<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1998 Commission File Number 1-5620
SAFEGUARD SCIENTIFICS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Pennsylvania 23-1609753
- --------------------------------------------------------------------------------
<S> <C>
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
800 The Safeguard Building, 435 Devon Park Drive Wayne, PA 19087
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610)293-0600
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 and
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
------- -------
Number of shares outstanding as of May 14,1998
Common Stock 31,993,705
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
------------------------------ ----
<S> <C>
Item 1 - Financial Statements:
Consolidated Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997.........................3
Consolidated Statements of Operations (unaudited)-
Three Months Ended March 31, 1998 and 1997...............................4
Consolidated Statements of Cash Flows (unaudited)-
Three Months Ended March 31, 1998 and 1997...............................5
Notes to Consolidated Financial Statements...............................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations......................11
PART II - OTHER INFORMATION
---------------------------
Item 4 - Submission of Matters to a Vote of Security Holders................20
Item 5 - Other Information..................................................20
Item 6 - Exhibits and Reports on Form 8-K...................................20
Signatures..................................................................21
</TABLE>
2
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
-------------------------- ---------------------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,128 $ 5,382
Receivables less allowances 182,985 187,385
Inventories 232,575 198,053
Other current assets 5,829 6,459
--------- ----------
Total current assets 426,517 397,279
Property, Plant, and Equipment 121,880 105,188
Less accumulated depreciation and amortization (33,048) (28,221)
--------- ----------
Total property, plant, and equipment, net 88,832 76,967
Other Assets
Investments 224,529 185,111
Notes and other receivables 22,850 21,035
Excess of cost over net assets of
businesses acquired, net 28,835 26,168
Other 8,754 7,981
--------- ----------
Total other assets 284,968 240,295
--------- ----------
Total Assets $800,317 $714,541
--------- ----------
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current debt obligations $ 3,476 $ 3,396
Accounts payable 119,275 74,025
Accrued expenses 79,742 91,857
--------- ----------
Total current liabilities 202,493 169,278
Long-Term Debt 149,517 127,089
Deferred Taxes 27,850 20,044
Minority Interest and Other 102,365 100,179
Convertible Subordinated Notes 72,345 90,881
Shareholders' Equity
Common stock 3,280 3,280
Additional paid-in capital 62,108 49,952
Retained earnings 156,531 151,471
Treasury stock, at cost (7,539) (13,339)
Net unrealized appreciation on investments 31,367 15,706
--------- ----------
Total shareholders' equity 245,747 207,070
--------- ----------
Total Liabilities and Shareholders' Equity $800,317 $714,541
--------- ----------
--------- ----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------
1998 1997
------------------ --------------------------
(UNAUDITED)
<S> <C> <C>
Revenues
Net Sales
Product $379,271 $385,405
Services 62,627 62,171
-------- --------
Total net sales 441,898 447,576
Securities and other gains, net 7,852 7,201
Other income 3,497 2,686
-------- --------
Total revenues 453,247 457,463
Costs and Expenses
Cost of sales - product 333,420 342,068
Cost of sales - services 41,123 40,262
Selling and service 37,396 33,616
General and administrative 21,195 19,723
Depreciation and amortization 4,273 5,234
Interest and financing 5,803 5,198
Income from equity investments, net (1,505) (104)
-------- --------
Total costs and expenses 441,705 445,997
-------- --------
Earnings Before Minority Interest and Taxes on Income 11,542 11,466
Minority interest (3,109) (3,979)
-------- --------
Earnings Before Taxes On Income 8,433 7,487
Provision for taxes on income 3,373 2,995
-------- --------
Net Earnings $ 5,060 $ 4,492
-------- --------
-------- --------
Earnings Per Share
Basic $ .16 $ .14
Diluted $ .15 $ .14
Average Common Shares Outstanding
Basic 31,714 31,122
Diluted 32,403 32,032
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------
1998 1997
-------------------------- --------------------
(UNAUDITED)
<S> <C> <C>
Operating Activities
Net earnings $ 5,060 $ 4,492
Adjustments to reconcile net earnings to
cash provided (used) by operating activities
Depreciation and amortization 4,273 5,234
Deferred income taxes (262) (179)
Income from equity investments, net (1,505) (104)
Securities and other gains, net (7,852) (7,201)
Minority interest, net 1,865 2,387
Cash provided (used) by changes in
working capital items
Receivables 10,837 66,514
Inventories (34,522) 41,290
Accounts payable, accrued expenses, and other 31,419 (80,648)
-------- --------
Cash provided by operating activities 9,313 31,785
Proceeds from securities and other gains, net 8,405 987
-------- --------
Cash provided by operating activities and
securities and other gains, net 17,718 32,772
Other Investing Activities
Investments and notes acquired, net (24,893) (19,247)
Capital expenditures (4,746) (6,395)
Business acquisitions, net of cash acquired (4,023)
Other, net (507) (591)
-------- --------
Cash (used) by other investing activities (34,169) (26,233)
Financing Activities
Net borrowings (repayments) on
revolving credit facilities 15,675 (15,869)
Net borrowings (repayments) on term debt 517 (797)
Repurchase of Company common stock (854) (177)
Issuance of Company common stock 649 1,121
Issuance of subsidiary common stock 210 1,701
-------- --------
Cash provided (used) by financing 16,197 (14,021)
-------- --------
Decrease in Cash and Cash Equivalents (254) (7,482)
Cash and Cash Equivalents - beginning of year 5,382 12,881
-------- --------
Cash and Cash Equivalents - End of Period $ 5,128 $ 5,399
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
Notes to Consolidated Financial Statements
March 31, 1998
1. General
The accompanying unaudited interim consolidated financial statements were
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The Summary of Accounting
Policies and Notes to Consolidated Financial Statements included in the
1997 Form 10-K should be read in conjunction with the accompanying
statements. These statements include all adjustments (consisting only of
normal recurring adjustments) which the Company believes are necessary for
a fair presentation of the statements. The interim operating results are
not necessarily indicative of the results for a full year.
2. Comprehensive Income
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" (SFAS 130), which was effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is the
change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. Other than net
earnings, the Company's source of comprehensive income is from net
unrealized appreciation on its investments which is disclosed separately in
the Shareholders' Equity section of the Consolidated Balance Sheets. Total
comprehensive income (the sum of net earnings and the change in unrealized
appreciation on investments) was $20.7 million and $6.5 million for the
quarters ended March 31, 1998 and 1997, respectively.
3. Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 presentation.
6
<PAGE>
4. Investments
The following summarizes the Company's investments (in thousands).
Investments are classified according to the applicable accounting method at
March 31, 1998. Market value reflects the price of publicly-traded
securities at the close of business at the respective date. Unrealized
appreciation reflects the net excess of market value over carrying value of
publicly-traded securities classified as available-for-sale.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
---------------------------------------- ------------------------------------
Carrying Market Carrying Market
Value Value Value Value
------------------ ----------------- ------------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Equity Investees
Cambridge $ 26,126 $433,542 $ 24,679 $371,394
ChromaVision 12,905 44,565 4,689 30,044
Coherent 16,154 223,399 14,799 135,008
OAO 14,602 45,123 13,887 43,716
Sanchez 8,219 63,620 7,196 89,068
USDATA 7,237 21,390 7,194 13,325
Non-public companies 35,389 34,655
-------- --------
120,632 107,099
Diamond 1,526 26,878 1,526 14,717
DocuCorp 3,469 15,836 7,718
Integrated Systems Consulting Group 1,891 9,864 1,891 7,785
Other public companies 14,961 16,795 15,393 20,104
Unrealized appreciation 47,526 23,796
Non-public companies 34,524 27,688
--------- ---------
$224,529 $185,111
--------- ---------
--------- ---------
</TABLE>
The following summarized financial information for investees accounted for
on the equity method of accounting at March 31, 1998 has been compiled from
the unaudited financial statements of the respective investees and reflects
certain historical adjustments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
Net Sales:
Public companies $190,027 $128,687
Non-public companies:
Multigen 3,393 2,266
RMS 20,813 21,273
Other 11,606 9,689
-------- --------
$225,839 $161,915
-------- --------
-------- --------
</TABLE>
Net sales of companies accounted for on the cost method of accounting are
not included above and include Diamond Technology, Integrated Systems
Consulting Group, DocuCorp International, Intellisource, Diablo, and
Whisper.
7
<PAGE>
5. Debt
In April 1998, the Company increased the availability under its bank
revolving credit facility to $200 million from $150 million. Of the $200
million, $150 million matures in May 2002 and is secured by certain equity
securities the Company holds of its publicly-traded partnership companies,
including CompuCom (the "Pledged Securities"). The remaining $50 million is
unsecured, matures in April 1999, with availability limited to the lesser
of $50 million or 10% of the value of the Pledged Securities. There was
$30.9 million outstanding under the total facility at March 31, 1998.
The following is a summary of long-term debt (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Parent Company and Other Recourse Debt
Revolving credit facilities $ 47,100 $ 22,200
Other 14,693 7,822
--------- ---------
61,793 30,022
--------- ---------
Subsidiary Debt (Non-Recourse to Parent)
CompuCom 91,200 100,425
Other 38
--------- ---------
91,200 100,463
--------- ---------
Total debt 152,993 130,485
Current debt obligations (3,476) (3,396)
--------- ---------
Long-term debt $149,517 $127,089
-------- --------
-------- --------
</TABLE>
6. Earnings Per Share
The calculations of Earnings Per Share (EPS) were (in thousands except
per share amounts):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
--------------- --------------
(UNAUDITED)
<S> <C> <C>
Basic EPS
Net earnings $ 5,060 $ 4,492
Average common shares outstanding 31,714 31,122
Basic EPS $ .16 $ .14
---------- --------------
---------- --------------
Diluted EPS
Net earnings $ 5,060 $ 4,492
Adjustment (a) (206) (88)
---------- --------------
4,854 4,404
Average common shares outstanding 31,714 31,122
Effect of dilutive options 689 910
---------- --------------
Average number of common shares assuming dilution 32,403 32,032
Diluted EPS $ .15 $ .14
---------- --------------
---------- --------------
</TABLE>
(a) Net earnings are adjusted for the dilutive effect of public investee common
stock equivalents and convertible securities.
8
<PAGE>
7. Parent Company Financial Information
Condensed Financial Information is provided to reflect the results of
operations and financial position of the "Parent Company", or the Company
without the effect of consolidating its less than wholly-owned
subsidiaries.
The following summarizes the Parent Company Balance Sheets of Safeguard
Scientifics, Inc. and its wholly-owned subsidiaries (in thousands). These
Parent Company Balance Sheets differ from the Consolidated Balance Sheets
due to the exclusion of the assets and liabilities of the Company's less
than wholly-owned subsidiaries, primarily CompuCom Systems, Inc. and
Tangram Enterprise Solutions, Inc. (Tangram), with the carrying value of
these companies included in "Investments".
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Current assets $ 16,216 $ 11,710
Investments 350,804 310,877
Other 50,208 37,567
--------- ---------
Total assets $ 417,228 $ 360,154
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 16,306 $ 18,525
Long-term debt 61,317 29,689
Other liabilities 21,513 13,989
Convertible subordinated notes 72,345 90,881
Shareholders' equity 245,747 207,070
--------- ---------
Total liabilities & shareholders' equity $ 417,228 $ 360,154
--------- ---------
--------- ---------
</TABLE>
The following summarizes the Parent Company's investments in less than
wholly-owned subsidiaries (in thousands). Market value reflects the price
of publicly-traded securities at the close of business at the respective
date.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------------------- ------------------------------
Carrying Market Carrying Market
Value Value Value Value
------------- -------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CompuCom $124,065 $211,504 $122,613 $211,504
Tangram 2,210 83,590 3,153 68,570
Cambridge 26,126 433,542 24,679 371,394
Coherent 16,154 223,399 14,799 135,008
Other public 112,336 244,071 75,572 218,759
Other 69,913 70,061
-------- --------
$350,804 $310,877
-------- --------
-------- --------
</TABLE>
9
<PAGE>
Parent Company Financial Information (continued)
The following summarizes the Parent Company Statements of Operations of
Safeguard Scientifics, Inc. and its wholly-owned subsidiaries (in
thousands). 1997 included net sales and cost of sales and operating
expenses of $7.7 million and $7.2 million, respectively, related to Pioneer
which was sold in mid-1997. These Parent Company Statements of Operations
differ from the Consolidated Statements of Operations by excluding the
revenues and related costs and expenses of the Company's less than
wholly-owned subsidiaries, primarily CompuCom and Tangram, with the
Company's share of the earnings or losses of these companies reflected in
the caption "Equity income, net ".
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues
Net sales $ 7,717
Securities and other gains, net $ 7,852 7,201
Other income 3,824 3,116
-------- --------
Total revenues 11,676 18,034
Costs and Expenses
Cost of sales and operating expenses 7,799 13,687
Equity income, net (3,185) (1,545)
-------- --------
Total costs and expenses 4,614 12,142
-------- --------
Earnings Before Taxes On Income 7,062 5,892
Provision for taxes on income 2,002 1,400
-------- --------
Net Earnings $ 5,060 $ 4,492
-------- --------
-------- --------
</TABLE>
10
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The Company's business strategy is the development of primarily
information technology-oriented, entrepreneurially-driven partnership companies
to achieve superior returns for its shareholders. The Company provides to its
partnership companies and associated venture funds active strategic management,
operating guidance, acquisition and disposition assistance, board and management
recruitment, and innovative financing. The Company offers its shareholders,
through the rights offering process, the opportunity to acquire direct ownership
in selected partnership companies which it believes are ready for public
ownership.
If the Company's ownership in any of the partnership companies changes
significantly, the Company's consolidated revenues and related costs and
expenses may fluctuate primarily due to the applicable accounting method used
for recognizing its participation in the operating results of that company.
The revenues and related costs and expenses of a partnership company
are included in the Company's consolidated operating results if the Company owns
more than 50% of the outstanding voting securities of the partnership company.
Participation of shareholders other than the Company in the earnings or losses
of a more than 50% owned partnership company is reflected in the caption
"Minority interest" in the Consolidated Statements of Operations. Minority
interest adjusts consolidated earnings to reflect only the Company's share of
the earnings or losses of the partnership company. The partnership companies
that are consolidated in the first quarter of 1998 are CompuCom Systems, Inc.
and Tangram Enterprise Solutions, Inc. Premier Solutions Ltd. and Pioneer Metal
Finishing, which were sold in mid-1997, were included in the Company's
consolidated operating results in the first quarter of 1997.
Investments in companies in which the Company owns 50% or less of the
outstanding voting securities, in which significant influence is exercised, are
accounted for on the equity method of accounting. Significant influence is
presumed at a 20% ownership level; however, the Company applies the equity
method for certain companies in which it owns less than 20% because it exerts
significant influence through representation on those companies' Boards of
Directors and other means. On the equity method of accounting, a partnership
company's revenues and related costs and expenses are not included in the
Company's consolidated operating results; however, the Company's share of the
earnings or losses of the partnership company is reflected in the caption
"Income from equity investments, net" in the Consolidated Statements of
Operations.
The net effect of a partnership company's results of operations on the
Company's net earnings is the same under either consolidation accounting or the
equity method of accounting, as only the Company's share of the earnings or
losses of a partnership company is included in the Company's net earnings in the
Consolidated Statements of Operations.
11
<PAGE>
Investments not consolidated or accounted for on the equity method are
accounted for on the cost method of accounting under which the Company's share
of the earnings or losses of such companies is not included in the Company's
Consolidated Statements of Operations.
As mentioned in Operations Overview, the Company's consolidated
revenues and related costs and expenses are significantly influenced by
CompuCom's results of operations. At March 31, 1998, the Company owns
approximately 51% of CompuCom's outstanding common stock and owns preferred
stock which gives it 60% of the vote for CompuCom's directors.
CompuCom competes in the computer reseller industry which has been
undergoing significant transformation and consolidation. Several of CompuCom's
competitors have been growing through acquisitions and others have been
acquired. In addition, companies previously engaged in the retail channel have
begun to enter the corporate reseller market, heightening the competition.
As a result, while growing internally, CompuCom is also looking to
strengthen its market share through acquisitions. If CompuCom were to use its
stock for acquisitions or if some other dilutive event were to occur, the
Company's voting interest in CompuCom could decrease below 50%. Under current
generally accepted accounting principles, the Company would cease consolidating
CompuCom's results and instead would account for its investment in CompuCom on
the equity method provided the Company maintained the ability to exercise
significant influence over CompuCom's ordinary course of business. The Company's
share of CompuCom's earnings, on the equity method versus consolidation, would
differ only to the extent that the Company's ownership of CompuCom changed.
However, the presentation of the Consolidated Statements of Operations and
Balance Sheets would change dramatically.
Note 7 to the Company's Consolidated Financial Statements summarizes
the Parent Company Statements of Operations and Balance Sheets of the Company
for the same periods presented in the Consolidated Financial Statements. These
statements differ from the Consolidated Financial Statements by excluding the
revenues, costs, expenses, assets, and liabilities of the Company's less than
wholly-owned subsidiaries (primarily CompuCom and Tangram) and instead treating
these companies as if they were accounted for on the equity method. The
Company's share of the results of operations of less than wholly-owned
subsidiaries is included in "Equity income, net" and the carrying value of these
companies is included in "Investments" in the Parent Company Statements of
Operations and Balance Sheets, respectively.
Although the Parent Company Statements of Operations and Balance Sheets
presented in Note 7 are accurate relative to the Company's historical
Consolidated Financial Statements, they are not necessarily indicative of future
Parent Company Statements of Operations and Balance Sheets.
12
<PAGE>
Operations Overview
Net sales by industry segment were (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------
1998 1997
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Information Technology
Microcomputer Systems and Services $437,752 $431,889
Information Solutions 4,146 2,603
-------- --------
441,898 434,492
Other 13,084
-------- --------
Total Net Sales $441,898 $447,576
-------- --------
-------- --------
</TABLE>
Net sales decreased slightly in the first quarter of 1998 compared to
the first quarter of 1997 due primarily to the sale of Premier and Pioneer
(Other) in mid-1997, partially offset by increased sales at CompuCom
(Microcomputer Systems and Services) and Tangram (Information Solutions).
CompuCom's services sales increased 6% while product sales increased slightly.
The increase in product sales is due to an increase in the number of desktop,
laptop, and server units sold, partially offset by a decrease in the average
unit sales prices as compared to the prior year. CompuCom has embarked on a
strategy of product growth facilitated through the hiring of additional sales
representatives and strategic acquisitions, including two acquisitions announced
in April 1998 (See Liquidity and Capital Resources). The increase in services
sales is due to increases in configuration and field engineering, both of which
have benefited from the increase in product unit sales, partially offset by a
decrease in CompuCom's systems engineering group. CompuCom represented 99% of
the Company's total consolidated net sales in the first quarter of 1998 and
1997. As a result of the relative significance of CompuCom in the consolidated
results, fluctuations in the financial results of other business units have
tended to have a minimal impact.
Net earnings were $5.06 million, or $.15 a share (diluted) in 1998,
compared to $4.49 million, or $.14 a share (diluted), for the same period in
1997. The Company's increased net earnings in the first quarter of 1998
resulted primarily from improved results at Tangram, increased equity income,
and higher securities and other gains, partially offset by decreased earnings
at CompuCom and the loss of earnings of Pioneer due to its sale in 1997.
CompuCom's net earnings decreased primarily as a result of continued
investments in its service business through the hiring and training of
additional engineer and support personnel and lower services margins. Future
improved profitability at CompuCom will depend on its ability to hire and
retain quality service personnel while effectively managing the utilization
of such personnel. It will also depend on increased focus on providing
technical service and support to customers, product demand, competition,
manufacturer product availability and pricing changes, effective utilization
of vendor programs, successfully managing the implementation and operation of
the channel assembly programs of its major suppliers, adequately integrating
recent and potential future acquisitions, and control of operating expenses.
13
<PAGE>
The following summarizes significant pre-tax securities and other gains (in
millions):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Cambridge $7.6 $5.5
Diamond 4.3
DocuCorp 1.6
Other (1.3) (2.6)
---- ----
$7.9 $7.2
---- ----
---- ----
</TABLE>
Securities and other gains in 1998 include the open market sales of a
portion of the Company's interest in Cambridge Technology Partners and the sale
of shares in the DocuCorp International rights offering to the Company's
shareholders. Partially offsetting these gains were charges incurred in the
disposition of investments and provisions for other investments and notes.
Securities and other gains in 1997 included the open market sales of a portion
of the Company's interest in Cambridge and the sale of shares in the Diamond
Technology Partners rights offering to the Company's shareholders. Partially
offsetting these gains were charges incurred in the disposition of investments
and provisions for other investments and notes. Securities and other gains of
varying magnitude have been realized in recent years; prior gains are not
necessarily indicative of gains which may be realized in the future.
