with
the SEC, a copy of all Current Reports on Form 8-K.
(b) Promptly upon receipt thereof, the Company will furnish to
Parent copies of all internal control reports submitted to the Company
or any subsidiary by independent accountants in connection with each
annual, interim or special audit of the books of the Company or any
such subsidiary made by such accountants.
(c) As soon as practicable, the Company will furnish to Parent
copies of all such financial statements and reports as it or any
subsidiary shall send to its stockholders, the Commission or any other
regulatory authority, to the extent any such reports furnished to any
such regulatory authority are not confidential and except as legally
prohibited thereby.
(d) With reasonable promptness, the Company will furnish to
Parent (i) monthly profit and loss statements, (ii) a listing of
accounts receivable, including aging, as of the end of each month,
(iii) inventory analysis as of the end of each month, (iv) a listing
of accounts payable, including aging, as of the end of each month, and
(v) such additional financial data as Parent may reasonably request.
9 OBSERVER RIGHTS. From the date hereof until the earlier to occur
of the Effective Time or the termination of this Agreement in accordance
with its terms, the Company shall afford a representative designated by
Parent observation rights for all meetings (whether in person, telephonic
or otherwise) of the Company's Board of Directors and shall provide Parent
and Acquisition Sub copies of all notices, minutes, consents and other
materials that it provides to its directors in the same manner and at the
same time as it provides such materials to its directors (including those
related to the committees thereof), except to the extent the same relates
solely to an Acquisition Proposal or this Agreement; provided, however,
that such representative shall agree to hold in confidence all information
so provided.
10 ADVICE OF CHANGE; SCHEDULE UPDATE. Each party will promptly
advise the other of (i) any change or the occurrence or non-occurrence of
any event having a Material Adverse Effect or which would be reasonably
likely to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect and (ii) any material
failure of such party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
11 ROWLEY BUILDING TRANSACTION. The Company shall involve Parent
and its advisors in its continued investigations of and discussions with
Rowley Building Products Corp. ("ROWLEY BUILDING PRODUCTS"), shall consult
with Parent regarding any proposed transaction involving Rowley Building
Products including the structure of the transaction, the form and substance
of the documents to be executed in connection with such transaction and the
specific nature of any post-closing obligations (payment, indemnification
or otherwise) and agrees to not consummate any such transaction without the
prior written consent of Parent.
12 CERTAIN LITIGATION. Notwithstanding anything to the contrary
contained in this Agreement, the outcome of the currently pending
litigation commenced against the Post Authority of New York and New Jersey
(the "PORT AUTHORITY") and the Company and/or one or more of its
subsidiaries in the United States District Court for the Eastern District
of New York (styled as Case No.: CV96-3793), and any related legal
proceeding in state or federal court including without limitation any
reasonably related legal proceedings instituted by individual members of
the coalition which is the plaintiff in the aforementioned proceeding
involving the lease dated March 29, 1996 between the Company and the Port
Authority (the "PORT AUTHORITY LEASE"), shall not constitute an event which
gives rise to a failure of a condition to Parent's and Acquisition Sub's
respective obligations under this Agreement (including without limitation,
if the Port Authority Lease is deemed unenforceable and the Company has not
secured or occupied another location prior to the expiration of the
Company's lease at 550 Hamilton Avenue, Brooklyn, New York), or which
otherwise provides Parent or Acquisition Sub with the right to decline to
consummate the Merger as a result of a failure of a closing condition. The
Company has, prior to the date hereof, delivered a true and correct copy of
the Indemnification Agreement, dated October 8, 1996, by and between the
Port Authority and the Company and/or one or more of its subsidiaries (the
"INDEMNIFICATION AGREEMENT"). The Company (a) shall keep Parent and its
counsel advised in writing of the status of, and material developments in,
the pending legal proceeding referred to above, (b) shall notify Parent and
its counsel in writing of the commencement of any related legal proceeding,
(c) shall preserve its rights under the Indemnification Agreement, and (d)
shall not settle or compromise the pending legal proceeding or any such
related legal proceeding without the prior written consent of Parent and
Acquisition Sub, which consent shall not be unreasonably withheld.
13 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with
each other before issuing any press release or otherwise making any public
statements or announcements with respect to this Agreement or any
transaction contemplated herein and shall not issue any such press release
or make any such public statement without the prior written consent of the
other party, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that a party may, without the prior consent of the other party,
issue such press release or make such public statement or announcement as
may be required by law if it has used its reasonable best efforts to
consult with the other party and to obtain such party's consent but has
been unable to do so. Notwithstanding anything to the contrary set forth
in this Agreement, the Company shall not, and shall use its best efforts to
ensure that its stockholders, directors, officers, employees, agents,
advisors or affiliates do not, disclose any information concerning Parent
or any of its affiliates without the prior written consent of a majority of
the equity holders of Parent. Access to any information concerning Parent
and its affiliates shall be limited by the Company only to those employees,
advisors and representatives who have a need to receive any such
information for the purpose of consummating the Merger and the other
transactions contemplated by this Agreement and who are under an
enforceable obligation to the Company to hold such information in
confidence under similar terms and conditions as set forth in the
Confidentiality Agreement.
14 ENVIRONMENTAL MATTERS. The Company (a) shall promptly prepare
and file all such reports, notices, filings, requests for consent or
waiver, applications for permit or license and such other documents (if
any) as required by applicable federal, state and local law with respect to
those environmental matters set forth in, or referred to in, SCHEDULE 5.11
hereto, and (b) shall promptly notify Parent and its counsel in writing of
any matter, issue, discovery, notice or other event which occurs, or of
which the Company becomes aware, after the date hereof, and which would
have required disclosure on SCHEDULE 5.11 hereto had it occurred or had the
Company become aware prior to the date hereof.
15 STOP TRANSFER; REORGANIZATION AGREEMENT. The Company
acknowledges and agrees to be bound by and comply with the provisions of
the Proxy Agreement as if a party thereto with respect to transfers of
record ownership of shares of the Common Stock, and agrees to notify the
transfer agent of the provisions of the Proxy Agreement and to request that
the transfer agent place a stop transfer order on the shares that are
subject to the provisions of such agreement except for the transfers
permitted by Section 1(a) of the Proxy Agreement. The Company hereby
waives any and all rights that it might have under the Agreement and Plan
of Reorganization dated October 1, 1986 by and among the Company and the
Stockholders (as defined therein), as amended (the "REORGANIZATION
AGREEMENT"), to the extent necessary to consummate the transaction
contemplated hereby and in order for the Principal Stockholders to enter
into the Proxy Agreement. The Company further agrees not to take any
action under such Reorganization Agreement that would affect the Proxy
Agreement and the arrangements contained therein. Furthermore, the Company
agrees that, at the Effective Time, the Reorganization Agreement shall
terminate as to the Company and the Company shall have no further rights
thereunder.
16 TRANSFER TAXES. Acquisition Sub and Parent agree that either
Acquisition Sub or the Company will pay the applicable state and local
transfer taxes arising as a result of the consummation of the Merger
(collectively, the "TRANSFER TAXES") including but not limited to the New
York State Real Property Transfer Tax, the New York City Real Property
Transfer Tax and the Connecticut Real Estate Conveyance Tax, if any, and
any penalties or interest with respect to the Transfer Taxes payable as a
result of the consummation of the Merger. The Company agrees to cooperate
with Acquisition Sub in the filing of any returns with respect to the
Transfer Taxes, including supplying in a timely manner any information with
respect to the Company's real property interests that is reasonably
necessary to complete such returns.
8. CONDITIONS TO THE MERGER
1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver, where permissible, at or prior to the
Effective Time, of each of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby, including the Merger, shall have been approved and
adopted by the affirmative vote of the stockholders of the Company to the
extent required by the Corporation Law and the Company's Certificate.
(b) HART-SCOTT-RODINO ACT. Any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the
Hart-Scott-Rodino Act shall have expired or been terminated.
(c) OTHER REGULATORY APPROVALS. All necessary approvals,
authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in
full force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated, except
where the failure to so obtain will not, either individually or in the
aggregate, have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole .
(d) NO INJUNCTIONS, ORDERS OR RESTRAINTS; ILLEGALITY. No
preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority shall
be in effect which would (i) make the consummation of the Merger illegal,
or (ii) otherwise restrict, prevent or prohibit the consummation of the
transactions contemplated by this Agreement, including the Merger.
2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the
satisfaction, or waiver by the Company, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of Parent and Acquisition Sub in this Agreement which is
qualified as to materiality shall be true and correct and each such
representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Date. Parent and
Acquisition Sub shall each have delivered to the Company a certificate of
such party to such effect signed by the Manager or Managers (as the case
may be) of Parent dated as of the Effective Date.
(b) AGREEMENTS AND COVENANTS. Parent and Acquisition Sub shall
have performed in all material respects all obligations and complied in all
material respects with all of the respective agreements or covenants to be
performed or complied with by such party under this Agreement and the
Company shall have received a certificate signed by the Chief Executive or
Chief Financial Officer of Parent to such effect dated as of the Effective
Date.
