<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
PROSOURCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5141 65-0335019
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
550 BILTMORE WAY, 10TH FLOOR
CORAL GABLES, FLORIDA 33134
(305) 529-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID R. PARKER
CHAIRMAN OF THE BOARD
PROSOURCE, INC.
550 BILTMORE WAY, 10TH FLOOR
CORAL GABLES, FLORIDA 33134
(305) 529-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
JOEL I. GREENBERG, ESQ. WINTHROP B. CONRAD, JR., ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP DAVIS POLK & WARDWELL
425 PARK AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 836-8000 (212) 450-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C>
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PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Class A Common Stock, par value $.01 per share.......................... $57,500,000 $19,827.59
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</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act solely for the
purposes of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PROSPECTUS (Subject to Completion)
Issued September 6, 1996
Shares
ProSource, Inc.
CLASS A COMMON STOCK
------------------------
ALL OF THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND
$ . SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
------------------------
APPLICATION HAS BEEN MADE TO HAVE THE CLASS A COMMON STOCK APPROVED FOR
QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "PSDS."
------------------------
THE COMPANY HAS TWO CLASSES OF COMMON STOCK, THE CLASS A COMMON STOCK BEING
OFFERED HEREBY AND CLASS B COMMON STOCK. THE CLASS B COMMON STOCK IS
IDENTICAL TO THE CLASS A COMMON STOCK, EXCEPT WITH RESPECT TO VOTING
POWER AND CONVERSION RIGHTS. EACH SHARE OF CLASS A COMMON STOCK IS
ENTITLED TO ONE VOTE AND EACH SHARE OF CLASS B COMMON STOCK IS
ENTITLED TO TEN VOTES. EACH SHARE OF CLASS B COMMON STOCK IS
CONVERTIBLE INTO CLASS A COMMON STOCK ON A ONE-TO-ONE BASIS AT
ANY TIME AT THE OPTION OF THE HOLDER THEREOF AND IN CERTAIN
OTHER CIRCUMSTANCES. SEE "DESCRIPTION OF CAPITAL STOCK."
------------------------
THE OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (3)............................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1996 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
MERRILL LYNCH & CO.
SMITH BARNEY INC.
, 1996
<PAGE> 3
[ARTWORK -- TO BE FILED BY AMENDMENT]
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
Until , 1996 (25 days after the commencement of the offering),
all dealers effecting transactions in the securities, whether or not
participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments of subscriptions.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Prospectus Summary.................................................................... 3
Risk Factors.......................................................................... 10
Use of Proceeds....................................................................... 14
Dividend Policy....................................................................... 14
Dilution.............................................................................. 15
Capitalization........................................................................ 16
Selected Consolidated Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 19
Business.............................................................................. 27
Management............................................................................ 38
Executive Compensation and Other Matters.............................................. 41
Certain Transactions.................................................................. 47
Principal Stockholders................................................................ 49
Description of Capital Stock.......................................................... 50
Shares Available for Future Sale...................................................... 52
Underwriters.......................................................................... 53
Legal Matters......................................................................... 54
Experts............................................................................... 54
Additional Information................................................................ 54
Financial Statements.................................................................. F-1
</TABLE>
------------------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK (OR OTHER SECURITIES) OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) included elsewhere in this Prospectus. Unless the
context otherwise requires, as used in this Prospectus, (i) the terms "Company"
and "ProSource" mean ProSource, Inc., together with its direct and indirect
wholly-owned subsidiaries, (ii) the term "Common Stock" means, collectively, the
Class A Common Stock and Class B Common Stock to be outstanding immediately
following completion of the offering and (iii) the term "pro forma" or "on a pro
forma basis" with respect to financial information for the Company's fiscal year
ended December 30, 1995 means such information, as adjusted to give effect to
the acquisition by the Company of the National Accounts Division of The
Martin-Brower Company and to the consummation of the offering and the
application of the estimated net proceeds thereof (assuming an initial public
offering price of $ per share) as if such events had occurred on January 1,
1995. Except as otherwise noted, all information in this Prospectus (i) gives
effect to the conversion of all of the Company's outstanding shares of Common
Stock into Class B Common Stock and a for one stock split that will
occur prior to the commencement of the offering (the "Recapitalization") and
(ii) assumes that the Underwriters' over-allotment option is not exercised. The
Company's fiscal year consists of a 52-53 week period ending on the last
Saturday of each calendar year. Fiscal 1994 consisted of 53 weeks.
THE COMPANY
ProSource is the nation's leading independent foodservice distributor
specializing in distribution to chain restaurants and is one of the largest
foodservice distributors in the United States. The Company distributes a wide
variety of items, including fresh and frozen meat and poultry, seafood, frozen
foods, canned and dry goods, fresh and pre-processed produce, beverages, dairy
products, paper goods and cleaning and other supplies. The Company specializes
in providing food and food-related products to two segments of the restaurant
industry -- limited-menu quick service restaurants, including Burger King,
Arby's, Long John Silver's, Sonic, Chick-fil-A, TCBY and Wendy's, and casual
dining restaurants, including Red Lobster, Olive Garden, TGIFriday's and
Chili's.
The Company was formed in 1992 to acquire Burger King Distribution Services
("BKDS"), the "in-house" distributor for Burger King Corporation ("BKC"), which
serviced approximately 4,150 Burger King restaurants. In the four years since
the acquisition, ProSource has, through a combination of acquisitions and
internal growth, become a leading distributor to chain restaurants, servicing
approximately 14,450 restaurants within 18 different restaurant chains. Through
a series of acquisitions during 1993 and 1994, the Company added approximately
1,100 of the restaurants included in its current customer base. In March 1995,
the Company entered the casual dining segment of the restaurant industry and
further expanded its quick service business with the acquisition of the National
Accounts Division ("NAD") of The Martin-Brower Company ("Martin-Brower"), which
added a total of approximately 8,000 restaurants within 12 chains included in
the Company's current customer base. The Company has also been successful in
expanding through internally generated sales. Since its formation, the Company
has added approximately 400 of the Burger King restaurants included in its
current customer base through the growth of existing franchisee customers and
the addition of new customers. The Company has also added approximately 570
Jenny Craig Weight Loss Centres and 150 Sonic restaurants through internal
growth. Since the Company's formation in 1992, net sales have grown from $1.3
billion in 1993 (the first full year of operations) to $4.0 billion in 1995 on a
pro forma basis.
The Company is a "systems" distributor specializing in distribution to
chain restaurants. The Company believes the chain restaurant segment of the
foodservice distribution industry is particularly attractive due to (i) the high
growth rate of the restaurants in this segment, with compound annual growth of
7% over the past three years according to industry sources, primarily due to the
growth of existing chain restaurants and the introduction of new chain
restaurant concepts, (ii) the uniformity of product offerings and consistency of
demand by chain restaurant customers, (iii) the increasingly important focus by
chain restaurants on foodservice distributors that can provide consistent
quality and reliable service on a nationwide basis to maintain the chain's
uniform standards and (iv) the fragmented nature of the foodservice distribution
segment
3
<PAGE> 6
serving chain restaurants, with over 3,000 companies operating in the industry.
The Company believes that the consolidation in this industry will continue as
larger foodservice distributors with nationwide service are better able to meet
the need for consistent quality and reliable service by chain restaurants.
STRATEGIES
The Company believes that it has one of the most comprehensive distribution
networks of any independent distributor serving chain restaurants, based on
geographic coverage. With net sales of $4.0 billion in 1995 on a pro forma
basis, the Company believes, based on its estimates, that it has captured
approximately 10% of the $42 billion chain restaurant distribution market in the
United States. The Company estimates that the next largest independent systems
distributor has a market share of approximately 6%. The Company believes that
its size and scale give it an advantage over its competitors with respect to
purchasing power and lower distribution costs. The Company plans to strengthen
its position as a market leader by continuing to pursue the following strategies
for maximizing profitability and enhancing its long-term growth opportunities.
Pursue Internal and External Growth Opportunities. The Company intends to
continue to grow through a combination of adding new customers and products
within the chains that it currently serves, adding new chains and, where
appropriate, making selective acquisitions of other foodservice distributors.
- Growth With Existing Chains. The chain restaurant segment of the
restaurant industry has historically grown faster than the overall
industry. As the primary distributor to most of its customers, the
Company expects to continue to grow with the chain restaurants it serves.
In addition, the Company believes that there is the opportunity for
increased "product penetration" by increasing the range of products,
including produce, dairy and bakery products, distributed to existing
customers.
- Growth Through Addition of New Chains. The Company is continually
monitoring the marketplace for opportunities to expand the portfolio of
chains that it serves. Primary targets include chains offering menu
categories not covered by the Company's existing customers, chains
operating in geographic areas in which the Company could benefit from
increased customer density, and regional chains which could be added to
the national chains which have traditionally been the Company's focus.
- Selective Acquisitions. The Company believes the fragmented nature of
the industry and consolidation activity offer the Company opportunities
to supplement internal growth through selective acquisitions. The Company
intends to continue to focus its acquisition strategy on systems
specialists that distribute principally to limited-menu quick service and
casual dining chain restaurants which will expand its customer base or
improve geographic customer density.
Margin Improvement/Cost Reduction Programs. The Company is undertaking
several initiatives to increase margins and reduce its overall cost structure.
- Network Optimization. The Company is initiating a major project to
restructure its distribution network and create a new national
distribution system. Through this process, which is expected to take 3-5
years to complete, the Company intends to consolidate and integrate its
existing distribution network of 34 centers into 23 centers consisting of
six large regional distribution centers and 17 local distribution
centers. The Company estimates the capital investment for this network
optimization program will be approximately $27 million and is projecting
cost savings following full implementation of the new system of
approximately $20-25 million annually compared to projected network costs
under its existing system.
- Enhanced Delivery Systems. The Company has recently introduced an
innovative value-added cart delivery system which the Company estimates
should result in restaurant deliveries which are 2-3 times faster than
methods currently used in the industry. The Company is currently using
cart delivery for approximately 17% of its customers and expects to
service approximately 75% through this method within three years. The
Company estimates the capital investment required for implementation of
the cart delivery system will be approximately $8 million and is
projecting cost savings to the Company, when fully implemented, of
approximately $10 million annually compared to projected costs of
4
<PAGE> 7
conventional delivery methods. The Company believes that cart delivery
will also benefit its customers by reducing the disruption caused by
deliveries and labor costs associated with unloading.
- Corporate Unification Program. The Company is in the process of
integrating its preexisting operations with the NAD operations acquired
from Martin-Brower into a new corporate support center located in Coral
Gables, Florida. The corporate support center will allow the Company to
centralize all purchasing, routing, in-bound transportation and
operations support functions. This process, which is expected to be
completed by mid-1997, should reduce overall personnel levels by 75
positions and is expected to result in aggregate costs savings of
approximately $5-6 million annually.
There can be no assurance that any of the above programs will be completed
within the projected time periods or will not have costs or require investment
in excess of the amounts anticipated, or that the projected cost savings will be
realized. See "Risk Factors -- No Assurance of Achieving Anticipated Cost
Savings."
Establish Position as Preeminent Supply Chain Manager. The Company
believes that its size, scale and expertise in foodservice distribution and
transportation systems allow it to assist its customers in managing the entire
chain of supply, from the vendor location to the customer's storeroom. Emphasis
on supply chain management has allowed the Company to identify value-added
services (such as the purchasing of non-proprietary products and transportation
services from the vendor to the distribution center) which the Company can
provide to its customers, resulting in reduced costs for its customers and
improved margins for the Company.
Technological Leadership. The Company believes that it is a leader within
the industry in the application of information technology to its operations. The
Company currently has in place a variety of information technology systems,
including electronic ordering, inventory management, financial and routing
systems. The Company continues to invest in technology. Among a new generation
of information technology being installed are new systems in the area of
electronic customer ordering, "order optimization" to manage the Company's
purchasing and inventory functions, and freight management. In addition, in
connection with its "network optimization" program, the Company intends to put
in place new customer ordering and warehouse management systems.
Service Quality Program. The Company places a significant emphasis on
providing a high level of service to its customers. The Company continuously
measures its service performance levels by monitoring the completeness of the
order, the timeliness of delivery and the customer's satisfaction. The Company
believes it is a leader in the industry in quality and reliability of service to
its customers. By providing a high level of service and reliability, the Company
believes it can reduce the number of reorders and redeliveries, reducing costs
for both the Company and its customers and improving customer loyalty.
5
<PAGE> 8
THE OFFERING
<TABLE>
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Class A Common Stock offered................. shares
Common Stock to be outstanding after the
offering:
Class A Common Stock....................... shares
Class B Common Stock(1).................... shares
Total.............................. shares
Use of Proceeds.............................. To prepay a portion of the Company's
outstanding indebtedness.
Nasdaq National Market Symbol................ "PSDS"
Voting Rights; Dividends..................... Each share of Class A Common Stock is
entitled to one vote and each share of Class
B Common Stock is entitled to ten votes.
Except as otherwise required by law, the
Class A Common Stock and Class B Common Stock
will vote together on all matters submitted
to a vote of stockholders, including the
election of directors. Following the
offering, the outstanding shares of Class A
Common Stock will represent approximately
% of the combined voting power of the
outstanding Common Stock ( % if the
Underwriters' over-allotment option is
exercised in full). Each share of Class B
Common Stock is convertible into Class A
Common Stock on a one-to-one basis at any
time at the option of the holder thereof and
in certain other circumstances. Class A
Common Stock and Class B Common Stock will be
entitled to share ratably, as a single class,
in any dividends declared by the Company on
the Common Stock. See "Description of Capital
Stock."
</TABLE>
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(1) Includes shares of Class B Common Stock to be issued to Onex
Corporation (collectively with its affiliates, "Onex"), or an affiliate
thereof, upon conversion of $2.5 million of principal and $1.0 million of
accrued interest outstanding under a convertible subordinated note (the
"Onex Convertible Note") immediately prior to the offering. Excludes
shares of Class B Common Stock reserved for issuance (i) upon the
exercise of stock options granted under the Company's Amended Management
Option Plan (1995) (the "1995 Option Plan"), (ii) upon the exercise of stock
options granted under the Company's 1996 Stock Option Plan and (iii) under
an outstanding warrant and certain other indebtedness which is convertible
into shares of Class B Common Stock at the option of the holder thereof at
any time. Also excludes shares of Class B Common Stock to be
issued to Onex in consideration for the agreement of Onex to relinquish its
right to receive an annual fee for management services rendered to the
Company. On a fully diluted basis using the treasury stock method, assuming
an initial public offering price equal to the midpoint of the range set
forth on the cover page of this Prospectus, the Company will have
shares of Class B Common Stock issued and outstanding after the offering.
See "Capitalization," "Executive Compensation and Other Matters -- Option
Plans" and "Certain Transactions."
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AND CERTAIN OTHER DATA)
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEARS ENDED SIX MONTHS ENDED
ENDED ------------------------------------------ ----------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1992(a) 1993(b) 1994(c) 1995(d) 1995 1996
------------ ------------ ------------ ------------ ----------- --------------
(26 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $618.4 $1,329.3 $1,598.1 $3,461.8 $ 1,447.8 $2,014.1
Cost of sales................. 560.0 1,210.9 1,464.5 3,193.3 1,332.9 1,859.0
--------- -------- -------- -------- -------- --------
Gross profit.................. 58.4 118.4 133.6 268.5 114.9 155.1
Operating expenses............ 51.7 114.2 131.0 255.2 110.7 149.8
Loss on impairment of
long-lived assets(e)........ -- -- -- -- -- 15.7
Restructuring charges(e)...... -- -- -- 0.7 0.1 10.9
--------- -------- -------- -------- -------- --------
Earnings (loss) from
operations.................. 6.7 4.2 2.6 12.6 4.1 (21.3)
Interest expense, net......... 3.0 5.5 6.6 13.3 6.3 7.3
--------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes and extraordinary
charge...................... 3.7 (1.3) (4.0) (0.7) (2.2) (28.6)
Income tax (provision)
benefit..................... (1.5) 0.5 1.6 (0.1) 1.0 10.6
--------- -------- -------- -------- -------- --------
Earnings (loss) before
extraordinary charge........ 2.2 (0.8) (2.4) (0.8) (1.2) (18.0)
Extraordinary charge, net..... -- -- -- (0.8) (0.8) --
--------- -------- -------- -------- -------- --------
Net earnings (loss)........... $ 2.2 $ (0.8) $ (2.4) $ (1.6) $ (2.0) $ (18.0)
========= ======== ======== ======== ======== ========
PER SHARE DATA:
Earnings (loss) before
extraordinary
charge per common and
common equivalent share.....
Net earnings (loss) per common
and common equivalent
share(f)....................
Average outstanding common and
common equivalent shares....
OTHER DATA:
EBITDA (g)...................... $ 10.2 $ 12.3 $ 10.8 $ 27.4 $ 9.5 $ 11.5
Net operating asset
turnover(h)................... 11.0x 13.6x 16.5x 18.3x 16.9x 18.9x
Depreciation and amortization... $ 3.4 $ 7.9 $ 8.0 $ 12.7 $ 5.6 $ 5.3
Capital expenditures............ $ 1.9 $ 3.5 $ 1.4 $ 5.7 $ 1.7 $ 8.0
Number of restaurants served
(at end of period)............ 4,184 5,113 6,752 14,562 14,700 14,451
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 29, 1996
DECEMBER 31, DECEMBER 25, DECEMBER 31, DECEMBER 30, ----------------------------
1992 1993(b) 1994(c) 1995(d) ACTUAL AS ADJUSTED(i)
------------ ------------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at end of
period):
Working capital............... $ 39.5 $ 42.7 $ 41.6 $ 115.9 $ 113.5 $
Total assets.................. 158.1 200.0 218.3 489.2 502.0
Total debt.................... 61.1 68.5 65.6 163.2 173.4
Stockholders' equity.......... 24.7 25.3 22.5 49.4 32.7
</TABLE>
- ---------------
(a) The Company was formed to effect the acquisition of BKDS on June 30, 1992.
(b) Includes the acquisition of certain operating assets of McCabe's Quality
Foods, California, Inc. on February 27, 1993 and the acquisition of certain
assets and the assumption of certain liabilities of Valley Food Services,
Inc. on March 27, 1993.
(c) Includes the acquisition of certain assets and the assumption of certain
liabilities of Malone Products, Inc. on October 31, 1994.
(d) Includes the acquisition of substantially all of the assets and the
assumption of certain liabilities of NAD on March 31, 1995.
7
<PAGE> 10
(e) Charges resulting from the corporate and network consolidation program,
primarily for termination of leases and losses on the sale of furniture,
equipment and leasehold improvements, loss on impairment in value of land
and owned buildings and certain capitalized software costs.
(f) Computed on the basis described in Note 1(j) of the Notes to Consolidated
Financial Statements.
(g) EBITDA represents earnings (loss) before provision for interest expense,
income taxes, depreciation, amortization, extraordinary charges, loss on
impairment of long-lived assets and restructuring charges. EBITDA should
not be considered in isolation or as a substitute for operating income,
cash flows from operating activities and other income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of the Company's profitability or liquidity.
(h) Annualized net sales divided by the average balance of stockholders' equity
plus long-term debt.
(i) Includes pro forma adjustments to give effect to (i) the consummation of
the offering and (ii) the application of the estimated net proceeds thereof
as described in "Use of Proceeds," assuming an initial offering price equal
to the midpoint of the range set forth on the cover page of this
Prospectus.
FUTURE NON-RECURRING CHARGES TO EARNINGS
The Company expects to incur certain non-recurring charges after the
offering is consummated. These charges are summarized as follows:
Expenses associated with the amendment or termination of various agreements to
be reflected in the quarter in which the offering is consummated:
- A non-cash charge of $ to record the effect of an amendment to
the 1995 Option Plan prior to the offering under which unvested options
will vest according to a specified time schedule. Such charge will equal
the aggregate difference between the initial public offering price of the
Class A Common Stock and the exercise price for such options. Vested
options will be unaffected. See "Executive Compensation and Other
Matters -- Option Plans." Although total stockholders' equity will be
unchanged, there will be an increase in the Company's retained deficit,
which will be offset by a corresponding increase in additional paid-in
capital.
- A charge of $1.3 million for the termination of a consulting agreement
between the Company and certain former owners of Valley Food Services,
Inc., which agreement was due to expire on March 28, 1998.
- Onex currently receives an annual fee for management services rendered to
the Company. Onex has agreed to relinquish its right to receive such fee
upon completion of the offering, in consideration for which Onex will
receive $4.0 million payable in Class B Common Stock valued at the
initial public offering price. See "Certain Transactions -- Onex
Management Fees." Although total stockholders' equity will be unchanged,
there will be an increase in the Company's retained deficit, which will
be offset by a corresponding increase in Common Stock and additional
paid-in capital.
Extraordinary charges:
- A pre-tax charge of up to $10.0 million associated with prepayment
penalties and the write-off of deferred financing costs to the extent and
at the time that the Company replaces its revolving credit facility and
term loans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
8
<PAGE> 11
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED SIX MONTHS ENDED
------------- -------------------------
DECEMBER 30, JULY 1, JUNE 29,
1995(a) 1995(a) 1996(b)
------------- ---------- ----------
(52 WEEKS) (26 WEEKS) (26 WEEKS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 3,993.4 $1,979.4 $2,014.1
Cost of sales........................................ 3,689.4 1,829.1 1,859.0
------------- ---------- ----------
Gross profit......................................... 304.0 150.3 155.1
Operating expenses................................... 290.9 146.4 149.8
Loss on impairment of long-lived assets(c)........... -- -- 15.7
Restructuring charges(c)............................. 0.7 0.1 10.9
------------- ---------- ----------
Earnings (loss) from operations...................... 12.4 3.8 (21.3)
Interest expenses, net............................... 11.1 6.5 4.9
------------- ---------- ----------
Earnings (loss) before income taxes and extraordinary
charge............................................ 1.3 (2.7) (26.2)
Income tax (provision) benefit....................... (0.9) 1.2 9.6
------------- ---------- ----------
Earnings (loss) before extraordinary charges......... 0.4 (1.5) (16.6)
Extraordinary charge, net............................ (0.8) (0.8) --
------------- ---------- ----------
Net earnings (loss).................................. $ (0.4) $ (2.3) $ (16.6)
========== ========= =========
PER SHARE DATA:
Earnings (loss) before extraordinary charge per
common and common equivalent share................
Net earnings (loss) per common and common equivalent
share(d)..........................................
Average outstanding common and common equivalent
shares............................................
</TABLE>
- ---------------
(a) Includes pro forma adjustments to give effect to the acquisition of NAD and
the consummation of the offering and the application of the estimated net
proceeds thereof as described in "Use of Proceeds," assuming an initial
public offering price equal to the midpoint of the range set forth on the
cover page of this Prospectus, as if such events had occurred on January 1,
1995. For a detailed description, see Notes to Unaudited Pro Forma
Condensed Consolidated Financial Information.
(b) Includes pro forma adjustments to give effect to the consummation of the
offering and the application of the estimated net proceeds thereof as
described in "Use of Proceeds," assuming an initial public offering price
equal to the midpoint of the range set forth on the cover page of this
Prospectus, as if such events had occurred on January 1, 1996. For a
detailed description, see Notes to Unaudited Pro Forma Condensed
Consolidated Financial Information.
(c) See Note (e) to Summary Consolidated Financial Data.
(d) See Note (f) to Summary Consolidated Financial Data.
9
<PAGE> 12
RISK FACTORS
In addition to the other information set forth in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing the shares of Class A Common Stock offered
hereby.
Net Losses. Although the Company was profitable in its first six months of
operation in 1992, the Company had net losses of $0.8 million, $2.4 million and
$0.8 million (before an extraordinary charge in 1995 of $0.8 million related to
the write-off of certain deferred debt issuance costs) in 1993, 1994 and 1995,
respectively, due to (i) high interest expense associated with financing
incurred in connection with the formation of the Company and the Company's
subsequent acquisitions, (ii) competitive price pressures resulting in lower
gross margins and (iii) costs associated with the addition of new customers
(both internally and through acquisitions) and the development of new products
and services. In addition, the Company incurred a net loss of $18.0 million in
the six months ended June 29, 1996 due to restructuring charges and losses on
impairment in value of long-lived assets and expects to reflect certain
non-recurring charges to earnings in the quarter in which the offering is
consummated. See "Selected Consolidated Financial Data -- Future Non-recurring
Charges to Earnings." As a result, the Company expects to record a net loss for
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." While the Company intends to use the net proceeds of the
offering to reduce outstanding indebtedness, there can be no assurance that the
Company will not increase the outstanding indebtedness after the offering in
connection with future capital expenditures or acquisitions, or that price
pressures and costs associated with the addition of new customers and the
development of new products and services will not continue to have an adverse
effect on the Company's operating results. Furthermore, there can be no
assurance that the Company will not sustain net losses in the future. See "-- No
Assurance of Achieving Anticipated Cost Savings" and "-- Competition."
Low Margin Business; Inflation. The foodservice distribution industry in
general, and the chain restaurant segment of the industry in which the Company
operates in particular, are characterized by low profit margins and high asset
turnover. As a result, the Company's results of operations are sensitive to, and
may be materially adversely impacted by, among other things, competitive price
pressures, unexpected increases in fuel or other transportation related costs,
severe weather conditions, difficulties with the collectibility of accounts
receivable and inventory losses. There can be no assurance that one or more of
such factors will not adversely affect the Company's operating results. In
addition, a majority of the restaurants served by the Company purchase products
from the Company based on product cost plus a negotiated fixed dollar amount per
unit of measure. Accordingly, while increases in the cost of food and other
products do not reduce the Company's gross profit, such increases do result in a
lower gross profit percentage. Furthermore, inflation in operating expenses
without corresponding productivity increases could adversely affect the
Company's operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Certain Chains and Customers. The Company derives
substantially all of its net sales from certain limited-menu quick service and
casual dining chains. The largest chains serviced by the Company are Burger
King, Red Lobster and Arby's, representing 38%, 15% and 10% of 1995 net sales,
respectively, on a pro forma basis. Adverse developments affecting such chains
or a decision by a corporate owner or franchisor to revoke its approval of the
Company as a distributor could have a material adverse effect on the Company's
operating results.
The Company's customers are generally individual franchisees or
corporate-owned restaurants within such restaurant chains. Although the
corporate owner or franchisor of a chain generally reserves the right to approve
the distributors for its franchisees, each customer makes its selection of a
foodservice distributor from an approved group of distributors. The Company's
largest customer is Darden Restaurants, Inc. (owner of Olive Garden and Red
Lobster), representing 21% of the Company's 1995 net sales on a pro forma basis.
No other customer accounted for more than 10% of the Company's pro forma net
sales in 1995. Adverse events affecting any of the Company's largest customers,
a material decrease in sales to any of such customers or the loss of a major
customer through the acquisition thereof by a company with an internal
foodservice
10
<PAGE> 13
distribution business or otherwise could have a material adverse effect on the
Company's operating results. In addition, the Company's continued growth is
dependent in part on the continued growth and expansion of its customers.
In connection with the acquisition of BKDS in 1992, the Company entered
into an exclusive distributor agreement and related distribution agreements with
BKC, pursuant to which, through 2002, (i) the Company is designated as the
exclusive distributor to BKC's company-owned and operated Burger King
restaurants in the United States (which accounted for 3.9% of 1995 net sales on
a pro forma basis), (ii) the Company is a BKC-approved distributor to franchised
Burger King restaurants in the United States and (iii) BKC has agreed that the
Company will remain the sole national distributor to Burger King restaurants.
The Company has also entered into distribution agreements through 1998 with
Olive Garden and Red Lobster pursuant to which the Company is the primary
distributor to the restaurants owned by Olive Garden and Red Lobster operating
in the United States. Such contracts may be terminated at the option of BKC,
Olive Garden or Red Lobster, as the case may be, upon a material breach by the
Company and under certain other circumstances. See "Business -- Customers."
Ability to Integrate Acquisitions; No Assurance of Future
Acquisitions. The Company has achieved a significant portion of its growth
since 1992 through acquisitions. Although each of the acquired companies has a
significant operating history, the Company has a limited history of owning and
operating these businesses on a consolidated basis. The Company was formed in
1992 to acquire BKDS. Through a series of acquisitions during 1993 and 1994, the
Company added approximately 1,100 of the restaurants included in its current
customer base. In March 1995, the Company entered the casual dining segment of
the restaurant industry and further expanded its quick service business with the
acquisition of NAD from Martin-Brower, its largest acquisition to date, adding
approximately 8,000 of the restaurants included in the Company's current
customer base. While the Company believes that the acquisition of NAD provides
significant opportunities to increase margins and reduce costs through among
other things, the realization of economies of scale through corporate
integration, there can be no assurance that the Company's expectations for the
performance of the combined companies will be met or that management will be
able to successfully implement such integration on a timely, cost-efficient
basis without disruption in the quality and reliability of service to its
customers or diversion of management resources. The integration of such
businesses will also require improvements in the Company's management
information systems which are currently in progress. There can be no assurance,
however, that such improvements will be realized on a timely, cost-efficient
basis.
As part of the Company's growth strategy, the Company will continue to
review acquisition opportunities in the future. There can be no assurance,
however, that the Company will be able to continue to acquire businesses on
satisfactory terms or that it will be able to integrate successfully any such
acquired businesses into existing operations.
No Assurance of Achieving Anticipated Cost Savings. The Company is
undertaking several initiatives to reduce its overall cost structure (the "Cost
Savings Initiatives"). These include (i) a "network optimization" process under
which it intends to consolidate and integrate its existing distribution network
of 34 centers into 23 centers, (ii) a cart delivery system intended to reduce
the time and labor associated with restaurant deliveries and (iii) integration
of its preexisting operations with the NAD operations acquired from Martin-
Brower into a corporate support center. Management estimates that the Cost
Savings Initiatives will result in significant net cost savings for the Company.
See "Business -- Strategies -- Margin Improvement/Cost Reduction Programs" for
an estimate of such savings. These estimates necessarily make numerous
assumptions as to future sales levels and other operating results, the
availability of funds for capital expenditures, as well as general industry and
business conditions and other matters, many of which are beyond the control of
the Company. Management believes that such assumptions are reasonable in light
of existing business conditions and prospects. However, any actual net costs
savings which might be realized by the Company could vary from the estimates
contained herein. Such estimated net cost savings could be impacted by a number
of factors such as inflation and changes in volume or service levels. There also
can be no assurance that unforeseen costs and expenses or other factors will not
offset the projected net cost savings in whole or in part or that such net cost
savings will be achieved.
11
<PAGE> 14
Capacity Constraints; Ability to Implement Network Optimization
Program. The Company's continued growth has created and will continue to create
the need for the expansion and improvement of its facilities. As the Company
nears maximum utilization of a given facility, operations may be constrained and
inefficiencies may be created which could adversely affect operating results
until such time as either such facility is expanded or volume is shifted to
another facility. Conversely as the Company implements its network optimization
program, excess capacity may also create certain inefficiencies and adversely
affect operating results. In addition, there can be no assurance that management
will be able to successfully implement its network optimization program on a
timely, cost-effective basis without disruption in the quality and reliability
of service to its customers or diversion of management resources. See
"Business -- Strategies -- Margin Improvement/Cost Reduction Programs -- Network
Optimization."
Competition. The foodservice distribution industry is highly competitive.
The Company competes with other systems foodservice distribution companies
focused on chain restaurants and with broadline foodservice distributors which
distribute to a wide variety of customers. The Company believes that
distributors in the foodservice industry compete on the basis of price and the
quality and reliability of service. The Company believes that its size,
centralized purchasing operations and ability to offer broad market coverage
through a wide network of distribution centers give it a competitive advantage
over smaller regional and local distributors. However, in light of the
consolidation in the foodservice distribution industry, the Company could face
increased competition to the extent that there is an increase in the number of
foodservice distributors specializing in distribution to chain restaurants on a
nationwide basis. In addition, distribution fees received from a number of the
Company's customers decreased significantly in 1993 and 1994 as a result of
competitive pricing pressures. While distribution fees have stabilized in 1995
and the first six months of 1996, and management expects such stabilization to
continue through 1996, there can be no assurance that competitive pricing
pressure will not recur in the future. See "Business -- Competition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Key Personnel. The Company's success is substantially
dependent upon the continued services of its senior management. The loss of the
services of one or more of the Company's senior management could adversely
affect the Company's operating results. In addition, the Company's continued
growth depends on the ability to attract and retain skilled operating managers
and employees and the ability of its key personnel to manage the Company's
growth and consolidate and integrate its operations. See "Management."