Income from equity investments fluctuates with the Company's ownership
percentage and the operating results of investees accounted for on the equity
method. Equity income increased in 1998 due to the continued strong overall
performance of the Company's public equity investments and a decrease in the
Company's share of losses at its private equity investments. The Company's
public investments accounted for on the equity method in the first quarter of
1998 include Cambridge, ChromaVision Medical Systems, Coherent Communications,
DocuCorp, OAO Technology Solutions, Sanchez Computer Associates and USDATA
Corporation.
Cambridge's revenues and earnings increased 62% and 52%, respectively,
as it continues to see increased demand for its services worldwide. Cambridge
continues to expand its service offerings through investing in and enhancing
proprietary service methodologies and increasing network and educational
services. Safeguard owns approximately 16% of Cambridge's common stock at March
31, 1998.
14
<PAGE>
ChromaVision continued to achieve significant milestones in the first
quarter of 1998 including the commencement of clinical trials for the use of
immunohistochemistry reagent methods in conjunction with the Automated Cellular
Imaging System for diagnostic applications. ChromaVision reported an increased
net loss for the first quarter of 1998 compared to 1997 primarily due to
increased research and product development expenditures related to clinical
trials and the addition of technical personnel. ChromaVision also recently
entered into a collaborative alliance with IDEA Research LLC for the continued
development of ChromaVision's Down syndrome application as part of a litigation
settlement agreement. In February 1998, the Company purchased an additional 6%
of ChromaVision's common stock in a private transaction with an unrelated third
party. Safeguard owns approximately 26% of ChromaVision's common stock at March
31, 1998.
Coherent's revenues and earnings increased 20% and 27%, respectively,
in the first quarter of 1998 compared to the same period in 1997. Sales were
especially strong in Europe and Latin America. The Company owns approximately
31% of the common stock of Coherent at March 31, 1998. In February 1998,
Coherent announced its intention to merge with Tellabs, Inc. in an exchange of
common stock at the rate of 0.72 shares of Tellabs for each share of Coherent.
All initial filings required by various governmental entities have been made.
The SEC has completed its review of the merger, and Coherent's shareholders
approved the merger on May 12, 1998. There is no assurance the transaction will
be completed as it is subject to various conditions and approvals by appropriate
government agencies. The Company's pretax gain from the transaction, if
completed, would be approximately $220 million based on the current price of
Tellabs common stock, and the Company would own less than 5% of Tellabs, Inc.
The ultimate gain recorded by the Company will vary based on the value of
Tellabs stock at the completion of the transaction.
During the first quarter of 1998, DocuCorp completed the rights
offering of its common stock to the Company's shareholders. As a result of the
rights offering, the Company owns less than 7% of DocuCorp's common stock at
March 31, 1998. Accordingly, the Company will discontinue accounting for its
investment in DocuCorp on the equity method of accounting subsequent to the
first quarter.
OAO's earnings for the first quarter of 1998 were marginally above the
same period in 1997, primarily due to $546,000 of start-up costs to develop a
new line of business. During the quarter, OAO announced it had expanded its
strategic relationship with IBM Global Services to provide applications
maintenance and enhancements for IBM Global Services' Raleigh, NC Applications
Development and Maintenance group. The work will be performed at OAO's
Canadian-based software laboratories, which also began operations in the first
quarter of 1998. OAO has recently experienced margin pressures from its largest
customer, IBM, which has resulted in revenue reductions on several contracts.
OAO expects that future quarters will be negatively affected by this trend and
is beginning initiatives to invest in new lines of business and reduce operating
costs. Safeguard owns approximately 29% of OAO's common stock at March 31, 1998.
15
<PAGE>
Sanchez's revenues increased 60% and earnings increased 66% in the
first quarter of 1998 compared to the same period in 1997. Sanchez continued
to add to its impressive list of global customers by signing substantial
agreements with Bankers Trust, Kredyt Bank PBI (one of Poland's top ten
financial institutions), Inter Advies N.V. (a subsidiary of ING Group N.V.),
and Federal Home Loan Bank of Pittsburgh. Safeguard owns approximately 25% of
Sanchez's common stock at March 31, 1998.
USDATA reported a reduced loss from continuing operations in the
first quarter of 1998 compared to the first quarter of 1997 primarily due to
its expense reduction program. In February 1998, USDATA announced its
intention to dispose of its system integration and hardware servicing business
and focus primarily on growing and expanding its software business, and
recognized an estimated loss on disposal and loss from operations until the
date of disposal of approximately $1.7 million in the first quarter of 1998.
Safeguard owns approximately 25% of USDATA's common stock at March 31, 1998.
Costs and Expenses
The Company's overall gross margin was 15.2% and 14.6% in the first
quarter of 1998 and 1997, respectively. CompuCom's product gross margin for the
first quarter of 1998 was 11.6% compared to 10.4% for the same period in 1997.
This increase is due in part to a change in the mix of products sold, and an
increase in the amount of manufacturer-sponsored incentives which lowered the
average cost of units sold. Future product margins at CompuCom will be
influenced by competitive pressures from other resellers in the industry, direct
marketers, manufacturers' pricing strategies, CompuCom's ability to successfully
manage the channel assembly programs of its major vendors, and the level of
low-margin sales. CompuCom's integration of acquired companies could also affect
future product margins. CompuCom's services gross margin for the first quarter
decreased to 32.2% in 1998 from 36.0% in 1997. The decrease was primarily caused
by lower than anticipated systems engineering revenue as well as lower
utilization in CompuCom's system engineering group due to the completion of
additional training and certification programs. CompuCom participates in certain
manufacturer-sponsored programs designed to increase sales of specific products.
These programs, excluding volume incentive programs and specific product rebates
offered by certain manufacturers, are not material when compared to CompuCom's
overall financial results.
Selling and service and general and administrative expense as a
percentage of net sales increased to 13.3% in 1998 from 11.9% in 1997 primarily
as a result of increased costs at CompuCom partially offset by the elimination
of selling, general, and administrative costs resulting from the sale of Premier
and Pioneer in 1997. The increase at CompuCom was principally the result of
increases in services operating expenses as CompuCom continued its investment in
its services business through the hiring and training of additional sales,
engineering, and support personnel. CompuCom's general and administrative
expenses are reported net of reimbursements by certain manufacturers for
specific training, promotional and marketing programs. These reimbursements
offset the expenses incurred by CompuCom.
16
<PAGE>
Depreciation and amortization decreased in the first quarter of 1998
primarily due to the elimination of depreciation and amortization resulting from
the sale of Premier and Pioneer in 1997, partially offset by increased
depreciation at CompuCom. The increase at CompuCom is primarily associated with
its new corporate headquarters and operations campus, which was fully occupied
in the second half of 1997, upgrading its hardware and software at both
corporate and branch locations, and an increase in capital expenditures to
support headcount additions.
Interest and financing expense increased in the first quarter of l998
compared to the same period in 1997 primarily as a result of increased
borrowings at CompuCom as it took advantage of prompt-pay discounts offered by
its larger vendors, and increased borrowings by the Company, partially offset by
the elimination of interest resulting from the sale of Premier and the
elimination of interest due to the conversion of $18.5 million of the Company's
Convertible Subordinated Notes into the Company's Common Stock in February 1998.
Liquidity and Capital Resources
In February 1996, the Company issued $115 million of 6% Convertible
Subordinated Notes (the "Notes") due February 1, 2006. The Notes are convertible
into the Company's Common Stock at $28.985 per share. Through March 1998,
approximately $42.7 million of Notes were converted into 1,471,619 shares of the
Company's Common Stock.
In April 1998, the Company increased the availability under its
bank revolving credit facility to $200 million from $150 million. Of the $200
million, $150 million matures in May 2002 and is secured by certain equity
securities the Company holds of its publicly-traded partnership companies,
including CompuCom (the "Pledged Securities"). The value of these Pledged
Securities significantly exceeds the total availability under the bank
revolving credit facility. The remaining $50 million is unsecured, matures in
April 1999, with availability limited to the lesser of $50 million or 10% of
the value of the Pledged Securities. There was $30.9 million outstanding
under the total facility at March 31, 1998.
The Company has revolving credit facilities with certain partnership
companies whereby the Company may borrow up to $17 million from these
partnership companies on a revolving basis at a rate that varies with the
Company's effective borrowing rate. At March 31, 1998, $16.2 million was
outstanding under these agreements.
Availability under the Company's revolving credit facilities,
proceeds from the sales from time to time of selected publicly-traded
securities, and other internal sources of cash flow should be sufficient to
fund the Company's cash requirements for the next twelve months, including
investments in new or existing partnership companies, general corporate
requirements, and the repurchase of the Company's Common Stock from time to
time in the open market. In connection with certain investments, the Company
is contingently obligated for approximately $33 million of possible future
investment and guarantee commitments. In addition, it has committed capital of
$114 million to various venture funds and private equity partnerships, to be
funded over the next several years. CompuCom maintains separate, independent
financing arrangements, which are non-recourse to the Company and are secured
by certain assets of
17
<PAGE>
CompuCom. During recent years, CompuCom has utilized operating earnings, bank
financing arrangements, long-term subordinated notes, and internally generated
funds to fund its cash requirements. CompuCom's financing arrangements consist
of a $125 million working capital facility, a $175 million revolving
Securitization Facility, and a $25 million real estate loan (collectively, the
"credit agreements"). At March 31, 1998, approximately $88.2 million was
outstanding under the working capital facility and the real estate loan, and the
Securitization Facility was fully utilized. The credit agreements mature in
November 2002, except for the real estate loan which is due in quarterly
installments beginning April 1999. CompuCom is currently evaluating other
permanent financing options for the real estate loan. Compucom is also in the
process of expanding its other financing arrangements.
In April 1998, CompuCom announced it had signed definitive agreements
with Computer Integration Corporation (CIC) and Dataflex Corporation (Dataflex)
under which CompuCom would acquire the stock of CIC and Dataflex for cash. Under
the terms of the agreements with CIC and Dataflex, the total purchase prices are
approximately $17 million and $25 million, respectively. The CIC acquisition was
completed in May 1998; the Dataflex acquisition is expected to be completed in
the second quarter.
Cash flow provided by operating activities decreased in 1998 primarily
due to an increase in inventory at CompuCom resulting from pricing incentives by
CompuCom's vendors near the end of the quarter, partially offset by an increase
in accounts payable at CompuCom.
The Company's operations are not capital intensive, and capital
expenditures in any year normally would not be significant in relation to the
overall financial position of the Company. Capital asset requirements are
generally funded through bank credit facilities, internally generated funds, or
other financing sources. There are no material capital asset purchase
commitments at March 31, 1998.
Year 2000
The Company is currently addressing the Year 2000 issue, which results
from the fact that many computer programs were previously written using two
digits rather than four to define the applicable year. Programs written in this
way may recognize a date ending in "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations. The Company has conducted an assessment of its
computer information systems and believes that it will not need to incur any
material extraordinary expense to correct its systems which are not Year 2000
compliant on a timely basis. The Company has also surveyed its majority-owned
and equity investee partnership companies regarding this issue. The Company's
most significant consolidated subsidiary, CompuCom, has completed initial
assessment of its computer information systems, and has plans in place to
complete remediation and begin testing during 1998. The rest of the Company's
partnership companies are in varying stages of assessing, remediating, and
testing for internal Year 2000 compliance and assessing Year 2000 compliance of
their vendors, business partners, and customers. Most of the partnership
companies are in the business of providing software products, information
technology consulting, or outsourcing services. Those partnership companies
which produce software or products with embedded programming believe that the
current version of their
18
<PAGE>
products either are Year 2000 compliant or will be revised to be compliant in
1998. Certain partnership companies are continuing to determine the extent to
which previously sold software products and services were non-compliant. The
total cost and time which will be incurred by the partnership companies on the
Year 2000 issue cannot presently be determined. There can be no assurance that
all necessary work will be completed in time, or that such costs will not
materially adversely impact one or more of such partnership companies. In
addition, required spending on the Year 2000 effort will cause customers of most
of the Company's partnership companies to reallocate at least part of their
information systems budgets. Although several partnership companies have
offerings which may be useful in such efforts, such reallocations could
materially adversely affect the results of operations of many partnership
companies.
Recently Issued Pronouncements
In 1997 and 1998, the Financial Accounting Standards Board (FASB)
issued pronouncements relating to the presentation and disclosure of information
related to segment data and the disclosure of information about pensions and
other postretirement benefits, respectively. The Company is required to adopt
the provisions of these pronouncements, if applicable, for the year ending
December 31, 1998. The adoption of these pronouncements will not have an impact
on the Company's financial position and results of operations, but may change
the presentation of certain of the Company's notes and data related to the
Consolidated Financial Statements.
19
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 7, 1998. At
the meeting, the shareholders voted in favor of electing as directors the
thirteen nominees named in the Proxy Statement dated April 2, 1998.
The number of votes cast were as follows:
I. ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
FOR WITHHELD
--------- ---------
<S> <C> <C>
Warren V. Musser 27,896,972 85,993
Judith Areen 27,866,396 102,169
Vincent G. Bell, Jr. 27,882,897 85,668
Donald R. Caldwell 27,888,647 79,918
Robert A. Fox 27,884,322 84,243
Delbert W. Johnson 27,889,422 79,143
Robert E. Keith, Jr. 27,714,518 254,047
Peter Likins, Ph.D. 27,890,422 78,143
Jack L. Messman 27,890,647 77,918
Russell E. Palmer 27,887,722 80,843
John W. Poduska, Sr., Ph.D. 26,503,392 1,465,173
Heinz Schimmelbusch, Ph.D. 27,870,922 97,643
Hubert J.P. Schoemaker, Ph.D. 27,890,122 78,443
</TABLE>
Item 5. Other Information
A rights offering to the Company's shareholders of 6,720,000 shares of
DocuCorp International was completed on March 31, 1998. The Company, which sold
approximately 1,200,000 shares of DocuCorp stock as part of the offering, owns
approximately 7% of DocuCorp common stock at March 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
-------- -----------
10.1 Amended and Restated Credit Agreement,
dated April 17, 1998, among Safeguard
Scientifics, Inc., Safeguard Scientifics
(Delaware), Inc., Safeguard Delaware,
Inc. and PNC Bank, N.A. (exhibits omitted)
27 Financial Data Schedule (electronic filing
only)
(b) No reports on Form 8-K have been filed by the Registrant
during the quarter ended March 31, 1998.
20
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
SAFEGUARD SCIENTIFICS, INC.
SAFEGUARD SCIENTIFICS (DELAWARE) INC.
SAFEGUARD DELAWARE, INC.
AND
PNC BANK, NATIONAL ASSOCIATION
AND
THE OTHER LENDERS NOW OR
HEREAFTER A PARTY HERETO
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1. Definitions.....................................................................6
1.1 Terms Defined...................................................................6
1.2 Directly or Indirectly..........................................................9
1.3 Accounting Terms; Test Group....................................................9
Article 2. Amount and Terms of Loans; Collateral..........................................10
2.1.1 Revolving Loan I...............................................................10
2.2 Changes in Revolving Loan Commitments..........................................14
2.3 Notices........................................................................15
2.4 Fees...........................................................................15
2.5 Borrowings.....................................................................16
2.6 Use of Proceeds of Loans.......................................................19
2.7 Payment of Loan................................................................19
2.8 Interest.......................................................................19
2.9 Notes..........................................................................23
2.10 ...............................................................................23
Computations; Application of Payments..................................................23
2.11 Minimum Amounts of Borrowings..................................................24
2.12 Set-Off........................................................................24
2.13 Prepayment.....................................................................24
2.14 Collateral.....................................................................25
2.15 Valuation of Collateral Coverage Securities; Sale..............................25
Article 3. Representations and Warranties.................................................25
3.1 Organization...................................................................25
3.2 Power, Authority, Consents.....................................................26
3.3 No Violation of Law or Agreements..............................................26
3.4 Due Execution, Validity, Enforceability........................................27
3.5 Properties, Priority of Liens..................................................27
3.6 Judgments, Actions, Proceedings................................................27
3.7 No Defaults....................................................................27
3.8 Burdensome Documents...........................................................28
3.9 Financial Statements...........................................................28
3.10 Tax Returns....................................................................28
3.11 Intangible Assets..............................................................28
3.12 Name Changes...................................................................29
3.13 Full Disclosure................................................................29
3.14 ERISA..........................................................................29
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
3.15 Employee Grievances............................................................30
3.16 Indebtedness...................................................................31
Article 4. The Closings; Conditions to the Loans..........................................31
4.1 The Closing....................................................................31
4.2 Conditions to Initial Advance..................................................31
4.3 Conditions to Subsequent Advances..............................................33
Article 5. Delivery of Financial Reports, Documents and Other Information.................33
5.1 Annual Financial Statements....................................................33
5.2 Quarterly Financial Statements.................................................34
5.3 Additional Information.........................................................34
5.4 No Default Certificate.........................................................35
5.5 Copies of Other Reports........................................................35
5.6 Copies of Documents............................................................35
5.7 Notice of Defaults.............................................................35
5.8 ERISA Notices..................................................................36
Article 6. Covenants......................................................................36
6.1 Payment of Taxes and Claims....................................................36
6.2 Maintenance of Properties, Insurance, Records and Corporate
Existence; Inspections and Audits; etc........................................37
6.3 Indebtedness...................................................................38
6.4 Liens..........................................................................38
6.5 Guaranties.....................................................................39
6.6 Investments and Loans..........................................................40
6.7 Consolidation and Merger.......................................................40
6.8 Tangible Net Worth.............................................................41
6.9 Funded Debt to Tangible Net Worth..............................................41
6.10 Interest Coverage Ratio........................................................41
6.11 Change of Business; Sale of Assets.............................................41
6.12 Leases.........................................................................41
6.13 Issuance of Stock..............................................................42
6.14 Fiscal Year....................................................................42
6.15 Dividends. The Borrowers shall not pay or declare any cash
dividends other than to another Borrower.......................................42
6.16 ERISA Compliance; Obligations..................................................42
6.17 Prepayments....................................................................43
6.18 ...............................................................................43
6.19 Letters of Credit..............................................................43
6.20 Dispositions...................................................................43
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Article 7. Events of Default; Remedies....................................................43
7.1 Payments.......................................................................43
7.2 Covenants......................................................................43
7.3 Other Covenants................................................................44
7.4 Other Defaults.................................................................44
7.5 Representations and Warranties.................................................44
7.6 Bankruptcy.....................................................................45
7.7 Judgments......................................................................45
7.8 ERISA..........................................................................45
7.9 Liens..........................................................................46
7.10 Ownership......................................................................46
7.11 Remedies.......................................................................46
Article 8. The Agent......................................................................47
8.1 Appointment and Authorization..................................................47
8.2 General Immunity...............................................................47
8.3 Consultation with Counsel......................................................48
8.4 Documents......................................................................48
8.5 Rights as a Lender.............................................................48
8.6 Responsibility of Agent........................................................48
8.7 Collections and Disbursements..................................................49
8.8 Indemnification................................................................49
8.9 Expenses.......................................................................50
8.10 No Reliance....................................................................50
8.11 Reporting......................................................................50
8.12 Removal of Agent...............................................................51
8.13 Action on Instructions of Lenders..............................................51
8.14 Several Obligations............................................................51
8.15 Consent of Lenders.............................................................51
8.16 Participation and Assignments..................................................53
8.17 Other Credit Facilities of Lenders.............................................53
Article 9. Miscellaneous Provisions.......................................................53
9.1 Fees and Expenses..............................................................53
9.2 Taxes..........................................................................54
9.3 Payments.......................................................................54
9.4 Survival of Agreements and Representations; Waiver of Trial by Jury............55
9.5 Lien on and Set-off of Deposits................................................55
9.6 Modifications, Consents and Waivers; Entire Agreement..........................55
9.7 Remedies Cumulative............................................................56
9.8 Further Assurances.............................................................56
9.9 Notices........................................................................56
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
9.10 Counterparts...................................................................58
9.11 Construction; Governing Law; Jurisdiction......................................58
9.12 Severability...................................................................59
9.13 Binding Effect; No Assignment or Delegation....................................59
9.14 Joint and Several Obligations..................................................59
9.15 Third Party....................................................................60
9.16 Confidentiality of Information.................................................60
</TABLE>
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
AGREEMENT (the "Agreement") made as of this 17th day of April, 1998, by
and among Safeguard Scientifics, Inc., a Pennsylvania corporation ("SSI" or a
"Borrower"), Safeguard Scientifics (Delaware) Inc., a Delaware corporation
("SSD" or a "Borrower") and Safeguard Delaware, Inc., a Delaware corporation
("SDI" or a "Borrower" and, collectively with SSI and SSD, the "Borrowers"), PNC
Bank, National Association and the other lending institutions listed from time
to time on Schedule A attached hereto and incorporated herein that are parties
to this Agreement (collectively, "Lenders" and singly, a "Lender"), PNC Bank,
National Association, a national banking association, as issuer of letters of
credit hereunder (in such capacity, "Issuer"), and PNC Bank, National
Association, as administrative and collateral agent for the Issuer and Lenders
hereunder (in such capacity, "Agent").
