UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
- -------------------------------------------------------------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
- -------------------------------------------------------------------------------
For the year ended December 31, 1996 Commission file Number 0-21750
PRIMESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1430030
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350 Haddonfield Road, Suite 222, Pennsauken, N.J. 08109
(Address of Principal Executive Offices) (Zip Code)
(609)488-4888
Registrant's Telephone Number
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ( )
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
As of March 14, 1997 the aggregate market value of the voting stock held by
nonaffiliates was approximately $50.5 million.
As of March 14, 1997 there were 6,514,779 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (Item 10- Directors Only, and Items 11, 12 and
13 of Part III). The index of exhibits is located on page 33 of this document.
<PAGE>
PART I.
ITEM I. BUSINESS
PrimeSource Corporation, previously Phillips & Jacobs, Incorporated, (the
"Company") is a major national distributor and systems integrator serving the
printing, publishing and graphic arts industries. For approximately 130 years,
the Company or its unincorporated predecessor has been servicing these
industries. The Company, which was incorporated under the laws of the
Commonwealth of Pennsylvania in 1954, was acquired as a wholly-owned subsidiary
of Tasty Baking Company ("TBC"), Philadelphia, Pennsylvania in 1965. On August
1, 1993, TBC spun-off 100% of the ownership of the Company in a dividend
distribution of the Company common stock to the shareholders of TBC. As a
result, the Company became an independent publicly-owned company whose shares
are traded on the Nasdaq Stock Market's National Market.
On September 1, 1994, Momentum Corporation, with two operating divisions,
Momentum and TK Gray, merged with the Company. Momentum Corporation had acquired
the TK Gray division, a regional distributor based in Minneapolis, on March 1,
1994. Annual sales for Momentum Corporation were approximately $165 million per
year. This merger increased the Company's coverage from less than 40% to
approximately 75% of the United States market.
In addition to the Momentum merger, the Company has acquired other graphics
distribution companies. In 1996, the Company acquired VGC Corporation's branch
operations in St. Louis, Missouri; Minneapolis, Minnesota; Milwaukee, Wisconsin;
Des Moines, Iowa; and Omaha, Nebraska. Except for the Omaha operation, these
operations were combined with existing Company businesses in these locations.
Sales from this acquisition are expected to approximate $55 million. In
addition, in 1996 and 1995, smaller acquisitions were made in Michigan and
Texas. The Company believes there will be a continuing consolidation of
distributors in the industry and the Company's business strategy will continue
to include pursuing such acquisitions which will either expand the Company's
presence in key markets and/or offer new products and services to the printing
and imaging industries.
In 1996, the Company completed a program of restructuring the Company's
infrastructure to align the business units geographically and where appropriate
centralize functions and expertise. This included a restructuring charge in 1995
for the consolidation of five distribution centers, the realignment of two
others and the centralization of certain financial and information services. In
1997, the Company's management information system will allow all of the
operations to interface between themselves and with customers and manufacturers,
producing a more efficient and effective distribution model.
The Company is headquartered in Pennsauken, New Jersey and currently has six
operating divisions consisting of CM Graphics, Dixie Type & Supply, Jetcom,
Momentum, P/J North, P/J South and TK Gray and one operating subsidiary, Dixie
Type & Supply, Co. Inc., with a total of 27 distribution locations. Consistent
with the changes in the Company's infrastructure, beginning in 1997, the
division locations will begin operating under the PrimeSource name.
The Company maintains a decentralized management structure which allows the
operating divisions broad discretion in the conduct of their respective
businesses, including responsibility for management of their suppliers,
customers and employees. Management is evaluated against their financial and
non-financial goals which are established on an annual basis. Beginning in 1996,
the Company began to emphasize return on net assets under its financial goals.
In order to provide shareholder value, the Company believes it must strive to
maximize its long-term return on the shareholders' investment. By quantifying
this objective and applying it at the operating level, the Company believes it
can best meet this goal. This emphasis contributed to improved earnings on lower
levels of employed capital in 1996, and accordingly, freed capital for growth
internally and through acquisitions. Management believes that this concept of
fostering and perpetuating the entrepreneurial drive of operating management
will continue to be a key factor in the Company's future success.
The Company presently represents over 500 suppliers, sells and supports more
than 50,000 products and has a customer base in excess of 25,000. No customer
accounted for more than 3% of the Company's net sales in 1996.
<PAGE>
Consumable products, which include film, plates, proofing materials,
photographic chemicals, printing blankets and pressroom chemistry, presently
represent approximately 75% of total sales. The remaining 25% is derived from
sales of printing presses, electronic imaging equipment, desktop publishing,
electronic color proofing equipment, scanning systems, and other hardware and
software products. The industry is moving from an analog to a digital
environment. As a result of this transition, management expects sales of certain
types of sensitized film and paper products to continue trending down, while
sales of certain high-technology products and equipment used in the digital
process to increase.
In addition, there has been and continues to be a consolidation of the customer
base. Many printing and imaging customers want a single source for design,
pre-press preparation, and printing. Consolidation eliminates duplicate overhead
costs and creates larger entities capable of supporting more sophisticated
management techniques, from strategic planning through actual production.
Management expects to continue to see this consolidation of customers into
larger more sophisticated operations offering more services to their customers.
While the Company sells primarily the same products as its competitors,
generally at similar prices, the Company attempts to differentiate itself by
focusing on providing training, technical support, and products which will make
its customers more efficient and effective. In addition, the Company's broad
geographic presence provides an advantage in servicing regional and national
customers. Based on the changes which are occurring in the industry, management
believes this broad national presence, combined with the emphasis on technical
support, will provide significant added-value to its customers.
There are over 300 independent dealers in the United States competing in this
industry with no dealer accounting for more than 15% of the total industry
sales. The Company believes that it is one of the largest dealers in terms of
annual sales and covers a broader range of geographical markets in the United
States than any of its competitors. The Company has minimal foreign sales or
income.
The Company owns several trademarks and tradenames. To the extent trademarks,
tradenames, or patents are significant to the Company's business, they are owned
by the manufacturers the Company represents.
The Company has minimal backlog. The nature of its business is such that it
maintains substantial inventories in order to supply its customers immediately
upon receipt of an order. Approximately 25% of the Company's inventories are
consigned at various customer locations. Consignment has become a common
practice in this industry during the last decade. Usage of consigned inventories
is monitored at least monthly through a physical inventory taken by Company
personnel.
Company management does not believe that compliance with federal, state or local
laws relating to the protection of the environment will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company employed 651 employees at December 31, 1996.
<PAGE>
<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<CAPTION>
BUSINESS EXPERIENCE POSITION HELD
NAME AGE LAST FIVE YEARS SINCE
- ------------------------------------------- ---------------------------- -------------------
<S> <C> <C> <C>
James F. Mullan 57 President and Chief Executive 1991-Present
President and Officer of Registrant
Chief Executive Officer
John H. Goddard, Jr. 49 Executive Vice President September, 1994-
Executive Vice President of Registrant Present
President, Chief Executive Officer 1992-1994
of Momentum Corporation
Senior Vice President of Momentum Corporation 1990-1992
William A. DeMarco 51 Vice President and Chief Financial Officer September, 1994-
Vice President and of Registrant Present
Chief Financial Officer Vice President of Finance, Treasurer, and 1993-1994
Secretary of Registrant
Vice President of Finance and Operations 1992-1993
of Phillips & Jacobs, Incorporated
Barry C. Maulding 51 Vice President, General Counsel September, 1994-
Vice President, and Corporate Secretary Present
General Counsel and of Registrant
Corporate Secretary Vice President Administration, 1993-1994
General Counsel and Corporate
Secretary of Momentum Corporation
General Counsel, Director of Administration and 1992-1993
Corporate Secretary of Momentum Corporation
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
The locations and primary use of the physical properties of PrimeSource
Corporation and its subsidiary are as follows:
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Primary Facility Use
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Atlanta, GA (Norcross) 23,200 Distribution/Div. Office
Baltimore, MD (Columbia) 2,300 Sales Office
Birmingham, AL 37,000 Distribution/Subsidiary Office
Boston, MA (Hingham) 13,500 Distribution
Chicago, IL (Itasca) 49,600 Distribution
Cincinnati, OH 35,000 Distribution/Div. Office
Dallas, TX 17,500 Distribution
Des Moines, IA (Ankeny) 14,000 Distribution
Detroit, MI (Plymouth) 11,600 Sales Office
Greenville, SC 600 Sales Office
Houston, TX 7,000 Distribution
Jackson, MS 6,000 Distribution
Kansas City, KS 16,800 Distribution
Kalamazoo, MI 20,000 Distribution
Lititz, PA 14,000 Distribution/Div. Office
Los Angeles, CA (Cerritos) 11,800 Distribution
Miami, FL (Miramar) 14,700 Distribution
Milwaukee, WI (New Berlin) 16,300 Distribution
Minneapolis, MN (three facilities) 57,100 Distribution
Minneapolis, MN (Mendota Heights) 53,600 Distribution/Div. Office
Mobile, AL 8,000 Distribution
Nashville, TN 16,000 Distribution
New Orleans, LA (Harahan) 14,400 Distribution
Omaha, NE 10,000 Distribution
Orlando, FL 14,400 Distribution
Pennsauken, NJ 7,400 Corporate Headquarters
Pennsauken, NJ 32,000 Distribution
Philadelphia, PA 14,000 Pressroom Products
Philadelphia, PA (Cherry Hill, NJ) 1,400 Sales/Div. Office
Pittsburgh, PA 10,480 Distribution
Portland, OR 7,800 Distribution
San Francisco, CA (South San Francisco) 10,000 Distribution
Seattle, WA (Tukwila) 20,000 Distribution/Div. Office
St. Louis, MO 22,900 Distribution
Winston-Salem, NC 400 Pressroom Products Sales
</TABLE>
All of the properties are held under operating leases, except for the
Birmingham, Minneapolis (Mendota Heights), New Orleans, Philadelphia (pressroom
products facility), St. Louis and Seattle facilities which are owned and the Los
Angeles facility which is accounted for as a capital lease. Management believes
that the Company's properties are generally well maintained and adequate for
current operations and foreseeable expansion. The inability of the Company to
renew any short-term real property lease would not have a material effect on the
Company's results of operations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management believes that none of the litigation in
which the Company is currently involved would, individually or in the aggregate,
have a material effect on the Company's consolidated financial position or
quarterly or annual operating results when resolved in a future period.
The Company, along with many other potentially responsible parties, is a
defendant in a declaratory action to determine an allocation of costs for the
investigation and remediation of a Superfund cleanup site. The Company is also,
in general, subject to possible loss contingencies pursuant to federal or state
environmental laws and regulations. Although these contingencies could result in
future expenses or judgments, such expenses or judgments are not expected to
have a material effect on the Company's consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the year.
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the Nasdaq Stock Market's National Market
under the symbol PSRC.
The following quarterly stock price and dividend information is provided for
1995 and 1996.
<TABLE>
<CAPTION>
Stock Price Cash Dividends
High Low Per Share
- ------------------------------------------------------------------------------
1995
<S> <C> <C> <C>
First Quarter $ 11.00 $ 8.75 $ .1125
Second Quarter 9.50 7.75 .1125
Third Quarter 9.50 8.00 .1125
Fourth Quarter 9.25 5.50 .0450
1996
First Quarter 6.50 5.00 .0450
Second Quarter 7.50 5.00 .0450
Third Quarter 7.50 5.75 .0450
Fourth Quarter 8.13 6.00 .0450
</TABLE>
The payment of future cash dividends will depend on the level and growth of the
Company's earnings and the Company's needs for cash.
There were approximately 3,700 shareholders of record as of December 31, 1996.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data has been derived
from consolidated financial statements. On August 1, 1993, the Company was
spun-off from Tasty Baking Company ("TBC"). Accordingly, the historical data for
1993 and 1992, which include the operations of the Company when it was a
subsidiary of TBC, may not necessarily reflect the results of operations or
financial position that would have been obtained had the Company been an
independent publicly-held company during these entire periods. The operations of
Momentum Corporation (Momentum and TK Gray divisions) are included from
September 1, 1994, the date Momentum merged with the Company. This information
should be read in conjunction with the Company's consolidated financial
statements included herein.
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands, except per share amounts) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
Statement of Income Data
<S> <C> <C> <C> <C> <C>
Net Sales $ 366,657 $ 357,077 $ 238,154 $ 167,744 $ 158,748
Cost of sales 301,428 293,790 194,346 135,094 129,835
- ---------------------------------------------------------------------------------------------------------------
Gross profit 65,229 63,287 43,808 32,650 28,913
Operating expenses 57,033 58,615(1) 37,362 26,572(2) 22,843
- ---------------------------------------------------------------------------------------------------------------
Income from operations 8,196 4,672 6,446 6,078 6,070
Interest expense (1,915) (2,235) (1,113) (531) (515)
Other income-net 421 441 408 251 201
- ---------------------------------------------------------------------------------------------------------------
Income before provision for income
taxes and cumulative effect of changes
in accounting principles 6,702 2,878 5, 741 5,798 5,756
Provision for income taxes 2,788 1,232 2, 210 2,399 2,248
- ---------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles 3,914 1,646 3, 531 3,399 3,508
Cumulative effect on prior years of
changes in accounting principles (1,306) (3)
- ---------------------------------------------------------------------------------------------------------------
Net income $ 3,914 $ 1,646 $ 3,531 $ 2,093 $ 3,508
===============================================================================================================
Per Share Data
Income before cumulative effect of
changes in accounting principles $ .60 $ .25 $ .71 $ .83 $ .86
Net income .60 .25 .71 .51 .86
Average number of shares outstanding (4) 6,558 6,567 4,964 4,098 4,057
===============================================================================================================
Balance Sheet Data
Working capital $ 67,040 $ 65,168 $ 60,987 $ 28,631 $ 16,858
Total assets 134,175 119,804 120,760 52,427 45,651
Total long-term obligations 36,250 32,202 29,094 12,747 2,943
Shareholders' equity 48,183 45,572 46,169 20,654 20,120
===============================================================================================================
<FN>
(1) Includes a one-time restructuring expense of $1,315,000 ($794,000 after
tax) relating to the consolidation of five distribution centers, the
realignment of two others, and the centralization of certain financial
and information services.
(2) Includes a one-time charge of $609,000 ($519,000 after tax) resulting
from costs associated with the spin-off from TBC consisting primarily of
legal, accounting and other professional fees.
(3) One-time after tax charge of $1,306,000 for the cumulative effect of
changes in methods of accounting for income taxes and postretirement
benefits other than pensions.
(4) Average number of shares outstanding information for 1993 and 1992 is
based on the average number of shares of TBC common shares outstanding
for each of these years converted to Company shares using the spin-off
ratio of two Company shares for every three shares of TBC common stock.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth for the years indicated certain items from the
Consolidated Statements of Income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.2 82.3 81.6
- --------------------------------------------------------------------------------------
Gross profit 17.8 17.7 18.4
Selling, general, and administrative expenses 14.8 15.2 14.9
Depreciation .5 .5 .6
Provision for doubtful accounts .3 .3 .2
Restructure expense .4
- --------------------------------------------------------------------------------------
Income from operations 2.2 1.3 2.7
Interest expense (.5) (.6) (.5)
Other income-net .1 .1 .2
- --------------------------------------------------------------------------------------
Income before provision for income taxes 1.8 .8 2.4
Provision for income taxes .7 .3 .9
- --------------------------------------------------------------------------------------
Net income 1.1% .5% 1.5%
======================================================================================
</TABLE>
COMPARISON OF 1996 TO 1995
Net income for 1996 was $3,914,000, or $.60 per share compared to $1,646,000, or
$.25 per share for 1995. The results for 1995 include a one-time charge of
$1,315,000 ($794,000 after related tax benefit) for restructuring expenses.
Excluding this restructure expense, net income for 1995 would have been
$2,440,000 ($.37 per share).
Net sales in 1996 were $366,657,000 compared to $357,077,000 in 1995, an
increase of 3%. This sales increase is primarily the result of the acquisition
of five VGC Corporation locations, one in August 1996 and four in November 1996.
Retained annual sales from this acquisition are expected to approximate $55
million. Excluding the impact of the VGC acquisition, sales were flat during the
year, with modest decreases in the first half of the year and modest increases
in the second half. Sales were negatively impacted during the year by the
Company's decision to terminate relationships with certain customers who
represented potential credit risks, or whose gross profit levels did not justify
the required investment in working capital. Gross profit as a percent of sales
remained stable between the two years, at 17.8% in 1996 and 17.7% in 1995.
Selling, general, and administrative expenses as a percent of sales decreased
from 15.2% in 1995 to 14.8% in 1996. As previously indicated, in 1995, the
Company incurred a restructuring charge of $1,315,000. This expense was incurred
in the consolidation of five distribution centers, the realignment of two
others, and the centralization of certain financial and information services.
The efficiencies in aligning operations by geographical area and consolidating
duplicate facilities and functions, combined with other cost reduction programs
resulted in a containment of expenses in 1996.
In 1996, the provision for doubtful accounts decreased from $1,090,000 to
$865,000. This decrease is primarily the result of the Company implementing more
stringent credit requirements.
<PAGE>
Interest expense decreased from $2,235,000 in 1995 to $1,915,000 in 1996. Prior
to the acquisition of VGC in November, interest expense was lower during the
year as a result of a decrease in the Company's debt levels due to improved
utilization of working capital. With the acquisition of VGC, the debt levels
increased, which will reflect in higher interest costs in future periods.
The effective income tax rate decreased from 42.8% in 1995 to 41.6% in 1996. The
lower rate in 1996 is primarily due to non-deductible expenses being a lesser
percent of income in 1996 compared to 1995. The difference between the effective
tax rates and the federal statutory rate of 34% for both years is primarily
attributable to the effect of state income taxes and non-deductible expenses.
The Company anticipates further sales and increased earnings through internal
growth and acquisitions. The Company believes there will continue to be
consolidation within the distribution channel as well as the customer base and a
continued transition from analog to digital technology in the graphic arts
industry. With the benefit of its national presence and its continued emphasis
on serving customer needs, the Company believes it is in a good position to
provide added value and differentiate itself in the market place.
COMPARISON OF 1995 TO 1994
Net income for 1995 was $1,646,000 or $.25 per share, compared to $3,531,000, or
$.71 per share, in 1994. The results for 1995 include a one-time charge of
$1,315,000 ($794,000 after related tax benefit) for restructuring expenses.
Excluding this restructure expense, net income for 1995 would have been
$2,440,000 ($.37 per share).
The results include a full year of operations of Momentum Corporation (Momentum
and TK Gray divisions) for 1995 and four months of operations in 1994, from
September 1, 1994, the date Momentum merged into the Company in a stock exchange
of .71 share of the Company common stock for each share of Momentum Corporation
common stock. The total number of additional shares issued as a result of the
merger was approximately 2,385,000.
Net sales in 1995 were $357,077,000 compared to $238,154,000 in 1994, an
increase of 50%. Including a full year's sales of the Momentum and TK Gray
divisions for 1994, the sales increase was 3%.
Gross profit as a percent of sales decreased from 18.4% in 1994 to 17.7% in
1995. This decrease was primarily due to changes in product mix, competitive
pressures and declines in manufacturers' rebates.
Selling, general, and administrative expenses as a percent of sales increased
from 14.9% in 1994 to 15.2% in 1995. This increase is primarily due to the
inclusion of Momentum for an entire year in 1995, which had a higher percentage
of operating expenses to sales.
In 1995, the provision for doubtful accounts increased from $626,000 to
$1,090,000. This increase is primarily due to the inclusion of Momentum for an
entire year.
Interest expense increased from $1,113,000 in 1994 to $2,235,000 in 1995. This
increase is primarily due to the debt assumed with the Momentum merger along
with higher interest rates in 1995.
The effective income tax rate increased from 38.5% in 1994 to 42.8% in 1995. The
higher rate in 1995 is primarily due to non-deductible expenses being a larger
percent of income in 1995 compared to 1994. The difference between the effective
tax rates and the federal statutory rate of 34% for both years is primarily
attributable to the effect of state income taxes and non-deductible expenses.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Cash provided from operating activities was $11,548,000 and $3,024,000 in 1996
and 1995, respectively, and cash used in operating activities in 1994 was
$5,171,000. The improvement in 1996 compared to 1995 and 1994 is due to
increased cash generated from operating income and better utilization of working
capital. Excluding the effect of changes in assets and liabilities, cash
provided from operations increased from $6.2 and $6.3 million in 1995 and 1994,
respectively, to $7.2 million in 1996. Excluding the effect of business
acquisitions and dispositions, working capital levels decreased, creating
additional cash in 1996 of approximately $4.3 million, compared to increases in
working capital levels in 1995 and 1994 of approximately $3.1 and $11.5 million,
respectively.
The decrease in working capital levels, in part, reflects the Company's emphasis
in 1996 of measuring performance based on return on net assets. As a result of
this focus, the turnover of inventory increased and the number of days of
receivables outstanding decreased. In addition, the Company terminated certain
businesses in 1996 that did not produce an adequate return on net assets. This
improvement was partially offset by increases in accounts receivable from new
sales from the VGC acquisition. The Company did not acquire the accounts
receivable with this acquisition.
Cash flows used in investing activities were $14,471,000, $1,062,000, and
$1,327,000 in 1996, 1995, and 1994, respectively. In 1996, the Company incurred
a net cash expenditure on the acquisition and sale of businesses of $12.2
million, primarily in the acquisition of VGC. The balance of the activities for
1996 and for 1995 and 1994 were primarily for the acquisition of property and
equipment. The Company had no material capital expenditure commitments at
December 31, 1996. Capital expenditures for 1997 are anticipated to be
approximately $2 million. In addition, the Company's business strategy is to
continue to acquire regional distributors within the Company's current markets
or companies that offer new products and services to the printing and imaging
industries.
Cash flows from financing activities were $2,923,000 provided in 1996,
$2,580,000 used in 1995, and $6,883,000 provided in 1994. In 1996, $4.4 million
was provided from debt financing. These funds were used to finance the $14.4
million of business acquisitions, net of cash generated primarily from operating
activities. In 1995 and 1994, debt decreased $.1 million and increased $8.9
million, respectively. The other primary component of financing activities was
dividend payments of $1.2, $2.5 and $2.1 million in 1996, 1995 and 1994,
respectively.
The Company's primary source of debt financing is a revolving credit agreement
with a commitment of $50 million of which $17.5 million was available at
December 31, 1996. The Company believes this source of borrowing, combined with
cash from operations, is sufficient to support the current capital requirements
of the Company.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
(Thousands of dollars, except per share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 366,657 $ 357,077 $ 238,154
Cost of sales 301,428 293,790 194,346
- ------------------------------------------------------------------------------------------------------------
Gross profit 65,229 63,287 43,808
Selling, general, and administrative expenses 54,268 54,204 35,367
Depreciation 1,900 2,006 1,369
Provision for doubtful accounts 865 1,090 626
Restructure expense 1,315
- ------------------------------------------------------------------------------------------------------------
Income from operations 8,196 4,672 6,446
Interest expense (1,915) (2,235) (1,113)
Other income-net 421 441 408
- ------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 6,702 2,878 5,741
Provision for income taxes 2,788 1,232 2,210
- ------------------------------------------------------------------------------------------------------------
Net income $ 3,914 $ 1,646 $ 3,531
============================================================================================================
Average number of shares outstanding 6,557,989 6,567,066 4,963,534
Net income per share $ .60 $ .25 $ .71
============================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
-----------------------------------
(Thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C>
Trade receivables, less allowances of $1,787 and $1,372, respectively $ 54,044 $ 50,434
Income taxes receivable 1,047
Other receivables 6,612 5,993
Inventories 48,741 41,581
Deferred income taxes 1,982 1,537
Other 671 929
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 112,050 101,521
Property and equipment, net 13,719 10,358
Excess of cost over net assets of businesses acquired,
net of accumulated amortization of $1,102 and $825, respectively 4,487 4,942
Deferred income taxes 1,763 1,486
Long-term receivables 895 862
Other assets 1,261 635
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 134,175 $ 119,804
===================================================================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term obligations $ 1,550 $ 1,206
Accounts payable 33,628 28,624
Accrued payroll and benefits 2,587 2,417
Other accrued liabilities 7,245 4,106
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 45,010 36,353
Long-term obligations, net of current portion 36,250 32,202
Accrued pension and other liabilities 2,577 3,421
Postretirement benefits other than pension 2,155 2,256
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 85,992 74,232
- -------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Equity
Common stock, $.01 par value, 24,000,000 shares authorized
6,514,779 and 6,527,295 issued, respectively 65 65
Additional paid-in capital 25,533 25,543
Retained earnings 22,628 20,036
Unamortized restricted stock awards (43) (72)
- -------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 48,183 45,572
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 134,175 $ 119,804
===================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
-------------------------------------------------
(Thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income $ 3,914 $ 1,646 $ 3,531
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,900 2,006 1,369
Amortization 520 657 372
Provision for doubtful accounts 865 1,090 626
Other 28 756 421
Changes in assets and liabilities, net of effects
from business combinations/disposition:
Receivables (4,751) (6,658) (4,838)
Inventories 1,485 2,499 (7,826)
Other current assets 258 (173) 163
Income taxes receivable, accrued and deferred 1,768 2,064 (669)
Accounts payable and other accrued liabilities 6,764 288 2,445
Payment of pension and other postretirement benefits (1,203) (1,151) (765)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 11,548 3,024 (5,171)
Investing Activities
Proceeds from sales of property and equipment 218 473 112
Purchase of property and equipment (1,530) (1,713) (1,074)
Payments for business combinations, net of cash acquired (14,394) (954) (682)
Proceeds from sale of business 2,235
(Increase) decrease in long-term receivables (33) 777 189
(Increase) decrease in other assets (732) 479 128
Other, net (235) (124)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,471) (1,062) (1,327)
Financing Activities
Net increase (decrease) in short-term borrowings (3,000) 1,905
Proceeds from long-term obligations 142,924 102,925 81,614
Repayment of long-term obligations (138,532) (100,050) (74,581)
Dividends paid (1,211) (2,497) (2,121)
Purchase of common stock (258)
Proceeds from exercise of stock options 42 66
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,923 (2,580) 6,883
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash --- (618) 385
Cash at beginning of year 618 233
- -------------------------------------------------------------------------------------------------------------------
Cash at end of year $ --- $ --- $ 618
===================================================================================================================
Net cash paid (received) during the year for:
Interest $ 1,826 $ 2,223 $ 1,085
Income taxes 2,314 (644) 2,682
===================================================================================================================
<FN>
Supplemental disclosure of non-cash investing and financing activities: In 1994,
net assets of Momentum Corporation of $23,855,000 were merged into the Company
in exchange for 2,385,466 shares of common stock.
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<CAPTION>
Common Unamortized
Stock Additional Restricted
($.01 Par Paid-in Retained Stock
(Thousands of dollars) Value) Capital Earnings Awards Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 41 $ 1,255 $ 19,477 $ (119) $ 20,654
Net income 3,531 3,531
Cash dividends paid to
shareholders ($.45 per share) (2,121) (2,121)
Shares issued under
noncompete agreement 100 100
Shares issued in merger
with Momentum Corporation 24 23,927 (104) 23,847
Restricted stock awards and
related amortization (4) 81 77
Stock options exercised and
related tax benefit 81 81
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 65 25,359 20,887 (142) 46,169
Net income 1,646 1,646
Cash dividends paid to
shareholders ($.3825 per share) (2,497) (2,497)
Shares issued under
noncompete agreement 142 142
Restricted stock awards and
related amortization 70 70
Stock options exercised and
related tax benefit 42 42
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 65 25,543 20,036 (72) 45,572
Net income 3,914 3,914
Cash dividends paid to
shareholders ($.18 per share) (1,211) (1,211)
Shares issued under
acquisition agreement 137 137
Amortization of restricted
stock awards 29 29
Purchase of common stock (147) (111) (258)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 65 $ 25,533 $ 22,628 $ (43) $ 48,183
===================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization
PrimeSource Corporation (the "Company") through its P/J North, P/J
South, Jetcom, Momentum, TK Gray and CM Graphics divisions, and its
subsidiary Dixie Type & Supply Company, Inc. ("Dixie Type"), is a
national distributor and systems integrator serving the printing,
publishing, and graphics arts industries. In 1997, the Company will
begin operating its divisions under the PrimeSource name.
On September 1, 1994, Momentum Corporation was merged into the Company
in a tax-free stock exchange. Effective with this combination of
companies, the Company's name was changed from Phillips & Jacobs,
Incorporated to PrimeSource Corporation.
On August 1, 1993, Tasty Baking Company ("TBC") distributed to the TBC
shareholders 100% of the outstanding shares of the Company's common
stock. As a result of the execution of this plan of distribution, the
Company became an independent publicly-owned company whose shares are
traded on the Nasdaq Stock Market's National Market.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) and first-in, first-out
(FIFO) methods.
Property and Equipment
Property and equipment are carried at cost. Costs of major additions,
replacements and betterments are capitalized and maintenance and
repairs which do not extend the life of the respective assets are
expensed as incurred. When property is retired or otherwise disposed,
the cost of the property and the related accumulated depreciation are
removed from the accounts and any resulting gains or losses are
reflected in current operations. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets
which range from three to ten years for machinery and equipment and ten
to thirty years for buildings and improvements.
Capital leases are included under property and equipment with the
corresponding amortization included in depreciation. The related
financial obligations under the capital leases are included in
long-term obligations. Capital leases are amortized over the useful
lives of the respective assets.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of the total acquisition cost over the fair value of net
tangible assets acquired is being amortized by the straight-line method
over periods ranging from fifteen to forty years. At each balance sheet
date, the Company evaluates the recoverability of its goodwill using
certain financial indicators, including historical and future ability
to generate income from operations.
<PAGE>
Fair Value of Financial Instruments
The carrying value of the Company's short-term financial instruments
such as receivables and payables approximate their fair values, based
on the short-term maturities of these instruments. The carrying value
of long-term investments, consisting primarily of long-term notes
receivable, and long-term debt obligations, consisting primarily of
revolving credit debt with interest rates based on current short-term
market rates, approximate the market value based on the estimated
discounted value of future cash flows.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are
limited due to a large customer base and its geographic dispersion.
Ongoing credit evaluations of customers' financial condition are
performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses have not
exceeded management's expectations.
Incentive Stock Awards
The Company applies the intrinsic value based method prescribed in
Accounting Principles Board Opinion No. 25 (APB 25) to account for
options granted to employees and directors to purchase common shares.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) requires that companies electing
to continue using the intrinsic value method must make pro forma
disclosures of net income and earnings per share as if the
fair-value-based method of accounting had been applied. No compensation
expense is recognized on the grant date since, at that date, the option
price equals the market price of the underlying common shares.
Income Per Common Share
Income per common share is based on the weighted average number of
common shares and equivalent common shares outstanding during the year.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). This Statement establishes standards for computing
and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, earlier application is not permitted. This statement
requires restatement of all prior-period EPS data presented. The
Company is currently evaluating the impact, if any, adoption of SFAS
128 will have on its financial statements.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>
3. Business Combinations
Momentum Corporation
On September 1, 1994, Momentum Corporation merged into the Company.
Each common share of Momentum stock was converted into .71 share of the
Company's common stock, with any fractional share paid in cash. The
equivalent Company common stock issued in exchange for the Momentum
common stock was 2,385,466 shares at a fair value as of the transaction
date of $10 per share, or $23,855,000. In addition, the Company
incurred merger costs of approximately $660,000. The excess of the
acquisition cost over the net tangible assets acquired of approximately
$3,335,000 is being amortized on a straight-line basis over 15 years.
Effective March 1, 1994, Momentum Corporation purchased substantially
all of the assets and assumed certain of the liabilities of TK Gray,
Inc. for approximately $15.4 million. Assuming both the acquisition of
TK Gray, Inc. by Momentum Corporation and the merger of Momentum
Corporation into the Company had occurred at the beginning of the year,
unaudited pro-forma sales and net income for the year ended December
31, 1994 would have been approximately $348.3 million and $1,737,000
($.26 per share), respectively.
VGC
The Company acquired VGC Corporation's branch operations in St. Louis,
Missouri on August 26, 1996 and Minneapolis, Minnesota; Milwaukee,
Wisconsin; Des Moines, Iowa; and Omaha, Nebraska on November 1, 1996.
The acquisition cost was approximately $11,977,000 for which the
Company acquired buildings and land in Minneapolis and Des Moines, and
inventory and other operating assets in all of the locations. None of
the acquisition costs were applied to intangible assets. Except for the
Omaha operation, these operations were combined with existing Company
businesses in these locations.
KPM
On May 28, 1996, the Company acquired the operating assets of KPM for
approximately $2,417,000. The excess of the acquisition cost over the
net tangible assets acquired of approximately $221,000 is being
amortized on a straight-line basis over 15 years.