3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND
ACQUISITION SUB. The obligations of Parent and Acquisition Sub to effect
the Merger are also subject to the satisfaction, or waiver by Parent and
Acquisition Sub, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of the Company in this Agreement which is qualified as to
materiality shall be true and correct and each such representation or
warranty that is not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement, as applicable, and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Effective Time. The Company shall have delivered
to Parent a certificate of the Company to such effect signed by the Chief
Executive Officer and the Chief Financial Officer of the Company as of the
Effective Date.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed
in all material respects all obligations and complied in all material
respects with all agreements or covenants of the Company to be performed or
complied with by it at or prior to the Effective Date under this Agreement
and Parent shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer and Chief Financial Officer of the
Company to such effect dated as of the Effective Date.
(c) NO ORDERS, INJUNCTIONS OR RESTRAINTS ON OPERATION OF
BUSINESS; ILLEGALITY. No pending legal proceeding in (a "PENDING
LITIGATION"), or preliminary or permanent injunction or other order, decree
or ruling issued by, a court of competent jurisdiction or pending in
(together with a Pending Litigation a "PENDING LEGAL PROCEEDING"), or
issued by, a governmental, regulatory or administrative agency or
commission nor any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority shall be in effect, which (i)
restricts, prevents or prohibits the ownership or operation by Parent (or
any of its subsidiaries) of any portion of its or the Surviving
Corporation's or its subsidiaries' business, properties or assets which is
material to such businesses as a whole, or compels Parent (or any of its
subsidiaries) to dispose of or hold separate any portion of the Surviving
Corporation's or its subsidiaries' business, properties or assets which is
material to such businesses as a whole, (ii) imposes any material
limitation on the ability of Parent or Acquisition Sub to effect the Merger
or on the ability of Parent to hold or to exercise full rights of ownership
of the shares of common stock of the Surviving Corporation, including,
without limitation, the right to vote the shares of common stock of the
Surviving Corporation on all matters presented to the stockholders of the
Surviving Corporation, (iii) imposes any limitations on the ability of
Parent or any of its affiliates or subsidiaries to control in any material
respect the business, properties and operations of the Company or the
Surviving Corporation, or (iv) occurs after the execution of this Agreement
and is otherwise reasonably likely to have a Materially Adverse Effect on
the Surviving Corporation and its subsidiaries taken as a whole.
(d) FINANCIAL MARKETS. There shall not have occurred (i) any
general suspension of trading in, or limitation on prices for, securities
on the New York Stock Exchange, the American Stock Exchange or The Nasdaq
Stock Market, Inc.'s National Market, (ii) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States having a significant effect on the
functioning of financial markets in the United States, or (iv) any
limitation (whether or not mandatory) by any United States governmental
authority or agency on the extension of credit by banks or other financial
institutions which would have a material adverse effect on Parent's ability
to borrow sufficient funds as contemplated by the Financing Letters to pay
the Merger Consideration.
(e) NO MATERIAL ADVERSE EFFECT. Since the date of the
Agreement, there shall not have occurred any change having a Material
Adverse Effect on the Company and its subsidiaries taken as a whole
PROVIDED, HOWEVER, that the financial results of the Company for the three
months ended March 31, 1997, to the extent that they are reasonably
consistent with the financial results for the three months ended March 31,
1996, shall be excluded in determining any such change.
(f) THIRD PARTY CONSENTS. The Company shall have obtained all
consents of third parties to the consummation of the Merger and the other
transactions contemplated by this Agreement (other than the Financing,
except as specifically contemplated in this Agreement) necessary under any
contract, agreement, arrangement or understanding listed on SCHEDULE 8.3(F)
hereto and under any other contract, agreement, arrangement or
understanding the failure of which to obtain would have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole.
(g) WAIVERS OF CONTRACTUAL DEFAULTS, ACCELERATIONS, ETC. The
Company shall have obtained waivers (on terms satisfactory to Parent and
Acquisition Sub) with respect to any default, termination, acceleration of
payment or performance or modification clause contained in any contract,
agreement, commitment, arrangement, lease, policy or other instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries, or their respective properties or
assets is bound which is triggered or otherwise caused by reason of the
entering into this Agreement or the consummation of the Merger and the
other transactions contemplated by this Agreement (other than the
Financing, except as specifically contemplated in this Agreement), except
where the failure to have so obtained would not have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole, on the
Surviving Corporation and its subsidiaries taken as a whole, on the Parent
or on the ability to consummate the Merger.
(h) APPRAISAL RIGHTS. Holders of capital stock of the Company
shall not have demanded or perfected the right for appraisal of shares of
Company Stock representing more than five percent (5%) of all issued and
outstanding shares of capital stock of the Company taken as a whole as of
the Effective Date in accordance with Section 262 of the Corporation Law
and the Company shall have delivered to Parent a certificate dated as of
the Effective Date certifying to the foregoing effect.
(i) STOCK OPTION PLANS. Parent shall have received satisfactory
evidence (x) that holders of all Options have consented to the cancellation
of such Options and (y) that such Options and the Stock Option Plans will
terminate at or prior to the Effective Time.
4 CERTAIN PAYMENTS. In the event Parent and Acquisition Sub elect
to not consummate the Merger and the other transactions contemplated under
this Agreement as a result of a Pending Legal Proceeding, Parent shall
reimburse the Company for the Company Expenses (as defined in Section
9.2(d) hereof) which payment shall be payable to the Company (by wire
transfer of immediately available funds to an account designated by the
Company) within two (2) business days after demand theretofore is made in
writing by the Company.
9. TERMINATION, AMENDMENT AND WAIVER
1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of Parent, Acquisition Sub and the
Company;
(b) by either Parent and Acquisition Sub or the Company if the
Effective Time shall not have occurred on or before February 28, 1997 or
such later date as shall be mutually agreed to in each party's sole
discretion;
(c) by either Parent and Acquisition Sub or the Company if there
shall have been a material breach of any of the representations or
warranties set forth in this Agreement on the part of the other party,
which breach by its nature cannot be cured prior to the Effective Time or
within thirty (30) business days following receipt by the breaching party
of written notice of such breach from the other party hereto;
(d) by either Parent and Acquisition Sub or the Company if any
United States federal or state court of competent jurisdiction shall have
issued an injunction or taken any other action (which the parties shall use
their best efforts to stay or reverse) permanently restraining, enjoining
or otherwise prohibiting the Merger, and such injunction or other action
shall have become final and non-appealable;
(e) by the Company if either Parent or Acquisition Sub shall
have failed to perform or has breached in any material respect any of its
covenants, obligations or agreements under or contained in this Agreement
unless the failure to so perform or the breach, as the case may be, has
been caused by or results from a breach of this Agreement by the Company;
(f) by the Company if the Company enters into a binding
definitive agreement to effect a Superior Proposal (which entrance shall
not require Parent's or Acquisition Sub's consent); PROVIDED, HOWEVER, that
the Company shall notify Parent in writing at least three business days
prior to the exercise of its termination rights under this Section 9.1(f),
where such notice shall include the proposed terms of such agreement into
which the Company may enter;
(g) by Parent and Acquisition Sub if the Board shall have failed
to recommend or shall have withdrawn its recommendation or approval of the
Merger, or if the Board shall have recommended to stockholders of the
Company any Acquisition Proposal of any other person or shall have resolved
to do any of the foregoing, provided that any notice sent to Parent and
Acquisition Sub under Section 9.1(f) prior to the exercise of the
termination rights under such section shall not require the entrance into
such agreement or be deemed to constitute an act described in this Section
9.1(g) but the entrance into a binding definitive agreement to effect a
Superior Proposal shall constitute an act described in this Section 9.1(g);
(h) by Parent and Acquisition Sub if the Company shall have
failed to perform in any material respect any of its covenants, obligations
or agreements under or contained in this Agreement unless the failure to so
perform or the breach, as the case may be, has been caused by or results
from a breach of this Agreement by Parent or Acquisition Sub; or
(i) by Parent and Acquisition Sub if any United States federal
or state court of competent jurisdiction shall have issued an injunction or
taken any other action (which the parties shall use their best efforts to
stay or reverse) permanently restraining, enjoining or otherwise
prohibiting the enforcement of any of the terms of the Proxy Agreement, and
such injunction or other action shall have become final and non-appealable.
2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement pursuant
to Section 9.1 hereof, this Agreement shall forthwith become void and have
no effect, without any liability on the part of any party hereto or its
affiliates, trustees, directors, officers or stockholders and all rights
and obligations of any party hereto shall cease except for the agreements
contained in Sections 7.4, 7.7, 9 and 10; PROVIDED, HOWEVER, that nothing
contained in this Section 9.2(a) shall relieve any party from liability
under this Section 9 for any breach of this Agreement.