The Borrowers have requested Lenders to establish certain credit
facilities and Lenders are willing to do so under and subject to the terms
hereof. This Agreement amends and restates that certain Credit Agreement among
the parties (other than National City Bank of PA and SDI) dated September 13,
1996, as amended prior to the date hereof (as amended, the "Prior Credit
Agreement").
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
Article 1. Definitions.
1.1 Terms Defined.
As used in this Agreement, the following terms shall have the following
respective meanings set forth below or set forth in the section referred to
following such term:
"Advance" or "Advances" - Revolving Loan I Advance(s) and Revolving
Loan II Advance(s).
"Borrowing Base" - as of any date, the product of (x) the value (as
determined in accordance with Section 2.15 hereof) of the Collateral Coverage
Securities, multiplied by (y) 10%.
<PAGE>
"Business Day" - any day other than Saturday, Sunday or any other day
on which commercial banks in Pennsylvania are authorized or required to close
under the laws of the Commonwealth of Pennsylvania or by executive order.
"Capitalized Lease Obligations" - as to any Person, any obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under generally accepted accounting principles. For
purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles.
"Certificate" - a certificate executed either by the president, the
treasurer or controller or any vice president of any Borrower.
"Closing" - the transactions provided for in Sections 4.1 and 4.2
hereof.
"Collateral" - the collateral provided for herein and in the Security
Documents.
"Collateral Coverage Base" - a dollar amount equal to the following
percentages of the value of the Collateral Coverage Securities, in no event,
however, to exceed the lesser of (i) as to Collateral Coverage Securities which
constitute "margin stock" pursuant to Regulation U of the Board of Governors of
the Federal Reserve System, 12 C.F.R. 221 et seq. ("Regulation U"), 50% (or the
then maximum "loan value" for margin stock pursuant to Regulation U) of the
value of such Collateral Coverage Securities, and (ii) the following dollar
maximum specified for each type of Collateral Coverage Securities, provided that
the following dollar maximum for such Collateral Coverage Securities will be
inapplicable at such time as Borrowers own (directly or indirectly) less than
15% of the applicable issuing corporation's securities which have ordinary
voting power for the election of directors (with an "N/A" designation in the
"Maximum $" column below constituting Borrowers' representation to Lenders that
Borrowers presently own less than 15% of the applicable issuing corporation's
securities which have ordinary voting power for the election of directors):
<TABLE>
<CAPTION>
Securities % Maximum $
- --------------- ------ --------------
<S> <C> <C>
CompuCom 33.33% $75 Million
Cambridge 50.% $100 Million
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Securities % Maximum $
- ---------- --- -----------
<S> <C> <C>
Coherent 50.% $75 Million
Tangram 25.% $10 Million
USDATA 33.33% $25 Million
ISCG 33.33% N/A
Sanchez 30.% $30 Million
Brandywine 25.% N/A
Diamond 25.% N/A
ChromaVision 25.% $25 Million
OAO 25.% $25 Million
New Public 25.% $25 Million
Companies
</TABLE>
"Collateral Coverage Securities" - Pledged Securities consisting of
common stock issued by one or more of the following corporations but only as
long as (A) such securities are traded on a recognized national securities
exchange, on the NASDAQ national or small-cap market or on the over-the-counter
market and (B) such securities are not Restricted Securities;
(i) CompuCom Systems, Inc. ("CompuCom")
(ii) Cambridge Technology Partners
(Massachusetts), Inc. ("Cambridge")
(iii) OAO Technology Solutions, Inc. ("OAO")
(iv) Integrated Systems Consulting Group, Inc.
("ISCG")
(v) Coherent Communications Systems Corporation
("Coherent")
(vi) Tangram Enterprise Solutions, Inc.
("Tangram")
(vii) USDATA Corporation ("USDATA")
3
<PAGE>
(viii) ChromaVision Medical Systems, Inc.
("ChromaVision")
(ix) Sanchez Computer Associates, Inc.
("Sanchez")
(x) Brandywine Realty Trust ("Brandywine")
(xi) Diamond Technology Partners Incorporated
("Diamond")
(xii) New Public Companies
"Commitment Termination Date I" - May 31, 2002.
"Commitment Termination Date II" - April 16, 1999.
"Compliance Certificate" - as defined in Section 4.2(h) hereof.
"Debt Instrument" - as defined in Section 7.4(a) hereof.
"Default" - an event which with notice or the lapse of time or both
would constitute an Event of Default.
"Dollars" and "$" - lawful money of the United States of America.
"ERISA" - as defined in Section 3.14 hereof.
"Event of Default" - as defined in Article 7 hereof.
"Fed Funds Rate" - The daily rate of interest announced from time to
time by the Board of Governors of the Federal Reserve System in publication
H.15, or any successor publication, as the "Federal Funds Rate".
"Financial Statements" -
(a) The audited balance sheets of SSI and its Subsidiaries
(including, without limitation, SSD) at December 31, 1996, and the related
audited consolidated statements of operations, shareholder's equity and cash
flows, and the notes thereto, of SSI and its Subsidiaries for the above
mentioned year certified without qualification or
4
<PAGE>
explanatory paragraphs by independent certified public accountants satisfactory
to the Agent;
(b) The unaudited consolidating balance sheets of SSI and its
Subsidiaries (including without limitation, SSD), as at September 30, 1997, and
the unaudited internal consolidating statement of operations of SSI and its
Subsidiaries (including, without limitation, SSD) for the nine months then
ended; and
(c) The unaudited consolidated balance sheets of SSI and its
Subsidiaries (including, without limitation, SSD) as at September 30, 1997 and
the related unaudited consolidated statement of operations and cash flows, and
the notes thereto, of SSI and its Subsidiaries for the nine months then ended.
"Funded Debt" - as of any date, without duplication, all Indebtedness
for borrowed money, including without limitation outstanding Advances (including
the face amount of outstanding Letters of Credit) and unreimbursed draws on
Letters of Credit, but excluding the Subordinated Debenture.
"Indebtedness" - with respect to any Person, all (i) liabilities or
obligations which in accordance with generally accepted accounting principles
would be included in determining total liabilities as shown on the liability
side of a balance sheet of such Person at the date as of which Indebtedness is
to be determined, including, without limitation, Capitalized Lease Obligations
of such Person; and (ii) liabilities or obligations secured by Liens on any
assets of such Person, whether or not such liabilities or obligations shall have
been assumed by it.
"Interest Coverage Ratio" - as of any date, the ratio of (a) Pre Tax
Earnings plus cash interest expense for the twelve (12) months ending on such
date to (b) the cash interest expense for such twelve (12) month period.
"Investments" - any loans, advances or extensions of credit (other than
guaranties) or any purchase of any debt or equity security, including without
limitation, capital stock, bonds, debentures, notes, general partnership
interests, limited partnership interests, warrants or other rights, all whether
certificated or uncertificated.
"IRS" - as defined in Section 3.14 hereof.
5
<PAGE>
"Leases" - leases and subleases (other than the leases or subleases the
obligation to pay rent or other amounts under which is a Capitalized Lease
Obligation), licenses, easements, grants, pole attachment and conduit or trench
agreements and other attachment rights and similar instruments under which any
Borrower has the right to use real or personal property or rights of way.
"Lending Office" - 1600 Market Street, Philadelphia, Pennsylvania 19103
or such other office as the Agent may from time to time specify to the Borrowers
as the office at which Advances are to be made.
"Letters of Credit" - as defined in Section 2.1.1 hereof.
"Liabilities" - for the purposes of calculating Indebtedness to
Tangible Net Worth and for the purposes of determining "Liabilities" of
Borrowers hereof, Liabilities shall not include minority shareholder interest
which may appear on a balance sheet of SSI, prepared in accordance with
generally accepted accounting principles, consistently applied.
"Lien" - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including but not limited
to the security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting Property. For the
purpose of this Agreement, any Borrower shall be deemed to be the owner of any
Property which it has acquired or holds subject to a conditional sale agreement
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other person for security purposes.
"Loan Documents" - this Agreement, the Notes, the Security Documents
and all other documents executed and delivered in connection herewith or
therewith, including all amendments, modifications and supplements of or to all
such documents.
"Loans" - the Revolving Loan I and the Revolving Loan II.
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"Majority Lenders" - at any time, Lenders holding Pro Rata Percentages
aggregating at least 67.6% at such time.
"Material Adverse Effect" - any specified event, condition or
occurrence as to any Borrower which individually or in the aggregate with any
other such event, condition or occurrence and whether through the effect on such
Borrower's business, property, prospects, profits or condition (financial or
otherwise) or otherwise could reasonably be expected to result in, to the extent
not fully covered by insurance, any liability, loss, forfeiture, penalty, costs,
fine, expense, payment or other monetary obligation or loss of property in
excess of $5,000,000.00 as to any Borrower or as to all Borrowers taken as a
whole.
"New Public Companies" - corporations in which a Borrower hereafter
acquires common stock, in no event to include National Media Corporation or
Sybase, Inc.
"Notes" - the Revolving Loan Notes.
"Obligations" - the obligations of the Borrowers to pay the principal
of and interest on the Notes and to satisfy and perform all of their other
existing and future obligations, liabilities and indebtedness to Agent, Issuer
and each Lender hereunder and under any of the other Loan Documents, including,
without limitation, any extensions, modifications, restatements, renewals
thereof and substitutions therefor.
"Person" - an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Pledge Agreement" - The Pledge Agreement between Agent and Borrowers
dated the date hereof, as the same may hereafter be amended from time to time.
"Pledged Securities" - Securities owned by the Borrowers pledged as
collateral from time to time for the performance of the Borrowers' Secured
Obligations.
"Post-Default Rate" - in respect of any amounts not paid when due
(whether at stated maturity, by acceleration or otherwise), a rate per annum
during the period commencing on the due date until such amounts are paid in full
equal to 2% per annum above the rate(s) otherwise applicable to such amounts as
provided for in Section 2.8 hereof.
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"Pre-Tax Earnings" - gross revenues and other proper income credits,
plus any cash proceeds realized on the sale of securities, less all proper
income charges other than taxes on income, all determined in accordance with
generally accepted accounting principles; provided that there shall not be
included in such revenues or charges (a) any gains resulting from the write-up
of assets; (b) any proceeds of any life insurance policy; (c) earnings (or
losses) from minority interests of the Borrowers; (d) earnings (or losses) from
equity investments carried on an equity basis to the extent not received by the
Borrowers; (e) any gain or loss, other than a gain or loss on the sale of stock,
which is classified as "extraordinary" in accordance with generally accepted
accounting principles; or (f) any book gain (or loss) on the sale of securities.
Pre-Tax Earnings can be less than zero for all purposes of this Agreement.
"Prime Rate" - the interest rate which Agent announces from time to
time at its Principal Office as its prime rate. Each change in any interest rate
provided for herein based upon the Prime Rate resulting from a change in the
Prime Rate shall take effect at the time of such change in the Prime Rate. The
Borrowers acknowledge that such Prime Rate is not tied to an external rate of
interest or index and does not necessarily reflect the lowest rate of interest
actually charged by the Agent to any particular class or category of customer.
"Principal Office" - Agent's principal office presently located at 1600
Market Street, Philadelphia, Pennsylvania 19103.
"Pro Rata Percentage" - The percentage set forth opposite each Lender's
name on Schedule A.
"Property" - any interest in any kind of property or asset, whether
real, personal or mixed or tangible or intangible.
"Quarterly Dates" - the last Business Day of each March, June,
September and December.
"Restricted Securities" - securities now or hereafter owned by a
Borrower which such Borrower is, or Agent or any Lender if acquired from
Borrowers as pledgor would be, prohibited under applicable federal or state law
or regulations, or pursuant to private contract, from publicly offering or
selling in open market transactions throughout the United States. For this
purpose securities which can lawfully be sold pursuant to Rule 144 of the
Securities Act of 1933, as amended, subject only to volume limitations set forth
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<PAGE>
in Rule 144(e) are not "Restricted Securities" solely by reason of such volume
limitations.
"Revolving Credit Period I" - as defined in Section 2.1.1 hereof.
"Revolving Credit Period II" - as defined in Section 2.1.2 hereof.
"Revolving Loan I" - as defined in Section 2.1.1 hereof.
"Revolving Loan II" - as defined in Section 2.1.2 hereof.
"Revolving Loan Commitment I" - $150,000,000, as the same may be
reduced pursuant to Section 2.2 hereof.
"Revolving Loan Commitment II" - $50,000,000, as the same may be
reduced pursuant to Section 2.2 hereof.
"Revolving Loan I Advance" and "Revolving Loan II Advance" - as defined
in Sections 2.1.1 and 2.1.2 hereof.
"Revolving Loan Notes" - as defined in Section 2.9 hereof.
"Secured Obligations" - all Obligations other than Borrowers'
obligation to pay the principal of or interest or fees on the Revolving Loan II.
"Security Documents" - as defined in Section 2.14 hereof.
"Subordinated Debenture" - that certain 6% convertible subordinated
debenture in the face amount of $115,000,000 dated January 31, 1996 issued by
SSI.
"Subsidiary" - any corporation at least a majority (meaning in excess
of 50%) of the securities of which having ordinary voting power for the election
of directors (other than securities having such power only by reason of the
occurrence of a contingency) are at the time owned, directly or indirectly, by
any of the Borrowers, by one or more of their Subsidiaries, or by the Borrowers
and one or more of their Subsidiaries.
"Tangible Net Worth" - the excess of total assets over the sum of total
liabilities (excluding the Subordinated Debenture) and minority shareholder
interests, to be determined in accordance with generally accepted accounting
principles consistent with
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those applied in the preparation of the Financial Statements, excluding,
however, from the determination of total assets (a) all assets which would be
classified as intangible assets under generally accepted accounting principles,
including, without limitation, goodwill (whether representing the excess of cost
over book value of assets acquired or otherwise), patents, trademarks, trade
names, copyrights, franchises, and deferred charges (including, without
limitation, unamortized debt discount and expense, organization costs and
research and development costs); (b) treasury stock; (c) cash set apart and held
in sinking or other analogous funds established for the purpose of redemption or
other retirement of capital stock; (d) to the extent not already deducted from
total assets, reserves for depreciation, depletion, obsolescence and/or
amortization of properties and all other reserves or appropriations of retained
earnings which, in accordance with generally accepted accounting principles,
should be established in connection with the businesses conducted by the
Borrowers; (e) to the extent not provided for in clause (a) or (d) above, the
amount, if any, by which the value of any assets or business hereafter acquired
at the time of the acquisition thereof unreasonably exceeds the book value
thereof on the books of the person from whom such assets or business were so
acquired (before any write-up of such book value by such Person in contemplation
of such acquisition if such write-up shall have occurred within nine (9) months
prior to the date of signing of any contract relating to such acquisition); and
(f) loans to employees for purchasing stock of the Borrowers or any
Subsidiaries.
1.2 Directly or Indirectly.
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provisions
shall be applicable whether such action is taken directly or indirectly by such
Person.
1.3 Accounting Terms; Test Group.
(a) Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given thereto in
accordance with generally accepted accounting principles. If the generally
accepted accounting principles in effect on the date hereof shall change, the
terms calculated herein under such principles shall be changed accordingly.
(b) The financial covenants set forth in Sections 6.8, 6.9 and
6.10 hereof shall be computed on a consolidated basis for SSI, excluding,
however, all Subsidiaries other than if another Borrower.
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Article 2. Amount and Terms of Loans; Collateral.
2.1.1 Revolving Loan I.
(a)(i) Subject to the terms and conditions of this Agreement,
each Lender hereby establishes for Borrowers a revolving credit facility
(collectively, the "Revolving Loan I") pursuant to which Lenders will make cash
loans and Issuer will issue Letters of Credit hereinafter provided for in this
Section 2.1.1 (individually, a "Revolving Loan I Advance" and, collectively, the
"Revolving Loan I Advances") to or for the account of the Borrowers, at any time
and from time to time during the period (the "Revolving Credit Period I") from
the date hereof to and including the Commitment Termination Date I, in an
aggregate principal amount at any one time outstanding (including, without
duplication, the face amount of all outstanding Letters of Credit and
unreimbursed draws on Letters of Credit) up to but not exceeding the lesser of
the Revolving Loan Commitment I as then in effect or the Collateral Coverage
Base. Subject to the terms of this Agreement, during the Revolving Credit Period
I the Borrowers may borrow, repay and reborrow (all as provided herein).
(ii) On or before the last Business Day of each week,
Borrowers shall execute a Borrowing Base Certificate ("Borrowing Base
Certificate") prepared by Borrowers and certified by their assistant controller
setting forth the present values of the Collateral and Borrowers' compliance
with the Collateral Coverage Base and the Borrowing Base.
(iii) Each Lender agrees severally to make cash Revolving
Loan I Advances to Borrowers, as a part of the Revolving Loan I, subject to the
terms of this Agreement, up to such Lender's Pro Rata Percentage of the
Revolving Loan I, as more fully set forth in Section 2.5 hereof.
(b)(i) During the Revolving Credit Period I, Borrowers may
obtain letters of credit (each a "Letter of Credit" and, collectively, "Letters
of Credit") from the Issuer, on behalf of all Lenders, in an aggregate amount
not to exceed $20,000,000 (measured by the face amount thereof) at any time
outstanding, upon prior approval of the Issuer, on such terms (including without
limitation the expiry date, which Borrowers agree will in no event be twelve
months beyond the Commitment Termination Date I) as the Issuer may require and
with such documentation, including Issuer's then standard Letter of Credit
Application and Security Agreement, as shall be satisfactory in form and
substance
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to the Issuer. Borrowers will pay to Agent, for the account of each Lender in
accordance with their Pro Rata Percentages, a letter of credit fee for each
Letter of Credit issued hereunder in the amount of 1% per annum of the face
amount of such Letter of Credit, payable quarterly in arrears (measured from the
date of issuance) (the "L/C Fee"). Borrowers will pay to Issuer, for its own
account, all issuance, negotiation, draw and other administrative fees from time
to time assessed by Issuer in accordance with Issuer's then standard fee
schedule for the issuance and administration of letters of credit.
(ii) (A) Immediately upon the issuance of any Letter of
Credit, Issuer is deemed to have granted to each other Lender, and each other
Lender is hereby deemed to have acquired, an undivided participating interest
(without recourse to or warranty by Issuer), in accordance with each such other
Lender's respective Pro Rata Percentage, in all of Issuer's rights and
liabilities with respect to such Letter of Credit. Each Lender shall be directly
and unconditionally obligated to Issuer, according to its Pro Rata Percentage,
to reimburse Issuer for any draws not reimbursed by Borrowers in accordance with
the terms hereof, made at any time without regard to the occurrence of a Default
or Event of Default (including, without limitation, any draw made following the
commencement of any bankruptcy, reorganization, receivership, liquidation or
dissolution proceeding with respect to any Borrower) under any Letter of Credit
outstanding under the Revolving Loan I.
(B) Each Letter of Credit issued from time to time
under the Revolving Loan I which remains undrawn (and the amounts of draws on
Letters of Credit prior to payment as hereinafter set forth), shall reduce
dollar for dollar the amount available to be borrowed by Borrowers under the
Revolving Loan I.
(C) In the event of any request for drawing under any
Letter of Credit by the beneficiary thereof, Issuer shall promptly notify
Borrowers and Borrowers shall immediately reimburse Issuer on the day when such
drawing is honored, including by way of a cash Revolving Loan I Advance under
the Revolving Loan I if otherwise available pursuant to this Agreement.
Borrowers' reimbursement obligation for draws under Letters of Credit shall
herein be referred to collectively as Borrowers' "Reimbursement Obligations".
All of Borrowers' Reimbursement Obligations hereunder with respect to Letters of
Credit shall apply unconditionally and absolutely to, and shall be joint and
several with respect to, Letters of Credit issued hereunder on behalf of
Borrowers.
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(D) (1) In the event that Borrowers shall fail to
reimburse Issuer as provided in subpart (C) above in an amount equal to the
amount of the drawing honored by Issuer under a Letter of Credit, Issuer shall
promptly notify each Lender of the unreimbursed amount of such drawing and of
such Lender's participation therein based on such Lender's Pro Rata Percentage.