Other Acquisitions
In 1995, the Company acquired substantially all of the operating assets
of Turner Products, Inc. ("Turner") and Litho Supply and Service
Company's supply distribution business ("Litho Supply") for
approximately $1,010,000. The excess of the acquisition cost over the
net tangible assets acquired of approximately $89,000 is being
amortized on a straight-line basis over 15 years.
In 1994, the Company acquired the operating assets of Lanman Systems
for approximately $310,000. The excess of the acquisition cost over the
net tangible assets acquired of approximately $200,000 is being
amortized on a straight-line basis over 15 years.
All of the business combinations have been accounted for as purchases
and, accordingly, are included in operations from their respective
acquisition dates.
The pro forma results of the VGC, KPM, Turner, Litho Supply, and Lanman
Systems Group acquisitions would not have had a significant impact on
the Company's consolidated results of operations.
4. Disposition
On July 1, 1996, the Company sold substantially all of the assets of
its Rochester, New York subsidiary, Onandaga Litho Supply, Co., Inc.,
for approximately $2.2 million which approximated the financial basis
of the assets at the time of the sale. This transaction did not have a
significant impact on the Company's operating results.
<PAGE>
5. Inventories
Inventories, which are primarily finished goods, at December 31
consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Last-in, first-out (LIFO) $ 25,838 $ 21,838
First-in, first-out (FIFO) 22,903 19,743
----------------------------------------------------------------------
Total inventories $ 48,741 $ 41,581
======================================================================
</TABLE>
The current replacement costs of inventories exceeds LIFO values by
approximately $5,591,000 and $5,208,000 at December 31, 1996 and 1995,
respectively.
6. Property and Equipment
Property and equipment, net, at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Land $ 1,549 $ 1,191
Buildings and improvements 9,017 6,225
Leased property 1,418 886
Machinery, equipment and other 10,883 10,140
-----------------------------------------------------------------------
22,867 18,442
Less accumulated depreciation
and amortization (9,148) (8,084)
-----------------------------------------------------------------------
Property and equipment, net $ 13,719 $ 10,358
=======================================================================
</TABLE>
<PAGE>
7. Long-term Obligations
The long-term obligations of the Company at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreements $ 32,450 $ 27,200
Term loan (interest rate of 6.03%), principal payment of
$167 plus interest due quarterly through December, 1999 2,000 2,571
Term loan (interest rate of 6.03%), principal payment of
$134 plus interest due quarterly through December, 1999 1,604 2,033
Capitalized lease obligation (imputed interest rate of 8.38%)
payable in monthly installments through August, 2002 1,352 1,538
Capitalized lease obligation (imputed interest rate of 8.97%)
payable in monthly installments through August, 1999 348
Other miscellaneous notes 46 66
----------------------------------------------------------------------------------------------------------
37,800 33,408
Less current portion (1,550) (1,206)
-----------------------------------------------------------------------------------------------------------
Net long-term obligations $ 36,250 $ 32,202
==========================================================================================================
</TABLE>
Maturities of long-term obligations for each of the five years
beginning January 1, 1997 and thereafter are as follows:
<TABLE>
<CAPTION>
Capitalized Other
Lease Long-term
(Thousands of dollars) Obligations Obligations
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $ 460 $ 1,223
1998 460 1,225
1999 409 1,202
2000 308 32,450
2001 308
Thereafter 155
----------------------------------------------------------------------------------------------------------
2,100 36,100
Less imputed interest on capitalized lease (400)
----------------------------------------------------------------------------------------------------------
$ 1,700 $ 36,100
==========================================================================================================
</TABLE>
In November 1996, the Company entered into an uncollateralized $50
million revolving credit agreement which expires in January, 2000.
Under the terms of the agreement, which includes three banks, the
Company can borrow at the prime rate or the London Interbank Offered
Rate (LIBOR) plus between .75% to 1.05% depending on certain specified
performance levels. The loan agreement provides, among other terms,
various requirements for tangible net worth and leverage and fixed
charge coverage ratios. This agreement replaced three revolving
agreements with a total commitment of $27.5 million.
Under terms of certain insurance policies and claims handling
agreements, the Company is required to maintain certain standby letters
of credit. At December 31, 1996 these totaled approximately $300,000.
<PAGE>
8. Provision for Income Taxes
The income tax provision for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
----------------------------------------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 2,571 $ 1,015 $ 1,701
State 586 143 305
----------------------------------------------------------------------------------------------------------
3,157 1,158 2,006
Deferred:
Federal (264) 58 154
State (105) 16 50
----------------------------------------------------------------------------------------------------------
(369) 74 204
----------------------------------------------------------------------------------------------------------
Provision for income taxes $ 2,788 $ 1,232 $ 2,210
==========================================================================================================
</TABLE>
Reconciliation of the provision for income taxes computed at the
federal statutory rate of 34% to the actual provision for income taxes
for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax provision $ 2,279 $ 979 $ 1,952
State income taxes, net of federal income tax benefit 334 95 201
Expenses for which there are no tax benefits 154 178 75
Other, net 21 (20) (18)
----------------------------------------------------------------------------------------------------------
Provision for income taxes $ 2,788 $ 1,232 $ 2,210
==========================================================================================================
</TABLE>
Deferred income taxes represent the future tax consequences of
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end. Significant components of
the Company's deferred tax assets (liabilities) at December 31,
consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pension and employee benefit costs $ 979 $ 1,214
Postretirement benefits other than pensions 853 893
Vacation accrual 408 315
Provision for doubtful accounts 634 558
Depreciation (424) (784)
Other, net 1,295 827
----------------------------------------------------------------------------------------------------------
Total deferred tax assets $ 3,745 $ 3,023
==========================================================================================================
</TABLE>
<PAGE>
9. Defined Benefit Pension Plans
Employees of the Company are covered under two defined benefit pension
plans. The Momentum Retirement Plan (the "Momentum Plan") covers the
employees of the Momentum and TK Gray divisions. The PrimeSource
Pension Plan (the "PrimeSource Plan") covers substantially all other
employees of the Company. Effective January 1, 1997, the Momentum Plan
was combined into the PrimeSource Plan.
Employees of the P/J North and P/J South divisions were included in the
Tasty Baking Retirement Plan (the "TBC Plan") through December 31,
1994. The pension expense and contributions to the TBC Plan were
allocated between TBC and the Company based on the actuarial attributes
of each company's respective participants.
Benefits under the plans are generally based on the employees' years of
service and compensation during the years preceding retirement.
Contributions to the plans are based on funding standards established
by the Employee Retirement Income Security Act of 1974 (ERISA).
The plans' net pension expense for the years ended December 31 included
the following components:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 1,000 $ 732 $ 120
Interest cost on projected benefit obligation 1,718 1,572 366
Actual (return) loss on plan assets (3,082) (5,118) 262
Net amortization and deferral 821 3,297 (734)
Allocated expense from TBC Plan 254
----------------------------------------------------------------------------------------------------------
Net pension expense $ 457 $ 483 $ 268
==========================================================================================================
</TABLE>
The plans' funded status and the amounts recognized in the Company's
consolidated balance sheet at December 31 were:
<TABLE>
<CAPTION>
PrimeSource Plan Momentum Plan
(Thousands of dollars) 1996 1995 1996 1995
----------------------------------------------------------------------------------------------------------
Actuarial present value of plan benefit obligations
<S> <C> <C> <C> <C>
Vested $ 5,931 $ 5,488 $ 15,424 $ 15,526
Non-vested 74 91 361 325
----------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 6,005 5,579 15,785 15,851
Effect of future salary increases 1,565 1,501 753 852
----------------------------------------------------------------------------------------------------------
Projected benefit obligation 7,570 7,080 16,538 16,703
Plan assets at fair value 6,295 5,140 19,591 17,893
----------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation (1,275) (1,940) 3,053 1,190
Unrecognized prior service cost (205) (345)
Unrecognized net loss (gain) (356) 650 (2,903) (1,378)
-----------------------------------------------------------------------------------------------------------
Net pension asset (liability) $ (1,836) $ (1,635) $ 150 $ (188)
===========================================================================================================
</TABLE>
For both plans, the actuarial present value of benefits and projected
benefit obligations were determined using a discount rate of 7.75%,
7.25% and 8.5% for the years ending December 31, 1996, 1995 and 1994,
respectively. The expected long-term rate of return on assets was 10%
and the rate of compensation increase used to measure the projected
benefit obligation was 4% for both plans.
The plans' assets are invested in undivided interests in several funds
structured to duplicate the performance of various stock and bond
indexes.
<PAGE>
10. Defined Contribution Pension Plans
The Company sponsors a number of defined contribution pension plans in
the form of IRC 401(k) plans. Participation in one of these plans is
available to substantially all employees. Company contributions to
these plans are based on a percentage of the employee contributions not
to exceed certain maximum levels. The cost of these plans was $220,000,
$222,000 and $170,000 for the years 1996, 1995, and 1994, respectively.
11. Postretirement Benefits Other Than Pensions
The Company has two retiree health benefit plans, the Phillips & Jacobs
Retiree Health Plan (the "P/J Retiree Plan") which covers retirees
primarily from the P/J North and P/J South divisions and the Momentum
Retiree Medical Plan (the "Momentum Retiree Plan") which covers
retirees from the Momentum division. Both plans provide health care
benefits through a health care administrator and contracts with health
service providers. In addition, the P/J Retiree Plan provides life
insurance benefits through an insurance company. The Company's policy
is to fund the plans as benefits are paid.
The plans are contributory with ceilings on the Company's contribution.
In addition, under the Momentum Retiree Plan, employees who were under
the age of 55 on December 31, 1992 receive no contribution from the
Company under the plan.
Net postretirement benefit expense (benefit) for the years ended
December 31 included the following components:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 17 $ 19 $ 19
Interest cost on projected benefit obligation 86 106 74
Amortization of net gain (107) (100) (106)
-----------------------------------------------------------------------------------------------------------
Net expense (benefit) $ (4) $ 25 $ (13)
===========================================================================================================
</TABLE>
The plans' funded status and the amounts recognized in the Company's
consolidated balance sheet at December 31 were:
<TABLE>
<CAPTION>
(Thousands of dollars) 1996 1995
----------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations
<S> <C> <C>
Fully eligible plan participants $ (146) $ (187)
Other active plan participants (76) (114)
Retirees and vested terminated employees (830) (1,136)
-----------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (1,052) (1,437)
Unrecognized net gain (1,103) (819)
-----------------------------------------------------------------------------------------------------------
Postretirement benefit liability $ (2,155) $ (2,256)
===========================================================================================================
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 7.75%, 7.25% and 8.5% for the years ending December
31, 1996, 1995 and 1994, respectively. The health care cost trend rates
used were 8.12% (7.45% for health maintenance organizations(HMO's)),
8.56% (7.73% for HMO's), and 9% (8% for HMO's) for the years 1996,
1995, and 1994, respectively, gradually declining to 5% in 2003 (2005
for HMO's) and remaining at that level thereafter. Due to the ceilings
on Company contributions, the effect of increases in health care cost
trend rates do not have a material effect on the liability or expense.
<PAGE>
12. Incentive Stock Awards
Stock Options
The Company's stock incentive plans provide for the awarding of stock
options to directors, officers and other key employees. All granted
options lapse at the earlier of the expiration of the option term (not
more than ten years from the grant date) or within three months
following the date on which employment with the Company or its
subsidiaries terminates.
Changes in options outstanding for the three years ended December 31,
1996 are:
<TABLE>
<CAPTION>
Option Prices
------------------------------
Options Average Range
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1993 219,748 $ 11.50 $ 11.50
-----------------------------------------------------------------------------------
Granted 170,471 8.56 5.92 - 13.03
Exercised (9,922) 6.68 6.34 - 6.91
-----------------------------------------------------------------------------------
Outstanding at December 31, 1994 380,297 10.35 5.92 - 13.03
-----------------------------------------------------------------------------------
Granted 65,350 6.11 6.11
Exercised (3,195) 6.34 6.34
Canceled (19,009) 10.07 6.34 - 12.32
-----------------------------------------------------------------------------------
Outstanding at December 31, 1995 423,443 9.74 5.92 - 13.03
-----------------------------------------------------------------------------------
Granted 344,756 6.30 6.11 - 6.97
Canceled (303,350) 11.04 5.92 - 13.03
-----------------------------------------------------------------------------------
Outstanding at December 31, 1996 464,849 $ 6.34 $ 6.11 - 8.06
===================================================================================
</TABLE>
At December 31, 1996, there were 140,751 options exercisable and
147,500 options available for grant. The weighted-average remaining
contractual life of outstanding options at December 31, 1996 and 1995
was 8.3 and 7 years, respectively.
The Company has not recognized compensation expense in connection with
stock option grants. Had compensation expense been determined based on
the fair value on the grant date of options granted after December 31,
1994, the Company's net income and earnings per share on a pro forma
basis would have been reduced for the years ended December 31 as
follows:
<TABLE>
<CAPTION>
(Thousands of dollars, except per share data) 1996 1995
-----------------------------------------------------------------------------------
Net Income:
<S> <C> <C>
As reported $ 3,914 $ 1,646
Pro forma 3,813 1,631
===================================================================================
Earnings Per Share:
As reported $ .60 $ .25
Pro forma .58 .25
===================================================================================
</TABLE>
The weighted-average fair value per share for options granted in 1996
and 1995 was $2.51 and $1.92, respectively. The fair value was
estimated using the Black-Scholes option-pricing model. For options
granted in 1996, a dividend yield rate of 2.6%, expected stock
volatility of 37%, expected option life of seven years and risk-free
interest rate of 6.75% were used in estimating the value. For options
granted in 1995, a dividend yield rate of 2.9%, expected stock
volatility of 34%, expected option life of seven years and risk-free
interest rate of 5.5% were used.
<PAGE>
Restricted Stock Awards
The Company's stock incentive plans provide for the awarding of
restricted stock to officers and key employees. The fair market value
of the stock at the date of grant establishes the compensation amount
which is amortized to operations over the restriction period. At
December 31, 1996, there was an unamortized expense for shares awarded
of $43,000 and an additional 61,880 shares available for future awards.
13. Leases
The Company leases certain distribution and office facilities,
machinery and equipment, and automotive equipment under various
noncancelable lease agreements. The Company expects that in the normal
course of business, leases that expire will be renewed or replaced by
other leases.
Minimum annual rentals payable under noncancelable operating leases
with a remaining term of more than one year from December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
(Thousands of dollars)
-----------------------------------------------------------------------
<S> <C>
1997 $ 2,031
1998 1,565
1999 1,044
2000 602
2001 174
Thereafter 264
-----------------------------------------------------------------------
Total minimum lease payments $ 5,680
=======================================================================
</TABLE>
Rent expense, net of noncancelable sublease income of $5,000, $98,000,
and $61,000 in 1996, 1995, and 1994, respectively, was $2,182,000,
$2,382,000 and $1,388,000 for 1996, 1995, and 1994, respectively.
The Company leases a distribution facility from two employees. Rent
expense incurred in connection with this lease was approximately
$63,000 in 1996, and $60,000 in 1995 and 1994.
14. Restructure Expense
The Company recognized a restructuring expense of $1,315,000 in 1995
relating to the consolidation of five distribution centers, the
realignment of two others, and the centralization of certain financial
and information services. The expense consisted of $875,000 for
employee severance compensation and $440,000 for costs associated with
the closure of facilities. Except for continuing lease commitments for
closed facilities, substantially all of the costs were paid in 1995.
15. Commitments and Contingencies
The Company is subject to various legal proceedings and claims which
have arisen in the ordinary course of its business. The Company does
not believe that the ultimate resolution of such matters will have a
material effect on the Company's consolidated financial position or
results of operations.
The Company, along with many other potentially responsible parties, is
a defendant in a declaratory action to determine an allocation of costs
for the investigation and remediation of a Superfund cleanup site. The
Company is also, in general, subject to possible loss contingencies
pursuant to federal or state environmental laws and regulations.
Although these contingencies could result in future expenses or
judgments, such expenses or judgments are not expected to have a
material effect on the Company's consolidated financial position or
results of operations.
<PAGE>
16. Quarterly Financial Information (unaudited)
Summarized unaudited quarterly financial data for the years ended
December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
(Thousands of dollars
except per share data) First Second Third Fourth(1) Total
----------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 86,959 $ 87,898 $ 89,344 $ 102,456 $ 366,657
Gross profit 15,182 15,576 16,062 18,409 65,229
Net income 829 916 924 1,245 3,914
Net income per share $ .13 $ .14 $ .14 $ .19 $ .60
Year Ended December 31, 1995
Net sales $ 89,577 $ 89,158 $ 88,156 $ 90,186 $ 357,077
Gross profit 15,870 16,059 15,248 16,110 63,287
Net income (loss) 626 (285)(2) 451 854 1,646
Net income (loss) per share (3) $ .10 $ (.04) $ .07 $ .13 $ .25
</TABLE>
(1) The operations of the VGC acquisition are included from the
November 1, 1996 acquisition date.
(2) Includes a one-time restructuring expense of $1,315,000 ($794,000
after tax) relating to the consolidation of five distribution
centers, the realignment of two others, and the centralization of
certain financial and information services.
(3) Due to changes in the number of outstanding shares during the year
and rounding, the sum of the quarterly incomes per share for each
year will not equal the net income per share for the year.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors
of PrimeSource Corporation
We have audited the accompanying consolidated balance sheets of PrimeSource
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. We have also
audited the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. These financial statements and this financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and this financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PrimeSource Corporation and its subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 19, 1997
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the definitive proxy statement to be filed with
the Securities and Exchange Commission by April 30, 1997, except information
regarding executive officers which appears under Part I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 1997.
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements have been included as part of this
report:
Form 10-K
Page
Consolidated Statements of Income 12
Consolidated Balance Sheets 13
Consolidated Statements of Cash Flows 14
Consolidated Statements of Shareholders' Equity 15
Notes to Consolidated Financial Statements 16
Report of Independent Accountants 27
(a)(2) Financial Statement Schedule
(a) The following financial statement schedule is submitted herewith:
-Schedule II Valuation of Qualifying Accounts and Reserves All other
schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(a)(3) Exhibits
The required exhibits are included at the back of this Form 10-K and are
described in the Exhibit Index immediately preceding the first exhibit.
(b) Reports on Form 8-K
On November 13, 1996, the Registrant filed a Form 8-K to report the
Registrant's acquisition of VGC Corporation's branch operations in
Minneapolis, Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa; and Omaha,
Nebraska on November 1, 1996.
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
<TABLE>
SCHEDULE II -- VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
Column A Column B Column C Column D Column E
Classification Balance at Charged to Balance
Beginning Charged to Other Deductions at End
(thousands of dollars) of Period Expenses Accounts Write-offs of Period
- --------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1996
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,372 $ 865 $ (450) $ 1,787
Amortization of goodwill 825 316 $ (39)(1) 1,102
Inventory reserves 1,752 364 1,754 (2) (698) 3,172
- --------------------------------------------------------------------------------------------------------------
3,949 1,545 1,715 (1,148) 6,061
- --------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1995
Allowance for doubtful accounts $ 1,457 $ 1,090 $ (1,175) $ 1,372
Amortization of goodwill 519 306 825
Inventory reserves 1,563 561 624 (3) (996) 1,752
- --------------------------------------------------------------------------------------------------------------
3,539 1,957 624 (2,171) 3,949
- --------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1994
Allowance for doubtful accounts $ 937 $ 626 $ 603 (3) $ (709) $ 1,457
Amortization of goodwill 379 140 519
Inventory reserves 232 316 1,362 (3) (347) 1,563
- --------------------------------------------------------------------------------------------------------------
1,548 1,082 1,965 (1,056) 3,539
- --------------------------------------------------------------------------------------------------------------
<FN>
(1) Reserve disposed of with the sale of the assets of Onondaga Litho Supply,
Inc.
(2) Related to the acquisition of VGC Corporation's branch operations in St.
Louis, Missouri; Minneapolis, Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa;
and Omaha, Nebraska.
(3) Related to the merger with Momentum Corporation and acquisition of Lanman
Systems Group.
</FN>
</TABLE>
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated March 28, 1997
/s/ James F. Mullan
James F. Mullan
President and
Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on the behalf of the registrant
and in the capacity and on the date indicated.
Dated March 28, 1997
/s/ William A. DeMarco
William A. DeMarco
Vice President,
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- -----------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Richard E. Engebrecht Chairman of the Board and March 4, 1997
- --------------------------------------
Richard E. Engebrecht Director of PrimeSource
Corporation
/s/ James F. Mullan President, Chief Executive March 4, 1997
- --------------------------------------
James F. Mullan Officer and Director of
PrimeSource Corporation
/s/ John H. Goddard, Jr. Executive Vice President and March 4, 1997
- --------------------------------------
John H. Goddard, Jr. Director of PrimeSource
Corporation
/s/ Fred C. Aldridge, Jr. Director of PrimeSource March 4, 1997
- --------------------------------------
Fred C. Aldridge, Jr. Corporation
/s/ Philip J. Baur, Jr. Director of PrimeSource March 4, 1997
- --------------------------------------
Philip J. Baur, Jr. Corporation
/s/ Gary MacLeod Director of PrimeSource March 4, 1997
- --------------------------------------
Gary MacLeod Corporation
/s/ Edward N. Patrone Director of PrimeSource March 4, 1997
- --------------------------------------
Edward N. Patrone Corporation
/s/ John M. Pettine Director of PrimeSource March 4, 1997
- --------------------------------------
John M. Pettine Corporation
/s/ Andrew V. Smith Director of PrimeSource March 4, 1997
- --------------------------------------
Andrew V. Smith Corporation
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description
The following Exhibit Numbers refer to Regulation S-K, Item 601. All other
exhibits are omitted because they are inapplicable. (Exhibits identified in
parentheses are on file with the Securities and Exchange Commission and are
incorporated herein by reference as exhibits hereto.)
(2.1) Agreement and Plan of Reorganization dated as of May 27, 1994 by and
between MOMENTUM CORPORATION and PHILLIPS & JACOBS, INCORPORATED
(filed as Annex A to the Proxy/Prospectus included within
registration statement No. 33-54913 on Form S-4 filed by the
Registrant on August 4, 1994)
(2.2) Form of Plan of Merger (filed as Annex B to the Proxy/Prospectus
included within registration statement No. 33-54913 on Form S-4 filed
by the Registrant on August 4, 1994)
(2.3) Asset Purchase Agreement By And Among VGC Corp., VGC Holding USA,
Inc., NV Koninklijke KNP BT and PrimeSource dated November 1, 1996,
for the purchase of the operating assets (excluding accounts
receivable) of VGC Corporation's branch operations in Minneapolis,
Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa; and Omaha,
Nebraska. (filed as exhibit 2 to Form 8-K dated November 13, 1996,
File No. 0-21750)
(2.4) Asset Purchase Agreement By And Among Momentum Corporation And TK
Gray, Inc. And Its Shareholders dated April 15, 1994, for the
purchase of substantially all of the assets and certain of the
liabilities of TK Gray, Inc. (filed as exhibit 2(i) to Form 8-K dated
May 2, 1994, File No. 0-18112)
(3.1) Amended and Restated Articles of Incorporation of the Registrant
(filed as Annex C to the Proxy/Prospectus included within
registration statement No. 33-54913 on Form S-4 filed by the
Registrant on August 4, 1994)
(3.2) Amended and Restated By-laws of the Registrant (filed as Annex D to
the Proxy/Prospectus included within registration statement No.
33-54913 on Form S-4 filed by the Registrant on August 4, 1994)
3.3 Amendment to Amended and Restated By-laws of the Registrant which
will be effective May 7, 1997.
(4.1) Form of Common Stock Certificate (filed with Form 10 filed by
Registrant on May 12, 1993, (File No. 0-21750 and as subsequently
amended on Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993
and Form 8 filed on July 13, 1993)
(4.2) Form of Common Stock Certificate, effective September 1, 1994 (filed
as Exhibit 4.2 to Form 10-K, File No. 0-21750, dated March 30, 1995)
(10.1) Form of Phillips & Jacobs, Inc. 1993 Long Term Incentive Plan (filed
as Exhibit 10.1 to Form 10-K, File No. 0-21750, dated March 30, 1995)
(10.2) Form of Phillips & Jacobs, Incorporated Indemnification Agreement
(filed with Form 10 filed by Registrant on May 12, 1993, (File No.
0-21750) and as subsequently amended on Form 8 filed on May 28, 1993,
Form 8 filed on July 6, 1993 and Form 8 filed on July 13, 1993)*
(10.3) Form of Supplemental Executive Retirement Plan Agreement (filed with
Form 10 filed by Registrant on May 12, 1993, (File No. 0-21750) and
as subsequently amended on Form 8 filed on May 28, 1993, Form 8 filed
on July 6, 1993 and Form 8 filed on July 13, 1993)*
<PAGE>
(10.4) Employment Agreement between Registrant and D.M. Zewiske dated July
1, 1988 (filed with Form 10 filed by Registrant on May 12, 1993,
(File No. 0-21750) and as subsequently amended on Form 8 filed on May
28, 1993, Form 8 filed on July 6, 1993 and Form 8 filed on July 13,
1993)*
10.5 Employment Agreement between the Registrant and W.A. DeMarco dated
December 31, 1996*
10.6 Employment Agreement between the Registrant and J.F. Mullan dated
December 31, 1996*
(10.7) Form of Tax Matters Agreement (filed with Form 10 filed by Registrant
on May 12, 1993, (File No. 0-21750) and as subsequently amended on
Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993 and Form 8
filed on July 13, 1993)
(10.8) Amendment No. 1 to Agreement among Employers Participating in Certain
Qualified Plans (filed as Exhibit 10.14 to the Proxy/Prospectus
included within registration statement No. 33-54913 on Form S-4 filed
by the Registrant on August 4, 1994)*
(10.9) 1993 Replacement Option Plan (P&J Spin-off) for Directors (filed as
Annex I to the Proxy/Prospectus included within registration
statement No. 33-54913 on Form S-4 filed by the Registrant on August
4, 1994)*
(10.10) Phillips & Jacobs, Incorporated 401(k) Savings Plan and Trust
Agreement (filed as Exhibit 10.14 to Form 10-K, File No. 0-21750,
dated March 28, 1994)*
(10.11) 1989 Long-Term Incentive Stock Plan (filed with Registration
Statement on Form S-8 on December 8, 1994, File No. 33-87360)*
(10.12) Restated Momentum Distribution Inc. Supplemental Benefits Plan,
effective April 22, 1991 (filed as Exhibit 10.13 to Form 10-K, File
No. 0-18112 dated March 30 1993)*
(10.13) Momentum Retirement Plan (filed as Exhibit 10.18 to Form 10-K, File
No. 0-21750, dated March 30, 1995)*
(10.14) Amended and Restated Revolving Credit and Loan Agreement executed
February 17, 1995 effective as of December 31, 1994 among PrimeSource
Corporation, Dixie Type & Supply Company, Inc., and Onondaga Litho
Supply Co., Inc. as Borrowers and First Fidelity Bank, N.A. as Bank
(filed as Exhibit 10.19 to Form 10-K, File No. 0-21750, dated March
30, 1995)
(10.15) Form of Indemnification Agreement for Directors and certain officers
effective September 1, 1994 and executed in January, 1996 (filed as
Exhibit 10.22 to Form 10-K, File No. 0-21750, dated March 26, 1996)*
(10.16) PrimeSource Corporation Pension Plan (filed as Exhibit 10.23 to Form
10-K, File No. 0-21750, dated March 26, 1996)*
(10.17) Orlando, FL facility lease dated March 31, 1986 and August 14, 1995
Lease Extension between the Registrant and Dennis M. Zewiske as
co-lessor (filed as Exhibit 10.25 to Form 10-K, File No. 0-21750,
dated March 26, 1996)*
10.18 Credit Agreement dated as of November 1, 1996 by and among
PrimeSource Corporation, Dixie Type & Supply Company, Inc., Onondaga
Litho Supply Co., Inc. and The Banks Party Hereto and PNC Bank,
National Association, As Agent
11.1 Computation of Per Share Income
21.1 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants
27 Financial data schedule
99.1 Undertakings
*Management contracts and/or compensatory plans, contracts or
arrangements in which a director and/or a named executive officer
participates.
RESOLUTION
RESOLVED that effective May 7, 1997 the first sentence of Article III, Sectin 1
of the Bylaws of PrimeSource Corporation are hereby amended to read as follows:
" The number of directors which shall constitute the Board of Directors shall be
nine (9)."
AGREEMENT
AGREEMENT made December 31, 1996, between PrimeSource Corporation, a
Pennsylvania corporation (the "Company") and William A. DeMarco ("Executive").
WHEREAS, Executive is the duly elected Vice President Finance and Chief
Financial Officer of the Company and has made and is currently making a
significant contribution to the Company's business;
WHEREAS, the Board of Directors (the "Board") of the Company believe
that the continued services of Executive will be of great value and importance
to the Company and are desirous of ensuring the continuation of Executive's
services for a period of time; and
WHEREAS, Executive is willing to enter into an agreement with the
Company upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, and intending to be
legally bound hereby, the Company and Executive hereby agree as follows:
1. Term of Employment. The Company hereby employs Executive as Vice
President Finance and Chief Financial Officer and Executive accepts such
employment by the Company on the terms and conditions herein contained for a
period commencing as of the date hereof and subject to termination only as
hereinafter provided (the period from the date hereof through termination as
hereinafter provided is referred to as the "Employment Period").
2. Duties. During the Employment Period, Executive shall have such
duties, responsibility and authority and perform such services for the Company
as are consistent with Executive's background, training and experience as may
from time to time be assigned to Executive by the Board or the Chief Executive
Officer of the Company.
3. Compensation.
(a) Commencing as of the date hereof and thereafter during the
Employment Period, the Company shall pay Executive a base salary at the annual
rate of no less than $115,000, which amount may be increased from time to time
in accordance with the Company's policies regarding general increases and at the
discretion of the Board. Payment shall be made in accordance with the Company's
regular practice for senior executive employees as in effect from time to time.
(b) In addition to the Executive's base salary, Executive
shall be entitled to participate in the normal course of business in the annual
executive bonus program(s) of the Company and to receive such bonus payments as
are customarily granted for the purposes of providing additional compensation to
senior executives.
(c) A change-of-control of the Company is defined to be any of
the following: (a) the effective date of a Major Transaction which is subject to
and satisfies the special voting requirement set forth in Article VIII of the
Company's Amended and Restated Articles of Incorporation ("Articles"), (b) the
completion of a tender or exchange offer for Voting Stock (other than a tender
offer by the Company) which is accepted by the holders of 51% of the Voting
Power of the outstanding Voting Stock, (c) the effective date of a merger,
consolidation, or dissolution in which the Company is not the surviving entity,
or (d) the date on which there is a "Significant Change" in the membership of
the Company's Board occurring by the third annual meeting after the effective
date of a merger, consolidation, reorganization or a Major Transaction or the
date on which any Person becomes a 15% shareholder (each of which is referred to
as a "Significant Event"). A Significant Change in the Board shall be deemed to
have occurred if one-third or more of the directors are individuals who (i) are
or were Affiliates or Associates of the 15% shareholder or any party to the
Significant Event and (ii) were not Affiliates or Associates of the Company
prior to the Significant Event. A sale or series of sales or other disposition
of a subsidiary, division or other operating units, or the assets thereof, not
constituting a sale of substantially all of the assets of the Company, shall not
constitute a change-of-control. The definitions for Affiliates, Associates,
Major Transaction, Person, Voting Stock, and Voting Power are set out in Article
VII of the Articles.
<PAGE>
In the event of a change-of-control, as defined in the prior paragraph,
and the termination of the Executive's employment, the Executive shall be
entitled to the continuation of his compensation and benefits for a total of two
(2) years from the date of such termination of employment at the rates set out
in 3(a) and (b) above, payable in equal payments at least monthly. A termination
of employment entitling the Executive to a continuation of compensation as set
out in this Section 3 shall be deemed to have occurred upon any resignation or
termination of the Executive's employment for any reason other than Cause as
defined in Section 5 (a) below during the two year period commencing with the
effective time of the first change-of-control event. For example, if the
change-of-control event occurred on March 1, 1997 and the Executive voluntarily
left the Company's employ on September 15, 1997, then he would continue to
receive payments from the Company each month through September 15, 1999 equal to
one twelfth (1/12) of the greater of (a) the Executive's total compensation
(salary plus bonus) for the prior calendar year or (b) the average annual
compensation (salary plus bonus) of the Executive for the prior two calendar
years. For calculation purposes, the bonus shall apply to the year for which it
was earned, which may not be the year in which it was actually paid.