(b) If (x) Parent and Acquisition Sub terminate this Agreement
(A) pursuant to Section 9.1(g) or (B) pursuant to Section 9.1(h) as a
result of a willful breach by the Company or (y) if the Company terminates
this Agreement pursuant to Section 9.1(f), then the Company shall pay to
Parent an amount in cash equal to the sum of (i) $1,000,000, plus (ii)
Parent's and Frederick Marino's out-of-pocket costs and expenses in
connection with this Agreement and the transactions contemplated hereby
including, without limitation, fees and disbursements of its outside
counsel, accountants and other consultants retained by or on behalf of
Parent together with the other out-of-pocket costs incurred by it in
connection with analyzing, structuring, participating in the negotiations
of the terms and conditions, arranging financing, conducting due diligence
and other activities related to the Merger and the transactions
contemplated by this Agreement and the negotiations and evaluations leading
to the Merger, including, without limitation, commitment fees and expense
reimbursements paid to potential lenders (collectively, the "PARENT
EXPENSES"). Following the Company's reasonable request, Parent and Mr.
Marino shall provide such reasonable documentation of such expenses to
enable the Company to appropriately account for such expenses in its
financial records and to report such expenses in its tax returns and
reports.
(c) If Parent and Acquisition Sub terminate this Agreement
pursuant to Sections 9.1(h) (except for a termination because of a willful
breach by the Company, in which case the provisions of Section 9.2(b) will
apply), the Company shall reimburse Parent and Mr. Marino for the Parent
Expenses.
(d) If the Company terminates this Agreement pursuant to Section
9.1(e) hereof as a result of a willful breach by Parent and Acquisition
Sub, the Parent and Acquisition Sub shall pay to the Company an amount in
cash equal to the sum of (i) $1,000,000, plus (ii) the Company's
out-of-pocket costs and expenses in connection with this Agreement and the
transactions contemplated hereby including, without limitation, fees and
disbursements of its outside counsel, accountants and other consultants
retained by or on behalf of the Company together with the other
out-of-pocket costs incurred by it in connection with participating in the
negotiations of the terms and conditions of this Agreement and the other
activities related to the Merger and the other transactions contemplated by
this Agreement and the negotiations with Parent and its affiliates leading
to the Merger (collectively, the "COMPANY EXPENSES"). Following Parent's
reasonable request, the Company shall provide such reasonable documentation
of such expenses to enable Parent to appropriately account for such
expenses in its financial records and to report such expenses in its tax
returns and reports.
(e) If the Company terminates this Agreement pursuant to Section
9.1(e) (except for termination because of a willful breach by Parent and
Acquisition Sub, in which case the provisions of Section 9.2(d) will
apply), Parent shall reimburse the Company for the Company Expenses.
(f) Any payment required by this Section 9.2 shall be payable
(i) by the Company to Parent and Mr. Marino, or (ii) by Parent to the
Company, as the case may be, (by wire transfer of immediately available
funds to accounts designated by the recipients thereof) within two business
days after demand therefore is made in writing by the person entitled to
make such demand. The parties acknowledge and agree that the provisions of
this Section 9.2 are included herein in order to induce each of the parties
hereto to enter into this Agreement and to reimburse such parties for
incurring the costs and expenses related to entering into this Agreement
and consummating the transactions contemplated by this Agreement.
(g) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT,
THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THE SOLE AND EXCLUSIVE
REMEDIES AVAILABLE TO THEM WITH RESPECT TO ANY PROPOSED OR ACTUAL
TERMINATION OF THIS AGREEMENT OR ANY ACT OR FAILURE TO ACT PRIOR TO THE
CONSUMMATION OF THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, INCLUDING ANY MISREPRESENTATION OR BREACH OF ANY REPRESENTATION,
WARRANTY, COVENANT, AGREEMENT OR OBLIGATION UNDER THIS AGREEMENT SHALL BE
THE RIGHTS TO PAYMENT UNDER THIS SECTION 9.2. The parties hereto expressly
acknowledge and agree that, in light of the difficulty of accurately
determining actual damages with respect to the foregoing, the rights to
payment under this Section 9.2: (i) constitute a reasonable estimate of the
damages that will be suffered by reason of any such proposed or actual
termination of this Agreement or any such act or failure to act in
accordance with this Agreement, and (ii) shall be in full and complete
satisfaction of any and all damages arising as a result of the foregoing.
THE PARTIES AGREE THAT, EXCEPT AS SET FORTH IN THIS SECTION 9.2(G), THEY
SHALL NOT, IN RESPECT OF ANY PROPOSED OR ACTUAL TERMINATION OF THIS
AGREEMENT OR ANY ACT OR FAILURE TO ACT PRIOR TO THE CONSUMMATION OF THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, EXERCISE
OR ATTEMPT TO EXERCISE ANY OTHER RIGHTS OR REMEDIES, IN CONTRACT, AT LAW,
IN EQUITY OR OTHERWISE AGAINST ANY OTHER PARTY HERETO.
3 AMENDMENT. This Agreement may be amended by the parties hereto
by an instrument in writing signed on behalf of each of the parties hereto
AT ANY TIME BEFORE OR AFTER ANY APPROVAL HEREOF BY THE STOCKHOLDERS OF THE
COMPANY AND ACQUISITION SUB; PROVIDED, HOWEVER, THAT AFTER ANY SUCH
APPROVAL OF THE COMPANY'S STOCKHOLDERS, NO AMENDMENT SHALL BE MADE WHICH
REDUCES THE AMOUNT OR CHANGES THE FORM OF THE MERGER CONSIDERATION OR IN
ANY WAY MATERIALLY ADVERSELY AFFECTS THE RIGHTS OF STOCKHOLDERS OF THE
COMPANY, WITHOUT THE FURTHER APPROVAL OF SUCH STOCKHOLDERS.
4 EXTENSION; WAIVER. At any time prior to the Closing, the parties
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed
on behalf of such party.
10. GENERAL PROVISIONS
1 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered if delivered personally or as of the
date sent if sent by cable, telegram or telecopier, or, as of the next
business day if sent by prepaid overnight carrier to the parties at the
following addresses (or at such other addresses as shall be specified by
the parties by like notice):
(a) if to Parent or Acquisition Sub:
c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to: c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, E2OE
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Laura C. Hodges Taylor, P.C.
Joseph L. Johnson III, Esq.
(b) if to the Company: 550 Hamilton Avenue
Brooklyn, New York 11232
Attention: President
with a copy to: Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Stanley U. North, III, Esq.
2 INTERPRETATION. When a reference is made in this Agreement to
subsidiaries of Parent, Acquisition Sub or the Company, the word
"subsidiary" means any corporation more than 50 percent of whose
outstanding voting securities, or any partnership, joint venture or other
entity more than 50 percent of whose total equity interest, is directly or
indirectly owned by Parent, Acquisition Sub or the Company, as the case may
be. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
3 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANT AND
AGREEMENTS. Except for Section 7.6, and the obligations contained in
Section 3 hereof, none of the representations, warranties, covenants and
agreements contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and thereafter
there shall be no liability on the part of either Parent, Acquisition Sub
or the Company or any of their respective officers, directors or
stockholders in respect thereof. Except as expressly set forth in this
Agreement, there are no representations or warranties of any party hereto,
express or implied.
4 MISCELLANEOUS. This Agreement (i) constitutes, together with the
Confidentiality Agreement, the entire agreement and supersedes all of the
prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (ii)
shall be binding upon and inure to the benefits of the parties hereto and
their respective successors and permitted assigns and is not intended to
confer upon any other person (except as set forth below) any rights or
remedies hereunder and (iii) may be executed in two or more counterparts
(and via facsimile) which together shall constitute a single agreement.
Section 7.6 is intended to be for the benefit of those persons described
therein and their respective legatees, distributees, heirs, estates,
executors and other personal representatives, as fully in each case as if
each such person was a party hereto and the covenants contained therein may
be enforced by such persons. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties and
each of the persons referred to Section 7.6 and this Section 10.4 shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in
the Chancery Court of the State of Delaware, this being in addition to any
other remedy to which they are entitled at law or in equity that is not
limited by this Agreement.
5 ASSIGNMENT. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties (and any assignment to a non-permitted
assignee shall be void and of no effect).
6 KNOWLEDGE; BEST EFFORTS. Wherever the terms "the Company's
knowledge," "the Company's best knowledge," "the receipt of notice," "the
best knowledge of the Company," and any similar term is used, in each case
each such term shall mean the knowledge or best knowledge or receipt (as
the case may be) of any of Robert Gaites, David Polishook, Richard Young,
John Yanuklis and David Bernstein and includes any fact, matters or
circumstances which any of such individuals, as an ordinary and prudent
business person employed or retained in the same capacity in the same type
and size of business as the Company should have known.
7 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person or circumstance is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby,
and to such end, the provisions of this Agreement are agreed to be
severable.
8 CHOICE OF LAW/CONSENT TO JURISDICTION. The validity,
interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of Delaware. The parties hereby
irrevocably and unconditionally consent to the jurisdiction of the Chancery
Court of the State of Delaware for any action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated
hereby, and the parties agree not to commence any action, suit or
proceeding related thereto except in such court unless, as a result of
Surviving Corporation's merger with a non-Delaware entity or other similar
corporate event occurring after the Effective Time, such court
affirmatively refuses to resolve any such action, suit or proceeding. The
parties further irrevocably and unconditionally waive any objection to the
laying of venue of any action, suit or proceeding arising out of or
relating to this Agreement in the Chancery Court of the State of Delaware,
and hereby further irrevocably and unconditionally waive and agree not to
plead or claim in such court that any such action, suit or proceeding
brought in such court has been brought in an inconvenient forum. Each
party further agrees that service of any process, summons, notice or
document by U.S. registered mail to the address of such party set forth in
Section 10.1 above shall be effective service of process for any action,
suit or proceeding brought against such party in such court.