Each Lender shall make available to Issuer an amount equal to its respective
participation in same day funds, at the office of Issuer specified in such
notice, not later than 1:00 p.m. (Philadelphia time) on the Business Day after
the date notified by Issuer. In the event that any Lender fails to make
available to such Issuer the amount of such Lender's participation based on such
Lender's Pro Rata Percentage in such Letter of Credit, as provided in this
Section 2.1.1(b), Issuer shall be entitled to recover such amount on demand from
such Lender together with interest at the Fed Funds Rate for one (1) Business
Day and thereafter at two (2) percentage points above the Agent's Prime Rate.
Issuer shall distribute to each other Lender which has paid all amounts payable
by it under this Section with respect to any Letter of Credit, such other
Lender's share, based on such Lender's Pro Rata Percentage, of all payments
received by Issuer from Borrowers in reimbursement of drawings honored by Issuer
under such Letter of Credit, when such payments are received. Nothing in this
Section shall be deemed to relieve any Lender from its obligation to pay all
amounts payable by it under this Section with respect to any Letter of Credit
issued by Issuer or to prejudice any rights that Issuer may have against a
Lender as a result of any default by such Lender hereunder and no Lender shall
be responsible for the failure of any other Lender to pay its respective
participation, based on its Pro Rata Percentage, payable under this Section.
(2) In connection with the failure of any Lender
to make available to Issuer the amount of such Lender's participation in any
Letter of Credit, such Lender hereby agrees to protect, indemnify, pay and save
Issuer harmless from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including, without limitation,
reasonable attorneys' fees, allocated costs of internal counsel and the costs
(including judgments) in connection with any related litigation) which Issuer
may incur or be subject to as a consequence, direct or indirect, of the failure
of such Lender to make available its participation in such Letter of Credit.
Notwithstanding anything to the contrary contained in this Section, no Lender
failing to provide its participation in any Letter of Credit shall have any
obligation to indemnify Issuer in respect of any liability incurred by Issuer
arising solely out of the gross negligence or willful misconduct of Issuer.
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(E) The obligation of Borrowers to reimburse Issuer
for drawings made (or Lenders for cash Revolving Loan I Advances made to cover
drawings made) under the Letters of Credit and the obligations of Lenders to
Issuer under Section 2.1.1(b)(ii)(D) shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances including, without limitation, the following circumstances:
(1) any lack of validity or enforceability of any
Letter of Credit;
(2) the existence of any claim, setoff, defense or
other right that Borrowers or any other Person may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any persons or
entities for whom any such beneficiary or transferee may be acting), Issuer,
Agent, any Lender or any other Person, whether in connection with this
Agreement, the transactions contemplated herein or any unrelated transaction;
(3) any draft, demand, certificate or any other
document presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by Issuer under any Letter of Credit
against presentation of a demand, draft or certificate or other document that
does not comply with the terms of such Letter of Credit unless Issuer shall have
acted with willful misconduct or gross negligence in issuing such payment; or
(5) the fact that a Default or Event of Default
shall have occurred and be continuing.
(F) (1) In addition to amounts payable as elsewhere
provided in this Section, without duplication, Borrowers hereby agree to
protect, indemnify, pay and save Issuer, Agent and Lenders harmless from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) which Issuer may
incur or be subject to as a consequence, direct or indirect, of (A) the issuance
of the Letters of Credit or (B) the failure of Issuer to honor a drawing under
any Letter of Credit as a result of any act or omission, whether rightful
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or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Government
Acts").
(2) As between Borrowers and Issuer, Agent and
Lenders, Borrowers assume all risks of the acts and omissions of, or misuse of
the Letters of Credit issued by Issuer by, the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the foregoing, Issuer
shall not be responsible: (a) for the form, validity, sufficiency, accuracy,
genuineness or legal effects of any document submitted by any party in
connection with the application for and issuance of such Letters of Credit, even
if it should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (b) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, that may prove to be invalid or ineffective for any reason;
(c) for failure of the beneficiary of any such Letter of Credit to comply fully
with conditions required in order to draw upon such Letter of Credit so long as
Issuer acts in good faith and without gross negligence or willful misconduct;
(d) for errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, whether or not
they are in cipher, unless any of the foregoing are caused by Issuer's gross
negligence or willful misconduct; (e) for errors in interpretation of technical
terms; (f) for any loss or delay in the transmission of any document required in
order to make a drawing under any such Letter of Credit or of the proceeds
thereof, unless caused by Issuer's gross negligence or willful misconduct; (g)
for the misapplication by the beneficiary of any such Letter of Credit of the
proceeds of any drawing under such Letter of Credit; and (h) for any
consequences arising from causes beyond the control of Issuer, including,
without limitation, any Government Acts. None of the above shall affect, impair,
or prevent the vesting of any of Issuer's rights or powers hereunder.
(3) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth, any action taken or
omitted by Issuer in connection with the Letters of Credit issued by it or the
related certificates, if taken or omitted in good faith, shall not create any
liability on the part of Issuer to Borrowers.
(4) The term "Lender" shall, unless the context
otherwise indicates, include the Issuer in its individual capacity as a Lender.
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2.1.2 Revolving Loan II.
(a)(i) Subject to the terms and conditions of this Agreement,
each Lender hereby establishes for Borrowers a revolving credit facility
(collectively, the "Revolving Loan II") pursuant to which Lenders will make cash
loans hereinafter provided for in this Section 2.1.2 (individually, a "Revolving
Loan II Advance" and, collectively, the "Revolving Loan II Advances") to or for
the account of the Borrowers, at any time and from time to time during the
period (the "Revolving Credit Period II") from the date hereof to and including
the Commitment Termination Date II, in an aggregate principal amount at any one
time outstanding up to but not exceeding the lesser of the Revolving Loan
Commitment II or the Borrowing Base. Subject to the terms of this Agreement,
during the Revolving Credit Period II the Borrowers may borrow, repay and
reborrow (all as provided herein).
(ii) Each Lender agrees severally to make Revolving Loan
II Advances to Borrowers, as part of the Revolving Loan II, subject to the terms
of his Agreement, up to such Lender's Pro Rata Percentage of the Revolving Loan
II, as more fully set forth in Section 2.5 hereof.
2.2 Changes in Revolving Loan Commitments.
The Borrowers shall be entitled to terminate or reduce the Revolving
Loan Commitment I and/or the Revolving Loan Commitment II, provided that the
Borrowers shall give notice of each such termination or reduction to the Agent
as provided in Section 2.3 hereof and that any partial reduction of either
Revolving Loan Commitment shall be in an aggregate amount equal to $100,000 or
an integral multiple thereof, and, provided further, that Borrowers shall have
the right hereunder to reduce or terminate the Revolving Loan Commitment I only
if the Revolving Loan Commitment II has been terminated. Any such termination or
reduction shall be permanent and irrevocable.
2.3 Notices.
SSI, as agent hereunder for the Borrowers, shall give the Agent
telephonic and written notice of each termination or reduction of either of the
Revolving Loan Commitments, each borrowing, and repayment of either Revolving
Loan. All requests for borrowings shall be made, subject to the terms and
conditions of this Agreement and subject further to the terms of Section 2.5(c)
hereof, by telephonic or facsimile request of any Borrower. Agent may rely upon
any and all telephonic, facsimile and written
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requests purported to be made by any Borrower through any of its officers. Each
such written notice shall be irrevocable and shall be effective only if received
by the Agent not later than 1:00 p.m., Philadelphia time, on the date which is:
(a) in the case of each notice of termination one Business Day prior to the date
of the related termination, and (b) in the case of a notice of borrowing or
reduction, the Business Day on which the requested borrowing or reduction is to
be made, subject, as to borrowings for which the LIBOR Rate is being selected,
to the provisions of Section 2.8(c) hereof.
2.4 Fees. (a) The Borrowers shall pay to the Agent, for the
account of each Lender in accordance with their Pro Rata Percentages, a
commitment fee at the rate of three-tenths of one percent (3/10%) per annum
on the daily average unused amount of the Revolving Loan Commitment I and at
a rate of two-tenths of one percent (2/10%) per annum on the daily average
unused amount of the Revolving Loan Commitment II (which in each case shall
be calculated as the applicable Revolving Loan Commitment minus all cash
advances outstanding under the related Revolving Loan on the date of such
calculation) during each calendar quarter for the period from the date hereof
to and including the earlier of the date on which the applicable Revolving
Loan Commitment is terminated or the applicable Commitment Termination Date.
The commitment fee shall be payable quarterly in arrears on the Quarterly
Dates and on the earlier of the date the applicable Revolving Loan Commitment
is terminated or the applicable Commitment Termination Date.
(b) The Borrowers shall concurrently with the execution
hereof, pay to the Agent, for the account of each Lender in accordance with
their Pro Rata Percentages, an amendment fee in the aggregate amount of $75,000.
(c) The Borrowers shall pay to Agent, for its own account, on
April 1 of each year, commencing April 1, 1999, a non-refundable Agent Fee (the
"Agent Fee") in the amount of $75,000.
2.5 Borrowings.
(a) Except as otherwise provided in subparts (b), (c) and (e)
below, upon receiving a request for a cash Advance in accordance with Section
2.3 hereof, Agent shall prior to 2:00 p.m. or as soon as reasonably practical
thereafter notify all Lenders of the request. Each Lender shall advance its
applicable Pro Rata Percentage of the requested Advance to Agent by remitting
federal funds, immediately available, to Agent pursuant to Agent's instructions
prior to 3:00 p.m. Philadelphia time or as soon as is reasonably
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practicable thereafter on the date of such notice. Subject to the satisfaction
of the terms and conditions hereof, and receipt by the Agent of all required
funds from the other Lenders, Agent shall make the requested Advance available
to the Borrowers by crediting such amount to SSI's operating account with Agent
as soon as is reasonably practicable thereafter on the day on which such Advance
was requested.
(b) In lieu of the foregoing, Agent may, in its discretion
(and without any obligation to do so or continue to do so), fund the Pro Rata
Percentage of an Advance (including any cash Revolving Loan I Advance to
reimburse Issuer for unreimbursed draws under a Letter of Credit) on behalf of
any one or more Lenders (unconditionally and absolutely obliging such affected
Lender to reimburse Agent in full without deduction or setoffs for its portion
of such Advance) with a settlement among Lenders on the following Business Day
or under such other settlement procedures as Agent and Lenders may mutually
agree upon from time to time.
(c) In lieu of the funding procedure set forth in subparts (a)
and (b) above, Agent hereby establishes for the Borrower an interim line of
credit (herein, the "Swing Line") under which Agent will, for its own account
except as otherwise set forth in this Section 2.5(c), fund cash Revolving Loan I
Advances under the Revolving Loan I, subject to the following terms and
conditions:
(i) all cash Revolving Loan I Advances, so long
as the same do not exceed $5,000,000 in the
aggregate at any time outstanding, shall be
made from the Swing Line instead of the
Revolving Loan I;
(ii) principal outstanding under the Swing Line
will accrue interest at the Agent's Prime
Rate as otherwise set forth in Section
2.8(a) hereof, which interest shall, except
as provided in subpart (vii) below, be
entirely for Agent's own account;
(iii) all principal payments made by Borrower on
account of the Revolving Loan I shall be
applied first to principal outstanding under
the Swing Line prior to application thereof
to the principal of the Revolving Loan I;
(iv) if there is neither any Advance under nor
repayment of principal on account of the
Swing Line for seven (7)
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consecutive Business Days, the unpaid
principal of the Swing Line as of the
expiration of such seven (7) Business Day
period shall be funded by Banks under the
Revolving Loan I in accordance with subpart
(a) or (b) above, as the case may be;
(v) the Swing Line will be advanced pursuant to
the procedures set forth in and will
otherwise be subject to the terms of the
Working Cash Agreements referred to in
Section 4.2 hereof;
(vi) except as otherwise specifically set forth
in this subpart (c), Advances under the
Swing Loan are subject to the same terms and
conditions of this Agreement which are
applicable to the Revolving Loan I and shall
be deemed to be "Obligations" and "Secured
Obligations" of the Borrowers for all
purposes of this Agreement, and in no event
will the outstanding principal of the Swing
Line, when taken together with the
outstanding principal of the Revolving Loan
I (including the face amount of Letters of
Credit and outstanding Reimbursement
Obligations), exceed the Revolving Loan
Commitment I; and
(vii) immediately upon the making by Agent of each
cash Advance under the Swing Line (each such
advance being herein called a "Swing Loan"),
Agent is deemed to have granted to each
Lender, and each Lender is hereby deemed to
have acquired, an undivided participating
interest (without recourse to or warranty by
Agent), in accordance with each such
Lender's respective Pro Rata Percentage, in
all of Agent's rights and liabilities with
respect to such Swing Loan. In the event
that the Obligations are accelerated
incident to an Event of Default, Agent shall
promptly notify each Lender of the unpaid
principal balance of all Swing Loans and all
of such Lender's participation therein based
on such Lender's Pro Rata Percentage. Each
Lender shall make available to Agent an
amount equal to its respective participation
in same day funds, at the office of Agent
specified in such notice, not later than
1:00 p.m. (Philadelphia time) on the
Business Day after the date notified by
Agent. In the event that any Lender fails to
make available to Agent the amount of such
Lender's
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participation based on such Lender's Pro
Rata Percentage in such Swing Loans, Agent
shall be entitled to recover such amount on
demand from such Lender together with
interest at the Fed Funds Rate for one (1)
Business Day and thereafter at two (2)
percentage points above the Agent's Prime
Rate. Agent shall distribute to each other
Lender which has paid all amounts payable by
it under this subpart (c) with respect to
any Swing Loans, such other Lender's share,
based on such Lender's Pro Rata Percentage,
of all payments received by Agent from
Borrower in payment of such Swing Loans,
when such payments are received.
(d) Neither Agent nor any other Lender shall be obligated, for
any reason whatsoever, to advance the share of any other Lender. If such
corresponding amount is not made available to Agent by such Lender on the date
the Advance is to be made and Agent elects (at its discretion, without any
obligation to do so) to make such Lender's share of the Advance (including any
cash Revolving Loan I Advance to reimburse Issuer for unreimbursed draws under a
Letter of Credit), Agent shall be entitled to recover such amount on demand from
such Lender, together with interest in respect of each day during the period
commencing on the date such amount was made available to the Borrowers (or on
that date Agent required such funds to be advanced pursuant to the settlement
procedures established by Agent) and ending on (but excluding) the date Agent
recovers such amount, at a per annum rate equal to the Fed Funds Rate for the
first Business Day and thereafter at two (2) percentage points above the Agent's
Prime Rate. Agent shall also be entitled to recover any and all losses and
damages (including without limitation, attorneys' fees) from any Lender failing
to so advance upon demand of Agent. Agent may set off the obligations of a
Lender under this paragraph against any distributions or payments of the
Obligations which Agent would otherwise make available to such Lender. To the
extent any Lender fails to provide or delays providing its respective Pro Rata
Percentage of any requested Advance, such Lender's Pro Rata Percentage of all
payments of the Obligations (but not its Pro Rata Percentage of Advances
required to be funded by such Lender) shall decrease to reflect the actual
percentage which its actual outstanding Advances bears to the total outstanding
Advances of all Lenders.
(e) Notwithstanding the foregoing to the contrary, the
following tranches of principal which are outstanding under the Prior Credit
Agreement and which accrue interest at the LIBOR Rate will remain outstanding
with the Lenders which funded the same under the Prior Credit Agreement and in
accordance with the Pro Rata
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Percentages set forth in the Prior Agreement until the end of the applicable
Rate Period (as defined in Section 2.8(c) hereof), with the principal thereof to
be funded hereunder upon the conversion or renewal thereof:
(a) #53058 due 4/24/98, $10,000,000;
(b) #53033 due 5/1/98, $18,000,000.
2.6 Use of Proceeds of Loans.
The proceeds of the Revolving Loans shall be used solely for general
corporate purposes, including for Investments subject to the limitations set
forth in Section 6.6 hereof.
2.7 Payment of Loans. (a) Unless sooner accelerated pursuant to
the terms hereof, the applicable Revolving Loan shall be due and payable on
the applicable Commitment Termination Date. Borrowers will, on the Commitment
Termination Date I, provide Bank with cash collateral in an amount equal to
105% of the face amount of all issued and outstanding Letters of Credit
issued under this Agreement.
(b) Except to the extent otherwise set forth in this
Agreement, all payments of principal and of interest on the Revolving Loans, and
all other fees and charges and any other Obligations of Borrowers hereunder,
shall be made to Agent at its Principal Office, in United States dollars, in
immediately available funds, not later than 1:00 p.m. Philadelphia time on the
date on which such payment is due. Agent and each Lender, on behalf of all
Lenders, shall have the unconditional right and discretion to charge any
Borrower's operating account with any such respective institution for all of
Borrowers' Obligations as they become due from time to time under this Agreement
including without limitation, interest, principal, fees and reimbursement of
expenses. Alternatively, Agent may in its discretion (and Borrowers hereby
authorize Agent to) direct the Lenders to make a cash Advance under the
applicable Revolving Loan (subject to the terms and provisions of this
Agreement) in a sum sufficient to pay all interest accrued and payable on the
Obligations during the immediately preceding month and to pay all costs, fees
and expenses owing hereunder.
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2.8 Interest.
(a) Subject to the provisions of subsection (c) hereof and
subject further to the provisions of Section 2.5(c)(ii), the Borrowers shall pay
interest on the unpaid principal amount of each Advance for the period
commencing on the date of such Advance until such Advance shall be paid in full,
at a rate per annum equal to Agent's Prime Rate. Notwithstanding the foregoing,
the Borrowers shall pay interest on any Advance, and on any other amount payable
by the Borrowers hereunder (including, to the extent permitted by law, interest)
which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise, and including all reimbursement obligations on
Letters of Credit which are not immediately repaid from an Advance or otherwise)
for the period commencing on the due date thereof until the payment in full at
the Post-Default Rate. Except as provided in the next sentence, accrued interest
on the Loans shall be payable (i) monthly in arrears within 10 days of
Borrowers' receipt of a bill therefor, and (ii) on the earlier of the date the
applicable Revolving Loan Commitment is terminated or the applicable Commitment
Termination Date. Interest payable at the Post-Default Rate shall be payable
from time to time on demand of the Agent. Interest shall continue to accrue and
be paid at the applicable rate provided herein even after Default, an Event of
Default, entry of judgment against any or all of the Borrowers or the
commencement of any bankruptcy, reorganization or insolvency proceeding, and any
such judgment entered in connection with the enforcement hereof or the
collection of the Obligations shall earn interest at the Post-Default Rate.
(b) Notwithstanding any provision herein or in the Notes, the
total liability for payments of interest, or in the nature of interest, shall
not exceed the limits imposed by any applicable laws. If the terms of this
Agreement or the Security Documents, the Notes, or any other agreement or
instrument entered into in connection herewith require or shall require
Borrowers to pay interest in excess of amounts allowed by law, the rate of
interest payable shall be reduced immediately, without action by Lenders or
Agent, to the applicable maximum rate, and any excess payment made by Borrowers
at any time shall be immediately and automatically applied to the unpaid balance
of the outstanding principal due hereunder and not to the payment of interest.
In the event of acceleration of sums due hereunder, the total charges for
interest and in the nature of interest shall not exceed the maximum allowed by
law, and any excess portions of such charges which may have been prepaid and
cannot be applied to repayment of principal shall be refunded to Borrowers.
Borrowers agree that in determining whether or not any interest payable under
this Agreement, the Notes or the Security Documents exceeds the highest
applicable rate permitted by law, any non-
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principal payment including, without limitation, fees, costs, Post-Default Rate
and late charges, shall be deemed to the extent permitted by law to be an
expense, fee or penalty not deemed interest by law.
(c) (i) As used in this Section 2.8(c), the following terms
shall have the following meanings:
(A) "Good Business Day" means any day when
both Agent and banks in London, England are open for business.
(B) "LIBOR Rate" means for any day during
each Rate Period (a) the per annum rate of interest (computed on a basis of a
year of 360 days and actual days elapsed) determined by Agent as being the
composite rate available to Agent at approximately 11:00 a.m. London time in the
London Interbank Market, as referenced by Telerate (page 3750), in accordance
with the usual practice in such market, for the Rate Period elected by
Borrowers, in effect two (2) Good Business Days prior to the funding date for a
requested LIBOR Rate advance for deposits of dollars in amounts equal (as nearly
as may be estimated) to the amount of the LIBOR Rate advance which shall then be
loaned by the Lenders to Borrowers as of the time of such determination, as such
rate (the "Base Rate") may be adjusted by the reserve percentage applicable
during the Rate Period in effect (or if more than one such percentage shall be
applicable, the daily average of such percentages for those days in such Rate
Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for the Agent with respect to liabilities or
assets consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time, having a term equal to such Rate Period
("Eurocurrency Reserve Requirement"), plus (b) 1.25 percentage points. Such
reserve adjustment shall be effectuated by calculating, and the LIBOR Rate shall
be equal to, (a) the quotient of (i) the Base Rate divided by (ii) one minus the
Eurocurrency Reserve Requirement, plus (b) 1.25 percentage points.