Notwithstanding the foregoing, Executive shall not be entitled to such
continuation of compensation for any period after he (a) reaches age 66, (b)
dies, (c) is disabled and eligible to receive disability payments under the
Company's long term disability plan, or in the case of a termination not
preceeded by a change-of-control within the prior two years, (d) voluntarily
retires from the Company.
In addition to continuation of salary and bonus referenced above, for
the said two year period the Company shall also continue the Executive's normal
fringe benefits to the extent reasonably possible and shall fairly compensate
the Executive for the value of any fringe benefits it can not reasonably
continue.
In the event of a change-of-control and termination of employment, all
stock options held by the Executive shall be fully vested and immediately
exercisable during the normal post-employment option exercise period as set out
in the applicable stock option plan (but in no event for less than 90 days after
the employment relationship terminates).
4. Additional Terms.
(a) The Company will reimburse Executive for all reasonable
expenses properly incurred by Executive in the performance of Executive's duties
hereunder in accordance with established practices for senior executives of the
Company.
(b) During the Employment Period, Executive shall be entitled
to participate, in accord with the terms thereof, in any present of future
bonus, insurance, pension, SERP, Thrift, ESOP, stock option, or other employee
benefit, compensation or incentive plan adopted by the Company and applicable to
senior executives generally.
5. Termination of Employment.
(a) The Employment Period shall cease and terminate upon the earliest
to occur of the events specified below:
(i) The first anniversary of receipt of written notice by
Executive from the Company of the Company's intent to
terminate this Agreement.
(ii) The death of Executive. If Executive dies during the term
of this Agreement,Executive's salary for 30 days after the
date on which death occurs shall be paid to Executive's
estate.
(iii) The normal retirement date of Executive or upon
Executive's election of early retirement.
(iv) Termination of Executive's employment for Cause. For
these purposes "Cause" for termination of Executive shall be
limited to actions by Executive involving willful malfeasance
or gross negligence or failure to act by Executive involving
willful and material nonfeasance which, at the time of such
willful malfeasance or gross negligence or willful and
material nonfeasance, would tend to have a materially adverse
effect on the Company. Bad judgment or negligence shall not
constitute Cause nor shall any act or omission reasonably
believed by the Executive to have been in, or not opposed to,
the interests of the Company.
<PAGE>
(b) In the event that Executive becomes "totally disabled"
within the meaning of the Company's Long Term Disability Plan, the Employment
Period shall be suspended (to resume following suspension unless otherwise
terminated under 5(a) above) during any period in which Executive is entitled to
receive long term disability payments under the Plan and, during such period of
suspension, Executive shall be entitled to the same benefits that any other
employee of the Company would enjoy under the Long Term Disability Plan.
(c) Except as to rights which have accrued hereunder, this
Agreement and all of the liabilities and obligations of the parties hereunder
shall cease and terminate effective upon the termination of the Employment
Period.
(d) If (i) Executive's employment hereunder is terminated by
the Company other than pursuant to Section 5(a) hereof, (ii) Executive
terminates his employment hereunder because his authority, duties or
responsibilities are altered so as to be inconsistent with Executive's
background, training and experience, or (iii) the Executive terminates his
employment hereunder because of the Company's continued failure to perform its
obligations hereunder, then the Executive shall be entitled to receive, in
addition to any other damages which Executive may suffer as a direct or indirect
result of the termination of Executive's employment by the Company, the
compensation and benefits which would otherwise have been payable to Executive
under Section 3 hereof through the remaining balance of the Employment Period
which would have pertained had the Company given Executive notice of intent to
terminate this Agreement on the date Executive's employment ceases, as provided
in Section 5(a) (i) above.
6. Non-Competition and Confidentiality. The Executive agrees that:
(a) The Company shall cease providing payments hereunder (other than
payments already earned or accrued) if, during the compensation period, the
Executive shall be employed by or otherwise engage in any business which is
competitive with any business of the Company, and
(b) during and after the compensation period, the Executive will not
divulge or appropriate to the Executive's own use or the use of others any
secret or confidential information or knowledge pertaining to the business of
the Company, or any of its subsidiaries, obtained during his employment by the
Company.
Executive agrees that the above covenant not to compete is fair and
reasonably necessary for the protection of the Company's confidential
information and business. In the event a court should decline to enforce any
part of this covenant, such covenant shall be deemed to be modified to restrict
Executive's competition with the Company to the maximum extent which the court
shall find enforceable.
The Board has determined, in its best judgment, that the payments to
the Executive hereunder are reasonable consideration for not competing as
defined in (a) and for maintaining the confidentiality of information as
provided for in (b) above.
7. Assignment. This Agreement shall not be assignable by the Company
except to a majority-owned subsidiary or parent entity of the Company or to a
successor to the Company and its business by way of merger, acquisition,
purchase of assets or otherwise and this Agreement is and shall be binding upon
and inure to the benefit of any such parent, subsidiary or successor. This
Agreement shall not be assignable by Executive but it shall be binding upon and
inure to the benefit of Executive's heirs, executors, administrators and legal
representatives.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed by first class, certified or registered mail, return receipt
requested, postage and registry fees prepaid, and addressed as follows:
To the Company: President
PrimeSource Corporation
4350 Haddonfield Road, Suite 222
Pennsauken, NJ 08109-3377
To the Executive: William A. DeMarco
8 West Windrose Drive
Richboro, PA 18954
<PAGE>
Addresses may be changed by notice in writing to the other party.
9. Arbitration. Any dispute or disagreement arising between the parties
hereto with respect to this Agreement or its validity, construction or
performance shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as amended
from time to time. The cost of arbitration shall be borne by the Company. Each
party shall, however, bear the cost of preparing and presenting its own case,
including counsel fees and expenses. Judgment upon the award of arbitrators may
be entered by either party in any court having jurisdiction.
10. Miscellaneous. This Agreement is the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, oral or written, relating to the subject matter hereof, and no
change, alteration or modification hereof may be made except in writing signed
by both parities hereto. The headings in this Agreement are for convenience of
reference only and shall not be considered as part of this Agreement nor limit
or otherwise affect the meaning hereof. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ATTEST: PRIMESOURCE CORPORATION
- ----------------------------- ------------------------------
Corporate Secretary President and Chief Executive Officer
------------------------------
William A. DeMarco
AGREEMENT
AGREEMENT made December 31, 1996, between PrimeSource Corporation, a
Pennsylvania corporation (the "Company") and James F. Mullan ("Executive").
WHEREAS, Executive is the duly elected Chief Executive Officer and
President of the Company and has made and is currently making a significant
contribution to the Company's business;
WHEREAS, the Board of Directors (the "Board") of the Company believe
that the continued services of Executive will be of great value and importance
to the Company and are desirous of ensuring the continuation of Executive's
services for a period of time; and
WHEREAS, Executive is willing to enter into an agreement with the
Company upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, and intending to be
legally bound hereby, the Company and Executive hereby agree as follows:
1. Term of Employment. The Company hereby employs Executive as Chief
Executive Officer and President, and Executive accepts such employment by the
Company on the terms and conditions herein contained for a period commencing as
of the date hereof and subject to termination only as hereinafter provided (the
period from the date hereof through termination as hereinafter provided is
referred to as the "Employment Period").
2. Duties. During the Employment Period, Executive shall have such
duties, responsibility and authority and perform such services for the Company
as are consistent with Executive's background, training and experience as may
from time to time be assigned to Executive by the Board.
3.Compensation.
(a) Commencing as of the date hereof and thereafter during the
Employment Period, the Company shall pay Executive a base salary at the annual
rate of no less than $250,000, which amount may be increased from time to time
in accordance with the Company's policies regarding general increases and at the
discretion of the Board. Payment shall be made in accordance with the Company's
regular practice for senior executive employees as in effect from time to time.
(b) In addition to the Executive's base salary, Executive
shall be entitled to participate in the normal course of business in the annual
executive bonus program(s) of the Company and to receive such bonus payments as
are customarily granted for the purposes of providing additional compensation to
senior executives.
(c) A change-of-control of the Company is defined to be any of
the following: (a) the effective date of a Major Transaction which is subject to
and satisfies the special voting requirement set forth in Article VIII of the
Company's Amended and Restated Articles of Incorporation ("Articles"), (b) the
completion of a tender or exchange offer for Voting Stock (other than a tender
offer by the Company) which is accepted by the holders of 51% of the Voting
Power of the outstanding Voting Stock, (c) the effective date of a merger,
consolidation, or dissolution in which the Company is not the surviving entity,
or (d) the date on which there is a "Significant Change" in the membership of
the Company's Board occurring by the third annual meeting after the effective
date of a merger, consolidation, reorganization or a Major Transaction or the
date on which any Person becomes a 15% shareholder (each of which is referred to
as a "Significant Event"). A Significant Change in the Board shall be deemed to
have occurred if one-third or more of the directors are individuals who (i) are
or were Affiliates or Associates of the 15% shareholder or any party to the
Significant Event and (ii) were not Affiliates or Associates of the Company
prior to the Significant Event. A sale or series of sales or other disposition
of a subsidiary, division or other operating units, or the assets thereof, not
constituting a sale of substantially all of the assets of the Company, shall not
constitute a change-of-control. The definitions for Affiliates, Associates,
Major Transaction, Person, Voting Stock, and Voting Power are set out in Article
VII of the Articles.
<PAGE>
In the event of a change-of-control, as defined in the prior paragraph,
and the termination of the Executive's employment, the Executive shall be
entitled to the continuation of his compensation and benefits for a total of two
(2) years from the date of such termination of employment at the rates set out
in 3(a) and (b) above, payable in equal payments at least monthly. A termination
of employment entitling the Executive to a continuation of compensation as set
out in this Section 3 shall be deemed to have occurred upon any resignation or
termination of the Executive's employment for any reason other than Cause as
defined in Section 5 (a) below during the two year period commencing with the
effective time of the first change-of-control event. For example, if the
change-of-control event occurred on March 1, 1997 and the Executive voluntarily
left the Company's employ on September 15, 1997, then he would continue to
receive payments from the Company each month through September 15, 1999 equal to
one twelfth (1/12) of the greater of (a) the Executive's total compensation
(salary plus bonus) for the prior calendar year or (b) the average annual
compensation (salary plus bonus) of the Executive for the prior two calendar
years. For calculation purposes, the bonus shall apply to the year for which it
was earned, which may not be the year in which it was actually paid.
Notwithstanding the foregoing, Executive shall not be entitled to such
continuation of compensation for any period after he (a) reaches age 66, (b)
dies, (c) is disabled and eligible to receive disability payments under the
Company's long term disability plan, or in the case of a termination not
preceeded by a change-of-control within the prior two years, (d) voluntarily
retires from the Company.
In addition to continuation of salary and bonus referenced above, for
the said two year period the Company shall also continue the Executive's normal
fringe benefits to the extent reasonably possible and shall fairly compensate
the Executive for the value of any fringe benefits it can not reasonably
continue.
In the event of a change-of-control and termination of employment, all
stock options held by the Executive shall be fully vested and immediately
exercisable during the normal post-employment option exercise period as set out
in the applicable stock option plan (but in no event for less than 90 days after
the employment relationship terminates).
4. Additional Terms.
(a) The Company will reimburse Executive for all reasonable
expenses properly incurred by Executive in the performance of Executive's duties
hereunder in accordance with established practices for senior executives of the
Company.
(b) During the Employment Period, Executive shall be entitled
to participate, in accord with the terms thereof, in any present of future
bonus, insurance, pension, SERP, Thrift, ESOP, stock option, or other employee
benefit, compensation or incentive plan adopted by the Company and applicable to
senior executives generally.
5. Termination of Employment.
(a) The Employment Period shall cease and terminate upon the earliest
to occur of the events specified below:
(i) The second anniversary of receipt of written notice
by Executive from the Company of the Company's intent to terminate this
Agreement.
(ii) The death of Executive. If Executive dies during
the term of this Agreement, Executive's salary for 30 days after the date on
which death occurs shall be paid to Executive's estate.
(iii)The normal retirement date of Executive or upon
Executive's election of early retirement.
(iv)Termination of Executive's employment for Cause.
For these purposes "Cause" for termination of Executive shall be limited to
actions by Executive involving willful malfeasance or gross negligence or
failure to act by Executive involving willful and material nonfeasance which, at
the time of such willful malfeasance or gross negligence or willful and material
nonfeasance, would tend to have a materially adverse effect on the Company. Bad
judgment or negligence shall not constitute Cause nor shall any act or omission
reasonably believed by the Executive to have been in, or not opposed to, the
interests of the Company.
<PAGE>
(b) In the event that Executive becomes "totally disabled"
within the meaning of the Company's Long Term Disability Plan, the Employment
Period shall be suspended (to resume following suspension unless otherwise
terminated under 5(a) above) during any period in which Executive is entitled to
receive long term disability payments under the Plan and, during such period of
suspension, Executive shall be entitled to the same benefits that any other
employee of the Company would enjoy under the Long Term Disability Plan.
(c) Except as to rights which have accrued hereunder, this
Agreement and all of the liabilities and obligations of the parties hereunder
shall cease and terminate effective upon the termination of the Employment
Period.
(d) If (i) Executive's employment hereunder is terminated by
the Company other than pursuant to Section 5(a) hereof, (ii) Executive
terminates his employment hereunder because his authority, duties or
responsibilities are altered so as to be inconsistent with Executive's
background, training and experience, or (iii) the Executive terminates his
employment hereunder because of the Company's continued failure to perform its
obligations hereunder, then the Executive shall be entitled to receive, in
addition to any other damages which Executive may suffer as a direct or indirect
result of the termination of Executive's employment by the Company, the
compensation and benefits which would otherwise have been payable to Executive
under Section 3 hereof through the remaining balance of the Employment Period
which would have pertained had the Company given Executive notice of intent to
terminate this Agreement on the date Executive's employment ceases, as provided
in Section 5(a) (i) above.
6. Non-Competition and Confidentiality. The Executive agrees that:
(a) The Company shall cease providing payments hereunder (other than
payments already earned or accrued) if, during the compensation period, the
Executive shall be employed by or otherwise engage in any business which is
competitive with any business of the Company, and
(b) during and after the compensation period, the Executive will not
divulge or appropriate to the Executive's own use or the use of others any
secret or confidential information or knowledge pertaining to the business of
the Company, or any of its subsidiaries, obtained during his employment by the
Company.
Executive agrees that the above covenant not to compete is fair and
reasonably necessary for the protection of the Company's confidential
information and business. In the event a court should decline to enforce any
part of this covenant, such covenant shall be deemed to be modified to restrict
Executive's competition with the Company to the maximum extent which the court
shall find enforceable.
The Board has determined, in its best judgment, that the payments to
the Executive hereunder are reasonable consideration for not competing as
defined in (a) and for maintaining the confidentiality of information as
provided for in (b) above.
7. Assignment. This Agreement shall not be assignable by the Company
except to a majority-owned subsidiary or parent entity of the Company or to a
successor to the Company and its business by way of merger, acquisition,
purchase of assets or otherwise and this Agreement is and shall be binding upon
and inure to the benefit of any such parent, subsidiary or successor. This
Agreement shall not be assignable by Executive but it shall be binding upon and
inure to the benefit of Executive's heirs, executors, administrators and legal
representatives.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed by first class, certified or registered mail, return receipt
requested, postage and registry fees prepaid, and addressed as follows:
To the Company: Vice President Finance
PrimeSource Corporation
4350 Haddonfield Road, Suite 222
Pennsauken, NJ 08109-3377
To the Executive: James F. Mullan
11. S. Hinchman Avenue
Haddonfield, NJ 08033
Addresses may be changed by notice in writing to the other party.
<PAGE>
9. Arbitration. Any dispute or disagreement arising between the parties
hereto with respect to this Agreement or its validity, construction or
performance shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as amended
from time to time. The cost of arbitration shall be borne by the Company. Each
party shall, however, bear the cost of preparing and presenting its own case,
including counsel fees and expenses. Judgment upon the award of arbitrators may
be entered by either party in any court having jurisdiction.
10. Miscellaneous. This Agreement is the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, oral or written, relating to the subject matter hereof, and no
change, alteration or modification hereof may be made except in writing signed
by both parities hereto. The headings in this Agreement are for convenience of
reference only and shall not be considered as part of this Agreement nor limit
or otherwise affect the meaning hereof. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ATTEST: PRIMESOURCE CORPORATION
- ----------------------------- ------------------------------
Corporate Secretary Vice President Finance
------------------------------
James F. Mullan
$50,000,000 REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
PRIMESOURCE CORPORATION,
DIXIE TYPE & SUPPLY COMPANY, INC.,
ONONDAGA LITHO SUPPLY CO., INC.
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, As Agent
Dated as of November 1, 1996
<PAGE>
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TABLE OF CONTENTS
Section Page
- v -
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1. CERTAIN DEFINITIONS............................................................................................1
1.1 Certain Definitions........................................................................................1
1.2 Construction..............................................................................................19
1.2.1 Number; Inclusion....................................................................................19
1.2.2 Determination........................................................................................19
1.2.3 Agent's Discretion and Consent.......................................................................19
1.2.4 Documents Taken as a Whole...........................................................................19
1.2.5 Headings.............................................................................................19
1.2.6 Implied References to this Agreement.................................................................19
1.2.7 Persons..............................................................................................20
1.2.8 Modifications to Documents...........................................................................20
1.2.9 From, To and Through.................................................................................20
1.2.10 Shall; Will.........................................................................................20
1.3 Accounting Principles.....................................................................................20
2. REVOLVING CREDIT FACILITY.....................................................................................21
2.1 Commitments...............................................................................................21
2.1.1 Commitment...........................................................................................21
2.1.2 Voluntary Reduction of Commitment....................................................................21
2.2 Nature of Banks' Obligations with Respect to Loans........................................................21
2.3 Commitment Fee............................................................................................21
2.4 Underwriting Fees.........................................................................................22
2.5 Loan Requests.............................................................................................22
2.6 Making Loans..............................................................................................23
2.7 Notes.....................................................................................................23
2.8 Use of Proceeds...........................................................................................23
2.9 Letter of Credit Subfacility..............................................................................24
2.9.1 Issuance of Letters of Credit........................................................................24
2.9.2 Letter of Credit Fees................................................................................24
2.9.3 Disbursements, Reimbursement.........................................................................24
2.9.4 Repayment of Participation Advances..................................................................25
2.9.5 Documentation........................................................................................26
2.9.6 Determinations to Honor Drawing Requests.............................................................26
2.9.7 Nature of Participation and Reimbursement Obligations................................................26
2.9.8 Indemnity............................................................................................28
2.9.9 Liability for Acts and Omissions.....................................................................28
3. [RESERVED]....................................................................................................29
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4. INTEREST RATES................................................................................................29
4.1 Interest Rate Options.....................................................................................29
4.1.1 Revolving Credit Interest Rate Options...............................................................29
4.1.2 RESERVED.............................................................................................30
4.1.3 Rate Quotations......................................................................................30
4.2 Interest Periods..........................................................................................30
4.2.1 Ending Date and Business Day.........................................................................30
4.2.2 Amount of Borrowing Tranche..........................................................................30
4.2.3 Termination Before Expiration Date...................................................................31
4.2.4 Renewals.............................................................................................31
4.3 Interest After Default....................................................................................31
4.3.1 Letter of Credit Fees, Interest Rate.................................................................31
4.3.2 Other Obligations....................................................................................31
4.3.3 Acknowledgment.......................................................................................31
4.4 LIBO Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available............................31
4.4.1 Unascertainable......................................................................................31
4.4.2 Illegality; Increased Costs; Deposits Not Available..................................................32
4.4.3 Agent's and Bank's Rights............................................................................32
4.5 Selection of Interest Rate Options........................................................................33
5. PAYMENTS......................................................................................................33
5.1 Payments..................................................................................................33
5.2 Pro Rata Treatment of Banks...............................................................................33
5.3 Interest Payment Dates....................................................................................34
5.4 Voluntary Prepayments.....................................................................................34
5.4.1 Right to Prepay......................................................................................34
5.4.2 Replacement of a Bank................................................................................35
5.4.3 Change of Lending Office.............................................................................35
5.5 Mandatory Prepayments.....................................................................................36
5.6 Additional Compensation in Certain Circumstances..........................................................36
5.6.1 Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital Adequacy Requirements,
Expenses, Etc..............................................................................................36
5.6.2 Indemnity............................................................................................37
6. REPRESENTATIONS AND WARRANTIES................................................................................37
6.1 Representations and Warranties............................................................................37
6.1.1 Organization and Qualification.......................................................................38
6.1.2 Capitalization and Ownership.........................................................................38
6.1.3 Subsidiaries.........................................................................................38
6.1.4 Power and Authority..................................................................................38
6.1.5 Validity and Binding Effect..........................................................................39
6.1.6 No Conflict..........................................................................................39
6.1.7 Litigation...........................................................................................39
6.1.8 Title to Properties..................................................................................39
6.1.9 Financial Statements.................................................................................40
6.1.10 Use of Proceeds; Margin Stock.......................................................................40
6.1.11 Full Disclosure.....................................................................................41
6.1.12 Taxes...............................................................................................41
6.1.13 Consents and Approvals..............................................................................41
6.1.14 No Event of Default; Compliance with Instruments....................................................41
6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc......................................................42
6.1.16 Status of the Obligations...........................................................................42
6.1.17 [RESERVED]..........................................................................................42
6.1.18 [RESERVED]..........................................................................................42
6.1.19 Insurance...........................................................................................42
6.1.20 Compliance with Laws................................................................................42
6.1.21 [RESERVED]..........................................................................................43
6.1.22 Investment Companies; Regulated Entities............................................................43
6.1.23 Plans and Benefit Arrangements......................................................................43
6.1.24 Employment Matters..................................................................................44
6.1.25 Environmental Matters...............................................................................44
6.2 Updates to Schedules......................................................................................46
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7. CONDITIONS OF LENDING.........................................................................................46
7.1 First Loans...............................................................................................46
7.1.1 Officer's Certificate................................................................................46
7.1.2 Secretary's Certificate..............................................................................46
7.1.3 Delivery of Loan Documents...........................................................................47
7.1.4 Opinion of Counsel...................................................................................47
7.1.5 Legal Details........................................................................................47
7.1.6 Payment of Fees......................................................................................47
7.1.7 Lien Searches........................................................................................48
7.1.8 Consents.............................................................................................48
7.1.9 Officer's Certificate Regarding MACs.................................................................48
7.1.10 No Violation of Laws................................................................................48
7.1.11 No Actions or Proceedings...........................................................................48
7.1.12 Insurance Policies..................................................................................48
7.1.13 Existing Lenders Payoff.............................................................................48
7.2 Each Additional Loan......................................................................................49
8. COVENANTS.....................................................................................................49
8.1 Affirmative Covenants.....................................................................................49
8.1.1 Preservation of Existence, Etc.......................................................................49
8.1.2 Payment of Liabilities, Including Taxes, Etc.........................................................49
8.1.3 Maintenance of Insurance.............................................................................50
8.1.4 Maintenance of Properties and Leases.................................................................50
8.1.5 Maintenance of Patents, Trademarks, Etc..............................................................50
8.1.6 Visitation Rights....................................................................................50
8.1.7 Keeping of Records and Books of Account..............................................................51
8.1.8 Plans and Benefit Arrangements.......................................................................51
8.1.9 Compliance with Laws.................................................................................51
8.1.10 Use of Proceeds.....................................................................................51
8.1.11 Further Assurances..................................................................................52
8.1.12 Subordination of Intercompany Loans.................................................................52
8.2 Negative Covenants........................................................................................52
8.2.1 Indebtedness.........................................................................................52
8.2.2 Liens................................................................................................53
8.2.3 Guaranties...........................................................................................53
8.2.4 Loans and Investments................................................................................53
8.2.5 [RESERVED]...........................................................................................54
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions..................................................54
8.2.7 Dispositions of Assets or Subsidiaries...............................................................55
8.2.8 Affiliate Transactions...............................................................................56
8.2.9 Subsidiaries, Partnerships and Joint Ventures........................................................56
8.2.10 Continuation of or Change in Business...............................................................56
8.2.11 Plans and Benefit Arrangements......................................................................56
8.2.12 Fiscal Year.........................................................................................57
8.2.13 Issuance of Stock...................................................................................57
8.2.14 Changes in Organizational Documents.................................................................58
8.2.15 [RESERVED]..........................................................................................58
8.2.16 Minimum Fixed Charge Coverage Ratio.................................................................58
8.2.17 Maximum Leverage Ratio..............................................................................58
8.2.18 Minimum Tangible Net Worth..........................................................................58
8.3 Reporting Requirements....................................................................................58
8.3.1 Quarterly Financial Statements.......................................................................59
8.3.2 Annual Financial Statements..........................................................................59
8.3.3 Borrowing Base Certificate...........................................................................59
8.3.4 Certificate of the Borrowers.........................................................................59
8.3.5 Notice of Default....................................................................................60
8.3.6 Notice of Litigation.................................................................................60
8.3.7 Certain Events.......................................................................................60
8.3.8 Budgets, Forecasts, Other Reports and Information....................................................60
8.3.9 Notices Regarding Plans and Benefit Arrangements.....................................................61
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9. DEFAULT.......................................................................................................63
9.1 Events of Default.........................................................................................63
9.1.1 Payments Under Loan Documents........................................................................63
9.1.2 Breach of Warranty...................................................................................63
9.1.3 Breach of Negative Covenants or Visitation Rights....................................................63
9.1.4 Breach of Other Covenants............................................................................63
9.1.5 Defaults in Other Agreements or Indebtedness.........................................................63
9.1.6 Final Judgments or Orders............................................................................64
9.1.7 Loan Document Unenforceable..........................................................................64
9.1.8 Uninsured Losses; Proceedings Against Assets.........................................................64
9.1.9 Notice of Lien or Assessment.........................................................................64
9.1.10 Insolvency..........................................................................................64
9.1.11 Events Relating to Plans and Benefit Arrangements...................................................65
9.1.12 Cessation of Business...............................................................................65
9.1.13 Change of Control...................................................................................65
9.1.14 Involuntary Proceedings.............................................................................66
9.1.15 Voluntary Proceedings...............................................................................66
9.2 Consequences of Event of Default..........................................................................66
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings....................66
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.................................................67
9.2.3 Set-off..............................................................................................67
9.2.4 Suits, Actions, Proceedings..........................................................................67
9.2.5 Application of Proceeds..............................................................................68
9.2.6 Other Rights and Remedies............................................................................68
9.3 Notice of Sale............................................................................................68
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10. THE AGENT....................................................................................................69
10.1 Appointment..............................................................................................69
10.2 Delegation of Duties.....................................................................................69
10.3 Nature of Duties; Independent Credit Investigation.......................................................69
10.4 Actions in Discretion of Agent; Instructions from the Banks..............................................70
10.5 Reimbursement and Indemnification of Agent by the Borrowers..............................................70
10.6 Exculpatory Provisions; Limitation of Liability..........................................................71
10.7 Reimbursement and Indemnification of Agent by Banks......................................................71
10.8 Reliance by Agent........................................................................................72
10.9 Notice of Default........................................................................................72
10.10 Notices.................................................................................................72
10.11 Banks in Their Individual Capacities....................................................................73
10.12 Holders of Notes........................................................................................73
10.13 Equalization of Banks...................................................................................73
10.14 Successor Agent.........................................................................................74
10.15 [RESERVED]..............................................................................................74
10.16 Availability of Funds...................................................................................74
10.17 Calculations............................................................................................75
10.18 Beneficiaries...........................................................................................75
11. MISCELLANEOUS................................................................................................75
11.1 Modifications, Amendments or Waivers.....................................................................75
11.1.1 Increase of Commitment; Extension or Expiration Date................................................75
11.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment.....75
11.1.3 Miscellaneous.......................................................................................76
11.2 No Implied Waivers; Cumulative Remedies; Writing Required................................................76
11.3 Reimbursement and Indemnification of Banks by the Borrowers; Taxes.......................................76
11.4 Holidays.................................................................................................77
11.5 Funding by Branch, Subsidiary or Affiliate...............................................................77
11.5.1 Notional Funding....................................................................................77
11.5.2 Actual Funding......................................................................................78
11.6 Notices..................................................................................................78
11.7 Severability.............................................................................................79
11.8 Governing Law............................................................................................79
11.9 Prior Understanding......................................................................................79
11.10 Duration; Survival......................................................................................79
11.11 Successors and Assigns..................................................................................80
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11.12 Confidentiality.........................................................................................81
11.13 Counterparts............................................................................................81
11.14 Agent's or Bank's Consent...............................................................................81
11.15 Exceptions..............................................................................................81
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL..................................................................81
11.17 Tax Withholding Clause..................................................................................82
11.18 Joinder Of Borrowers....................................................................................83
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<TABLE>
LIST OF SCHEDULES AND EXHIBITS
<CAPTION>
SCHEDULE
<S> <C>
SCHEDULE 1.1(B) - COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(P) - PERMITTED LIENS
SCHEDULE 6.1.1 - QUALIFICATIONS TO DO BUSINESS
SCHEDULE 6.1.3 - CAPITALIZATION/SUBSIDIARIES
SCHEDULE 6.1.23 - EMPLOYEE BENEFIT PLAN DISCLOSURES
SCHEDULE 6.1.25 - ENVIRONMENTAL MATTERS
SCHEDULE 8.2.1 - PERMITTED INDEBTEDNESS
SCHEDULE 8.2.2 - NEGATIVE PLEDGE EXCEPTION
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(B) - BORROWER AGENCY AGREEMENT
EXHIBIT 1.1(BB) - BORROWING BASE CERTIFICATE
EXHIBIT 1.1(I)(2) - INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(J) - JOINDER
EXHIBIT 1.1(R) - NOTE
EXHIBIT 2.4 - LOAN REQUEST
EXHIBIT 8.2.6 - ACQUISITION COMPLIANCE CERTIFICATE
EXHIBIT 8.3.3 - QUARTERLY COMPLIANCE CERTIFICATE
</TABLE>
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of November 1, 1996 and is
made by and among PRIMESOURCE CORPORATION, a Pennsylvania corporation, DIXIE
TYPE & SUPPLY COMPANY, INC., an Alabama corporation and ONONDAGA LITHO SUPPLY
CO., INC., a New York corporation (each "Borrower" and together, the
"Borrowers"), the BANKS (as hereinafter defined), and PNC BANK, NATIONAL
ASSOCIATION, in its capacity as agent for the Banks under this Agreement
(hereinafter referred to in such capacity as the "Agent").
WITNESSETH:
WHEREAS, the Borrowers have requested the Banks to provide a
revolving credit facility to the Borrowers in an aggregate principal amount not
to exceed $50,000,000; and
WHEREAS, the revolving credit shall be used to refinance
existing indebtedness and for acquisitions and general corporate purposes; and
WHEREAS, the Banks are willing to provide such credit upon the
terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this
Agreement, the following words and terms shall have the following meanings,
respectively, unless the context hereof clearly requires otherwise:
Account shall mean any account, contract right,
general intangible, chattel paper, instrument or document representing any right
to payment for goods sold or services rendered, whether or not earned by
performance and whether or not evidenced by a contract, instrument or document,
which is now owned or hereafter acquired by a Borrower.
Account Debtor shall mean any person which is or
which may become obligated to a Borrower under, with respect to, or on account
of, an Account.
Affiliate as to any Person shall mean any other
Person (i) which directly or indirectly controls, is controlled by, or is under
common control with such Person, (ii) which beneficially owns or holds 8% or
more of any class of the voting or other equity interests of such Person, or
(iii) 8% or more of any class of voting interests or other equity interests of
which is beneficially owned or held, directly or indirectly, by such Person.
Control, as used in this definition, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, including the power to elect a majority of the directors
or trustees of a corporation or trust, as the case may be.
<PAGE>
Agent shall mean PNC Bank, National Association, and
its successors and assigns.
Agent's Letter shall mean the letter between the
Company and the Agent dated October 22, 1996.
Agreement shall mean this Credit Agreement, as the
same may be supplemented or amended from time to time, including all schedules
and exhibits.
Annual Statements shall have the meaning assigned to
that term in Section 6.1.9(i).
Applicable Margin shall have the meaning assigned to
that term in Section 4.1.1.
Assignment and Assumption Agreement shall mean an
Assignment and Assumption Agreement by and among a Purchasing Bank, a Transferor
Bank and the Agent, as Agent and on behalf of the remaining Banks, substantially
in the form of Exhibit 1.1(A).
Authorized Officer shall mean those individuals,
designated by written notice to the Agent from the Borrowers, authorized to
execute notices, reports and other documents on behalf of the Loan Parties
required hereunder. The Borrowers may amend such list of individuals from time
to time by giving written notice of such amendment to the Agent.
Banks shall mean the financial institutions named on
Schedule 1.1(B) and their respective successors and assigns as permitted
hereunder, each of which is referred to herein as a Bank.