9 THIRD-PARTY BENEFICIARY. With respect to those provisions of
Section 9.2 pursuant to which certain expenses are to be reimbursed to
Frederick M. Marino, Mr. Marino is a direct and intended third-party
beneficiary of such Section 9.2.
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
HAMILTON ACQUISITION LLC
By:/S/ JOHN J. REMONDI
-----------------------------------
Name: JOHN J. REMONDI
Title: MANAGER
HAMILTON NY ACQUISITION CORP.
By:/S/ JOHN J. REMONDI
-----------------------------------
Name: JOHN J. REMONDI
Title: PRESIDENT
THE STROBER ORGANIZATION, INC.
By:/S/ ROBERT J. GAITES
----------------------------------
Name: ROBERT J. GAITES
Title:President and Chief Executive
Officer
<PAGE>
EXHIBIT 2.2
Proxy Agreement dated as of November 11, 1996 among certain
stockholders of the Company, Hamilton Acquisition LLC and
Hamilton NY Acquisition Corp.
PROXY AGREEMENT
This is a PROXY AGREEMENT (the "Agreement"), dated as of November __,
1996 by and among Hamilton Acquisition LLC, a Delaware limited liability
company ("Parent"), Hamilton NY Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Acquisition Sub"), and certain
stockholders of The Strober Organization, Inc., a Delaware corporation (the
"Company") who are signatories hereto (collectively, the "Stockholders" and
each, a "Stockholder").
BACKGROUND
A. As of the date hereof, each Stockholder owns (either beneficially
or of record) that number of shares of common stock, par value $.01 per
share (the "Common Stock"), of the Company set forth on EXHIBIT A hereto
(together with any shares of Common Stock acquired by such Stockholder
during the Proxy Term (as defined in Section 2 hereof), whether upon the
exercise of options, conversion of convertible securities or otherwise, the
"Stockholder Shares").
B. Parent, Acquisition Sub and the Company propose to enter into an
Agreement and Plan of Merger of even date herewith (as the same may be
amended from time to time, the "Merger Agreement") (all capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement) which provides, upon the terms and subject to the conditions
thereof, for the merger of Acquisition Sub with the Company (the "Merger").
C. As a condition to their willingness to enter into the Merger
Agreement, Parent and Acquisition Sub have requested that each Stockholder
agree, and in order to induce the Parent and Acquisition Sub to enter into
the Merger Agreement, each of the Stockholders has agreed to, among other
things, grant Parent irrevocable proxies to vote the Stockholder Shares
owned of record or beneficially by each such Stockholder on the terms and
conditions provided herein.
TERMS
In consideration of the promises and the mutual covenants herein
contained and intending to be legally bound, the parties hereto agree as
follows:
1. TRANSFER AND VOTING OF SHARES.
(a) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Each
Stockholder hereby agrees, while this Agreement is in effect, and except as
contemplated hereby, not to (i) offer to sell, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any of the Stockholder Shares or any other shares of Common
Stock; (ii) deposit any Stockholder Shares into a voting trust or enter
into a voting agreement with respect to any Stockholder Shares or grant any
proxy or power of attorney with respect to any such Stockholder Shares; or
(iii) take any action that would make any representation or warranty of
such Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing his or her
obligations under this Agreement or otherwise take any action that is
contrary to the transactions contemplated hereby and by the Merger
Agreement. Notwithstanding anything herein to the contrary, the parties
hereto shall be entitled (x) to pledge or hypothecate shares of Common
Stock to institutional lenders as security for personal or commercial
loans, or (ii) to transfer shares of Common Stock to charitable trusts,
descendants or trusts for the benefit of any spouse or descendant subject
to the condition precedent to any such transfer that the transferee (or in
the case of a pledge or hypothecation, the pledgee) shall execute and
deliver to the Company and to Parent the Proxy Agreement agreeing to be
personally bound thereby and appointing the transferor as the transferee's
proxy in voting all the transferred shares as long as the Proxy Agreement
remains in effect.
(b) VOTING OF SHARES; FURTHER ASSURANCES. Except as otherwise
provided in this Section 1(b), each Stockholder, by this Agreement, with
respect to those Stockholder Shares that such Stockholder owns of record,
does hereby constitute and appoint Parent, or any affiliate of Parent that
is a party to the Merger Agreement, with full power of substitution, during
and for the Proxy Term, as such Stockholder's true and lawful attorney and
irrevocable proxy, for and in such Stockholder's name, place and stead, to
vote each of such Stockholder Shares as such Stockholder's proxy, at every
meeting of the stockholders of the Company or any adjournment thereof or in
connection with any written consent of the Company's stockholders (A) in
favor of the approval and adoption of the Merger Agreement and approval of
the Merger and the other transactions contemplated by the Merger Agreement,
(B) against any proposal for any action or agreement that would result in a
material breach of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or which
could result in any of the conditions of the Company's obligations under
the Merger Agreement not being fulfilled, and (C) in favor of any other
matter directly relating to consummation of the transactions contemplated
by the Merger Agreement which is considered at any such meeting of
stockholders or in such consent, and in connection therewith to execute any
documents which are necessary or appropriate in order to effectuate the
foregoing. Each Stockholder intends this proxy to be irrevocable and
coupled with an interest during the Proxy Term and will take such further
action and execute such other instruments as may be necessary to effectuate
the intent of this proxy and hereby revokes any proxy previously granted by
such Stockholder with respect to his or her Stockholder Shares. Each
Stockholder further agrees to cause the Stockholder Shares owned by such
Stockholder beneficially to be voted in accordance with the foregoing.
Notwithstanding anything to the contrary in this Agreement (including
Section 6(b) hereof), Parent is not authorized under this Agreement to, and
shall not, directly or indirectly, vote the Stockholder Shares, execute a
written consent of the Company's stockholders or otherwise act pursuant to
this Agreement in any manner (a) to elect or remove any director of the
Company, (b) which would prevent the Company from taking the actions
permitted by Section 7.5(b) of the Merger Agreement (other than approval
and adoption of the Merger Agreement and related agreements and approval of
the transactions contemplated thereby, including the Merger), (c) to amend,
supplement or otherwise modify the By-laws or Certificate of Incorporation
of the Company (except with respect to and in connection with the Merger)
or (d) to require the Board of Directors of the Company to take or refrain
from taking any action.
(c) CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to his or her Stockholder Shares
and shall be binding upon any person or entity to which legal or beneficial
ownership of his or her Stockholder Shares shall pass, whether by operation
of law or otherwise, including without limitation such Stockholder's heirs,
guardians, administrators or successors.
2. PROXY TERM. For the purposes of this Agreement, "Proxy Term"
shall mean the period from the execution of this Agreement until the
earlier of (a) the termination of the Merger Agreement or (b) the Effective
Time (as such term is defined in the Merger Agreement).
3. PAYMENTS TO PARENT.
(a) In the event that on or after the date hereof, (i) the
Merger Agreement has been terminated pursuant to the provisions of Section
9.1(f) thereof and at the time of such termination neither Parent nor
Acquisition Sub is in breach of its obligations under the Merger Agreement
and (ii) any Stockholder thereafter sells Stockholder Shares in connection
with the consummation of a Superior Proposal (as defined in Section 7.5(b)
of the Merger Agreement) within six months of the termination of the Merger
Agreement, such selling Stockholder shall pay to Parent an amount in cash
equal to fifty percent (50%) of the product of (x) the number of such
Stockholder Shares sold and (y) the excess, if any, of (A) the per share
cash (and/or if consideration is received in such sale in the form of
securities, the "fair market value" (as defined in Section 3(b) below) of
such securities) received by such Stockholder as a result of such sale (the
"Selling Stockholder Price") over (B) the Merger Consideration (as defined
in the Merger Agreement).
(b) For purposes of this Agreement, the fair market value of any
securities listed on a national securities exchange or traded on The Nasdaq
Stock Market shall be equal to the average closing price per share of such
security as reported on such exchange or The Nasdaq Stock Market for the
twenty (20) trading days immediately preceding the effective date of the
transaction pursuant to which the Stockholder is entitled to receive such
securities.
(c) Any payment required to be made pursuant to Section 3(a) of
this Agreement shall be made within two business days after the settlement
of such sale.
4. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent and Acquisition
Sub jointly and severally hereby represent and warrant to the Stockholders
as follows:
(a) ORGANIZATION AND QUALIFICATION. Parent is a limited
liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware. Acquisition Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of Parent and Acquisition Sub has the requisite
power and authority to carry on its business as it is now being conducted.