Control of the Company; Benefit of the Offering to Controlling
Stockholder. Upon completion of the offering, Onex will beneficially own % of
the outstanding shares of Class B Common Stock. Each share of Class B Common
Stock entitles the holder thereof to ten votes as compared to one vote for the
holder of each share of Class A Common Stock. Consequently, Onex will control
% of the combined voting power of the outstanding Common Stock after
completion of the offering and will be able to control the vote on all matters
submitted to a vote of the holders of Common Stock, including the election of
directors and approval of significant corporate transactions such as amendments
to the Company's Restated Certificate of Incorporation and mergers and sales of
all or substantially all of the Company's assets. Such consolidation of voting
power could have the effect of delaying, deterring or preventing a change in
control of the Company that might be otherwise beneficial to stockholders. See
"Business -- Controlling Stockholder" and "Principal Stockholders." Mr. Gerald
W. Schwartz, the Chairman, President and Chief Executive Officer of Onex and a
director of the Company, owns a controlling interest in Onex, and, therefore,
effectively controls the affairs of the Company. Approximately $15 million of
the proceeds of the offering will be used to retire subordinated indebtedness
payable to Onex. See "Use of Proceeds." In addition, Onex currently receives an
annual fee for management services rendered to the Company. Onex has agreed to
relinquish its right to receive such fee upon completion of the offering, in
consideration for which Onex will receive $4.0 million payable in Class B Common
Stock valued at the initial public offering price. See "Certain Transactions."
Shares Available for Future Sale. Sales of substantial amounts of Class A
Common Stock, or the perception that such sales could occur, after the offering
could adversely affect prevailing market prices for the Class A Common Stock. Of
the shares of Class A Common Stock to be outstanding upon completion
of the offering, all of such shares will be freely tradeable without restriction
or further registration
12
<PAGE> 15
under the Securities Act of 1933, as amended (the "Securities Act"), unless such
shares are acquired by an "affiliate" of the Company as that term is defined
under Rule 144 under the Securities Act ("Rule 144"). The shares of Class B
Common Stock to be outstanding upon completion of the offering are convertible
into shares of Class A Common Stock on a one-to-one basis at the option of the
holder and in certain other circumstances. Shares of Class A Common Stock
issuable upon conversion of Class B Common Stock have not been registered under
the Securities Act and may not be sold unless they are registered or unless an
exemption from registration, such as the exemption provided by Rule 144, is
available. Certain holders of Class B Common Stock have registration rights with
respect to the shares of Class A Common Stock issuable upon conversion thereof.
Pursuant to certain "lock up" agreements described herein, all shares of Class A
Common Stock issuable upon conversion of Class B Common Stock held by the
Company's existing stockholders will be eligible for sale beginning 180 days
from the date of this Prospectus, subject to certain limitations under Rule 144.
See "Shares Available for Future Sale."
Absence of Public Market; Volatility of Market Price for Stock. Prior to
the offering, there has been no public market for the Class A Common Stock, and
there can be no assurance that an active trading market for the Class A Common
Stock will develop or continue after the offering. The initial public offering
price of the Class A Common Stock will be determined by negotiations between the
Company and the Underwriters and may not be indicative of the market price of
the Class A Common Stock after the offering. See "Underwriters." From time to
time after the offering, there may be significant volatility in the market price
for the Class A Common Stock. Quarterly operating results of the Company or
other foodservice distributors, changes in general conditions in the economy,
the financial markets or the food distribution or foodservice industries,
announcements of proposed acquisitions and failure to complete announced
acquisitions, unusual weather conditions, failure to meet the projections of
securities analysts or other developments affecting the Company or its
competitors could cause the market price of the Class A Common Stock to
fluctuate substantially. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to their operating performance.
Dilution; Dividend Policy. Investors in the offering will experience
immediate and substantial dilution, and current stockholders will receive a
material increase in the net tangible book value of their shares. See
"Dilution." The Company does not anticipate paying dividends on the Class A
Common Stock in the foreseeable future. The Company's ability to pay cash
dividends is restricted by the terms of its credit agreement.
Forward-Looking Statements. This Prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Such forward-looking statements include those concerning the Company's business
strategy, operations, cost savings initiatives, economic performance, financial
condition and liquidity and capital resources. Such statements are subject to
various risks and uncertainties. The Company's actual results may differ
materially from the results discussed in such forward-looking statements because
of a number of factors, including those identified in this "Risk Factors"
section and elsewhere in this Prospectus. See "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." The forward-looking statements are made as of the
date of this Prospectus, and the Company assumes no obligation to update the
forward-looking statements, or to update the reasons why actual results could
differ from those projected in the forward-looking statements.
13
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Class A Common Stock offered hereby are estimated to be $ million, assuming an
initial public offering price equal to the midpoint of the range set forth on
the cover page of this Prospectus, and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company. The
Company intends to use the net proceeds of the offering as follows:
- to prepay outstanding indebtedness of $15 million under a subordinated
note payable to Onex and $ million under a subordinated note payable to
Martin-Brower, which notes bear interest at effective rates of 12% and
approximately 9% per annum over the life of such notes, respectively, and
mature on April 1, 2005 and March 31, 2002, respectively (the
"Subordinated Notes"); and
- to repay $ million of outstanding indebtedness under the Company's
revolving credit facility, which bears interest at prime plus 0.5% or the
Eurodollar rate plus 2.75% per annum, and matures on March 31, 2000 (on a
weighted average basis the interest rate was 9.06% for 1995).
The Company's credit agreement relating to its term loans and revolving
credit facility requires that the Company obtain the lending group's approval
(which has been obtained) to prepay the Subordinated Notes. See Note 6 of the
Notes to Consolidated Financial Statements.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
inception. The current policy of the Company's Board of Directors is to retain
all earnings to provide funds for the operation and expansion of the Company's
business. The Company does not anticipate declaring or paying cash dividends on
the Common Stock in the foreseeable future. Future cash dividends, if any, will
be at the discretion of the Board of Directors and will depend upon, among other
things, future earnings, capital requirements and surplus, the general financial
condition of the Company, restrictive covenants and agreements to which the
Company may be subject, and such other factors as the Board of Directors may
deem relevant. The terms of the Company's credit agreement prohibit it from
paying dividends to its stockholders without the approval of the lending group.
The Company's Restated Certificate of Incorporation provides that the holders of
Class A Common Stock and Class B Common Stock share ratably in any dividend
declared by the Board of Directors, subject to the preferential rights of any
outstanding Preferred Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Capital Stock."
14
<PAGE> 17
DILUTION
At June 29, 1996, the net tangible book value (deficit) of the Company was
$(10.4) million or $( ) per share of Common Stock. After giving effect to
the sale of shares of Class A Common Stock offered hereby by the
Company at an assumed initial public offering price equal to the midpoint of the
range set forth on the cover page of this Prospectus and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds," the pro
forma net tangible book value of the Company at June 29, 1996 would have been
$ million or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing Class A Common
Stock in the offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Net tangible book value (deficit) per share at June 29,
1996(1)....................................................... $
Increase in net tangible book value per share attributable to the
offering......................................................
Pro forma net tangible book value per share after the offering.....
------
Dilution per share to new investors(2)............................. $
======
</TABLE>
- ---------------
(1) Net tangible book value (deficit) per share of Common Stock is determined by
dividing the Company's tangible net value (tangible assets less liabilities)
at June 29, 1996 by the number of shares of Common Stock that will be
outstanding prior to the offering.
(2) Dilution is computed by subtracting pro forma net tangible book value per
share of Common Stock after the offering from the assumed initial public
offering price per share.
The following table summarizes, on a pro forma basis at June 29, 1996, the
differences between the total consideration and the average price per share paid
by the existing stockholders and by the new investors purchasing shares of Class
A Common Stock in the offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ % $ % $
New investors................................ % %
---------- --- ------------ ---
Total...................................... 100% $ %
========== === ============ ===
</TABLE>
The table assumes the issuance of shares of Class B Common Stock
to be issued to Onex upon conversion of the Onex Convertible Note immediately
prior to the offering. The table also assumes (i) no exercise of any outstanding
options or warrants to purchase Common Stock, (ii) no conversion of any other
outstanding indebtedness which is convertible into Common Stock and (iii) no
issuance of Class B Common Stock to Onex in consideration for the agreement of
Onex to relinquish its right to receive an annual fee for management services
rendered to the Company. See "Certain Transactions." To the extent such options
or warrants are exercised or such indebtedness is converted, there will be
further dilution to new investors.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth, on an unaudited basis, the capitalization
of the Company as of June 29, 1996, and the capitalization as of such date as
adjusted to give effect to (i) the consummation of the offering and (ii) the
application of the estimated net proceeds thereof as described in "Use of
Proceeds," assuming an initial offering price equal to the midpoint of the range
set forth on the cover page of this Prospectus. The data presented below should
be read in conjunction with the Company's financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total debt, including current maturities:
Senior debt......................................................... $144,594 $
Subordinated notes payable.......................................... 24,832 --
Convertible subordinated notes payable(1)........................... 4,001
-------- --------
Total debt.................................................. $173,427 $
Stockholders' equity:
Preferred stock, par value $0.01 per share; shares
authorized....................................................... -- --
Class A Common Stock, par value $0.01 per share;
shares authorized;
0 shares issued and outstanding actual and shares
issued and outstanding on an as adjusted basis.................. --
Class B Common Stock, par value $0.01 per share;
shares authorized;
shares issued and outstanding actual and
shares issued and outstanding on an as adjusted basis(2)........ 1
Additional paid-in capital.......................................... 53,140
Retained deficit.................................................... (20,497)
Accumulated foreign currency translation adjustment................. 68
-------- --------
Total stockholders' equity.................................. 32,712
-------- --------
Total capitalization.................................................. $206,139 $
======== ========
</TABLE>
- ---------------
(1) On an actual basis, includes $2.5 million of principal and $1.0 million of
accrued interest outstanding under the Onex Convertible Note, which Onex
intends to convert into Common Stock immediately prior to the offering. See
"Certain Transactions -- Onex Subordinated Notes."
(2) On an adjusted basis, includes shares of Class B Common Stock to
be issued to Onex upon conversion of the Onex Convertible Note immediately
prior to the offering. Excludes shares of Class B Common Stock
reserved for issuance (i) upon the exercise of stock options granted under
the Company's 1995 Option Plan, (ii) upon the exercise of stock options
granted under the Company's 1996 Stock Option Plan and (iii) under an
outstanding warrant and certain other indebtedness which is convertible into
shares of Class B Common Stock at the option of the holder thereof at any
time. Also excludes shares of Class B Common Stock to be issued to
Onex in consideration for the agreement of Onex to relinquish its right to
receive an annual fee for management services rendered to the Company. On a
fully diluted basis using the treasury stock method, assuming an initial
public offering price equal to the midpoint of the range set forth on the
cover page of this Prospectus, the Company will have shares of
Class B Common Stock issued and outstanding after the offering. See
"Executive Compensation and Other Matters -- Option Plans" and "Certain
Transactions."
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AND CERTAIN OTHER DATA)
The historical selected consolidated financial data presented below as of
and for the six months ended December 31, 1992 (the Company began operations in
July 1992) and the years ended December 25, 1993, December 31, 1994 and December
30, 1995, are derived from, and are qualified by reference to, the Company's
financial statements that have been audited by KPMG Peat Marwick LLP,
independent auditors. The selected consolidated financial data presented below
for the six months ended July 1, 1995 and June 29, 1996 have been derived from
unaudited financial information prepared by the Company. In the opinion of
management, the income statement and balance sheet data for the six months ended
July 1, 1995 and June 29, 1996 reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results of
interim periods. Operating results for the six months ended June 29, 1996 are
not necessarily indicative of results to be expected for the full fiscal year.
The data presented below should be read in conjunction with the Company's
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS FISCAL YEARS ENDED SIX MONTHS ENDED
ENDED ------------------------------------------ ---------------------
DECEMBER 31, DECEMBER 25, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1992(a) 1993(b) 1994(c) 1995(d) 1995 1996
------------ ------------ ------------ ------------ ---------- ----------
(26 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $618.4 $1,329.3 $1,598.1 $3,461.8 $1,447.8 $2,014.1
Cost of sales......................... 560.0 1,210.9 1,464.5 3,193.3 1,332.9 1,859.0
------ ------ ------ ------- ------ ------
Gross profit.......................... 58.4 118.4 133.6 268.5 114.9 155.1
Operating expenses.................... 51.7 114.2 131.0 255.2 110.7 149.8
Loss on impairment of long-lived
assets(e)........................... -- -- -- -- -- 15.7
Restructuring charges(e).............. -- -- -- 0.7 0.1 10.9
------ ------ ------ ------- ------ ------
Earnings (loss) from operations....... 6.7 4.2 2.6 12.6 4.1 (21.3)
Interest expense, net................. 3.0 5.5 6.6 13.3 6.3 7.3
------ ------ ------ ------- ------ ------
Earnings (loss) before income taxes
and extraordinary charge............ 3.7 (1.3) (4.0) (0.7) (2.2) (28.6)
Income tax (provision) benefit........ (1.5) 0.5 1.6 (0.1) 1.0 10.6
------ ------ ------ ------- ------ ------
Earnings (loss) before extraordinary
charge.............................. 2.2 (0.8) (2.4) (0.8) (1.2) (18.0)
Extraordinary charge, net............. -- -- -- (0.8) (0.8) --
------ ------ ------ ------- ------ ------
Net earnings (loss)................... $ 2.2 $ (0.8) $ (2.4) $ (1.6) $ (2.0) $ (18.0)
====== ====== ====== ======= ====== ======
PER SHARE DATA:
Earnings (loss) before extraordinary
charge per common and common
equivalent share....................
Net earnings (loss) per common and
common equivalent share(f)..........
Average outstanding common and common
equivalent shares...................
BALANCE SHEET DATA (at end of period):
Working capital(g).................... $ 39.5 $ 42.7 $ 41.6 $ 115.9 $ 95.9 $ 113.5
Total assets.......................... 158.1 200.0 218.3 489.2 483.2 502.0
Total debt (g)........................ 61.1 68.5 65.6 163.2 142.8 173.4
Stockholders' equity ................. 24.7 25.3 22.5 49.4 48.9 32.7
OTHER DATA:
EBITDA (h)............................ $ 10.2 $ 12.3 $ 10.8 $ 27.4 $ 9.5 $ 11.5
Net operating asset turnover (i)...... 11.0x 13.6x 16.5x 18.3x 16.9x 18.9x
Depreciation and amortization......... $ 3.4 $ 7.9 $ 8.0 $ 12.7 $ 5.6 $ 5.3
Capital expenditures.................. $ 1.9 $ 3.5 $ 1.4 $ 5.7 $ 1.7 $ 8.0
Number of restaurants served (at end
of period).......................... 4,184 5,113 6,752 14,562 14,700 14,451
</TABLE>
- ---------------
(a) The Company was formed to effect the acquisition of BKDS on June 30, 1992.
17
<PAGE> 20
(b) Includes the acquisition of certain operating assets of McCabe's Quality
Foods, California, Inc. on February 27, 1993 and the acquisition of certain
assets and the assumption of certain liabilities of Valley Food Services,
Inc. on March 27, 1993.
(c) Includes the acquisition of certain assets and the assumption of certain
liabilities of Malone Products, Inc. on October 31, 1994.
(d) Includes the acquisition of substantially all of the assets and the
assumption of certain liabilities of NAD on March 31, 1995.
(e) Charges resulting from the corporate and network consolidation program,
primarily for termination of leases and losses on the sale of furniture,
equipment and leasehold improvements, loss on impairment in value of land
and owned buildings and certain capitalized software costs.
(f) Computed on the basis described in Note 1(j) of the Notes to Consolidated
Financial Statements.
(g) At July 1, 1995, working capital reflects $32.6 million payable to
Martin-Brower in connection with the acquisition of NAD. Total debt was
increased in August 1995 by borrowings incurred to pay such amount.
(h) EBITDA represents earnings (loss) before provision for interest expense,
income taxes, depreciation, amortization, extraordinary charges, loss on
impairment of long-lived assets and restructuring charges. EBITDA should
not be considered in isolation or as a substitute for operating income,
cash flows from operating activities and other income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of the Company's profitability or liquidity.
(i) Annualized net sales divided by the average balance of stockholders' equity
plus long-term debt, assuming that the incurrence of debt referred to in
(g) above occurred on March 31, 1995.
FUTURE NON-RECURRING CHARGES TO EARNINGS
The Company expects to incur certain non-recurring charges after the
offering is consummated. These charges are summarized as follows:
Expenses associated with the amendment or termination of various agreements to
be reflected in the quarter in which the offering is consummated:
- A non-cash charge of $ to record the effect of an amendment to
the 1995 Option Plan prior to the offering under which unvested options
will vest according to a specified time schedule. Such charge will equal
the aggregate difference between the initial public offering price of the
Class A Common Stock and the exercise price for such options. Vested
options will be unaffected. See "Executive Compensation and Other
Matters -- Option Plans." Although total stockholders' equity will be
unchanged, there will be an increase in the Company's retained deficit,
which will be offset by a corresponding increase in additional paid-in
capital.
- A charge of $1.3 million for the termination of a consulting agreement
between the Company and certain former owners of Valley Food Services,
Inc., which agreement was due to expire on March 28, 1998.
- Onex currently receives an annual fee for management services rendered to
the Company. Onex has agreed to relinquish its right to receive such fee
upon completion of the offering, in consideration for which Onex will
receive $4.0 million payable in Class B Common Stock valued at the
initial public offering price. See "Certain Transactions -- Onex
Management Fees." Although total stockholders' equity will be unchanged,
there will be an increase in the Company's retained deficit, which will
be offset by a corresponding increase in Common Stock and additional
paid-in capital.
Extraordinary charges:
- A pre-tax charge of up to $10.0 million associated with prepayment
penalties and the write-off of deferred financing costs to the extent and
at the time that the Company replaces its revolving credit facility and
term loans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company began operations in July 1992 following the acquisition of
certain assets and the assumption of certain liabilities of BKDS, the "in-house"
distributor for BKC, which serviced 4,150 Burger King restaurants. In the four
years since the acquisition, ProSource has, through a combination of
acquisitions and internal growth, become a leading distributor to chain
restaurants, servicing approximately 14,450 restaurants within 18 different
restaurant chains. Excluding the effect of acquisitions, the Company's net sales
increased at a compound annual rate of 9.8% from 1992 to 1995, compared to the
foodservice distribution industry's compound annual growth rate of approximately
2.4% over this period. The Company's acquisitions consisted of:
- The acquisition in February 1993 of certain operating assets of McCabe's
Quality Foods, California, Inc. ("McCabe's"), a regional systems
distributor based in California, for $3.9 million. Such acquisition
solidified the Company's market position in Northern California and
resulted in the addition of 127 of the Burger King restaurants included
in the Company's current customer base.
- The acquisition in March 1993 of certain assets and the assumption of
certain liabilities of Valley Food Services, Inc. ("Valley"), a regional
systems distributor based in Missouri, for $9.3 million. Such acquisition
resulted in the addition of 318 of the restaurants included in the
Company's current customer base, including certain Wendy's restaurants.
- The acquisition in October 1994 of certain assets and the assumption of
certain liabilities of Malone Products, Inc. ("Malone"), a regional
systems distributor based in Oklahoma, for $3.8 million. Such acquisition
resulted in the addition of 656 of the restaurants included in the
Company's current customer base, including certain Sonic and KFC
restaurants.
- The acquisition in March 1995 of substantially all of the assets and the
assumption of certain liabilities of NAD headquartered in Chicago,
Illinois, a national systems distributor operating eleven distribution
centers located throughout the United States and one center in Canada,
for $170 million. Such acquisition resulted in the addition of
approximately 8,000 of the restaurants included in the Company's current
customer base, including Arby's, Chick-fil-A, Chili's, Long John
Silver's, Olive Garden, Red Lobster, TCBY and TGIFriday's restaurants.
Primarily as a result of these acquisitions, the Company's net sales
increased from $1.3 billion in 1993 to $3.5 billion in 1995. The NAD
acquisition, funded primarily by debt, resulted in a substantial increase in net
interest expense from approximately $6.6 million in 1994 to approximately $13.3
million in 1995; however, net interest expense as a percentage of net sales
decreased during this period from .41% to .39%. All of the Company's
acquisitions were accounted for as purchases and are included in the Company's
consolidated financial statements from their respective dates of acquisition.
With the acquisition of NAD in March 1995, the Company initiated a program
of evaluating the profitability of its customer accounts which includes setting
target levels of profitability and developing procedures to attain these
targeted goals. Under this program, if the Company is not able to attain the
targeted level of profitability for a particular customer through price
increases, reduced operating costs or providing value-added services within a
reasonable period of time, the Company may discontinue its relationship with the
customer. In addition, certain chains decide from time to time to close
restaurants or concepts which do not meet their long-term profitability targets.
As a result of the Company's new customer evaluation program and the decision of
a certain customer to close a restaurant concept, the Company no longer sells to
604 restaurants which accounted for $74.0 million of net sales in 1995 on a pro
forma basis.
Although the Company was profitable for the first six months of operations
ended December 31, 1992, the Company had net losses of $0.8 million, $2.4
million and $0.8 million (before an extraordinary charge in 1995 of $0.8 million
related to the write-off of certain deferred debt issuance costs) in 1993, 1994
and 1995, respectively, due to (i) high interest expense associated with
financing incurred in connection with the
19
<PAGE> 22
formation of the Company and the Company's subsequent acquisitions, (ii)
competitive price pressures resulting in lower gross margins and (iii) costs
associated with the addition of new customers (both internally and through
acquisitions) and the development of new products and services. In addition, the
Company incurred a net loss of $18.0 million in the six months ended June 29,
1996 due to restructuring charges and losses on impairment in value of
long-lived assets, and expects to reflect certain non-recurring charges to
earnings in the quarter in which the offering is consummated. See "Selected
Consolidated Financial Data -- Future Non-recurring Charges to Earnings." As a
result, the Company expects to record a net loss for 1996. As the net proceeds
of the offering will be used to reduce the outstanding indebtedness of the
Company, management expects that interest expense will decrease following the
offering. See "Use of Proceeds." In addition, while distribution fees received
from a number of the Company's customers decreased significantly in 1993 and
1994 as a result of competitive pricing pressures, distribution fees have
stabilized in 1995 and the first six months of 1996. While management expects
such stabilization to continue through 1996, there can be no assurance that
competitive pricing pressure will not recur in the future. The Company is also
undertaking several initiatives to increase margins and reduce its overall cost
structure, including the development of a new national distribution network, the
implementation of an innovative cart delivery system and the integration of
operations into a new corporate support center located in Coral Gables, Florida.
For a description of certain projected cost savings and costs to be incurred in
connection with such programs, see "Business -- Strategies -- Margin
Improvement/Cost Reduction Programs" and "Risk Factors -- No Assurance of
Achieving Anticipated Cost Savings."
As of June 29, 1996 the Company had recorded net deferred tax assets of
$23.7 million. Management believes that it is more likely than not that the net
deferred tax assets will be realized through the reversal of net deductible
temporary differences during periods in which the Company generates taxable
income. In order to fully realize the net deferred tax assets, the Company will
need to generate future taxable income of approximately $56.1 million. The
Company anticipates that increases in taxable income will result primarily from
(i) future projected revenue growth through the addition of new restaurant
chains and the expansion of existing restaurant chains, (ii) a reduction in
interest expense due to a reduction in indebtedness, (iii) cost savings through
its corporate and network consolidation plan and (iv) other cost reduction
initiatives.
As a result of a study to analyze, among other things, ways to integrate
the NAD operations, improve customer service, reduce operating costs and
increase existing warehouse capacity, the Company adopted a plan to consolidate
its corporate and network operations. As a result, in the first quarter of 1996,
the Company accrued restructuring charges and recorded a loss on impairment in
value of long-lived assets of $10.9 million and $15.7 million, respectively.
These are anticipated costs associated with the termination of leases on
existing facilities, losses on the sale of furniture, equipment, buildings and
leasehold improvements and write-off of certain capitalized software costs which
do not meet the long-term information technology strategy of the Company. In
1995 the Company incurred restructuring charges of $0.7 million primarily
related to the integration of the Company's preexisting operations with the NAD
operations acquired from Martin-Brower into a new corporate support center in
Coral Gables, Florida. As of June 29, 1996, the Company had approximately $10.5
million of accrued unpaid restructuring charges.
The Company derives its revenues primarily from the distribution of a wide
variety of items to chain restaurants, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods and cleaning and other supplies.
The foodservice distribution industry in general, and the chain restaurant
segment of the industry in which the Company operates in particular, is
characterized by high asset turnover and low profit margins. As a "systems"
distributor specializing in distribution to chain restaurants, the Company
generally generates higher volume, lower gross margin sales requiring fewer but
larger deliveries than a broadline distributor which distributes to a wide
variety of customers, such as independent and chain restaurants, schools,
cafeterias and hospitals. In addition, systems distribution allows for more
efficient use of vehicles, facilities and personnel, resulting in lower
operating expenses as a percentage of net sales when compared to broadline
distribution. As a result, the Company believes systems distributors are better
able to service chain restaurants than broadline distributors because they can
offer their customers a higher quality of service at a lower cost. See
"Business -- Foodservice Distribution Industry."
20
<PAGE> 23
A majority of the restaurants served by the Company purchase products from
the Company based on product cost plus a negotiated fixed dollar amount per unit
of measure. As a result, the Company's gross margin percentage may be positively
or negatively impacted as the product cost per unit of measure decreases or
increases, respectively. The Company's product mix changed substantially in 1995
as a result of the NAD acquisition because casual dining chain restaurants,
particularly those which serve seafood, have a higher average product cost per
unit of measure, thereby reducing gross margin as a percentage of sales.
Similarly, periods of inflation in food and other product prices result in
higher sales values and product costs per unit of measure. While such increases
do not affect the Company's gross profit, they do result in a lower gross profit
percentage. However, inflation in operating expenses without corresponding
productivity improvements can have a negative effect on the Company's operating
results as operating expenses increase while gross profit remains constant.
Conversely, periods of deflation can have a positive effect on the Company's
results.
The principal components of the Company's expenses include (i) cost of
sales, which represents the net amount paid to product vendors plus amounts paid
for in-bound freight, and (ii) operating expenses which include primarily labor
and equipment charges related to warehousing and delivery. Because warehousing
and delivery expenses can be relatively fixed in the short term, unexpected
changes in the Company's net sales, such as those resulting from adverse weather
or other events, can have a significant short-term impact on operating income.
See "-- Quarterly Results and Seasonality."
The Company's fiscal year ends on the Saturday closest to December 31.
Consequently, the Company will periodically have a 53 week fiscal year. 1995 and
1993 each consisted of 52 weeks, while 1994 consisted of 53 weeks.
RESULTS OF OPERATIONS
The following sets forth, for the periods indicated, the components of the
Company's consolidated statements of operations expressed as a percentage of net
sales.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
-------------------------------------------- -------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ ------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of sales......................... 91.09 91.64 92.24 92.07 92.30
------ ------ ------ ------ ------
Gross profit........................ 8.91 8.36 7.76 7.93 7.70
Operating expenses.................... 8.59 8.20 7.37 7.65 7.44
Loss on impairment of long-lived
assets.............................. -- -- -- -- 0.78
Restructuring charges................. -- -- 0.02 -- 0.54
------ ------ ------ ------ ------
Earnings (loss) from operations..... 0.32 0.16 0.37 0.28 (1.06)
Interest expense, net................. (0.42) (0.41) (0.39) (0.43) (0.36)
Earnings (loss) before income taxes
and extraordinary charge............ (0.10) (0.25) (0.02) (0.15) (1.42)
Income tax (provision) benefit........ 0.04 0.10 -- 0.06 0.53
------ ------ ------ ------ ------
Earnings (loss) before extraordinary
charge.............................. (0.06) (0.15) (0.02) (0.09) (0.89)
Extraordinary charge, net........... -- -- (0.02) (0.05) --
------ ------ ------ ------ ------
Net earnings (loss)................. (0.06)% (0.15)% (0.04)% (0.14)% (0.89)%
====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995
Net sales increased 39.1% to $2,014.1 million in the six month fiscal
period ended June 29, 1996 (the "1996 fiscal period") from $1,447.8 million in
the six month fiscal period ended July 1, 1995 (the "1995 fiscal period"). The
increase in net sales is primarily attributable to the acquisition of NAD on
March 31, 1995. Net sales increased 1.8% in the 1996 fiscal period when compared
to net sales for the 1995 fiscal period presented on a pro forma basis. Sales in
the 1996 fiscal period were adversely impacted by the elimination of certain
21
<PAGE> 24
customers, as well as the adverse winter weather conditions experienced in a
number of the Company's markets during the first quarter. Net sales to existing
customers in the 1996 fiscal period increased by $86.6 million or 4.5% when
compared to the 1995 fiscal period presented on a pro forma basis. This increase
in net sales is primarily due to increased sales to such customers as a result
of the addition of new restaurants and increased sales volume at existing
restaurants. Such increase was partially offset by declining sales volume at
certain chains as they redesigned their menus and product offerings for broader
consumer appeal.
Gross profit increased 35.1% to $155.1 million in the 1996 fiscal period
compared to $114.9 million in the 1995 fiscal period. The gross profit
percentage decreased to 7.7% in the 1996 fiscal period compared to 7.9% in the
1995 fiscal period. The gross profit percentage decrease is primarily
attributable to the higher cost of the product mix purchased by customers added
through the acquisition of NAD (which customers had a 6.8% gross profit margin
for the 1996 fiscal period) and, to a lesser extent, negotiation of new
contracts with certain NAD customers which resulted in lower distribution fees.
In most cases, in consideration for the decrease in distribution fees, the
Company was able to secure a longer term contract and the right to provide
in-bound transportation and/or purchasing services for such customers. Gross
profit margin excluding the effect of the NAD acquisition increased to 8.7% in
the 1996 fiscal period compared to 8.6% in the 1995 fiscal period, primarily as
a result of improved inventory management which resulted in a reduction of
product cost.
Operating expenses increased 35.3% to $149.8 million in the 1996 fiscal
period from $110.7 million in the 1995 fiscal period. As a percentage of net
sales, operating expenses declined to 7.4% in the 1996 fiscal period from 7.7%
in the 1995 fiscal period. This decrease is primarily a result of the
acquisition of NAD, which has a product mix with a higher unit sales value.
Operating expenses as a percentage of net sales, excluding the NAD acquisition,
were 8.4% in both fiscal periods. Operating expenses as a percentage of NAD
sales were 6.6% in the 1996 fiscal period compared to 6.4% in the 1995 fiscal
period, principally as a result of higher delivery costs due, in part, to the
start-up costs of the cart delivery program.
Losses from operations in the 1996 fiscal period were $21.3 million, as a
result of restructuring charges of $10.9 million and a loss on impairment in
value of long-lived assets of $15.7 million. Both the restructuring charges and
impairment losses are related to a plan to consolidate and integrate the
Company's corporate and network operations following the NAD acquisition. Of the
restructuring charges, approximately $7.9 million relates to the termination of
existing facility leases, $1.2 million represents costs to be incurred after
cessation of operations in the closed facilities and $1.8 million represents all
other costs. The application of Statement of Financial Accounting Standards No.
121, which became effective on January 1, 1996 and requires that long-lived
assets be reviewed for impairment (measured based on the fair value of the
assets), required the Company to recognize a loss of approximately $7.3 million
on land and owned buildings which management plans to dispose of, $4.3 million
on furniture and equipment and leasehold improvements it plans to abandon, and
$4.1 million of capitalized software costs which do not meet the long-term
information technology strategy of the Company. Earnings from operations
excluding restructuring charges and impairment losses were $5.3 million in the
1996 fiscal period compared to $4.1 million in the 1995 fiscal period.