(C) "Notification" means telephonic notice
(which shall be irrevocable) by Borrowers to Agent that Borrowers have requested
that the LIBOR Rate, as quoted by Agent from time to time upon Borrower's
request for quotation made not less than one (1) Business Day prior to the
requested date of quotation, shall apply to
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some portion of the principal amount of either of the Revolving Loans in
accordance with the provisions of this Section 2.8(c), which notice shall be
given no later than 11:00 a.m. Philadelphia time, on the day which is at least 2
Business Days prior to the Business Day on which such election is to become
effective, which notice shall specify (i) that the LIBOR Rate option is being
selected; (ii) the principal amount of cash Advances under the Loans to be
subject to such rate; (iii) whether such amount is a new advance, a renewal of a
previous request of such rate, a conversion from one interest rate to another,
or a combination thereof; (iv) the Rate Period(s) selected; and (v) the date on
which such request is to become effective (which date shall be a date selected
in accordance with Section 2.8(c)(ii) hereof).
(D) "Rate Period" means for any portion of
principal under the Loans for which Borrowers elect the LIBOR Rate the period of
time for which such rate shall apply to such principal portion. Rate periods for
principal earning interest at the LIBOR Rate shall be for periods of 30, 60, 90
or 180 days and for no other length of time, provided, that, no Rate Period may
end on other than a Business Day or after the applicable Commitment Termination
Date.
(E) "Repayment Premium" means the amount
which Borrowers shall pay to Agent, for the account of Lenders, as a premium in
connection with a repayment prior to the last day of the applicable Rate Period
of outstanding principal of the Loans earning interest at the LIBOR Rate at the
time of repayment, which amount shall be the amount determined by Agent (which
determination shall be conclusive absent manifest error) to be the difference
between (a) the present value of the interest payments that would have been paid
for the balance of the Rate Period by Borrowers on such repaid portion of
principal accruing at the LIBOR Rate but for such repayment, and (b) the present
value of the interest payments that would be paid for the balance of the Rate
Period at the United States Treasury Rate if on or about the date of repayment
Agent made a hypothetical investment of the repaid portion of principal accruing
at a fixed rate of interest in United States Treasury securities maturing on or
about the last date of the corresponding Rate Period and bearing interest
accruing from the date of repayment.
(F) "United States Treasury Rate" means a
rate of interest per annum, equal to (rounded downward to the nearest 1/100 of
1%) the annual yield Agent could obtain by purchasing on the date of repayment
of a LIBOR Rate Loan United States Treasury Securities with semi-annual interest
payments, maturing on or about the last date of the corresponding Rate Period,
in amounts approximately equal to
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that amount of the repaid portion which was applied to principal earning
interest at the LIBOR Rate at the time of repayment.
(ii) (A) Subject to the terms of this Section
2.8(c)(ii), by giving Notification, Borrowers may request to have all or a
portion of the outstanding principal of cash Advances under the Loans (other
than Swing Loans) as hereinafter permitted earn interest at the LIBOR Rate as
follows: (1) with respect to the principal amount of any cash Advance under the
Loans, from the date of such Advance until the end of the Rate Period specified
in the Notification; and/or (2) with respect to the principal amount of any
portion of cash Advances under the Loans outstanding and earning interest at the
LIBOR Rate at the time of the Notification related to such principal amount,
from the expiration of the then current Rate Period related to such principal
amount until the end of the Rate Period specified in the Notification; and/or
(3) with respect to all or any portion of the principal amount of cash Advances
under the Loans outstanding and earning interest at the Prime Rate at the time
of Notification, from the date set forth in the Notification until the end of
the Rate Period specified in the Notification.
(B) Borrowers understand and agree: (1)
that subject to the provisions of this Agreement, the Prime Rate and the LIBOR
Rate may apply simultaneously to different parts of the outstanding principal of
cash Advances under the Loans, (2) that the LIBOR Rate applicable to any portion
of outstanding principal may be different from the LIBOR Rate applicable to any
other portion of outstanding principal, (3) that no more than 8 portions of
principal of cash Advances under the Loans bearing interest at the LIBOR Rate
may be outstanding at any one time, (4) that the minimum amount of principal for
which any LIBOR Rate election may be made shall be $5,000,000, and (5) that
Agent shall have the right to terminate any Rate Period, and the interest rate
applicable thereto, prior to maturity of such Rate Period, if Agent determines
in good faith (which determination shall be conclusive) that continuance of such
interest rate has been made unlawful by any Law to which any Lender may be
subject, in which event the principal to which such terminated Rate Period
relates thereafter shall earn interest at the Prime Rate.
(C) After expiration of any Rate Period,
any principal portion corresponding to such Rate Period which has not been
converted or renewed in accordance with this Section 2.8(c)(ii) shall earn
interest automatically at the Prime Rate from the date of expiration of such
Rate Period until paid in full, unless and until the Borrowers request and Agent
approves a conversion to the LIBOR Rate in accordance with this Section 2.8.
With respect to any cash Advances (whether an advance of new
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funds or an already outstanding amount), if Borrowers fail to request the LIBOR
Rate option by giving Bank a Notification, or if Agent fails to approve such
request when made, such principal amount shall earn interest at the Prime Rate.
(D) Borrowers shall indemnify Lenders
against any and all loss or expense (including loss of margin) which any Lender
has sustained or incurred as a consequence of: (a) any payment of any principal
amount earning interest at the LIBOR Rate on a day other than the last day of
the corresponding Rate Period (whether or not any such payment is made pursuant
to acceleration upon or after an Event of Default, demand by Agent otherwise
made under this Agreement, by reason of an application of proceeds incident to
an insured loss or condemnation of property, or for any other reason, and
whether or not any such payment is consented to by Agent, unless Agent shall
have expressly waived such indemnity in writing); (2) any attempt by a Borrower
to revoke in whole or part any Notification given pursuant to this Agreement;
(3) any attempt by Borrowers to convert or renew any principal amount earning
interest at the LIBOR Rate on a day other than the last day of the corresponding
Rate Period (whether or not such conversion or renewal is consented to by Agent,
unless Agent shall have expressly waived such indemnity in writing); or (4) any
breach of or default by any Borrower.
2.9 Notes.
Contemporaneously herewith, Borrowers shall execute and deliver to each
Lender their Notes in the principal amount of such Lender's Pro Rata Share of
each of the Revolving Loans (each a "Revolving Loan Note"), evidencing
Borrowers' unconditional joint and several obligations to repay such Lender's
Pro Rata Percentage of each of the Revolving Loans.
Computations; Application of Payments.
(a) Interest on the Loans and commitment fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last) in the period for which payable;
(b) Each payment of principal and interest made by any
Borrower hereunder shall be applied first on account of due and unpaid interest
and the balance, if any, toward reduction of the unpaid principal balance of the
Revolving Loans. As between the Revolving Loan I and the Revolving Loan II,
Borrowers shall, prior to the
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occurrence of an Event of Default and provided that Borrowers are in full
compliance with the Collateral Coverage Base and the Borrowing Base, have the
right to designate the applicable Revolving Loan to which principal payments are
to be applied; after an Event of Default and/or should Borrowers not be in
compliance with the Collateral Coverage Base or the Borrowing Base, principal
shall be applied to either of the Loans and in any order as Agent shall
determine in its discretion.
2.11 Minimum Amounts of Borrowings.
Except for borrowings which exhaust the full remaining amount of the
applicable Revolving Loan Commitment, each cash Advance under the Revolving
Loans shall be in the amount of $100,000 or an integral multiple thereof.
2.12 Set-Off.
Each of the Borrowers hereby agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim any Lender
may otherwise have, each Lender and any affiliate of any Lender or any such
participant shall be entitled, at its option, and for the ratable benefit of all
Lenders, to offset balances held by it at any of its offices against any
principal of or interest on the Revolving Loans hereunder which is not paid when
due (regardless of whether such balances are then due to such Borrower), in
which case it shall promptly notify such Borrower thereof, provided that its
failure to give such notice shall not affect the validity of any such offset.
2.13 Prepayment.
The Revolving Loans may be prepaid in whole or in part and from time to
time, provided that in the event that such of the principal of the Revolving
Loans earning interest at the LIBOR Rate at the time of repayment is repaid
prior to the last day of the applicable Rate Period (whether or not any such
repayment is made pursuant to acceleration upon or after an Event of Default,
demand by Agent otherwise made under this Agreement, by reason of an application
of proceeds incident to an insured loss or condemnation of property, or for any
other reason), Borrowers shall, together with such repayment, pay to Agent, for
the account of Lenders, a Repayment Premium on the amount so repaid.
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2.14 Collateral.
(a) Borrowers hereby agree that their grant of a security
interest in the Collateral contained in the Pledge Agreement, in other security
and collateral agreements of Borrowers and all other agreements executed in
connection herewith and all collateral, liens, security interests and pledges
created by Borrowers described therein cover and secure all of the Secured
Obligations.
(b) The Pledge Agreement, and the aforesaid agreements,
instruments and documents, are sometimes hereinafter referred to collectively as
the "Security Documents."
2.15 Valuation of Collateral Coverage Securities; Sale.
The value of the Collateral Coverage Securities shall be based on
market value as determined on a recognized national securities exchange or by
the NASDAQ national or small-cap market, or on the over-the-counter market, all
as of the close of the last previous trading day. Any determination of the value
of the Collateral Coverage Securities by the Agent through its brokerage
services shall be conclusive and binding on Borrowers absent manifest error.
Borrowers may sell Collateral Coverage Securities in accordance with the terms
of the Pledge Agreement so long as after giving effect to any such sale,
Borrowers are not in violation of the Collateral Coverage Base or the Borrowing
Base and the proceeds thereof shall be paid over to Agent as provided in the
Pledge Agreement.
Article 3. Representations and Warranties.
The Borrowers hereby represent and warrant to each Lender that:
3.1 Organization.
(a) Each Borrower is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation, as set forth in Exhibit 3.1 hereto; each Borrower has the power
to own its assets and to transact the business in which it is presently engaged
and in which it proposes to be engaged. The authorized and outstanding shares of
capital stock of each Borrower is accurately and completely listed in Exhibit
3.1. All such shares which are issued and outstanding have been duly and validly
issued and are fully paid and nonassessable, are, as to SSD and SDI, owned by
the persons referred to on Exhibit 3.1 and, as to SSI, are publicly traded, in
each
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case free and clear of any mortgage, pledge, lien or encumbrance. Except as
set forth in Exhibit 3.1, there are not outstanding any warrants, options,
contracts or commitments of any kind entitling any person to purchase or
otherwise acquire any shares of capital stock of any Borrower, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of capital stock of any Borrower. Except as set forth on Exhibit 3.1, no
Borrower has any Subsidiary (other than another Borrower).
(b) There are no jurisdictions other than as set forth on
Exhibit 3.1 hereto in which the character of the properties owned or proposed to
be owned by the Borrowers or in which the transaction of the business of any of
the Borrowers as now conducted or as proposed to be conducted requires or will
require any Borrower to qualify to do business in any such other jurisdiction
where the failure to do so would have a material adverse effect on such
Borrower.
3.2 Power, Authority, Consents.
Each Borrower has the power to execute, deliver and perform this
Agreement, the Notes and the Security Documents to be executed by it, and to
borrow hereunder. Each Borrower has taken all necessary action to authorize (i)
the borrowing hereunder on the terms and conditions of this Agreement, (ii) the
execution, delivery and performance of this Agreement, the Notes, the Security
Documents to be executed by it and all other agreements, instruments and
documents provided for herein or therein. No consent or approval of any person
(including, without limitation, any stockholder of the Borrowers), no consent or
approval of any landlord or mortgagee, no waiver of any lien or right of
distraint or other similar right and no consent, license, approval,
authorization or declaration of any governmental authority, bureau or agency, is
or will be required in connection with the execution, delivery or performance by
any Borrower, as the case may be, or the validity, enforcement or priority of,
this Agreement, the Notes, the Security Documents (or any Lien created and
granted thereunder) or any other agreements, instruments or documents to be
executed or delivered pursuant hereto or thereto, except as set forth on Exhibit
3.2 annexed hereto, each of which either will have been duly and validly
obtained on or prior to the date hereof and will then be in full force and
effect, or is designated on Exhibit 3.2 as waived by the Agent.
3.3 No Violation of Law or Agreements.
The execution and delivery by each Borrower of this Agreement, the
Notes and the Security Documents executed by it and any other agreements,
instruments or
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documents to be executed and delivered by it hereunder, and performance by it
hereunder and thereunder will not, if the same would have a Material Adverse
Effect, violate any provision of law or conflict with or result in a breach of
any order, writ, injunction, ordinance, resolution, decree, or other similar
document or instrument of any court or governmental authority, bureau or agency,
domestic or foreign, or certificate of incorporation or by-laws of any Borrower
or create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which any
Borrower is a party, or by which it is bound or any of its properties or assets
is affected, or result in the imposition of any Lien of any nature whatsoever
upon any of the properties or assets owned by or used in connection with the
business of such Borrower, except for the liens and security interests created
and granted pursuant to the Security Documents.
3.4 Due Execution, Validity, Enforceability.
This Agreement has been duly executed and delivered by each Borrower
and constitutes, and the Notes and each of the Security Documents to be executed
by a Borrower, upon execution and delivery by such Borrower in accordance with
the terms hereof, will constitute, the valid and legally binding obligation and
agreement of such Borrower, as the case may be, enforceable in accordance with
its terms.
3.5 Properties, Priority of Liens.
All of the Collateral is owned by Borrowers, free and clear of any Lien
of any nature whatsoever, except as provided for in the Security Documents to be
executed and delivered pursuant hereto. The Liens which will be created and
granted by the Security Documents upon their execution and delivery by the
parties thereto, will thereupon and thereafter constitute valid first Liens on
the properties and assets covered by the Security Documents as security for the
Secured Obligations, subject to no Lien other than in favor of the Lenders.
3.6 Judgments, Actions, Proceedings.
There are no outstanding judgments, and no actions, suits or
proceedings pending or threatened before any court, governmental authority,
bureau, commission, board, instrumentality or agency, with respect to or
affecting any Borrower or any of their Properties, which would have a Material
Adverse Effect, nor is there any reasonable basis for the institution of any
such action, suit or proceeding, whether or not covered by
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insurance, nor are there any such actions or proceedings in which any Borrower
is a plaintiff or complainant where the amount demanded or sued for exceeds
$5,000,000, except as set forth on Exhibit 3.6 annexed hereto.
3.7 No Defaults.
None of the Borrowers is in default under any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment to which it is a
party or by which it is bound, or any other agreement or other instrument by
which any of the properties or assets owned by it or used in the conduct of its
business is affected, and each Borrower has complied and is in compliance with
all applicable laws, ordinances and regulations applicable to them, where any of
the foregoing would have a Material Adverse Effect.
3.8 Burdensome Documents.
Except as set forth on Exhibit 3.8 annexed hereto, none of the
Borrowers is a party to or bound by, nor are any of the properties or assets
owned by any of the Borrowers or used in the conduct of their respective
businesses affected by, any agreement, ordinance, resolution, decree, bond,
note, indenture, order or judgment, or subject to any restriction, which would
have a Material Adverse Effect.
3.9 Financial Statements.
The Borrowers have delivered to each Lender the Financial Statements.
Each of the Financial Statements is true and complete and presents fairly in all
material respects the consolidated financial position of SSI and its
Subsidiaries, including, without limitation, SSD, and the results of their
respective operations and, if applicable, changes in cash flows, as at the dates
and for the period referred to therein; and has been prepared in accordance with
generally accepted accounting principles applied on a basis consistent with that
of the prior period (except as disclosed therein or in the notes thereto, and
with respect to the unaudited financial statements as of September 30, 1997 and
for the period then ended, subject to normal year-end audit adjustments). There
has been no material adverse change in the financial position or operations of
any Borrower or Subsidiary since September 30, 1997 except as set forth in
Exhibit 3.9 hereto. No Borrower or any Subsidiary of a Borrower has any material
obligation, liability or commitment, direct or contingent, which is not
reflected in the Financial Statements.
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3.10 Tax Returns.
Each of the Borrowers has filed all federal, state and local tax
returns required to be filed by it and has not failed to pay any taxes, or
interest and penalties relating thereto, on or before the due dates thereof.
There are no waivers or agreements by any Borrower for the extension of time for
the assessment of any tax. Except for tax liabilities not in excess of
$1,000,000 in the aggregate with respect to the Borrowers and except to the
extent that reserves therefor are reflected in the Financial Statements, (a)
there are no material federal, state or local tax liabilities of any Borrower
due or to become due for any tax year ended on or prior to December 31, 1996
whether incurred in respect of or measured by the income of such Borrower which
are not properly reflected in the Financial Statements, and (b) there are no
material claims pending or, to the knowledge of any Borrower, proposed or
threatened against any Borrower for past federal, state or local taxes, except
those, if any, as to which proper reserves are reflected in the Financial
Statements.
3.11 Intangible Assets.
Except as set forth in Exhibit 3.11 hereto, to each Borrower's
knowledge, each of the Borrowers possesses all necessary franchises, patents,
licenses, trademarks, trademark rights, trade names, trade name rights and
copyrights to conduct its business as now conducted and as proposed to be
conducted, without any conflict with the franchises, patents, licenses,
trademark rights, trade names, trade name rights and copyrights of others.
3.12 Name Changes.
Except as described in Exhibit 3.12 attached hereto and made a part
hereof, none of the Borrowers has within the six-year period immediately
preceding the date of this Agreement, changed its name, been the surviving
entity of a merger or consolidation, or acquired all or substantially all of the
assets of any Person.
3.13 Full Disclosure.
None of the Financial Statements, nor any certificate, opinion, or any
other statement made or furnished in writing to any Lender by or on behalf of
any of the Borrowers in connection with this Agreement or the transactions
contemplated herein, contains any untrue statement of a material fact, or omits
to state a material fact necessary
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in order to make the statements contained therein or herein not misleading, as
of the date such statement was made. There is no fact known to any Borrower
which has, or would in the now foreseeable future have, a Material Adverse
Effect, which fact has not been set forth herein, in any of the Financial
Statements or any certificate, opinion, or other written statement so made or
furnished to any Lender.
3.14 ERISA.
(a) The Borrowers have no pension or other employee benefit
plans which are subject to the provisions of Title IV of ERISA (any such plans
which have been or may hereafter be adopted or assumed by the Borrowers are
hereinafter referred to individually as a "Plan" and, collectively, as the
"Plans"), the application of which could give rise to direct or contingent
liabilities of the Borrowers to the Pension Benefit Guaranty Corporation
("PBGC"), the Department of Labor or the Internal Revenue Service ("IRS"). None
of the Borrowers is a participating employer in any Plan under which more than
one employer makes contributions as described in Sections 4063 and 4064 of
ERISA. The Borrowers have no withdrawal liability to any multiemployer plan and
no withdrawal from any multiemployer plan is contemplated or pending by any of
the Borrowers.
(b) The Borrowers are and have at all times been in full
compliance with all applicable provisions of ERISA.
(c) With respect to any of the Plans, Borrowers have no
knowledge of any Reportable Event, as described in Section 4043 of ERISA, except
that there has or may have occurred (1) a reduction in the number of active
participants as described in Section 4043(b) (3) of ERISA; (2) a termination or
partial termination; or (3) a merger or consolidation with, or transfer of
assets to, another plan. The Borrowers have no outstanding liability to the PBGC
for reason of any such Reportable Event, and the Borrowers have not received any
notice from the PBGC that any of the Plans should be terminated or from the
Secretary of the Treasury that any partial or full termination of any of the
Plans has occurred.
(d) No termination proceedings with respect to any of the
Plans have been commenced and have not yet been concluded.
(e) With respect to any of the Plans, there has not occurred
any prohibited transaction (as defined in Section 406 of ERISA or Section 4975
of the Internal
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Revenue Code) for which a prohibited transaction exemption has not been provided
by statute or regulation, ruling or opinion issued by the Department of Labor or
Internal Revenue Service and which may result in the imposition upon the
Borrowers of any prohibited transaction excise tax or civil liability under
Section 502(i) of ERISA.
(f) The Borrowers have made all required contributions under
the Plans for all periods through and including the date hereof or adequate
accruals therefor have been provided for as shown in the Financial Statements.
No "accumulated funding deficiency" (as defined in section 302 of ERISA) has
occurred with respect to any of the Plans.