Base Rate shall mean the greater of (i) the interest
rate per annum announced from time to time by the Agent at its Principal Office
as its then prime rate, which rate may not be the lowest rate then being charged
commercial borrowers by the Agent, or (ii) the Federal Funds Effective Rate plus
1/2% per annum.
Base Rate Option shall mean the option of the
Borrowers to have Loans bear interest at the rate and under the terms and
conditions set forth in Section 4.1.1(i).
Benefit Arrangement shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or
otherwise contributed to by any member of the ERISA Group.
<PAGE>
Borrower shall mean any of PrimeSource Corporation, a
Pennsylvania corporation, Dixie Type & Supply Company, Inc., an Alabama
corporation and Onondaga Litho Supply Co., Inc., a New York corporation and
Borrowers shall mean all such Persons together.
Borrower Agency Agreement shall mean that certain
agreement among the Borrowers, substantially in the form of Exhibit 1.1(B)
hereto, pursuant to which the Borrowers authorize and appoint the PrimeSource to
act on behalf of the Borrowers to take any and all actions that may be required
to be taken by any Borrower or the Borrowers hereunder, including, without
limitation, making requests for and borrowing any Loan.
Borrowing Base shall mean at any time (A) the sum of
(i) eighty percent (80%) of Qualified Accounts plus (ii) forty percent (40%) of
Qualified Inventory (in any event not to exceed with respect to Qualified
Inventory the sum of $20,000,000), as any of the foregoing is modified from time
to time pursuant to Section 2.1 minus (B) the principal amount of all
Indebtedness for borrowed money, Guaranties (except for the Guaranties excluded
by Section 8.2.3 from the prohibition set forth in Section 8.2.3) and letters of
credit (and excluding capitalized leases and Indebtedness secured by permitted
Purchase Money Security Interests) and excluding, for all of the foregoing
categories, the Obligations arising under this Agreement. Each such advance rate
is subject to periodic review and analysis by the Banks and is therefore subject
to change from time to time or any time.
Borrowing Base Certificate shall mean the Borrowing
Base Certificate given by the Borrower to the Banks on the Closing Date and from
time to time pursuant to Section 8.3.3 in the form of Exhibit 1.1(BB).
Borrowing Date shall mean, with respect to any Loan,
the date for the making thereof or the renewal or conversion thereof at or to
the same or a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of
Loans outstanding as follows:
(i) any Loans to which a LIBO Rate Option applies which become subject
to the same Interest Rate Option under the same Loan Request by the
Borrowers and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option
applies shall constitute one Borrowing Tranche. Business Day shall
mean any day other than a Saturday or Sunday or a legal holiday on
which commercial banks are authorized or required to be closed for
business in Philadelphia, Pennsylvania.
Closing Date shall mean the Business Day on which the
first Loan shall be made, which
shall be the date hereof. The closing shall take place at 11:00 a.m. on the
Closing Date at the offices of Buchanan Ingersoll Professional Corporation in
Philadelphia, Pennsylvania, or at such other time and place as the parties
agree.
<PAGE>
Commercial Letter of Credit shall mean any Letter of
Credit which is a commercial letter of credit issued in respect of the purchase
of goods or services by one or more of the Loan Parties in the ordinary course
of their business.
Commitment shall mean, as to any Bank at any time,
the amount initially set forth opposite its name on Schedule 1.1(B) in the
column labeled "Amount of Commitment for Loans," and thereafter on Schedule I to
the most recent Assignment and Assumption Agreement, and Commitments shall mean
the aggregate Commitments of all of the Banks.
Commitment Fee shall have the meaning assigned to
that term in Section 2.3.
Commitment Fee Applicable Margin shall have the
meaning assigned to that term in Section 2.3.
Company shall mean PrimeSource Corporation, a
Pennsylvania corporation which is one of the Borrowers hereunder and which is
the agent on behalf of the Borrowers pursuant to the Borrower Agency Agreement.
Consideration shall mean with respect to any
Permitted Acquisition, the aggregate of (i) the cash paid by any of the Loan
Parties, directly or indirectly, to the seller in connection therewith, (ii) the
Indebtedness incurred or assumed by any of the Loan Parties, whether in favor of
the seller or otherwise and whether fixed or contingent, (iii) any Guaranty
given or incurred by any Loan Party in connection therewith, and (iv) any other
consideration given or obligation incurred by any of the Loan Parties in
connection therewith.
Consolidated Tangible Net Worth shall mean as of any
date of determination total stockholders' equity less intangible assets of the
Borrowers and their Subsidiaries as of such date determined and consolidated in
accordance with GAAP.
Dollar, Dollars, U.S. Dollars and the symbol $ shall
mean lawful money of the United States of America.
Drawing Date shall have the meaning assigned to that
term in Section 2.9.3.2.
EBITDA shall mean net income before extraordinary or
unusual items, depreciation, amortization, interest expense and income tax
expense calculated in respect of the prior four (4) consecutive fiscal quarters
in each case of the Company on a consolidated basis and determined and
consolidated in accordance with GAAP and (x) shall be calculated to include the
purchase of the VGC Assets and any business acquired in a Permitted Acquisition
if either (1) the Borrower provide to the Banks audited financial statements of
such business, and such business (if it is a legal entity) becomes a Loan Party
contemporaneously with such Permitted Acquisition or (2) Required Banks have
consented to such inclusions and (y) shall be calculated to exclude any portion
of the net earnings of any Subsidiary that is not a Borrower or that, by reason
of any contract or charter restriction or applicable law or regulation, is
unavailable for payment of dividends to any Loan Party.
<PAGE>
Environmental Complaint shall mean any written
complaint setting forth a cause of action for personal or property damage or
natural resource damage or equitable relief, order, notice of violation,
citation, request for information issued pursuant to any Environmental Laws by
an Official Body, subpoena or other written notice of any type relating to,
arising out of, or issued pursuant to, any of the Environmental Laws or any
Environmental Conditions, as the case may be.
Environmental Conditions shall mean any conditions of
the environment, including the workplace, the ocean, natural resources
(including flora or fauna), soil, surface water, groundwater, any actual or
potential drinking water supply sources, substrata or the ambient air, relating
to or arising out of, or caused by, the use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaking, pumping,
emptying, discharging, injecting, escaping, leaching, disposal, dumping,
threatened release or other management or mismanagement of Regulated Substances
resulting from the use of, or operations on, any Property.
Environmental Laws shall mean all federal, state,
local and foreign Laws and regulations, including permits, licenses,
authorizations, bonds, orders, judgments, and consent decrees issued, or entered
into, pursuant thereto, relating to pollution or protection of human health or
the environment or employee safety in the workplace.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
ERISA Group shall mean, at any time, the Borrowers
and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control and all other
entities which, together with the Borrowers, are treated as a single employer
under Section 414 of the Internal Revenue Code.
Event of Default shall mean any of the events
described in Section 9.1 and referred to therein as an "Event of Default."
Existing Lenders shall mean (x) First Union National
Bank, successor to First Fidelity Bank, N.A., (y) Wells Fargo Bank, N.A. and (2)
Bank of America, NW (d/b/a SeaFirst Bank) to which the Borrowers are indebted as
of the Closing Date.
Expiration Date shall mean November 1, 1999.
<PAGE>
Facility Usage shall mean at any time the sum of the
Loans outstanding and the Letters of Credit Outstanding.
Federal Funds Effective Rate for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed and
rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank
of New York (or any successor) on such day as being the weighted average of the
rates on overnight federal funds transactions arranged by federal funds brokers
on the previous trading day, as computed and announced by such Federal Reserve
Bank (or any successor) in substantially the same manner as such Federal Reserve
Bank computes and announces the weighted average it refers to as the "Federal
Funds Effective Rate" as of the date of this Agreement; provided, if such
Federal Reserve Bank (or its successor) does not announce such rate on any day,
the "Federal Funds Effective Rate" for such day shall be the Federal Funds
Effective Rate for the last day on which such rate was announced.
Financial Projections shall have the meaning assigned
to that term in Section 6.1.9(ii).
Fixed Charge Coverage Ratio shall mean the ratio of
EBITDA to Fixed Charges.
Fixed Charges shall mean for any period of
determination the sum of interest expense, income taxes paid, scheduled
principal installments on Indebtedness (as adjusted for prepayments and
excluding those in respect of the Permitted First Union Debt), capital
expenditures and dividends paid, in each case of the Borrowers and their
Subsidiaries for such period determined and consolidated in accordance with
GAAP.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the provisions of
Section 1.3, and applied on a consistent basis both as to classification of
items and amounts.
Governmental Acts shall have the meaning assigned to
that term in Section 2.9.8.
Guaranty of any Person shall mean any obligation of
such Person guaranteeing or in effect guaranteeing any liability or obligation
of any other Person in any manner, whether directly or indirectly, including any
agreement to indemnify or hold harmless any other Person, any performance bond
or other suretyship arrangement and any other form of assurance against loss,
except endorsement of negotiable or other instruments for deposit or collection
in the ordinary course of business.
Historical Statements shall have the meaning assigned
to that term in Section 6.1.9(i).
<PAGE>
Indebtedness shall mean, as to any Person at any
time, any and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such Person for or in respect of: (i)
borrowed money, (ii) amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility, (iii) reimbursement obligations
(contingent or otherwise) under any letter of credit, currency swap agreement,
interest rate swap, cap, collar or floor agreement or other interest rate
management device, (iv) any other transaction (including forward sale or
purchase agreements, capitalized leases and conditional sales agreements) having
the commercial effect of a borrowing of money entered into by such Person to
finance its operations or capital requirements (but not including trade payables
and accrued expenses incurred in the ordinary course of business which are not
represented by a promissory note or other evidence of indebtedness and which are
not more than thirty (30) days past due), or (v) any Guaranty of Indebtedness
for borrowed money.
Ineligible Security shall mean any security which may
not be underwritten or dealt in by member banks of the Federal Reserve System
under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventy), as
amended.
Insolvency Proceeding shall mean, with respect to any
Person, (a) case, action or proceeding with respect to such Person (i) before
any court or any other Official Body under any bankruptcy, insolvency,
reorganization or other similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Loan Party or otherwise
relating to liquidation, dissolution, winding-up or relief of such Person, or
(b) any general assignment for the benefit of creditors, composition, marshaling
of assets for creditors, or other, similar arrangement in respect of such
Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
Intercompany Subordination Agreement shall mean a
Subordination Agreement among the Loan Parties in the form attached hereto as
Exhibit 1.1(I)(2).
Interest Period shall have the meaning assigned to
such term in Section 4.2.
Interest Rate Option shall mean a LIBO Rate Option or
Base Rate Option.
Interim Statements shall have the meaning assigned to
that term in Section 6.1.9(i).
<PAGE>
Internal Revenue Code shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to time, and
any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
Inventory shall mean any and all goods, merchandise
and other personal property, including, without limitation, goods in transit,
wheresoever located and whether now owned or hereafter acquired by a Borrower
which are or may at any time be held as raw materials, finished goods,
work-in-process, supplies or materials used or consumed in a Borrower's business
or held for sale or lease, including, without limitation, (i) all such property
the sale or other disposition of which has given rise to Accounts and which has
been returned to or repossessed or stopped in transit by a Borrower, and (ii)
all packing, shipping and advertising materials relating to all or any such
property.
Joinder shall mean a joinder by a Person as a
Borrower under this Agreement and the other Loan Documents in the form of
Exhibit 1.1(J).
Labor Contracts shall mean all employment agreements,
employment contracts, collective bargaining agreements and other agreements
among any Loan Party or Subsidiary of a Loan Party and its employees.
Law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion, release,
ruling, order, injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to
that term in Section 2.9.1.
Letter of Credit Borrowing shall mean an extension of
credit resulting from a drawing under any Letter of Credit which shall not have
been reimbursed on the date when made and shall not have been converted into a
Loan under Section 2.9.3.2.
Letter of Credit Fee shall have the meaning assigned
to that term in Section 2.9.2.
Letters of Credit Outstanding shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Letters of
Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement
Obligations.
Leverage Ratio shall mean the ratio of (x)
Indebtedness for borrowed money, capital leases, Guaranties of borrowed money
(except for the Guaranties excluded by Section 8.2.3 from the prohibition set
forth in Section 8.2.3) and reimbursement obligations in respect of letters of
credit to (y) EBITDA of the Company and its Subsidiaries, consolidated and
calculated in accordance with GAAP.
<PAGE>
LIBO Rate shall mean, with respect to the Loans
comprising any Borrowing Tranche to which the LIBO Rate Option applies for any
Interest Period, the interest rate per annum determined by the Agent by dividing
(the resulting quotient rounded upward to the nearest 1/100th of 1% per annum)
(i) the rate of interest determined by the Agent in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the London interbank offered rate of interest per annum appearing on Telerate
display page 3750 or such other display page on the Telerate System as may
replace such page (or appropriate successor or, if the British Bankers'
Association or its successor ceases to provide such quotes, a comparable
replacement determined by the Agent) at approximately 11:00 a.m., London time,
two (2) Business Days prior to the first day of such Interest Period for an
amount comparable to such Borrowing Tranche and having a borrowing date and a
maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus
the LIBO Rate Reserve Percentage. The LIBO Rate may also be expressed by the
following formula:
LIBO Rate = Telerate page 3750 quoted by British Bankers'
Association or appropriate successor 1.00 - LIBO Rate
Reserve Percentage
The LIBO Rate shall be adjusted with respect to any LIBO Rate Option outstanding
on the effective date of any change in the LIBO Rate Reserve Percentage as of
such effective date. The Agent shall give prompt notice to the Borrowers of the
LIBO Rate as determined or adjusted in accordance herewith, which determination
shall be conclusive absent manifest error.
LIBO Rate Option shall mean the option of the
Borrowers to have Loans bear interest at the rate and under the terms and
conditions set forth in Section 4.1.1(ii).
LIBO Rate Reserve Percentage shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%) as
determined by the Agent which is in effect during any relevant period, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as "Eurocurrency Liabilities") of a member bank
in such System.
Lien shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security arrangement of
any nature whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
LLC Interests shall have the meaning given to such
term in Section 6.1.3.
<PAGE>
Loan Documents shall mean this Agreement, the Agent's
Letter, the Intercompany Subordination Agreement, the Notes, and any other
instruments, certificates or documents delivered or contemplated to be delivered
hereunder or thereunder or in connection herewith or therewith, as the same may
be supplemented or amended from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.
Loan Parties shall mean the Borrowers and any
guarantor of the Obligations which becomes party to this Agreement.
Loan Request shall have the meaning given to such
term in Section 2.4.
Loans shall mean collectively and Loan shall mean
separately all Loans or any Loan made by the Banks or one of the Banks to the
Borrowers pursuant to Section 2.1 or 2.9.3.
Material Adverse Change shall mean any set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of the Loan Parties taken as a whole to duly and
punctually pay or perform its Indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of the Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
Month, with respect to an Interest Period under the
LIBO Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any LIBO Rate Interest Period begins on a day of a calendar month for
which there is no numerically corresponding day in the month in which such
Interest Period is to end, the final month of such Interest Period shall be
deemed to end on the last Business Day of such final month.
Multiemployer Plan shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA and to which the Borrowers or any member of the ERISA Group is then making
or accruing an obligation to make contributions or, within the preceding five
Plan years, has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has
two or more contributing sponsors (including the Borrowers or any member of the
ERISA Group) at least two of whom are not under common control, as such a plan
is described in Sections 4063 and 4064 of ERISA.
<PAGE>
Notes shall mean collectively and Note shall mean
separately all the Notes of the Borrowers in the form of Exhibit 1.1(R)
evidencing the Loans together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in part.
Notices shall have the meaning assigned to that term
in Section 11.6. Obligation shall mean any obligation or liability of any of the
Loan Parties to the Agent or any of the Banks, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due, under or in connection with this Agreement,
the Notes, the Letters of Credit, the Agent's Letter or any other Loan Document.
Official Body shall mean any national, federal,
state, local or other government or political subdivision or any agency,
authority, bureau, central bank, commission, department or instrumentality of
either, or any court, tribunal, grand jury or arbitrator, in each case whether
foreign or domestic.
Participation Advance shall mean, with respect to any
Bank, such Bank's payment in respect of its participation in a Letter of Credit
Borrowing according to its Ratable Share pursuant to Section 2.9.4.
Partnership Interests shall have the meaning given to
such term in Section 6.1.3.
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or any
successor.
Permitted Acquisitions shall have the meaning
assigned to such term in Section 8.2.6.
Permitted First Union Debt shall have the meaning
assigned to such term in Section 7.1.13.
Permitted Investments shall mean:
(i) direct obligations of the United States
of America or any agency or instrumentality thereof or obligations backed by the
full faith and credit of the United States of America maturing in twelve (12)
months or less from the date of acquisition;
(ii) commercial paper maturing in 180 days
or less rated not lower than A-1, by Standard & Poor's or P-1 by Moody's
Investors Service, Inc. on the date of acquisition;
(iii) demand deposits, time deposits or
certificates of deposit maturing within one year in commercial banks whose
obligations are rated A-1, A or the equivalent or better by Standard & Poor's on
the date of acquisition; and
<PAGE>
(iv) common stock of the Company purchased
by the Company which purchases do not exceed in the aggregate $1,000,000.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar
charges, incurred in the ordinary course of business and which are not yet due
and payable;
(ii) Pledges or deposits made in the
ordinary course of business to secure payment of workmen's compensation, or to
participate in any fund in connection with workmen's compensation, unemployment
insurance, old-age pensions or other social security programs;
(iii) Liens of mechanics, materialmen,
warehousemen, carriers, or other like Liens, securing obligations incurred in
the ordinary course of business that are not yet due and payable and Liens of
landlords securing obligations to pay lease payments that are not yet due and
payable or in default;
(iv) Good-faith pledges or deposits made in
the ordinary course of business to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases, not in
excess of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v) Encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real property, none
of which materially impairs the use of such property or the value thereof, and
none of which is violated in any material respect by existing or proposed
structures or land use;
(vi) Liens, security interests and mortgages
in favor of the Agent for the benefit of the Banks;
(vii) Liens on property leased by any Loan
Party or Subsidiary of a Loan Party under capital and operating leases securing
obligations of such Loan Party or Subsidiary to the lessor under such leases;
(viii) Any Lien existing on the date of this
Agreement and described on Schedule 1.1(P), provided that the principal amount
secured thereby is not hereafter increased, and no additional assets become
subject to such Lien;
(ix) Purchase Money Security Interests,
provided that the aggregate amount of loans and deferred payments secured by
such Purchase Money Security Interests shall not exceed $3,500,000 (excluding
for the purpose of this computation any loans or deferred payments secured by
Liens described on Schedule 1.1(P)); and
<PAGE>
(x) The following, (A) if the validity or
amount thereof is being contested in good faith by appropriate and lawful
proceedings diligently conducted so long as levy and execution thereon have been
stayed and continue to be stayed or (B) if a final judgment is entered and such
judgment is discharged within thirty (30) days of entry, and they do not in the
aggregate materially impair the ability of any Loan Party to perform its
Obligations hereunder or under the other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges due
and payable and subject to interest or penalty, provided that
the applicable Loan Party maintains such reserves or other
appropriate provisions as shall be required by GAAP and pays
all such taxes, assessments or charges forthwith upon the
commencement of proceedings to foreclose any such Lien;
(2) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual
Liens; or
(3) Liens resulting from final judgments or orders
described in Section 9.1.6.
(xi) Subleases or assignments of leases for
properties no longer needed in the Loan Party's business.
Person shall mean any individual, corporation,
partnership, limited liability company, association, joint-stock company, trust,
unincorporated organization, joint venture, government or political subdivision
or agency thereof, or any other entity.
Plan shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either (i) is
maintained by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five years been
maintained by any entity which was at such time a member of the ERISA Group for
employees of any entity which was at such time a member of the ERISA Group.
PNC Bank shall mean PNC Bank, National Association,
its successors and assigns.
Potential Default shall mean any event or condition
which with notice, passage of time or a determination by the Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
<PAGE>
Principal Office shall mean the main banking office
of the Agent in Philadelphia, Pennsylvania.
Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA for which neither an individual nor a class exemption has been
issued by the United States Department of Labor.
Property shall mean all real property, both owned and
leased, of any Loan Party or Subsidiary of a Loan Party.
Purchase Money Security Interest shall mean Liens
upon tangible personal property securing loans to any Loan Party or Subsidiary
of a Loan Party or deferred payments by such Loan Party or Subsidiary for the
purchase of such tangible personal property.
Purchasing Bank shall mean a Bank which becomes a
party to this Agreement by executing an Assignment and Assumption Agreement.
Qualified Account shall mean any Account which the
Banks, in their sole discretion, determines to have met all of the following
minimum requirements:
(i) The Account represents a complete bona fide
transaction for goods sold and delivered or services rendered (but excluding any
amount in the nature of a service charge added to the amount due on an invoice
because the invoice has not been paid when due) which requires no further act
under any circumstances on the part of the Borrowers to make such Account
payable by the Account Debtor; and the Account arises from an arm's length
transaction in the ordinary course of the Borrowers' business between a Borrower
and an Account Debtor which is not an Affiliate, officer, or employee of a
Borrower, or a member of the family of an Affiliate, officer, or employee of a
Borrower;
(ii) The Account shall not (a) be delinquent more
than ninety (90) days, or (b) be payable by an Account Debtor (1) more than
fifty percent (50%) of whose Accounts are delinquent more than ninety (90) days
and is in excess of $200,000, or (2) whose Accounts constitute, in the Banks'
determination, an unduly high percentage of the aggregate amount of all
outstanding Accounts;
(iii) The goods the sale of which gave rise to the
Account were shipped or delivered or provided to the Account Debtor on an
absolute sale basis and not on a bill-and-hold sale basis, a consignment sale
basis, a guaranteed sale basis, a sale-or-return basis, or on the basis of any
other similar understanding, and no part of such goods has been returned or
rejected;
(iv) The Account is not evidenced by chattel paper or
an instrument of any kind;
<PAGE>
(v) The Account Debtor with respect to the Account
(a) is not insolvent, (b) is not the subject of any bankruptcy or insolvency
proceedings of any kind or of any other proceeding or action, threatened or
pending, which might have a materially adverse effect on its business, and (c)
is not, in the sole discretion of the Banks, deemed ineligible for credit for
other reasons (including, without limitation, unsatisfactory past experience of
a Borrower or the Banks with the Account Debtor or unsatisfactory reputation of
the Account Debtor);
(vi) (a) The Account Debtor is not located outside of
the continental United States of America, or (b) if the Account Debtor is
located outside of the continental United States, the Account is supported by
letters of credit or FCIA insurance deemed adequate and acceptable by the Banks;
(vii) The Account is not in excess of $200,000 and
(a) the Account Debtor is not the government of the United States of America, or
any department, agency or instrumentality thereof, or (b) if the Account Debtor
is an entity mentioned in clause (vii)(a), the Federal Assignment of Claims Act
(or applicable similar legislation) has been fully complied with so as to
validly perfect the Banks' prior security interest to the Banks' satisfaction;
(viii) The Account is a valid, legally enforceable
obligation of the Account Debtor with respect thereto and is not pursuant to any
progress billing or warranty billing arrangement or subject to any dispute,
condition, contingency, offset, recoupment, reduction, claim for credit,
allowance, adjustment, counterclaim or defense on the part of such Account
Debtor, and no facts exist which may provide a basis for any of the foregoing in
the present or future;
(ix) The Account is not subject to any Lien, claim,
encumbrance or security interest whatsoever other than Permitted Liens;
(x) The Account is evidenced by an invoice or other
documentation in form acceptable to the Banks and arises from a contract which
is in form and substance satisfactory to the Banks;
(xi) Accounts with respect to which the Account
Debtor is located in any state (including, without limitation, New Jersey,
Minnesota and Indiana) denying creditor's access to its courts in the absence of
a Notice of Business Activities Report or other similar filing, unless a
Borrower has either qualified as a foreign corporation authorized to transact
business in such state or has filed a Notice of Business Activities Report or
similar filing with the applicable state agency for the then current year;
(xii) The Account is not subject to any provision
prohibiting its assignment or requiring notice of or consent to such assignment;
<PAGE>
(xiii) The goods giving rise to the Account were not,
at the time of sale thereof, subject to any Lien or encumbrance except the
Banks' prior security interest;
(xiv) The Account is payable in freely transferable
United States Dollars;
(xv) The Account is not, or should not be,
disqualified for any other reason generally accepted in the commercial finance
business; and
(xvi) The Account is not owing by an Account Debtor
to the extent its obligations to a Borrower exceed 20% of all Qualified Accounts
unless such excess is supported by letters of credit or FCIA insurance deemed
adequate and acceptable by the Banks or owing by an Account Debtor unacceptable
to the Banks in their sole discretion.
In addition to the foregoing requirements, Accounts of any Account Debtor which
are otherwise qualified shall be reduced to the extent of any "contra" accounts
or accounts payable (including, without limitation, the Banks' good faith
estimate of any contingent liabilities) by a Borrower to such Account Debtor,
provided that the Banks, in their sole discretion, may determine that none of
the Accounts in respect to such Account Debtor shall be Qualified Accounts in
the event that such contra accounts or accounts payable represent an
unreasonably large amount owing to such Account Debtor. In addition, the Banks
may in their sole discretion exclude Accounts owing to one or more particular
Account Debtors based on the creditworthiness or other characteristics of such
Account Debtor.
Qualified Inventory shall mean any Inventory which
the Banks, in their sole discretion, determines to have met all of the following
minimum requirements:
(i) the Inventory is either (a) finished goods, (b)
completed components or (c) raw materials other than shipping and packing
supplies and racking, but excluding in all cases any work in process and any
goods which have been shipped, delivered, provided to, purchased or sold by a
Borrower on a bill-and-hold sale, consignment sale (except to the extent such
Inventory is the subject of an enforceable consignment agreement with the
consignee protecting a Loan Party's exclusive rights in such Inventory and with
respect to which there are filed UCC-1 financing statements providing notice of
such Loan Party's interests therein), guaranteed sale, or sale-or-return basis,
or any other similar basis or understanding other than an absolute sale;
(ii) the Inventory is of new, good and merchantable
quality and which is of a type (determined by SKU) which has been purchased by a
Loan Party within the prior twelve (12) months;
(iii) the Inventory is not stored with a bailee,
warehouseman, or similar party unless the Banks has given their prior written
consent and a Borrower has caused such bailee, warehouseman, consignee or
similar party to issue and deliver to the Banks, in form and substance
acceptable to the Banks, warehouse receipts or similar type of documentation
therefor in the Banks' name;
<PAGE>
(iv) The Inventory is intended for sale or lease by a
Borrower in the ordinary course of business at regular prices; and
(v) The Inventory is otherwise acceptable to the
Banks in their sole discretion.
(vi) the Inventory is not subject to any Lien, claim,
encumbrance or security interest whatsoever other than Permitted Liens;
(vii) the Inventory has not been manufactured in
violation of any federal minimum wage or overtime laws, including, without
limitation, the Fair Labor Standards Act, 29 U.S.C. ss. 215(a)(1).
Ratable Share shall mean the proportion that a Bank's
Commitment bears to the Commitments of all of the Banks.
Regulated Substances shall mean any substance,
including any solid, liquid, semisolid, gaseous, thermal, thoriated or
radioactive material, refuse, garbage, wastes, chemicals, petroleum products,
by-products, coproducts, impurities, dust, scrap, heavy metals, defined as a
"hazardous substance," "pollutant," "pollution," "contaminant," "hazardous or
toxic substance," "extremely hazardous substance," "toxic chemical," "toxic
waste," "hazardous waste," "industrial waste," "residual waste," "solid waste,"
"municipal waste," "mixed waste," "infectious waste," "chemotherapeutic waste,"
"medical waste," or "regulated substance" or any related materials, substances
or wastes as now or hereafter defined pursuant to any Environmental Laws,
ordinances, rules, regulations or other directives of any Official Body, the
generation, manufacture, extraction, processing, distribution, treatment,
storage, disposal, transport, recycling, reclamation, use, reuse, spilling,
leaking, dumping, injection, pumping, leaching, emptying, discharge, escape,
release or other management or mismanagement of which is regulated by the
Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time.
Reimbursement Obligation shall have the meaning
assigned to such term in Section 2.9.3.2.
Reportable Event shall mean a reportable event
described in Section 4043 of ERISA and regulations thereunder with respect to a
Plan or Multiemployer Plan.
Required Banks shall mean
(i) if there are no Loans, Reimbursement Obligations
or Letter of Credit Borrowings outstanding, Banks whose Commitments aggregate at
least 66 2/3% of the Commitments of all of the Banks, or
<PAGE>
(ii) if there are Loans, Reimbursement Obligations,
or Letter of Credit Borrowings outstanding, any Bank or group of Banks if the
sum of the Loans, Reimbursement Obligations and Letter of Credit Borrowings of
such Banks then outstanding aggregates at least 66 2/3% of the total principal
amount of all of the Loans, Reimbursement Obligations and Letter of Credit
Borrowings then outstanding. Reimbursement Obligations and Letter of Credit
Borrowings shall be deemed, for purposes of this definition, to be in favor of
the Agent and not a participating Bank if such Bank has not made its
Participation Advance in respect thereof and shall be deemed to be in favor of
such Bank to the extent of its Participation Advance if it has made its
Participation Advance in respect thereof.
Section 20 Subsidiary shall mean the Subsidiary of
the bank holding company controlling any Bank, which Subsidiary has been granted
authority by the Federal Reserve Board to underwrite and deal in certain
Ineligible Securities.
Standard & Poor's shall mean Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, Inc.
Standby Letter of Credit shall mean a Letter of
Credit issued to support obligations of one or more of the Loan Parties,
contingent or otherwise, which finance the working capital and business needs of
the Loan Parties incurred in the ordinary course of business.
Subsidiary of any Person at any time shall mean (i)
any corporation or trust of which 50% or more (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such Person or one or
more of such Person's Subsidiaries, (ii) any partnership of which such Person is
a general partner or of which 50% or more of the partnership interests is at the
time directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, (iii) any limited liability company of which such Person is a
member or of which 50% or more of the limited liability company interests is at
the time directly or indirectly owned by such Person or one or more of such
Person's Subsidiaries or (iv) any corporation, trust, partnership, limited
liability company or other entity which is controlled or capable of being
controlled by such Person or one or more of such Person's Subsidiaries.
Subsidiary Shares shall have the meaning assigned to
that term in Section 6.1.3.
Syndications Period shall mean the period between the
Closing Date and the earlier of the following dates: (a) the date on which the
Commitment of PNC Bank has been reduced to or below $25,000,000, or (b) the date
which is one hundred twenty (120) days after the Closing Date.
<PAGE>
Transferor Bank shall mean the selling Bank pursuant
to an Assignment and Assumption Agreement.
VGC shall mean VGC Corp., a Minnesota corporation.
VGC Asset Agreement shall mean the Asset Purchase
Agreement dated September 27, 1996, a copy of which has been delivered to the
Agent, pursuant to which PrimeSource shall purchase the VGC Assets.
VGC Assets shall mean the assets and operations of
VGC located in Minneapolis, Milwaukee, Des Moines and Omaha which are to be
purchased on or before November 15, 1996 pursuant to the VGC Asset Agreement.
1.2 Construction.
Unless the context of this Agreement otherwise clearly
requires, the following rules of construction shall apply to this Agreement and
each of the other Loan Documents:
1.2.1 Number; Inclusion.
references to the plural include the singular, the
plural, the part and the whole; "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the phrase
"including without limitation";
1.2.2 Determination.
references to "determination" of or by the Agent or
the Banks shall be deemed to include good-faith estimates by the Agent or the
Banks (in the case of quantitative determinations) and good-faith beliefs by the
Agent or the Banks (in the case of qualitative determinations) and such
determination shall be conclusive absent manifest error;
1.2.3 Agent's Discretion and Consent.
whenever the Agent or the Banks are granted the right
herein to act in its or their sole discretion or to grant or withhold consent
such right shall be exercised in good faith;
1.2.4 Documents Taken as a Whole.
the words "hereof," "herein," "hereunder," "hereto"
and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document as a whole and not to any particular
provision of this Agreement or such other Loan Document;
<PAGE>
1.2.5 Headings.
the section and other headings contained in this
Agreement or such other Loan Document and the Table of Contents (if any),
preceding this Agreement or such other Loan Document are for reference purposes
only and shall not control or affect the construction of this Agreement or such
other Loan Document or the interpretation thereof in any respect;
1.2.6 Implied References to this Agreement.
article, section, subsection, clause, schedule and
exhibit references are to this Agreement or other Loan Document, as the case may
be, unless otherwise specified;
1.2.7 Persons.
reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and assigns
are permitted by this Agreement or such other Loan Document, as the case may be,
and reference to a Person in a particular capacity excludes such Person in any
other capacity;
1.2.8 Modifications to Documents.
reference to any agreement (including this Agreement
and any other Loan Document together with the schedules and exhibits hereto or
thereto), document or instrument means such agreement, document or instrument as
amended, modified, replaced, substituted for, superseded or restated;
1.2.9 From, To and Through.
relative to the determination of any period of time,
"from" means "from and including," "to" means "to but excluding," and "through"
means "through and including"; and
1.2.10 Shall; Will.
references to "shall" and "will" are intended to have
the same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate), and all accounting or financial terms shall have the
meanings ascribed to such terms by GAAP; provided, however, that all accounting
terms used in Section 8.2 (and all defined terms used in the definition of any
accounting term used in Section 8.2 shall have the meaning given to such terms
(and defined terms) under GAAP as in effect on the date hereof applied on a
<PAGE>
basis consistent with those used in preparing the Annual Statements referred to
in Section 6.1.9(i). In the event of any change after the date hereof in GAAP,
and if such change would result in the inability to determine compliance with
the financial covenants set forth in Section 8.2 based upon the Borrowers'
regularly prepared financial statements by reason of the preceding sentence,
then the parties hereto agree to endeavor, in good faith, to agree upon an
amendment to this Agreement that would adjust such financial covenants in a
manner that would not affect the substance thereof, but would allow compliance
therewith to be determined in accordance with the Borrowers' financial
statements at that time.