Net interest expense increased 16.6% to $7.3 million in the 1996 fiscal
period from $6.3 million in the 1995 fiscal period, primarily attributable to
the additional borrowings associated with the acquisition of NAD. Net interest
expense as a percentage of net sales decreased 16.2% from 0.43% to 0.36% as a
result of improved net operating asset turnover. See "-- Liquidity and Capital
Resources."
The income tax benefit for the 1996 fiscal period increased $9.6 million
over the benefit for the 1995 fiscal period. The increase in the tax benefit was
attributable to the Company's greater pre-tax loss in the 1996 fiscal period.
The effective rates of the Company's income tax benefit (expressed as a
percentage of pre-tax loss) were 37.1% for the 1996 fiscal period and 44.1% for
the 1995 fiscal period, which reflect the anticipated annual effective rates for
the respective fiscal years.
The extraordinary charge in the 1995 fiscal period represents the write-off
of unamortized deferred debt issuance costs of $1.3 million, net of the related
tax benefit of $0.5 million, associated with debt that was refinanced as a
result of the NAD acquisition. See "-- Liquidity and Capital Resources."
22
<PAGE> 25
YEAR ENDED DECEMBER 30, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales increased 116.6% to $3,461.8 million in 1995 from $1,598.1
million in 1994. The increase in net sales was primarily attributable to the
acquisition of NAD on March 31, 1995 and the full year effect of the Malone
acquisition on October 31, 1994. Net sales excluding the effect of the NAD and
Malone acquisitions in 1995 increased by $95.8 million or 6.1% when compared to
1994 net sales. The increase in net sales is primarily due to increased sales to
existing accounts as a result of the addition of new restaurants and increased
sales volume at existing restaurants, offset, in part, by an additional week of
net sales in 1994.
Gross profit increased 101.0% to $268.5 million in 1995 from $133.6 million
in 1994. The gross profit percentage decreased to 7.8% in 1995 compared to 8.4%
in 1994. The gross profit percentage decrease is primarily attributable to the
higher cost of the product mix purchased by customers added through the NAD
acquisition. Gross profit excluding the effect of the NAD and Malone
acquisitions increased to 8.7% of sales in 1995 compared to 8.4% in 1994. The
increase is primarily a result of the renegotiation of a contract with one of
the Company's largest customers and the growth of a new account added in
mid-1994, for which the Company records a distribution fee without any related
product cost.
Operating expenses increased 94.8% to $255.2 million in 1995 from $131.0
million in 1994. As a percentage of net sales, operating expenses declined to
7.4% in 1995 from 8.2% in 1994. This decrease is a result of the acquisition of
NAD which has a product mix with a higher unit sales value. Operating expenses
as a percentage of net sales, excluding the NAD acquisition, increased to 8.4%
in 1995 from 8.2% in 1994, primarily attributable to increased personnel due to
growth of the business, the payment of management incentives which vested due to
achievement of business plan objectives, and higher workers' compensation and
vehicular insurance costs.
Earnings from operations increased to $12.6 million in 1995 from $2.6
million in 1994. The 1995 earnings were reduced by $0.7 million in restructuring
charges related to the consolidation and integration of the corporate support
functions following the NAD acquisition.
Net interest expense increased 102.2% to $13.3 million in 1995 from $6.6
million in 1994, primarily attributable to the additional borrowings associated
with the acquisition of NAD. However, net interest expense as a percentage of
net sales decreased 5.5% from .41% to .39% as a result of lower interest rates
and higher net operating asset turnover. See "-- Liquidity and Capital
Resources."
The income tax provision in 1995 was $0.1 million compared to an income tax
benefit of $1.6 million in 1994. The 1995 provision resulted from a lower
pre-tax loss in 1995 which, because of permanent differences resulting from the
NAD acquisition, translated into a relatively small amount of taxable income.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 25, 1993
Net sales increased 20.2% to $1,598.1 million in 1994 from $1,329.3 million
in 1993. Net sales excluding the effect of the Valley and Malone acquisitions
increased by $229.3 million, or 18.1% of 1993 net sales, primarily from the
growth in sales to Burger King restaurants. 1994 also included an additional
week of sales.
Gross profit increased 12.8% to $133.6 million in 1994 from $118.4 million
in 1993. Gross profit as a percentage of sales decreased to 8.4% in 1994
compared to 8.9% in 1993. The decrease is primarily a result of competitive
pricing pressures on distribution fees. See "-- General."
Operating expenses increased 14.7% to $131.0 million in 1994 from $114.2
million in 1993. As a percentage of net sales, operating expenses declined to
8.2% in 1994 from 8.6% in 1993. This decrease is attributable to the planned
staff reductions during 1994 and the impact of increased sales in 1994 without a
corresponding increase in fixed operating expenses.
Earnings from operations decreased to $2.6 million in 1994 from $4.2
million in 1993, primarily as a result of the decrease in gross profit
percentage.
Net interest expense increased 19.4% to $6.6 million in 1994 from $5.5
million in 1993, primarily as a result of higher interest rates.
23
<PAGE> 26
Income tax benefit for 1994 increased $1.1 million over the benefit for
1993. The increase in the tax benefit was attributable to the Company's greater
pre-tax loss in 1994. The Company's income tax benefit reflects an effective tax
rate of 40.9% for 1994, compared to an effective rate of 37.5% for 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and growth primarily
with cash flow from operations, borrowings under its credit facilities,
operating leases and normal vendor trade credit terms. The Company's cash flow
from operations was $9.0 million, $0.9 million and $50.0 million, in 1993, 1994
and 1995, respectively. The significant cash flow in 1995 was attributable to
the one-time benefit of acquiring assets without assuming certain corresponding
operating liabilities in connection with the acquisition of NAD. During the 1996
fiscal period, cash used in operations was $3.0 million, primarily as a result
of lower earnings from operations in the first quarter and other seasonal
fluctuations.
Cash used in investing activities was $8.0 million in the 1996 fiscal
period, all of which related to capital expenditures, primarily for cart
delivery equipment ($2.6 million) and computer systems upgrades ($3.8 million).
The Company anticipates capital expenditures of approximately $15 to $20 million
in each of the next three to five years in connection with the implementation of
its new distribution network, including the expansion of warehousing facilities
to accommodate expected growth, continued investment in computer systems and the
further deployment of cart deliveries. Cash used in investing activities was
$175.6 million in 1995, primarily to fund the NAD acquisition for $170.3 million
and capital expenditures of $5.7 million (primarily for cart delivery equipment
and computer systems upgrades). In 1994 net cash provided by investing
activities was $1.9 million. Proceeds from the settlement of certain purchase
price provisions relating to the BKDS acquisition were $6.6 million, offset by
$3.8 million used in the Malone acquisition and $1.4 million for capital
expenditures, primarily related to computer systems upgrades. Cash used in
investing activities was $16.1 million in 1993, of which $13.2 million was for
the Valley and McCabe's acquisitions and $2.4 million was for capital
expenditures related to computer systems upgrades.
The Company's financing activities include borrowings under, and
refinancings of, various credit facilities and the issuance of equity securities
and subordinated notes principally to finance acquisitions. The Company's
financing activities resulted in net cash provided by financing activities of
$11.5 million in the 1996 fiscal period, $126.7 million in 1995 and $8.7 million
in 1993 and net cash used by financing activities of $3.2 million in 1994. In
March 1995, the Company entered into a $240 million loan agreement with
NationsBank of Georgia N.A. and certain other financial institutions. Such
agreement provides for a revolving credit facility of up to $210 million and
term loans aggregating $30 million. Such facility and term loans were used to
finance the acquisition of NAD and refinance certain of the Company's
outstanding indebtedness. Availability under the revolving credit facility may
also be used to fund the Company's working capital requirements. As of June 29,
1996, there was an aggregate of $144.6 million outstanding under such loan
agreement. The loan agreement terminates on March 31, 2000 and the revolving
credit facility and term loans bear interest at prime plus 0.5% or the
Eurodollar borrowing rate plus 2.75%. The revolving credit facility and term
loans are secured by a lien on substantially all of the Company's assets. In
addition, the loan agreement contains restrictions on, among other things, the
Company's ability to pay dividends, prepay subordinated indebtedness, dispose of
assets, make future capital expenditures and investments and make loans and
other financial accommodations to affiliates, as well as the flow of funds from
the Company's subsidiaries to the parent company.
The net proceeds of the offering will be used as follows: (i) $15.0 million
to prepay the $15 million Subordinated Note held by Onex, (ii) $ million to
prepay at a discount the $10 million Subordinated Note held by Martin-Brower and
(iii) $ million to repay amounts outstanding under the Company's revolving
credit facility. The reduction of outstanding indebtedness with the proceeds of
the offering will result in a reduction of interest expense. At June 29, 1996,
the Company had $173.4 million of total indebtedness, which had an overall
weighted average annual interest rate of 9.14%, excluding the amortization of
deferred financing costs. See Note 6 of the Notes to Consolidated Financial
Statements. After giving effect to the offering and the use of the estimated net
proceeds thereof as described in "Use of Proceeds," assuming an initial public
offering price equal to the midpoint of the range set forth on the cover page of
this Prospectus, as of June 29, 1996, pro forma total indebtedness would have
been $ million, with an overall weighted
24
<PAGE> 27
average annual interest rate of %, excluding the amortization of any new
deferred financing costs. After giving effect to the offering, as of June 29,
1996, the Company's pro forma borrowing availability under its revolving credit
facility would have been $ million.
The Company is in preliminary discussions with several bank groups to
refinance its revolving credit facility and term loans with new bank financing
or an asset-backed securitization facility. Based on proposals received by the
Company, the Company believes that interest on the remaining outstanding amounts
could be reduced by 100-200 basis points by such refinancing. To the extent the
Company replaces its revolving credit facility, it expects to incur a pre-tax
extraordinary charge of up to $10.0 million associated with prepayment penalties
and write-off of the deferred financing costs. The Company believes a new credit
facility will also provide more flexibility in managing the Company's working
capital requirements. There can be no assurance that the Company will be
successful in refinancing its outstanding credit facility and term loans or
consummating an asset-backed securitization.
The Company believes that the combination of cash flow generated from
operations and borrowings available under its current credit facilities (or any
refinancing thereof) are sufficient to satisfy its anticipated short-term
working capital needs. Management may determine that it is necessary or
desirable to obtain financing for growth through additional bank borrowings or
the issuance of new debt or equity securities. The Company's loan agreement
includes certain restrictive covenants which limit the flow of funds from the
Company's subsidiaries to the parent company. Such covenants are not expected to
have a material effect on the ability of the parent to meet its cash
obligations.
ASSET MANAGEMENT
Net operating asset turnover on average was 13.6 times, 16.5 times, 18.3
times and 18.9 times for 1993, 1994, 1995 and the 1996 fiscal period,
respectively. As a percentage of net sales, working capital on average was
3.30%, 2.99%, 2.95% and 3.13% for 1993, 1994, 1995, and the 1996 fiscal period,
respectively. Working capital turnover (net sales divided by working capital),
which measures the Company's effectiveness in managing its net current assets,
was on average 30.3 times, 33.4 times, 33.8 times and 31.9 times for 1993, 1994,
1995 and the 1996 fiscal period, respectively.
The Company's inventory turnover averaged 40.4 times, 44.4 times, 24.8
times, and 27.2 times for 1993, 1994, 1995, and the 1996 fiscal period,
respectively. The decrease in 1995 and 1996 is attributable to the acquisition
of NAD, which has a lower inventory turnover due to the increased complexity and
greater number of stock keeping units maintained for casual dining restaurant
chains. The high rate of inventory turnover benefits the Company by allowing it
to finance a portion of its working capital requirements through payables to its
vendors. Average accounts payable days, which measures the number of days
accounts payable are outstanding, were 19.1 days, 23.3 days, 22.4 days, and 21.9
days, for 1993, 1994, 1995, and the 1996 fiscal period, respectively.
Most of the Company's sales are made on open account terms. Credit terms
vary by customers and most allow discounts for early payment. The number of days
sales on average accounts receivable, which represents the Company's experience
in converting sales into cash, was 22.3 days, 26.1 days, 20.9 days, and 20.0
days for 1993, 1994, 1995, and the 1996 fiscal period, respectively. The
increase in days sales outstanding during 1994 resulted from inefficiencies
encountered in converting the Company's accounts receivable system.
QUARTERLY RESULTS AND SEASONALITY
Set forth is summary information with respect to the Company's operations
for the most recent ten fiscal quarters. Historically, the restaurant and
foodservice business is seasonal with lower sales in the first calendar quarter.
In addition, the weather in the first quarter of 1996 was particularly severe,
adversely impacting sales. Furthermore, the Company may experience quarterly
fluctuations in net sales depending on the timing of any acquisitions.
Management believes the Company's quarterly results will continue to be impacted
by the seasonality of the restaurant business and the timing of any future
acquisitions.
25
<PAGE> 28
<TABLE>
<CAPTION>
FISCAL YEAR 1994
---------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER(a)(b)
------- -------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales....................................... $ 356.6 $ 389.5 $ 399.8 $ 452.2
Gross profit.................................... 29.9 32.3 33.0 38.4
Earnings (loss) from operations................. (0.5) 2.6 0.9 (0.4)
Net earnings (loss)............................. (1.2) 0.5 (0.5) (1.2)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1995
---------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER(c) QUARTER QUARTER
------- -------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales....................................... $ 411.4 $1,036.4 $1,008.1 $ 1,005.9
Gross profit.................................... 35.4 79.5 78.3 75.3
Earnings (loss) from operations................. (0.5) 4.6 3.1 5.4
Earnings (loss) before extraordinary charge..... (1.3) 0.1 (0.7) 1.1
Net earnings (loss)............................. (2.1) 0.1 (0.7) 1.1
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
--------------------
1ST 2ND
QUARTER QUARTER
------- --------
(IN MILLIONS)
<S> <C> <C>
Net sales....................................... $ 968.7 $1,045.4
Gross profit.................................... 73.2 81.9
Earnings (loss) from operations................. (26.9) 5.6
Net earnings (loss)............................. (19.2) 1.2
</TABLE>
- ---------------
(a) Includes the acquisition of certain assets and the assumption of certain
liabilities of Malone on October 31, 1994.
(b) Includes fourteen weeks of operations due to the 53 week year.
(c) Includes the acquisition of substantially all of the assets and the
assumption of certain liabilities of NAD on March 31, 1995.
BUSINESS COMBINATIONS
All of the Company's acquisitions have been accounted for using the
purchase method and accordingly the acquired assets and liabilities have been
recorded at fair value at the date of acquisition. The excess of the purchase
price over the fair value of tangible net assets acquired related to these
business combinations was approximately $41.3 million, including the effect of a
revision on March 31, 1996 of the estimates of certain costs related to the NAD
acquisition which increased goodwill by $7.6 million. The Company's intangible
assets, including goodwill, are being amortized on a straight-line basis ranging
from 3 to 40 years. The Company has determined that goodwill should be amortized
over 40 years, which reflects management's best estimate of the appropriate
period over which to amortize goodwill associated with those acquisitions and is
consistent with industry practice.
26
<PAGE> 29
BUSINESS
ProSource is the nation's leading independent foodservice distributor
specializing in distribution to chain restaurants and is one of the largest
foodservice distributors in the United States. The Company distributes a wide
variety of items, including fresh and frozen meat and poultry, seafood, frozen
foods, canned and dry goods, fresh and pre-processed produce, beverages, dairy
products, paper goods and cleaning and other supplies. The Company specializes
in providing food and food-related products to two segments of the restaurant
industry -- limited-menu quick service restaurants, including Burger King,
Arby's, Long John Silver's, Sonic, Chick-fil-A, TCBY and Wendy's, and casual
dining restaurants, including Red Lobster, Olive Garden, TGIFriday's and
Chili's.
The Company was formed in 1992 to acquire BKDS, the "in-house" distributor
for BKC, which serviced approximately 4,150 Burger King restaurants. In the four
years since the acquisition, ProSource has, through a combination of
acquisitions and internal growth, become a leading distributor to chain
restaurants, servicing approximately 14,450 restaurants within 18 different
restaurant chains. In February 1993, the Company acquired certain operating
assets of McCabe's, and in connection therewith added 127 of the Burger King
restaurants included in the Company's current customer base. In March 1993, the
Company acquired certain assets and assumed certain liabilities of Valley,
adding 318 of the restaurants included in the Company's current customer base,
including certain Wendy's restaurants. In October 1994, the Company acquired
certain assets and assumed certain liabilities of Malone, adding 656 of the
restaurants included in the Company's current customer base, including certain
Sonic and KFC restaurants. In March 1995, the Company entered the casual dining
segment of the restaurant industry and further expanded its quick service
business with the acquisition of substantially all of the assets and the
assumption of certain liabilities of NAD from Martin-Brower, which added a total
of approximately 8,000 restaurants within 12 chains included in the Company's
current customer base. The Company has also been successful in expanding through
internally generated sales. Since its formation, the Company has added
approximately 400 of the Burger King restaurants included in its current
customer base through the growth of existing franchisee customers and the
addition of new customers. The Company has also added approximately 570 Jenny
Craig Weight Loss Centres and 150 Sonic restaurants through internal growth.
Since the Company's formation in 1992, net sales have grown from $1.3 billion in
1993 (the first full year of operations) to $4.0 billion in 1995 on a pro forma
basis.
The Company was incorporated in 1992 as a Delaware corporation. Its
principal executive offices are located at 550 Biltmore Way, 10th Floor, Coral
Gables, Florida 33134, and the Company's telephone number is (305) 529-2500. The
Company operates under the name "ProSource Distribution Services."
FOODSERVICE DISTRIBUTION INDUSTRY
The foodservice distribution business involves the purchasing, warehousing,
marketing and transportation of fresh and frozen meat and poultry, seafood,
frozen foods, canned and dry goods, fresh and pre-processed produce, beverages,
dairy products, paper goods and cleaning and other supplies from manufacturers
to a broad range of enterprises, including restaurants, cafeterias, nursing
homes, hospitals, other health care facilities and schools. The foodservice
distribution business generally does not include distribution to supermarkets
and other retail grocery stores. In 1995, the United States foodservice
distribution industry had an estimated $129 billion in net sales. Industry
sources indicate that the industry has grown at a rate of approximately 2.4%
over the past three years.
Within the foodservice distribution industry, there are two primary types
of distributors: broadline distributors and specialist distributors. Broadline
foodservice distributors service a wide variety of customers including both
independent and chain restaurants, schools, cafeterias and hospitals. Broadline
distributors may purchase and inventory as many as 25,000 different food and
food-related items. Customers utilizing broadline foodservice distributors
typically purchase inventory from several distributors. Specialist foodservice
distributors may be segregated into three categories: (i) product specialists
which distribute only one or a limited number of products such as produce or
meat, (ii) market specialists which distribute to one type of restaurant such as
Mexican and (iii) "systems" specialists which focus on one type of customer such
as chain restaurants or health care facilities. Systems specialists typically
serve as a single source of supply for their customers.
27
<PAGE> 30
The Company is a systems distributor specializing in distribution to the
chain restaurant segment. With aggregate net sales in 1995 estimated by the
Company at approximately $42 billion, the chain restaurant segment represents a
significant portion of the foodservice distribution industry. The Company
believes the chain restaurant foodservice distribution segment is particularly
attractive due to (i) the high growth rate of chain restaurants, with compound
annual growth of 7% over the past three years according to industry sources,
primarily due to the growth of existing chain restaurants and the introduction
of new chain restaurant concepts, (ii) the uniformity of product offerings and
consistency of demand by chain restaurant customers, (iii) the increasingly
important focus by chain restaurants on foodservice distributors that can
provide consistent quality and reliable service on a nationwide basis to
maintain the chain's uniform standards and (iv) the fragmented nature of the
foodservice distribution segment serving chain restaurants, with over 3,000
companies operating in the industry. The Company believes that the consolidation
in this industry will continue as larger foodservice distributors with
nationwide service are better able to meet the need for consistent quality and
reliable service by chain restaurants.
The Company believes systems distributors are better able to service chain
restaurants than broadline distributors because they can offer their customers a
higher quality of service at a lower cost. Given the uniformity of product
offerings and the consistency of demand of chain restaurants, a systems
distributor has the opportunity to reduce its overall costs and consequently
those of its customers through purchasing and holding in inventory fewer stock
keeping units ("SKUs") than a broadline distributor. This reduces both the
in-bound and outbound freight costs through higher volumes and larger drop sizes
and provides more efficient and reliable distribution schedules thereby reducing
labor costs of both the systems distributor and its customer. In addition,
systems distributors generally require a smaller sales force than broadline
distributors require. The Company believes that the uniformity of product
offerings and frequency of deliveries also result in higher volumes, allowing a
systems distributor to chain restaurants to significantly improve net asset
turnover as compared to a broadline distributor. In addition, management
believes that the larger systems distributors have the volume and scale to offer
chain restaurants an opportunity to further reduce their costs through
value-added services such as procurement of non-proprietary items and in-bound
transportation management as well as the capital to invest in systems and
business processes to continually improve supply chain management from the
vendor to the restaurant.
STRATEGIES
The Company is the nation's leading independent foodservice distributor
specializing in distribution to chain restaurants, and believes that it has one
of the most comprehensive distribution networks of any independent distributor
serving chain restaurants, based on geographic coverage. With net sales of $4.0
billion in 1995 on a pro forma basis, the Company believes, based on its
estimates, that it has captured approximately 10% of the $42 billion chain
restaurant distribution market in the United States. The Company estimates that
the next largest independent systems distributor has a market share of
approximately 6%. The Company believes that its size and scale give it an
advantage over its competitors with respect to purchasing power and lower
distribution costs. The Company plans to strengthen its position as a market
leader by continuing to pursue the following strategies for maximizing
profitability and enhancing its long-term growth opportunities.
Pursue Internal and External Growth Opportunities. The Company intends to
continue to grow through a combination of adding new customers and products
within the chains that it currently serves, adding new chains and, where
appropriate, making selective acquisitions of other foodservice distributors.
- Growth With Existing Chains. The chain restaurant segment of the
restaurant industry has historically grown faster than the overall
industry. As the primary distributor to most of its customers, the
Company expects to continue to grow with the chain restaurants it serves.
Such growth can result from a variety of factors, including increased
traffic in existing restaurants, the addition of new customers within the
chain and the acquisition or development of new chains by the Company's
existing customers. In addition, the Company believes that there is the
opportunity for increased "product penetration" by increasing the range
of products, including produce, dairy and bakery products, distributed to
existing customers.
28
<PAGE> 31
- Growth Through Addition of New Chains. The Company is continually
monitoring the marketplace for opportunities to expand the portfolio of
chains that it serves. Primary targets include chains offering menu
categories not covered by the Company's existing customers, chains
operating in geographic areas in which the Company could benefit from
increased customer density, and regional chains which could be added to
the national chains which have traditionally been the Company's focus. In
seeking potential new customers, the Company attempts to concentrate on
growing chains served by broadline distributors who might benefit from
the industry focus that a systems distributor brings, as well as chains
which the Company believes would benefit from the quality of service and
attention to supply chain management that the Company provides to its
customers.
- Selective Acquisitions. The Company believes the fragmented nature of
the industry and consolidation activity offer the Company opportunities
to supplement internal growth through selective acquisitions. In
addition, the Company believes that the strength of its balance sheet
following the offering will put it in a position to take advantage of
such opportunities. The Company intends to continue to focus its
acquisition strategy on systems specialists that distribute principally
to limited-menu quick service and casual dining chain restaurants which
will expand its customer base or improve geographic customer density.
Margin Improvement/Cost Reduction Programs. The Company is undertaking
several initiatives to increase margins and reduce its overall cost structure.
- Network Optimization. The Company is initiating a major project to
restructure its distribution network and create a new national
distribution system. Through this process, which is expected to take 3-5
years to complete, the Company intends to consolidate and integrate its
existing distribution network of 34 centers into 23 centers consisting of
six large regional distribution centers and 17 local distribution
centers. The new network should provide the Company with additional
distribution center capacity for continued growth. The Company estimates
the capital investment for this network optimization program will be
approximately $27 million and is projecting cost savings following full
implementation of the new system of approximately $20-25 million annually
compared to projected network costs under its existing system. However,
there can be no assurance that the proposed network will be completed
within the time period projected, that costs to implement the network
will not be higher than currently estimated or that projected costs
savings will be realized. See "-- Operations and Distribution -- Product
Replenishment," "Risk Factors -- No Assurance of Achieving Anticipated
Cost Savings" and "Risk Factors -- Capacity Constraints; Ability to
Implement Network Optimization Program."
- Enhanced Delivery Systems. The Company has recently introduced an
innovative value-added cart delivery system which the Company estimates
should result in restaurant deliveries which are 2-3 times faster than
methods currently used in the industry. The Company is currently using
cart delivery for approximately 17% of its customers and expects to
service approximately 75% through this method within three years. The
Company estimates the capital investment required for implementation of
the cart delivery system will be approximately $8 million and is
projecting cost savings to the Company, when fully implemented, of
approximately $10 million annually compared to projected costs of
conventional delivery methods. The Company believes that cart delivery
will also benefit its customers by reducing the disruption caused by
deliveries and labor costs associated with unloading. However, there can
be no assurance that costs to complete implementation will not be higher
or that projected cost savings will be realized. See "-- Operations and
Distribution -- Cart Delivery System" and "Risk Factors -- No Assurance
of Achieving Anticipated Cost Savings."
- Corporate Unification Program. The Company is in the process of
integrating its preexisting operations with the NAD operations acquired
from Martin-Brower into a new corporate support center located in Coral
Gables, Florida. The corporate support center will allow the Company to
centralize all purchasing, routing, in-bound transportation and
operations support functions. This process, which is expected to be
completed by mid-1997, should reduce overall personnel levels by 75
positions and is expected to result in aggregate cost savings of
approximately $5-6 million annually. However, there can
29
<PAGE> 32
be no assurance that the projected reductions in personnel and cost
savings will be realized. See "Risk Factors -- No Assurance of Achieving
Anticipated Cost Savings."
Establish Position as Preeminent Supply Chain Manager. The Company
believes that its size, scale and expertise in foodservice distribution and
transportation systems allow it to assist its customers in managing the entire
chain of supply, from the vendor location to the customer's storeroom. Emphasis
on supply chain management has allowed the Company to identify value-added
services to customers which result in reduced costs for its customers and
improved margins for the Company. Two examples of value-added services which the
Company is currently offering to customers are the purchasing of non-proprietary
products and the management and provision of in-bound transportation services
(i.e., transportation of products from the vendor to the distribution center).
Technological Leadership. The Company believes that it is a leader within
the industry in the application of information technology to its operations. The
Company has invested approximately $10 million in information systems since its
inception in 1992 through June 29, 1996, and has budgeted approximately $5
million per year for the next three to five years for new systems and upgrades.
The Company currently has in place a variety of information technology systems,
including electronic ordering, inventory management, financial and routing
systems. The Company continues to invest in technology. Among a new generation
of information technology being installed are new systems in the area of
electronic customer ordering, "order optimization" to manage the Company's
purchasing and inventory functions, and freight management. In addition, in
connection with its "network optimization" program, the Company intends to put
in place new customer ordering and warehouse management systems. Management
believes that these systems will allow the Company to manage the complexity and
diversity of its business at a lower cost and with higher service levels. See
"-- Operations and Distribution -- Order Fulfillment."
Service Quality Program. The Company places a significant emphasis on
providing a high level of service to its customers. The Company continuously
measures its service performance levels by monitoring (i) its delivery of the
cases ordered by a customer, the "order fill rate", (ii) its successful delivery
of an order within one hour of the pre-arranged time, "on-time delivery", (iii)
its delivery of all the cases ordered by a customer, the "perfect order" and
(iv) its customers' perception of the quality of service ProSource provides, the
"customer satisfaction index". The Company believes it is a leader in the
industry in quality and reliability of service to its customers. By providing a
high level of service and reliability, the Company believes it can reduce the
number of reorders and redeliveries, reducing costs for both the Company and its
customers and improving customer loyalty. See "-- Operations and
Distribution -- Order Fulfillment."
CUSTOMERS
The Company's customers as of June 29, 1996 consisted of 2,780 franchisees
and 17 corporate owners of approximately 14,450 limited-menu quick service and
casual dining chain restaurants representing 18 restaurant chains. The Company
is generally one of a limited number of suppliers to the chains it serves. The
largest chains served by the Company are Burger King, Red Lobster and Arby's,
representing 38%, 15% and 10% of 1995 net sales, respectively, on a pro forma
basis. The Company's largest customer is Darden Restaurants, Inc. (owner of
Olive Garden and Red Lobster), representing 21% of the Company's 1995 net sales
on a pro forma basis. No other chain or single customer accounted for more than
10% of the Company's pro forma net sales in 1995.
30
<PAGE> 33
The following table sets forth a list of the chains the Company served as
of December 30, 1995:
<TABLE>
<CAPTION>
1995 PRO FORMA % OF TOTAL 1995
NUMBER OF RESTAURANTS NET SALES PRO FORMA
CHAIN CUSTOMERS SERVED (IN THOUSANDS) NET SALES
- ---------------------------------------- --------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Quick Service
Burger King............................. 946 4,428 $1,531,774 38.4%
Arby's.................................. 442 2,513 404,781 10.1
Long John Silver's...................... 85 1,479 319,028 8.0
Chick-fil-A............................. 11 658 157,409 3.9
Sonic................................... 154 734 83,640 2.1
Wendy's................................. 29 258 74,788 1.9
KFC..................................... 94 346 51,856 1.3
Manchu Wok.............................. 52 145 11,345 0.3
----- ------ ---------- -----
1,853 10,561 2,634,621 66.0
Casual Dining
Red Lobster............................. 1 715 599,818 15.0
Olive Garden............................ 1 488 255,753 6.4
TGIFriday's............................. 50 328 197,948 5.0
Chili's................................. 14 326 143,492 3.6
Spaghetti Warehouse..................... 3 38 11,641 0.3
----- ------ ---------- -----
69 1,895 1,208,651 30.3
Other
TCBY.................................... 606 1,234 78,086 2.0
Other Chains............................ 79 285 67,547 1.6
Jenny Craig(1).......................... 1 587 4,537 0.1
----- ------ ---------- -----
686 2,106 150,170 3.7
TOTALS........................ 2,608 14,562(2) $3,993,443 100.0%
===== ====== ========== =====
</TABLE>
- ---------------
(1) The Company does not take title to the products it delivers to Jenny Craig
Weight Loss Centres.
(2) During the six months ended June 29, 1996, the number of restaurants served
by the Company decreased by 903, which was partially offset by the addition
of 792 new restaurants.
The Company has contracts with approximately 70% of its customers, with
terms ranging from 2-7 years and an average term of three years. In connection
with the acquisition of BKDS in 1992, the Company entered into an exclusive
distributor agreement and related distribution agreements with BKC, pursuant to
which, through 2002, (i) the Company is designated as the exclusive distributor
to BKC's company-owned and operated Burger King restaurants in the United States
(which accounted for 3.9% of 1995 net sales on a pro forma basis), (ii) the
Company is a BKC-approved distributor to franchised Burger King restaurants in
the United States and (iii) BKC has agreed that the Company will remain the sole
national distributor to Burger King restaurants. BKC has the right to terminate
these contracts (i) upon a material failure to perform by the Company and (ii)
in the case of the exclusive distributor agreement, upon the bankruptcy of the
Company. In addition to the 521 BKC-owned restaurants, the Company also services
4,037 Burger King restaurants owned by franchisees. In the aggregate, this
represents 68% of all Burger King restaurants in the United States. The Company
has also entered into distribution agreements with Olive Garden and Red Lobster
pursuant to which the Company is the primary distributor to the restaurants
owned by Olive Garden and Red Lobster operating in the United States. Olive
Garden and Red Lobster have the right to terminate their respective agreements
upon (i) a material change in ownership of the Company other than as a result of
a public offering by the Company, (ii) a material breach by the Company, (iii)
the bankruptcy of the Company and (iv) a failure of the Company to meet certain
performance reliability standards. Both agreements terminate in 1998. The
Company believes that from time to time it may not have been in strict
compliance with all of the performance reliability standards in such contracts.