For purposes of this Agreement, all references to "ERISA" shall be deemed to
refer to the Employee Retirement Income Security Act of 1974 (including any
sections of the Internal Revenue Code of 1986 amended by it), as heretofore
amended and as it may hereafter be amended or modified, and all regulations
promulgated thereunder, and all references to the Borrowers in this Section
3.14, or in any other Section of this Agreement relating to ERISA, shall be
deemed to refer to the Borrowers and all other entities which are part of a
controlled or affiliated group or under common control with the Borrowers within
the meaning of Sections 414(b), 414(c) and 415(h) of the Internal Revenue Code
of 1986, as amended, and Section 4001(a) (2) of ERISA.
3.15 Employee Grievances.
There are no actions or proceedings pending or, to the best of any
Borrower's knowledge, threatened against any Borrower, by or on behalf of or
with respect to its employees, which would have a Material Adverse Effect.
3.16 Indebtedness.
There is set forth on Exhibit 3.16 annexed hereto a true and complete
schedule of all Indebtedness for borrowed money (including guaranties of
borrowed money) and Capitalized Lease Obligations of the Borrowers in existence
as of the date of this Agreement, setting forth with respect to all such
indebtedness, the holders, the payment schedules and the interest or other
charges payable.
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3.17 Investment Company.
No Borrower is an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended, nor is any
Borrower controlled by such a company.
Article 4. The Closings; Conditions to the Loans.
4.1 The Closing.
Subject to the satisfaction of the conditions precedent set forth in
Section 4.2 hereof, the Closing shall take place at the offices of Blank Rome
Comisky & McCauley LLP, counsel to the Agent, simultaneously with the execution
and delivery of this Agreement.
4.2 Conditions to Initial Advance.
The obligation of Lenders to lend the initial Advance shall be subject
to the fulfillment (to the satisfaction of the Agent) of the following
conditions precedent:
(a) Each Borrower shall have executed and delivered to Agent
the Notes.
(b) Each Borrower shall have executed and delivered to Agent
the Pledge Agreement as required by Section 2.14 hereof.
(c) [INTENTIONALLY OMITTED]
(d) Borrowers shall, in connection with the Swing Line, have
executed and delivered to Agent a Working Cash Line of Credit Agreement, a
Working Cash Trust Agreement and a Working Cash Line of Credit, Investment Sweep
Agreement (the "Working Cash Agreements").
(e) Counsel to the Borrowers shall have delivered to Agent its
opinion, in form and substance satisfactory to Agent.
(f) Agent shall have received copies of the following:
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(i) All of the consents, approvals and waivers
referred to on Exhibit 3.2 hereto, except only those which, as stated on Exhibit
3.2, shall not be delivered and each such consent, waiver and approval so
delivered shall be in form and substance satisfactory to Lenders;
(ii) Copies of all corporate action (including,
without limitation, directors' resolutions and stockholders' consents) taken by
each Borrower to authorize the execution, delivery and performance of any
agreement, instruments and documents to which it is a party pursuant hereto or
in connection herewith, and an incumbency certificate with respect to each such
corporation in each case, certified by its respective secretary;
(iii) Such other documents, including UCC-1
Financing Statement and UCC-3 Amendment Statements (or other document necessary
to grant or perfect a lien on personal property or real estate under the
applicable law of a particular jurisdiction) as any Lender may require;
(g) (A) The Borrowers shall have complied and shall then be in
compliance with all of the terms, covenants and conditions of this Agreement;
(B) There shall exist no Event of Default or Default;
and
(C) The representations and warranties contained in
Article 3 hereof shall be true in all material respects;
(h) Agent shall have received a Certificate (a "Compliance
Certificate") of the president, a vice president, the treasurer or the corporate
controller of each Borrower dated the date of the Closing certifying that the
conditions set forth in Subsection 4.2(g) hereof are satisfied on such date;
(i) The Borrowers shall have delivered to Agent, initialed by
the Borrowers for identification, copies of the Financial Statements (prior
receipt of which Agent acknowledges); and
(j) All legal matters incident to the transactions
contemplated hereby shall be satisfactory to counsel to Agent.
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4.3 Conditions to Subsequent Advances.
The obligation of Lenders to make each Advance subsequent to the
initial Advance shall be subject to the fulfillment (to the satisfaction of
Agent) of the following conditions precedent:
(a) Except with respect to borrowings under the Swing Line,
Agent shall have received a request for a borrowing as provided for in
subsection 2.3 hereof.
(b) Agent shall have received a Borrowing Base Certificate as
required by Section 2.1.1(a)(ii) hereof, and the matters contained in Section
4.2(g) hereof shall be true as of such date.
(c) All legal matters incident to such advance shall be
satisfactory to counsel for Agent.
Article 5. Delivery of Financial Reports, Documents and Other Information.
While either Revolving Loan Commitment or any Advance remains
outstanding, so long as any Borrower is indebted to the Lenders and until
payment in full of the Notes and full and complete performance of all of their
other obligations arising hereunder, the Borrowers shall deliver to Agent and to
each Lender:
5.1 Annual Financial Statements.
(a) Annually, as soon as available, but in any event within
100 days after the last day of each of its fiscal years, a consolidated Balance
Sheet of SSI and its Subsidiaries as at such last day of the fiscal year, and
consolidated Statements of operations, shareholders' equity and cash flows of
SSI and its Subsidiaries for such fiscal year, each prepared in accordance with
generally accepted accounting principles consistently applied, each to be in
reasonable detail and certified without qualification or explanatory paragraphs
by KPMG Peat Marwick or another firm of independent certified public accountants
satisfactory to Agent.
(b) Annually, as soon as available, but in any event within
100 days after the last day of each of its fiscal years, the unaudited Balance
Sheet of SSI as at such last day of the fiscal year, and the unaudited
Statements of operations of SSI for such fiscal year, in each case prepared on
both a consolidated basis for SSI and its Subsidiaries and on a
37
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consolidated basis for SSI excluding all Subsidiaries other than if another
Borrower and prepared in accordance with generally accepted accounting
principles consistently applied, each to be in reasonable detail and certified
by SSI's chief financial officer or corporate controller and in each case
showing the calculation of the covenants in Sections 6.8, 6.9 and 6.10 hereof.
5.2 Quarterly Financial Statements.
(a) As soon as available, but in any event within 45 days
after the end of the first three fiscal quarterly periods of each fiscal year,
an unaudited consolidated Balance Sheet of SSI and its Subsidiaries, as at such
last day of the fiscal quarter, and an unaudited consolidated statement of
operations and cash flows of SSI and its Subsidiaries for such fiscal quarter,
and with respect to the second and third fiscal quarters such statements shall
also include statements of operations and cash flows for the period from the
commencement of the then current fiscal year to the end of such quarter, each to
be in reasonable detail and certified by the chief financial officer or
corporate controller of the Borrowers as having been prepared in accordance with
generally accepted accounting principles consistently applied, subject to
year-end audit adjustments.
(b) As soon as available, but in any event within 45 days
after the end of each any of the first three fiscal quarterly periods of each
fiscal year, unaudited consolidating Balance Sheets of SSI and its Subsidiaries
as at such last day of such fiscal quarter, and unaudited consolidating
statements of operations of SSI and its Subsidiaries, for such fiscal quarter,
and with respect to the second and third fiscal quarters, such statements shall
also include consolidating statements of operations for the period from the
commencement of the current fiscal year to the end of such quarter, each to be
in reasonable detail.
(c) As soon as available, but in any event within 45 days
after the end of the first three fiscal quarterly periods of each fiscal year,
an unaudited Balance Sheet of SSI as at such last day of the fiscal quarter, and
an unaudited statement of operations of SSI for such fiscal quarter, and with
respect to the second and third fiscal quarters such statements shall also
include statements of operations for the period from the commencement of the
then current fiscal year to the end of such quarter, in each case prepared on a
consolidated basis for SSI excluding all Subsidiaries other than if another
Borrower and to be in reasonable detail and certified by the chief financial
officer or corporate controller of the Borrowers as having been prepared in
accordance with
38
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generally accepted accounting principles consistently applied, subject to
year-end audit adjustments, and in each case showing the calculation of the
covenants in Sections 6.8, 6.9 and 6.10 hereof.
(d) As soon as available, but in any event within 45 days
after the end of each fiscal quarter, a cash availability schedule in the form
of Annex I hereto.
5.3 Additional Information.
Promptly after a written request therefor, such other financial data or
information evidencing compliance with the requirements of this Agreement, the
Notes and the Security Documents, as Agent may reasonably request from time to
time.
5.4 No Default Certificate.
At the same time as it delivers the financial statements required under
the provisions of Sections 5.1 and 5.2, a Certificate of the president,
treasurer, corporate controller or any vice president of SSI, to the effect that
no Event of Default hereunder, or Default, has occurred and is continuing, or,
if such cannot be so certified, specifying in reasonable detail the exceptions,
if any, to such statement. Such certificate shall be accompanied by a detailed
calculation indicating compliance with the covenants contained in Sections 6.8,
6.9 and 6.10 hereof.
5.5 Copies of Other Reports.
Promptly upon receipt thereof, copies of all other final reports
submitted to the Borrowers by its independent accountants in connection with any
annual or interim audit of the books of the Borrowers made by such accountants.
5.6 Copies of Documents.
Promptly upon their becoming available, copies of any
(a) financial statements, notices (other than routine correspondence), requests
for waivers and proxy statements delivered by any Borrower to any other lending
institution or to its stockholders (as such); (b) material non-routine
correspondence or material official notices received by any Borrower from any
federal, state or local governmental authority which regulates the operations of
such Borrower; (c) registration statements and any amendments and supplements
thereto, and any regular and periodic reports, if any, filed
39
<PAGE>
by any Borrower with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any or all of the
functions of the said Commission (including without limitation form 10-K not
later than 90 days after the last day of each fiscal year of SSI and form 10-Q
not later than 45 days after the last day of each fiscal quarter of SSI); (d)
all form 8-Ks not later than 15 days after filing; and (e) letters of comment or
material non-routine correspondence sent to any Borrower by any such securities
exchange or such Commission in relation to such corporation and its affairs.
5.7 Notice of Defaults.
Promptly, notice of the occurrence of an Event of Default hereunder, or
Default which would have a Material Adverse Effect.
5.8 ERISA Notices.
(a) Concurrently with such filing, a copy of each annual
report which is filed with respect to each Plan with the Secretary of Labor or
the PBGC; and
(b) promptly, upon their becoming available, copies of: (i)
all non-routine correspondence with the PBGC, the Secretary of Labor or any
representative of the IRS with respect to any Plan; (ii) copies of all reports
received by any Borrower from its actuary with respect to any Plan; and (iii)
copies of any notices of Plan termination filed by any Plan Administrator (as
those terms are used in ERISA) with the PBGC and of any notices from the PBGC to
any Borrower with respect to the intent of the PBGC to institute involuntary
termination proceedings; and (iv) copies of all non-routine correspondence with
the plan sponsor with respect to any multiemployer plan.
Article 6. Covenants.
While either Revolving Loan Commitment or any Advance remains
outstanding, so long as any Borrower is indebted to the Lenders and until
payment in full of the Notes and full and complete performance of all of its
other obligations arising hereunder:
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6.1 Payment of Taxes and Claims.
The Borrowers will pay and discharge before they become delinquent:
(a) all taxes, assessments, and governmental charges or levies
imposed upon each such corporation, its income or its Property;
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons which, if unpaid, might result in
the creation of a Lien upon any Borrower's Property;
(c) all claims, assessments, or levies required to be paid by
any such entity pursuant to any agreement, contract, law, ordinance, or
governmental rule or regulation governing any pension, retirement,
profit-sharing or any similar plan of any Borrower; and
(d) all other obligations and liabilities of each Borrower;
where in any such case the failure to pay or discharge would have a Material
Adverse Effect; provided, that items of the foregoing description need not be
paid while being contested in good faith and by appropriate proceedings and
provided further that a bond is filed in cases where the filing of a bond is
necessary to avoid the creation of a Lien against the Collateral.
6.2 Maintenance of Properties, Insurance, Records and Corporate
Existence; Inspections and Audits; etc.
The Borrowers will:
(a) Property. Maintain their respective Properties in good
condition, working order and repair, subject to normal wear and tear.
(b) Insurance.
(i) Maintain, with financially sound and reputable
insurers, insurance with respect to their respective Properties and businesses
against such casualties and contingencies of such types and in such amounts as
is customary in the case of corporations of established reputations engaged in
the same or a similar business and file
41
<PAGE>
with Agent upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of
insurance, dates of the expiration thereof and the properties and risks covered
thereby.
(ii) Pay all premiums to the PBGC as may be required
for the plan termination and insolvency insurance provided by the PBGC.
(c) Financial Records. Keep proper books of record and account
in a manner satisfactory to Agent in which full, true and correct entries in
accordance with generally accepted accounting principles shall be made of all
dealings or transactions in relation to its business activities.
(d) Maintenance of Existence. Subject to the terms of Section
6.7 hereof, do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and all franchises, rights and
privileges necessary for the proper conduct of businesses and continue to engage
in the same type of business as it is presently engaged.
(e) Delivery of Amendments. Promptly deliver to Agent copies
of any amendments or modifications to its certificate of incorporation or
by-laws, certified, with respect to the certificate of incorporation, by the
Secretary of State of its jurisdiction of incorporation and, with respect to the
by-laws, by the Secretary of the corporation.
(f) Notice of Disputes. Promptly notify Agent in writing of
any litigation, legal proceeding or dispute which might result in liability in
excess of $5,000,000 whether or not fully covered by insurance.
(g) Compliance with Law. Comply with all laws, ordinances,
governmental rules and regulations to which such entity is subject (including,
without limitation, ERISA and environmental laws) and obtain any licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of their respective Properties or to the conduct of their respective
businesses, where in any such event the failure to do so would have a Material
Adverse Effect.
(h) Inspections and Audits. Permit each Lender to make or
cause to be made, at the Borrowers' expense (which expense shall be limited to a
reasonable amount prior to any Default), inspections and audits of any books,
records and papers of each Borrower and to make extracts therefrom, or to make
inspections and examinations
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of any properties and facilities of any Borrower on reasonable notice, at all
such reasonable times and as often as any Lender may reasonably require.
6.3 Indebtedness.
The Borrowers shall not create, incur, permit to exist or have
outstanding any Indebtedness, except:
(a) Indebtedness of the Borrowers to the Bank under this
Agreement and the Notes;
(b) Taxes, assessments and governmental charges, current trade
accounts payable, accrued expenses, customer payments received in advance and
deferred liabilities other than for borrowed money (e.g., deferred compensation
and deferred taxes), in each case incurred and continuing in the ordinary course
of business;
(c) Existing Indebtedness for borrowed money set forth on
Exhibit 3.16 annexed hereto;
(d) Purchase money Indebtedness (including Capitalized Lease
Obligations) hereafter incurred for equipment or real estate in an amount not to
exceed $3,000,000 at any time outstanding in the aggregate for the Borrowers;
and
(e) Indebtedness of Borrowers owing to Persons in which
Investments have been or hereafter are made (as permitted in Section 6.6 hereof)
in an aggregate amount not to exceed $20,000,000 at any time outstanding.
6.4 Liens.
No Borrower will cause or permit in the future (upon the happening of a
contingency or otherwise) any of their respective Properties, whether now owned
or hereafter acquired, to be subject to a Lien except:
(a) Liens created by the Security Documents;
(b) Liens for taxes or other governmental charges which are
not delinquent or which are being contested in good faith and for which a
reserve shall have been established as required in accordance with generally
accepted accounting principles;
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(c) Pledges or deposits to secure obligations under workmen's
compensation laws or similar legislation; pledges or deposits to secure
performance in connection with bids, tenders, contracts (other than contracts
for the payment of money) or leases to which any of the Borrowers is a party;
deposits to secure public or statutory obligations; materialmen's, mechanics',
carriers', workmen's, repairmen's or other like liens, or deposits to obtain the
release of such liens, in an aggregate amount with respect to the Borrowers not
exceeding $500,000 at any one time outstanding; and deposits to secure surety,
appeal or customs bonds on which any of the Borrowers is the principal; as to
all of the foregoing, however, only to the extent arising and continuing in the
ordinary course of business;
(d) Existing Liens set forth on Exhibit 3.16 annexed hereto;
and
(e) Purchase Money Liens on equipment and real estate to
secure purchase money Indebtedness permitted by Section 6.3(d) hereof.
Further, no Borrower will enter into or permit to exist any agreement
with any Person which by its terms prohibits any Borrower from granting Agent or
any Lender a lien on or security interest or pledge of the Collateral.
6.5 Guaranties.
The Borrowers shall not assume, endorse, be or become liable for, or
guarantee, the obligation of any Person, except:
(a) by the endorsement of negotiable instruments for deposit
or collection in the ordinary course of business;
(b) guaranties existing on the date hereof as set forth on
Exhibit 3.16 hereto, provided that $3,000,000 of the Pioneer guaranty as
described in Exhibit 3.16 shall be counted toward the Fifty Million Dollars
($50,000,000) referred to in subpart (c) below;
(c) future guaranties to the extent that, after giving effect
to such future guaranties, the aggregate amount of all guaranties by the
Borrowers (including those referred to in Paragraph (b) hereof and excluding
those referred to in Paragraph (a) hereof) would not exceed Fifty Million
Dollars ($50,000,000.00) at any time outstanding, provided that in no event will
any such guaranty(ies) heretofore or hereafter issued for the
44
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indebtedness or obligations of any one Person exceed $10,000,000 in the
aggregate at any time outstanding.
For the purposes hereof, the term "guaranties" shall mean any
obligation to pay money on behalf of or in regard to another Person, including
without limitation any obligation as guarantor, surety, purchaser, indemnitor,
lessee, repurchaser, investor, contributor, subscriber, lender or otherwise. It
is intended that the term "guaranties" be interpreted in the broadest sense
possible and the examples in the foregoing sentence are illustrations and not
limitations.
Furthermore, reimbursement obligations with respect to Letters of
Credit shall not be "guaranties" for purposes of this Section 6.5.
6.6 Investments and Loans.
The Borrowers may make Investments in other Persons, in addition to
Investments existing on the date of Closing and disclosed in Exhibit "6.6"
hereto, subject to the following limitations:
(a) (i) The aggregate of all Investments may not
exceed$200,000,000 in the aggregate for Borrowers' fiscal years 1998 and 1999
and may not exceed $50,000,000 for each fiscal year thereafter.
(ii) Subject to the overall limit in subsection
(a)(i) Borrowers may only invest in any fiscal year, whether as further
Investment in a Person in which an Investment has previously been made or as a
new Investment in a new Person, $30,000,000 per Investment for up to two such
Investments and $20,000,000 per Investment for other Investments.
(b) Borrowers shall notify Agent of any Investment in any
Person in which no previous Investment has been made by any Borrower, within a
reasonable period after making such Investment, and shall provide Agent with
full information on the Investment, including without limitation, balance
sheets, statements of income, statements of stockholders equity and such other
information as Agent may request.
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6.7 Consolidation and Merger.
No Borrower will consolidate with or merge into any other Person other
than another Borrower or permit any other Person to consolidate with or merge
into any Borrower.
6.8 Tangible Net Worth.
The Borrowers shall have and maintain Tangible Net Worth of not less
than $202,757,000.00 as of December 31, 1997, increasing by 75% of after tax
earnings for all periods after December 31, 1997 (determined on a cumulative
basis), tested as set forth in Section 1.3 hereof.
6.9 Funded Debt to Tangible Net Worth.
The Borrowers shall not permit the ratio of Funded Debt to Tangible Net
Worth to be greater than 0.70 to 1 as of the end of any fiscal quarter,
commencing with fiscal quarter ending December 31, 1997, tested as set forth in
Section 1.3 hereof.
6.10 Interest Coverage Ratio.
The Borrowers shall not permit the Interest Coverage Ratio to be less
than 1.25 to 1 as of the end of any fiscal quarter, commencing with fiscal
quarter ending December 31, 1997, tested as set forth in Section 1.3 hereof.
6.11 Change of Business; Sale of Assets.
The Borrowers shall not make any material change in its business or in
the nature of its operations or liquidate or dissolve itself (or suffer any
liquidation or dissolution) or convey, sell, lease, or otherwise dispose of any
of its Properties, assets or business, except in the ordinary course of business
for a fair consideration, or dispose of any shares of stock or any Indebtedness
of others owing to any Borrower whether now owned or hereafter acquired;
provided, however, that nothing contained in this Section 6.11 shall prohibit
(i) the sale of any Investment, the stock of which Investment is not a part of
the Pledged Securities, so long as Agent has consented to the sale of such
Investment, in writing, or (ii) the making of any Investment permitted under
Section 6.6 hereof, or (iii) sales of Pledged Securities in the ordinary course
of any Borrower's business provided that
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Borrowers are at all times in compliance with the Collateral Coverage Ratio and
the Borrowing Base and subject to the terms of Section 4(c) of the Pledge
Agreement.