Each of Parent and Acquisition Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the character of its
properties, owned or leased, or the nature of its activities make such
qualification necessary, except where the failure to be so qualified or in
good standing would not have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise) or
prospects (a "Material Adverse Effect") of Parent and its subsidiaries
taken as a whole. Acquisition Sub has not conducted any business prior to
the date hereof and has no assets and liabilities other than those incident
to its formation and to the consummation of the transactions contemplated
hereby and by the Merger Agreement. Copies of the Certificate of Formation
of Parent and the Certificate of Incorporation, and By-laws of Acquisition
Sub heretofore delivered to the Company are true, complete and correct as
of the date hereof.
(b) AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition Sub has the requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the managers and members,
if required, of Parent and by the Board of Directors and the sole
stockholder of Acquisition Sub, if required, and no other proceedings on
the part of Parent or Acquisition Sub are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by each of Parent and
Acquisition Sub and, assuming this Agreement constitutes a valid and
binding obligation of the Stockholders, constitutes the legal, valid and
binding obligation of each of Parent and Acquisition Sub enforceable
against each of Parent and Acquisition Sub in accordance with its terms.
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by Parent or Acquisition Sub nor the
consummation of the transactions contemplated hereby will (i) conflict with
or result in any breach of any provision of their respective certificates
of incorporation or by-laws; (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-
R Act"), (B)pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (C) such filings and approvals as may be required
under the "blue sky," takeover or securities laws of various states, or (D)
where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not prevent or delay
consummation of the transactions contemplated by this Agreement or would
not otherwise prevent Parent or Acquisition Sub from performing their
respective obligations under this Agreement; (iii) result in a default (or
give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, license, agreement
or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which any of their respective assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained
or which, individually or in the aggregate, would not have a Material
Adverse Effect on Parent and its subsidiaries taken as a whole; or
(iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or Acquisition Sub, any of their respective
subsidiaries or any of their respective assets, except for violations which
would not have a Material Adverse Effect on Parent and its subsidiaries
taken as a whole.
5. REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER. Each
Stockholder hereby severally (for himself, herself or itself only)
represents and warrants to Parent and Acquisition Sub as follows:
(a) OWNERSHIP OF SHARES. Such Stockholder owns of record or
beneficially the number of shares of Common Stock set forth on EXHIBIT A
hereto and such shares constitute all of the shares of Common Stock owned
of record or beneficially by such Stockholder. Such Stockholder has sole
voting power and sole power of disposition with respect to his or her
Stockholder Shares, with no restrictions, except those that may be imposed
by applicable federal securities laws, on such Stockholder's rights of
disposition pertaining thereto. Except as specifically set forth on
EXHIBIT A hereto, such Stockholder has not granted any proxy with respect
to his or her Stockholder Shares and neither such Stockholder nor his or
her Stockholder Shares is bound by or party to any agreement or other
instrument restricting such Stockholders' voting rights with respect to
such Stockholder Shares. Such Stockholder owns of record or beneficially
the number and type of securities issued or granted by the Company,
including without limitation options, warrants and other convertible
securities, set forth on EXHIBIT A hereto and such securities constitute,
along with such shares of Common Stock set forth on EXHIBIT A hereto, all
of the securities of the Company or instruments convertible into securities
of the Company owned of record or beneficially by such Stockholder. The
Stockholder Shares are, and immediately prior to the Effective Time will
be, duly authorized, validly issued, fully paid, non-assessable and, except
for those pledges set forth on SCHEDULE 5(A) hereto, free and clear of any
and all liens, security interests, proxies, voting trusts or agreements,
encumbrances, charges or claims of any kind whatsoever except for any
encumbrance or proxy arising under this Agreement.
(b) ORGANIZATION; AUTHORITY RELATIVE TO THIS AGREEMENT. Such
Stockholder has the legal capacity, power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
such Stockholder and, assuming this Agreement constitutes a valid and
binding obligation of Parent and Acquisition Sub, this Agreement
constitutes a legal, valid and binding agreement of such Stockholder
enforceable against such Stockholder in accordance with its terms. Except
as set forth on SCHEDULE 5(B) hereto, there is no beneficiary or holder of
a voting trust certificate or other interest of any trust of which such
Stockholder is a trustee whose consent is required for the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby; PROVIDED, HOWEVER, that any such consent has been
obtained in writing prior to the execution of this Agreement.
(c) CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by such Stockholder, the performance by such
Stockholder of the obligations and transactions contemplated hereby,
including without limitation the granting of the irrevocable proxy and the
appointment of an attorney-in-fact pursuant to Section 1(b) hereof, nor the
compliance by such Stockholder with any provision hereof, will (i) require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) in
connection with the H-S-R Act, (B) pursuant to the Exchange Act, (C) such
filings and approvals as may be required under the "blue sky," takeover or
securities laws of various states, or (D) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not prevent or delay the performance by such
Stockholder of his or her obligations under this Agreement; (ii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default or give rise to any right of
termination, amendment, cancellation or acceleration) under, or result in
the creation of a lien or encumbrance on any of his or her Stockholder
Shares pursuant to, any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which such
Stockholder is party or by which such Stockholder or any of his or her
assets, including the Stockholder Shares, may be bound, except for such
defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not prevent or delay the
performance by such Stockholder of his or her obligations under this
Agreement; or (iii) conflict with or violate any order, writ, injunction,
judgment, decree, statute, law, rule or regulation applicable to such
Stockholder or any of his or her assets, including the Stockholder Shares.
(d) ACKNOWLEDGMENT OF RELIANCE. Such Stockholder understands
and acknowledges that the Parent and Acquisition Sub are entering into the
Merger Agreement in reliance upon such Stockholder's execution and delivery
of this Agreement.
(e) BROKERS. No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such
Stockholder.
6. CERTAIN COVENANTS OF STOCKHOLDER. Except in accordance with
Subsection 6(e), each Stockholder hereby covenants and agrees (with respect
to himself or herself but not as to the other Stockholders) as follows:
(a) NEGOTIATIONS. Unless and until this Agreement shall have
been terminated in accordance with its terms, each of the Stockholders
agrees and covenants that (i) he or she will not, directly or indirectly,
initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or similar
transaction involving, or any purchase of 10% or more of the assets or
securities of the Company or any of its subsidiaries, other than the
transactions contemplated by the Merger Agreement (any such proposal or
offer being hereinafter referred to as an "ACQUISITION PROPOSAL") or engage
in any negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal; (ii) each of the Stockholders will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing; and (iii) each of the Stockholders will
notify Parent immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with any of the
Stockholders or, to the knowledge of such Stockholder, the Company, which
notification shall include the terms of any such inquiries or proposals,
PROVIDED, HOWEVER, that if the Company actually provides the information
and notice to Parent required by Section 7.5 of the Merger Agreement with
respect to any contact with the Company, such Stockholder shall not have
any obligation to provide any such duplicate information.
(b) VOTING. Each Stockholder hereby agrees that, during the
Proxy Term, at any meeting of the stockholders of the Company, however
called, or in connection with any written consent of the Company's
Stockholders, such Stockholder shall vote (or cause to be voted) his or her
Stockholder Shares, except as specifically requested by the Parent in
writing in advance: (a) in favor of the Merger; (b) against any action or
agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement
of the Company under the Merger Agreement; and (c) against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger, including, but not limited to: (i) any
extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or any of any of its
subsidiaries; (ii) a sale, lease or transfer of a material amount of assets
of the Company or any of its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of the Company or its
subsidiaries; (iii) any change in the management or board of directors of
the Company, except as agreed to in writing by Parent; (iv) any material
change in the present capitalization or dividend policy of the Company; (v)
any amendment of the Company's Certificate of Incorporation; or (vi) any
other material change in the Company's corporate structure, management or
business. Such Stockholder shall not enter into any agreement or
understanding with any person or entity during the Proxy Term to vote or
give instructions to vote in any manner inconsistent with the terms of this
Section 6(b). Notwithstanding the foregoing, in the event that the Company
has properly terminated the Merger Agreement pursuant to Section 9.1(f)
thereof, a Stockholder may vote (or cause to be voted) his or her
Stockholder Shares in favor of a Superior Proposal.
(c) ADDITIONAL SHARES. Each Stockholder hereby agrees, while
this Agreement is in effect, to promptly notify Parent of the number of any
new shares of Common Stock acquired, beneficially or of record, by such
Stockholder, if any, after the date hereof whether through acquisition in
the open market, upon exercise of any option, warrant or other convertible
security, or otherwise.
(d) WAIVER OF APPRAISAL AND DISSENTER'S RIGHTS. Each
Stockholder hereby waives any rights of appraisal or rights to dissent from
the Merger that such Stockholder may have.
(e) ACTING AS DIRECTOR AND EXECUTIVE OFFICER. Notwithstanding
anything in this Section 6 to the contrary, the covenants and agreements
set forth in Section 6(a) shall not be deemed to prevent any Stockholder,
while acting in his or her capacity as a director of the Company, from
taking any action that is specifically permitted under the applicable
provisions of the Merger Agreement. Further, any Stockholder may act in
his capacity as an executive officer of the Company upon direction by the
Board of Directors of the Company pursuant to Section 7.5(b) of the Merger
Agreement.