However, it is not aware of any issues of non-compliance which could reasonably
be expected to result in early termination of such contracts.
31
<PAGE> 34
The Company considers its relationships with its customers to be good. The
Company holds regular meetings with its customers to discuss performance
reliability and other issues which have arisen from time to time. The Company
views the strength of its relationships with its customers, rather than its
contracts, as defining the commitment between them.
PURCHASING AND SUPPLY
Due to the high volume of proprietary products required by chain
restaurants, the chain typically negotiates product sourcing directly with
vendors and then requires the distributor to use such vendors and purchase at
the negotiated price. Furthermore, customers within the same chain often
cooperate to utilize internal or third party purchasing organizations.
The Company's emphasis on supply chain management has allowed the Company
to identify the purchasing of non-proprietary products as a value-added service
which it can provide to customers. The Company has formed a purchasing
subsidiary which pools the needs of its customers for non-proprietary products,
such as unlabeled paper products, cleaning supplies and produce, and uses the
resulting purchasing power to negotiate lower prices with vendors. The Company
and its customers share in the cost savings, improving margins for the Company
and reducing costs for its customers. Of the $800 million in non-proprietary
products sold to its customers in 1995, $27.5 million were purchased by the
Company and resold to its customers on this basis, and the Company believes that
a total of approximately $400 million of such purchases were potentially
available for purchase and resale in this manner. The Company believes that
expansion of its purchasing services represents an important opportunity for
growth.
The Company purchases and distributes a wide variety of items, including
fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods,
fresh and pre-processed produce, beverages, dairy products, paper goods and
cleaning and other supplies. Because suppliers for proprietary products are
generally designated by the chain, the loss of any such supplier would likely
result in the development of a new source of supply by such chain. Accordingly,
the Company does not believe that the loss of any supplier would have a material
adverse effect on the Company's operating results or its ability to serve its
customers.
MARKETING AND CUSTOMER SERVICE
The Company's senior management, together with a team of marketing, sales
and customer service personnel, are involved in maintaining relationships with
key customers and securing new accounts. The Company targets as potential new
customers restaurant chains offering menu categories not covered by the
Company's existing customers, chains operating in geographic areas in which the
Company could benefit from increased customer density, and regional chains which
could be added to the national chains which have traditionally been the
Company's focus. In seeking new customers, the Company attempts to concentrate
on growing chains served by broadline distributors which might benefit from the
industry focus that a systems distributor brings, as well as chains which the
Company believes would benefit from the quality of service and attention to
supply chain management that the Company provides to its customers.
The Company's customer service activities are highly customized to the
unique needs of the customer. Each customer has a dedicated account manager who
is responsible for overseeing all of its service needs and coordinating the
services provided through an account team of customer service professionals,
including a dedicated "logistics services manager." The logistics services
manager is responsible for coordinating day-to-day product flow for the
customer, as well as working closely with the customer's purchasing and
marketing organization.
The Company rigorously monitors customer service levels. In order to manage
problem resolution, the Company is implementing professional help desk software
which tracks customer calls in order to ensure that appropriate action and
follow-up occurs. The Company utilizes frequent trips to the customer's site for
regularly scheduled reviews and key project meetings and telephone conferencing
in order to ensure close coordination between the Company and the customer. In
addition, the Company monitors customer perceptions through periodic surveys.
See "-- Operations and Distribution -- Order Fulfillment."
32
<PAGE> 35
OPERATIONS AND DISTRIBUTION
The Company's operations can generally be categorized into two business
processes: (i) product replenishment and (ii) order fulfillment. Product
replenishment involves the management of logistics from the vendor location
through the delivery of products to the Company's distribution centers. Order
fulfillment involves all activities from customer order placement through
delivery to the restaurant location. Supporting the Company's business processes
are its innovative cart delivery system, its fleet of approximately 1,450
tractors and trailers and its management information systems.
Product Replenishment. While the Company is responsible for purchasing
products to be delivered to its customers, each chain typically selects the
vendor and negotiates the price at which most products will be purchased. See
"-- Purchasing and Supply." The Company determines the distribution centers
which will warehouse products for each customer and the quantities in which such
products will be purchased. Order quantities for each product are systematically
determined for each distribution center, taking into account both recent sales
history and projected customer demand. The number of distribution centers used
to serve a customer is based on the number and location of the restaurants to be
serviced. Given the Company's experience in managing its product flow, losses
due to shrinkage, damage and product obsolescence represent less than 0.1% of
1995 net sales. The Company is in the process of implementing a new order
optimization system which will utilize a demand forecasting program to (i)
establish order quantities and product availability levels and (ii) order
products as needed. The new system incorporates proprietary decision support
technology that optimizes the trade-off between in-bound transportation costs
and inventory carrying costs.
The Company works with its chain customers in order to optimize
transportation from vendor locations to distribution warehouses. By utilizing
the collective demand of its customers for in-bound transportation, its existing
fleet of trucks and its expertise in managing transportation, the Company can
offer its customers in-bound transportation, in many instances on a more
economical basis than that offered by the vendors that have traditionally
provided such services. The Company believes it can offer its customers lower
in-bound transportation costs through (i) use of the Company's delivery fleet to
backhaul products, (ii) consolidation of products from more than one vendor or
for use by more than one customer to increase truckloads and (iii) brokering the
freight to third party carriers with whom the Company has negotiated lower
transportation rates. In 1995, the Company managed approximately 30% of the
total freight tonnage to its distribution centers.
The Company currently warehouses 5,500 types of products for its customers
at 34 facilities in 27 cities. This distribution network includes the Company's
preexisting distribution centers, as well as the distribution centers acquired
in the NAD transaction. Currently, no one distribution center maintains
inventories for all customers and, as a result, some customers are not serviced
by the distribution center closest to them. The Company has begun plans to
implement a new national network of distribution centers. Through this process,
which is expected to take 3-5 years to complete, the Company intends to
consolidate and integrate its existing distribution network of 34 centers into
23 centers consisting of six large regional distribution centers ("RDCs") and 17
local distribution centers ("LDCs"). Under the new network, high volume products
will be shipped directly to both RDCs and LDCs, with low volume products being
shipped only to RDCs which will supply these products to the LDCs. The Company
expects its new distribution network to reduce costs primarily in two ways.
First, by enabling the Company to fully service more customers from a
distribution center closer to the customer, transportation costs should be
reduced. Second, more efficient utilization of its facilities should reduce by
approximately 10% the amount of warehouse space required for the same level of
business. In addition, the new network should provide the Company with
additional distribution center capacity for continued growth. See "Risk
Factors -- Capacity Constraints; Ability to Implement Network Optimization
Program." The Company estimates the capital investment for the proposed network
will be approximately $27 million and is projecting cost savings following full
implementation of the new system of approximately $20-25 million annually
compared to projected network costs under its existing system. However, there
can be no assurance that the proposed network will be completed within the time
period projected, that costs to implement the network will not be higher than
currently estimated or that projected costs savings will be realized. See "Risk
Factors -- No Assurance of Achieving Anticipated Cost Savings" and "Risk
Factors -- Capacity Constraints; Ability to Implement Network Optimization
Program." The
33
<PAGE> 36
consolidation of all customers into common distribution facilities in
conjunction with the development of the network should optimize in-bound
transportation costs, outbound miles, inventory investment and warehouse
capacity.
Upon receipt of the product at the distribution centers, it is inspected
and stored in racks. Each distribution center contains ambient, refrigerated and
frozen space as well as offices for operating, sales and customer service
personnel and a computer networked with the Company's centralized computer
system. In conjunction with the network optimization and integration strategy,
the Company intends to modify the racking configurations of its distribution
centers and install a new distribution center management system that controls
routing, shipping control, trip management, invoicing, inventory control and
communications.
Order Fulfillment. The Company places a significant emphasis on providing
a high service level in order fulfillment. For the six months ended June 29,
1996, the Company achieved order fill rates of 99.7% and on-time deliveries of
92%. By providing a high level of service and reliability, the Company believes
that it can reduce the number of reorders and redeliveries, reducing costs for
both the Company and its customers. Each restaurant places product orders based
on recent usage, estimated sales and existing restaurant inventories. The
Company has developed pre-established routes and pre-arranged delivery times
with each customer. Product orders are placed with the Company one to three
times a week either through the Company's customer service representative or
through electronic transmission using the Company's proprietary software.
Approximately 42% of the restaurants served by the Company transmit product
orders electronically. Orders are generally placed on a designated day in order
to coordinate with the Company's pre-established delivery schedules. Processing
and dispatch of each order is generally completed within 24 hours of receipt and
the Company's standards require each order to be delivered to the customer
within one hour of a pre-arranged delivery time.
Products are picked and labeled at each distribution center. The products
are placed on either a pallet or one of the Company's delivery carts for loading
of outbound trailers. The Company utilizes radio frequency and bar code scanning
in two distribution centers, and intends to implement this technology in its new
distribution center management systems. Delivery routes are scheduled to both
fully utilize the trailer's load capacity and minimize the number of miles
driven. The Company transports approximately 1.65 million tons of product and
its trucks travel in excess of 60 million miles annually. The Company currently
utilizes several unloading methods at the restaurant including (i) gravity aided
rollers, (ii) hand carts and ramps and (iii) its new cart delivery system.
Cart Delivery System. The Company has recently introduced an innovative
value-added cart delivery system which the Company estimates should result in
restaurant deliveries which are 2-3 times faster than methods currently used in
the industry. Under this system, at the distribution center, products are loaded
into carts which are then loaded directly onto delivery trucks. At the delivery
site, instead of unloading products by conveyor or handcart, the entire cart is
simply unloaded and rolled into the customer's storeroom. The cart delivery
system improves productivity of the Company's drivers, enhances utilization of
its tractors and trailers and improves employee safety. The Company is currently
using cart delivery for approximately 17% of its customers and expects to
service approximately 75% through this method within three years. The Company
estimates the capital investment required for implementation of the cart
delivery system will be approximately $8 million and is projecting cost savings
to the Company, when fully implemented, of approximately $10 million per year
compared to projected costs of conventional delivery methods. The Company
believes that cart delivery will also benefit its customers by reducing the
disruption caused by deliveries and labor costs associated with unloading.
However, there can be no assurance that costs to complete implementation will
not be higher or that projected cost savings will be realized. See "Risk
Factors -- No Assurance of Achieving Anticipated Cost Savings."
The Company believes that the cart delivery system represents a major
innovation in foodservice distribution methods. In recognition of this
achievement, ID Magazine recently awarded ProSource an "Innovator of the Year"
Award for 1995. The Company hopes to expand the cart delivery system by leaving
the carts at the customer's location until the next delivery, allowing them to
be used as shelving by the customer, and developing new software which would
manage the loading of the carts and trailers, thereby
34
<PAGE> 37
maximizing cart utilization and ease of customer use. See
"-- Strategies -- Margin Improvement/Cost Reduction Programs -- Enhanced
Delivery Systems."
Fleet. The Company operates a fleet of approximately 1,450 vehicles,
including approximately 600 tractors and 850 trailers. The Company leases
approximately 450 of the tractors from Ryder System, Inc. pursuant to
full-service leases which include maintenance, licensing and fuel tax reporting.
The remaining tractors are leased under similar full-service leases from a
variety of truck leasing companies. The trailers are leased primarily from GE
Capital Services. Lease terms average six years for tractors and 7-10 years for
trailers.
Substantially all of the Company's vehicles contain on-board computers. The
computers assist in managing fleet operations and provide expense controls,
automated service level data collection and real-time driver feedback, thereby
enhancing the Company's service level to customers. Substantially all of the
Company's trailers contain three temperature-controlled compartments, which
allow the Company to simultaneously deliver frozen food, refrigerated food and
dry goods. In order to implement its cart delivery system, as trailer leases
expire, the Company has begun the process of substituting new trailers which are
configured so as to accommodate the carts. This generally involves dividing the
trailers into thirds longitudinally in order to allow for separate carts to go
in each of the separate temperature controlled sections. Approximately 17% of
the Company's existing trailers are configured for cart delivery, and the
Company expects that 75% of its fleet of trailers will ultimately be so
configured. See "-- Strategies -- Margin Improvement/Cost Reduction
Programs -- Enhanced Delivery Systems."
Management Information Systems. The Company has invested approximately $10
million in information systems since its inception in 1992 through June 29,
1996, and has budgeted approximately $5 million per year for the next three to
five years for new systems and upgrades. The Company currently has in place a
variety of information technology systems, including electronic ordering,
inventory management, financial and routing systems. These systems represent a
combination of systems that were installed in 1993 following formation of the
Company and systems that were acquired in connection with the acquisition of
NAD. The Company is in the process of integrating these systems and installing
new system technologies in the areas of electronic customer ordering, "order
optimization" to manage the Company's purchasing and inventory functions, and
freight management. In addition, in connection with its "network optimization"
program, the Company intends to put in place new customer ordering and warehouse
management systems. Management believes that these systems will allow the
Company to manage the complexity and diversity of its business at a lower cost
and with higher service levels. See "-- Strategies -- Technological Leadership."
COMPETITION
The foodservice distribution industry is highly competitive. The Company
competes with other systems foodservice distribution companies focused on chain
restaurants and with broadline foodservice distributors. The Company's principal
national competitors are Sysco Corp., Alliant Foodservice Inc. (formerly Kraft
Distribution), MBM Corp., NEBCO-Ameriserv, Marriott Distribution Services Inc.,
King Provision Corp. and Pepsi Foodservices, an in-house distributor for
PepsiCo, Inc. The Company also competes with regional distributors, principally
for business from franchisee-owned Burger King restaurants. The Company believes
that distributors in the foodservice industry compete on the basis of price and
the quality and reliability of service. Because a number of the Company's
customers prefer a distributor that is able to service their restaurants on a
nationwide basis, the Company believes that it is in a strong position to
compete for national chain accounts. The Company attributes its ability to
compete effectively against smaller regional and local distributors in part to
the cost advantages resulting from its size, centralized purchasing operations
and ability to offer broad market coverage through a wide network of
distribution centers. However, in light of the consolidation in the foodservice
distribution industry, the Company could face increased competition to the
extent that there is an increase in the number of foodservice distributors
specializing in distribution to chain restaurants on a nationwide basis.
In addition, distribution fees received from a number of the Company's
customers decreased significantly in 1993 and 1994 as a result of competitive
pricing pressures. While distribution fees have stabilized in 1995
35
<PAGE> 38
and the first six months of 1996, and management expects such stabilization to
continue through 1996, there can be no assurance that competitive pricing
pressure will not recur in the future. See "Risk Factors -- Competition."
PROPERTIES
The Company's principal executive office is located in Coral Gables,
Florida, with additional administrative facilities located in Chicago, Cleveland
and Coral Gables. The Company is currently in the process of consolidating these
operations into a new principal executive office and corporate support center
located in Coral Gables. This facility, consisting of approximately 83,000
square feet of leased space, is expected to be ready for full-scale operations
on or about October 1, 1996. See "-- Strategies -- Margin Improvement/Cost
Reduction Programs -- Corporate Unification Program."
The following table sets forth certain information with respect to the
Company's 34 operating distribution centers:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET
------------------------------------------------------------------------- -----------
<S> <C>
Atlanta, Georgia(1)...................................................... 217,670
Burlington, New Jersey................................................... 60,880
Chester, New York........................................................ 131,400
Chicago, Illinois........................................................ 67,457
Cleveland, Ohio.......................................................... 40,540
Columbus, Ohio........................................................... 174,000
Dallas, Texas (1)(3)..................................................... 176,400
Denver, Colorado(4)...................................................... 57,608
Detroit, Michigan........................................................ 34,897
Greensboro, North Carolina............................................... 41,000
Gridley, Illinois........................................................ 151,000
Houston, Texas(1)........................................................ 77,900
Kansas City, Kansas(2)(5)................................................ 216,450
Lakeland, Florida........................................................ 31,806
Los Angeles, California(2)............................................... 245,540
Miami, Florida........................................................... 31,225
New Orleans, Louisiana................................................... 36,180
New York, New York....................................................... 35,000
Norman, Oklahoma (6)..................................................... 52,000
Orlando, Florida......................................................... 150,000
Oxford, Massachusetts.................................................... 40,000
Phoenix, Arizona......................................................... 38,200
Portland, Oregon......................................................... 74,500
San Jose, California..................................................... 31,500
Trenton, Ontario......................................................... 20,000
Virginia Beach, Virginia................................................. 23,045
Washington, DC(7)........................................................ 83,000
---------
Total:......................................................... 2,339,198
=========
</TABLE>
- ---------------
(1) Two facilities.
(2) Three facilities.
(3) Includes approximately 39,200 square feet of supplemental space in three
remote facilities.
(4) Includes approximately 38,610 square feet of supplemental space in two
remote facilities.
(5) Includes approximately 23,500 square feet of supplemental space in a remote
facility.
(6) Includes approximately 11,000 square feet of supplemental space in a remote
facility.
(7) Includes approximately 30,000 square feet of supplemental space in a remote
facility.
36
<PAGE> 39
Of the 34 facilities, 20 facilities (representing an aggregate of approximately
832,830 square feet) are leased and 14 facilities (representing an aggregate of
approximately 1,506,370 square feet) are owned by the Company.
EMPLOYEES
As of June 29, 1996, the Company had approximately 3,800 full-time
employees, of whom approximately 420 were employed in corporate support
functions and approximately 3,380 were warehouse, driver and administrative
staff in the distribution centers. Approximately 690 of the Company's employees
were covered by 11 collective bargaining contracts with seven local unions, six
of which are associated with the International Brotherhood of Teamsters, and one
of which is independent. Three contracts, covering approximately 90 employees,
will expire by the end of 1996, and three contracts, covering approximately 180
employees, will expire during 1997. The Company has not experienced any
significant labor disputes or work stoppages. The Company believes that its
relationships with its employees are good.
REGULATORY MATTERS
The Company is subject to a number of federal, state and local laws,
regulations and codes, including those relating to the protection of human
health and the environment, compliance with which has required, and will
continue to require, capital and operating expenditures. The Company is not
aware of any violations of, or pending changes in, such laws, regulations and
codes that are likely to result in material penalties or material increases in
compliance costs. The Company, however, is not able to predict the impact of any
changes in the requirements or mode of enforcement of these laws, regulations
and codes on its operating results.
The Company owns and leases distribution centers, at some of which on-site
vehicle fueling activities may have resulted in releases of diesel or other
petroleum products to the soil or groundwater. The Company may be subject to
liability for clean-up of contaminated soil or groundwater at these distribution
centers and is in the process of investigating or remediating the contamination.
Although there can be no assurances, the Company does not believe that the
estimated costs associated with any required investigation or remediation will
have a material adverse effect on the Company's financial condition, results of
operations or liquidity. The Company has engaged in a program to remove
underground fuel storage tanks located on its properties. As a result, with the
exception of two such tanks, which are scheduled to be removed during 1996, all
underground fuel storage tanks have been removed from the Company's properties.
In addition, several of the Company's facilities are located over areas of
regional groundwater contamination or are near sites which have contaminated
soil or groundwater. The Company has not been named a responsible party at, and
does not anticipate any liability associated with, any of these sites.
LITIGATION
From time to time the Company is involved in litigation relating to claims
arising out of its normal business operations. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
CONTROLLING STOCKHOLDER
The Company is controlled by Onex. Onex Corporation, based in Toronto,
Canada, is a publicly listed (on The Toronto Stock Exchange and The Montreal
Exchange) diversified company that operates through autonomous subsidiaries and
strategic partnerships. Onex had consolidated revenues of Cdn.$6.5 billion for
1995 and consolidated assets of Cdn.$2.8 billion at June 30, 1996. Onex
currently owns 86% of the outstanding Common Stock of the Company. Upon
completion of the offering, Onex will own % of the outstanding Class B Common
Stock, representing % of the combined voting power of the outstanding Common
Stock. See "Principal Stockholders" and "Certain Transactions."
37
<PAGE> 40
MANAGEMENT
The following table sets forth certain information concerning the directors
and executive officers of the Company as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
David R. Parker........................... 53 Chairman of the Board of Directors
Thomas C. Highland........................ 54 President, Chief Executive Officer and
Director
Daniel J. Adzia........................... 54 Vice-Chairman, Chief Marketing Officer and
Director
William F. Evans.......................... 48 Executive Vice President, Chief Financial
Officer
Paul A. Garcia de Quevedo................. 42 Vice President, Treasurer and Secretary
William G. Berryman....................... 53 Senior Vice President, Chief Information
Officer
Dennis T. Andruskiewicz................... 42 Senior Vice President, Operations Support
Robert S. Donaldson....................... 40 Senior Vice President, Field Operations
John E. Foley............................. 47 Senior Vice President, Operations
Development
John P. Gainor............................ 39 Senior Vice President, Logistics and
Purchasing
Gerald W. Schwartz........................ 54 Director
Anthony R. Melman......................... 49 Director
Michael E. Treacy......................... 40 Director
Michael Carpenter......................... 49 Director
Anthony Munk.............................. 36 Director
C. Lee Johnson............................ 64 Director
R. Geoffrey P. Styles..................... 65 Director
</TABLE>
David R. Parker Mr. Parker has served as Chairman of the Board of
Directors since the formation of the Company in 1992. From July 1, 1991 to July
1, 1992, Mr. Parker was an independent investor, working primarily on the
formation of the Company and the acquisition of BKDS. Prior to such time, he was
Senior Executive Vice President of Ryder System, Inc. and President of the
Vehicle Leasing and Services Division. Previously, he was Chief Operating
Officer of Ryder's Business Services Group which included the company's
worldwide aviation support businesses and its insurance management services
businesses. Before joining Ryder System in 1984, Mr. Parker was Executive Vice
President and Sector Executive of American Can Company (Primerica). Mr. Parker
serves on the Boards of Directors of Premark International, Inc. and
SunBank/Miami, N.A.
Thomas C. Highland Mr. Highland has served as President, Chief Executive
Officer and a Director of the Company since its formation in 1992. Before
serving in this capacity, Mr. Highland was President of BKDS from 1988 to 1992.
Prior thereto, he held various executive positions at Warner Lambert Company,
including Vice President, U.S. Distribution, Director, Distribution Operations,
Pharmaceutical Group and Director, Distribution Center Operations from 1963 to
1988.
Daniel J. Adzia Mr. Adzia has served as Vice-Chairman, Chief Marketing
Officer of the Company since the acquisition of NAD in March 1995 and a Director
of the Company since April 1995. From 1975 to 1995, Mr. Adzia served in various
executive capacities at Martin-Brower including President of NAD. Prior to
joining Martin-Brower, Mr. Adzia held various sales and sales management
positions with Oscar Mayer & Co.
William F. Evans Mr. Evans has served as Executive Vice President, Chief
Financial Officer of the Company since July 1995. Prior to joining the Company,
he was the Senior Vice President, Corporate Operations of H&R Block, Inc. from
August 1992 to June 1995. Prior to 1992, Mr. Evans served in executive
capacities at D&B Software Services, Inc. from 1990 to 1992, Management Science
America, Inc. from 1989 to 1990 and Electromagnetic Sciences, Inc. from 1985 to
1989. From June 1980 to November 1985, Mr. Evans served as a partner of KPMG
Peat Marwick LLP, the Company's independent auditors. Mr. Evans serves as a
Director of LXE, Inc. and Interim Services, Inc. Mr. Evans is a certified public
accountant.
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<PAGE> 41
Paul A. Garcia de Quevedo Mr. Garcia has served as Vice President,
Treasurer and Secretary of the Company since its formation in 1992. Prior to
such time, Mr. Garcia served as Vice President, Finance, for BKDS. Mr. Garcia
joined BKDS in January 1986. Mr. Garcia is a certified public accountant.
William G. Berryman Mr. Berryman has served as Senior Vice President,
Chief Information Officer of the Company since May 1996. Before serving in such
capacity, Mr. Berryman was Chief Information Officer, Vice President, MIS for
The Penn Traffic Company, a food, general merchandise and drug retailer and
involved in the manufacture of various food products from May 1995 to April
1996, Vice President for Technology Solutions Co. from September 1994 to April
1995 and Vice President, MIS, for Dominick's Finer Foods from April 1989 to
December 1993.
Dennis T. Andruskiewicz Mr. Andruskiewicz has served as Senior Vice
President, Operations Support of the Company since the acquisition of NAD in
March 1995. Before serving in such capacity, Mr. Andruskiewicz was the Vice
President of Distribution for Martin-Brower from 1990 to 1995 and the Director
of Distribution for the Planters Life Savers Division of RJR Nabisco from 1974
to 1990.
Robert S. Donaldson Mr. Donaldson has served as Senior Vice President,
Field Operations of the Company since January 1995. From January 1993 to
December 1994, he served as Vice President of Business Development of the
Company. Prior to joining the Company, Mr. Donaldson was the President of
Institution Food House, Inc., a broadline foodservice distributor from 1986 to
1993 and Vice President of Sky Brothers, Inc., a foodservice distributor from
1973 to 1986.
John E. Foley Mr. Foley has served as Senior Vice President, Operations
Development of the Company since August 1995 and Senior Vice President, Finance
and Systems, Chief Financial Officer from April 1994 to July 1995. Prior to
joining the Company, Mr. Foley was the Senior Vice President, Grand Metropolitan
Computer Systems for Grand Metropolitan, PLC from 1992 to 1995 and Vice
President, MIS for Burger King Corporation from 1990 to 1992.
John P. Gainor Mr. Gainor has served as Senior Vice President, Logistics
and Purchasing of the Company since November 1995, Vice President, Operations
Support from July 1992 to May 1993 and from November 1994 to November 1995 and
Eastern Region, Vice President from June 1993 to October 1994. Prior to joining
the Company in April 1992, he held various executive positions, including
Director, Transportation and Planning, Manager, Transportation, Manager, Private
Carriage Operations and Regional Transportation Manager, at Warner Lambert
Company since 1982.
Gerald W. Schwartz Mr. Schwartz has served as a Director of the Company
since its formation in 1992. Mr. Schwartz is Chairman of the Board, President
and Chief Executive Officer of Onex Corporation and has served in such capacity
since its formation in 1983. Mr. Schwartz serves on the Board of Directors of
Alliance Communications Corporation.
Anthony R. Melman Mr. Melman has served as a Director of the Company since
its formation in 1992. Mr. Melman has been Vice President of Onex Corporation
since 1984. Prior to joining Onex, Mr. Melman held various executive positions
at Canadian Imperial Bank of Commerce and Union Acceptances Limited, a South
African merchant banking organization.
Michael E. Treacy Dr. Treacy has served as a Director of the Company since
October 1992. Dr. Treacy is the Managing Director of Treacy & Company, LLC and
has served as the President of Treacy Forum since 1985. Dr. Treacy holds a Ph.D.
in management science from M.I.T. and was a professor of management science at
the Sloan School of Management at M.I.T. from 1983 to 1989.
Michael Carpenter Mr. Carpenter has served as a Director of the Company
since October 1992. Since January 1995, he has been Chairman and Chief Executive
Officer of Travelers Life and Annuity Company. He also serves as Executive Vice
President of Travelers Group, Inc., responsible for business development and
planning. Mr. Carpenter was Chairman of the Board, President and Chief Executive
Officer of Kidder, Peabody Group Inc., a wholly owned subsidiary of General
Electric Company from January 1989 to June 1994.
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<PAGE> 42
Anthony Munk Mr. Munk has served as a Director of the Company since
January 1995. He joined Onex Corporation in April 1988, and is currently a Vice
President. During the period January 1995 to September 1995, Mr. Munk served as
Senior Vice President and is currently a Director of The Horsham Corporation, a
Canadian based company which has interests in gold, real estate and refining
ventures.
C. Lee Johnson Mr. Johnson has served as a Director of the Company since
October 1992. Since July 1986, he has been President of Limited Distribution
Services (a subsidiary of The Limited, Inc.). From 1984 to 1986, he was Senior
Vice President, Beatrice U.S. Food Corporation and President, Beatrice
Distribution, Inc. Mr. Johnson serves on the Board of Directors of Columbus Port
Authority and the Executive Committee and Board of Directors of Columbus Chamber
of Commerce.
R. Geoffrey P. Styles Mr. Styles has served as a Director of the Company
since October 1992 and is a director of Onex Corporation. Since 1990, he served
as Director of Drivers Jonas (Canada) Ltd. and since 1988, he served as Chairman
and Director of Grosvenor International Holdings Limited. He serves on the
Boards of Directors of Royal Trust Company, The Geon Company, Echo Bay Mines
Ltd., Fairwater Capital Corporation, Working Ventures Canadian Fund Inc. and
Scott's Hospitality Inc.
TERMS OF OFFICE AND COMMITTEES
All directors of the Company currently hold office until the next annual
meeting of stockholders of the Company or until their successors are elected and
qualified. Messrs. Parker and Highland were elected to the Board of Directors
pursuant to the Management Shareholders Agreement under which the management
shareholders have the right to have two designees nominated to the Board of
Directors by Onex. While the management shareholders' right to nominate
designees to the Company's Board of Directors will terminate upon completion of
the offering, Onex has indicated that it has no present intention to withdraw
its support for the continued service of Messrs. Parker and Highland on the
Board of Directors. See "Certain Transactions -- Shareholders
Agreements -- Management Shareholders Agreement." Executive officers hold office
until their successors are chosen and qualified, subject to earlier removal by
the Board of Directors. There are no family relationships among any of the
directors or executive officers of the Company.
The Board of Directors has established an Audit Committee comprising
Messrs. Treacy, Carpenter and Styles. The Audit Committee is responsible for
recommending to the Board of Directors the engagement of independent auditors of
the Company and reviewing with the independent auditors the scope and results of
the audits, the internal accounting controls of the Company, audit practices and
the professional services furnished by the independent auditors.
The Board of Directors has also established a Compensation and Nominating
Committee comprising Messrs. Schwartz, Melman and Johnson and an Equity
Compensation Committee comprising Messrs. Carpenter and Styles. The Compensation
and Nominating Committee is responsible for reviewing and approving all
non-equity based compensation arrangements for officers of the Company. In
addition, the Compensation and Nominating Committee advises and makes
recommendations to the Board of Directors on the selection of candidates as
nominees for election as directors. The Equity Compensation Committee is
responsible for reviewing and approving all equity based compensation
arrangements for officers of the Company and for administering the Company's
option plans. Prior to the offering, the Company did not have a compensation or
a nominating committee.
DIRECTOR COMPENSATION
Following completion of the offering, directors who are not officers or
employees of the Company or Onex will receive an annual fee of $20,000. All
directors will be reimbursed for out-of-pocket expenses.
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<PAGE> 43
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during the fiscal year ended December 30, 1995 by the Company's chief
executive officer and each of the four other most highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(1) -------------
----------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#)(2) ($)(3)
- -------------------------------------------- ------ ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
David R. Parker............................. 1995 300,000 150,000 153,120
Chairman of the Board of Directors
Thomas C. Highland.......................... 1995 300,000 150,000 103,120
President, Chief Executive Officer
Daniel J. Adzia(4).......................... 1995 225,385 112,500 21,410
Vice Chairman, Chief Marketing Officer
John E. Foley............................... 1995 170,000 70,000 3,400
Senior Vice President, Operations
Development
Robert S. Donaldson......................... 1995 157,500 58,575 3,109
Senior Vice President, Field Operations
</TABLE>
- ---------------
(1) Excludes perquisites and other personal benefits because such compensation
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for any of the Named Executive Officers.
(2) Options to acquire shares of Common Stock.
(3) The amounts shown in the "All Other Compensation" column consist of the
following: (i) Mr. Parker: $150,000 consulting fee paid by Onex for services
rendered in 1995 (including amounts actually paid in 1996), and $3,120 in
Company matching contributions to the Company's Associates' Savings Plan, a
defined contribution plan (the "401-K Plan"), (ii) Mr. Highland: $100,000
consulting fee paid by Onex for services rendered in 1995 and $3,120 in
Company matching contributions to the 401-K Plan, (iii) Mr. Adzia: $21,410
in Company contributions to the Company's Money Purchase Plan for Former NAD
Salaried Employees, a defined contribution plan, (iv) Mr. Foley: $3,400 in
Company matching contributions to the 401-K Plan and (v) Mr. Donaldson:
$3,109 in Company contributions to the 401-K Plan.