2. REVOLVING CREDIT FACILITY
2.1 Commitments.
2.1.1 Commitment. Subject to the terms and conditions
hereof and relying upon the representations and warranties herein set forth,
each Bank severally agrees to make Loans to the Borrowers at any time or from
time to time on or after the date hereof to the Expiration Date provided that
after giving effect to such Loan the aggregate amount of Loans from such Bank
shall not exceed (x) the lesser of (i) such Bank's Commitment or (ii) such
Bank's Ratable Share of the Borrowing Base minus (y) such Bank's Ratable Share
of the Letters of Credit Outstanding. Within such limits of time and amount and
subject to the other provisions of this Agreement, the Borrowers may borrow,
repay and reborrow pursuant to this Section 2.1. Notwithstanding anything to the
contrary herein, the Banks may, in their sole discretion at any time hereafter,
decrease the ratio of their advances against Qualified Inventory and Qualified
Accounts, or increase the level of any reserves, or create or maintain such
other reserves, as the Banks may deem necessary or appropriate. Any such change
shall become effective immediately for the purpose of calculating new advances
hereunder.
2.1.2 Voluntary Reduction of Commitment. The
Borrowers shall have the right at any time and from time to time upon five (5)
Business Days' prior written notice to the Agent to permanently reduce, in a
minimum amount of $1,000,000 and whole multiples of $100,000 of principal, or
terminate the Commitment, without penalty or premium except as hereinafter set
forth, provided that any such reduction or termination shall be accompanied by
prepayment of the Notes, together with the full amount of interest accrued on
the principal sum to be prepaid (and all amounts referred to in Section 5.6.2
hereof), to the extent that the aggregate amount thereof then outstanding
exceeds the Commitment as so reduced or terminated.
2.2 Nature of Banks' Obligations with Respect to Loans.
Each Bank shall be obligated to participate in each request
for Loans pursuant to Section 2.4 in accordance with its Ratable Share. The
aggregate of each Bank's Loans outstanding hereunder to the Borrowers at any
time shall never exceed its Commitment minus its Ratable Share of the Letter of
Credit Outstandings. The obligations of each Bank hereunder are several. The
failure of any Bank to perform its obligations hereunder shall not affect the
<PAGE>
Obligations of the Borrowers to any other party nor shall any other party be
liable for the failure of such Bank to perform its obligations hereunder. The
Banks shall have no obligation to make Loans hereunder on or after the
Expiration Date.
2.3 Commitment Fee.
Accruing from the date hereof until the Expiration Date, the
Borrowers agree to pay to the Agent for the account of each Bank, as
consideration for such Bank's Commitment hereunder, a nonrefundable commitment
fee (the "Commitment Fee") computed using the rate per annum (the "Commitment
Fee Applicable Margin") set forth below measured in respect of the Leverage
Ratio as of the end of each fiscal quarter:
(a) if the Leverage Ratio is less than or equal to 2.0 to 1.0,
then the Commitment Fee Applicable Margin shall be .25%; and
(b) if the Leverage Ratio is greater than 2.0 to 1.0 but less
than or equal to 3.0 to 1.0, then the Commitment Fee Applicable Margin shall be
.30%; and
(c) if the Leverage Ratio is greater than 3.0 to 1.0,
then the Commitment Fee Applicable Margin shall be .35%.
The Commitment Fee shall be computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed on the average daily difference
between the amount of such Bank's Commitment as the same may be constituted from
time to time and the Revolving Facility Usage. Any changes in the Commitment Fee
pursuant to the provisions of this Section 2.3 shall become effective from the
fifth day after the Agent shall have received the Certificate delivered pursuant
to Section 8.3.4 in respect of such fiscal quarter; provided, that, in the event
that the Certificate delivered pursuant to Section 8.3.4 for any fiscal quarter
is not delivered within ten (10) days of the date required by Section 8.3 (no
waiver by the Agent being implied thereby), then the Commitment Fee shall be
calculated on the basis of the percentage set forth in item (c) above commencing
as of the date such certificate was required to be delivered until the delivery
of such certificate. All Commitment Fees shall be payable in arrears on the
first Business Day of each January, April, July and October after the date
hereof and on the Expiration Date or upon acceleration of the Notes.
Notwithstanding anything herein to the contrary, the Commitment Fee Applicable
Margin prior to the delivery of the audited year-end financial statements for
fiscal year 1996 shall be .30%.
2.4 Underwriting Fees.
The Borrowers shall pay the underwriting fees as provided in
the Agent's Letter as and when provided for therein.
<PAGE>
2.5 Loan Requests.
Except as otherwise provided herein, the Borrowers may from
time to time prior to the Expiration Date request the Banks to make Loans, or
renew or convert the Interest Rate Option applicable to existing Loans pursuant
to Section 4.2, by delivering to the Agent, not later than 12:00 noon,
Philadelphia time, (i) three (3) Business Days prior to the proposed Borrowing
Date with respect to the making of Loans to which the LIBO Rate Option applies
or the conversion to or the renewal of the LIBO Rate Option for any Loans; or
(ii) on the proposed Borrowing Date with respect to the making of a Loan to
which the Base Rate Option applies or the last day of the preceding Interest
Period with respect to the conversion to the Base Rate Option for any Loan, of a
duly completed request therefor substantially in the form of Exhibit 2.5 or a
request by telephone immediately confirmed in writing by letter, facsimile or
telex in such form (each, a "Loan Request"), it being understood that the Agent
may rely on the authority of any individual making such a telephonic request
without the necessity of receipt of such written confirmation. Each Loan Request
shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the
aggregate amount of the proposed Loans comprising each Borrowing Tranche, which
shall be in integral multiples of $100,000 and not less than $2,000,000 for each
Borrowing Tranche to which the LIBO Rate Option applies and not less than the
lesser of $300,000 (as to any individual loan request) or the maximum amount
available for Borrowing Tranches to which the Base Rate Option applies; (iii)
whether the LIBO Rate Option or Base Rate Option shall apply to the proposed
Loans comprising the applicable Borrowing Tranche; and (iv) in the case of a
Borrowing Tranche to which the LIBO Rate Option applies, an appropriate Interest
Period for the proposed Loans comprising such Borrowing Tranche.
2.6 Making Loans.
The Agent shall, promptly after receipt by it of a Loan
Request pursuant to Section 2.4, notify the Banks of its receipt of such Loan
Request specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of the Loans requested thereby; (ii) the amount and type of each
such Loan and the applicable Interest Period (if any); and (iii) the
apportionment among the Banks of such Loans as determined by the Agent in
accordance with Section 2.3. Each Bank shall remit the principal amount of each
Loan to the Agent such that the Agent is able to, and the Agent shall, to the
extent the Banks have made funds available to it for such purpose and subject to
Section 7.2, fund such Loans to the Borrowers in U.S. Dollars and immediately
available funds at the Principal Office prior to 2:00 p.m., Philadelphia time,
on the applicable Borrowing Date, provided that if any Bank fails to remit such
funds to the Agent in a timely manner, the Agent may elect in its sole
discretion to fund with its own funds the Loans of such Bank on such Borrowing
Date, and such Bank shall be subject to the repayment obligation in Section
10.15.
2.7 Notes.
The Obligation of the Borrowers to repay the aggregate unpaid
principal amount of the Loans made to it by each Bank, together with interest
thereon, shall be evidenced by a Revolving Credit Note dated the Closing Date
payable to the order of such Bank in a face amount equal to the Commitment of
such Bank.
<PAGE>
2.8 Use of Proceeds.
The proceeds of the Loans shall be used to refinance existing
indebtedness owing to Existing Lenders, to finance the purchase of the VGC
Assets and for general corporate purposes, all in accordance with Section
8.1.10.
2.9 Letter of Credit Subfacility.
2.9.1 Issuance of Letters of Credit.
Borrower may request the issuance of a letter of
credit (each a "Letter of Credit") on behalf of itself or another Loan Party by
delivering to the Agent a completed application and agreement for letters of
credit in such form as the Agent may specify from time to time by no later than
10:00 a.m., Philadelphia time, at least three (3) Business Days, or such shorter
period as may be agreed to by the Agent, in advance of the proposed date of
issuance. Each Letter of Credit shall be either a Standby Letter of Credit or a
Commercial Letter of Credit. Subject to the terms and conditions hereof and in
reliance on the agreements of the other Banks set forth in this Section 2.9, the
Agent will issue a Letter of Credit provided that each Letter of Credit shall
(A) have a maximum maturity of twelve (12) months from the date of issuance, and
(B) in no event expire later than one Business Day prior to the Expiration Date
and providing that in no event shall (i) the Letters of Credit Outstanding
exceed, at any one time, $1,000,000 or (ii) the Revolving Facility Usage exceed,
at any one time, the Commitments.
2.9.2 Letter of Credit Fees.
The Borrowers shall pay (i) to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal to the
Applicable Margin, and (ii) to the Agent for its own account a fronting fee
equal to 1/8% per annum, which fees shall be computed on the daily average
Letters of Credit Outstanding and shall be payable quarterly in arrears
commencing with the first Business Day of each January, April, July and October
following issuance of each Letter of Credit and on the Expiration Date. The
Borrowers shall also pay to the Agent for the Agent's sole account the Agent's
then in effect customary fees and administrative expenses payable with respect
to the Letters of Credit as the Agent may generally charge or incur from time to
time in connection with the issuance, maintenance, modification (if any),
assignment or transfer (if any), negotiation, and administration of Letters of
Credit.
2.9.3 Disbursements, Reimbursement.
2.9.3.1 Immediately upon the Issuance of each Letter
of Credit, each Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Agent a participation in such
Letter of Credit and each drawing thereunder in an amount equal to such Bank's
Ratable Share of the maximum amount available to be drawn under such Letter of
Credit and the amount of such drawing, respectively.
<PAGE>
2.9.3.2 In the event of any request for a drawing
under a Letter of Credit by the beneficiary or transferee thereof, the Agent
will promptly notify the Borrowers. Provided that it shall have received such
notice, the Borrowers shall reimburse (such obligation to reimburse the Agent
shall sometimes be referred to as a "Reimbursement Obligation") the Agent prior
to 12:00 noon, Philadelphia time on each date that an amount is paid by the
Agent under any Letter of Credit (each such date, an "Drawing Date") in an
amount equal to the amount so paid by the Agent. In the event the Borrowers fail
to reimburse the Agent for the full amount of any drawing under any Letter of
Credit by 11:00 a.m., Philadelphia time, on the Drawing Date, the Agent will
promptly notify each Bank thereof, and the Borrowers shall be deemed to have
requested that Loans be made by the Banks under the Base Rate Option to be
disbursed on the Drawing Date under such Letter of Credit, subject to the amount
of the unutilized portion of the Commitment and subject to the conditions set
forth in Section 7.2 other than any notice requirements. Any notice given by the
Agent pursuant to this Section 2.9.3.2 may be oral if immediately confirmed in
writing; provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.
2.9.3.3 Each Bank shall upon any notice pursuant to
Section 2.9.3.2 make available to the Agent an amount in immediately available
funds equal to its Ratable Share of the amount of the drawing, whereupon the
participating Banks shall (subject to Section 2.9.3.4) each be deemed to have
made a Loan under the Base Rate Option to the Borrowers in that amount. If any
Bank so notified fails to make available to the Agent for the account of the
Agent the amount of such Bank's Ratable Share of such amount by no later than
2:00 p.m., Philadelphia time on the Drawing Date, then interest shall accrue on
such Bank's obligation to make such payment, from the Drawing Date to the date
on which such Bank makes such payment, at a rate per annum equal to the Federal
Funds Effective Rate in effect from time to time during such period. The Agent
will promptly give notice of the occurrence of the Drawing Date, but failure of
the Agent to give any such notice on the Drawing Date or in sufficient time to
enable any Bank to effect such payment on such date shall not relieve such Bank
from its obligation under this Section 2.9.3.3.
2.9.3.4 With respect to any unreimbursed drawing that
is not converted into Loans under the Base Rate Option to the Borrowers in whole
or in part as contemplated by Section 2.9.3.2, because of the Borrowers' failure
to satisfy the conditions set forth in Section 7.2 other than any notice
requirements or for any other reason, the Borrowers shall be deemed to have
incurred from the Agent a Letter of Credit Borrowing in the amount of such
drawing. Such Letter of Credit Borrowing shall be due and payable on demand
(together with interest) and shall bear interest at the rate per annum
applicable to the Loans under the Base Rate Option. Each Bank's payment to the
Agent pursuant to Section 2.9.3.3 shall be deemed to be a payment in respect of
its participation in such Letter of Credit Borrowing and shall constitute a
Participation Advance from such Bank in satisfaction of its participation
obligation under this Section 2.9.3.
<PAGE>
2.9.4 Repayment of Participation Advances.
2.9.4.1 Upon (and only upon) receipt by the Agent for
its account of immediately available funds from the Borrowers (i) in
reimbursement of any payment made by the Agent under the Letter of Credit with
respect to which any Bank has made a Participation Advance to the Agent, or (ii)
in payment of interest on such a payment made by the Agent under such a Letter
of Credit, the Agent will pay to each Bank, in the same funds as those received
by the Agent, the amount of such Bank's Ratable Share of such funds, except the
Agent shall retain the amount of the Ratable Share of such funds of any Bank
that did not make a Participation Advance in respect of such payment by Agent.
2.9.4.2 If the Agent is required at any time to
return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made by
any Loan Party to the Agent pursuant to Section 2.9.4.1 in reimbursement of a
payment made under the Letter of Credit or interest or fee thereon, each Bank
shall, on demand of the Agent, forthwith return to the Agent the amount of its
Ratable Share of any amounts so returned by the Agent plus interest thereon from
the date such demand is made to the date such amounts are returned by such Bank
to the Agent, at a rate per annum equal to the Federal Funds Effective Rate in
effect from time to time.
2.9.5 Documentation.
Each Loan Party agrees to be bound by the terms of
the Agent's application and agreement for letters of credit and the Agent's
written regulations and customary practices relating to letters of credit,
though such interpretation may be different from the such Loan Party's own. In
the event of a conflict between such application or agreement and this
Agreement, this Agreement shall govern. It is understood and agreed that, except
in the case of gross negligence or willful misconduct, the Agent shall not be
liable for any error, negligence and/or mistakes, whether of omission or
commission, in following any Loan Party's instructions or those contained in the
Letters of Credit or any modifications, amendments or supplements thereto.
2.9.6 Determinations to Honor Drawing Requests.
In determining whether to honor any request for
drawing under any Letter of Credit by the beneficiary thereof, the Agent shall
be responsible only to determine that the documents and certificates required to
be delivered under such Letter of Credit have been delivered and that they
comply on their face with the requirements of such Letter of Credit.
2.9.7 Nature of Participation and Reimbursement
Obligations.
Each Bank's obligation in accordance with this
Agreement to make the Loans or Participation Advances, as contemplated by
Section 2.9.3, as a result of a drawing under a Letter of Credit, and the
Obligations of the Borrowers to reimburse the Agent upon a draw under a Letter
of Credit, shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Section 2.9 under all
circumstances, including the following circumstances:
<PAGE>
(i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Agent, the Borrowers or any
other Person for any reason whatsoever;
(ii) the failure of any Loan Party or any other
Person to comply, in connection with a Letter of Credit Borrowing, with the
conditions set forth in Section 2.1, 2.4, 2.6 or 7.2 or as otherwise set forth
in this Agreement for the making of a Loan, it being acknowledged that such
conditions are not required for the making of a Letter of Credit Borrowing and
the obligation of the Banks to make Participation Advances under Section 2.9.3;
(iii) any lack of validity or enforceability of any
Letter of Credit;
(iv) the existence of any claim, set-off, defense or
other right which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), the Agent or any Bank or any other Person
or, whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for
which any Letter of Credit was procured);
(v) any draft, demand, certificate or 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 even if the Agent has been notified thereof;
(vi) payment by the Agent under any Letter of Credit
against presentation of a demand, draft or certificate or other document which
does not comply with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any Loan
Party or Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan
Document by any party thereto;
(ix) the occurrence or continuance of an Insolvency
Proceeding with respect to any Loan Party;
(x) the fact that an Event of Default or a Potential
Default shall have occurred and be continuing;
<PAGE>
(xi) the fact that the Expiration Date shall have
passed or this Agreement or the Commitments hereunder shall have been
terminated; and
(xii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing; provided that each Bank's
obligation to make Loans under Section 2.9.3.3 is subject to the conditions set
forth in Section 7.2.
2.9.8 Indemnity.
In addition to amounts payable as provided in Section
10.5, the Borrowers hereby agree to protect, indemnify, pay and save harmless
the Agent from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent may incur or be subject to as a consequence, direct or indirect, of (i)
the issuance of any Letter of Credit, other than as a result of (A) the gross
negligence or willful misconduct of the Agent as determined by a final judgment
of a court of competent jurisdiction or (B) subject to the following clause
(ii), the wrongful dishonor by the Agent of a proper demand for payment made
under any Letter of Credit, or (ii) the failure of the Agent to honor a drawing
under any such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Governmental
Acts").
2.9.9 Liability for Acts and Omissions.
As between any Loan Party and the Agent, such Loan
Party assumes all risks of the acts and omissions of, or misuse of the Letters
of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Agent shall not be
responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for an issuance of any such Letter of Credit, even if it should in
fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged (even if the Agent shall have been notified thereof); (ii)
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, which may prove to
be invalid or ineffective for any reason; (iii) the failure of the beneficiary
of any such Letter of Credit, or any other party to which such Letter of Credit
may be transferred, to comply fully with any conditions required in order to
draw upon such Letter of Credit or any other claim of any Loan Party against any
beneficiary of such Letter of Credit, or any such transferee, or any dispute
between or among any Loan Party and any beneficiary of any Letter of Credit or
any such transferee; (iv) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) errors in interpretation of
technical terms; (vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of Credit or
<PAGE>
of the proceeds thereof; (vii) the misapplication by the beneficiary of any such
Letter of Credit of the proceeds of any drawing under such Letter of Credit; or
(viii) any consequences arising from causes beyond the control of the Agent,
including any Governmental Acts, and none of the above shall affect or impair,
or prevent the vesting of, any of the Agent's rights or powers hereunder.
In furtherance and extension and not in limitation of
the specific provisions set forth above, any action taken or omitted by the
Agent under or in connection with the Letters of Credit issued by it or any
documents and certificates delivered thereunder, if taken or omitted in good
faith, shall not put the Agent under any resulting liability to the Borrowers or
any Bank.
3. [RESERVED]
4. INTEREST RATES
4.1 Interest Rate Options.
The Borrowers shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by it from the Base Rate
Option, or LIBO Rate Option set forth below applicable to the Loans, it being
understood that, subject to the provisions of this Agreement, the Borrowers may
select different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, provided that there shall
not be at any one time outstanding more than five (5) Borrowing Tranches in the
aggregate among all of the Loans. If at any time the designated rate applicable
to any Loan made by any Bank exceeds such Bank's highest lawful rate, the rate
of interest on such Bank's Loan shall be limited to such Bank's highest lawful
rate.
4.1.1 Revolving Credit Interest Rate Options.
The Borrowers shall have the right to select from the
following Interest Rate Options applicable to the Loans:
(i) Base Rate Option: A fluctuating rate per annum
(computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed) equal to the Base Rate, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate;
(ii) Revolving Credit LIBO Rate Option: A rate per
annum (computed on the basis of a year of 360 days and actual days elapsed)
equal to the LIBO Rate plus the rate per annum (the "Applicable Margin")
described below measured in respect of the Leverage Ratio as of the end of each
fiscal quarter:
<PAGE>
(a) if the Leverage Ratio is less than or equal to
2.0 to 1.0, then the Applicable Margin shall be .75%; and
(b) if the Leverage Ratio is greater than 2.0 to 1.0
but less than or equal to 3.0 to 1.0, then the Applicable Margin shall be 1.00%;
and
(c) if the Leverage Ratio is greater than 3.0 to 1.0,
then the Applicable Margin shall be 1.25%.
(iii) Any changes in the Applicable Margin pursuant
to the provisions of this Section 4.1(a)(ii) shall become effective from the
fifth day after the Agent shall have received the Certificate delivered pursuant
to Section 8.3.4 in respect of such fiscal quarter; provided, that, in the event
that the Certificate delivered pursuant to Section 8.3.4 for any fiscal quarter
is not timely delivered, then the Applicable Margin shall be the amount set
forth in item (c) above commencing as of the date such certificate was required
to be delivered until the delivery of such certificate. Notwithstanding anything
herein to the contrary, any LIBO Rate Loan made before the end of the quarter
following the delivery of the audited year-end financial statements for fiscal
year 1996 shall have an Applicable Margin of 1.0%.
4.1.2 RESERVED.
4.1.3 Rate Quotations.
The Borrowers may call the Agent on or before the
date on which a Loan Request is to be delivered to receive an indication of the
rates then in effect, but it is acknowledged that such projection shall not be
binding on the Agent or the Banks nor affect the rate of interest which
thereafter is actually in effect when the election is made.
4.2 Interest Periods.
At any time when the Borrowers shall select, convert to or
renew a LIBO Rate Option, the Borrowers shall notify the Agent thereof at least
three (3) Business Days prior to the effective date of such LIBO Rate Option by
delivering a Loan Request. The notice shall specify an interest period (the
"Interest Period") during which such Interest Rate Option shall apply, such
Interest Period to be (i) one Month if Borrower selects the LIBO Rate Option
during the Syndications Period and (ii) one, two, three or six Months in the
event Borrower selects the LIBO Rate Option after the Syndications Period has
ended. Notwithstanding the preceding sentence, the following provisions shall
apply to any selection of, renewal of, or conversion to LIBO Rate Option:
4.2.1 Ending Date and Business Day.
any Interest Period which would otherwise end on a
date which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day;
<PAGE>
4.2.2 Amount of Borrowing Tranche.
each Borrowing Tranche of LIBO Rate Loans shall be in
integral multiples of $100,000 and not less than $2,000,000;
4.2.3 Termination Before Expiration Date.
the Borrowers shall not select, convert to or renew
an Interest Period for any portion of the Loans that would end after the
Expiration Date; and
4.2.4 Renewals.
in the case of the renewal of LIBO Rate Option at the
end of an Interest Period, the first day of the new Interest Period shall be the
last day of the preceding Interest Period, without duplication in payment of
interest for such day.
4.3 Interest After Default.
To the extent permitted by Law, upon the occurrence of an
Event of Default and until such time such Event of Default shall have been cured
or waived:
4.3.1 Letter of Credit Fees, Interest Rate.
the Letter of Credit Fees and the rate of interest
for each Loan otherwise applicable pursuant to Section 2.9.2 or Section 4.1,
respectively, shall be increased by 2.0% per annum; and
4.3.2 Other Obligations.
each other Obligation hereunder if not paid when due
shall bear interest at a rate per annum equal to the sum of the rate of interest
applicable under the Base Rate Option plus an additional 2.0 % per annum from
the time such Obligation becomes due and payable and until it is paid in full.
4.3.3 Acknowledgment.
The Borrowers acknowledge that the increase in rates
referred to in this Section 4.3 reflects, among other things, the fact that such
Loans or other amounts have become a substantially greater risk given their
default status and that the Banks are entitled to additional compensation for
such risk; and all such interest shall be payable by Borrowers upon demand by
Agent.
<PAGE>
4.4 LIBO Rate Unascertainable; Illegality; Increased
Costs; Deposits Not Available
4.4.1 Unascertainable.
If on any date on which a LIBO Rate would otherwise
be determined, the Agent shall have determined that:
(i) adequate and reasonable means do not exist for
ascertaining such LIBO Rate, or
(ii) a contingency has occurred which materially and
adversely affects the secondary market for negotiable certificates of deposit
maintained by dealers of recognized standing relating to the London interbank
eurodollar market relating to the LIBO Rate, the Agent shall have the rights
specified in Section 4.4.3.
4.4.2 Illegality; Increased Costs; Deposits Not
Available.
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to
which a LIBO Rate Option applies has been made impracticable or unlawful by
compliance by such Bank in good faith with any Law or any interpretation or
application thereof by any Official Body or with any request or directive of any
such Official Body (whether or not having the force of Law), or
(ii) such LIBO Rate Option will not adequately and
fairly reflect the cost to such Bank of the establishment or maintenance of any
such Loan, or
(iii) after making all reasonable efforts, deposits
of the relevant amount in Dollars for the relevant Interest Period for a Loan to
which a LIBO Rate Option applies, respectively, are not available to such Bank
at the effective cost of funding a proposed in the London interbank market,
then the Agent shall have the rights specified in Section 4.4.3.
4.4.3 Agent's and Bank's Rights.
In the case of any event specified in Section 4.4.1
above, the Agent shall promptly so notify the Banks and the Borrowers thereof,
and in the case of an event specified in Section 4.4.2 above, such Bank shall
promptly so notify the Agent and endorse a certificate to such notice as to the
specific circumstances of such notice, and the Agent shall promptly send copies
of such notice and certificate to the other Banks and the Borrowers. Upon such
date as shall be specified in such notice (which shall not be earlier than the
date such notice is given), the obligation of (A) the Banks, in the case of such
notice given by the Agent, or (B) such Bank, in the case of such notice given by
<PAGE>
such Bank, to allow the Borrowers to select, convert to or renew a LIBO Rate
Option shall be suspended until the Agent shall have later notified the
Borrowers, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination that the circumstances giving
rise to such previous determination no longer exist. If at any time the Agent
makes a determination under Section 4.4.1 and the Borrowers have previously
notified the Agent of its selection of, conversion to or renewal of a LIBO Rate
Option and such Interest Rate Option has not yet gone into effect, such
notification shall be deemed to provide for selection of, conversion to or
renewal of the Base Rate Option otherwise available with respect to such Loans.
If any Bank notifies the Agent of a determination under Section 4.4.2, the
Borrowers shall, subject to the Borrowers' indemnification Obligations under
Section 5.6.2, as to any Loan of the Bank to which a LIBO Rate Option applies,
on the date specified in such notice either convert such Loan to the Base Rate
Option otherwise available with respect to such Loan or prepay such Loan in
accordance with Section 5.4. Absent due notice from the Borrowers of conversion
or prepayment, such Loan shall automatically be converted to the Base Rate
Option otherwise available with respect to such Loan upon such specified date.
4.5 Selection of Interest Rate Options.
If the Borrowers fail to select a new Interest Period to apply
to any Borrowing Tranche of Loans under the LIBO Rate Option at the expiration
of an existing Interest Period applicable to such Borrowing Tranche in
accordance with the provisions of Section 4.2, the Borrowers shall be deemed to
have converted such Borrowing Tranche to the Base Rate Option commencing upon
the last day of the existing Interest Period.
5. PAYMENTS
5.1 Payments.
All payments and prepayments to be made in respect of
principal, interest, Commitment Fees, Facility Fees, Letter of Credit Fees or
other fees or amounts due from the Borrowers hereunder shall be payable prior to
12:00 noon, Philadelphia time, on the date when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived by the
Borrowers, and without set-off, counterclaim or other deduction of any nature,
and an action therefor shall immediately accrue. Such payments shall be made to
the Agent at the Principal Office for the ratable accounts of the Banks with
respect to the Loans in U.S. Dollars and in immediately available funds, and the
Agent shall promptly distribute such amounts to the Banks in immediately
available funds, provided that in the event payments are received by 12:00 noon,
Philadelphia time, by the Agent with respect to the Loans and such payments are
not distributed to the Banks on the same day received by the Agent, the Agent
shall pay the Banks the Federal Funds Effective Rate with respect to the amount
of such payments for each day held by the Agent and not distributed to the
Banks. The Agent's and each Bank's statement of account, ledger or other
relevant record shall, in the absence of manifest error, be conclusive as the
statement of the amount of principal of and interest on the Loans and other
amounts owing under this Agreement and shall be deemed an "account stated."
<PAGE>
5.2 Pro Rata Treatment of Banks.
Each borrowing shall be allocated to each Bank according to
its Ratable Share, and each selection of, conversion to or renewal of any
Interest Rate Option and each payment or prepayment by the Borrowers with
respect to principal, interest, Commitment Fees, Facility Fees, Letter of Credit
Fees, or other fees or amounts due from the Borrowers hereunder to the Banks
with respect to the Loans, shall (except as provided in Section 4.4.3 in the
case of an event specified in Section 4.4 [LIBO Rate Unascertainable;
Illegality; Increased Costs; Deposits Not Available], 5.4 [Voluntary
Prepayments] or 5.6 [Additional Compensation in Certain Circumstances]) be made
in proportion to the applicable Loans outstanding from each Bank and, if no such
Loans are then outstanding, in proportion to the Ratable Share of each Bank.
5.3 Interest Payment Dates.
Interest on Loans to which the Base Rate Option applies shall
be due and payable in arrears on the first Business Day of each January, April,
July and October after the date hereof and on the Expiration Date or upon
acceleration of the Notes. Interest on Loans to which the LIBO Rate Option
applies shall be due and payable on the last day of each Interest Period for
those Loans and, if such Interest Period is longer than three (3) Months, also
on the 90th day of such Interest Period. Interest on mandatory prepayments of
principal under Section 5.5 shall be due on the date such mandatory prepayment
is due. Interest on the principal amount of each Loan or other monetary
Obligation shall be due and payable on demand after such principal amount or
other monetary Obligation becomes due and payable (whether on the stated
maturity date, upon acceleration or otherwise).
5.4 Voluntary Prepayments.
5.4.1 Right to Prepay.
The Borrowers shall have the right at its option from
time to time to prepay the Loans in whole or part without premium or penalty
(except as provided in Section 5.4.2 below or in Section 5.6):
(i) at any time with respect to any Loan to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest
Period with respect to Loans to which a LIBO Rate Option applies,
(iii) on the date specified in a notice by any Bank
pursuant to Section 4.4 [LIBO Rate Unascertainable] with respect to any Loan to
which a LIBO Rate Option applies.
Whenever the Borrowers desire to prepay any part of
the Loans, it shall provide a prepayment notice to the Agent at least one (1)
<PAGE>
Business Day prior to the date of prepayment of Loans to which a Euro-Rate
Option applies and the date of prepayment of Loans to which the Base Rate Option
applies setting forth the following information:
(x) the date, which shall be a Business Day, on which
the proposed prepayment is to be made; and
(y) the total principal amount of such prepayment,
which shall not be less than $250,000.
All prepayment notices shall be irrevocable. The
principal amount of the Loans for which a prepayment notice is given, together
with interest on such principal amount except with respect to Loans to which the
Base Rate Option applies, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made.
Except as provided in Section 4.4.3, if the Borrowers prepay a Loan but fails to
specify the applicable Borrowing Tranche which the Borrowers are prepaying, the
prepayment shall be applied first to Loans to which the Base Rate Option
applies, then to Loans to which the LIBO Rate the Option applies. Any prepayment
hereunder shall be subject to the Borrowers' Obligation to indemnify the Banks
under Section 5.6.2.