(f) STOP TRANSFER. Each Stockholder agrees with, and covenants
to, Parent and Acquisition Sub that such Stockholder may not request that
the Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of his or her
Stockholder Shares, unless such transfer is made in compliance with this
Agreement. Each Stockholder agrees, with respect to any Stockholder Shares
in certificated form, that such Stockholder will deliver to the Company
within fifteen business days after the date hereof, the certificates
representing such Stockholder Shares and the Company will inscribe upon
such certificates the following legend (the "Legend"): "The shares of
Common Stock, par value $.01 per share, of The Strober Organization, Inc.
(the "Company"), represented by this certificate are subject to a Proxy
Agreement dated as of November 11, 1996, and may not be sold or otherwise
transferred, except in accordance therewith. Copies of such Agreement may
be obtained at the principal executive offices of the Company." Each
Stockholder agrees that within ten business days after the date hereof,
such Stockholder will no longer hold any Stockholder Shares, whether
certificated or uncertificated, in "street name" or in the name of any
nominee. In the event that the Company enters into a Superior Proposal and
has terminated the Merger Agreement in accordance with Section 9.1(f)
thereof, the Company will remove the Legend from all certificates
representing Stockholder Shares and will return such certificates to the
Stockholders. Pursuant to the Merger Agreement, the Company has agreed to
notify the transfer agent of the provisions set forth in this Section and
each Stockholder agrees to provide such documentation and to take such
other actions as may be reasonably required to give effect to such
provisions with respect to such Stockholder Shares.
(g) REORGANIZATION AGREEMENT. Each Stockholder hereby agrees
that, at the Effective Time, the Reorganization Agreement shall terminate
as to such Stockholder and such Stockholder shall have no further rights
thereunder.
7. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto (as to the
Stockholders, in their capacity as stockholders) shall execute and deliver
such additional documents and take all such further action as may be
necessary or reasonably desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement and the Merger Agreement. Without limiting the generality of the
foregoing, during the Proxy Term, each Stockholder shall perform such
further acts and execute such further documents and instruments as may
reasonably be required to vest in the Parent and Acquisition Sub the power
to carry out the provisions of this Agreement including without limitation
the exercise of the power afforded by Section 1 hereof.
8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(i) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them
with respect to the subject matter hereof and (ii) shall not be assigned by
operation of law or otherwise, provided that Parent may assign any of its
rights and obligations to any wholly-owned direct or indirect subsidiary of
Parent or to any entity which controls or is under common control with
Parent, but no such assignment shall relieve Parent of its obligations
hereunder and Parent shall remain as fully and primarily liable as if there
was no such assignment.
(b) AMENDMENT. This Agreement may not be modified, amended,
altered or supplemented except by an instrument in writing signed on behalf
of all the parties hereto; PROVIDED that EXHIBIT A hereto may be
supplemented by the Parent and Acquisition Sub by adding the name and other
relevant information concerning any stockholder of the Company who agrees
to be bound by the terms of this Agreement without the agreement of any
other party hereto, and thereafter such added stockholder shall be treated
as a "Stockholder" for all purposes of this Agreement.
(c) ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof
in addition to any other remedy to which they are entitled at law or in
equity, and the parties hereto further agree to waive any requirement for
the posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief.
(d) VALIDITY. IF ANY TERM OR OTHER PROVISION OF THIS AGREEMENT
IS INVALID, ILLEGAL OR INCAPABLE OF BEING ENFORCED BY ANY RULE OF LAW OR
PUBLIC POLICY, ALL OTHER CONDITIONS AND PROVISIONS OF THIS AGREEMENT SHALL
NEVERTHELESS REMAIN IN FULL FORCE AND EFFECT SO LONG AS THE ECONOMIC OR
LEGAL SUBSTANCE OF THE TRANSACTIONS CONTEMPLATED HEREBY IS NOT AFFECTED IN
ANY MANNER MATERIALLY ADVERSE TO ANY PARTY. UPON SUCH DETERMINATION THAT
ANY TERM OR OTHER PROVISION IS INVALID, ILLEGAL OR INCAPABLE OF BEING
ENFORCED, THE PARTIES HERETO SHALL NEGOTIATE IN GOOD FAITH TO MODIFY THIS
AGREEMENT SO AS TO EFFECT THE ORIGINAL INTENT OF THE PARTIES AS CLOSELY AS
POSSIBLE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW IN AN ACCEPTABLE
MANNER TO THE END THAT THE TRANSACTIONS CONTEMPLATED HEREBY ARE FULFILLED
TO THE EXTENT POSSIBLE.
(e) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by cable, telegram, facsimile
transmission with confirmation of receipt, or telex, or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
if to Parent or Acquisition Sub:
Hamilton Acquisition LLC
c/o Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to:
Fidelity Capital Associates, Inc.
82 Devonshire Street, E20E
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Laura C. Hodges Taylor, P.C.
Joseph L. Johnson III, Esq.
if to Stockholders:
c/o Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Stanley U. North III, Esq.
with a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
Attn: Stanley U. North III, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
(f) CHOICE OF LAW/CONSENT TO JURISDICTION. The validity,
interpretation, performance and enforcement of this Agreement shall be
governed by the laws of the State of Delaware without regard to its rules
of conflict of laws. The parties hereby irrevocably and unconditionally
consent to the jurisdiction of the Chancery Court of the State of Delaware
for any action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, and the parties agree
not to commence any action, suit or proceeding related thereto except in
such court. The parties further irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding arising
out of or relating to this Agreement in the Chancery Court of the State of
Delaware, and hereby further irrevocably and unconditionally waive and
agree not to plead or claim in such court that any such action, suit or
proceeding brought in such court has been brought in an inconvenient forum.
Each party further agrees that service of any process, summons, notice or
document by U.S. registered mail (i) in the case of Parent or Acquisition
Sub, to the address of such party set forth in Section 8(e) above; or (ii)
in the case of any Stockholder, to the address of such Stockholder set
forth on EXHIBIT A hereto, shall be effective service of process for any
action, suit or proceeding brought against such party in such court.
(g) DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts (and via Facsimile), each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
(i) PERFORMANCE BY ACQUISITION SUB. Parent hereby agrees to
cause Acquisition Sub to comply with its obligations hereunder as
contemplated in the Merger Agreement.
(j) EXPENSES. Each of the parties hereto will pay all fees and
expenses it incurs in connection with this Agreement, whether or not
consummated, including without limitation the fees and expenses of its
financial and legal advisors.
(k) PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
(l) SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements of Acquisition Sub, Parent and
the Stockholders pursuant to this Agreement shall survive the consummation
of the Merger or the termination of the Merger Agreement.
(m) NO AGREEMENT UNTIL EXECUTED. Irrespective of negotiations
among the parties or the exchanging of drafts of this Agreement, this
Agreement shall not constitute or be deemed to evidence a contract,
agreement, arrangement or understanding among the parties hereto unless and
until (i) the Board of Directors of the Company has approved, for purposes
of Section 203 of the Delaware General Corporation Law and any applicable
provision of the Company's certificate of incorporation, the possible
acquisition of the Stockholder Shares by Parent and Acquisition Sub
pursuant to this Agreement and (ii) this Agreement is executed by all
parties hereto.
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition Sub and the Stockholders have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
HAMILTON ACQUISITION LLC
By:/S/ JOHN J. REMONDI
------------------------------
Name: JOHN J. REMONDI
Title: Manager
HAMILTON NY ACQUISITION CORP.
By:/S/ JOHN J. REMONDI
------------------------------
Name: JOHN J. REMONDI
Title: PRESIDENT
/s/ Robert J. Gaites /s/ John T. Guerin
- ------------------------------ ----------------------------------
Robert J. Gaites John T. Guerin
/s/ Sue Strober /s/ Richard D. King
- ------------------------------ ----------------------------------
Sue Strober Richard D. King
/s/ Sue Strober /s/ Steven Strober
- ------------------------------ ----------------------------------
Sue Strober, as Trustee for Steven Strober
Steven Strober
/s/ Sue Strober /s/ Hiliary Strober
- ------------------------------ ----------------------------------
Sue Strober, as Trustee for Hiliary Strober
Hilary Strober
/s/ Gordon Sandler /s/ David W. Berstein
- ------------------------------ ----------------------------------
Gordon Sandler David W. Berstein, Trustee, Trust
F/J/B/O Steven and Hilary Strober
/s/ Nathan Schwartzberg /s/ John Yanuklis
- ------------------------------ ----------------------------------
Nathan Schwartzberg John Yanuklis
/s/ Albert C. Brower
- ------------------------------
Albert C. Brower By:______________________________
Trustee, Trust F/B/O Yanuklis
Charitable Remainder Trust
<PAGE>
PROXY AGREEMENT
[SIGNATURE CONTINUATION PAGE]
/s/ Robert J. Gaites
---------------------------------
Robert J. Gaites; proxy for
Robert J. Gaites Charitable Trust
/s/ John Yanuklis
---------------------------------
John Yanuklis; proxy for
John Yanuklis Charitable trust
/s/ Albert C. Brower
---------------------------------
Albert C. Brower, proxy for
Albert C. Brower Charitable Trust
<PAGE>
<PAGE>
EXHIBIT A TO PROXY AGREEMENT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF Number of Shares of Other Company Securities
STOCKHOLDER COMMON STOCK OWNED OWNED
<S> <C> <C>
Sue Strober 592,141 None
Sue Strober, trustee for son 42,325 None
Sue Strober, trustee for
daughter 42,325 None
Sue Strober, proxy for son{*} 45,600
Sue Strober, proxy for daughter{*} None
45,600
David W. Bernstein, trustee of 180,960 None
trust for Steven and Hilary
Strober{*}
Robert J. Gaites 309,955 Options for 113,053 Shares,
including 25,000 at $1.75 per
share, 25,000 at $4.75 per
share, 37,500 at $3.63 per
share, and 25,553 at $4.50 per
share.