(4) Represents amounts paid from April 1, 1995 through the end of 1995. Prior to
such time Mr. Adzia was employed by NAD.
41
<PAGE> 44
The following table provides information regarding stock options granted to
the Named Executive Officers during fiscal year 1995. No stock appreciation
rights were granted.
OPTION GRANTS DURING FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------------------------------ RATES OF STOCK
NUMBER OF % OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE -----------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5%($) 10%($)
- ------------------------- ------------ ------------ --------- ------------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
David R. Parker.......... December 31, 2000
Thomas C. Highland....... December 31, 2000
Daniel J. Adzia.......... December 31, 2000
John E. Foley............ December 31, 2000
Robert S. Donaldson...... December 31, 2000
</TABLE>
The following table sets forth certain information regarding the number and
year-end value of unexercised options held by the Named Executive Officers at
December 30, 1995. No stock options were exercised by the Named Executive
Officers during fiscal year 1995.
AGGREGATE OPTION EXERCISES IN 1995 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES "IN-THE-MONEY"
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END($)
YEAR-END(#) EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE(2) UNEXERCISABLE(2)(3)
- --------------------------------------------------- ---------------------------- ---------------------
<S> <C> <C>
David R. Parker.................................... $
Thomas C. Highland.................................
Daniel J. Adzia....................................
John E. Foley......................................
Robert S. Donaldson................................
</TABLE>
- ---------------
(1) No options were exercised in 1995.
(2) Options vest according to the following schedule: 10% at the end of years
1995 through 1999, with the remaining 50% vesting at the end of such
five-year period.
(3) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between an assumed initial public offering price
equal to the midpoint of the range set forth on the cover page of this
Prospectus and the exercise price of the option multiplied by the applicable
number of options.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into employment agreements (each an "Employment
Agreement") with each of Messrs. David R. Parker, Thomas C. Highland, Daniel J.
Adzia, Paul A. Garcia de Quevedo, Dennis Andruskiewicz and John E. Foley (each
an "Employee"). Each Employment Agreement provides that the Employee will
receive an annual salary (subject to increase at the discretion of the Board of
Directors), a cash bonus calculated in accordance with the Company's management
bonus or incentive compensation plan in effect from time to time and certain
benefits. The term of each Employment Agreement is three years (one year in the
case of Mr. Andruskiewicz), with automatic one year extensions unless terminated
earlier by the Company or the Employee upon prior written notice. In the event
that the Company terminates the Employee's employment for disability or without
cause, the Employee is entitled to receive his salary, a pro
42
<PAGE> 45
rata portion of the actual incentive payment that he would have received under
the management incentive plan for the year in which termination occurs and all
other benefits in effect for senior management employees at the time of
termination ("Termination Benefits") for a period of one year from the date of
termination, except in the cases of Messrs. Highland and Adzia. In the event
that the Company terminates Mr. Highland's employment for disability or without
cause, he is entitled to receive payment in an amount equal to 150% of the sum
of the Termination Benefits for a period of eighteen months from the date of
termination. In the event that the Company terminates Mr. Adzia's employment for
disability or without cause, he is entitled to receive 100% of the Termination
Benefits for a period ending on the later of April 1, 1998 and eighteen months
from the date of termination. If the Company terminates the Employee's
employment, including Messrs. Highland or Adzia, for any other reason, the
Employee is entitled to receive the Termination Benefits through the date of
termination. Each Employee is also subject to a one-year covenant not to compete
effective upon termination of employment for any reason, except in the cases of
Messrs. Highland (eighteen months) and Adzia (terminating on the later of April
1, 1998 and eighteen months from the date of termination).
Pursuant to agreements with Onex, Messrs. Parker and Highland received
consulting fees from Onex in the following amounts: (i) $150,000 in 1995
(including amounts actually paid in 1996) and $100,000 in each of 1994 and 1993
in the case of Mr. Parker, and (ii) $100,000 in each of 1995 and 1994 in the
case of Mr. Highland. Such consulting arrangements will be terminated effective
upon completion of the offering, and, in consideration therefor, the base salary
payable to Messrs. Parker and Highland will be increased to a rate of $425,000
per annum for the remainder of 1996 and $450,000 per annum for 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Nominating Committee, which currently consists of
Messrs. Schwartz, Melman and Johnson, was formed in July 1996. The Equity
Compensation Committee, which currently consists of Messrs. Carpenter and
Styles, was formed in September 1996. Prior to the formation of the Compensation
and Nominating Committee, compensation decisions were made and approved by the
Company's Board of Directors.
OPTION PLANS
Amended Management Option Plan (1995). The 1995 Option Plan provides for
the grant of "non-qualified stock options" ("NQSO's") to management employees of
the Company ("1995 Employee Participants") at the time that such employees
purchase Common Stock of the Company. Options granted under the 1995 Option Plan
have an exercise price equal to the price at which the 1995 Employee Participant
purchased such stock. Options are exercisable for shares of Class B Common
Stock. The 1995 Option Plan provides for it to be administered by the Board of
Directors of the Company or a committee thereof. Prior to the offering it was
administered by the Board of Directors, and following the offering it will be
administered by the Equity Compensation Committee. Options granted under the
1995 Option Plan are not transferrable or assignable.
Options vest according to the following schedule: ten percent at the end of
years 1995 through 1999, with the remaining 50% vesting at the end of such
five-year period. Options granted under the 1995 Option Plan remain exercisable
until December 31, 2000. In the event the Company merges, consolidates or sells
substantially all of its assets in a transaction in which the consideration is
principally other than common stock and results in Onex earning certain
specified rates of return on its initial purchase of Common Stock, then all
unexercised options under the 1995 Option Plan with respect to periods not yet
ended are deemed earned and exercised immediately prior to the date the
triggering transaction closes.
The 1995 Option Plan terminates on the earlier of (i) December 31, 2000 and
(ii) the sale of all of the Common Stock owned by Onex, the sale of all of the
issued and outstanding stock of the Company or the sale of all or substantially
all of the assets of a subsidiary of the Company.
Upon completion of the offering, options to purchase shares of Class
B Common Stock will be outstanding. No additional options will be granted under
the 1995 Option Plan.
1996 Stock Option Plan. Prior to the completion of the offering, the Board
of Directors and stockholders of the Company will approve the 1996 Stock Option
Plan (the "1996 Plan"). The Company has reserved
43
<PAGE> 46
shares of Class B Common Stock for issuance upon exercise of options granted
under the 1996 Plan. The Company intends to grant options to purchase
shares of Class B Common Stock at an exercise price equal to the initial public
offering price immediately prior to the completion of the offering.
Pursuant to the 1996 Plan, executive officers and key employees of the
Company are eligible to receive awards of stock options. The 1996 Plan provides
for the award of NQSO's only. The 1996 Plan will be administered by the Equity
Compensation Committee (the "Committee"). Subject to the provisions of the 1996
Plan, the Committee will determine when and to whom awards will be granted, and
the number of shares covered by each award. The Committee may interpret the 1996
Option Plan and may at any time adopt such rules and regulations for the 1996
Plan as it deems advisable. In addition, the Committee may cancel or suspend
awards.
The exercise price for options granted under the 1996 Plan will be at least
100% of the fair market value of a share of Class B Common Stock on the date of
grant. Options will vest ratably on each of the first four anniversaries of the
date of grant. However, notwithstanding such vesting, no option will become
exercisable until the earlier of (i) the date on which the Market Value of the
Class B Common Stock is at least 25% greater than the exercise price of such
option and (ii) the eighth anniversary of the date of grant. "Market Value" of
the Class B Common Stock is determined by taking the average closing price of
the Class A Common Stock on the Nasdaq National Market or the principal
securities exchange on which the Common Stock is listed for any five consecutive
trading days. Subject to the foregoing, vested options may be exercised for a
period of up to 10 years from the date of grant.
The Committee may provide for the payment of the option price in cash, by
delivery of other Common Stock having a fair market value equal to the exercise
price, by a combination thereof or by such other manner as the Committee shall
determine, including a cashless exercise procedure.
The Board of Directors may at any time and from time to time suspend,
amend, modify or terminate the 1996 Plan; provided, however, that, to the extent
required by Rule 16b-3 promulgated under the Exchange Act or any other law,
regulation or stock exchange rule, no such change shall be effective without the
requisite approval of the Company's stockholders. In addition, no such change
may adversely affect any award previously granted, except with the written
consent of the grantee.
No options may be granted under the 1996 Plan after the tenth anniversary
of the approval of the 1996 Plan.
DEFINED CONTRIBUTION PLANS
401(k) Plan. The Company maintains the Associates' Savings Plan (the
"401(k) Plan"), a defined contribution retirement plan with a cash or deferral
arrangement as described in Section 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"). The 401(k) Plan is intended to be qualified under
Section 401(a) of the Code. All employees who are at least 21 years old, work at
least 1,000 hours a year and are not excluded by a bargaining agreement or
certain other exclusions are eligible to participate in the 401(k) Plan. The
401(k) Plan provides that each participant may make elective contributions from
1% to 15% of his or her compensation, subject to statutory limits. The Company
contributes to the 401(k) Plan fifty cents for every dollar contributed up to
the first 4% of an eligible employee's compensation. All contributions made by
participants are fully vested and are not subject to forfeiture. A participant
vests in any contributions made by the Company at a rate of 20% for each year of
service. Each participant's entire 401(k) account is distributed to the
participant or his or her beneficiary, without regard to vesting, upon
retirement, death, disability, or termination of employment with the Company
after the completion of five years of service. The trustee under the 401(k)
Plan, at the direction of each participant, invests the assets of the 401(k)
Plan in a number of investment options.
Money Purchase Plan. The Company maintains the Money Purchase Plan for
Former NAD Salaried Employees (the "Money Purchase Plan"), a defined
contribution retirement plan with a cash or deferral arrangement, as described
in Section 401(a) of the Code. All salaried employees of the Company who were
former salaried employees of Martin-Brower immediately preceding the acquisition
of NAD by the Company
44
<PAGE> 47
and either participated in a defined contribution plan or have completed two
years of service with the Company are eligible to participate in the Money
Purchase Plan. As of December 30, 1995, 324 employees participated in the Money
Purchase Plan. All contributions are made by the Company. The Company
contributes an amount equal to 10% of each eligible employee's compensation,
subject to statutory limits. All contributions made by the Company are fully
vested with the participant and are not subject to forfeiture. Each
participant's account is distributed to such participant or the participant's
named beneficiary (or surviving spouse in the case of the death of a
participant) upon the termination of service with the Company, retirement,
disability or death of the participant, generally in the form of an annuity
purchased from the proceeds of the participant's account. A committee appointed
by the Company's Board of Directors, at the direction of each participant,
invests the assets of the Money Purchase Plan in a number of investment options.
PENSION PLANS
ProSource Distribution Services Salaried Defined Benefit Plan (the
"Salaried Pension Plan"), ProSource Distribution Services Hourly Defined Benefit
Plan (the "Hourly Pension Plan") and ProSource Distribution Services Pension
Plan for Former NAD Hourly Employees (the "NAD Pension Plan"; and together with
the Salaried Pension Plan and Hourly Pension Plan, each a "Pension Plan") are
tax-qualified benefit pension plans. The Salaried Pension Plan and Hourly
Pension Plan cover all of the Company's salaried and hourly employees,
respectively, who have been employed with the Company for at least one year,
subject to certain exceptions. The NAD Pension Plan covers (i) former NAD
employees who participated in the Martin-Brower pension plan and were employed
by the Company by September 30, 1995 and (ii) every other former NAD employee
who completes one year of service for the Company and is compensated on an
hourly or mileage basis. Each Pension Plan is funded through a tax-exempt trust
into which contributions are made as necessary based on actuarial funding
analysis. The Company's funding policy is to contribute an amount not less than
the minimum funding requirements under the Employee Retirement Income Security
Act of 1974, as amended or supplemented, nor more than the maximum deductible
amount for income tax purposes.
Each Pension Plan provides for the payment of benefits upon retirement,
early retirement, death, disability and termination of employment. All benefits
become fully vested after five years of service. Benefits under the Salaried
Pension Plan and NAD Pension Plan are determined under a formula based on a
participant's compensation and credited service. Benefits under the Hourly
Pension Plan are determined under a formula based solely on a participant's
credited service. Participants may elect from several optional forms of benefit
distribution.
SALARIED PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
FINAL AVERAGE -------------------------------------------------------
COMPENSATION (5 YEARS) 15 20 25 30 35
- ---------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $29,471 $39,295 $49,199 $58,943 $58,943
150,000 35,721 47,628 59,536 71,443 71,443
175,000 35,721 47,628 59,536 71,443 71,443
200,000 35,721 47,628 59,536 71,443 71,443
225,000 35,721 47,628 59,536 71,443 71,443
250,000 35,721 47,628 59,536 71,443 71,443
300,000 35,721 47,628 59,536 71,443 71,443
400,000 35,721 47,628 59,536 71,443 71,443
450,000 35,721 47,628 59,536 71,443 71,443
500,000 35,721 47,628 59,536 71,443 71,443
550,000 35,721 47,628 59,536 71,443 71,443
</TABLE>
The Named Executive Officers have been credited with the following years of
service under the Salaried Pension Plan: David R. Parker -- four; Thomas C.
Highland -- eight; John E. Foley -- two; and Robert S.
45
<PAGE> 48
Donaldson -- three. Daniel J. Adzia does not participate in the Salaried Pension
Plan. The Salaried Pension Plan defines "compensation" as cash remuneration to
an employee for services rendered, constituting an employee's salary, bonus,
commissions and contributions to any Company cafeteria plan or cash or deferred
arrangement made by the employee through pre-tax deductions, and credits
compensation only up to the limit of covered compensation under Section
401(a)(17) of the Code. The covered compensation, as determined under the
Salaried Benefit Plan, is, in the aggregate, not substantially different than
the amount reflected in the Annual Compensation column of the Summary
Compensation Table set forth above. The estimates of annual retirement benefits
reflected in the above table are based on payment in the form of a straight-life
annuity and are not subject to any deduction for Social Security or other offset
amounts.
Monthly normal retirement benefits under the Hourly Pension Plan are
determined by taking the product of the participant's years of credited service
(up to a maximum of 30 years) and $20. Monthly normal retirement benefits under
the NAD Pension Plan are equal to 1 3/4% of the participant's covered
compensation for each one-year period of credited service divided by 12.
46
<PAGE> 49
CERTAIN TRANSACTIONS
SHAREHOLDERS AGREEMENTS
Management Shareholders Agreement. The following is a summary of certain
provisions of the Amended and Restated Management Shareholders Agreement, dated
as of May 31, 1995, among the Company, Onex and certain officers and employees
("Management Shareholders") of the Company (the "Management Shareholders
Agreement").
The Management Shareholders Agreement governs, among other things, the
manner and means by which Common Stock, or securities convertible into shares of
Common Stock, held by the Management Shareholders at any time may be
transferred. Pursuant to such Agreement, the transfer of shares of the Company's
Common Stock, including shares received upon the conversion of options, by
Management Shareholders is prohibited except (i) to immediate family members (or
to trusts for the exclusive benefit of the transferor or his immediate family
members), (ii) to other Management Shareholders or management employees of the
Company in cases of hardship or other unusual circumstances (with the approval
of the Company's Board of Directors), subject to a right of first refusal in
favor of the Company, or (iii) through the public markets, provided that such
sales do not occur within 180 days of any public offering of Common Stock, that
such sales do not exceed 5% of the sum of the Management Shareholder's shares
then held by him and the Management Shareholder's shares previously sold by him
during any 90-day period and that such sales do not exceed 50% of his shares in
the aggregate, including shares previously sold, without the prior approval of
the Board of Directors, subject to a right of first refusal in favor of the
Company. If the Management Shareholder's employment terminates for any reason,
pursuant to the Company's Restated Certificate of Incorporation, shares of Class
B Common Stock held by such Management Shareholder shall automatically convert
into Class A Common Stock, unless transferred to Onex or another Management
Shareholder. See "Description of Capital Stock."
The Management Shareholders Agreement provides the Management Shareholders
with the option to participate on a pro rata basis with Onex in sales of Common
Stock, and Onex with the right to compel participation of the Management
Shareholders in sales of Common Stock by Onex, subject, in each case, to certain
exceptions. In addition to the above-described provisions, the Management
Shareholders Agreement contains provisions granting the Management Shareholders
certain registration rights. See "Shares Available for Future Sale."
The Management Shareholders Agreement terminates if Onex ceases to hold in
the aggregate 20% of the outstanding voting capital stock of the Company or if
another person or group holds in the aggregate a greater percentage of the
outstanding voting capital stock of the Company than Onex.
Director Shareholders Agreement. The following is a summary of certain
provisions of the Director Shareholders Agreement, dated as of May 31, 1995,
among the Company, Onex and certain directors ("Director Holders") of the
Company (the "Director Shareholders Agreement").
The Director Shareholders Agreement governs, among other things, the manner
and means by which Common Stock, or securities convertible into shares of Common
Stock, held by the Director Holders at any time may be transferred. Pursuant to
such Agreement, the transfer of shares of the Common Stock, including shares
received upon the conversion of options, by Director Holders is prohibited
except (i) to immediate family members (or to trusts for the exclusive benefit
of the transferor or his immediate family members), or (ii) through the
facilities of any securities exchange, provided that such sales do not occur
within 180 days of any public offering of Common Stock.
The Director Shareholders Agreement provides the Director Holders with the
option to participate on a pro rata basis with Onex in sales of Common Stock,
and Onex with the right to compel participation of the Director Holders in sales
of the Common Stock by Onex, subject, in each case, to certain exceptions. In
addition to the above-described provisions, the Director Shareholders Agreement
contains provisions granting the Director Holders certain registration rights.
See "Shares Available for Future Sale."
47
<PAGE> 50
The Director Shareholders Agreement terminates if Onex ceases to hold in
the aggregate 20% of the outstanding voting capital stock of the Company or if
another person or group holds in the aggregate a greater percentage of the
outstanding voting capital stock of the Company than Onex.
ONEX MANAGEMENT FEES
The Company paid Onex fees of $0.8 million, $0.8 million, $0.8 million and
$0.4 million for management services rendered in 1993, 1994, 1995 and the six
months ended June 29, 1996, respectively. Onex has agreed to relinquish its
right to receive such fee upon completion of the offering, in consideration for
which Onex will receive $4.0 million payable in Class B Common Stock valued at
the initial public offering price.
CERTAIN EQUITY OFFERINGS TO MANAGEMENT
In January 1996, the Company completed the sale of shares of
Common Stock in the aggregate to certain officers and management employees of
the Company at a purchase price of $ per share. In May 1995, the
Company completed the sale of shares of Common Stock in the aggregate
to certain directors, officers and management employees of the Company at a
purchase price of $ per share. During 1994, the Company sold
shares of Common Stock in the aggregate to certain officers and directors of the
Company at a purchase price of $ per share. During 1993, the Company
sold shares of Common Stock in the aggregate to certain directors,
officers and employees of the Company at a purchase price of $ per
share. Of these shares, Messrs. David R. Parker, Thomas Highland, Daniel J.
Adzia, William F. Evans, Dennis T. Andruskiewicz and John E. Foley, each an
executive officer of the Company, purchased in the aggregate , ,
, , and shares of Common Stock, respectively. In
connection therewith, the Company guaranteed the principal due under the loans
provided by certain lenders to finance the purchase price of the Common Stock.
The aggregate amount of such guarantees as of June 29, 1996 was $3.3 million.
Such shares of Common Stock were pledged to the Company as collateral for the
Company's guaranty. Pursuant to the Management Shareholders Agreement, the
Company may purchase such shares at a discount to the extent that a Management
Shareholder defaults on such indebtedness.
ONEX SUBORDINATED NOTES
In connection with the financing of the acquisition of BKDS, the Company
issued to Onex a 10% Convertible Subordinated Note due 2002 in the principal
amount of $2.5 million (the "BKDS Convertible Note"). In connection with the
acquisition of NAD, the Company issued to Onex a 12% Subordinated Note due 2005
in the principal amount of $15 million (the "12% Subordinated Note") and a
Convertible Subordinated Note due 2005 in the principal amount of $3.5 million
(the "NAD Convertible Note"). The NAD Convertible Note was, in part, repaid,
and, in part, converted into Common Stock in accordance with its terms and is no
longer outstanding. Onex intends to convert the BKDS Convertible Note into
Common Stock immediately prior to completion of the offering based on the stated
conversion price of $ per share. The 12% Subordinated Note will be
prepaid using the proceeds of the offering. See "Use of Proceeds."
48
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock before the offering and after giving
effect to the offering by (i) each person known to the Company to own
beneficially more than 5% of any class of the Company's outstanding Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer of
the Company, and (iv) all executive officers and directors of the Company, as a
group. All information with respect to beneficial ownership has been furnished
to the Company by the respective stockholders of the Company. Except as
otherwise indicated in the footnotes, each beneficial owner has the sole power
to vote and to dispose of all shares held by such holder. None of the Company's
stockholders are selling shares in the offering.
<TABLE>
<CAPTION>
SHARES OF CLASS B
COMMON STOCK SHARES OF CLASS B
BENEFICIALLY OWNED COMMON STOCK CLASS A AND B
PRIOR TO THE BENEFICIALLY OWNED COMBINED VOTING
OFFERING(1) AFTER THE OFFERING(1) POWER(2)
--------------------- --------------------- ---------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE
- ---------------------------------------- ------ ---------- ------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Onex.................................... % %
161 Bay Street
Toronto, Ontario
Canada
The Martin-Brower Company...............
1020 West 31st Street
Downers Grove, Illinois 60515
David R. Parker(3)......................
Thomas C. Highland(3)...................
Daniel J. Adzia(3)......................
Robert S. Donaldson(3)..................
John E. Foley(3)........................
Gerald W. Schwartz(4)...................
Anthony R. Melman(5)....................
Michael E. Treacy(3)....................
Michael Carpenter.......................
Anthony Munk(5).........................
C. Lee Johnson..........................
R. Geoffrey P. Styles...................
All directors and executive officers of
the Company as a Group (17 persons as
a group)..............................
</TABLE>
- ---------------
* Less than 1%.
(1) Pursuant to the Recapitalization, prior to completion of the offering, the
Company's Common Stock will be converted into Class B Common Stock and all
of the Company's existing stockholders will receive shares of Class B Common
Stock in exchange for the shares of Common Stock currently held by them.
Each share of Class B Common Stock will be convertible into Class A Common
Stock on a one-to-one basis at any time at the option of the holder thereof
and in certain other circumstances. All information in the table gives
effect to the Recapitalization and assumes that no shares of Class B Common
Stock are converted into shares of Class A Common Stock. See "Description of
Capital Stock."
(2) The column entitled "Class A and Class B Combined Voting Power Percentage"
in the table shows the combined voting power of the votes attributable to
Class A Common Stock (each share of which is entitled to one vote) and Class
B Common Stock (each share of which is entitled to ten votes) of the holders
thereof.
(3) Includes shares of Common Stock which the directors and executive officers
have the right to acquire through the exercise of options within 60 days as
follows: David R. Parker -- ; Thomas C. Highland -- ;
Daniel J. Adzia -- ; Robert S. Donaldson -- ; John E.
Foley -- ; and Michael E. Treacy -- .
(4) Includes shares beneficially owned by Onex, with respect to which Mr.
Schwartz may be deemed to be the beneficial owner.
(5) Excludes shares in which Messrs. Melman and Munk have an indirect interest,
with respect to which Mr. Schwartz may be deemed to be the beneficial owner.
49
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (i)
shares of Class A Common Stock, par value $0.01 per share, and shares
of Class B Common Stock, par value $0.01 per share, and (ii) shares of
Preferred Stock, par value $0.01 per share. Of the authorized shares of Class A
Common Stock, shares are being offered in the offering and
shares will be reserved for issuance upon conversion of Class B Common Stock
into Class A Common Stock. Of the authorized shares of Class B Common Stock,
will be held by the Company's existing stockholders, and
will be reserved for issuance upon exercise of options and warrants and
conversion of outstanding convertible indebtedness. No shares of preferred stock
will be issued and outstanding upon completion of the offering. A description of
the material terms and provisions of the Company's Restated Certificate of
Incorporation affecting the relative rights of the Class A Common Stock, the
Class B Common Stock and the Preferred Stock is set forth below. The following
description of the capital stock of the Company is intended as a summary only
and is qualified in its entirety by reference to the form of the Company's
Restated Certificate of Incorporation filed with the Registration Statement of
which this Prospectus forms a part and to Delaware corporate law.
COMMON STOCK
Voting Rights. Except for matters where applicable law requires the
approval of one or both classes of Common Stock voting as separate classes and
as otherwise described below, holders of Class A Common Stock and Class B Common
Stock vote as a single class on all matters submitted to a vote of the
stockholders, including the election of directors. Each share of Class A Common
Stock is entitled to one vote and each share of Class B Common Stock is entitled
to ten votes. Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of directors, by a
plurality) of the votes entitled to be cast by all shares of Class A Common
Stock and Class B Common Stock present in person or represented by proxy, voting
together as a single class. Under Delaware law, the affirmative vote of the
holders of a majority of the outstanding shares of Class A Common Stock would be
required to approve, among other matters, an adverse change in the powers,
preferences or special rights of the shares of Class A Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock will
share ratably in any dividend declared by the board of directors, subject to any
preferential rights of any outstanding Preferred Stock. Dividends consisting of
shares of Class A Common Stock and Class B Common Stock may be paid only as
follows: (i) shares of Class A Common Stock may be paid only to holders of
shares of Class A Common Stock, and shares of Class B Common Stock may be paid
only to holders of Class B Common Stock; and (ii) shares shall be paid
proportionally with respect to each outstanding share of Class A and Class B
Common Stock.
The Company may not subdivide or combine shares of either class of Common
Stock without at the same time proportionally subdividing or combining shares of
the other class.
Conversion. Each share of Class B Common Stock is convertible at the
option of the holder thereof into one share of Class A Common Stock. Any shares
of Class B Common Stock transferred to a person other than an existing holder of
Class B Common Stock or any affiliate thereof shall automatically convert into
shares of Class A Common Stock upon such disposition. In addition, in the event
that any employee of the Company holding Class B Common Stock ceases to be an
employee for any reason, the shares of Class B Common Stock held by such
employee shall automatically convert into shares of Class A Common Stock, unless
transferred to Onex or another employee stockholder.
Other Rights. In the event of any merger or consolidation of the Company
with or into another company that is not a subsidiary of the Company in
connection with which shares of Common Stock are converted into or exchangeable
for shares of stock, other securities or property (including cash), all holders
of Common
50
<PAGE> 53
Stock, regardless of class, will be entitled to receive the same kind and amount
of shares of stock and other securities and property (including cash).
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to share ratably
in any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock.
Upon completion of the offering, all the outstanding shares of Class A
Common Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and
with such designations and preferences for each series as shall be stated in the
resolutions providing for the designation and issue of each such series adopted
by the board of directors of the Company. The board of directors is authorized
by the Company's Restated Certificate of Incorporation to determine, among other
things, the voting, dividend, redemption, conversion and liquidation powers,
rights and preferences and the limitations thereon pertaining to such series.
The board of directors, without stockholder approval, may issue Preferred Stock
with voting and other rights that could adversely affect the voting power of the
holders of the Common Stock and could have certain anti-takeover effects. The
Company has no present plans to issue any shares of Preferred Stock. The ability
of the board of directors to issue Preferred Stock without stockholder approval
could have the effect of delaying, deferring or preventing a change in control
of the Company or the removal of existing management.
LIMITATION ON THE LIABILITY OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by the Delaware General Corporation Law (the "DGCL"),
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breaches of their fiduciary duty of care
as a director. This provision, however, does not eliminate a director's
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transactions from which the director derived an improper personal
benefit. In addition, this provision does not limit directors' liability under
federal securities laws.
DELAWARE LAW
Section 203 of the DGCL prohibits certain business combinations with
certain stockholders for a period of three years after they acquire 15% of the
outstanding voting stock of a corporation. The Company has expressly elected not
to be governed by Section 203 of the DGCL.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A and Class B Common Stock
is .
51
<PAGE> 54
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the offering, the Company will have shares of
Class A Common Stock issued and outstanding and shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the offering will be freely tradeable without restrictions or
further registration under the Securities Act, except for any shares purchased
by an "affiliate" of the Company (as that term is defined in Rule 144), which
will be subject to the resale limitations of Rule 144. The shares of
Class B Common Stock to be outstanding upon completion of the offering are
convertible into shares of Class A Common Stock on a one-to-one basis at the
option of the holder and in certain other circumstances. Shares of Class A
Common Stock issuable upon conversion of Class B Common Stock have not have been
registered under the Securities Act and may not be sold in the absence of an
effective registration statement under the Securities Act other than in
accordance with Rule 144 or another exemption from registration.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least two years, or a person who may be deemed an
"affiliate", is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
shares of the class of stock being sold or the average weekly reported trading
volume of the class of stock being sold during the four calendar weeks preceding
such sale. A person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale and who has beneficially owned shares
for at least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through the use
of one or more intermediaries controls, is controlled by, or is under common
control with, such issuer. The Securities and Exchange Commission (the
"Commission") has published a notice of proposed rulemaking which, if adopted as
proposed, would shorten the applicable holding periods to one and two years,
respectively (from the current two- and three-year periods described above). The
Company cannot predict whether such amendments will be adopted or the effect
thereof on the trading market for the Class A Common Stock. The foregoing
summary of Rule 144 is not intended to be a complete description thereof.
Certain directors, officers and management employees, holding an aggregate
of shares of Common Stock (the "Management Shares"), and
Martin-Brower, the holder of a warrant to purchase shares of Common
Stock (the "Martin-Brower Shares"), have certain rights to require the Company
to register sales of such shares under the Securities Act, subject to certain
restrictions. If, subsequent to the completion of the offering, the Company
proposes to register any of its securities under the Securities Act, such
holders are entitled to notice of such registration and to include their shares
in such registration with their expenses borne by the Company, subject to the
right of an underwriter participating in the offering to limit the number of
shares included in the registration by such holders. With regard to the
Management Shares, the Company is required only to register such shares on a pro
rata basis with shares registered on behalf of Onex.
The Company and each of the Company's existing stockholders have agreed,
among other things, not to sell or otherwise transfer any shares of Common Stock
for a period of 180 days after the date of this Prospectus. See "Underwriters."
Prior to the offering, there has been no market for the Class A Common
Stock and no prediction can be made as to the effect, if any, that market sales
of outstanding shares of Class A Common Stock, or the availability of such
shares for sale, will have on the market price of the Class A Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Class A Common Stock in the public market, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Class A
Common Stock offered in the offering.
52
<PAGE> 55
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Class A Common Stock set forth opposite the names
of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Smith Barney Inc. ........................................................
-------
Total...........................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Class A Common Stock offered hereby (other
than those covered by the over-allotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain other dealers. After the
initial offering of the shares of Class A Common Stock, the offering price and
other selling terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the public offering price
set forth on the cover page hereof, less underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Class A Common Stock offered hereby. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Class A
Common Stock as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Class A Common Stock
offered by the Underwriters hereby.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Application has been made to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "PSDS."
The Company and each of the Company's existing stockholders, have agreed
not to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are now owned by the undersigned or are hereafter acquired), or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or
53
<PAGE> 56
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise for a period of 180 days after the date of this
Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated, as representative of the several Underwriters, provided that the
Company may issue shares upon the exercise of an option or warrant or the
conversion of a security outstanding on the date of this Prospectus of which the
Underwriters have been advised, during such 180-day period.
From time to time, certain of the Underwriters have provided, and continue
to provide, investment banking services to the Company and its affiliates. Mr.