5.4.2 Replacement of a Bank.
In the event any Bank (i) gives notice under Section
4.4 or Section 5.6.1, (ii) does
not fund Loans because the making of such Loans would contravene any Law
applicable to such Bank, (iii) does not approve any action as to which consent
of the Required Banks is requested by the Borrowers and obtained hereunder, or
(iv) becomes subject to the control of an Official Body (other than normal and
customary supervision), then the Borrowers shall have the right at its option,
with the consent of the Agent, which shall not be unreasonably withheld, to
prepay the Loans of such Bank in whole, together with all interest accrued
thereon, and terminate such Bank's Commitment within ninety (90) days after (w)
receipt of such Bank's notice under Section 4.4 or 5.6.1, (x) the date such Bank
has failed to fund Loans because the making of such Loans would contravene Law
applicable to such Bank, (y) the date of obtaining the consent which such Bank
has not approved, or (z) the date such Bank became subject to the control of an
Official Body, as applicable; provided that the Borrowers shall also pay to such
Bank at the time of such prepayment any amounts required under Section 5.6 and
any accrued interest due on such amount and any related fees; provided, however,
that the Commitment of such Bank shall be provided by one or more of the
remaining Banks or a replacement bank acceptable to the Agent; provided,
further, the remaining Banks shall have no obligation hereunder to increase
their Commitments. Notwithstanding the foregoing, the Agent may only be replaced
subject to the requirements of Section 10.14 and provided that all Letters of
Credit have expired or been terminated or replaced.
5.4.3 Change of Lending Office.
Each Bank agrees that upon the occurrence of any
event giving rise to increased costs or other special payments under Section
<PAGE>
4.4.2 [Illegality, etc.] or 5.6.1 [Increased Costs, etc.] with respect to such
Bank, it will if requested by the Borrowers, use reasonable efforts (subject to
overall policy considerations of such Bank) to designate another lending office
for any Loans or Letters of Credit affected by such event, provided that such
designation is made on such terms that such Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
is this Section 5.4.3 shall affect or postpone any of the Obligations of the
Borrowers or any other Loan Party or the rights of the Agent or any Bank
provided in this Agreement.
5.5 Mandatory Prepayments.
In the event that the Facility Usage shall at any
time exceed the Borrowing Base for any reason, the Borrower, within five (5)
Business Days after the date on which excess shall occur, shall pay to the Agent
on behalf of the Banks a principal payment to be applied to the Loans in an
aggregate amount sufficient to eliminate such excess, together with any payments
required to be made under Section 5.6.2.
5.6 Additional Compensation in Certain Circumstances.
5.6.1 Increased Costs or Reduced Return Resulting
From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.
If any Law, guideline or interpretation or any change
in any Law, guideline or interpretation or application thereof by any Official
Body charged with the interpretation or administration thereof or compliance
with any request or directive (whether or not having the force of Law) of any
central bank or other Official Body:
(i) subjects any Bank to any tax or changes the basis
of taxation with respect to this Agreement, the Notes, the Loans or payments by
the Borrowers of principal, interest, Commitment Fees, or other amounts due from
the Borrowers hereunder or under the Notes (except for taxes on the overall net
income of such Bank),
(ii) imposes, modifies or deems applicable any
reserve, special deposit or similar requirement against credits or commitments
to extend credit extended by, or assets (funded or contingent) of, deposits with
or for the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any
capital adequacy or similar requirement (A) against assets (funded or
contingent) of, or letters of credit, other credits or commitments to extend
credit extended by, any Bank, or (B) otherwise applicable to the obligations of
any Bank under this Agreement, and the result of any of the foregoing is to
<PAGE>
increase the cost to, reduce the income receivable by, or impose any expense
(including loss of margin) upon any Bank with respect to this Agreement, the
Notes or the making, maintenance or funding of any part of the Loans (or, in the
case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on any Bank's capital, taking into consideration
such Bank's customary policies with respect to capital adequacy) by an amount
which such Bank in its sole discretion deems to be material, such Bank shall
from time to time notify the Borrowers and the Agent of the amount determined in
good faith (using any averaging and attribution methods employed in good faith)
by such Bank to be necessary to compensate such Bank for such increase in cost,
reduction of income, additional expense or reduced rate of return. Such notice
shall set forth in reasonable detail the basis for such determination. Such
amount shall be due and payable by the Borrowers to such Bank ten (10) Business
Days after such notice is given.
5.6.2 Indemnity.
In addition to the compensation required by Section
5.6.1, the Borrowers shall indemnify each Bank against all liabilities, losses
or expenses (including loss of margin, any loss or expense incurred in
liquidating or employing deposits from third parties and any loss or expense
incurred in connection with funds acquired by a Bank to fund or maintain Loans
subject to a LIBO Rate Option) which such Bank sustains or incurs as a
consequence of any
(i) payment, prepayment, conversion or renewal of any
Loan to which a LIBO Rate Option applies on a day other than the last day of the
corresponding Interest Period (whether or not such payment or prepayment is
mandatory, voluntary or automatic and whether or not such payment or prepayment
is then due),
(ii) attempt by the Borrowers to revoke (expressly,
by later inconsistent notices or otherwise) in whole or part any Loan Requests
under Section 2.4 or Section 4.2 or notice relating to prepayments under Section
5.4, or
(iii) default by the Borrowers in the performance or
observance of any covenant or condition contained in this Agreement or any other
Loan Document, including any failure of the Borrowers to pay when due (by
acceleration or otherwise) any principal, interest, Commitment Fee or any other
amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it
shall from time to time notify the Borrowers of the amount determined in good
faith by such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrowers to such
Bank ten (10) Business Days after such notice is given.
<PAGE>
6. REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties.
The Loan Parties, jointly and severally, represent and warrant
to the Agent and each of the Banks as follows:
6.1.1 Organization and Qualification.
Each Loan Party and each Subsidiary of each Loan
Party is a corporation, partnership or limited liability company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each Loan Party and each Subsidiary of each Loan Party has the
lawful power to own or lease its properties and to engage in the business it
presently conducts or proposes to conduct. Each Loan Party and each Subsidiary
of each Loan Party is duly licensed or qualified and in good standing in each
jurisdiction listed on Schedule 6.1.1 and in all other jurisdictions where the
property owned or leased by it or the nature of the business transacted by it or
both makes such licensing or qualification necessary.
6.1.2 Capitalization and Ownership.
The authorized capital stock of the Borrowers other
than the Company (referred to herein as the "Shares") which are issued and
outstanding and are owned as described on Schedule 6.1.3. All of the Shares have
been validly issued and are fully paid and nonassessable. There are no options,
warrants or other rights outstanding to purchase any such shares except as
indicated on Schedule 6.1.3.
6.1.3 Subsidiaries.
Schedule 6.1.3 states the name of each of the
Borrowers' Subsidiaries, its jurisdiction of incorporation, its authorized
capital stock, the issued and outstanding shares (referred to herein as the
"Subsidiary Shares") and the owners thereof if it is a corporation, its
outstanding partnership interests (the "Partnership Interests") if it is a
partnership and its outstanding limited liability company interests, interests
assigned to managers thereof and the voting rights associated therewith (the
"LLC Interests") if it is a limited liability company. The Borrowers and each
Subsidiary of the Borrowers has good and marketable title to all of the
Subsidiary Shares, Partnership Interests and LLC Interests it purports to own,
free and clear in each case of any Lien. All Subsidiary Shares, Partnership
Interests and LLC Interests have been validly issued, and all Subsidiary Shares
are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of the
Partnership Interests and LLC Interests have been made or paid, as the case may
be. There are no options, warrants or other rights outstanding to purchase any
such Subsidiary Shares, Partnership Interests or LLC Interests except as
indicated on Schedule 6.1.3.
<PAGE>
6.1.4 Power and Authority.
Each Loan Party has full power to enter into,
execute, deliver and carry out this Agreement and the other Loan Documents to
which it is a party, to incur the Indebtedness contemplated by the Loan
Documents and to perform its Obligations under the Loan Documents to which it is
a party, and all such actions have been duly authorized by all necessary
proceedings on its part.
6.1.5 Validity and Binding Effect.
This Agreement has been duly and validly executed and
delivered by each Loan Party, and each other Loan Document which any Loan Party
is required to execute and deliver on or after the date hereof will have been
duly executed and delivered by such Loan Party on the required date of delivery
of such Loan Document. This Agreement and each other Loan Document constitutes,
or will constitute, legal, valid and binding obligations of each Loan Party
which is or will be a party thereto on and after its date of delivery thereof,
enforceable against such Loan Party in accordance with its terms, except to the
extent that enforceability of any of such Loan Document may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance.
6.1.6 No Conflict.
Neither the execution and delivery of this Agreement
or the other Loan Documents by any Loan Party nor the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof or thereof by any of them will conflict with, constitute a
default under or result in any breach of (i) the terms and conditions of the
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents of any Loan Party or (ii) any Law or
any material agreement or instrument or order, writ, judgment, injunction or
decree to which any Loan Party or any of its Subsidiaries is a party or by which
it or any of its Subsidiaries is bound or to which it is subject, or result in
the creation or enforcement of any Lien, charge or encumbrance whatsoever upon
any property (now or hereafter acquired) of any Loan Party or any of its
Subsidiaries (other than Liens granted under the Loan Documents).
6.1.7 Litigation.
There are no actions, suits, proceedings or
investigations pending or, to the knowledge of any Loan Party, threatened
against such Loan Party or any Subsidiary of such Loan Party at law or equity
before any Official Body which individually or in the aggregate is likely to
result in any Material Adverse Change. None of the Loan Parties or any
Subsidiaries of any Loan Party is in violation of any order, writ, injunction or
any decree of any Official Body which may result in any Material Adverse Change.
<PAGE>
6.1.8 Title to Properties.
The real property owned or leased by each Loan Party
and each Subsidiary of each Loan
Party is described on Schedule 6.1.8. Each Loan Party and each Subsidiary of
each Loan Party has good and marketable title to or valid leasehold interest in
all properties, assets and other rights which it purports to own or lease or
which are reflected as owned or leased on its books and records, free and clear
of all Liens and encumbrances except Permitted Liens, and subject to the terms
and conditions of the applicable leases. All leases of property are in full
force and effect without the necessity for any consent which has not previously
been obtained upon consummation of the transactions contemplated hereby.
6.1.9 Financial Statements.
(i) Historical Statements. The Borrowers have
delivered to the Agent copies of its audited consolidated year-end financial
statements for and as of the end of the two (2) fiscal years ended December 31,
1995 (the "Annual Statements"). In addition, the Borrowers have delivered to the
Agent copies of the Company's unaudited consolidated interim financial
statements for the fiscal year to date and as of the end of the fiscal quarter
ended June 30, 1996 (the "Interim Statements") (the Annual and Interim
Statements being collectively referred to as the "Historical Statements"). The
Historical Statements were compiled from the books and records maintained by the
Borrowers' management, are correct and complete and fairly represent the
consolidated financial condition of the Borrowers and its Subsidiaries as of
their dates and the results of operations for the fiscal periods then ended and
have been prepared in accordance with GAAP consistently applied, subject (in the
case of the Interim Statements) to normal year-end audit adjustments.
(ii) Financial Projections. The Borrowers have
delivered to the Agent financial projections of the Borrowers and their
Subsidiaries for the period 1996-2001 derived from various assumptions of the
Borrowers' management (the "Financial Projections"). The Financial Projections
represent a reasonable range of possible results in light of the history of the
business, present and foreseeable conditions and the intentions of the
Borrowers' management. The Financial Projections accurately reflect the
liabilities of the Borrowers and their Subsidiaries upon consummation of the
transactions contemplated hereby as of the Closing Date.
<PAGE>
(iii) Accuracy of Financial Statements. Neither the
Borrowers nor any Subsidiary of any Borrower has any material liabilities,
contingent or otherwise, or forward or long-term commitments that are not
disclosed in the Historical Statements or in the notes thereto, and except as
disclosed therein there are no unrealized or anticipated losses from any
commitments of the Borrowers or any Subsidiary of any Borrower which may cause a
Material Adverse Change. Since December 31, 1995, no Material Adverse Change has
occurred.
6.1.10 Use of Proceeds; Margin Stock.
The Loan Parties intend to use the proceeds of the
Loans in accordance with Sections 2.8 and 8.1.10. None of the Loan Parties or
any Subsidiaries of any Loan Party engages or intends to engage principally, or
as one of its important activities, in the business of extending credit for the
purpose, immediately, incidentally or ultimately, of purchasing or carrying
margin stock (within the meaning of Regulation U). No part of the proceeds of
any Loan has been or will be used, immediately, incidentally or ultimately, to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock or to refund Indebtedness originally
incurred for such purpose, or for any purpose which entails a violation of or
which is inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System. None of the Loan Parties or any
Subsidiary of any Loan Party holds or intends to hold margin stock in such
amounts that more than 25% of the reasonable value of the assets of any Loan
Party or Subsidiary of any Loan Party are or will be represented by margin
stock.
6.1.11 Full Disclosure.
Neither this Agreement nor any other Loan Document,
nor any certificate, statement, agreement or other documents furnished to the
Agent or any Bank in connection herewith or therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to any Loan Party which materially adversely affects the business, property,
assets, financial condition, results of operations or prospects of any Loan
Party or Subsidiary of any Loan Party which has not been set forth in this
Agreement or in the certificates, statements, agreements or other documents
furnished in writing to the Agent and the Banks prior to or at the date hereof
in connection with the transactions contemplated hereby.
6.1.12 Taxes.
All federal, state, local and other tax returns
required to have been filed with respect to each Loan Party and each Subsidiary
of each Loan Party have been filed, and payment or adequate provision has been
made for the payment of all taxes, fees, assessments and other governmental
charges which have or may become due pursuant to said returns or to assessments
received, except to the extent that such taxes, fees, assessments and other
charges are being contested in good faith by appropriate proceedings diligently
conducted and for which such reserves or other appropriate provisions, if any,
as shall be required by GAAP shall have been made. There are no agreements or
waivers extending the statutory period of limitations applicable to any federal
income tax return of any Loan Party or Subsidiary of any Loan Party for any
period.
<PAGE>
6.1.13 Consents and Approvals.
No consent, approval, exemption, order or
authorization of, or a registration or filing with, any Official Body or any
other Person is required by any Law or any agreement in connection with the
execution, delivery and carrying out of this Agreement and the other Loan
Documents by any Loan Party, except for the repayment on the Closing Date of
obligations to Existing Lenders.
6.1.14 No Event of Default; Compliance with
Instruments.
No event has occurred and is continuing and no
condition exists or will exist after giving effect to the borrowings or other
extensions of credit to be made on the Closing Date under or pursuant to the
Loan Documents which constitutes an Event of Default or Potential Default. None
of the Loan Parties or any Subsidiaries of any Loan Party is in violation of (i)
any term of its certificate of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, limited liability
company agreement or other organizational documents or (ii) any material
agreement or instrument to which it is a party or by which it or any of its
properties may be subject or bound where such violation would constitute a
Material Adverse Change.
6.1.15 Patents, Trademarks, Copyrights, Licenses,
Etc.
Each Loan Party and each Subsidiary of each Loan
Party owns or possesses all the material patents, trademarks, service marks,
trade names, copyrights, licenses, registrations, franchises, permits and rights
necessary to own and operate its properties and to carry on its business as
presently conducted and planned to be conducted by such Loan Party or
Subsidiary, without known alleged or actual conflict with the rights of others.
6.1.16 Status of the Obligations.
The Obligations of each Loan Party under this
Agreement, the Notes and each of the other Loan Documents to which it is a party
do rank and will rank at least pari passu in priority of payment with all other
Indebtedness of such Loan Party except Indebtedness of such Loan Party to the
extent secured by Permitted Liens. There is no Lien upon or with respect to any
of the properties or income of any Loan Party or Subsidiary of any Loan Party
which secures indebtedness or other obligations of any Person except for
Permitted Liens.
<PAGE>
6.1.17 [RESERVED].
6.1.18 [RESERVED].
6.1.19 Insurance.
No notice has been given or claim made and no grounds
exist to cancel or avoid any material insurance policies or bonds or to reduce
the coverage provided thereby. Such policies and bonds provide adequate coverage
from reputable and financially sound insurers in amounts sufficient to insure
the assets and risks of each Loan Party and each Subsidiary of each Loan Party
in accordance with prudent business practice in the industry of the Loan Parties
and their Subsidiaries.
6.1.20 Compliance with Laws.
The Loan Parties and their Subsidiaries are in
compliance in all material respects with all applicable Laws (other than
Environmental Laws which are specifically addressed in Section 6.1.25) in all
jurisdictions in which any Loan Party or Subsidiary of any Loan Party is
presently or will be doing business except where the failure to do so would not
constitute a Material Adverse Change.
6.1.21 [RESERVED]
6.1.22 Investment Companies; Regulated Entities.
None of the Loan Parties or any Subsidiaries of any
Loan Party is an "investment company" registered or required to be registered
under the Investment Company Act of 1940 or under the "control" of an
"investment company" as such terms are defined in the Investment Company Act of
1940 and shall not become such an "investment company" or under such "control."
None of the Loan Parties or any Subsidiaries of any Loan Party is subject to any
other Federal state statute or regulation limiting its ability to incur
Indebtedness for borrowed money.
6.1.23 Plans and Benefit Arrangements.
Except as set forth on Schedule 6.1.23:
(i) The Borrowers and each other member of the ERISA
Group are in compliance in all material respects with any applicable provisions
of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer
Plans. There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the best knowledge of the Borrowers, with respect
to any Multiemployer Plan or Multiple Employer Plan, which could result in any
material liability of the Borrowers or any other member of the ERISA Group. The
Borrowers and all other members of the ERISA Group have made when due any and
all payments required to be made under any agreement relating to a Multiemployer
Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to
each Plan and Multiemployer Plan, the Borrowers and each other member of the
<PAGE>
ERISA Group (i) have fulfilled in all material respects their obligations under
the minimum funding standards of ERISA, (ii) have not incurred any liability to
the PBGC, and (iii) have not had asserted against them any penalty for failure
to fulfill the minimum funding requirements of ERISA.
(ii) To the best of the Borrowers' knowledge, each
Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder
when due.
(iii) Neither the Borrowers nor any other member of
the ERISA Group has instituted or intends to institute proceedings to terminate
any Plan.
(iv) No event requiring notice to the PBGC under
Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur
with respect to any Plan, and no amendment with respect to which security is
required under Section 307 of ERISA has been made or is reasonably expected to
be made to any Plan.
(v) The accumulated benefit obligation for all Plans
taken together shall not exceed the aggregate fair market value of the assets in
such Plans as disclosed in, and as of the date of, the most recent actuarial
report for such Plans.
(vi) Neither the Borrowers nor any other member of
the ERISA Group has incurred or reasonably expects to incur any material
withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither the Borrowers nor any other member of the ERISA Group has been
notified by any Multiemployer Plan or Multiple Employer Plan that such
Multiemployer Plan or Multiple Employer Plan has been terminated within the
meaning of Title IV of ERISA and, to the best knowledge of the Borrowers, no
Multiemployer Plan or Multiple Employer Plan is reasonably expected to be
reorganized or terminated, within the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit Arrangement is
insured, the Borrowers and all other members of the ERISA Group have paid when
due all premiums required to be paid for all periods through the Closing Date.
To the extent that any Benefit Arrangement is funded other than with insurance,
the Borrowers and all other members of the ERISA Group have made when due all
contributions required to be paid for all periods through the Closing Date.
(viii) All Plans, Benefit Arrangements and
Multiemployer Plans have been administered in accordance with their terms and
applicable Law.
<PAGE>
6.1.24 Employment Matters.
Each of the Loan Parties and each of their
Subsidiaries is in compliance with the Labor Contracts and all applicable
federal, state and local labor and employment Laws including those related to
equal employment opportunity and affirmative action, labor relations, minimum
wage, overtime, child labor, medical insurance continuation, worker adjustment
and relocation notices, immigration controls and worker and unemployment
compensation, where the failure to comply would constitute a Material Adverse
Change. There are no outstanding grievances, arbitration awards or appeals
therefrom arising out of the Labor Contracts or current or threatened strikes,
picketing, handbilling or other work stoppages or slowdowns at facilities of any
of the Loan Parties or any of their Subsidiaries which in any case would
constitute a Material Adverse Change. The Borrowers have no collective
bargaining agreements.
6.1.25 Environmental Matters.
Except as disclosed on Schedule 6.1.25, to the best
of the Loan Parties' knowledge:
(i) None of the Loan Parties or any Subsidiaries of
any Loan Party has received any Environmental Complaint from any Official Body
or private Person alleging that such Loan Party or Subsidiary or any prior or
subsequent owner of any of the Property is a potentially responsible party under
the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C.
ss. 9601, et seq., and none of the Loan Parties has any reason to believe that
such an Environmental Complaint might be received. There are no pending or, to
any Loan Party's knowledge, threatened Environmental Complaints relating to any
Loan Party or Subsidiary of any Loan Party or, to any Loan Party's knowledge,
any prior or subsequent owner of any of the Property pertaining to, or arising
out of, any Environmental Conditions.
(ii) There are no circumstances at, on or under any
of the Property that constitute a breach of or non-compliance with any of the
Environmental Laws, and there are no past or present Environmental Conditions
at, on or under any of the Property or, to any Loan Party's knowledge, at, on or
under adjacent property, that prevent compliance with the Environmental Laws at
any of the Property.
(iii) Neither any of the Property nor any structures,
improvements, equipment, fixtures, activities or facilities thereon or
thereunder contain or use Regulated Substances except in compliance with
Environmental Laws or except where the presence of such materials would not
constitute a Material Adverse Change. There are no processes, facilities,
operations, equipment or other activities at, on or under any of the Property,
or, to any Loan Party's knowledge, at, on or under adjacent property, that
currently result in the release or threatened release of Regulated Substances
onto any of the Property, except to the extent that such releases or threatened
releases are not a breach of or otherwise not a violation of the Environmental
Laws.
<PAGE>
(iv) There are no aboveground storage tanks,
underground storage tanks or underground piping associated with such tanks, used
for the management of Regulated Substances at, on or under any of the Property
that (a) do not have, to the extent required by Environmental Laws, a full
operational secondary containment system in place, and (b) are not otherwise in
compliance with all Environmental Laws. There are no abandoned underground
storage tanks or underground piping associated with such tanks, previously used
for the management of Regulated Substances at, on or under any of the Property
that have not either been closed in place in accordance with Environmental Laws
or removed in compliance with all applicable Environmental Laws and no
contamination associated with the use of such tanks exists on any of the
Property that is not in compliance with Environmental Laws.
(v) Each Loan Party and each Subsidiary of any Loan
Party has all material permits, licenses, authorizations, plans and approvals
necessary under the Environmental Laws for the conduct of the business of such
Loan Party or Subsidiary as presently conducted. Each Loan Party and each
Subsidiary of any Loan Party has submitted all material notices, reports and
other filings required by the Environmental Laws to be submitted to an Official
Body which pertain to past and current operations on any of the Property
(vi) All past and present on-site generation,
storage, processing, treatment, recycling, reclamation, disposal or other use or
management of Regulated Substances at, on, or under any of the Property and all
off-site transportation, storage, processing, treatment, recycling, reclamation,
disposal or other use or management of Regulated Substances have been done in
accordance with the Environmental Laws or except where failure to do so would
not constitute a Material Adverse Change.
6.2 Updates to Schedules.
Should any of the information or disclosures provided
on any of the Schedules attached hereto become outdated or incorrect in any
material respect, the Borrowers shall promptly provide the Agent in writing with
such revisions or updates to such Schedule as may be necessary or appropriate to
update or correct same; provided, however, that no Schedule shall be deemed to
have been amended, modified or superseded by any such correction or update, nor
shall any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule.
7. CONDITIONS OF LENDING
The obligation of each Bank to make Loans and of the Agent to
issue Letters of Credit hereunder is subject to the performance by each of the
Loan Parties of its Obligations to be performed hereunder at or prior to the
making of any such Loans or issuance of such Letters of Credit and to the
satisfaction of the following further conditions:
<PAGE>
7.1 First Loans.
On the Closing Date:
7.1.1 Officer's Certificate.
The representations and warranties of each of the
Loan Parties contained in Section 6 and in each of the other Loan Documents
shall be true and accurate on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein), and each of the Loan
Parties shall have performed and complied with all covenants and conditions
hereof and thereof, no Event of Default or Potential Default shall have occurred
and be continuing or shall exist; and there shall be delivered to the Agent for
the benefit of each Bank a certificate of each of the Loan Parties, dated the
Closing Date and signed by the Chief Executive Officer, President or Chief
Financial Officer of the Company and the President or Treasurer of each other
Loan Party, to each such effect.
7.1.2 Secretary's Certificate.
There shall be delivered to the Agent for the benefit
of each Bank a certificate dated the Closing Date and signed by the Secretary or
an Assistant Secretary of each of the Loan Parties, certifying as appropriate as
to:
(i) all action taken by each Loan Party in connection
with this Agreement and the other Loan Documents;
(ii) the names of the officer or officers authorized
to sign this Agreement and the other Loan Documents and the true signatures of
such officer or officers and specifying the Authorized Officers permitted to act
on behalf of each Loan Party for purposes of this Agreement and the true
signatures of such officers, on which the Agent and each Bank may conclusively
rely; and
(iii) copies of its organizational documents,
including its certificate of incorporation, bylaws, certificate of limited
partnership, partnership agreement, certificate of formation, and limited
liability company agreement as in effect on the Closing Date certified by the
appropriate state official where such documents are filed in a state office
together with certificates from the appropriate state officials as to the
continued existence and good standing of each Loan Party in each state where
organized or qualified to do business.
<PAGE>
7.1.3 Delivery of Loan Documents.
The Notes, Intercompany Subordination Agreement and
other Loan Documents shall have been duly executed and delivered to the Agent
for the benefit of the Banks.
7.1.4 Opinion of Counsel.
There shall be delivered to the Agent for the benefit
of each Bank a written opinion of the General Counsel of the Company, dated the
Closing Date and in form and substance satisfactory to the Agent and its counsel
as to all matters incident to the transactions contemplated herein and the VGC
Assets as the Agent may reasonably request.
7.1.5 Legal Details.
All legal details and proceedings in connection with
the transactions contemplated by this Agreement and the other Loan Documents
shall be in form and substance satisfactory to the Agent and counsel for the
Agent, and the Agent shall have received all such other counterpart originals or
certified or other copies of such documents and proceedings in connection with
such transactions, in form and substance satisfactory to the Agent and said
counsel, as the Agent or said counsel may reasonably request.
7.1.6 Payment of Fees.
The Borrowers shall have paid or caused to be paid to
the Agent for itself and for the account of the Banks to the extent not
previously paid all fees accrued through the Closing Date and the costs and
expenses for which the Agent and the Banks are entitled to be reimbursed.
7.1.7 Lien Searches.
The Loan Parties shall have provided to the Agent UCC
lien searches conducted within
thirty (30) days before the Closing Date relating to all of the Loan Parties'
properties and the VGC Assets, including in respect of any names under, or
locations at, which any of the foregoing has or had since 1993 maintained a
distribution facility.
7.1.8 Consents.
All material consents required to effectuate the
transactions contemplated hereby as set forth on Schedule 6.1.13 shall have been
obtained.
<PAGE>
7.1.9 Officer's Certificate Regarding MACs.
Since December 31, 1995, no Material Adverse Change
shall have occurred; prior to the Closing Date, there shall have been no
material change in the management of the Company; and there shall have been
delivered to the Agent for the benefit of each Bank a certificate dated the
Closing Date and signed by the Chief Executive Officer, President or Chief
Financial Officer of the Company to each such effect.
7.1.10 No Violation of Laws.
The making of the Loans and the issuance of the
Letters of Credit shall not contravene any Law applicable to any Loan Party or
any of the Banks.
7.1.11 No Actions or Proceedings.
No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which, in the
Agent's sole discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the other Loan Documents.
7.1.12 Insurance Policies.
All premiums on the Borrowers' insurance policies
shall have been paid.
7.1.13 Existing Lenders Payoff.
The Loan Parties shall have delivered to the Agent
such executed payoff letters, termination statements, satisfactions, releases,
consents, cancelled notes and loan documents as shall be required by the Agent
to evidence the termination of all obligations of the Loan Parties (including
with respect to letters of credit) to Existing Lenders except for up to
$5,000,000 unsecured term loan Indebtedness owing to First Union National Bank
(the "Permitted First Union Debt") and unsecured reimbursement Indebtedness for
up to $500,000 face amount letters of credit.
7.2 Each Additional Loan.
At the time of making any Loans or issuing any Letters of
Credit other than Loans made or Letters of Credit issued on the Closing Date and
after giving effect to the proposed extensions of credit: the representations
and warranties of the Loan Parties contained in Section 6 and in the other Loan
Documents shall be true on and as of the date of such additional Loan or Letter
of Credit with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
<PAGE>
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof; no Event of Default or Potential Default
shall have occurred and be continuing or shall exist; the making of the Loans or
issuance of such Letter of Credit shall not contravene any Law applicable to any
Loan Party or Subsidiary of any Loan Party or any of the Banks; and the
Borrowers shall have delivered to the Agent a duly executed and completed Loan
Request or application for a Letter of Credit as the case may be.
8. COVENANTS
8.1 Affirmative Covenants.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings, and interest thereon, expiration or termination of all
Letters of Credit, satisfaction of all of the Loan Parties' other Obligations
under the Loan Documents and termination of the Commitments, the Loan Parties
shall comply at all times with the following affirmative covenants:
8.1.1 Preservation of Existence, Etc.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain its legal existence as a corporation, limited
partnership or limited liability company and its license or qualification and
good standing in each jurisdiction in which its ownership or lease of property
or the nature of its business makes such license or qualification necessary,
except as otherwise expressly permitted in Section 8.2.6.
8.1.2 Payment of Liabilities, Including Taxes, Etc.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, duly pay and discharge all liabilities to which it is subject
or which are asserted against it, promptly as and when the same shall become due
and payable, including all taxes, assessments and governmental charges upon it
or any of its properties, assets, income or profits, prior to the date on which
penalties attach thereto, except to the extent that such liabilities, including
taxes, assessments or charges, are being contested in good faith and by
appropriate and lawful proceedings diligently conducted and for which such
reserve or other appropriate provisions, if any, as shall be required by GAAP
shall have been made, but only to the extent that failure to discharge any such
liabilities would not result in any additional liability which would adversely
affect to a material extent the financial condition of any Loan Party or
Subsidiary of any Loan Party, provided that the Loan Parties and their
Subsidiaries will pay all such liabilities forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor.
<PAGE>
8.1.3 Maintenance of Insurance.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, insure its properties and assets against loss or damage by fire
and such other insurable hazards as such assets are commonly insured (including
fire, extended coverage, property damage, workers' compensation and public
liability) and against other risks (including errors and omissions) in such
amounts as similar properties and assets are insured by prudent companies in
similar circumstances carrying on similar businesses, and with reputable and
financially sound insurers, including self-insurance to the extent customary. At
the request of the Agent, the Loan Parties shall deliver to the Agent and each
of the Banks from time to time a summary schedule indicating all insurance then
in force with respect to each of the Loan Parties.
8.1.4 Maintenance of Properties and Leases.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in good repair, working order and condition (ordinary
wear and tear excepted) in accordance with the general practice of other
businesses of similar character and size, all of those properties useful or
necessary to its business, and from time to time, such Loan Party will make or
cause to be made all appropriate repairs, renewals or replacements thereof.
8.1.5 Maintenance of Patents, Trademarks, Etc.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect all patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and other
authorizations necessary for the ownership and operation of its properties and
business if the failure so to maintain the same would constitute a Material
Adverse Change.
8.1.6 Visitation Rights.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, permit any of the officers or authorized employees or
representatives of the Agent or any of the Banks to visit and inspect any of its
properties and to examine and make excerpts from its books and records and
discuss its business affairs, finances and accounts with its officers, all in
such detail and at such times and as often as any of the Banks may reasonably
request, provided that each Bank shall provide the Borrowers and the Agent with
reasonable notice prior to any visit or inspection. In the event any Bank
desires to conduct an audit of any Loan Party, such Bank shall make a reasonable
effort to conduct such audit contemporaneously with any audit to be performed by
the Agent.
8.1.7 Keeping of Records and Books of Account.
The Borrowers shall, and shall cause each Subsidiary
of the Borrowers to, maintain and keep proper books of record and account which
<PAGE>
enable the Borrowers and their Subsidiaries to issue financial statements in
accordance with GAAP and as otherwise required by applicable Laws of any
Official Body having jurisdiction over the Borrowers or any Subsidiary of the
Borrowers, and in which full, true and correct entries shall be made in all
material respects of all its dealings and business and financial affairs.