John Yanuklis 313,254 Options for 96,904 Shares,
including 9,000 at $1.13 per
share, 14,286 at $1.75 per
share, 22,737 at $4.75 per
share, 23,503 at $3.63 per
share, and 27,378 at $4.50 per
share.
Gordon Sandler{++} 399,486 None
Richard King 200,931 None
Albert Brower 69,124 Options for 36,744 Shares,
including 3,750 at $1.13 per
share, 5,357 at $1.75 per
share, 8,211 at $4.75 per
share, 10,759 at $3.63 per
share, and 8,667 at $4.50 per
share.
Nathan Schwartzberg 127,166 None
John T. Guerin 422,249 None
John Yanuklis Charitable Trust 140,000 None
Robert J. Gaites Charitable 147,180 None
Trust
Albert C. Brower Charitable 25,000 None
Trust
Total 3,103,296
</TABLE>
**FOOTNOTES**
{*} Subject to proxy held by Sue Strober.
{++} Subject to (i) a Collateral Pledge Agreement
between Mr. Sandler and The Chase Manhattan Bank (the "BANK") and (ii) a
Forbearance Agreement between Mr. Sandler and the Bank.
<PAGE>
SCHEDULE 5(A)
TO
PROXY AGREEMENT
The certificates representing 399,486 shares of Common Stock, $.01 par
value, of the Company (the "GORDON SHARES") in the name of Gordon Sandler
("SANDLER") are in the physical possession of The Chase Manhattan Bank,
successor by merger to Chemical Bank (the "BANK"), subject to (i) that
certain Collateral Pledge Agreement between Sandler and the Bank and (ii)
that certain Forbearance Agreement between Sandler and the Bank. The
Company and the Purchaser are hereby irrevocably directed to set the record
address and the address for the transmission of payment for the Gordon
Shares as follows:
Gordon Sandler
c/o Sills Cummis Zuckerman Radin Tischman
Epstein & Gross, P.A., as Escrow Agent
One Riverfront Plaza
Newark, New Jersey 07102
Attention:Stanley U. North, III, Esq.
The Bank consents to the grant by Sandler of a proxy in respect of the
Gordon Shares pursuant to the terms of the Proxy Agreement between and
among the Company and the various other parties thereto dated the date
hereof (the "PROXY AGREEMENT"), and agrees not to take any action which is
contrary to or inconsistent with the terms of the Proxy Agreement.
CONSENTED AND AGREED TO BY:
THE CHASE MANHATTAN BANK
/S/ HARVEY CAVAYERO
- -------------------------------------------
by: HARVEY CAVAYERO, ESQ., ATTORNEY-IN-FACT
(AN AUTHORIZED OFFICER)
/S/ GORDON SANDLER
- -------------------------------------------
GORDON SANDLER
<PAGE>
EXHIBIT 2.3
Guaranty dated as of November 11, 1996 by Fidelity Investors Limited
Partnership in favor of the Company
<PAGE>
GUARANTY
GUARANTY, dated as of November 11, 1996 by Fidelity Investors Limited
Partnership, a Delaware limited partnership (the "Guarantor"), in favor of
The Strober Organization, Inc., a Delaware corporation (the "Company").
RECITALS
The Company is a party to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of the date hereof by and among the Company, Hamilton
Acquisition LLC ("Parent") and Hamilton NY Acquisition Corp. ("Acquisition
Sub"), pursuant to which Acquisition Sub will be merged with and into the
Company (the "Merger"), with the resulting entity being an indirect
subsidiary of Parent. Guarantor has advised the Company that (i) the
Guarantor is a member of Parent, a Delaware limited liability company and
(ii) Parent owns all of the issued and outstanding capital stock of
Acquisition Sub. Parent and Acquisition Sub are entities newly created for
the purpose of effecting the Merger. The Company has required that the
Guarantor execute this Guaranty to provide assurances that the Company will
receive any amounts which may become due from Parent and/or Acquisition Sub
in connection with the performance of the Parent's and/or Acquisition Sub's
respective obligations under the Merger Agreement. The Guarantor is
willing to execute this Guaranty to induce the Company to enter into the
Merger Agreement.
NOW, THEREFORE in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby agrees as follows:
Section 1. GUARANTY OF PAYMENT AND PERFORMANCE. The Guarantor hereby
absolutely, unconditionally and irrevocably guarantees to the Company that
each of Parent and Acquisition Sub will perform all of its obligations
subject to and under the Merger Agreement, including the timely payment of
all amounts due thereunder and the Proxy Agreement (define) (collectively,
the "Obligations"). Anything to the contrary in this Guaranty
notwithstanding, the involvement of Parent or Acquisition Sub or both in
insolvency, bankruptcy or similar proceedings as a debtor shall not in any
manner modify, reduce or otherwise affect the Guarantor's obligation under
this Guaranty.
Section 2. WAIVERS BY GUARANTOR; AGENT'S FREEDOM TO ACT. The Guarantor
waives presentment, demand, protest, notice of acceptance and all other
notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in
effect, any right to require the marshalling of assets of Parent,
Acquisition Sub or the Guarantor, and all suretyship defenses generally.
Without limiting the generality of Section 1 or the foregoing part of this
Section 2, the Guarantor agrees that the obligations of the Guarantor
hereunder shall not be released or discharged, in whole or in part, or
otherwise modified or affected by any of the following, whether or not any
one or more such events or circumstances occur at one or more times and/or
from time to time, and whether or not with notice to, or the consent of,
Guarantor (i) any compromises, settlements, extensions, rescissions,
waivers, amendments or other modifications of any kind or nature of any of
the terms or provisions of any agreement evidencing, securing or otherwise
executed in connection with the Obligations; (ii) the substitution or
release in whole or in part of any entity primarily or secondarily liable
for the Obligations; (iii) the adequacy of any rights the Company may have
against any collateral or other means of obtaining repayment of the
Obligations; or (iv) any event or circumstance which could otherwise
constitute a legal or equitable discharge or defense in whole or in part
(other than full and complete performance or payment in full of the
Obligations and performance of Guarantor's other agreements contained in
this Guaranty).
Section 3. SUBROGATION; SUBORDINATION. Until the payment and
performance in full of all Obligations, the Guarantor shall not exercise
any rights against Parent or Acquisition Sub arising as a result of payment
by the Guarantor hereunder, by way of subrogation or otherwise, and will
not prove any claim in competition with the Company in respect of any
payment hereunder in bankruptcy or insolvency proceedings of any nature;
and the Guarantor will not claim any set-off or counterclaim against Parent
or Acquisition Sub in respect of any liability of the Guarantor to Parent
or Acquisition Sub. The payment of any amounts due with respect to any
indebtedness of Parent or Acquisition Sub now or hereafter held by the
Guarantor is hereby subordinated to the prior payment in full of the
Obligations. If the Guarantor shall collect, enforce or receive any
amounts in respect of indebtedness of Parent or Acquisition Sub, such
amounts shall be collected, enforced and received by the Guarantor as
trustee for the Company and be paid over to the Company, on account of the
Obligations without affecting in any manner the liability of the Guarantor
under the other provisions of this Guaranty.
Section 4. DUE AUTHORIZATION; FINANCIAL STATEMENTS. The Guarantor
hereby represents and warrants to the Company that (a) the Guarantor is
duly authorized to execute and deliver this Agreement and to perform its
obligations hereunder and that this Guaranty constitutes the legal and
valid obligation of Guarantor and (b) the financial statements previously
delivered to the Company by the Guarantor are true and correct in all
material respects.
Section 5. TERMINATION. This Guaranty shall remain in full force and
effect until all Obligations are indefeasibly paid in full and this
Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any performance or payment of any of the Obligations or
any of the agreements of Guarantor contained in this Guaranty is rescinded
or, in the case of payments, must otherwise be returned for any reason
(including, without limitation, the insolvency, bankruptcy or
reorganization of Parent or Acquisition Sub) all as though such payment had
not been made, notwithstanding anything to the contrary in this Guaranty.
Section 6. FREEDOM TO ACT. The Company shall in its sole discretion
have the right to proceed first directly against Guarantor under this
Guaranty without proceeding against Parent or Acquisition Sub or both, as
applicable, including, without limitation, without exhausting any other
rights or remedies which the Company may have and without resorting to any
collateral or other security, if any, held by the Company.