Michael Carpenter, a director of the Company, serves as Executive Vice President
of Travelers Group, Inc. Smith Barney Inc., one of the Underwriters, is a
wholly-owned subsidiary of Travelers Group, Inc.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price has been determined by negotiations
between the Company and the Underwriters. Among the factors considered in
determining the initial public offering price were the future prospects of the
Company and its industry in general, sales, earnings and certain other financial
and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby and
certain legal matters will be passed upon for the Company by Kaye, Scholer,
Fierman, Hays & Handler, LLP, New York, New York and for the Underwriters by
Davis Polk & Wardwell.
EXPERTS
The consolidated financial statements of ProSource, Inc., as of December
31, 1994 and December 30, 1995, and each of the years in the three-year period
ended December 30, 1995 (and related schedules), have been included herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The combined financial statements of the National Accounts Division (a
division of The Martin-Brower Company) as of July 1, 1994 and July 2, 1993 and
for the years then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Class A
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Class A Common Stock, reference is made to the
Registration Statement, which may be inspected, without charge, at the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048 and its Chicago Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of all
or any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission,
54
<PAGE> 57
upon payment of prescribed fees. In addition, the Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's web site is http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
55
<PAGE> 58
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Independent Auditors' Report........................................................ F-2
ProSource, Inc. Consolidated Balance Sheets as of December 31, 1994, December 30,
1995 and June 29, 1996............................................................ F-3
ProSource, Inc. Consolidated Statements of Operations for the years ended
December 25, 1993, December 31, 1994, December 30, 1995 and the periods ended
July 1, 1995 and June 29, 1996.................................................... F-4
ProSource, Inc. Consolidated Statements of Stockholders' Equity for the years ended
December 25, 1993, December 31, 1994, December 30, 1995 and the period ended
June 29, 1996..................................................................... F-5
ProSource, Inc. Consolidated Statements of Cash Flows for the years ended
December 25, 1993, December 31, 1994, December 30, 1995 and the periods ended July
1, 1995 and June 29, 1996......................................................... F-6
ProSource, Inc. Notes to Consolidated Financial Statements.......................... F-7
National Accounts Division Unaudited Condensed Combined Balance Sheet as of
March 31, 1995.................................................................... F-21
National Accounts Division Unaudited Condensed Combined Statement of Income and
Changes in Divisional Equity for the thirty-nine weeks ended March 31, 1995....... F-22
National Accounts Division Unaudited Condensed Combined Statement of Cash Flows for
the thirty-nine weeks ended March 31, 1995........................................ F-23
National Accounts Division Notes to Unaudited Condensed Combined Financial
Statements........................................................................ F-24
Report of Independent Accountants................................................... F-26
National Accounts Division Combined Balance Sheets as of July 2, 1993 and July 1,
1994.............................................................................. F-27
National Accounts Division Combined Statements of Income and Changes in Divisional
Equity for the 52 weeks ended July 2, 1993 and July 1, 1994....................... F-28
National Accounts Division Combined Statements of Cash Flows for the 52 weeks ended
July 2, 1993 and July 1, 1994..................................................... F-29
National Accounts Division Notes to Combined Financial Statements................... F-30
Pro Source, Inc. Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 30, 1995.............................................. F-38
Pro Source, Inc. Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the six months ended June 29, 1996............................................ F-39
Pro Source, Inc. Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations........................................................................ F-40
</TABLE>
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
ProSource, Inc.:
We have audited the accompanying consolidated balance sheets of ProSource, Inc.
and subsidiaries as of December 31, 1994 and December 30, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ProSource, Inc. and
subsidiaries as of December 31, 1994 and December 30, 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 30, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Miami, Florida
February 1, 1996
F-2
<PAGE> 60
PROSOURCE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND JUNE 29, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996
1994 1995 -----------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 1,151 $ 2,325 $ 2,750
Accounts receivable, net of allowance for doubtful
accounts of $2,911, $2,585 and $2,459 in 1994, 1995
and 1996, respectively............................... 122,668 230,089 218,986
Inventories............................................. 41,054 140,432 149,218
Deferred income taxes, net.............................. 1,393 4,298 11,118
Prepaid expenses and other current assets............... 5,765 10,736 12,079
-------- -------- --------
Total current assets............................ 172,031 387,880 394,151
Property and equipment, net............................... 29,166 52,507 41,372
Intangible assets, net.................................... 12,850 36,450 43,135
Deferred income taxes, net................................ 1,944 3,901 12,551
Other assets, principally deferred debt issuance costs,
less accumulated amortization of $1,065, $1,397 and
$2,329 in 1994, 1995 and 1996, respectively............. 2,338 8,435 10,795
-------- -------- --------
Total assets.................................... $218,329 $489,173 $ 502,004
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $115,527 $242,645 $ 249,395
Accrued liabilities..................................... 12,699 27,819 29,711
Current portion of long-term senior debt................ 2,183 1,500 1,500
-------- -------- --------
Total current liabilities....................... 130,409 271,964 280,606
Long-term senior debt, less current portion............... 59,838 132,011 143,094
Subordinated notes payable................................ -- 24,418 24,832
Convertible subordinated notes payable.................... 3,626 5,291 4,001
Other noncurrent liabilities.............................. 1,913 6,068 16,759
-------- -------- --------
Total liabilities............................... 195,786 439,752 469,292
-------- -------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value. Authorized 75,000 shares;
issued and outstanding 23,418 shares in 1994, 51,773
shares in 1995 and 53,023 shares in 1996............. 1 1 1
Additional paid-in-capital.............................. 23,526 51,889 53,140
Retained deficit........................................ (984) (2,540) (20,497)
Accumulated foreign currency translation adjustments.... -- 71 68
-------- -------- --------
Total stockholders' equity...................... 22,543 49,421 32,712
-------- -------- --------
Total liabilities and stockholders' equity...... $218,329 $489,173 $ 502,004
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 61
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 25, 1993,
DECEMBER 31, 1994, DECEMBER 30, 1995 AND THE
PERIODS ENDED JULY 1, 1995 AND JUNE 29, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1994 1995 1995 1996
(52 WEEKS) (53 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $1,329,347 $1,598,136 $3,461,837 $1,447,760 $2,014,074
Cost of sales........................ 1,210,942 1,464,545 3,193,270 1,332,939 1,859,000
---------- ---------- ---------- ---------- ----------
Gross profit............... 118,405 133,591 268,567 114,821 155,074
Operating expenses................... 114,204 131,023 255,216 110,692 149,758
Loss on impairment of long-lived
assets............................. -- -- -- -- 15,733
Restructuring charges................ -- -- 711 68 10,866
---------- ---------- ---------- ---------- ----------
Earnings (loss) from
operations............... 4,201 2,568 12,640 4,061 (21,283)
Interest expense..................... (5,766) (6,868) (14,678) (6,781) (8,152)
Interest income...................... 241 271 1,339 531 866
---------- ---------- ---------- ---------- ----------
Loss before income taxes
and extraordinary
charge................... (1,324) (4,029) (699) (2,189) (28,569)
Income tax (provision) benefit....... 497 1,647 (85) 965 10,612
---------- ---------- ---------- ---------- ----------
Loss before extraordinary charge... (827) (2,382) (784) (1,224) (17,957)
Extraordinary charge, net of income
tax benefit of $502 in 1995........ -- -- (772) (772) --
---------- ---------- ---------- ---------- ----------
Net loss................... $ (827) $ (2,382) $ (1,556) $ (1,996) $ (17,957)
========== ========== ========== ========== ==========
Net loss per common and common
equivalent share:
Loss before extraordinary charge... $ (35.21) $ (101.25) $ (17.69) $ (33.19) $ (339.34)
---------- ---------- ---------- ---------- ----------
Net loss........................... $ (35.21) $ (101.25) $ (35.10) $ (54.12) $ (339.34)
========== ========== ========== ========== ==========
Average outstanding common and common
equivalent shares.................. 23,490 23,525 44,331 36,881 52,917
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 62
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 25, 1993,
DECEMBER 31, 1994, DECEMBER 30, 1995
AND THE PERIOD ENDED JUNE 29, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED FOREIGN CURRENCY
COMMON PAID-IN EARNINGS TRANSLATION
STOCK CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
------ ---------- --------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992................ $ 1 $ 22,499 $ 2,225 $ -- $ 24,725
Issuance of 1,256 shares................ -- 1,382 -- -- 1,382
Acquisition and retirement of 15
shares............................... -- (16) -- -- (16)
Net loss................................ -- -- (827) -- (827)
--- ------ ------- -- -------
Balance, December 25, 1993................ 1 23,865 1,398 -- 25,264
Issuance of 69 shares................... -- 76 -- -- 76
Acquisition and retirement of 392
shares............................... -- (415) -- -- (415)
Net loss................................ -- -- (2,382) -- (2,382)
--- ------ ------- -- -------
Balance, December 31, 1994................ 1 23,526 (984) -- 22,543
Issuance of 28,585 shares............... -- 28,585 -- -- 28,585
Acquisition and retirement of 230
shares............................... -- (222) -- -- (222)
Foreign currency translation
adjustments.......................... -- -- -- 71 71
Net loss................................ -- -- (1,556) -- (1,556)
--- ------ ------- -- -------
Balance, December 30, 1995................ 1 51,889 (2,540) 71 49,421
Issuance of 1,415 shares (unaudited).... -- 1,415 -- -- 1,415
Acquisition and retirement of 165 shares
(unaudited).......................... -- (164) -- -- (164)
Foreign currency translation adjustments
(unaudited).......................... -- -- -- (3) (3)
Net loss (unaudited).................... -- -- (17,957) -- (17,957)
--- ------ ------- -- -------
Balance at June 29, 1996 (unaudited)...... $ 1 $ 53,140 $ (20,497) $ 68 $ 32,712
=== ====== ======= == =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 63
PROSOURCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 25, 1993,
DECEMBER 31, 1994, DECEMBER 30, 1995 AND THE
PERIODS ENDED JULY 1, 1995 AND JUNE 29, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1994 1995 1995 1996
(52 WEEKS) (53 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (827) $ (2,382) $ (1,556) $ (1,996) $(17,957)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization of property and
equipment............................................ 5,047 4,868 9,163 4,415 3,444
Amortization of intangible assets and deferred debt
issuance costs....................................... 2,846 3,103 3,530 1,147 1,881
Bad debt expense....................................... 766 2,427 1,845 757 960
Write-off of deferred loan fees........................ -- -- 1,274 1,274 --
Loss on impairment of long-lived assets................ -- -- -- -- 15,733
Deferred income taxes (benefit)........................ 697 (1,391) (1,749) (1,581) (10,740)
Gain on sale of property and equipment................. (166) (325) (184) (13) --
Changes in operating assets and liabilities, net of
effects of companies purchased:
Decrease (increase) in accounts receivable........... (16,159) (25,150) (13,441) (7,965) 10,143
(Increase) decrease in inventories................... (6,255) 865 7,706 7,038 (8,786)
(Increase) decrease in prepaid expenses and other
current assets.................................... (3,719) 2,723 (4,321) (2,390) (4,093)
(Increase) decrease in other assets.................. (2,737) (802) 1,208 313 (12,966)
Increase in accounts payable......................... 29,116 18,450 45,423 1,662 6,750
Increase (decrease) in accrued liabilities........... 1,469 (104) 2,997 33,041 1,892
Increase (decrease) in other noncurrent
liabilities....................................... (1,102) (1,365) (1,898) 181 10,691
-------- -------- --------- --------- --------
Net cash provided by (used in) operating
activities........................................ 8,976 917 49,997 35,883 (3,048)
-------- -------- --------- --------- --------
Cash flows from investing activities:
Capital expenditures..................................... (3,518) (1,376) (5,683) (1,709) (7,982)
Proceeds from sale of property and equipment............. 615 445 362 67 --
Payment for purchase of net assets acquired.............. (13,202) (3,792) (170,279) (141,119) --
Proceeds from settlement of purchase price provisions.... -- 6,600 -- -- --
-------- -------- --------- --------- --------
Net cash (used in) provided by investing
activities...................................... (16,105) 1,877 (175,600) (142,761) (7,982)
-------- -------- --------- --------- --------
Cash flows from financing activities:
Repayments of long-term debt............................. (1,781) (32,247) (81,023) (16,221) (2,165)
Borrowings on long-term debt............................. 9,089 29,379 179,366 94,303 12,372
Proceeds from issuance of common stock................... 1,382 76 28,585 28,585 1,415
Payments to acquire and retire treasury stock............ (16) (415) (222) (212) (164)
-------- -------- --------- --------- --------
Net cash provided by (used in) financing
activities...................................... 8,674 (3,207) 126,706 106,455 11,458
-------- -------- --------- --------- --------
Effect of exchange rate changes on cash.................... -- -- 71 -- (3)
Net increase (decrease) in cash and cash
equivalents..................................... 1,545 (413) 1,174 (423) 425
Cash and cash equivalents at beginning of year............. 19 1,564 1,151 1,151 2,325
-------- -------- --------- --------- --------
Cash and cash equivalents at end of year................... $ 1,564 $ 1,151 $ 2,325 $ 728 $ 2,750
======== ======== ========= ========= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 5,569 $ 6,264 $ 12,332 $ 5,766 $ 8,410
======== ======== ========= ========= ========
Income taxes, net of refunds........................... $ 930 $ 279 $ 993 $ 30 $ 123
======== ======== ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 64
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 30, 1995 AND JUNE 29, 1996
(INSOFAR AS THESE NOTES REFER TO THE PERIOD SUBSEQUENT
TO DECEMBER 30, 1995, THEY ARE UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ProSource, Inc. (the "Parent") is engaged in the foodservice distribution
business, specializing in limited-menu quick service and casual dining
restaurant customers, primarily operating in the United States. ProSource, Inc.
and subsidiaries (the "Company") distribute to approximately 14,450 restaurants
consisting primarily of Burger King, Arby's, Long John Silver's, Sonic,
Chick-fil-A, Wendy's, Red Lobster, Olive Garden, TGI Friday's, Chili's and TCBY
restaurant concepts.
The Parent operates through three subsidiaries, ProSource Services
Corporation ("PSC"), ProSource Distribution Services Limited ("ProSource
Canada") and BroMar Services, Inc. ("BroMar"). PSC commenced operations in July
1992. The consolidated financial statements include the results of the
operations of PSC from its inception and the results of operations of ProSource
Canada and BroMar (both of which were acquired by the Company as part of the
acquisition of the National Accounts Division ("NAD") of The Martin-Brower
Company ("Martin-Brower")) since the date of acquisition. The Company is a
subsidiary of Onex Corporation (collectively with its affiliates, "Onex"), a
company traded on the Toronto and Montreal stock exchanges.
The Company operates on a 52- to-53-week accounting year ending on the last
Saturday of each calendar year.
The following is a summary of the Company's significant accounting
policies:
(a) Interim Financial Information
The unaudited consolidated balance sheet as of June 29, 1996, and the
unaudited consolidated statements of operations and cash flows for the 26 weeks
ended July 1, 1995 and June 29, 1996 and the unaudited consolidated statement of
stockholders' equity for the 26 weeks ended June 29, 1996 include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position, results of operations and cash flows. Operating results for the 26
weeks ended June 29, 1996 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 28, 1996.
(b) Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Operations of the companies and businesses acquired have
been included in the accompanying consolidated financial statements from their
respective dates of acquisition. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Accounting Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 65
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Cash and Cash Equivalents
Cash and cash equivalents include commercial paper with original maturities
of three months or less, and cash on hand and on deposit at various financial
institutions.
(e) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined using the weighted average cost method and the first-in, first-out
method. Cost of inventory using the weighted average cost method represents 100
percent, 100 percent, 32 percent and 37 percent of inventories in 1993, 1994,
1995 and 1996, respectively.
(f) Property and Equipment
Property and equipment are stated at cost. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method over
the lesser of asset life or lease term. Depreciation is provided using the
straight-line method, based upon the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................... 15 to 40 years
Warehouse and transportation equipment........................ 3 to 10 years
Computer software............................................. 1 1/2 to 5
years
Leasehold improvements........................................ 3 to 7 years
Office equipment.............................................. 3 to 7 years
</TABLE>
Costs of normal maintenance and repairs are charged to expense when
incurred. Replacements or betterments of properties are capitalized. When assets
are retired or otherwise disposed of, their cost and the applicable accumulated
depreciation and amortization are removed from the accounts, and the resulting
gain or loss is reflected in the consolidated statements of operations.
(g) Intangible Assets
Intangible assets are amortized using the straight-line method over the
following periods:
<TABLE>
<S> <C>
Goodwill........................................................ 40 years
Distribution contracts.......................................... 3 to 7 years
Noncompete agreements........................................... 5 to 7 years
Customer lists.................................................. 12 years
</TABLE>
Goodwill results from business acquisitions and principally consists of the
excess of the acquisition cost over the fair value of the net assets of
businesses acquired. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectations of operating income for each
subsidiary having a material goodwill balance. The Company believes that no
material impairment of goodwill exists at December 30, 1995 and June 29, 1996.
(h) Deferred Debt Issuance Costs
Included in other assets are deferred debt issuance costs which are
amortized over the term of the related debt.
(i) Self-Insurance
The Company self-insures for certain levels under its workers'
compensation, auto liability and medical and dental insurance programs. Costs in
excess of retention limits are insured under various contracts with
F-8
<PAGE> 66
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance carriers. Estimated costs for workers' compensation claims for which
the Company is responsible are determined based on historical claims experience,
adjusted for current trends. The liability related to workers' compensation is
discounted to net present value using a risk-free treasury rate for maturities
that match the expected settlement periods. At December 31, 1994, December 30,
1995 and June 29, 1996, the estimated liabilities related to workers'
compensation were approximately $2.4 million, $4.1 million and $4.4 million,
respectively, net of a discount of approximately $0.7 million, $1.2 million and
$1.5 million, respectively. These estimated liabilities related to workers'
compensation are included in accrued liabilities in the accompanying
consolidated financial statements.
(j) Net Loss Per Common and Common Equivalent Share
Net loss per common and common equivalent share of common stock has been
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares used in the
calculation of net loss per common and common equivalent share represent vested
options to purchase shares granted under the Company's Employee Stock Purchase
Plan (calculated using the treasury stock method). The computation of fully
diluted net loss per common and common equivalent share was antidilutive in each
of the periods presented.
(k) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
Income taxes of interim periods are determined based on the Company's
estimate of its annual effective tax rate. The rate is revised, if necessary, as
of the end of each interim period during the fiscal year to reflect the
Company's best estimate of its annual effective tax rate.
(l) Interest Rate Protection Agreements
The differential to be paid or received under interest rate swap agreements
are accrued with the resulting net interest income or expense recorded as an
adjustment to interest expense on the underlying debt. Premiums paid for
interest rate collars are amortized to interest expense over the terms of the
agreement.
(m) Translation of Foreign Currency
The accounts of ProSource Canada are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52. Translation
adjustments arising from differences in exchange rates from period to period are
included in accumulated foreign currency translation adjustments as a component
of stockholders' equity.
(n) Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 121
("SFAS 121"), which became effective on January 1, 1996, and requires long-lived
assets be reviewed for impairment (measured based on the fair value of assets).
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting for
compensation costs related to stock option plans and other forms of
F-9
<PAGE> 67
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock based compensation plans as an alternative to the intrinsic value based
method of accounting defined under Accounting Principles Board Opinion No. 25.
Companies who do not elect the new method of accounting for 1996 will be
required to provide pro forma disclosures as if the fair value based method had
been applied. The Company will include the disclosures required by SFAS 123 in
the notes to future consolidated financial statements.
(o) Reclassifications
Certain amounts in the 1993, 1994 and 1995 consolidated financial
statements have been reclassified to conform to the 1996 consolidated financial
statements presentation.
(2) BUSINESS COMBINATIONS
(a) National Accounts Division of The Martin-Brower Company
On March 31, 1995, the Company completed the acquisition of substantially
all of the assets and the assumption of certain liabilities of NAD from
Martin-Brower. The total cost of the acquisition of $170 million was funded
through a borrowing of $116 million under the Company's revolving credit
facility, a $9 million note payable to Martin-Brower (net of a discount to
reflect a constant interest rate), $18.5 million in notes payable to Onex, and
the issuance of 26,500 shares of the Company's common stock valued at
approximately $26.5 million. The acquisition has been accounted for under the
purchase method of accounting. The accompanying consolidated financial
statements include the assets acquired of approximately $232 million and
liabilities assumed of approximately $87 million based on their estimated fair
values at the acquisition date. In addition, the Company incurred an
extraordinary charge relating to the write-off of approximately $0.8 million of
unamortized deferred debt issuance costs on debt repaid at the acquisition date.
On March 30, 1996, the Company revised its estimates of certain costs
related to the acquisition by $12 million. The effect of the revision increased
acquisition-related liabilities by $12 million, deferred tax assets by
approximately $4.4 million and goodwill by approximately $7.6 million.
(b) Malone Products, Inc.
On October 31, 1994, the Company acquired certain assets and assumed
certain liabilities of Malone Products, Inc. ("Malone"). The total cost of the
acquisition of $3.8 million was funded through a borrowing of $3.3 million under
the Company's revolving credit facility and $0.5 million of convertible
subordinated debt issued to Malone. The acquisition has been accounted for under
the purchase method of accounting. The accompanying consolidated financial
statements include the assets acquired of approximately $7 million and
liabilities assumed of approximately $6.6 million based on their estimated fair
values at the acquisition date.
(c) Valley Food Services, Inc.
On March 27, 1993, the Company completed the acquisition of certain assets
and the assumption of certain liabilities of Valley Food Services, Inc.
("Valley"). The total cost of the acquisition of $9.3 million was funded through
long-term senior debt. The acquisition has been accounted for under the purchase
method of accounting. The accompanying consolidated financial statements include
the assets acquired of approximately $12.4 million and liabilities assumed of
approximately $3.7 million based on their estimated fair values at the
acquisition date.
(d) McCabe's Quality Foods, California, Inc.
On February 27, 1993, the Company acquired certain operating assets of
McCabe's Quality Foods, California, Inc. at their estimated fair values for
approximately $3.9 million. This transaction was accounted for under the
purchase method of accounting and financed through PSC's existing credit
facility.
F-10
<PAGE> 68
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) BKDS Acquisition
On June 30, 1992, the Company completed the acquisition of certain assets
and the assumption of certain liabilities of Burger King Distribution Services
("BKDS"), a division of Burger King Corporation ("BKC"). In 1994, the Company
and BKC settled certain purchase price provisions by BKC paying $6.6 million to
the Company. The payment has been accounted for as an adjustment of the original
purchase price by decreasing net deferred tax assets by $1.3 million,
acquisition-related distribution contracts by $3.2 million and goodwill by $2.1
million.
(3) RESTRUCTURING CHARGES AND IMPAIRMENT OF LONG-LIVED ASSETS
In conjunction with the NAD acquisition, the Company incurred restructuring
costs of approximately $0.7 million in 1995 primarily relating to costs incurred
to consolidate and integrate certain functions and operations. In 1996, as a
result of a study to analyze, among other things, ways to integrate the NAD
operations, improve customer service, reduce operating costs and increase
existing warehouse capacity, the Company adopted a plan to consolidate its
corporate and network operations. Through this plan, which is expected to take
three to five years to complete, the Company intends to consolidate and
integrate its existing distribution network of 34 centers into 23 centers. As a
result, in the first quarter of 1996, the Company accrued restructuring charges
and recorded a loss on impairment in value of long-lived assets of $10.9 million
and $15.7 million, respectively. The restructuring charges consist approximately
of $7.9 million in costs related to the termination of existing facility leases,
$1.2 million of costs to be incurred after operations cease in the closed
facilities and $1.8 million of other costs. As of June 29, 1996, the Company had
approximately $10.5 million of accrued unpaid restructuring charges. The loss on
impairment in value of long-lived assets consists of $7.3 million of land and
owned buildings which management plans to dispose of, $4.3 million of furniture
and equipment and leasehold improvements it plans to abandon and $4.1 million of
capitalized software costs which do not meet the long-term information
technology strategy of the Company.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994, December 30, 1995 and June 29,
1996 consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 3,873 $ 4,746 $ 3,624
Buildings and improvements.......................... 13,146 20,428 15,846
Warehouse and transportation equipment.............. 5,032 20,309 22,430
Computer software................................... 12,551 14,815 13,879
Leasehold improvements.............................. 3,959 6,672 3,414
Office equipment.................................... 2,048 6,046 6,132
------ ------ ------
40,609 73,016 65,325
Less accumulated depreciation and amortization...... 11,443 20,509 23,953
------ ------ ------
$29,166 $52,507 $41,372
====== ====== ======
</TABLE>
F-11
<PAGE> 69
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1994, December 30, 1995 and June 29, 1996
consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Identifiable intangibles............................ $10,504 $10,785 $10,785
Goodwill............................................ 8,376 33,664 41,298
------ ------ ------
18,880 44,449 52,083
Less accumulated amortization....................... 6,030 7,999 8,948
------ ------ ------
$12,850 $36,450 $43,135
====== ====== ======
</TABLE>
(6) LONG-TERM DEBT
(a) Long-Term Senior Debt
Long-term senior debt at December 31, 1994, December 30, 1995 and June 29,
1996 consisted of the following loan agreements with banks (amounts in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
$210 million revolving credit facility, at prime
rate (8.25% at June 29, 1996) plus 0.50% or
Eurodollar rate plus 3% (2.75% at June 29, 1996),
due March 31, 2000............................... $ -- $104,636 $ 116,469
$15 million term loan facility, at prime rate plus
0.50% or Eurodollar rate plus 3% (2.75% at June
29, 1996), payable in quarterly installments each
of $0.38 million commencing on July 1, 1995 and
through March 31, 2000........................... -- 13,875 13,125
$15 million term loan facility, at prime rate plus
0.50% or Eurodollar rate plus 3% (2.75% at June
29, 1996), due March 31, 2000.................... -- 15,000 15,000
$86 million revolving credit facility, at prime
rate plus 0.75% or Eurodollar rate plus 2.75%,
due June 30, 1997................................ 35,774 -- --
$15 million term loan facility, at prime rate plus
0.75% or Eurodollar rate plus 2.75%, payable in
varying amounts and maturities through June 30,
1997............................................. 13,400 -- --
$12 million revolving credit facility, at prime
rate plus 1.50%, due September 30, 1997.......... 12,497 -- --
$0.35 million term loan facility, at prime rate
plus 1.50%, payable quarterly through September
30, 1997......................................... 350 -- --
------- -------- --------
Total long-term senior debt........................ 62,021 133,511 144,594
Less current portion............................... 2,183 1,500 1,500
------- -------- --------
Long-term senior debt, less current portion........ $59,838 $132,011 $ 143,094
======= ======== ========
</TABLE>
On March 31, 1995, in conjunction with the acquisition of NAD, the Company
entered into a new $240 million Loan and Security Agreement (the "Loan
Agreement") with a group of banks that extends through
F-12
<PAGE> 70
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 2000. Such agreement provides for a revolving credit facility of up to
$210 million and term loans aggregating $30 million. This agreement replaced all
existing senior debt which was due to expire in September 1997.
The Loan Agreement requires PSC, ProSource Canada and BroMar (the
"Borrowers"), to meet specific affirmative and negative covenants which include,
among other requirements, limitations on the acquisition and disposition of
assets, prohibition of borrowings other than under the Loan Agreement,
restrictions on dividend payments and compliance with certain financial
covenants. The Loan Agreement is collateralized by substantially all of the
Borrowers' assets, and the pledge by the Parent of all of the issued and
outstanding stock of the Borrowers and other collateral rights. In addition, the
Parent has guaranteed payment of all amounts due under the Loan Agreement.
Borrowings under the Loan Agreement are limited to a borrowing base as
defined in the agreement. At December 30, 1995 and June 29, 1996, the Company
had approximately $82 million and $73 million, respectively, available under the
revolving credit facility. The Loan Agreement also provides for a commitment fee
of 0.50 percent per annum of the daily unused revolving credit facility, as
defined in the agreement.
In 1994, PSC entered into two interest rate swap agreements, having
notional principal amounts of approximately $10.7 million and $20 million, that
mature in 1997 and 1999, respectively. Under these agreements, PSC makes fixed
rate payments and receives floating rate payments in return. In 1995, PSC
entered into two interest rate collar transactions having notional principal
amounts of approximately $25 million and $20 million, maturing in 1998. The
counterparties to these agreements are large financial institutions. These
interest rate protection agreements were entered into to reduce the Company's
exposure to interest rate volatility and are not used for trading purposes. At
December 30, 1995 and June 29, 1996, the total fair value of these agreements
was an unrealized loss of approximately $2.2 million and $.9 million,
respectively, based on quoted market prices as provided by the financial
institutions which are the counterparties to the interest rate protection
agreements.
Long-term senior debt at December 30, 1995 and June 29, 1996, is due as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
1996 (through December 28, 1996)............................. $ 1,500 $ 750
1997......................................................... 1,500 1,500
1998......................................................... 1,500 1,500
1999......................................................... 1,500 1,500
2000......................................................... 127,511 139,344
-------- --------
$133,511 $ 144,594
======== ========
</TABLE>
The interest rate on the Company's long-term senior debt is reset every
month to reflect current market rates.
(b) Subordinated Notes Payable
Subordinated Notes Payable consist of two agreements at December 30, 1995
and June 29, 1996. A $15 million, 12 percent, subordinated note is payable to
Onex, with interest payable annually beginning March 31, 1996, and the principal
payable in full on April 1, 2005. A $10 million subordinated note is payable to
Martin-Brower. Interest on this note is payable semiannually, beginning
September 30, 1998, with rates ranging from zero percent to 13 percent.
Principal is payable in full on March 31, 2002. This note has been discounted in
the accompanying consolidated financial statements to reflect a constant
interest rate through its maturity. Both notes are unsecured obligations of the
Company and are subordinate to all long-term senior debt.
F-13
<PAGE> 71
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Convertible Subordinated Notes Payable
Convertible Subordinated Notes Payable consist of three agreements at
December 30, 1995 and two agreements at June 29, 1996. A $2.5 million
convertible subordinated note, plus accrued interest of $0.9 million at December
30, 1995 and $1 million at June 29, 1996, is payable to Onex, with interest at
10 percent compounded annually and due, together with the principal, on July 1,
2002. Onex may convert both principal and accrued interest on the note into
shares of the Company's common stock at any time at a conversion price of $1,000
per share.
A $3.5 million convertible subordinated note was payable to Onex, with
interest at prime rate (8.5 percent at December 30, 1995), compounded annually
and due, together with the principal, on April 1, 2005. During the year ended
December 30, 1995, the Company paid $2.1 million of such note to Onex resulting
in an outstanding balance of $1.4 million at December 30, 1995. On February 1,
1996, Onex converted $0.8 million of the note into 800 shares of the Company's
common stock and the remaining balance on the note of approximately $0.6 million
plus accrued interest was paid to Onex.
A $0.5 million convertible subordinated note (the "MPI Note") is payable to
Malone Products, Inc. Interest at 8 percent on the MPI Note is payable annually
and the principal of the MPI Note is payable in full on November 1, 1999. The
holders of the MPI Note may convert the principal of the MPI Note into shares of
the Company's common stock at any time at a conversion price of $2,000 per
share.
These notes are unsecured obligations of the Company and are subordinate to
all long-term senior debt.
The carrying value of long-term debt approximates fair value at December
30, 1995 and June 29, 1996.
(7) LEASES
The Company leases facilities, vehicles and other equipment under long-term
operating leases with varying terms, the majority of which contain renewal
and/or purchase options. Certain transportation equipment leases call for
contingent rental payments based upon total miles. As of December 30, 1995 and
June 29, 1996, aggregate future minimum lease payments under noncancelable
operating leases were as follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -----------
(UNAUDITED)
<S> <C> <C>
1996 (through December 28, 1996).............................. $24,861 $ 15,725
1997.......................................................... 20,937 25,906
1998.......................................................... 17,887 22,558
1999.......................................................... 13,163 17,549
2000.......................................................... 9,039 12,218
All years thereafter.......................................... 11,295 19,396
------ ------
Total future minimum lease payments................. $97,182 $ 113,352
====== ======
</TABLE>
Rent expense, including contingent rental expense, was approximately $7.8
million, $13.4 million and $30.6 million during the years ended December 25,
1993, December 31, 1994 and December 30, 1995, respectively, and $19.4 million
for the period ended June 29, 1996.