8.1.8 Plans and Benefit Arrangements.
The Borrowers shall, and shall cause each other
member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and
other applicable Laws applicable to Plans and Benefit Arrangements except where
such failure, alone or in conjunction with any other failure, would not result
in a Material Adverse Change. Without limiting the generality of the foregoing,
the Borrowers shall cause all of their Plans and all Plans maintained by any
member of the ERISA Group to be funded in accordance with the minimum funding
requirements of ERISA and shall make, and cause each member of the ERISA Group
to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
8.1.9 Compliance with Laws.
Each Loan Party shall, and shall cause each of its
Subsidiaries to, comply with all applicable Laws, including all Environmental
Laws, in all respects, provided that it shall not be deemed to be a violation of
this Section 8.1.9 if any failure to comply with any Law would not result in
fines, penalties, remediation costs, other similar liabilities or injunctive
relief which in the aggregate would constitute a Material Adverse Change.
8.1.10 Use of Proceeds.
8.1.10.1 General.
The Loan Parties will use the Letters of Credit and
the proceeds of the Loans only for (i) general corporate purposes and for
working capital, (ii) to finance Permitted Acquisitions including the purchase
of the VGC Assets, and (iii) to repay and terminate all Indebtedness owing to
Existing Lenders. The Loan Parties' use of the Letters of Credit and the
proceeds of the Loans for any purposes which contravenes any applicable Law or
any provision hereof.
8.1.10.2 Margin Stock.
The Loan Parties shall not use the proceeds of the
Loans to purchase margin stock as more fully provided in Section 6.1.10.
8.1.10.3 Section 20 Subsidiaries.
The Loan Parties will not, directly or indirectly,
use any portion of the proceeds of the Loans (i) knowingly to purchase any
Ineligible Securities from a Section 20 Subsidiary during any period in which
such Section 20 Subsidiary makes a market in such Ineligible Securities, (ii)
<PAGE>
knowingly to purchase during the underwriting or placement period Ineligible
Securities being underwritten or privately placed by a Section 20 Subsidiary, or
(iii) to make payments of principal or interest on Ineligible Securities
underwritten or privately placed by as Section 20 Subsidiary and issued by or
for the benefit of any Loan Party or any Affiliate of any Loan Party.
8.1.11 Further Assurances.
Each Loan Party shall, from time to time, at its
expense, faithfully preserve and protect the Agent's and the Banks' rights
hereunder and under the Loan Documents.
8.1.12 Subordination of Intercompany Loans.
Each Loan Party shall cause any intercompany
Indebtedness, loans or advances owed by any Loan Party to any other Loan Party
to be subordinated pursuant to the terms of the Intercompany Subordination
Agreement.
8.2 Negative Covenants.
The Loan Parties, jointly and severally, covenant and agree
that until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and termination of the Commitments, the Loan Parties shall comply with the
following negative covenants:
8.2.1 Indebtedness.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time create, incur, assume or suffer
to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on Schedule
8.2.1 (including any extensions or renewals thereof, provided there is no
increase in the amount thereof or other significant change in the terms thereof
unless otherwise specified on Schedule 8.2.1;
(iii) Capitalized and operating leases;
(iv) Indebtedness secured by Purchase Money Security
Interests not exceeding $3,500,000;
(v) Indebtedness of a Loan Party to another Loan
Party which is subordinated in accordance with the provisions of Section 8.1.12;
<PAGE>
(vi) other unsecured Indebtedness not exceeding
$10,000,000 principal amount; and
(vii) the Permitted First Union Debt.
8.2.2 Liens.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time create, incur, assume or suffer
to exist any Lien on any of its property or assets, tangible or intangible, now
owned or hereafter acquired, or agree or become liable to do so, except
Permitted Liens and no Loan Party shall consent or agree to, permit or suffer to
exist any agreement with, or assurance to, any Person prohibiting the creation
of a Lien in favor of the Agent or the Banks, except as shown on Schedule 8.2.2.
8.2.3 Guaranties.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time, directly or indirectly, become
or be liable in respect of any Guaranty, or assume, guarantee, become surety
for, endorse or otherwise agree, become or remain directly or contingently
liable upon or with respect to any obligation or liability of any other Person,
except for Guaranties of Indebtedness of the Loan Parties permitted hereunder,
Guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, Guaranties of
obligations or Borrowers' customers less than $100,000 in the aggregate or the
Guaranty of VWR Corporation's obligation to make supplemental retirement
payments to Richard E. Engebrecht.
8.2.4 Loans and Investments.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time make or suffer to remain
outstanding any loan or advance to, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) or limited liability company interest in, or any other investment or
interest in, or make any capital contribution to, any other Person, or agree,
become or remain liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary
terms in the ordinary course of business;
(ii) advances to employees to meet expenses incurred
by such employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) loans, advances and investments in other Loan
Parties; and
<PAGE>
(v) acceptance of capital stock of another Person as
payment of, or to secure payment of, obligations not exceeding in the aggregate
$100,000 owing to a Loan Party;
(vi) relocation expenses and loans not to exceed
$500,000 to employees; and
(vii) other loans and investments not exceeding
$1,000,000.
8.2.5 [RESERVED]
8.2.6 Liquidations, Mergers, Consolidations,
Acquisitions.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs,
or become a party to any merger or consolidation, or acquire by purchase, lease
or otherwise all or substantially all of the assets or capital stock of any
other Person, provided that
(1) any Loan Party may consolidate or merge into
another Loan Party,
(2) any Loan Party may acquire, whether by purchase
or by merger, (A) all of the ownership interests of another Person or (B)
substantially all of assets of another Person or of a business or division of
another Person (each an "Permitted Acquisition"), provided that each of the
following requirements is met:
(ii) if the Loan Parties are acquiring the ownership
interests in such Person, such Person shall execute a Joinder and join this
Agreement as a Borrower pursuant to Section 11.18 and such Person and comply
with Section 11.18 on or before the date of such Permitted Acquisition.
(iii) the board of directors or other equivalent
governing body of such Person shall have approved such Permitted Acquisition and
the Loan Parties shall have delivered to the Banks written evidence of such
approval prior to such Permitted Acquisition,
(iv) the business acquired, or the business conducted
by the Person whose ownership interests are being acquired, as applicable, shall
be substantially the same as one or more line or lines of business conducted by
the Loan Parties and shall comply with Section 8.2.10,
(v) no Potential Default or Event of Default shall
exist immediately prior to and after giving effect to such Permitted
Acquisition,
(vi) the Borrowers shall demonstrate that it shall be
in compliance with the covenants contained in Sections 8.2.16, 8.2.17 and 8.2.18
after giving effect to such Permitted Acquisition by delivering at least twenty
(20) calendar days prior to such Permitted Acquisition a certificate in the form
of Exhibit 8.2.6 evidencing such compliance, and
<PAGE>
(vii) excluding the purchase of the VGC Assets, the
Consideration paid by the Loan Parties for such Acquisition shall not exceed
$12,500,000 and after giving effect to such Permitted Acquisition, the
Consideration paid by the Loan Parties for all Permitted Acquisitions (excluding
the purchase of the VGC Assets) made since the Closing Date shall not exceed
$20,000,000;
provided however, that notwithstanding the foregoing, the timely purchase of the
VGC Assets by the Company pursuant to the VGC Asset Agreement shall be a
"Permitted Acquisition".
8.2.7 Dispositions of Assets or Subsidiaries.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or
otherwise transfer or dispose of, voluntarily or involuntarily, any of its
properties or assets, tangible or intangible (including sale, assignment,
discount or other disposition of accounts, contract rights, chattel paper,
equipment or general intangibles with or without recourse or of capital stock,
shares of beneficial interest, partnership interests or limited liability
company interests of a Subsidiary of such Loan Party), except:
(i) transactions involving the sale of inventory in
the ordinary course of business;
(ii) any sale, transfer or lease of assets in the
ordinary course of business which are no longer necessary or required in the
conduct of such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any
wholly owned Subsidiary of such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets in the
ordinary course of business which are replaced by substitute assets acquired or
leased;
(v) any other sale, transfer or lease of assets
having an aggregate value not greater than 5% of the Company's consolidated
assets; or
(vi) any sale, transfer or lease of assets, other
than those specifically excepted pursuant to clauses (i) through (v) above,
which is approved by the Required Banks.
8.2.8 Affiliate Transactions.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, enter into or carry out any transaction
<PAGE>
(including purchasing property or services from or selling property or services
to any Affiliate of any Loan Party or other Person) unless such transaction is
not otherwise prohibited by this Agreement, is entered into in the ordinary
course of business upon fair and reasonable arm's-length terms and conditions
which are fully disclosed to the Agent and is in accordance with all applicable
Law.
8.2.9 Subsidiaries, Partnerships and Joint Ventures.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, own or create directly or indirectly any
Subsidiaries other than (i) any Subsidiary which has joined this Agreement as a
Borrower on the Closing Date; and (ii) any Subsidiary formed after the Closing
Date which joins this Agreement as a Borrower pursuant to Section 11.18,
provided that the Required Banks shall have consented to such formation and
joinder. Except for (or in connection with) investments permitted by Section
8.2.4(v), each of the Loan Parties shall not become or agree to (1) become a
general or limited partner in any general or limited partnership, except that
the Loan Parties may be general or limited partners in other Loan Parties, (2)
become a member or manager of, or hold a limited liability company interest in,
a limited liability company, except that the Loan Parties may be members or
managers of, or hold limited liability company interests in, other Loan Parties,
or (3) become a joint venturer or hold a joint venture interest in any joint
venture.
8.2.10 Continuation of or Change in Business.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than the
distribution and sale of imaging, publishing and printing products, systems
integration and related services substantially as conducted and operated by such
Loan Party or Subsidiary during the present fiscal year, and such Loan Party or
Subsidiary shall not permit any material change in such business.
8.2.11 Plans and Benefit Arrangements.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to:
(i) fail to satisfy the minimum funding requirements
of ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the
Internal Revenue Service with respect to any Plan;
<PAGE>
(iii) engage in a Prohibited Transaction with any
Plan, Benefit Arrangement or Multiemployer Plan which, alone or in conjunction
with any other circumstances or set of circumstances resulting in liability
under ERISA, would constitute a Material Adverse Change;
(iv) permit the accumulated benefit obligations for
all Plans taken together to exceed the aggregate fair market value of the assets
in such Plans;
(v) fail to make when due any contribution to any
Multiemployer Plan that the Borrowers or any member of the ERISA Group may be
required to make under any agreement relating to such Multiemployer Plan, or any
Law pertaining thereto;
(vi) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to
withdraw) from any Multiple Employer Plan, where any such withdrawal is likely
to result in a material liability of the Borrowers or any member of the ERISA
Group;
(vii) terminate, or institute proceedings to
terminate, any Plan, where such termination is likely to result in a material
liability to the Borrowers or any member of the ERISA Group;
(viii) make any amendment to any Plan with respect to
which security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all
disclosures and governmental filings required under ERISA or the Internal
Revenue Code, where such failure is likely to result in a Material Adverse
Change.
8.2.12 Fiscal Year.
The Borrowers shall not, and shall not permit any
Subsidiary of the Borrowers to, change its fiscal year from the twelve-month
period beginning January 1 and ending December 31.
8.2.13 Issuance of Stock.
The Company shall not permit any of its Subsidiaries
to, issue any additional shares of its capital stock or any options, warrants or
other rights in respect thereof other than to the Company.
8.2.14 Changes in Organizational Documents.
Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, amend in any respect its certificate of
incorporation (including any provisions or resolutions relating to capital
<PAGE>
stock), certificate of limited partnership, partnership agreement, certificate
of formation, limited liability company agreement or other organizational
documents without providing at least thirty (30) calendar days' prior written
notice to the Agent and the Banks and, in the event such change would be adverse
to the Banks as determined by the Agent in its sole discretion, obtaining the
prior written consent of the Required Banks except in connection with
transactions permitted by Section 8.2.6(1).
8.2.15 [RESERVED]
8.2.16 Minimum Fixed Charge Coverage Ratio.
The Loan Parties shall not permit the Fixed Charge
Coverage Ratio, calculated as of the end of each fiscal quarter for the four (4)
fiscal quarters then ended, to be less than 1.25 to 1.0.
8.2.17 Maximum Leverage Ratio.
The Loan Parties shall not at any time permit the
Leverage Ratio to exceed the ratios set forth below for the periods specified
below:
Period Ratio
12/31/96 through 9/30/97 4.25-to-1.0
12/31/97 through 3/31/98 3.75-to-1.0
6/30/98 and thereafter 3.50-to-1.0
8.2.18 Minimum Tangible Net Worth.
The Borrowers shall not at any time permit
Consolidated Tangible Net Worth to be less than $37,900,000 plus 50% of
consolidated net income of the Company and its Subsidiaries for each fiscal
quarter in which net income is earned (as opposed to a net loss) during the
period from June 30, 1996 to the date of determination.
8.3 Reporting Requirements.
The Loan Parties, jointly and severally, covenant and
agree that until payment in full of the Loans, Reimbursement Obligations and
Letter of Credit Borrowings and interest thereon, expiration or termination of
all Letters of Credit, satisfaction of all of the Loan Parties' other
Obligations hereunder and under the other Loan Documents and termination of the
Commitments, the Loan Parties will furnish or cause to be furnished to the Agent
and each of the Banks:
<PAGE>
8.3.1 Quarterly Financial Statements.
As soon as available and in any event within
forty-five (45) calendar days after the end of each of the first three fiscal
quarters in each fiscal year, financial statements of the Company, consisting of
a consolidated balance sheet as of the end of such fiscal quarter and related
consolidated statements of income for the fiscal quarter then ended and the
fiscal year through that date and cash flows for the fiscal year through that
date, all in reasonable detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President or Chief Financial
Officer of the Company as having been prepared in accordance with GAAP,
consistently applied, and setting forth in comparative form the respective
financial statements for the corresponding date and period in the previous
fiscal year.
8.3.2 Annual Financial Statements.
As soon as available and in any event within ninety
(90) days after the end of each fiscal year of the Company, financial statements
of the Company consisting of a consolidated balance sheet as of the end of such
fiscal year, and related consolidated statements of income, stockholders' equity
and cash flows for the fiscal year then ended, all in reasonable detail and
setting forth in comparative form the financial statements as of the end of and
for the preceding fiscal year, and certified by independent certified public
accountants of nationally recognized standing satisfactory to the Agent. The
certificate or report of accountants shall be free of qualifications (other than
any consistency qualification that may result from a change in the method used
to prepare the financial statements as to which such accountants concur) and
shall not indicate the occurrence or existence of any event, condition or
contingency which would materially impair the prospect of payment or performance
of any covenant, agreement or duty of any Loan Party under any of the Loan
Documents.
8.3.3 Borrowing Base Certificate.
On or before the fifteenth (15th) calendar day of
each calendar month, the Borrower shall deliver to the Bank a Borrowing Base
Certificate. The Borrowing Base Certificate shall reflect Borrower's calculation
of the Borrowing Base as of the last day of the preceding calendar month, and a
comparison of such number to the Commitment and to the amount of outstanding
Obligations.
<PAGE>
8.3.4 Certificate of the Borrowers.
Concurrently with the financial statements of the
Borrowers furnished to the Agent and to the Banks pursuant to Sections 8.3.1 and
8.3.2, a certificate of the Borrowers signed by the Chief Executive Officer,
President or Chief Financial Officer of the Company and the President or
Treasurer of the other Loan Parties, in the form of Exhibit 8.3.4, to the effect
that, except as described pursuant to Section 8.3.5, (i) the representations and
warranties of the Borrowers contained in Section 6 and in the other Loan
Documents are true on and as of the date of such certificate with the same
effect as though such representations and warranties had been made on and as of
such date (except representations and warranties which expressly relate solely
to an earlier date or time) and the Loan Parties have performed and complied
with all covenants and conditions hereof, (ii) no Event of Default or Potential
Default exists and is continuing on the date of such certificate and (iii)
containing calculations in sufficient detail to demonstrate compliance as of the
date of such financial statements with all financial covenants contained in
Section 8.2.
8.3.5 Notice of Default.
Promptly after any officer of any Loan Party has
learned of the occurrence of an Event of Default or Potential Default, a
certificate signed by the Chief Executive Officer, President or Chief Financial
Officer of such Loan Party setting forth the details of such Event of Default or
Potential Default and the action which the such Loan Party proposes to take with
respect thereto. 8.3.6 Notice of Litigation.
Promptly after the commencement thereof, notice of
all actions, suits, proceedings or investigations before or by any Official Body
or any other Person against any Loan Party or Subsidiary of any Loan Party
involve a claim or series of claims in excess of $1,000,000 or which if
adversely determined would constitute a Material Adverse Change.
8.3.7 Certain Events.
Written notice to the Agent:
(i) at least thirty (30) calendar days prior thereto,
with respect to any proposed sale or transfer of assets pursuant to Section
8.2.7(iv) or (vi); and
(ii) within the time limits set forth in Section
8.2.14, any amendment to the organizational documents of any Loan Party.
<PAGE>
8.3.8 Budgets, Forecasts, Other Reports and
Information.
Promptly upon their becoming available to the
Borrowers:
(i) the annual forecasts or projections of the
Borrowers, to be supplied not later than thirty (30) days prior to commencement
of the fiscal year to which any of the foregoing may be applicable (the Agent
having received prior to the Closing Date the 1997 forecasts and projections),
(ii) any reports including management letters
submitted to the Borrowers by independent accountants in connection with any
annual, interim or special audit,
(iii) any reports, notices or proxy statements
generally distributed by the Company to its stockholders on a date no later than
the date supplied to such stockholders,
(iv) regular or periodic reports, including Forms
10-K, 10-Q and 8-K, registration statements and prospectuses, filed by the
Company with the Securities and Exchange Commission,
(v) a copy of any material order in any proceeding to
which the Borrowers or any of their Subsidiaries is a party issued by any
Official Body,
(vi) notices of any amendments or changes of any Loan
Party's bylaws or other governing documents or charters, and
(vii) such other reports and information as any of
the Banks may from time to time reasonably request. The Borrowers shall also
notify the Banks promptly of the enactment or adoption of any Law of which any
Loan Party becomes aware which may result in a Material Adverse Change.
8.3.9 Notices Regarding Plans and Benefit
Arrangements.
8.3.9.1 Certain Events.
Promptly upon becoming aware of the occurrence
thereof, notice (including the nature of the event and, when known, any action
taken or threatened by the Internal Revenue Service or the PBGC with respect
thereto) of:
(i) any Reportable Event with respect to the
Borrowers or any other member of the ERISA Group (regardless of whether the
obligation to report said Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject
the Borrowers or any other member of the ERISA Group to a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, any Benefit Arrangement or
any trust created thereunder,
<PAGE>
(iii) any assertion of material withdrawal liability
with respect to any Multiemployer Plan,
(iv) any partial or complete withdrawal from a
Multiemployer Plan by the Borrowers or any other member of the ERISA Group under
Title IV of ERISA (or assertion thereof), where such withdrawal is likely to
result in material withdrawal liability,
(v) any cessation of operations (by the Borrowers or
any other member of the ERISA Group) at a facility in the circumstances
described in Section 4062(e) of ERISA,
(vi) withdrawal by the Borrowers or any other member
of the ERISA Group from a Multiple Employer Plan,
(vii) a failure by the Borrowers or any other member
of the ERISA Group to make a payment to a Plan required to avoid imposition of a
Lien under Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA, or
(ix) any change in the actuarial assumptions or
funding methods used for any Plan, where the effect of such change is to
materially increase or materially reduce the unfunded benefit liability or
obligation to make periodic contributions.
8.3.9.2 Notices of Involuntary Termination and Annual
Reports.
Promptly after receipt thereof, copies of (a) all
notices received by the Borrowers or any other member of the ERISA Group of the
PBGC's intent to terminate any Plan administered or maintained by the Borrowers
or any member of the ERISA Group, or to have a trustee appointed to administer
any such Plan; and (b) at the request of the Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrowers or any
other member of the ERISA Group, and schedules showing the amounts contributed
to each such Plan by or on behalf of the Borrowers or any other member of the
ERISA Group in which any of their personnel participate or from which such
personnel may derive a benefit, and each Schedule B (Actuarial Information) to
the annual report filed by the Borrowers or any other member of the ERISA Group
with the Internal Revenue Service with respect to each such Plan.
<PAGE>
8.3.9.3 Notice of Voluntary Termination.
Promptly upon the filing thereof, copies of any Form
5310, or any successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
9. DEFAULT
9.1 Events of Default.
An Event of Default shall mean the occurrence or existence of
any one or more of the following events or conditions (whatever the reason
therefor and whether voluntary, involuntary or effected by operation of Law):
9.1.1 Payments Under Loan Documents.
The Borrowers shall fail to pay any principal of any
Loan (including scheduled installments, mandatory prepayments or the payment due
at maturity), Reimbursement Obligation or Letter of Credit Borrowing or shall
fail to pay any interest on any Loan , Reimbursement Obligation or Letter of
Credit Borrowing or any other amount owing hereunder or under the other Loan
Documents after such principal, interest or other amount becomes due in
accordance with the terms hereof or thereof;
9.1.2 Breach of Warranty.
Any representation or warranty made at any time by
any of the Loan Parties herein or by any of the Loan Parties in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or furnished;
9.1.3 Breach of Negative Covenants or Visitation
Rights.
Any of the Loan Parties shall default in the
observance or performance of any covenant contained in Section 8.1.6 or Section
8.2;
9.1.4 Breach of Other Covenants.
Any of the Loan Parties shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of ten (10) Business Days after any officer of any Loan Party becomes
aware of the occurrence thereof (such grace period to be applicable only in the
event such default can be remedied by corrective action of the Loan Parties as
determined by the Agent in its sole discretion);
<PAGE>
9.1.5 Defaults in Other Agreements or Indebtedness.
A default or event of default shall occur at any time
under the terms of any other agreement involving borrowed money or the extension
of credit or any other Indebtedness under which any Loan Party or Subsidiary of
any Loan Party may be obligated as a borrower or guarantor in excess of
$1,000,000 in the aggregate, and such breach, default or event of default
consists of the failure to pay (beyond any period of grace permitted with
respect thereto, whether waived or not) any indebtedness when due (whether at
stated maturity, by acceleration or otherwise) or if such breach or default
permits or causes the acceleration of any indebtedness (whether or not such
right shall have been waived) or the termination of any commitment to lend;
9.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of
money in excess of $250,000 in the aggregate shall be entered against any Loan
Party by a court having jurisdiction in the premises, which judgment is not
discharged, vacated, bonded or stayed pending appeal within a period of thirty
(30) days from the date of entry;
9.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the party executing the same or
such party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged or contested by any of the Loan
Parties or cease to give or provide the respective Liens, security interests,
rights, titles, interests, remedies, powers or privileges intended to be created
thereby;
9.1.8 Uninsured Losses; Proceedings Against Assets.
There shall occur any material uninsured damage to or
loss, theft or destruction of any of the property of the Borrowers in excess of
$500,000 or the property of the Borrowers or any other of the Loan Parties' or
any of their Subsidiaries' assets are attached, seized, levied upon or subjected
to a writ or distress warrant; or such come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors and the
same is not cured within thirty (30) days thereafter;
9.1.9 Notice of Lien or Assessment.
A notice of Lien or assessment in excess of $500,000
which is not a Permitted Lien is filed of record with respect to all or any part
of any of the Loan Parties' or any of their Subsidiaries' assets by the United
States, or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency, including the PBGC, or any taxes
or debts owing at any time or times hereafter to any one of these becomes
payable and the same is not paid within thirty (30) days after the same becomes
payable;
<PAGE>
9.1.10 Insolvency.
Any Loan Party or any Subsidiary of a Loan Party
ceases to be solvent or admits in writing its inability to pay its debts as they
mature;
9.1.11 Events Relating to Plans and Benefit
Arrangements.
Any of the following occurs: (i) any Reportable
Event, which the Agent determines in good faith constitutes grounds for the
termination of any Plan by the PBGC or the appointment of a trustee to
administer or liquidate any Plan, shall have occurred and be continuing; (ii)
proceedings shall have been instituted or other action taken to terminate any
Plan, or a termination notice shall have been filed with respect to any Plan;
(iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the
PBGC shall give notice of its intent to institute proceedings to terminate any
Plan or Plans or to appoint a trustee to administer or liquidate any Plan; and,
in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent
determines in good faith that the amount of the Borrowers' liability is likely
to exceed 10% of its Consolidated Tangible Net Worth; (v) the Borrowers or any
member of the ERISA Group shall fail to make any contributions when due to a
Plan or a Multiemployer Plan; (vi) the Borrowers or any other member of the
ERISA Group shall make any amendment to a Plan with respect to which security is
required under Section 307 of ERISA; (vii) the Borrowers or any other member of
the ERISA Group shall withdraw completely or partially from a Multiemployer
Plan; (viii) the Borrowers or any other member of the ERISA Group shall withdraw
(or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple
Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by
any Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), the Agent determines in
good faith that any such occurrence would be reasonably likely to materially and
adversely affect the total enterprise represented by the Borrowers and the other
members of the ERISA Group;
9.1.12 Cessation of Business.
Any Loan Party or Subsidiary of a Loan Party ceases
to conduct its business as contemplated, except as expressly permitted under
Section 8.2.6 or 8.2.7, or any Loan Party or Subsidiary of a Loan Party is
enjoined, restrained or in any way prevented by court order from conducting all
or any material part of its business and such injunction, restraint or other
preventive order is not dismissed within thirty (30) days after the entry
thereof;
9.1.13 Change of Control.
(i) Any person or group of persons (within the
meaning of Sections 13(a) or 14(a) of the Securities Exchange Act of 1934, as
amended) shall have acquired beneficial ownership of (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said Act) 30%
or more of the voting capital stock of the Company; or (ii) within a period of
twelve (12) consecutive calendar months, individuals who were directors of the
Company on the first day of such period shall cease to constitute a majority of
the board of directors of the Company;
<PAGE>
9.1.14 Involuntary Proceedings.
A proceeding shall have been instituted in a court
having jurisdiction in the premises seeking a decree or order for relief in
respect of any Loan Party or Subsidiary of a Loan Party in an involuntary case
under any applicable bankruptcy, insolvency, reorganization or other similar law
now or hereafter in effect, or for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or similar official) of
any Loan Party or Subsidiary of a Loan Party for any substantial part of its
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
thirty (30) consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding; or
9.1.15 Voluntary Proceedings.
Any Loan Party or Subsidiary of a Loan Party shall
commence a voluntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, shall consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or other similar official) of itself or for any
substantial part of its property or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action in furtherance of any of the foregoing.
9.2 Consequences of Event of Default.
9.2.1 Events of Default Other Than Bankruptcy,
Insolvency or Reorganization Proceedings.
If an Event of Default specified under Sections 9.1.1
through 9.1.13 shall occur and be continuing, the Banks and the Agent shall be
under no further obligation to make Loans or issue Letters of Credit, as the
case may be, and the Agent may, and upon the request of the Required Banks,
shall (i) by written notice to the Borrowers, declare the unpaid principal
amount of the Notes then outstanding and all interest accrued thereon, any
unpaid fees and all other Indebtedness of the Borrowers to the Banks hereunder
and thereunder to be forthwith due and payable, and the same shall thereupon
become and be immediately due and payable to the Agent for the benefit of each
Bank without presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived, and (ii) require the Borrowers to, and the
Borrowers shall thereupon, deposit in a non-interest bearing account with the
Agent, as cash collateral for its Obligations under the Loan Documents, an
amount equal to the maximum amount currently or at any time thereafter available
to be drawn on all outstanding Letters of Credit, and the Borrowers hereby
pledge to the Agent and the Banks, and grants to the Agent and the Banks a
security interest in, all such cash as security for such Obligations. Upon the
curing of all existing Events of Default to the satisfaction of the Required
Banks, the Agent shall return such cash collateral to the Borrowers; and
<PAGE>
9.2.2 Bankruptcy, Insolvency or Reorganization
Proceedings.
If an Event of Default specified under Section 9.1.14
or 9.1.15 shall occur, the Banks shall be under no further obligations to make
Loans hereunder and the unpaid principal amount of the Notes then outstanding
and all interest accrued thereon, any unpaid fees and all other Indebtedness of
the Borrowers to the Banks hereunder and thereunder shall be immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived; and
9.2.3 Set-off.
If an Event of Default shall occur and be continuing,
any Bank to whom any Obligation is owed by any Loan Party hereunder or under any
other Loan Document or any participant of such Bank which has agreed in writing
to be bound by the provisions of Section 10.13 and any branch, Subsidiary or
Affiliate of such Bank or participant anywhere in the world shall have the
right, in addition to all other rights and remedies available to it, without
notice to such Loan Party, to set-off against and apply to the then unpaid
balance of all the Loans and all other Obligations of the Borrowers and the
other Loan Parties hereunder or under any other Loan Document any debt owing to,
and any other funds held in any manner for the account of, the Borrowers or such
other Loan Party by such Bank or participant or by such branch, Subsidiary or
Affiliate, including all funds in all deposit accounts (whether time or demand,
general or special, provisionally credited or finally credited, or otherwise)
now or hereafter maintained by the Borrowers or such other Loan Party for its
own account (but not including funds held in custodian or trust accounts) with
such Bank or participant or such branch, Subsidiary or Affiliate. Such right
shall exist whether or not any Bank or the Agent shall have made any demand
under this Agreement or any other Loan Document, whether or not such debt owing
to or funds held for the account of the Borrowers or such other Loan Party is or
are matured or unmatured and regardless of the existence or adequacy of any
Guaranty or any other security, right or remedy available to any Bank or the
Agent; and
9.2.4 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing,
and whether or not the Agent shall have accelerated the maturity of Loans
pursuant to any of the foregoing provisions of this Section 9.2, the Agent or
any Bank, if owed any amount with respect to the Notes, may proceed to protect
and enforce its rights by suit in equity, action at law and/or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Agreement or the Notes, including as permitted by applicable
Law the obtaining of the ex parte appointment of a receiver, and, if such amount
shall have become due, by declaration or otherwise, proceed to enforce the
payment thereof or any other legal or equitable right of the Agent or such Bank;
and
<PAGE>
9.2.5 Application of Proceeds.
From and after the date on which the Agent has taken
any action pursuant to this Section 9.2 and until all Obligations of the Loan
Parties have been paid in full, any and all proceeds received by the Agent from
any sale or other disposition of any property of the Borrowers, or any part
thereof, or the exercise of any other remedy by the Agent, shall be applied as
follows:
(i) first, to reimburse the Agent and the Banks for
out-of-pocket costs, expenses and disbursements, including reasonable attorneys'
and paralegals' fees and legal expenses, incurred by the Agent or the Banks in
connection with collection of any Obligations of any of the Loan Parties under
any of the Loan Documents, including advances made by the Banks or any one of
them or the Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, the Collateral, including advances for
taxes, insurance, repairs and the like and reasonable expenses incurred to sell
or otherwise realize on, or prepare for sale or other realization on, any of the
property of the Borrowers;
(ii) second, to the repayment of all Indebtedness
then due and unpaid of the Loan Parties to the Banks incurred under this
Agreement or any of the other Loan Documents, whether of principal, interest,
fees, expenses or otherwise, in such manner as the Agent may determine in its
discretion; and
(iii) the balance, if any, as required by Law.
9.2.6 Other Rights and Remedies.
In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents (including the
Mortgage), the Agent shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code or other applicable Law, all of which
rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by Law. The Agent may, and upon the request of the Required Banks
shall, exercise all post-default rights granted to the Agent and the Banks under
the Loan Documents or applicable Law.
9.3 Notice of Sale.
Any notice required to be given by the Agent of a sale, lease,
or other disposition of the property of the Borrowers or any other intended
action by the Agent, if given ten (10) days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to the Borrowers.
<PAGE>
10. THE AGENT
10.1 Appointment.
Each Bank hereby irrevocably designates, appoints and
authorizes PNC Bank to act as Agent for such Bank under this Agreement and to
execute and deliver or accept on behalf of each of the Banks the other Loan
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of a Note shall be deemed irrevocably to authorize, the Agent
to take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and any other instruments and agreements referred to
herein, and to exercise such powers and to perform such duties hereunder as are
specifically delegated to or required of the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. PNC Bank agrees to act as
the Agent on behalf of the Banks to the extent provided in this Agreement.
10.2 Delegation of Duties.
The Agent may perform any of its duties hereunder by or
through agents or employees (provided such delegation does not constitute a
relinquishment of its duties as Agent) and, subject to Sections 10.5 and 10.6,
shall be entitled to engage and pay for the advice or services of any attorneys,
accountants or other experts concerning all matters pertaining to its duties
hereunder and to rely upon any advice so obtained.
10.3 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and no implied covenants, functions,
responsibilities, duties, obligations, or liabilities shall be read into this
Agreement or otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement a
fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Without limiting the generality of the foregoing,
the use of the term "agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable Law. Instead, such term is used
merely as a matter of market custom, and is intended to create or reflect only
an administrative relationship between independent contracting parties. Each
Bank expressly acknowledges (i) that the Agent has not made any representations
or warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of any of the Loan Parties, shall be deemed to constitute
any representation or warranty by the Agent to any Bank; (ii) that it has made
and will continue to make, without reliance upon the Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of each of the Loan Parties in connection with this
Agreement and the making and continuance of the Loans hereunder; and (iii)
except as expressly provided herein, that the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of any Loan or at any time or times thereafter.