Section 7. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon
the Guarantor, its successors and assigns, and shall inure to the benefit
of and be enforceable by the Company and its successors, transferees and
assigns, and its permitted transferees and assigns.
Section 8. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall be effective unless the same shall be in writing and signed
by the Company and the Guarantor. No failure on the part of the Company to
exercise, and no delay in exercising, any right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right.
Section 9. NOTICES. All notices and other communications called for
hereunder shall be made in writing and, unless otherwise specifically
provided herein, shall be deemed to have been duly made or given to a party
when delivered by hand or mailed first class mail postage prepaid or, in
the case of telegraphic or telexed notice, when transmitted, answer back
received, addressed to the address set forth beneath such party's signature
hereto, or at such other address as either party may designate in writing.
Section 10. GOVERNING LAW; CONSENT TO JURISDICTION. THE VALIDITY,
INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENT TO THE JURISDICTION OF THE CHANCERY
COURT OF THE STATE OF DELAWARE FOR ANY ACTION, SUIT OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. THE PARTIES FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT IN THE CHANCERY COURT OF THE STATE OF
DELAWARE, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVE AND
AGREE NOT TO PLEAD OR CLAIM IN SUCH COURT THAT ANY SUCH ACTION, SUIT OR
PROCEEDING BROUGHT IN SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR
DOCUMENT BY U.S. REGISTERED MAIL TO THE ADDRESS SET FORTH BENEATH SUCH
PARTY'S SIGNATURE HERETO SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY
ACTION, SUIT OR PROCEEDING BROUGHT AGAINST SUCH PARTY IN SUCH COURT.
Section 11. MISCELLANEOUS. This Guaranty constitutes the entire
agreement of the Guarantor and the Company with respect to the matters set
forth herein. The rights and remedies herein provided are cumulative and
not exclusive of any remedies provided by law or any other agreement, and
this Guaranty shall be in addition to any other guaranty of the
Obligations. Captions are for the ease of reference only and shall not
affect the meaning of the relevant provisions. The meanings of all defined
terms used in this Guaranty shall be equally applicable to the singular and
plural forms of the terms defined. If any provision of this Guaranty or
the application thereof to any person or entity or circumstance shall be
invalid or unenforceable to any extent, (i) the remainder of this Guaranty
and the application of such provision to other persons, entities or
circumstances shall not be effected thereby and (ii) each such provision
shall be enforced to the greatest extent permitted by law. This Guaranty
may be executed in two or more counterparts, each of which shall constitute
an original, but all of which when taken together shall constitute but one
agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be
executed and delivered by their duly authorized officers as of the date
appearing on page one.
FIDELITY INVESTORS
LIMITED PARTNERSHIP
By:Fidelity Investors Management Corp.,
its General Partner
By:/S/ JOHN J. REMONDI
________________________________
Its: President
Address:
c/o Fidelity Capital Asociates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109-3614
Attn: Mr. John J. Remondi
with a copy to:
Fidelity Capital Associates, Inc.
82 Devonshire Street, E20E
Boston, MA 02109-3614
Attn: Robert M. Gervis, Esq.
and a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Laura C. Hodges Taylor, P.C.
<PAGE>
THE STROBER ORGANIZATION, INC.
By:/S/ROBERT J. GAITES
-------------------------------------
Its: President and Chief Executive
Officer
Address:
550 Hamilton Avenue
Brooklyn, NY 11232
Attn: President
with a copy to:
Sills, Cummis, Zuckerman, Radin,
Tischman, Epstein & Gross
The Legal Center
One Riverfront Plaza
Newark, NJ 07102
attn: Stanley U. North, III, Esq.
<PAGE>
EXHIBIT 20
Press Release dated November 11, 1996
<PAGE>
THE STROBER ORGANIZATION, INC. TO BE
ACQUIRED FOR $6.00 PER SHARE IN CASH
THIRD QUARTER 1996 EARNINGS
Brooklyn, New York, November 11, 1996 - THE STROBER ORGANIZATION, INC.
(NASDAQ-STRB) today announced that it has entered into a definitive merger
agreement providing for the acquisition of all of Strober's Common Stock at
$6.00 per share, in cash, for an aggregate fully-diluted purchase price of
approximately $32 million. The merger is expected to be consummated in
January 1997.
On Friday, November 8, 1996, the business date prior to this
announcement, Strober's common stock closed at $5.25 per share.
The consummation of the merger is subject to certain conditions,
including the approval of a majority of Strober's stockholders, antitrust
clearance, as well as certain other matters. The merger agreement
terminates in the event the merger is not consummated by February 28, 1997
unless an extension is mutually agreed to by the parties to the agreement.
If the transaction is not consummated, the merger agreement generally
limits the parties' liability to reimbursement of expenses and break-up
fees. Strober's principal stockholders and certain of Strober's senior
management, who together own in excess of 62% of Strober's outstanding
common stock, have agreed to vote their shares of Strober Common Stock in
favor of the merger. Hill Thompson Capital Markets, Inc. a New York
investment banking firm, advised Strober in this transaction.
The acquisition is led by Fidelity Ventures Limited Partnership, a
private venture capital investor. The purchaser has advised the Company
that it intends to finance a portion of the purchase price and has obtained
financing commitments in connection therewith. After the merger, Strober
expects to continue to do business under the name "The Strober
Organization." It is expected that, after the merger, the new Chairman of
the Board and Chief Executive Officer of Strober will be Frederick Marino,
an experienced building products executive and former Chief Executive
Officer of Marino Industries. Robert J. Gaites, Strober's current Chairman
of the Board, Chief Executive Officer and President and John Yanuklis,
Strober's current Executive Vice President, will continue in their offices
as President and Executive Vice President, respectively, after the merger.
In addition, it is anticipated that both Mr. Gaites and Mr. Yanuklis, as
well as certain other members of Strober's management, may make a minority
investment in the purchaser at the time of, or immediately following, the
consummation of the merger.
Mr. Gaites, Strober's current Chairman of the Board, Chief Executive
Officer and President, commented that this transaction provides the Strober
stockholders with a significant premium as compared to the average market
price of Strober's Common Stock over the last five years, that all of the
Strober management and employees would be expected to remain in place and
that the ongoing business would continue to have a substantial budget for
expansion in the North East.
Mr. Gaites also stated that in light of the pending merger, the
Company has decided not to proceed with the purchase of Rowley Building
Products Corp. and Rowley Building Products of New Jersey, Inc.
Additionally, the Company announced that for the third quarter of
1996, the Company reports net income of $1,600,000 or 31 cents per share on
sales of $41,789,000. This compares with net income of $1,134,000 or 21
cents per share on net sales of $33,864,000 for the same period of 1995.
Net income for the nine month period ended September 30, 1996 was
$2,611,000 or 51 cents per share on net sales of $100,898,000 compared to
net income of $2,360,000 or 45 cents per share on net sales of $96,066,000
for the first nine months of 1995.
Mr. Gaites stated, "I am very pleased with our Company's performance
in the third quarter as sales increased 23% and net income increased by
41%. Our gross sales in October 1996 further increased 28% to $14,600,000
compared to $11,416,000 in October 1995".
THE STROBER ORGANIZATION, INC. - FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
<S> <C> <C> <C> <C>
(In thousands, except 9/30/96 9/30/95 9/30/96 9/30/95
per share data)
Net Sales $41,789 $33,864 $100,898 $96,066
Net income before
income taxes 2,758 1,921 4,502 4,000
Net income 1,600 1,134 2,611 2,360
Net income per share .31 .21 .51 .45
Weighted average number
of shares outstanding 5,170 5,358 5,159 5,264
</TABLE>
Strober is a leading supplier of building materials to professional
contractors from 11 centers in New York, New Jersey, Connecticut and
Pennsylvania.
For more information contact:
Strober Representative:
David J. Polishook
Chief Financial Officer
(718) 832-1212
<PAGE>
EXHIBIT 27
Financial Data Schedule
<PAGE>
<PAGE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STROBER ORGANIZATION, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JUN-01-1996
[PERIOD-END] SEP-30-1996
[CASH] 4,553
[SECURITIES] 0
[RECEIVABLES] 25,150
[ALLOWANCES] 3,162
[INVENTORY] 12,880
[CURRENT-ASSETS] 40,878
[PP&E] 13,473
[DEPRECIATION] 7,960
[TOTAL-ASSETS] 53,731
[CURRENT-LIABILITIES] 14,893
[BONDS] 0
[COMMON] 52
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 36,117
[TOTAL-LIABILITY-AND-EQUITY] 53,731
[SALES] 100,898
[TOTAL-REVENUES] 100,898
[CGS] 74,222
[TOTAL-COSTS] 74,222
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 598
[INTEREST-EXPENSE] 156
[INCOME-PRETAX] 4,502
[INCOME-TAX] 1,891
[INCOME-CONTINUING] 2,611
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,611
[EPS-PRIMARY] 0.51
[EPS-DILUTED] 0.51