F-14
<PAGE> 72
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The income tax benefit (provision) before extraordinary charge, net of a
tax benefit of $0.5 million, for the years ended December 25, 1993, December 31,
1994 and December 30, 1995 consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Current taxes:
Federal.............................................. $ 986 $ 256 $(1,236)
State................................................ 99 -- (408)
----- ----- -----
Total current................................ 1,085 256 (1,644)
----- ----- -----
Deferred taxes, excluding other components:
Federal.............................................. (553) 582 1,126
State................................................ (144) 236 264
----- ----- -----
Total deferred taxes, excluding other
components................................. (697) 818 1,390
----- ----- -----
Other:
Alternative minimum tax credit carryforwards......... 19 64 666
Utilization of operating loss carryforwards.......... 90 509 (497)
----- ----- -----
Total other.................................. 109 573 169
----- ----- -----
$ 497 $1,647 $ (85)
===== ===== =====
</TABLE>
The following table accounts for the difference between the actual tax
benefit and the amounts obtained by applying the statutory U.S. federal income
tax rate of 34 percent to the loss before income taxes for the years ended
December 25, 1993, December 31, 1994 and December 30, 1995 (amounts in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ -----
<S> <C> <C> <C>
Tax benefit computed at statutory rate..................... $450 $1,370 $ 237
Increases in taxes due to:
State income taxes (net of federal tax benefit).......... (16) 198 (118)
Goodwill amortization.................................... (56) (61) (76)
Miscellaneous............................................ 119 140 (128)
---- ----- ----
Actual tax benefit (provision) before extraordinary charge,
net of tax benefit of $502............................... $497 $1,647 $ (85)
==== ===== ====
</TABLE>
Except for the effects of the reversal of net deductible temporary
differences, the Company is not aware of any factors which would cause any
significant differences between taxable income and pre-tax book income in future
years.
F-15
<PAGE> 73
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1994 and December 30, 1995 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Acquisition related expenses................................... $ 1,094 $ 2,873
Accounts receivable, principally due to allowance for
doubtful accounts........................................... 1,664 1,046
Property, plant and equipment, principally due to differences
in depreciation............................................. 486 831
Inventories.................................................... 189 462
Self-insurance reserves........................................ 492 2,609
Rent expenses, principally due to differences in operating
lease expenditures.......................................... 248 323
Alternative minimum tax credit carryforwards................... 84 901
Benefit of net operating loss carryforwards.................... 497 --
Other accrued expenses......................................... 385 1,096
----- ------
Total deferred tax assets.............................. 5,139 10,141
Less valuation allowance....................................... -- --
----- ------
Total deferred tax assets, net.............................. $ 5,139 $10,141
===== ======
Deferred tax liabilities:
Computer software.............................................. $(1,068) $ (842)
Prepaid expenses............................................... (264) (167)
Acquisition related liabilities................................ (349) (771)
Other.......................................................... (121) (162)
----- ------
Total deferred tax liabilities......................... (1,802) (1,942)
----- ------
Net deferred tax assets................................ $ 3,337 $ 8,199
===== ======
</TABLE>
The net change in deferred tax assets for the year ended December 30, 1995,
included $3.1 million recorded as a result of the acquisition reserves
established in connection with the acquisition of NAD.
During the period ended June 29, 1996, the net change in deferred tax
assets included $4.4 million recorded as a result of the increase in the
acquisition reserves in connection with the acquisition of NAD. Additionally, a
deferred tax benefit of $11 million was recorded which consisted primarily of
future deductible temporary differences attributable to the SFAS 121 adjustments
and the accrual of restructuring reserves during the period ended June 29, 1996.
In order to fully realize the net deferred tax assets at December 30, 1995
and June 29, 1996, the Company will need to generate future taxable income of
approximately $18.5 million and $56.1 million, respectively. Management believes
that it is more likely than not that the existing net deductible temporary
differences will reverse during periods in which the Company will generate such
taxable income. The Company anticipates that increases in taxable income will
result primarily from (i) future projected revenue growth through the addition
of new restaurant chains and the expansion of existing restaurant chains, (ii) a
reduction in interest expense due to a reduction in its indebtedness, (iii) cost
savings through its corporate and network consolidation plan and (iv) other cost
reduction initiatives.
At December 31, 1994, December 30, 1995 and June 29, 1996, other current
assets included income taxes receivable of approximately $1.3 million, $1.4
million and $1.6 million, respectively, which consisted primarily of
overpayments of tax liabilities and pending carryback refund claims.
F-16
<PAGE> 74
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 29, 1996, the Company had a net operating loss carryforward ("NOL")
of approximately $7.2 million. Management believes that it is more likely than
not that the Company will realize the benefit of the NOL's existing at June 29,
1996 before they expire in 2011.
United States income tax returns for fiscal years 1992 and 1993 are
currently under examination by the Internal Revenue Service. Assessments, if
any, are not expected to have a material adverse effect on the consolidated
financial position or results of operations of the Company as of December 30,
1995 and June 29, 1996.
(9) EMPLOYEE BENEFIT PLANS
(a) Defined Benefit Pension Plans
The Company has three noncontributory defined benefit pension plans
covering substantially all of its salaried and hourly employees excluding those
employees covered by multi-employer pension plans under collective bargaining
agreements. The pension benefits are based on years of service and participants'
compensation. The Company's funding policy is to contribute an amount not less
than the ERISA minimum funding requirement nor more than the maximum amount that
can be deducted for income tax purposes. The following table sets forth the
plans' funded status and the amounts recognized in the Company's consolidated
balance sheets at December 25, 1993, December 31, 1994 and December 30, 1995
(amounts in thousands).
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $ (490) $(1,530) $(4,795)
======= ======= =======
Accumulated benefit obligation........................ $(1,044) $(1,928) $(5,582)
======= ======= =======
Projected benefit obligation for service recorded to
date................................................ $(1,626) $(2,300) $(7,143)
Plan assets at fair value............................. 351 1,347 6,103
------- ------- -------
Projected benefit obligation in excess of plan
assets.............................................. (1,275) (953) (1,040)
Unrecognized amortization............................. 247 5 --
Unrecognized net gain................................. -- -- (390)
------- ------- -------
Unfunded accrued liability included in other
noncurrent liabilities.............................. $(1,028) $ (948) $(1,430)
======= ======= =======
</TABLE>
Approximately 88 percent of plan assets are invested in equity mutual
funds.
Net pension cost for 1993, 1994 and 1995 included the following components
(amounts in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefits earned during the period............. $632 $781 $883
Interest cost on projected benefit obligation................. 58 136 404
Actual return on plan assets.................................. (7) (57) (663)
Net amortization and deferral................................. -- 10 301
---- ---- -----
Net pension cost.............................................. $683 $870 $925
==== ==== =====
</TABLE>
F-17
<PAGE> 75
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension costs under the Company's defined benefit pension plans are
actuarially computed on an annual basis. Actuarial assumptions used in
accounting for the defined benefit pension plans as of December 25, 1993,
December 31, 1994 and December 30, 1995 were:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rates................................................. 7.25% 8.25% 7.25%
Rates of increase in compensation levels....................... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets.................... 8.50% 8.50% 8.50%
</TABLE>
The Company's pension expense for contributions to the various
multi-employer pension plans under collective bargaining agreements was
approximately $0.1 million, $0.1 million, $0.9 million and $0.6 million for the
years ended December 25, 1993, December 31, 1994, December 30, 1995 and the
period ended June 29, 1996.
(b) Defined Contribution Plans
The Company sponsors various defined contribution plans which cover
substantially all full-time and part-time, salaried and hourly employees.
Depending on the plan, eligible employees may contribute up to 10, 12.5 or 15
percent of base compensation, and the Company matches 50 percent of the first 4
percent or 100 percent of the first 2.5 percent of eligible compensation.
Effective January 1, 1996, all of these plans were combined into one plan (the
"Associates' Savings Plan"). The Company also has a Money Purchase Plan which
covers those former NAD salaried employees not covered by a defined benefit
plan. Under this plan, the Company contributes 10 percent of eligible salary.
The amount of contribution expenses incurred by the Company for these plans were
approximately $0.7 million, $0.7 million, $2.2 million and $1.4 million for the
years ended December 25, 1993, December 31, 1994, December 30, 1995 and the
period ended June 29, 1996, respectively.
(c) Supplemental Executive Retirement Plan
The Company plans to adopt a supplemental executive retirement plan in 1996
to cover certain key executives of the Company. Accrued pension costs of
approximately $0.1 million related to this plan were recorded at December 30,
1995.
(10) STOCKHOLDERS' EQUITY
Under the ProSource, Inc. Employee Stock Purchase Plan (the "Stock Plan"),
at June 30, 1992 officers and key employees of the Company ("Management
Employees") purchased 4,081 shares of common stock at $1,000 per share. During
1993 and 1994, 1,256 and 69 shares of common stock were purchased by Management
Employees at $1,100 per share, respectively. During 1995, in connection with the
NAD acquisition, certain Management Employees purchased 2,085 shares of common
stock at $1,000 per share. In connection with the purchases of common stock,
each Management Employee entered into a Management Shareholders Agreement with
the Company and Onex.
The ProSource, Inc. Management Option Plan (1995) (the "1995 Option Plan")
was amended in conjunction with the acquisition of NAD. The 1995 Option Plan
provides certain Management Employees with options to purchase one-half the
number of shares of common stock purchased under the Employee Stock Purchase
Plan at the same price per share paid by such stockholder.
F-18
<PAGE> 76
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of outstanding stock options as of December 25, 1993, December
31, 1994, December 30, 1995 and June 29, 1996 is as follows:
<TABLE>
<CAPTION>
1996
OPTION PRICE 1993 1994 1995 -----------
-------------- ------- ------- ------- (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Outstanding, beginning of
year..................... $1,000 - 1,100 2,040.5 2,536.5 2,374.5 3,277.0
Granted.................... 1,000 - 1,100 503.5 34.5 1,017.5 307.5
Exercised.................. 1,000 - 1,100 -- -- -- --
Canceled................... 1,000 - 1,100 (7.5) (196.5) (115.0) (82.5)
-------------- -------- -------- -------- --------
Outstanding, end of year... $1,000 - 1,100 2,536.5 2,374.5 3,277.0 3,502.0
============== ======== ======== ======== ========
Exercisable................ 102 93 415 437
======== ======== ======== ========
</TABLE>
In conjunction with the acquisition of NAD, the Company issued warrants to
Martin-Brower. At December 30, 1995 and June 29, 1996, the warrants were
exercisable for 2,834 shares of common stock at $1,235 per share during the
period commencing on April 1, 1997 and through March 31, 2000, and upon
consummation of certain transactions.
(11) COMMITMENTS AND GUARANTEES
The Company has guaranteed the principal due on certain loans obtained by
its officers and employees in connection with the purchase of common stock under
the Stock Plan. At December 30, 1995 and June 29, 1996, such guarantees amounted
to approximately $2.9 million and $3.3 million, respectively.
At December 30, 1995 and June 29, 1996, the Company was also obligated for
$19 million and $18 million, respectively, in letters of credit issued on behalf
of the Company primarily as a guarantee of payment for obligations arising from
workers' compensation claims. At December 30, 1995 and June 29, 1996, the
Company had $6 million and $7 million, respectively, available in unused letters
of credit.
(12) LITIGATION
The Company and its subsidiaries are parties to various legal actions
arising in the ordinary course of business. Management believes that the outcome
of such cases will not have a material adverse effect on the consolidated
results of operations or financial position of the Company.
(13) CONCENTRATIONS OF CREDIT RISK
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. BKC-owned and
franchisee-owned Burger King restaurants collectively accounted for 94 percent,
90 percent, 45 percent and 40 percent of the Company's sales in fiscal years
1993, 1994, 1995 and during the period ended June 29, 1996, respectively. Sales
to BKC-owned restaurants represented approximately 17 percent, 13 percent, 5
percent and 4 percent of sales for the years ended December 25, 1993, December
31, 1994, December 30, 1995 and the period ended June 29, 1996, respectively.
Amounts due from BKC at December 31, 1994, December 30, 1995 and June 29, 1996
were $6 million, $4.7 million and $7.1 million, respectively.
In addition, sales to Darden Restaurants, Inc. (owner of Olive Garden and
Red Lobster restaurants) accounted for 18 percent and 22 percent of Company
sales in fiscal year 1995 and during the period ended June 29, 1996,
respectively. Amounts due from Darden Restaurants, Inc. at December 30, 1995 and
June 29, 1996, were approximately $51.8 million and $39.1 million, respectively.
Sales to franchisor-owned and franchisee-owned Arby's restaurants accounted for
10 percent of Company sales in fiscal year 1995 and during the period ended June
29, 1996, respectively.
F-19
<PAGE> 77
PROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) RELATED-PARTY TRANSACTION
Onex provides management services to the Company for an annual fee. Amounts
incurred for such services were approximately $0.8 million, $0.8 million, $0.8
million and $0.4 million in fiscal years 1993, 1994, 1995 and during the period
ended June 29, 1996, respectively.
(15) SUBSEQUENT EVENT
In September 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission with respect to an initial public offering.
The net proceeds of the offering will be used to repay certain indebtedness of
the Company.
F-20
<PAGE> 78
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
UNAUDITED CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash........................................................................... $ 698
Accounts receivable, less allowance for doubtful accounts of $1,893............ 96,034
Inventories.................................................................... 106,444
Prepaid expenses............................................................... 3,791
--------
Total current assets................................................... 206,967
Property, plant and equipment, net............................................... 29,133
Other assets..................................................................... 43
--------
$ 236,143
========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable and accrued liabilities....................................... $ 95,898
Overdrafts..................................................................... 21,317
Current portion of long-term debt.............................................. 2,711
--------
Total current liabilities.............................................. 119,926
Long-term debt, less current portion............................................. 514
--------
120,440
--------
Divisional equity................................................................ 115,637
Cumulative translation adjustment................................................ 66
--------
115,703
--------
Commitments and contingent liabilities........................................... --
$ 236,143
========
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-21
<PAGE> 79
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
UNAUDITED CONDENSED COMBINED STATEMENT OF INCOME
AND CHANGES IN DIVISIONAL EQUITY
FOR THE THIRTY-NINE WEEKS ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Net sales...................................................................... $1,608,923
Other income................................................................... 1,081
----------
1,610,004
----------
Costs and expenses:
Cost of goods sold........................................................... 1,501,894
Selling, general and administrative.......................................... 106,996
Interest..................................................................... 1,350
----------
1,610,240
----------
Loss before income tax benefit................................................. (236)
Income tax benefit............................................................. 359
----------
Net income..................................................................... 123
Divisional equity at:
Beginning of period.......................................................... 37,327
Dividends paid............................................................... (2,750)
Advances from Parent......................................................... 80,937
----------
End of period................................................................ $ 115,637
==========
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-22
<PAGE> 80
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED MARCH 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 123
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................... 4,630
Change in assets and liabilities:
Accounts receivable....................................................... (32,159)
Inventories............................................................... (15,991)
Prepaid expenses.......................................................... (1,891)
Overdrafts................................................................ (20,763)
Accounts payable and accrued liabilities.................................. (4,321)
Other..................................................................... (10)
--------
Net cash used in operating activities.................................. (70,382)
--------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment............................ 1,132
Additions to property, plant and equipment..................................... (4,167)
--------
Net cash used in investing activities.................................. (3,035)
--------
Cash flows from financing activities:
Proceeds from (repayments of) borrowing, net................................... (4,353)
Borrowings from parent......................................................... 80,937
Dividends paid................................................................. (2,750)
--------
Net cash provided by financing activities.............................. 73,834
Effect of exchange rate changes on cash.......................................... 2
Net increase in cash................................................... 419
Cash at:
Beginning of period............................................................ 279
--------
End of period.................................................................. $ 698
========
</TABLE>
See accompanying notes to unaudited condensed combined financial statements.
F-23
<PAGE> 81
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited condensed combined balance sheet as of March 31, 1995, and
the unaudited condensed combined statements of income and changes in divisional
equity and cash flows for the 39 weeks ended March 31, 1995 include, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's combined financial
position, results of operations, and cash flows. Operating results for the 39
weeks ended March 31, 1995 are not necessarily indicative of the results that
may be expected for the fiscal year ending July 1, 1995. These statements should
be read in conjunction with the combined financial statements and notes thereto
for the fiscal year ended July 1, 1994.
The unaudited condensed combined financial statements include the accounts
of (a) the National Accounts Division, a division of The Martin-Brower Company
(the "Company"), (b) NAD Distribution Systems, a division of Martin-Brower of
Canada, Ltd., a wholly owned subsidiary of the Company, and (c) BroMar Services,
Inc., a wholly owned subsidiary of the Company, collectively the "Division". The
Company is wholly owned by Dalgety, Inc. (the "Parent") and ultimately wholly
owned by Dalgety PLC, a company traded on the London and Australian stock
exchanges. All significant intradivisional transactions have been eliminated.
NOTE 2 -- RELATED PARTY TRANSACTIONS:
The Company has provided the Division with certain legal, treasury, audit,
insurance, facility, human resource management, regulatory and administrative
services. Charges for these services to the Division are based on allocations of
the Company's actual direct and indirect costs using varying allocation bases
(payroll, headcount, floor space, etc.) designed to estimate the actual cost
incurred by the Company to render these services to the Division. However, there
can be no assurance that these allocations would approximate the costs incurred
if the Division had operated as an independent stand-alone entity. The
allocation process is consistent with the methodology used by the Company to
allocate the cost of similar service to its other division. The allocated cost
of these services was $7,778 for the period ended March 31, 1995 and is
reflected in the combined statement of income.
The Parent at the end of the fiscal year usually charges the Company for
interest and certain services, paid for by the Parent on behalf of the Company,
which is then allocated to the Division. No amounts have been allocated to the
Division for the period ended March 31, 1995.
The divisional equity account varies according to the working capital
requirements of the Division. The Division is charged interest on that portion
of the equity account deemed to represent advances from the Parent. Total
interest expense of $1,005 relating to such advances is included in the combined
statement of income for the period ended March 31, 1995. This interest is based
on interest rates incurred by the Parent.
NOTE 3 -- ACCOUNTS RECEIVABLE:
The Company has an agreement with two financial institutions to sell, on an
ongoing basis and with limited recourse, up to $50,000 of selected trade
accounts receivable. Recourse is limited principally to the substitution of
"eligible" receivables for "ineligible" receivables as defined in the agreement.
As of March 31, 1995, none of the sold receivables were allocated to the
Division by management.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES:
As of March 31, 1995, the Company had open letters of credit, some of which
secured guarantees to third parties, net of amounts reported as liabilities or
lease commitments, aggregating $13,369 available for the
F-24
<PAGE> 82
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Division and the Company's other operations. Commitment fees to banks associated
with open letters of credit vary from 3/8% to 5/8%.
The Division has various claims and legal proceedings outstanding. In the
opinion of management, the ultimate outcome of outstanding litigation and claims
will not have a material adverse effect on the financial position of the
Division.
NOTE 5 -- SUBSEQUENT EVENT:
On March 31, 1995, the Company sold substantially all of the assets and
certain liabilities of the Division to ProSource, Inc. in accordance with the
provisions within the Agreement for the Purchase and Sale of the National
Accounts Division of The Martin-Brower Company and Martin-Brower of Canada, Ltd.
(the "Purchase Agreement") dated November 10, 1994. The net book value of the
net assets sold was approximately $151,000 as of March 31, 1995.
F-25
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of The Martin-Brower Company
We have audited the accompanying combined balance sheets of the National
Accounts Division of The Martin-Brower Company as of July 2, 1993 and July 1,
1994 and the related combined statements of income and changes in divisional
equity and of cash flows for the 52 week periods then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. 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 combined financial statements audited by us present fairly,
in all material respects, the financial position of the National Accounts
Division at July 2, 1993 and July 1, 1994, and the results of its operations and
its cash flows for the 52 week periods then ended, in conformity with generally
accepted accounting principles in the United States of America.
As explained in Notes 1 and 3, the National Accounts Division is a division of
The Martin-Brower Company and has extensive transactions with related parties.
PRICE WATERHOUSE LLP
Chicago, Illinois
December 9, 1994
F-26
<PAGE> 84
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 251 $ 279
Accounts receivables, less allowance for doubtful accounts of
$1,655 and $1,276, respectively................................. 47,584 63,875
Inventories........................................................ 80,962 90,453
Prepaid expenses................................................... 1,504 1,900
-------- --------
Total current assets....................................... 130,301 156,507
Property, plant and equipment, net (Note 5).......................... 31,191 30,730
Other assets......................................................... 236 29
-------- --------
$161,728 $187,266
======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable................................................... $ 73,015 $ 86,286
Accrued liabilities................................................ 12,121 13,933
Overdrafts......................................................... 34,294 42,080
Current portion of long-term debt (Note 6)......................... 710 6,932
-------- --------
Total current liabilities.................................. 120,140 149,231
Long-term debt, less current portion (Note 6)........................ 4,953 646
-------- --------
125,093 149,877
-------- --------
Divisional equity.................................................... 36,604 37,327
Cumulative translation adjustment.................................... 31 62
-------- --------
36,635 37,389
-------- --------
Commitments and contingent liabilities (Note 10)..................... -- --
$161,728 $187,266
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE> 85
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
COMBINED STATEMENTS OF INCOME AND CHANGES IN DIVISIONAL EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Net sales........................................................... $ 1,881,326 $ 2,029,055
Other income........................................................ 314 307
---------- ----------
1,881,640 2,029,362
---------- ----------
Costs and expenses:
Cost of goods sold................................................ 1,749,679 1,889,355
Selling, general and administrative............................... 122,508 132,357
Interest.......................................................... 1,424 2,982
---------- ----------
1,873,611 2,024,694
---------- ----------
Income before provision for income taxes............................ 8,029 4,668
Provision for income taxes.......................................... 3,169 1,818
---------- ----------
Net income.......................................................... 4,860 2,850
Divisional equity at:
Beginning of year................................................. 44,271 36,604
Dividends paid.................................................... -- (2,844)
Advances from (payments to) Dalgety, Inc.......................... (12,527) 717
---------- ----------
End of year....................................................... $ 36,604 $ 37,327
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE> 86
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 4,860 $ 2,850
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 5,843 6,026
Loss (gain) on sale of property, plant and equipment............... (120) 169
Change in assets and liabilities:
Accounts receivable............................................. 10,136 (16,291)
Inventories..................................................... (5,215) (9,491)
Prepaid expenses................................................ (649) (396)
Accounts payable................................................ (7,663) 13,271
Accrued liabilities............................................. 1,449 1,812
Overdrafts...................................................... 14,823 7,786
Other........................................................... 1,239 632
-------- --------
Net cash provided by operating activities............................ 24,703 6,368
-------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment................ 1,033 231
Additions to property, plant equipment............................. (8,504) (5,965)
-------- --------
Net cash used in investing activities................................ (7,471) (5,734)
-------- --------
Cash flow from financing activities:
Payment of capital lease obligations............................... (1,173) (551)
Proceeds from (repayments of) borrowings, net...................... (3,476) 2,072
Change in divisional equity........................................ (12,527) (2,127)
-------- --------
Net cash used by financing activities.............................. (17,176) (606)
-------- --------
Net increase in cash................................................. 56 28
Cash at:
Beginning of year.................................................. 195 251
-------- --------
End of year........................................................ $ 251 $ 279
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE> 87
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- BASIS OF PRESENTATION, OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Basis of Presentation
The combined financial statements include the accounts of (a) the National
Accounts Division, a division of The Martin-Brower Company (the "Company"), (b)
NAD Distribution Systems, a division of Martin-Brower of Canada, Ltd., a wholly
owned subsidiary of the Company, and (c) BroMar Services, Inc., a wholly owned
subsidiary of the Company, collectively the "Division". The Company is wholly
owned by Dalgety, Inc. (the "Parent") and ultimately wholly owned by Dalgety
PLC, a company traded on the London and Australian stock exchanges. All
significant intradivisional transactions have been eliminated.
On November 10, 1994, the Company entered into a definitive agreement (the
"Purchase Agreement") to sell the Division to ProSource, Inc. ("ProSource"), a
subsidiary of Onex Corporation, a company traded on the Toronto and Montreal
stock exchanges. (See Note 12.)
The accompanying financial statements reflect the "carve-out" financial
position, results of operations and cash flows of the Division for the periods
presented. Certain general and administrative expenses incurred by the Company
have been allocated to the Division on bases described in Note 3 which, in the
opinion of management, are reasonable. However, such expenses are not
necessarily indicative of and it is not practicable for management to estimate,
the nature and level of expenses which might have been incurred had the Division
been operating as a separate company.
The financial information included herein does not necessarily reflect what
the financial position and results of operations of the Division would have been
had it operated as a stand-alone entity during the periods covered, and may not
be indicative of future operations or financial position.
The Company and the Division will have rights and obligations as negotiated
in connection with, or as reflected in, the Purchase Agreement which has been
executed between the Company and ProSource. Certain other rights and obligations
may arise as a result of a proposed service agreement between the Company and
ProSource. (See Note 12.)
Operations
The Division is a distributor of food and paper products to quick service
and specialty restaurant chains. One customer accounted for a 40 percent and 37
percent of the Division's combined sales in fiscal 1994 and 1993, respectively.
The Division's operations in Canada had sales and loss before taxes for
fiscal 1994 of $43,475 and $(35), respectively ($51,652 and $(113) for fiscal
1993). Net Canadian assets (liabilities) at July 2, 1993 and July 1, 1994 were
$(168) and $1,915, respectively, including net property, plant and equipment of
$267 and $176 in 1993 and 1994, respectively.
Significant Accounting Policies
A summary of significant accounting policies follows:
A. Fiscal Year: The Division's fiscal year consists of 52 or 53 weeks
ending on the Friday closest to June 30. Results for 1993 are for the 52 weeks
ended July 2, 1993 and for 1994 are for the 52 weeks ended July 1, 1994.
F-30
<PAGE> 88
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
B. Translation of Foreign Currency: The accounts of the Division's
Canadian operations are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards (FAS) No. 52 as follows:
<TABLE>
<S> <C>
Assets and liabilities Year end exchange rates
Revenues and expenses Average monthly exchange rates
</TABLE>
Translation gains and losses are included in the cumulative translation
adjustment component of divisional equity.
C. Inventories: Inventories, consisting of product for resale, are stated
at the lower of cost or market, cost being determined generally using the
last-in, first out (LIFO) method. Inventories would have been higher by
approximately $2,739 at July 2, 1993 and $1,757 at July 1, 1994 if the first-in,
first out (FIFO) method had been used. The Division's inventories are included
with the other inventories of the Company in a single LIFO pool. The calculation
of the effects of LIFO on the Division is based on the relative proportions of
inventory on a FIFO basis for the Company's operations at June 30, 1992, July 2,
1993 and July 1, 1994, respectively.
D. Property, Plant and Equipment: Property additions, major renewals and
betterments are included in asset accounts at cost. Interest charges incurred
during the period required to construct major properties are capitalized as part
of the project cost and amortized over the life of the asset. Certain corporate
assets of the Company have been allocated to the Division on various bases
which, in the opinion of management, are reasonable.
Depreciation is computed generally using the straight line method over the
estimated useful lives of the assets, ranging from 3 to 40 years. Amortization
of leasehold improvements and equipment under capital leases is computed using
the straight line method generally over the shorter of the useful lives or the
remaining lease terms.
E. Income Taxes: Provision has been made for income taxes in accordance
with FAS No. 109, "Accounting for Income Taxes." FAS 109 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The Division's operations have been included with the Parent in a U.S.
consolidated federal income tax return. The Division's Canadian operations have
been included in Martin-Brower of Canada, Ltd.'s Canadian income tax return. For
financial reporting purposes, amounts provided for income taxes are determined
as if the Division were to file separate U.S. and Canadian income tax returns
and the U.S. federal and state and Canadian federal and provincial current and
deferred income tax balances are settled through the divisional equity account.
Differences resulting from the separate return method of allocating taxes are
reflected in the consolidated financial statements of the Parent. (See Note 7).
F. Medical Benefits for Retired Employees: The provisions of FAS 106,
"Employer's Accounting for Post-retirement Benefits Other than Pensions" have
not yet been adopted and the Division accounts for such costs on a cash basis.
(See Note 11).
G. Revenue Recognition: Distribution revenue is recognized upon receipt of
product by the customer.
F-31
<PAGE> 89
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during fiscal 1993 and 1994 for external interest expense was
$820 and $651, respectively. Capital lease obligations of $308 and $394 were
incurred in fiscal 1993 and 1994, respectively, primarily for transportation and
computer equipment.
NOTE 3 -- RELATED PARTY TRANSACTIONS:
The Company has provided the Division with certain legal, treasury, audit,
insurance, facility, human resource management, regulatory and administrative
services. Charges for these services to the Division are based on allocations of
the Company's actual direct and indirect costs using varying allocation bases
(payroll, headcount, floor space, etc.) designed to estimate the actual cost
incurred by the Company to render these services to the Division. However, there
can be no assurance that these allocations would approximate the costs incurred
if the Division had operated as an independent stand-alone entity. The
allocation process is consistent with the methodology used by the Company to
allocate the cost of similar services to its other division. The allocated cost
of these services were $9,415 and $10,433 for fiscal 1993 and 1994,
respectively, and are reflected in the combined statements of income.
In fiscal 1994, the Parent charged the Company for interest and certain
services, paid for by the Parent on behalf of the Company in fiscal 1993 and
1994, $2,629 of which was allocated to the Division.
The divisional equity account varies according to the working capital
requirements of the Division. The Division is charged interest on that portion
of the equity account deemed to represent advances from the Parent. Total
interests expense of $786 and $869 relating to such advances are included in the
combined statements of income for fiscal 1993 and 1994, respectively. This
interest is based on interest rates incurred by the Parent.
NOTE 4 -- ACCOUNTS RECEIVABLE:
The Company has an agreement with two financial institutions to sell, on an
ongoing basis and with limited recourse, up to $75,000 of selected trade
accounts receivable. Recourse is limited principally to the substitution of
"eligible" receivables for "ineligible" receivables as defined in the agreement.
As of July 2, 1993 and July 1, 1994, $30,000 of the sold receivables were
allocated to the Division by management. Under accounting principles generally
accepted in the United States of America, these receivables are not included in
the Division's balance sheet.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Land and land improvements................................... $ 1,907 $ 1,909
Buildings.................................................... 11,782 10,372
Leasehold improvements....................................... 6,847 7,280
Transportation equipment..................................... 4,323 4,247
Machinery and other equipment................................ 35,392 41,332
-------- --------
60,251 65,140
Less -- Accumulated depreciation and amortization............ (29,060) (34,410)
-------- --------
$ 31,191 $ 30,730
======== ========
</TABLE>
F-32
<PAGE> 90
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Depreciation expense, including amortization of assets held under
capitalized leases, was $5,843 and $6,026 in fiscal 1993 and 1994, respectively.
Certain property, plant and equipment is pledged, at July 2, 1993 and July
1, 1994, as security for long-term debt (see Notes 6 and 8).
NOTE 6 -- DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Capital lease obligations with interest rates ranging from 6% to 8%,
due through 1998................................................... $1,215 $ 1,058
Industrial development revenue bonds, with a fixed interest rate of
9.55%, due December 1, 1994, secured by certain land, buildings and
equipment with a net book value of approximately $3,584 at July 2,
1993 and $2,980 at July 1, 1994 (the Company settled this liability
before the due date)............................................... 4,200 4,200
Bank borrowings, with interest at a variable rate of approximately
8.25%, due through 1994, guaranteed by Dalgety PLC................. 248 2,320
------ -------
5,663 7,578
Less -- current portion.............................................. (710) (6,932)
------ -------
$4,953 $ 646
====== =======
</TABLE>
The carrying value of the Division's debt at July 2, 1993 and July 1, 1994
approximates fair value.
The aggregate annual principal installments of outstanding long-term debt
(exclusive of capital lease obligations reported in Note 8) scheduled for
payment during fiscal year ending June 30, 1995 are $6,520.