<PAGE>
10.4 Actions in Discretion of Agent; Instructions
from the Banks.
The Agent agrees, upon the written request of the Required
Banks, to take or refrain from taking any action of the type specified as being
within the Agent's rights, powers or discretion herein, provided that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or any other Loan Document or
applicable Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of the Required
Banks or all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
10.6. Subject to the provisions of Section 10.6, no Bank shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
10.5 Reimbursement and Indemnification of Agent by
the Borrowers.
The Borrowers unconditionally agree to pay or reimburse the
Agent and hold the Agent harmless against (a) liability for the payment of all
reasonable out-of-pocket costs, expenses and disbursements, including fees and
expenses of counsel (including the allocated costs of staff counsel), appraisers
and environmental consultants, incurred by the Agent (i) subject to the terms of
the Agent's Letter, in connection with the development, negotiation,
preparation, printing, execution, administration, syndication, interpretation
and performance of this Agreement and the other Loan Documents, (ii) relating to
any requested amendments, waivers or consents pursuant to the provisions hereof,
(iii) in connection with the enforcement of this Agreement or any other Loan
Document or collection of amounts due hereunder or thereunder or the proof and
allowability of any claim arising under this Agreement or any other Loan
Document, whether in bankruptcy or receivership proceedings or otherwise, and
(iv) in any workout or restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by the Agent hereunder or thereunder, provided that the Borrowers shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements if the
same results from the Agent's gross negligence or willful misconduct, or if the
Borrowers were not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense (except that the Borrowers
shall remain liable to the extent such failure to give notice does not result in
a loss to the Borrowers), or if the same results from a compromise or settlement
agreement entered into without the consent of the Borrowers, which shall not be
unreasonably withheld. In addition, the Borrowers agree to reimburse and pay all
reasonable out-of-pocket expenses of the Agent's regular employees and agents
engaged periodically to perform audits of the Loan Parties' books, records and
business properties.
<PAGE>
10.6 Exculpatory Provisions; Limitation of Liability.
Neither the Agent nor any of its directors, officers,
employees, agents, attorneys or Affiliates shall (a) be liable to any Bank for
any action taken or omitted to be taken by it or them hereunder, or in
connection herewith including pursuant to any Loan Document, unless caused by
its or their own gross negligence or willful misconduct, (b) be responsible in
any manner to any of the Banks for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement or any other Loan
Documents or for any recital, representation, warranty, document, certificate,
report or statement herein or made or furnished under or in connection with this
Agreement or any other Loan Documents, or (c) be under any obligation to any of
the Banks to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions hereof or thereof on the part of the Loan
Parties, or the financial condition of the Loan Parties, or the existence or
possible existence of any Event of Default or Potential Default. No claim may be
made by any of the Loan Parties, any Bank, the Agent or any of their respective
Subsidiaries against the Agent, any Bank or any of their respective directors,
officers, employees, agents, attorneys or Affiliates, or any of them, for any
special, indirect or consequential damages or, to the fullest extent permitted
by Law, for any punitive damages in respect of any claim or cause of action
(whether based on contract, tort, statutory liability, or any other ground)
based on, arising out of or related to any Loan Document or the transactions
contemplated hereby or any act, omission or event occurring in connection
therewith, including the negotiation, documentation, administration or
collection of the Loans, and each of the Loan Parties, (for itself and on behalf
of each of its Subsidiaries), the Agent and each Bank hereby waive, releases and
agree never to sue upon any claim for any such damages, whether such claim now
exists or hereafter arises and whether or not it is now known or suspected to
exist in its favor. Each Bank agrees that, except for notices, reports and other
documents expressly required to be furnished to the Banks by the Agent hereunder
or given to the Agent for the account of or with copies for the Banks, the Agent
and each of its directors, officers, employees, agents, attorneys or Affiliates
shall not have any duty or responsibility to provide any Bank with an credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Loan Parties
which may come into the possession of the Agent or any of its directors,
officers, employees, agents, attorneys or Affiliates.
10.7 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the
extent not reimbursed by the Borrowers and without limiting the Obligation of
the Borrowers to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
<PAGE>
costs, expenses or disbursements, including attorneys' fees and disbursements
(including the allocated costs of staff counsel), and costs of appraisers and
environmental consultants, of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder, provided that
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (a) if the same results from the Agent's gross negligence or
willful misconduct, or (b) if such Bank was not given notice of the subject
claim and the opportunity to participate in the defense thereof, at its expense
(except that such Bank shall remain liable to the extent such failure to give
notice does not result in a loss to the Bank), or (c) if the same results from a
compromise and settlement agreement entered into without the consent of such
Bank, which shall not be unreasonably withheld. In addition, each Bank agrees
promptly upon demand to reimburse the Agent (to the extent not reimbursed by the
Borrowers and without limiting the Obligation of the Borrowers to do so) in
proportion to its Ratable Share for all amounts due and payable by the Borrowers
to the Agent in connection with the Agent's periodic audit of the Loan Parties'
books, records and business properties.
10.8 Reliance by Agent.
The Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent, certificate,
letter, cablegram, statement, order or other document or conversation by
telephone or otherwise believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon the advice and
opinions of counsel and other professional advisers selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action
hereunder unless it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
10.9 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Potential Default or Event of Default unless the Agent has
received written notice from a Bank or the Borrowers referring to this
Agreement, describing such Potential Default or Event of Default and stating
that such notice is a "notice of default."
10.10 Notices.
The Agent shall promptly send to each Bank a copy of all
notices received from the Borrowers pursuant to the provisions of this Agreement
or the other Loan Documents promptly upon receipt thereof. The Agent shall
promptly notify the Borrowers and the other Banks of each change in the Base
Rate and the effective date thereof.
<PAGE>
10.11 Banks in Their Individual Capacities.
With respect to its Commitment, the Loans, and any other
rights and powers given to it as a Bank hereunder or under any of the other Loan
Documents, the Agent shall have the same rights and powers hereunder as any
other Bank and may exercise the same as though it were not the Agent, and the
term "Banks" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. PNC Bank and its Affiliates and each of the Banks and
their respective Affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts for, act
as trustee under indentures of, and generally engage in any kind of banking or
trust business with, the Loan Parties and their Affiliates, in the case of the
Agent, as though it were not acting as Agent hereunder and in the case of each
Bank, as though such Bank were not a Bank hereunder. The Banks acknowledge that,
pursuant to such activities, the Agent or its Affiliates may (i) receive
information regarding the Loan Parties (including information that may be
subject to confidentiality obligations in favor of the Loan Parties) and
acknowledge that the Agent shall be under no obligation to provide such
information to them, and (ii) accept fees and other consideration from the Loan
Parties for services in connection with this Agreement and otherwise without
having to account for the same to the Banks.
10.12 Holders of Notes.
The Agent may deem and treat any payee of any Note as the
owner thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Agent. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
10.13 Equalization of Banks.
The Banks and the holders of any participations in any Notes
agree among themselves that, with respect to all amounts received by any Bank or
any such holder for application on any Obligation hereunder or under any Note or
under any such participation, whether received by voluntary payment, by
realization upon security, by the exercise of the right of set-off or banker's
lien, by counterclaim or by any other non-pro rata source, equitable adjustment
will be made in the manner stated in the following sentence so that, in effect,
all such excess amounts will be shared ratably among the Banks and such holders
in proportion to their interests in payments under the Notes, except as
otherwise provided in Section 4.4.3, 5.4.2 or 5.6. The Banks or any such holder
receiving any such amount shall purchase for cash from each of the other Banks
an interest in such Bank's Loans in such amount as shall result in a ratable
participation by the Banks and each such holder in the aggregate unpaid amount
under the Notes, provided that if all or any portion of such excess amount is
thereafter recovered from the Bank or the holder making such purchase, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, together with interest or other amounts, if any, required by law
(including court order) to be paid by the Bank or the holder making such
purchase.
<PAGE>
10.14 Successor Agent.
The Agent (i) may resign as Agent or (ii) shall resign if such
resignation is required by Section 5.4.2, in either case of (i) or (ii) by
giving not less than thirty (30) days' prior written notice to the Borrowers. If
the Agent shall resign under this Agreement, then either (a) the Required Banks
shall appoint from among the Banks a successor agent for the Banks, subject to
the consent of the Borrowers, such consent not to be unreasonably withheld, or
(b) if a successor agent shall not be so appointed and approved within the
thirty (30) day period following the Agent's notice to the Banks of its
resignation, then the Agent shall appoint, with the consent of the Borrowers,
such consent not to be unreasonably withheld, a successor agent who shall serve
as Agent until such time as the Required Banks appoint and the Borrowers consent
to the appointment of a successor agent. Upon its appointment pursuant to either
clause (a) or (b) above, such successor agent shall succeed to the rights,
powers and duties of the Agent, and the term "Agent" shall mean such successor
agent, effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated without any other or further act or deed on
the part of such former Agent or any of the parties to this Agreement. After the
resignation of any Agent hereunder, the provisions of this Section 10 shall
inure to the benefit of such former Agent and such former Agent shall not by
reason of such resignation be deemed to be released from liability for any
actions taken or not taken by it while it was an Agent under this Agreement.
10.15 [RESERVED]
10.16 Availability of Funds.
The Agent may assume that each Bank has made or will make the
proceeds of a Loan available to the Agent unless the Agent shall have been
notified by such Bank on or before the close of Business on the Business Day
preceding the Borrowing Date with respect to such Loan (whether using its own
funds pursuant to this Section 10.15 or using proceeds deposited with the Agent
by the Banks and whether such funding occurs before or after the time on which
Banks are required to deposit the proceeds of such Loan with the Agent). The
Agent may, in reliance upon such assumption (but shall not be required to), make
available to the Borrowers a corresponding amount. If such corresponding amount
is not in fact made available to the Agent by such Bank, the Agent shall be
entitled to recover such amount on demand from such Bank (or, if such Bank fails
to pay such amount forthwith upon such demand from the Borrowers) together with
interest thereon, in respect of each day during the period commencing on the
date such amount was made available to the Borrowers and ending on the date the
Agent recovers such amount, at a rate per annum equal to the applicable interest
rate in respect of the Loan.
<PAGE>
10.17 Calculations.
In the absence of gross negligence or willful misconduct, the
Agent shall not be liable for any error in computing the amount payable to any
Bank whether in respect of the Loans, fees or any other amounts due to the Banks
under this Agreement. In the event an error in computing any amount payable to
any Bank is made, the Agent, the Borrowers and each affected Bank shall,
forthwith upon discovery of such error, make such adjustments as shall be
required to correct such error, and any compensation therefor will be calculated
at the Federal Funds Effective Rate.
10.18 Beneficiaries.
Except as expressly provided herein, the provisions of this
Section 10 are solely for the benefit of the Agent and the Banks, and the Loan
Parties shall not have any rights to rely on or enforce any of the provisions
hereof. In performing its functions and duties under this Agreement, the Agent
shall act solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any of the Loan Parties.
11. MISCELLANEOUS
11.1 Modifications, Amendments or Waivers.
With the written consent of the Required Banks, the Agent,
acting on behalf of all the Banks, and the Borrowers, on behalf of the Loan
Parties, may from time to time enter into written agreements amending or
changing any provision of this Agreement or any other Loan Document or the
rights of the Banks or the Loan Parties hereunder or thereunder, or may grant
written waivers or consents to a departure from the due performance of the
Obligations of the Loan Parties hereunder or thereunder. Any such agreement,
waiver or consent made with such written consent shall be effective to bind all
the Banks and the Loan Parties; provided, that, without the written consent of
all the Banks, no such agreement, waiver or consent may be made which will:
11.1.1 Increase of Commitment; Extension or
Expiration Date.
Increase the amount of the Commitment of any Bank
hereunder or extend the Expiration Date;
11.1.2 Extension of Payment; Reduction of Principal
Interest or Fees; Modification
of Terms of Payment.
Whether or not any Loans are outstanding, extend the
time for payment of principal or interest of any Loan (excluding the due date of
any mandatory prepayment of a Loan or any mandatory Commitment reduction in
<PAGE>
connection with such a mandatory prepayment hereunder except for mandatory
reductions of the Commitments on the Expiration Date), the Commitment Fee or any
other fee payable to any Bank, or reduce the principal amount of or the rate of
interest borne by any Loan or reduce the Commitment Fee or any other fee payable
to any Bank, or otherwise affect the terms of payment of the principal of or
interest of any Loan, the Commitment Fee or any other fee payable to any Bank;
11.1.3 Miscellaneous
Amend Section 5.2 [Pro Rata Treatment of Banks], 10.6
[Exculpatory Provisions, etc.] or 10.13 [Equalization of Banks] or this Section
11.1, alter any provision regarding the pro rata treatment of the Banks, change
the definition of Required Banks, or change any requirement providing for the
Banks or the Required Banks to authorize the taking of any action hereunder;
provided, further, that no agreement, waiver or consent which would modify the
interests, rights or obligations of the Agent in its capacity as Agent or as the
issuer of Letters of Credit shall be effective without the written consent of
the Agent
11.2 No Implied Waivers; Cumulative Remedies; Writing
Required.
No course of dealing and no delay or failure of the Agent or
any Bank in exercising any right, power, remedy or privilege under this
Agreement or any other Loan Document shall affect any other or future exercise
thereof or operate as a waiver thereof, nor shall any single or partial exercise
thereof or any abandonment or discontinuance of steps to enforce such a right,
power, remedy or privilege preclude any further exercise thereof or of any other
right, power, remedy or privilege. The rights and remedies of the Agent and the
Banks under this Agreement and any other Loan Documents are cumulative and not
exclusive of any rights or remedies which they would otherwise have. Any waiver,
permit, consent or approval of any kind or character on the part of any Bank of
any breach or default under this Agreement or any such waiver of any provision
or condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing.
11.3 Reimbursement and Indemnification of Banks by
the Borrowers; Taxes.
The Borrowers agree unconditionally upon demand to pay or
reimburse to each Bank (other than the Agent, as to which the Borrowers'
Obligations are set forth in Section 10.5) and to save such Bank harmless
against (i) liability for the payment of all reasonable out-of-pocket costs,
expenses and disbursements (including fees and expenses of counsel (including
allocated costs of staff counsel) for each Bank except with respect to (a) and
(b) below), incurred by such Bank (a) in connection with the administration and
interpretation of this Agreement, and other instruments and documents to be
delivered hereunder, (b) relating to any amendments, waivers or consents
pursuant to the provisions hereof, (c) in connection with the enforcement of
this Agreement or any other Loan Document, or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising under
this Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (d) in any workout or restructuring or in
<PAGE>
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, or
(ii) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against such Bank,
in its capacity as such, arising out of this Agreement or any other Loan
Documents or any action taken or omitted by such Bank hereunder or thereunder,
provided that the Borrowers shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (A) if the same results from such Bank's gross
negligence or willful misconduct, or (B) if the Borrowers were not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense (except that the Borrowers shall remain liable to the extent such
failure to give notice does not result in a loss to the Borrowers), or (C) if
the same results from a compromise or settlement agreement entered into without
the consent of the Borrowers, which shall not be unreasonably withheld. The
Banks will attempt to minimize the fees and expenses of legal counsel for the
Banks which are subject to reimbursement by the Borrowers hereunder by
considering the usage of one law firm to represent the Banks and the Agent if
appropriate under the circumstances. The Borrowers agree unconditionally to pay
all stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Agent or any Bank to be payable
in connection with this Agreement or any other Loan Document, and the Borrowers
agree unconditionally to save the Agent and the Banks harmless from and against
any and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions.
11.4 Holidays.
Whenever payment of a Loan to be made or taken hereunder shall
be due on a day which is not a Business Day such payment shall be due on the
next Business Day and such extension of time shall be included in computing
interest and fee, except that the Loans shall be due on the Business Day
preceding the Expiration Date if the Expiration Date is not a Business Day.
Whenever any payment or action to be made or taken hereunder (other than payment
of the Loans) shall be stated to be due on a day which is not a business Day,
such payment or action shall be made or taken on the next following Business Day
(except as provided in Section 4.2 with respect to Interest Periods under the
LIBO Rate Option), and such extension of time shall not be included in computing
interest or fees, if any, in connection with such payment or action.
11.5 Funding by Branch, Subsidiary or Affiliate.
11.5.1 Notional Funding.
Each Bank shall have the right from time to time,
without notice to the Borrowers, to deem any branch, Subsidiary or Affiliate
(which for the purposes of this Section 11.5 shall mean any corporation or
association which is directly or indirectly controlled by or is under direct or
<PAGE>
indirect common control with any corporation or association which directly or
indirectly controls such Bank) of such Bank to have made, maintained or funded
any Loan to which the LIBO Rate Option applies at any time, provided that
immediately following (on the assumption that a payment were then due from the
Borrowers to such other office), and as a result of such change, the Borrowers
would not be under any greater financial obligation pursuant to Section 5.6 than
it would have been in the absence of such change. Notional funding offices may
be selected by each Bank without regard to such Bank's actual methods of making,
maintaining or funding the Loans or any sources of funding actually used by or
available to such Bank.
11.5.2 Actual Funding.
Each Bank shall have the right from time to time to
make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of
such Bank to make or maintain such Loan subject to the last sentence of this
Section 11.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or
maintain any part of the Loans hereunder, all terms and conditions of this
Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Loans to the same extent as if such Loans were
made or maintained by such Bank, but in no event shall any Bank's use of such a
branch, Subsidiary or Affiliate to make or maintain any part of the Loans
hereunder cause such Bank or such branch, Subsidiary or Affiliate to incur any
cost or expenses payable by the Borrowers hereunder or require the Borrowers to
pay any other compensation to any Bank (including any expenses incurred or
payable pursuant to Section 5.6) which would otherwise not be incurred.
11.6 Notices.
All notices, requests, demands, directions and other
communications (as used in this Section 11.6, collectively referred to as
"notices") given to or made upon any party hereto under the provisions of this
Agreement shall be by telephone or in writing (including telex or facsimile
communication) unless otherwise expressly permitted hereunder and shall be
delivered or sent by telex or facsimile to the respective parties at the
addresses and numbers set forth under their respective names on Schedule 1.1(B)
hereof or in accordance with any subsequent unrevoked written direction from any
party to the others. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when received, (b)
in the case of hand-delivered notice, when hand-delivered, (c) in the case of
telephone, when telephoned, provided, however, that in order to be effective,
telephonic notices must be confirmed in writing no later than the next day by
letter or facsimile, (d) if given by mail, four (4) days after such
communication is deposited in the mail with first-class postage prepaid, return
receipt requested, and (e) if given by any other means (including by air
courier), when delivered; provided, that notices to the Agent shall not be
effective until received. Any Bank giving any notice to any Loan Party shall
simultaneously send a copy thereof to the Agent, and the Agent shall promptly
notify the other Banks of the receipt by it of any such notice.
<PAGE>
11.7 Severability.
The provisions of this Agreement are intended to be severable.
If any provision of this Agreement shall be held invalid or unenforceable in
whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
11.8 Governing Law.
Each Letter of Credit and Section 2.9 shall be subject to the
Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, as the same may be
revised or amended from time to time, and to the extent not inconsistent
therewith, the internal laws of the Commonwealth of Pennsylvania without regard
to its conflict of laws principles and the balance of this Agreement shall be
deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and
for all purposes shall be governed by and construed and enforced in accordance
with the internal laws of the Commonwealth of Pennsylvania without regard to its
conflict of laws principles.
11.9 Prior Understanding.
This Agreement and the other Loan Documents supersede all
prior understandings and agreements, whether written or oral, between the
parties hereto and thereto relating to the transactions provided for herein and
therein, including any prior confidentiality agreements and commitments.
11.10 Duration; Survival.
All representations and warranties of the Loan Parties
contained herein or made in connection herewith shall survive the making of
Loans and issuance of Letters of Credit and shall not be waived by the execution
and delivery of this Agreement, any investigation by the Agent or the Banks, the
making of Loans, issuance of Letters of Credit, or payment in full of the Loans.
All covenants and agreements of the Loan Parties contained in Sections 8.1, 8.2
and 8.3 herein shall continue in full force and effect from and after the date
hereof so long as the Borrowers may borrow or request Letters of Credit
hereunder and until termination of the Commitments and payment in full of the
Loans and expiration or termination of all Letters of Credit. All covenants and
agreements of the Borrowers contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Section 5 and Sections
10.5, 10.7 and 11.3, shall survive payment in full of the Loans, expiration or
termination of the Letters of Credit and termination of the Commitments.
<PAGE>
11.11 Successors and Assigns.
(i) This Agreement shall be binding upon and shall
inure to the benefit of the Banks, the Agent, the Loan Parties and their
respective successors and assigns, except that none of the Loan Parties may
assign or transfer any of its rights and Obligations hereunder or any interest
herein. Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Commitment and the Loans made by it to
one or more banks or other entities, subject to the consent of the Borrowers and
the Agent with respect to any assignee, such consent not to be unreasonably
withheld, provided that (1) no consent of the Borrowers shall be required in the
case of an assignment by a Bank to an Affiliate of such Bank, and (2)
assignments may not be made in amounts less than $5,000,000. In the case of an
assignment, upon receipt by the Agent of the Assignment and Assumption
Agreement, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it had been a signatory Bank hereunder, the Commitments shall be
adjusted accordingly, and upon surrender of any Note subject to such assignment,
the Borrowers shall execute and deliver a new Note to the assignee in an amount
equal to the amount of the Commitment assumed by it and a new Note to the
assigning Bank in an amount equal to the Commitment retained by it hereunder.
The assigning Bank shall pay to the Agent a service fee in the amount of $3,500
for each assignment. In the case of a participation, the participant shall only
have the rights specified in Section 9.2.3 (the participant's rights against
such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto and
not to include any voting rights except with respect to changes of the type
referenced in Sections 11.1.1, 11.1.2, or 11.1.3 all of such Bank's obligations
under this Agreement or any other Loan Document shall remain unchanged, and all
amounts payable by any Loan Party hereunder or thereunder shall be determined as
if such Bank had not sold such participation.
(ii) Any assignee or participant which is not
incorporated under the Laws of the United States of America or a state thereof
shall deliver to the Borrowers and the Agent the form of certificate described
in Section 11.17 relating to federal income tax withholding. Each Bank may
furnish any publicly available information concerning any Loan Party or its
Subsidiaries and any other information concerning any Loan Party or its
Subsidiaries in the possession of such Bank from time to time to assignees and
participants (including prospective assignees or participants), provided that
such assignees and participants agree to be bound by the provisions of Section
11.12.
(iii) Notwithstanding any other provision in this
Agreement, any Bank may at any time pledge or grant a security interest in all
or any portion of its rights under this Agreement, its Note and the other Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent
of the Borrowers or the Agent. No such pledge or grant of a security interest
shall release the transferor Bank of its obligations hereunder or under any
other Loan Document.
<PAGE>
11.12 Confidentiality.
The Agent and the Banks each agree to keep confidential all
information obtained from any Loan Party or its Subsidiaries which is nonpublic
and confidential or proprietary in nature (including any information the
Borrowers specifically designate as confidential), except as provided below, and
to use such information only in connection with their respective capacities
under this Agreement and for the purposes contemplated hereby. The Agent and the
Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration and enforcement of this
Agreement, subject to agreement of such Persons to maintain the confidentiality,
(ii) to assignees and participants as contemplated by Section 11.11, (iii) to
the extent requested by any bank regulatory authority or, with notice to the
Borrowers, as otherwise required by applicable Law or by any subpoena or similar
legal process, or in connection with any investigation or proceeding arising out
of the transactions contemplated by this Agreement, (iv) if it becomes publicly
available other than as a result of a breach of this Agreement or becomes
available from a source not known to be subject to confidentiality restrictions,
or (v) if the Borrowers shall have consented to such disclosure.
11.13 Counterparts.
This Agreement may be executed by different parties hereto on
any number of separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall together
constitute one and the same instrument.
11.14 Agent's or Bank's Consent.
Whenever the Agent's or any Bank's consent is required to be
obtained under this Agreement or any of the other Loan Documents as a condition
to any action, inaction, condition or event, the Agent and each Bank shall be
authorized to give or withhold such consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral, the
payment of money or any other matter.
11.15 Exceptions.
The representations, warranties and covenants contained herein
shall be independent of each other, and no exception to any representation,
warranty or covenant shall be deemed to be an exception to any other
representation, warranty or covenant contained herein unless expressly provided,
nor shall any such exceptions be deemed to permit any action or omission that
would be in contravention of applicable Law.
<PAGE>
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF PHILADELPHIA COUNTY
AND THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA,
AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH
LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY
WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST
IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
11.17 Tax Withholding Clause.
Each Bank or assignee or participant of a Bank that is not
incorporated under the Laws of the United States of America or a state thereof
agrees that it will deliver to each of the Borrowers and the Agent two (2) duly
completed copies of the following: (i) Internal Revenue Service Form W-9, 4224
or 1001, or other applicable form prescribed by the Internal Revenue Service,
certifying that such Bank, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes, or is subject to such tax
at a reduced rate under an applicable tax treaty, or (ii) Internal Revenue
Service Form W-8 or other applicable form or a certificate of such Bank,
assignee or participant indicating that no such exemption or reduced rate is
allowable with respect to such payments. Each Bank, assignee or participant
required to deliver to the Borrowers and the Agent a form or certificate
pursuant to the preceding sentence shall deliver such form or certificate as
follows: (A) each Bank which is a party hereto on the Closing Date shall deliver
such form or certificate at least five (5) Business Days prior to the first date
on which any interest or fees are payable by the Borrowers hereunder for the
account of such Bank; (B) each assignee or participant shall deliver such form
or certificate at least five (5) Business Days before the effective date of such
assignment or participation (unless the Agent in its sole discretion shall
permit such assignee or participant to deliver such form or certificate less
than five (5) Business Days before such date in which case it shall be due on
the date specified by the Agent). Each Bank, assignee or participant which so
delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of
the Borrowers and the Agent two (2) additional copies of such form (or a
successor form) on or before the date that such form expires or becomes obsolete
or after the occurrence of any event requiring a change in the most recent form
so delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by the Borrowers or the Agent, either
certifying that such Bank, assignee or participant is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes or is subject to such tax
at a reduced rate under an applicable tax treaty or stating that no such
exemption or reduced rate is allowable. The Agent shall be entitled to withhold
United States federal income taxes at the full withholding rate unless the Bank,
assignee or participant establishes an exemption or that it is subject to a
reduced rate as established pursuant to the above provisions.
<PAGE>
11.18 Joinder Of Borrowers.
Any Subsidiary of a Loan Party which is required to join this
Agreement as a Borrower pursuant to Section 8.2.9 shall execute and deliver to
the Agent (i) a Joinder in substantially the form attached hereto as Exhibit
1.1(J) pursuant to which it shall join (subject to Section 5.7) as a Borrower
each of the documents to which the Borrowers are parties; and (ii) documents in
the forms described in Section 7.1 modified as appropriate to relate to such
Subsidiary. The Company shall deliver such Joinder and related documents to the
Agent within five (5) Business Days after the date of the filing of such
Subsidiary's articles of incorporation if the Subsidiary is a corporation, the
date of the filing of its certificate of limited partnership if it is a limited
partnership, the date of its organization if it is an entity other than a
limited partnership or corporation or the date of its acquisitions by any Loan
Party, as applicable.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.
ATTEST: PRIMESOURCE CORPORATION
By:
Title:
[Seal]
ATTEST: DIXIE TYPE & SUPPLY COMPANY,
INC.
By:
Title:
[Seal]
ATTEST: ONONDAGA LITHO SUPPLY CO., INC.
By:
Title:
[Seal]
PNC BANK, NATIONAL ASSOCIATION, individually and as
Agent
By:
Title:
<PAGE>
SCHEDULE 1.1(B)COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 1 of 2
Part 1--Commitments of Banks and Addresses for Notices to Banks
Bank Amount of Commitment Ratable Share
PNC Bank, N.A.
1600 Market Street
21st Floor
Philadelphia, PA 19103
Attention: Robert Q. Reilly
Telephone: (215) 585-7484 $50,000,000 100%
Telecopy: (215) 585-7669
Total $50,000,000 100%
<PAGE>
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 2 of 2
Part 2--Addresses for Notices to Borrower
AGENT
PNC Bank, N.A.
1600 Market Street, 21st Floor
Philadelphia, PA 19103
Attention: Robert Q. Reilly
Telephone: (215) 585-7484
Telecopy: (215) 585-7669
BORROWER:
PrimeSource Corporation
Fairway Corporate Center
4350 Haddonfield Road, Suite 222
Pennsauken, NJ 08109
Attention: Chief Financial Officer
Telephone: (609) 486-2985
Telecopy: (609) 486-2999
with a copy to:
PrimeSource Corporation
355 Treck Drive
Seattle, Washington 98188
Attention: General Counsel
Telephone: (206) 394-5582
Telecopy: (206) 394-5587
<TABLE>
COMPUTATION OF PER SHARE INCOME
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
(Dollars in thousands, except per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding 6,538,279 6,525,042 4,911,485
Net effect of dilutive stock options-
based on the treasury stock method using average
market price 19,710 42,024 52,049
-----------------------------------------------------
Total 6,557,989 6,567,066 4,963,534
-----------------------------------------------------
Net income $ 3,914 $ 1,646 $ 3,531
=====================================================
Per share amount $ .60 $ .25 $ .71
=====================================================
</TABLE>
PARENTS & SUBSIDIARIES OF THE REGISTRANT
There is no parent of the registrant.
The Registrant owns 100% of the outstanding capital stock of the following
subsidiaries:
Jurisdiction of
Business Name of Corporation Incorporation
- --------------------------------------------------------------------------------
Dixie Type & Supply Company, Inc. Alabama
Onondaga Litho Supply Co., Inc.(Inactive at December 31, 1996) New York
All of the aforementioned are included in the Consolidated Financial Statements
of the Registrant filed herewith.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
PrimeSource Corporation and subsidiaries on Form S-8 (File Nos. 33-71638 and
33-87360) of our report dated February 19, 1997, on our audits of the
consolidated financial statements and financial statement schedule of
PrimeSource Corporation and subsidiaries as of December 31, 1996 and 1995 for
the three years in the period ended December 31, 1996, which reports are
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 55,831
<ALLOWANCES> 1,787
<INVENTORY> 48,741
<CURRENT-ASSETS> 112,050
<PP&E> 22,867
<DEPRECIATION> 9,148
<TOTAL-ASSETS> 134,175
<CURRENT-LIABILITIES> 45,010
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 48,118
<TOTAL-LIABILITY-AND-EQUITY> 134,175
<SALES> 366,657
<TOTAL-REVENUES> 366,657
<CGS> 301,428
<TOTAL-COSTS> 301,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 865
<INTEREST-EXPENSE> 1,915
<INCOME-PRETAX> 6,702
<INCOME-TAX> 2,788
<INCOME-CONTINUING> 3,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,914
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
TO BE INCORPORATED BY REFERENCE INTO FORM S-8
REGISTRATION STATEMENTS NO. 33-71638 AND 33-87360
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To include
any prospectus required by section 10(a)(3) of the Securities Act of
1933; (ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the registration statement; (iii) To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; Provided, however, that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8 and the information required to be
included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) Filings incorporating subsequent Exchange Act documents by reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(f) Employee plans on Form S-8.
(1) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus
is sent or given a copy of the registrant's annual report to
stockholders for its last fiscal year, unless such employee otherwise
has received a copy of such report, in which case the registrant shall
state in the prospectus that it will promptly furnish, without charge,
a copy of such report on written request of the employee. If the last
fiscal year of the registrant has ended within 120 days prior to the
use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 days
period the annual report for the last fiscal year will be furnished to
each such employee.
(2) The undersigned registrant hereby undertakes to transmit or cause to be
transmitted to all employees participating in the plan who do not
otherwise receive such material as stockholders of the registrant, at
the time and in the manner such material is sent to its stockholders,
copies of all reports, proxy statements and other communications
distributed to its stockholders generally.
(3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be
transmitted promptly, without charge, to any participant in the plan
who makes a written request, a copy of the then latest annual report of
the plan filed pursuant to section 15(d) of the Securities Exchange Act
of 1934 (Form 11-K). If such report is filed as part of the
registrant's annual report on Form 10-K, that entire report (excluding
exhibits) shall be delivered upon written request. If such report is
filed as part of the registrant's annual report to stockholders
delivered pursuant to paragraph (1) or (2) of this undertaking,
additional delivery shall not be required.
<PAGE>
(i) Acceleration of effectiveness.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other that the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