6.12 Leases.
The Borrowers shall not enter into any leases (other than leases giving
rise to Capitalized Lease Obligations) to the extent that, after giving effect
to any such lease, the aggregate amount of rental payments and all other
payments by the Borrowers under such leases in any fiscal year of SSI would
exceed $5,000,000.
6.13 Issuance of Stock.
The Borrowers will not permit SSD or SDI to issue, sell or dispose of
any shares of stock of any class, excluding stock hereafter issued pursuant to
outstanding warrants, options, option plans, contracts or commitments listed in
Exhibit 3.1.
6.14 Fiscal Year.
The Borrowers shall not change their fiscal year.
6.15 Dividends. The Borrowers shall not pay or declare any cash
dividends other than to another Borrower.
6.16 ERISA Compliance; Obligations.
(a) The Borrowers shall:
(i) comply in all material respects with all
applicable provisions of ERISA now or hereafter in effect;
(ii) promptly notify the Bank in writing of the
occurrence of any Reportable Event, as defined in ERISA together with a
description of such Reportable Event and a statement of the action that any such
Borrower intends to take with respect thereto, together with a copy of the
notice (if any) thereof given to the PBGC; and
(iii) promptly notify Agent in writing of any
proposed withdrawal from a multiemployer plan.
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(b) The Borrowers will not:
(i) be or become obligated to the PBGC or any
multiemployer plan in excess of $500,000; or
(ii) be or become obligated to the IRS with
respect to excise or other penalty taxes provided for in those provisions of
the Internal Revenue Code which were enacted pursuant to ERISA, as now in
effect or hereafter amended or supplemented, in excess of $500,000.
6.17 Prepayments.
None of the Borrowers will make any voluntary or optional prepayment of
any Indebtedness for borrowed money incurred or permitted to exist under the
terms of this Agreement, other than Indebtedness evidenced by the Notes, subject
to the prepayment terms hereof, and other than with respect to the Subordinated
Debenture.
6.18 [INTENTIONALLY OMITTED]
6.19 Letters of Credit.
The Borrowers shall not obtain any letters of credit or enter into any
agreements or execute any obligations with respect to letters of credit except
with respect to Letters of Credit issued by Issuer pursuant hereto.
6.20 Dispositions.
The Borrowers shall notify Agent of the disposition of the capital
stock or other ownership interest in any Person by telephone at the latest
contemporaneously therewith followed promptly by written notice. In the event of
the disposition of Pledged Securities written notice shall not be later than
twenty-four (24) hours after the time when Agent is to deliver such Pledged
Securities. The proceeds of the sale of any Collateral shall be applied as set
forth in Section 4(c) of the Pledge Agreement.
Article 7. Events of Default; Remedies.
Any one or more of the following events shall constitute an Event of
Default:
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7.1 Payments.
(a) Failure to make any payment of principal or interest upon
any of the Notes, or to make any payment of the commitment fees, within seven
(7) days after the date upon which any such payment is due; or
(b) Should the principal balance (including the face amount of
outstanding Letters of Credit and unreimbursed draws under Letters of Credit)
outstanding under the Revolving Loan I at any time exceed the Collateral
Coverage Base or should the principal balance outstanding under the Revolving
Loan II at any time exceed the Borrowing Base; or
7.2 Covenants.
Failure by any Borrower to perform or observe any of their respective
agreements contained in Article 6 hereof (except Sections 6.1, 6.2, 6.8, 6.9,
6.10 or 6.16(a) of Article 6); or
7.3 Other Covenants.
Failure by any Borrower to perform or observe any other term, condition
or covenant of this Agreement not described in Section 7.2 above, the Notes, the
Security Documents, or any other agreement or document delivered pursuant hereto
or thereto which shall remain unremedied for a period of thirty (30) days after
notice thereof shall have been given by Agent to SSI; or
7.4 Other Defaults.
(a) Failure by any Borrower to perform or observe any term,
condition or covenant of any bond, note, debenture, loan agreement, indenture,
guaranty, trust agreement, mortgage or similar instrument (including, without
limitation, any debt which is subordinated to the obligations created pursuant
to this Agreement) to which any Borrower is a party or by which it is bound, or
by which any of its Properties or assets may be affected (a "Debt Instrument"),
and, as a result thereof (assuming the giving of appropriate notice thereof, if
required), Indebtedness in excess of $3,000,000 which is included therein or
secured or covered thereby shall have been declared due and payable prior to the
date on which such Indebtedness would otherwise become due and payable; or
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(b) Any event or condition referred to in any Debt Instrument
shall have occurred or failed to occur, and, as a result thereof, Indebtedness
in excess of $3,000,000 which is included therein or secured or covered thereby
shall have been declared due and payable prior to the date on which such
Indebtedness would otherwise become due and payable; or
(c) Failure to pay any Indebtedness for borrowed money in
excess of $3,000,000 due at final maturity or pursuant to demand under any Debt
Instrument.
7.5 Representations and Warranties.
Any representation or warranty made in writing to Agent or any Lender
in any of the Loan Documents or in connection with the making of the Loans, or
any certificate, statement or report made or delivered in compliance with this
Agreement, shall have been false or misleading in any material respect when made
or delivered; or
7.6 Bankruptcy.
(a) Any Borrower shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt,
suffer an order for relief under any federal bankruptcy law, petition or apply
to any tribunal for the appointment of a receiver, custodian, or any trustee for
it or a substantial part of its assets, or shall commence any proceeding under
any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or there shall have been filed any such petition or application, or any
such proceeding shall have been commenced against it, which remains undismissed
for a period of sixty (60) days or more; or any order for relief shall be
entered in any such proceeding; or any Borrower by any act or omission shall
indicate its consent to, approval of or acquiesced in any such petition,
application or proceeding or the appointment of a custodian, receiver or any
trustee for it or any substantial part of any of its properties, or shall suffer
any custodianship, receivership or trusteeship to continue undischarged for a
period of sixty (60) days or more; or
(b) Any Borrower shall generally not pay its debts as such
debts become due; or
(c) Any Borrower shall have concealed, removed, or permitted
to be concealed or removed, any part of its property, with intent to hinder,
delay or defraud
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its creditors or any of them, or made or suffered a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid; or shall have suffered or permitted, while insolvent, any creditor to
obtain a lien upon any of its property through legal proceedings or distraint
which is not vacated within sixty (60) days from the date thereof; or
7.7 Judgments.
Any judgment against any Borrower or any attachment, levy of execution
against any of their respective properties for any amount in excess of
$3,000,000 shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of sixty (60) days or more; or
7.8 ERISA.
(a) The termination of any Plan or the institution by the PBGC
of proceedings for the involuntary termination of any Plan, in either case, with
a vested unfunded liability in excess of $3,000,000; or
(b) Failure by any Borrower to fund, in accordance with the
applicable provisions of ERISA, each of the Plans hereafter established or
assumed by it provided, that such failure to fund shall not constitute an Event
of Default hereunder unless such failure shall continue for 5 days after the
date on which such funding was required; or
(c) The withdrawal by any Borrower from any multiemployer plan
giving rise to a withdrawal liability in excess of $3,000,000; or
7.9 Liens.
Any of the Liens created and granted to the Lenders under the Security
Documents shall at any time fail to be valid, first, perfected Liens, subject to
other Lien; or
7.10 Ownership.
Any Person shall acquire more than 30 percent of the issued
and outstanding capital stock of SSI.
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7.11 Remedies.
(a) In addition to all other rights, options and remedies
granted or available to Agent or Lenders under this Agreement or the other
Loan Documents or otherwise available at law or in equity, upon or at any
time after the occurrence and during the continuance of a Default or an Event
of Default, all obligations of Lenders to make further Advances shall, at
Agent's discretion (but, as between Agent and Lenders, subject to Section
8.15 hereof), cease.
(b) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the other Loan
Documents, Agent may, in its discretion (but, as between Agent and Lenders,
subject to Section 8.15 hereof), upon or at any time after the occurrence and
during the continuance of an Event of Default, terminate the Loans and
declare the Obligations immediately due and payable, all without demand,
notice, presentment or protest or further action of any kind (it also being
understood that the occurrence of any of the events or conditions set forth
in Section 7.6 shall automatically cause an acceleration of the Obligations).
(c) In addition to all other rights, options and remedies
granted or available to Agent, under this Agreement or the other Loan
Documents, upon or at any time after the occurrence and during the
continuance of an Event of Default, Borrowers shall be obligated to deliver
and pledge to Agent, on behalf of all Lenders, cash collateral in the amount
of all outstanding Letters of Credit.
(d) In addition to all other rights, options and remedies
granted or available to Agent under this Agreement or the other Loan
Documents, Agent may in its discretion (but, as between Agent and Lenders,
subject to Section 8.15 hereof), upon or at any time after the acceleration
of the Obligations following occurrence of an Event of Default, exercise all
rights under the UCC and any other applicable law or in equity, and under all
Loan Documents permitted to be exercised after the occurrence of an Event of
Default.
(e) All rights and remedies granted Agent hereunder and
under the other Loan Documents, or otherwise available at law or in equity,
shall be deemed concurrent and cumulative, and not alternative remedies, and
Agent may proceed with any number of remedies at the same time until all
Obligations are satisfied in full. The exercise of any one right or remedy
shall not be deemed a waiver or release of any other right or remedy, and
Agent, upon or at any time after the occurrence of an Event of Default, may
proceed
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against any Borrower, at any time, under any agreement, with any available
remedy and in any order.
Article 8. The Agent.
As between Agent, on one hand, and Lenders, on the other hand,
Agent and each Lender, who are now or shall become parties to this Agreement,
agree as follows:
8.1 Appointment and Authorization. Each Lender, and each
subsequent holder of any of the Notes by its acceptance thereof, hereby
irrevocably appoints and authorizes Agent to take such action on its behalf
and to exercise such powers under this Agreement as are delegated to Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto. Subject to the provisions of this Agreement, Agent will handle all
transactions relating to the Loans and all other Obligations, including,
without limitation, all transactions with respect to Letters of Credit, this
Agreement, the Loan Documents and all related documents in accordance with
its usual banking practices. Except as otherwise expressly provided herein,
Borrowers are hereby authorized by Lenders to deal solely with Agent in all
transactions which affect Lenders under this Agreement and the Loan
Documents. The rights, privileges and remedies accorded to Agent hereunder
shall be exercised by Agent on behalf of all of Lenders.
8.2 General Immunity. In performing its duties as Agent
hereunder, Agent will take the same care as it takes in connection with loans
in which it alone is interested. Subject to Section 8.6 of this Agreement,
neither Agent nor any of its directors, officers, agents or employees shall
be liable for any action taken or omitted to be taken by it or them hereunder
or in connection herewith except as such action or omission are caused solely
from its or their own gross negligence or willful misconduct unless such
action was taken or omitted to be taken by Agent at the direction of Majority
Lenders.
8.3 Consultation with Counsel. Agent may consult with legal
counsel and any other professional advisors or consultants deemed necessary
or appropriate and selected by Agent and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel.
8.4 Documents. Agent shall not be under a duty to examine into
or pass upon the effectiveness, genuineness or validity of this Agreement or
any of the Notes or any other instrument or document furnished pursuant
hereto or in connection herewith, and Agent shall be entitled to assume that
the same are valid, effective and genuine and what
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they purport to be. In addition Agent shall not be liable for failing to make
any inquiry concerning the accuracy, performance or observance of any of the
terms, provisions or conditions of such instrument or document. Agent shall
furnish to Lenders copies of all notices and financial statements received
from Borrowers hereunder.
8.5 Rights as a Lender. With respect to its applicable Pro Rata
Percentage of the Loans, Agent shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include Agent in its individual capacity as a "Lender". Subject to
the provisions of this Agreement, Agent may accept deposits from, lend money
to and generally engage in any kind of banking or trust business with
Borrowers and their affiliates and Subsidiaries as if it were not Agent.
8.6 Responsibility of Agent. It is expressly understood and
agreed that the obligations of Agent hereunder are only those expressly set
forth in this Agreement and that Agent shall be entitled to assume that no
Default or Event of Default has occurred and is continuing, unless Agent has
actual knowledge of such fact. Except to the extent Agent is required by
Lenders pursuant to the express terms hereof to take a specific action, Agent
shall be entitled to use its discretion with respect to exercising or
refraining from exercising any rights which may be vested in it by, or with
respect to taking or refraining from taking any action or actions that it may
be able to take under or in respect of, this Agreement and the Loan
Documents. Agent shall incur no liability under or in respect of this
Agreement and the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed by it to be
genuine or authentic or to be signed by the proper party or parties, or with
respect to anything that it may do or refrain from doing in the reasonable
exercise of its judgment, or that may seem to it to be necessary or desirable
under the circumstances. It is agreed among Agent and Lenders that Agent
shall have no responsibility to carry out audits or otherwise examine the
books and records or properties of Borrowers, except as Agent in its sole
discretion deems appropriate or as otherwise expressly required hereunder.
The relationship between Agent and each Lender is and shall be that of agent
and principal only and nothing herein shall be construed to constitute Agent
a joint venturer with any Lender, a trustee or fiduciary for any of Lenders
or for the holder of a participation therein nor impose on Agent duties and
obligations other than those set forth herein.
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8.7 Collections and Disbursements.
(a) Agent will have the right to collect and receive all
payments of the Obligations, and to collect and receive all reimbursements
for draws made under the Letters of Credit, together with all fees, charges
or other amounts due under this Agreement and the Loan Documents, and Agent
will remit to each Lender, according to its applicable Pro Rata Percentage,
all such payments actually received by Agent (subject to any required
clearance procedures) in accordance with the settlement procedures
established by Agent from time to time, provided that each Lender
acknowledges that the Agent Fee and issuance and other administrative fees
for Letters of Credit and interest on the Swing Line may be retained by Agent
for its own account.
(b) If any such payment received by Agent is rescinded or
otherwise required to be returned for any reason at any time, whether before
or after termination of this Agreement and the Loan Documents, each Lender
will, upon written notice from Agent, promptly pay over to Agent its Pro Rata
Percentage of the amount so rescinded or returned, together with interest and
other fees thereon if also required to be rescinded or returned.
(c) All payments by Agent and Lenders to each other
hereunder shall be in immediately available funds. Agent will at all times
maintain proper books of account and records reflecting the interest of each
Lender in the Revolving Loans, in a manner customary to Agent's keeping of
such records, which books and records shall be available for inspection by
each Lender at reasonable times during normal business hours, at such
Lender's sole expense. Agent may treat the payees of any Revolving Loan Note
as the holder thereof until written notice of the transfer thereof shall have
been received by Agent. In the event that any Lender shall receive any
payments in reduction of the Revolving Loans in an amount greater than its
applicable Pro Rata Percentage in respect of indebtedness to Lenders
evidenced hereby (including, without limitation amounts obtained by reason of
setoffs), such Lender shall hold such excess in trust for Agent (on behalf of
all other Lenders) and shall promptly remit to Agent such excess amount so
that the amounts received by each Lender hereunder shall at all times be in
accordance with its applicable Pro Rata Percentage. To the extent necessary
for each Lender's actual percentage of all outstanding Advances to equal its
applicable Pro Rata Percentage, any Lender having a greater share of any
payment(s) than its applicable Pro Rata Percentage shall acquire a
participation in the applicable Pro Rata Percentage of the other Lenders as
determined by Agent.
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8.8 Indemnification. Lenders hereby each indemnify Agent (and
Issuer with respect to Letters of Credit) ratably according to each Lender's
Pro Rata Percentage, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on,
incurred by or asserted against Agent (or Issuer, as the case may be) in any
way relating to or arising out of this Agreement or any other Loan Document
or any action taken or omitted by Agent (or Issuer, as the case may be) under
or related to this Agreement, provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from Agent's (or Issuer's, as the case may be) gross negligence or willful
misconduct unless such action was taken or omitted by Agent (or Issuer, as
the case may be) at the direction of the Majority Lenders. Agent shall have
the right to deduct, from any amounts to be paid by Agent to any Lender
hereunder, any amounts owing to Agent by such Lender by virtue of this
paragraph.
8.9 Expenses
(a) All out-of-pocket costs and out-of-pocket expenses
incurred by Agent and not reimbursed on demand by Borrowers, in connection
with the amendment, administration, termination, work-out, forbearance and
enforcement of the Revolving Loans (including, without limitation, audit
expenses, counsel fees and expenditures to protect, preserve and defend
Agent's and each Lender's rights and interest under the Loan Documents) shall
be shared and paid on demand by Lenders pro rata based on their applicable
Pro Rata Percentage.
(b) Agent may deduct from payments or distributions to be
made to Lenders such funds as may be necessary to pay or reimburse Agent for
such costs or expenses.
8.10 No Reliance. By execution of or joining in this Agreement,
each Lender acknowledges that it has entered into this Agreement and the Loan
Documents solely upon its own independent investigation and is not relying
upon any information supplied by or any representations made by Agent. Each
Lender shall continue to make its own analysis and evaluation of Borrowers.
Agent makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower, any obligor or any
account debtor of any Borrower; the accuracy, sufficiency or currency of any
information concerning the financial condition, prospects or results of
operations of any Borrower; or for sufficiency, authenticity, legal effect,
validity or enforceability of the
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Loan Documents. Agent assumes no responsibility or liability with respect to
the collectibility of the Obligations or the performance by Borrowers of any
obligation under the Loan Documents.
8.11 Reporting. During the term of this Agreement, Agent will,
to the extent not required to be delivered by Borrowers to each Lender
pursuant to the other terms of this Agreement, promptly furnish each Lender
with copies of all financial statements of Borrowers to be delivered to or
obtained by Agent hereunder. Agent will immediately notify Lenders when it
receives actual knowledge of any Event of Default under the Loan Documents.
8.12 Removal of Agent. Agent may resign at any time upon giving
thirty (30) days prior written notice thereof to Lenders and Borrowers. Agent
may be removed as Agent hereunder upon the written consent of all Lenders
exclusive of Agent upon the following: (i) wilful misconduct in the
performance of Agent's duties or responsibilities under this Agreement; or
(ii) if a receiver, trustee or conservator is appointed for Agent or any
state or federal regulatory authority assumes management or control of Agent
or if, under applicable law, the administrative or discretionary duties and
responsibilities of Agent hereunder become controlled by or subject to the
approval of any state or federal regulatory authority. Upon any resignation
or permitted removal of Agent, the Lenders (exclusive of Agent) shall have
the right to appoint a successor Agent by majority vote of the other Lenders
(based upon the Pro Rata Percentages of the other Lenders). Upon the
acceptance of the appointment as a successor Agent hereunder by such
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, obligations and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations
hereunder.
8.13 Action on Instructions of Lenders. With respect to any
provision of this Agreement, or any issue arising thereunder, concerning
which Agent is authorized to act or withhold action by direction of Lenders
(including the Majority Lenders), Agent shall in all cases be fully protected
in so acting, or in so refraining from acting, hereunder in accordance with
written instructions signed by such Lenders. Such instructions and any action
taken or failure to act pursuant thereto shall be binding on all Lenders and
on all holders of the Revolving Loan Notes.
8.14 Several Obligations. The obligation of each Lender is
several, and neither Agent nor any other Lender shall be responsible for the
obligation and commitment of any other Lender.
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8.15 Consent of Lenders
(a) Except as expressly provided herein, Agent shall have
the sole and exclusive right to service, administer and monitor the Revolving
Loan and the Loan Documents, including without limitation, the right to
exercise or refrain from exercising all rights, remedies, privileges and
options under the Loan Documents, including without limitation the credit
judgment with respect to the making of Advances and the determination as to
the basis on which and extent to which Advances may be made and the
determination as to whether draws should be honored for Letters of Credit,
and the right to modify, waive or alter the terms of the Loan Documents and
grant such indulgences, forbearances and other waivers as it shall determine.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
all Lenders: (i) extend any payment date under the Revolving Loan Notes or
either of the Commitment Termination Dates, (ii) reduce any interest rate
(other than the interest rate on the Swing Line) applicable to the Revolving
Loans, any fee (other than the Agent Fee and issuance and other
administrative fees for Letters of Credit) payable hereunder, (iii) increase
either the Revolving Loan Commitments or change the definition of the
Collateral Coverage Base or Borrowing Base, (iv) release any obligor from the
Obligations except in connection with termination of the Revolving Loans and
full payment and satisfaction of all Obligations, (v) amend the definition of
Majority Lenders, (vi) amend this Section 8.15, (vii) knowingly waive for a
period in excess of three (3) Business Days the requirement that Borrower
deliver a Borrowing Base Certificate in accordance with Section 2.1.1(a)(ii)
hereof, (viii) release any of the Collateral except upon a sale thereof by
Borrowers to the extent permitted by and subject to the terms of the Pledge
Agreement, or (ix) knowingly waive or fail to enforce any Event of Default
under Sections 7.1 or 7.6(a) hereof, or fail to terminate all obligations of
Lenders to make any further loans or other credit extensions under the
Revolving Loans at any time after the occurrence of any Event of Default
under Sections 7.1 or 7.6(a) hereof or of any Default which with the lapse of
time referred to in Section 7.6(a) hereof would constitute an Event of
Default under Section 7.6(a).
(c) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
the Majority Lenders: (i) modify or amend the financial covenants ("Financial
Covenants") set forth in Sections 6.8, 6.9 and 6.10 hereof, (ii) fail to
provide Borrowers, within 20 days after Agent's obtaining actual knowledge
thereof, with notice of noncompliance by Borrowers with any of the
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Financial Covenants, (iii) knowingly waive or fail to enforce any Event of
Default incident to noncompliance by Borrowers with the Financial Covenants,
or (iv) fail to terminate all obligations of Lenders to make any further
loans or other credit extensions under the Revolving Loans at any time after
the declaration by Agent of an Event of Default incident to noncompliance by
Borrowers with any of the Financial Covenants.
(d) Except to the extent provided in subpart (c) above,
after an acceleration of the Obligations, Agent shall have the sole and
exclusive right, after consultation (to the extent reasonably practicable
under the circumstances) with all Lenders, to exercise or refrain from
exercising any and all rights, remedies, privileges and options under the
Loan Documents and available at law or in equity, including, without
limitation, instituting and pursuing all legal actions brought against any
Borrower or to collect the Obligations, or defending any and all actions
brought by any Borrower or other Person; or incurring expenses or otherwise
making expenditures to protect the Revolving Loans, the Collateral or
Lenders' rights or remedies.
(e) To the extent Agent is required to obtain or otherwise
elects to seek the consent of Lenders to an action Agent desires to take or
omit to take, if any Lender fails to notify Agent, in writing, of its consent
or dissent to any request of Agent hereunder within ten (10) days of such
Lender's receipt of such request, such Lender shall be deemed to have given
its consent thereto.
8.16 Participation and Assignments: No Lender shall, voluntarily
(other than to a successor in interest by operation of law or pursuant to a
transfer of assets in connection with a business combination or to a Federal
Reserve Bank) or involuntarily transfer, assign, participate or otherwise set
over all or any part of its share in the Revolving Loans other than to an
affiliate, without the prior written consent of Agent, which consent shall
not be unreasonably withheld.
8.17 Other Credit Facilities of Lenders: Each Lender
acknowledges that PNC Bank, National Association ("PNC") has heretofore
established for XL Vision, Inc. ("XL") a $10,000,000 revolving line of credit
("XL Revolver") secured by, inter alia, the guaranties of SSI and SSD. The
parties further acknowledge that Borrowers may now have or hereafter
establish with PNC or an affiliate of PNC one or more deposit or custodian
accounts. PNC and each such other Lender agree with each other that any
amounts at any time realized by PNC, or an affiliate thereof, on behalf of
PNC, by virtue of any set-off exercised at any time against or in the
enforcement of any lien at any time obtained on said deposit or custodian
accounts shall, notwithstanding in what capacity
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as against the Borrowers any such set-off is exercised or lien obtained, be
first applied against the Revolving Loans and all other Obligations of
Borrowers hereunder until paid in full before any thereof shall be applied
against the principal balance of the XL Revolver.
Article 9. Miscellaneous Provisions.
9.1 Fees and Expenses.
The Borrowers, jointly and severally, will promptly (and in any
event within 30 days after receipt of an invoice or statement therefor) pay
all reasonable costs of preparing and complying with this Agreement and of
the performance by all of the Borrowers of and compliance by all of them with
all agreements and conditions contained herein and in the other Loan
Documents on their part to be performed or complied with (including, without
limitation, all costs of filing or recording any assignment, financing
statements and other documents), and the reasonable fees and expenses and
disbursements of counsel to the Agent in connection with the preparation,
execution and delivery, administration, interpretation, work-out and
enforcement of this Agreement, the Notes, the Security Documents, the other
Loan Documents and all other agreements, obligations, instruments and
documents relating to this transaction. The Borrowers, jointly and severally,
shall at all times protect, indemnify, defend and save harmless the Agent and
each Lender from and against any and all claims, actions, suits and other
legal proceedings (commenced or asserted by or against them), and
liabilities, damages, costs, interest, charges, counsel fees and other
expenses and penalties which any of them may, at any time, sustain or incur
by reason of or in consequence of or arising out of the execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby, the breach by Borrowers of any of their covenants contained herein
and/or the enforcement by Agent of its rights and remedies herein and/or in
the other Loan Documents, except and to the extent that Borrowers prove that
such claim, action, suit, liability, etc. was caused by the gross negligence
or willful misconduct or manifest bad faith of the Lender or Agent in
question. The provisions of this Section 9.1 shall survive the payment of the
Notes or any disposition thereof by any Lender and the termination of this
Agreement.
9.2 Taxes.
If, under any law in effect on the date of the closing of the Loans
hereunder, or under any retroactive provision of any law subsequently
enacted, it shall be determined that any Federal, state or local tax is
payable in respect of the issuance of the Notes, or in
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connection with the filing or recording of any assignment, financing
statements, or other documents (whether measured by the amount of
indebtedness secured or otherwise) as contemplated by this Agreement, then
the Borrowers will pay any such tax and all interest and penalties, if any,
and will indemnify each Lender against and save it harmless from any loss or
damage resulting from or arising out of the nonpayment or delay in payment of
any such tax. If any such tax or taxes shall be assessed or levied against
any Lender, such Lender may notify the Borrowers and make immediate payment
thereof, together with interest or penalties in connection therewith, and
shall thereupon be entitled to and shall receive immediate reimbursement
therefor from the Borrowers. Notwithstanding any other provision contained in
this Agreement, the covenants and agreements of the Borrowers in this Section
9.2 shall survive payment of the Notes and the termination of this Agreement.
9.3 Payments.
All payments by the Borrowers on account of principal, interest and
other charges (including any indemnities) shall be made to Agent at its
Principal Office, in lawful money of the United States of America in
immediately available funds, by wire transfer or otherwise, not later than
1:00 p.m. Philadelphia time on the date such payment is due. Any such payment
made on such date but after such time shall, if the amount paid bears
interest, be deemed to have been made on and interest shall continue to
accrue and be payable thereon until the next succeeding Business Day. If any
payment of principal or interest becomes due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day and such
extension shall be included in computing interest in connection with such
payment. All payments hereunder and under the Notes shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to
be paid under this Agreement and the Notes (after withholding for or on
account of (i) any present or future taxes, levies, imposts, duties or other
similar charges of whatever nature imposed by any government or any political
subdivision or taxing authority thereof, other than any tax (except those
referred to in clause (ii) below) on or measured by the net income of the
Bank pursuant to applicable federal, state and local income tax laws, and
(ii) deduction of an amount equal to the taxes on or measured by the net
income of any Lender payable by such Lender with respect to the amount by
which the payments required to be made under this sentence exceed the amounts
otherwise specified to be paid in this Agreement and the Notes.
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9.4 Survival of Agreements and Representations; Waiver of Trial
by Jury.
All agreements, representations and warranties made herein shall
survive the delivery of this Agreement and the Notes. EACH BORROWER AND LENDER
IRREVOCABLY WAIVES TRIAL BY JURY AND THE RIGHT THERETO IN ANY LITIGATION IN ANY
COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AGREEMENT,
THE NOTES, THE SECURITY DOCUMENTS, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
9.5 Lien on and Set-off of Deposits.
As security for the due payment and performance of all the Obligations,
each Borrower hereby grants to each Lender a lien on and security interest in
any and all deposits or other sums at any time credited by or due from such
Lender to such Borrower, whether in regular or special depository accounts or
otherwise, and any and all monies, securities and other property of such
Borrower, and the proceeds thereof, now or hereinafter held or received by or in
transit to such Lender from or for such Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and any such deposits,
sums, monies, securities and other property, may at any time be set-off,
appropriated and applied by Lenders against any of the obligations, indebtedness
or liabilities hereunder, under the Notes and under the Security Documents, in
each case for the ratable benefit of all Lenders, whether or not any of such
obligation is then due or is secured by any collateral, or, if it is so secured,
whether or not the collateral is considered to be adequate.
9.6 Modifications, Consents and Waivers; Entire Agreement.
No modification, amendment or waiver of or with respect to any
provision of this Agreement, the Notes, the Security Documents, or any of the
other Loan Documents and all other agreements, instruments and documents
delivered pursuant hereto or thereto, nor consent to any departure by any
Borrower from any of the terms or conditions thereof, shall in any event be
effective unless it shall be in writing and signed by the Agent and then any
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No consent to or demand on any Borrower in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other
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circumstances. This Agreement embodies the entire agreement and understanding
among the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof.
9.7 Remedies Cumulative.
Each and every right granted to the Agent hereunder or under any other
document delivered hereunder or in connection herewith, or allowed it by law or
equity, shall be cumulative and may be exercised from time to time. No failure
on the part of the Agent to exercise, and no delay in exercising, any right
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right preclude any other or future exercise thereof or the exercise of any
other right. The due payment and performance of any Borrower's indebtedness,
liabilities and obligations under the Notes and this Agreement shall be without
regard to any counterclaim, right of offset or any other claim whatsoever which
such Borrower may have against any Lender and without regard to any other
obligation of any nature whatsoever which any Lender may have to such Borrower
and no such counter-claim or offset shall be asserted by such Borrower in any
action, suit or proceeding instituted by Agent for payment or performance of
such Borrower's indebtedness, liabilities or obligation under the Notes, this
Agreement, the Security Documents or otherwise.
9.8 Further Assurances.
At any time and from time to time, upon the request of the Agent, the
Borrowers shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Agent may reasonably request in order to fully
effect the purposes of this Agreement, the Notes, the Security Documents, the
other Loan Documents and any other agreements, instruments and documents
delivered pursuant hereto or in connection with the Loan.
9.9 Notices.
(a) All notices, requests, reports and other communications
pursuant to this Agreement shall be in writing, either by letter (delivered by
hand or sent by Certified mail, return receipt requested, except for routine
reports which shall be by ordinary first class mail) or by telegram or telecopy,
and, addressed as follows:
63
<PAGE>
(i) If to any Borrower:
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Michael W. Miles, Senior Vice
President/Chief Financial Officer
Telecopy No.: (610) 293-0601
(ii) If to Agent or any Lender:
PNC Bank, National Association
1600 Market Street
Philadelphia, PA 19103
Attention: Joseph G. Meterchick
Telecopy No.: (215) 585-6987
With copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attention: Bradley D. O'Brien, Esquire
Telecopy No.: (215) 569-5555
PNC Bank, National Association
One PNC Plaza, 22nd Floor
Multi-Bank Loan Administration
249 5th Avenue
Pittsburgh, PA 15222
Attention: Arlene Ohler
Telecopy No.: (412) 762-8672
64
<PAGE>
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand to such party at its address
specified above, or, if sent by mail, on the third Business Day after the day
deposited in the mail, postage prepaid, or in the case of telegraphic notice,
when delivered to the telegraph company, addressed as aforesaid, or, if by
telecopy, when transmitted. Any party may change the person or address to whom
or which notices are to be given hereunder, by notice duly given hereunder;
provided, however, that any such notice shall be deemed to have been given
hereunder only when actually received by the party to which it is addressed.
(b) Each of the Borrowers hereby revocably appoints SSI as its
agent to give and receive any notice, request, report and other communication
pursuant to this Agreement, and for such other purposes as are provided for
herein. Each of the Borrowers agrees that the Agent may rely and act upon,
without any investigation or inquiry as to the authority or power to give, or
accuracy or reasonableness of, and each of the Borrowers will be unconditionally
and irrevocably bound and obligated by any instructions, notice, request, report
or other communications given by SSI to the Bank.
9.10 Counterparts.
This Agreement may be signed in any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
9.11 Construction; Governing Law; Jurisdiction.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. All uses herein of the masculine
gender or of the feminine or neuter gender or plural or singular terms includes
the other as the context may require. This Agreement, the Notes, the Security
Documents, the other Loan Documents and all other documents and instruments
executed and delivered in connection herewith and therewith, shall be governed
by, and construed and interpreted in accordance with, the laws of the
Commonwealth of Pennsylvania applicable to contracts executed and to be
performed therein. The Borrowers and each Lender hereby irrevocably consent to
the jurisdiction of the Courts of Common Pleas of the Commonwealth of
Pennsylvania and of the United States District Court for the Eastern District of
Pennsylvania in any and all actions and proceedings in connection with this
Agreement, the Notes or the Security Documents and irrevocably consent, in
addition to any method of service of process permissible under applicable law,
to service of process by certified mail, return receipt requested to the
addresses of Borrowers as set forth herein
65
<PAGE>
and the address of Lenders set forth on the signature page hereto. The Borrowers
and Lenders agree that in any action or proceeding brought by them in connection
with this Agreement or the transactions contemplated hereby, exclusive
jurisdiction shall be in the courts of the Courts of Common Pleas of the
Commonwealth of Pennsylvania, and the United States District Court for the
Eastern District of Pennsylvania.
9.12 Severability.
The provisions of this Agreement are severable, and if any clause or
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision in this Agreement in any jurisdiction. Each of the
covenants, agreements and conditions contained in this Agreement is independent
and compliance by any Borrower with any of them shall not excuse non-compliance
by any Borrower with any other.
9.13 Binding Effect; No Assignment or Delegation.
This Agreement shall be binding upon and inure to the benefit of each
Borrower, Agent and each Lender, and its successors and permitted assignees. The
rights and obligations of each Borrower under this Agreement shall not be
assigned or delegated without the prior written consent of all Lenders, and any
purported assignment or delegation without such consent shall be void.
9.14 Joint and Several Obligations.
(a) All of the indebtedness, liabilities and obligations of
the Borrowers under this Agreement and the Loan Documents shall be the joint and
several obligations of the Borrowers.
(b) Each Borrower agrees that the Agent may, in its
discretion, without affecting or modifying the joint and several obligations of
each Borrower for all of the Indebtedness, liabilities and obligations under
this Agreement and the Loan Documents including, without limitation, the
Obligations, (i) release, discharge, compromise or settle with, or grant
indulgences to, refuse to proceed or take action against, any one or more of the
Borrowers with respect to their respective obligations under this Agreement,
including, without limitation, the Obligations, (ii) release, surrender, modify,
impair,
66
<PAGE>
exchange, substitute or extend the period or duration of time for the
performance, discharge or payment of, refuse to enforce, compromise or settle
its Lien against, any and all deposits and other property or assets on which the
Agent or any Lender, may have a Lien or which secures any of the Indebtedness,
liabilities and obligations, including without limitation, the Obligations of
any Borrower under this Agreement, (iii) amend, modify, alter or restate, in
accordance with their respective terms, this Agreement or any of the Loan
Documents or otherwise, accept deposits or other property from, or enter into
transactions of any kind or nature with, any one or more of the Borrowers, and
(iv) disburse all or part of the proceeds of the Loans as instructed by SSI as
agent for all of the Borrowers, without inquiry or investigation of any kind by
the Agent as to the use of such proceeds (each Borrower confirms that it will be
directly or indirectly benefitted by each and every Advance and any and all
other advances under this Agreement or any of the Loan Documents).
9.15 Third Party.
No rights are intended to be created hereunder for the benefit of any
third party donee, creditor or incidental beneficiary.
67
<PAGE>
9.16 Confidentiality of Information.
Unless otherwise consented to by the Borrowers in writing, each of the
Lenders and the Agent agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to use its customary
precautions to keep confidential, in accordance with its customary procedures
for handling confidential information of the same nature and in accordance with
safe and sound banking practices, any non-public information supplied to it by
the Borrowers pursuant to this Agreement, it being agreed and understood that
each of Agent, Lenders and Borrowers would be in possible violation of
securities laws of the United States and various states if non-public
information is provided by Borrowers to the Agent or Lenders prior to filing
with the Securities and Exchange Commission and the information is not kept
confidential and its use restricted exclusively for purposes of Loan information
and administration; provided that, subject to the aforesaid, nothing herein
shall limit the disclosure of any such information (a) to the extent required by
statute, rule, regulation or judicial process, (b) to counsel for any Lender or
the Agent, (c) to bank examiners, auditors or accountants, (d) to the Agent or
any of the Lenders, (e) in connection with any litigation to which any one or
more of the Lenders or the Agent is a party, and (f) to any other bank or
financial institution which hereafter becomes or which reasonably appears to any
Lender or Agent to be interested in becoming a Lender hereunder or a participant
or assignee of any Lender so long as such prospective bank agrees to comply with
the requirements of this section.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PNC BANK, NATIONAL ASSOCIATION,
as Agent, Lender and Issuer
By: /s/ Joseph G. Meterchick, Vice President
-----------------------------------------
CORESTATES BANK, N.A.
By: /s/ John Fessick, Vice President
-----------------------------------------
Address: 620 Brandywine Parkway
West Chester, PA 19380
Attn: John Fessick, Vice President
Facsimile No.: 610-918-8162
68
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark Olmon, Vice President
-----------------------------------------
Address: 1st Bank Place
601 2nd Avenue South, 7th Avenue
Minneapolis, MN 55402-4302
Attn: Mark Olmon, Vice President
Facsimile No.: 612-973-0825
MELLON BANK, N.A.
By: /s/ Gilbert Mateer
-----------------------------------------
Address: Mellon Bank Center
Corporate Banking, 7th Floor
1735 Market Street
Philadelphia, PA 19106
Attn: Gilbert Mateer
Facsimile No.: (215) 553-4899
NATIONAL CITY BANK OF PA
By: /s/ Charles P. Bugajski, Vice President
-----------------------------------------
Address: National City Bank
Corporate Banking
20 Stanwix Street
Pittsburgh, PA 15222-4802
Attn: Charles P. Bugajski, V.P.
Facsimile No.: 412-644-6224
69
<PAGE>
WILMINGTON TRUST OF PA
By: /s/ Thomas J. Raymond
-----------------------------------------
Address: Wilmington Trust of PA
1522 McCaniel Drive
West Chester, PA 19380
Attn: Thomas J. Raymond
Facsimile No.: 610- 431-1792
with a copy to:
Banking Legal
Wilmington Trust Co.
1100 N. Market Street
Rodney Square
Wilmington, DE 19890
FIRST UNION NATIONAL BANK
By: /s/ Carl E. Goez
-----------------------------------------
Address: First Union National Bank
123 South Broad Street
Philadelphia, PA 19109
Attn: Carl E. Goelz
Facsimile No.: 215-985-3555
SAFEGUARD SCIENTIFICS, INC., a
Pennsylvania corporation
By: /s/ Michael W. Miles, Senior Vice President &
-----------------------------------------
Chief Financial Officer
-----------------------------------------
Attest: /s/ Alice G. Burt, Assistant Secretary
----------------------------------------
70
<PAGE>
SAFEGUARD SCIENTIFICS (DELAWARE) INC.,
a Delaware corporation
By: /s/ Michael W. Miles, Vice President
-----------------------------------------
Attest: /s/ Alice G. Burt, Assistant Secretary
-----------------------------------------
SAFEGUARD DELAWARE, INC., a Delaware
Corporation
By: /s/ Michael W. Miles, Vice President
-----------------------------------------
Attest: /s/ Alice G. Burt, Assistant Secretary
-----------------------------------------
71
<PAGE>
Schedule "A"
<TABLE>
<CAPTION>
Lender Pro Rata Percentage
- ------------------------------------------------- -------------------
<S> <C>
PNC Bank, National Association 65/200
CoreStates Bank, N.A. 25/200
Mellon Bank, N.A. 35/200
U.S. Bank National Association 15/200
Wilmington Trust of Pennsylvania 25/200
First Union National Bank 15/200
National City Bank of PA 20/200
</TABLE>
i
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,128
<SECURITIES> 0
<RECEIVABLES> 186,925
<ALLOWANCES> 3,940
<INVENTORY> 232,575
<CURRENT-ASSETS> 426,517
<PP&E> 121,880
<DEPRECIATION> 33,048
<TOTAL-ASSETS> 800,317
<CURRENT-LIABILITIES> 202,493
<BONDS> 221,862
0
0
<COMMON> 3,280
<OTHER-SE> 242,467
<TOTAL-LIABILITY-AND-EQUITY> 800,317
<SALES> 379,271
<TOTAL-REVENUES> 453,247
<CGS> 333,420
<TOTAL-COSTS> 374,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,803
<INCOME-PRETAX> 10,037
<INCOME-TAX> 3,373
<INCOME-CONTINUING> 5,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,060
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