At July 1, 1994 the Company shares with its Parent a bank line of credit of
$20,000, of which $10,000 is available in U.S. funds and is available for the
Division and the Company's other operations. This line of credit is guaranteed
by Dalgety PLC. At July 1, 1994, $2,320 was outstanding and related to the
Division.
NOTE 7 -- INCOME TAXES:
Amounts provided are summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Current:
Federal.................................................... $2,392 $1,383
State...................................................... 529 234
Foreign.................................................... (54) (15)
------ ------
Current income tax expense................................... 2,867 1,602
Deferred:
Federal.................................................... 265 197
State...................................................... 37 19
------ ------
Total income tax expense..................................... $3,169 $1,818
====== ======
</TABLE>
F-33
<PAGE> 91
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Principal temporary differences between book and taxable income for the
above fiscal years consist of bad debt expense, fixed asset depreciation and
gain or loss on disposition, employee benefits, state income tax and other
expense accruals.
The effective income tax rate for fiscal 1993 (39.4%) and 1994 (38.9%) is
different from the federal statutory rate (34.5% and 35% respectively) as a
result of the following: state income taxes (4.6% and 3.5%, respectively) and
other significant items, including foreign operations, certain tax credits and
nondeductible meals and entertainment.
NOTE 8 -- LEASES:
The Division leases a portion of its transportation and other equipment and
several of its warehouses and office facilities. Leases of transportation
equipment generally expire over the next five years and are accounted for as
either capital or operating depending upon the lease terms. Certain
transportation equipment leases call for contingent rental payments based upon
mileage traveled. Most leases of facilities and other equipment are classified
as operating leases and are for various periods extending through fiscal 2007.
Future minimum lease payments under capital leases and operating leases
(with initial terms of one year or more) as of July 1, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING ON THE FRIDAY CAPITAL OPERATING
CLOSEST TO JUNE 30: LEASES LEASES
----------------------------------------------------------------- ------- ---------
<S> <C> <C>
1995............................................................. $ 484 $11,782
1996............................................................. 358 10,090
1997............................................................. 273 6,443
1998............................................................. 42 5,016
1999............................................................. -- 4,458
Thereafter....................................................... -- 3,057
------ -------
Total minimum lease payments..................................... 1,157 $40,846
Less -- Amount representing interest............................. (99)
------
Present value of net minimum lease payments...................... $ 1,058
======
</TABLE>
Minimum lease payments and contingent payments (based on usage) for capital
leases were as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Minimum rentals.............................................. $551 $695
Contingent rental (based on usage)........................... 118 141
---- ----
$669 $836
==== ====
</TABLE>
Total rental expense for all operating leases were as follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Minimum rentals.............................................. $ 14,040 $ 15,000
Contingent rental (based on usage)........................... 2,995 3,045
------- -------
Rental expense............................................... $ 17,035 $ 18,045
======= =======
</TABLE>
F-34
<PAGE> 92
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The Division's property held under capital leases, included with owned
property in the combined balance sheet, consists of:
<TABLE>
<CAPTION>
JULY 2, 1993 JULY 1, 1994
------------ ------------
<S> <C> <C>
Transportation equipment..................................... $ 506 $ 577
Machinery and other equipment................................ 1,369 1,130
------ ------
1,875 1,707
Less -- Accumulated depreciation............................. (710) (686)
------ ------
$1,165 $1,021
====== ======
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLANS:
The Division provides retirement benefits for substantially all of its
employees through various Company-administered defined benefit and defined
contribution plans and plans administered under collective bargaining
agreements. Pension expense for the Division in fiscal 1993 and 1994 totalled
$2,670 and $3,039, respectively.
Defined Benefit Plan
The Company sponsors a non-contributory defined benefit pension plan for
hourly paid employees not covered by a collective bargaining agreement. Benefits
under the plan are based on participants' compensation over their entire years
of service. The Company's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes.
Net periodic pension cost for the Division included the following
components:
<TABLE>
<CAPTION>
52 WEEKS ENDED
-------------------
JULY 2, JULY 1,
1993 1994
------- -------
<S> <C> <C>
Service cost -- benefits earned during the period................... $ 298 $ 392
Interest cost on projected benefit obligation....................... 200 236
Actual return on assets............................................. (141) (60)
Amortization of excess of plan assets over projected benefit
obligations, over 15 years from July 1985......................... (39) (39)
Amortization of prior service cost.................................. -- 22
Amortization of loss................................................ 31 40
Asset loss deferral................................................. (67) (129)
---- ----
Net periodic pension cost........................................... $ 282 $ 462
==== ====
</TABLE>
Actuarial assumptions used for the Company's defined benefit pension plan
for both fiscal years were:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Discount rate......................................................... 8.5% 7.5%
Rate of increase in compensation levels............................... 6.0% 3.5%
Expected long-term rate of return on plan assets...................... 9.0% 8.0%
</TABLE>
F-35
<PAGE> 93
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The following table sets forth the funded status and the amounts recognized
in the Division's combined balance sheet for its portion of the Company's
defined benefit pension plan:
<TABLE>
<CAPTION>
JULY 2, JULY 1,
1993 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefits of
$1,664 and $2,394 in 1993 and 1994, respectively............... $(1,919) $(2,776)
Projected benefit obligation..................................... $(2,841) $(3,674)
Plan assets at fair value (primarily listed stocks and government
obligations)................................................... 2,444 2,552
----- -----
Projected benefit obligation greater than plan assets............ (397) (1,122)
Unrecognized net loss............................................ 769 937
Unrecognized prior service cost.................................. -- 306
Unrecognized excess of plan assets at fair value over projected
benefit obligation at July 1, 1985, being recognized over 15
years.......................................................... (271) (231)
----- -----
(Accrued) prepaid pension cost included in other assets.......... $ 101 $ (110)
===== =====
</TABLE>
Defined contribution plans
The Company sponsors a 401(k) plan for salaried employees and hourly
employees who participate in the Company's defined benefit pension plan. The
plan includes optional employee participation levels of up to 10% of eligible
earnings, subject to IRS limitations, with matching employer contributions of up
to 2% of eligible earnings. The employer contribution costs recognized by the
Division during fiscal 1993 and 1994 amounted to $387 and $429, respectively.
The Company also sponsors a money purchase plan for salaried employees
under which the Company makes contributions of 10% of eligible salary, with full
vesting, after two years of service. The Division's costs of these plans for
fiscal 1993 and 1994 amounted to $1,201 and $1,272, respectively.
Multi-employer pension plan
The Company contributes to various multi-employer pension plans under
collective bargaining agreements. The Company's share of liabilities for
unfunded benefits associated with these plans is not determinable. The
Division's pension expense for contributions to these plans was approximately
$800 and $876 in fiscal 1993 and 1994, respectively.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
At July 1, 1994, the Company had open letters of credit, some of which
secured guarantees to third parties, net of amounts reported as liabilities or
lease commitments (reported in Note 8), aggregating $25,823 available for the
Division and the Company's other operations. Commitment fees to banks associated
with open letters of credit vary from 3/8% to 5/8%.
The Division has various claims and legal proceedings outstanding. In the
opinion of management, the ultimate outcome of outstanding litigation and claims
will not have a material adverse effect on the financial position or results of
operations or cash flows of the Division.
F-36
<PAGE> 94
NATIONAL ACCOUNTS DIVISION
(A DIVISION OF THE MARTIN-BROWER COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11 -- MEDICAL BENEFITS FOR RETIRED EMPLOYEES:
The Company has a post-retirement medical benefit plan that covers certain
employees who had met age and length of service requirements as of December 1,
1987. In fiscal 1993 and 1994, the Division paid medical claims expense of $59
and $24, respectively, for retired employees.
FAS 106, "Employers' Accounting for Post-retirement Benefits Other than
Pensions," would require the Division to begin accruing medical benefits for
retired employees by fiscal 1996. Furthermore, implementation of the standard
would require the recognition of a "transition obligation" (as defined in that
standard) based on the aggregate amount that would have been accrued in prior
years had the new standard been in effect for those years. That standard,
however, permits the Division to recognize the entire "transition obligation" in
the year of adoption or to amortize it over a period of years.
The Division estimates that the transition obligation approximates $482 as
of July 1, 1994. The Division has decided neither the timing nor method of
adoption of FAS 106.
NOTE 12 -- SUBSEQUENT EVENT:
On November 10, 1994, the Company signed the Purchase Agreement to sell
substantially all of the assets of the Division to ProSource for approximately
$140,000 and the assumption of the trade payables, subject to certain closing
conditions. The final net value to ProSource will vary depending on various
closing and post-closing adjustments, and retained liabilities.
The Company will retain all assets defined as "Excluded Assets", consisting
principally of cash and cash equivalents, certain insurance deposits, prepaid
items and refundable excise taxes as of the closing date. Liabilities to be
retained by the Company include primarily pre-closing federal and state income
taxes, post-retirement medical and life insurance benefits and other pre-closing
employee benefit obligations, pre-closing product liabilities,
incurred-but-not-reported medical and dental liabilities, workers' compensation
liabilities, vehicle accident liabilities, environmental liabilities and certain
other liabilities as specified in the Purchase Agreement.
The Company intends to enter into a service agreement with ProSource to
cover transition services to be provided by both parties after the closing. The
extent of the services provided and the rates to be charged have not been agreed
upon. Upon the planned service agreement, the Company would provide to ProSource
certain personnel and salary administration, accounting and treasury assistance,
print shop services and record storage space. ProSource would provide the
Company certain office space, computer processing, accounting and recordkeeping
services. Charges for the services to be rendered by the parties would be
determined on various bases including monthly fees, hourly rates and charges per
square foot. The services would be provided for periods up to one year, except
for recordkeeping which would continue for a period of seven years.
F-37
<PAGE> 95
PROSOURCE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA,
ADJUSTMENTS AS ADJUSTED
FOR THE FOR THE PRO FORMA
ACQUISITION ACQUISITION ADJUSTMENTS
OF OF FOR THE PRO FORMA,
HISTORICAL NAD NAD OFFERING AS ADJUSTED
---------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $3,461,837 $531,606(A) $3,993,443 $ -- $ 3,993,443
Cost of sales...................... 3,193,270 496,156(A) 3,689,426 -- 3,689,426
---------- -------- ---------- ------- ----------
Gross profit..................... 268,567 35,450 304,017 -- 304,017
Operating expenses................. 255,216 35,726(A) 290,942 -- 290,942
Restructuring charges.............. 711 -- 711 -- 711
---------- -------- ---------- ------- ----------
Earnings from operations......... 12,640 (276) 12,364 -- 12,364
Interest expense................... (14,678) (2,738)(B) (17,416) 4,925(C) (12,491)
Interest income.................... 1,339 69 1,408 -- 1,408
---------- -------- ---------- ------- ----------
Earnings (loss) before income
taxes and extraordinary
charge........................ (699) (2,945) (3,644) 4,925 1,281
Income tax (provision) benefit..... (85) 1,131(D) 1,046 (1,941)(D) (895)
---------- -------- ---------- ------- ----------
Earnings (loss) before
extraordinary charge.......... (784) (1,814) (2,598) 2,984 386
Extraordinary charge, net of income
tax benefit of $502.............. (772) -- (772) -- (772)
---------- -------- ---------- ------- ----------
Net earnings (loss).............. $ (1,556) $ (1,814) $ (3,370) $ 2,984 $ (386)
========== ======== ========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
F-38
<PAGE> 96
PROSOURCE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR THE PRO FORMA,
HISTORICAL OFFERING AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................................. $2,014,074 $ -- $ 2,014,074
Cost of sales.......................................... 1,859,000 -- 1,859,000
---------- ------- ----------
Gross profit......................................... 155,074 -- 155,074
Operating expenses..................................... 149,758 -- 149,758
Loss on impairment of long-lived assets................ 15,733 -- 15,733
Restructuring charges.................................. 10,866 -- 10,866
---------- ------- ----------
Loss from operations................................. (21,283) -- (21,283)
Interest expense....................................... (8,152) 2,395(E) (5,757)
Interest income........................................ 866 -- 866
---------- ------- ----------
Loss before income tax benefit....................... (28,569) 2,395 (26,174)
Income tax benefit..................................... 10,612 (1,048)(D) 9,564
---------- ------- ----------
Net earnings (loss).................................. $ (17,957) $ 1,347 $ (16,610)
========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
information.
F-39
<PAGE> 97
PROSOURCE, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
A. Adjustment reflects the results of operations of the National Accounts
Division ("NAD") of The Martin-Brower Company for the three months ended
March 31, 1995 as if the acquisition were consummated on January 1, 1995 as
follows:
<TABLE>
<S> <C>
Net sales......................................................... $531,606
Cost of sales..................................................... 496,156
Operating expenses................................................ 35,139
</TABLE>
Operating expenses also include an additional three months of amortization
of goodwill and deferred loan fees in the amount of $587.
B. Adjustment reflects additional interest expense of $2,738 to finance the
acquisition and operations of NAD for three months as if the acquisition
were consummated on January 1, 1995. For purposes of this pro forma
calculation, the Company applied the average interest rate on debt used to
finance the acquisition to the assumed incremental outstanding debt balance
associated with the acquisition.
C. Adjustment represents the decrease in interest expense of $4,925 for the
year ended December 30, 1995, assuming the net proceeds of the offering were
utilized to prepay, on January 1, 1995, the balances outstanding under the
following debt instruments as follows:
<TABLE>
<CAPTION>
PRINCIPAL 1995 INTEREST
REPAYMENTS SAVINGS
---------- -------------
<S> <C> <C>
$15 million subordinated note payable to Onex, at 12%........ $ 15,000 $ 1,800
$10 million subordinated note payable to Martin-Brower,
discounted at 9%........................................... 8,826 794
Revolving credit facility, at 9.60%.......................... 21,674 2,081
------- ------
$ 45,500 $ 4,675
======= ======
</TABLE>
The adjustment also assumes that the $2.5 million convertible subordinated
note payable to Onex (which Onex intends to convert in connection with the
offering), plus accrued interest, was converted into shares of the Company's
common stock on January 1, 1995, resulting in interest savings of $250.
D. Adjustments reflect the estimated income tax effect of various pro forma
adjustments at 39%, which represents the Company's approximate marginal tax
rate.
E. Adjustment represents the decrease in interest expense of $2,395 for the six
months ended June 29, 1996, assuming the net proceeds of the offering were
utilized to reduce, on January 1, 1996, the balances outstanding under the
various debt instruments as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 1996
PRINCIPAL INTEREST
REPAYMENTS SAVINGS
---------- ----------
<S> <C> <C>
$15 million subordinated note payable to Onex, at 12%........ $ 15,000 $ 900
$10 million subordinated note payable to Martin-Brower,
discounted at 9%........................................... 9,418 415
Revolving credit facility, at 9.06%.......................... 21,082 955
------- ------
$ 45,500 $2,270
======= ======
</TABLE>
The adjustment also assumes that the $2.5 million convertible subordinated
note payable to Onex (which Onex intends to convert in connection with the
offering), plus accrued interest, was converted into shares of the Company's
common stock on January 1, 1996, resulting in interest savings of $125.
F-40
<PAGE> 98
[PROSOURCE LOGO]
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee, the National Association of Securities
Dealers, Inc. filing fee and The Nasdaq National Market filing fee) fees and
expenses (other than underwriting discounts and commissions) in connection with
the offering described in this registration statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................... $19,827.59
National Association of Securities Dealers, Inc. filing fee............ $ 6,250.00
The Nasdaq National Market filing fee.................................. *
Transfer Agent and Registrar fees...................................... *
Blue Sky filing and counsel fees and expenses.......................... *
Printing and engraving costs........................................... *
Legal fees and expenses................................................ *
Accounting fees and expenses........................................... *
Miscellaneous.......................................................... *
Total........................................................ *
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by Section 102(b)(7) of the Delaware General Corporation Law,
Article 9 of the Company's Restated Certificate of Incorporation provides that
directors of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breaches of their fiduciary duty of care
as a director, except that such provision does not limit or eliminate the
liability of any director (i) for any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases or (iv) for any transactions from which the director derived an
improper personal benefit. In addition, this provision does not limit directors'
liability under federal securities laws.
Section 145 of the Delaware Law provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. Article 8 of the Company's Restated Certificate
of Incorporation entitles officers and directors of the Company to
indemnification to the fullest extent permitted by Section 145 of the Delaware
Law, as the same may be supplemented from time to time.
Reference is also made to the Company's Restated Certificate of
Incorporation, filed as Exhibit 3.1 hereto.
II-1
<PAGE> 100
Reference is also made to Section 7 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, which provides certain indemnification rights to the
directors and officers of the Company in connection with the offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1993, the Company has not issued or sold any securities not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
except as follows:
(a) During 1993, the Company sold shares of Common Stock in the
aggregate to certain directors, officers and management employees of the
Company at a purchase price equal to $ per share.
(b) During 1994, the Company sold shares of Common Stock in the
aggregate to certain officers and management employees of the Company at a
purchase price equal to $ per share.
(c) On November 1, 1994, in connection with the acquisition of certain
assets and the assumption of certain liabilities of Malone Products, Inc.
("Malone") and as partial consideration therefor, the Company issued a
Subordinated Convertible Note in the principal amount of $0.5 million to
Malone (the "Malone Subordinated Note"). The Malone Subordinated Note is
convertible, in whole or in part, at any time into shares of Common Stock
at a conversion price equal to $ per share, subject to adjustment.
(d) On March 31, 1995, in connection with the acquisition of
substantially all of the assets and the assumption of certain liabilities
of the National Accounts Division of The Martin-Brower Company
("Martin-Brower") and as partial consideration therefor, the Company
issued:
(i) a Stock Subscription Warrant to Martin-Brower for the purchase
of shares of Common Stock at an exercise price of $ per share,
which was assigned a nominal value for purposes of such transaction;
(ii) a Subordinated Note Due March 31, 2002 in the principal amount
of $10 million to Martin-Brower;
(iii) a 12% Subordinated Note Due April 1, 2005 in the principal
amount of $15 million to Onex; and
(iv) a Convertible Subordinated Note Due April 1, 2005 in the
principal amount of $3.5 million to Onex (the "NAD Convertible Note").
The NAD Convertible Note was, in part, repaid and, in part, converted
into Common Stock in accordance with its terms and is no longer
outstanding.
(e) In May 1995, the Company completed the sale of shares of
Common Stock in the aggregate to certain directors, officers and management
employees of the Company at a purchase price equal to $ per share.
(f) In January 1996, the Company completed the sale of shares
of Common Stock in the aggregate to certain officers and management
employees of the Company at a purchase price equal to $ per share.
The issuances and sales of the securities listed above were exempt from
registration under the Securities Act by virtue of Section 4(2) thereof and
Regulation D promulgated thereunder as transactions not involving a public
offering.
II-2
<PAGE> 101
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement(1)
3.1 Form of Restated Certificate of Incorporation of the Company(1)
3.2 Form of Amended and Restated By-Laws of the Company(1)
4.1 Form of Certificate for Class A Common Stock(1)
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP(1)
10.1 Amended and Restated Management Shareholders Agreement, dated May 31, 1995, among
ProSource, Inc., Onex DHC LLC and the individuals party thereto from time to
time(1)
10.2 Amended and Restated Director Shareholders Agreement, dated as of May 31, 1995,
among ProSource, Inc., Onex DHC LLC and the individuals party thereto from time to
time(1)
10.3 Stock Subscription Warrant, dated March 31, 1995, issued by ProSource, Inc. in
favor of The Martin-Brower Company to subscribe for shares of Common
Stock
10.4 Agreement, dated November 10, 1994, for the Purchase and Sale of the National
Accounts Division of The Martin-Brower Company and Martin-Brower of Canada, Ltd.,
among ProSource, Inc., The Martin-Brower Company and Martin-Brower of Canada, Ltd.
10.5 Purchase Agreement Amendment, dated February 24, 1995, among The Martin-Brower
Company, Martin-Brower of Canada, Ltd. and ProSource, Inc.
10.6 Second Purchase Agreement Amendment, dated February 28, 1995, among The
Martin-Brower Company, Martin-Brower of Canada, Ltd. and ProSource, Inc.
10.7 Third Purchase Agreement Amendment, dated March 31, 1995, among The Martin-Brower
Company, Martin-Brower of Canada, Ltd. and ProSource, Inc.
10.8 Loan and Security Agreement, dated as of March 31, 1995, among ProSource Services
Corporation, BroMar Services, Inc., ProSource Distribution Services Limited, the
Financial Institutions party thereto and NationsBank of Georgia, N.A., The First
National Bank of Boston and Shawmut Capital Corporation, as Co-Agents, and
NationsBank of Georgia, N.A., as Administrative Agent
10.9 Amendment No. 1, dated as of December 29, 1995, to Loan and Security Agreement,
among ProSource Services Corporation, BroMar Services, Inc., ProSource
Distribution Services Limited, the Financial Institutions party thereto and
NationsBank of Georgia, N.A., The First National Bank of Boston and Shawmut
Capital Corporation, as Co-Agents, and NationsBank of Georgia, N.A., as
Administrative Agent
10.10 Amendment No. 2 and Waiver, dated as of March 28, 1996, to Loan and Security
Agreement, among ProSource Services Corporation, BroMar Services, Inc., ProSource
Distribution Services Limited, the Financial Institutions party thereto and
NationsBank, N.A. (South), The First National Bank of Boston and Fleet Capital
Corporation, as Co-Agents, and NationsBank, N.A. (South), as Administrative Agent
10.11 Pledge Agreement, made as of March 31, 1995, by ProSource, Inc. in favor of
NationsBank of Georgia, N.A., as Administrative Agent
10.12 Pledge Agreement, made as of March 31, 1995, by ProSource Services Corporation in
favor of NationsBank of Georgia, N.A., as Administrative Agent
10.13 Subordination Agreement, dated as of March 31, 1995, made by ProSource Services
Corporation and Onex Corporation in favor of NationsBank of Georgia, N.A., as
Administrative Agent
10.14 Unconditional Guaranty, made as of March 31, 1995, by ProSource, Inc. in favor of
NationsBank of Georgia, N.A., as Administrative Agent
</TABLE>
II-3
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------- ----------------------------------------------------------------------------------
<C> <S>
10.15 Subordinated Note, dated March 31, 1995, executed by ProSource, Inc. and payable
to the order of The Martin-Brower Company in the original principal amount of
$10,000,000
10.16 Subordinated Note, dated March 31, 1995, executed by ProSource Services
Corporation and payable to the order of Onex Ohio Holdings, Inc. in the original
principal amount of $15,000,000
10.17 Form of Distribution Agreement, dated as of June 30, 1992, between Burger King
Corporation and ProSource Services Corporation
10.18 Form of Amendment Agreement, dated as of June 30, 1992, between Burger King
Corporation and ProSource Services Corporation
10.19 Addendum to Forms of Distribution Agreement and Amendment Agreement
10.20 Amended and Restated Employment Agreement, dated as of July 1, 1992, between
ProSource Services Corporation and David R. Parker(1)
10.21 Amended and Restated Employment Agreement, dated July 1, 1992, between ProSource
Services Corporation and Thomas C. Highland(1)
10.22 Employment Agreement, dated as of April 1, 1995, between ProSource Services
Corporation and Daniel Adzia
10.23 Employment Agreement, dated July 1, 1992, between ProSource Services Corporation
and Paul A. Garcia de Quevedo
10.24 Employment Agreement, dated as of July 1, 1995, between ProSource Services
Corporation and Dennis Andruskiewicz
10.25 Employment Agreement, dated April 1, 1994, between ProSource Services Corporation
and John E. Foley
10.26 Amended Management Option Plan (1995)(1)
10.27 1996 Stock Option Plan(1)
10.28 Truck Lease and Service Agreement, dated as of January 1, 1993, between Ryder
Truck Rental, Inc. and ProSource Services Corporation (1)
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included in Exhibit
5.1)(1)
24.1 Powers of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
(1) To be filed by amendment.
(b) Consolidated Financial Statements Schedules
Schedule I -- Condensed Financial Information of Registrant
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act 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 than 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
II-4
<PAGE> 103
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
Securities Act and will be governed by the final adjudication of such issue.
(2) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
II-5
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Coral Gables, State of Florida on September 5, 1996.
PROSOURCE, INC.
By: /s/ DAVID R. PARKER
........................................
David R. Parker
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes each of David R. Parker, Thomas C. Highland,
William F. Evans and Paul A. Garcia de Quevedo, as attorney-in-fact, to sign and
file on his or her behalf, individually and in each capacity stated below, any
pre-effective or post-effective amendment hereto or any registration statement
relating to the offering covered hereby filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------- -------------------
<C> <S> <C>
/s/ DAVID R. PARKER Chairman of the Board of September 5, 1996
...................................... Directors (principal executive
David R. Parker officer)
/s/ THOMAS C. HIGHLAND President, Chief Executive September 5, 1996
...................................... Officer and Director
Thomas C. Highland
/s/ DANIEL J. ADZIA Vice-Chairman, Chief Marketing September 5, 1996
...................................... Officer and Director
Daniel J. Adzia
/s/ WILLIAM F. EVANS Executive Vice President, Chief September 5, 1996
...................................... Financial Officer
William F. Evans (principal financial officer)
/s/ MARCELINO ITURREY Vice President, Controller September 5, 1996
...................................... (principal accounting officer)
Marcelino Iturrey
/s/ GERALD W. SCHWARTZ Director September 5, 1996
......................................
Gerald W. Schwartz
/s/ ANTHONY R. MELMAN Director September 5, 1996
......................................
Anthony R. Melman
</TABLE>
II-6
<PAGE> 105
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL E. TREACY Director September 5, 1996
......................................
Michael E. Treacy
/s/ MICHAEL CARPENTER Director September 5, 1996
......................................
Michael Carpenter
/s/ ANTHONY MUNK Director September 5, 1996
......................................
Anthony Munk
/s/ C. LEE JOHNSON Director September 5, 1996
......................................
C. Lee Johnson
/s/ R. GEOFFREY P. STYLES Director September 5, 1996
......................................
R. Geoffrey P. Styles
</TABLE>
II-7
<PAGE> 106
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET INFORMATION
DECEMBER 31, 1994 AND DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,118 $ 939
Due from subsidiaries.................................................. -- 96
Other current assets................................................... 58 --
------- -------
Total current assets........................................... 1,176 1,035
Investment in subsidiaries............................................... 28,160 58,935
Deferred income taxes.................................................... 291 394
------- -------
Total assets................................................... $29,627 $60,364
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued liabilities.................................................... $ 10 $ 110
------- -------
Total current liabilities........................................... 10 110
Subordinated notes payable............................................... -- 9,418
Convertible subordinated notes payable................................... -- 1,415
Due to subsidiaries...................................................... 7,074 --
------- -------
Total liabilities.............................................. 7,084 10,943
------- -------
Commitments and contingencies
Stockholders' equity:
Common Stock........................................................... 1 1
Additional paid-in-capital............................................. 23,526 51,889
Retained deficit....................................................... (984) (2,540)
Accumulated foreign currency translation adjustments................... -- 71
------- -------
Total stockholders' equity..................................... 22,543 49,421
------- -------
Total liabilities and stockholders' equity..................... $29,627 $60,364
======= =======
</TABLE>
See accompanying notes to condensed financial information.
S-1
<PAGE> 107
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) INFORMATION
FOR THE YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Revenues.................................................. $ -- $ -- $ --
Expenses.................................................. -- -- 3
Interest expense.......................................... (413) (571) (729)
Interest income........................................... 27 55 53
Equity in losses of subsidiaries.......................... (938) (3,513) (1,294)
------- ------- -------
Loss before income taxes................................ (1,324) (4,029) (1,973)
Income tax benefit........................................ 497 1,647 417
------- ------- -------
Net loss................................................ (827) (2,382) (1,556)
Retained earnings (deficit), beginning of year............ 2,225 1,398 (984)
------- ------- -------
Retained earnings (deficit), end of year.................. $ 1,398 $ (984) $ (2,540)
======= ======= =======
</TABLE>
See accompanying notes to condensed financial information.
S-2
<PAGE> 108
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOW INFORMATION
FOR THE YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
(52 WEEKS) (53 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $ (827) $ (2,382) $ (1,556)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Undistributed losses of subsidiaries................. 441 2,062 914
Dividends received from subsidiaries................. -- 561 7,208
Deferred income taxes................................ (98) (193) (103)
Amortization of note discount........................ -- -- 592
Changes in operating assets and liabilities:
(Increase) decrease in other current assets........ (54) (4) 58
Increase in accrued liabilities.................... -- 10 100
------- ------- --------
Net cash provided by (used in) operating
activities.................................... (538) 54 7,213
------- ------- --------
Cash flows from investing activities:
Capital contributions to subsidiaries................... (6,497) (2) (38,826)
Advances to/from subsidiaries........................... 7,059 15 (7,170)
------- ------- --------
Net cash provided by (used in) investing
activities.................................... 562 13 (45,996)
------- ------- --------
Cash flows from financing activities:
Issuance of long-term debt.............................. -- -- 12,326
Repayments of long-term debt............................ -- -- (2,085)
Proceeds from issuance of common stock.................. 1,382 76 28,585
Payments to acquire and retire treasury stock........... (16) (415) (222)
------- ------- --------
Net cash provided by (used in) financing
activities.................................... 1,366 (339) 38,604
------- ------- --------
Net increase (decrease) in cash and cash
equivalents................................... 1,390 (272) (179)
Cash and cash equivalents, beginning of year.............. -- 1,390 1,118
------- ------- --------
Cash and cash equivalents, end of year.................... $ 1,390 $ 1,118 $ 939
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................... $ -- $ -- $ 41
======= ======= ========
Income taxes, net of refunds....................... $ 14 $ 4 $ 1
======= ======= ========
</TABLE>
See accompanying notes to condensed financial information.
S-3
<PAGE> 109
PROSOURCE, INC. (PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
The accompanying condensed financial information should be read in
conjunction with the ProSource, Inc. Consolidated Financial Statements.
Capitalized terms are as defined in the ProSource, Inc. Consolidated Financial
Statements.
(2) LONG-TERM DEBT
Total debt of the Registrant (Parent only) consists of two agreements at
December 30, 1995. A $10 million subordinated note is payable to The
Martin-Brower Company. Interest on this note is payable semiannually, with rates
ranging from zero to 13 percent, beginning March 31, 1998. The principal is
payable in full on March 31, 2002. This note has been discounted to reflect a
constant interest rate of 9 percent through its maturity.
A $3.5 million convertible subordinated note was payable to Onex, with
interest at prime rate (8.5 percent at December 30, 1995), compounded annually
and due, together with the principal, on April 1, 2005. During the year ended
December 30, 1995, the Parent paid $2.1 million of such note to Onex resulting
in an outstanding balance of $1.4 million at December 30, 1995. On February 1,
1996, Onex converted $0.8 million of the note into 800 shares of the Parent's
common stock and the remaining balance on the note of approximately $0.6 million
plus accrued interest was paid to Onex.
The subsidiaries' Loan and Security Agreements include certain restrictive
covenants which, among other things, limit the flow of funds to the Parent.
Substantially all of the subsidiaries' assets are pledged to secure the
revolving credit facility and term loans, as well as a pledge by the Parent of
all of the issued and outstanding common stock of the subsidiaries. In addition,
the Parent has guaranteed payment of all amounts due under the revolving credit
facility and term loan. See Note 6 of the Notes to Consolidated Financial
Statements for further discussion of the restrictions contained in this loan
agreement.
(3) SUBSEQUENT EVENT
In September 1996, the Parent filed a Registration Statement with the
Securities and Exchange Commission with respect to an initial public offering.
The net proceeds of the offering will be used to repay certain indebtedness of
the Parent and its subsidiaries.
S-4
<PAGE> 110
PROSOURCE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 25, 1993, DECEMBER 31, 1994 AND DECEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE, December 31, 1992....................................................... $ 1,818
Additions charged to costs and expenses....................................... 766
Recoveries.................................................................... --
Write-offs.................................................................... (56)
-----
BALANCE, December 25, 1993....................................................... 2,528
Additions charged to costs and expenses....................................... 2,427
Recoveries.................................................................... 190
Write-offs.................................................................... (2,234)
-----
BALANCE, December 31, 1994....................................................... 2,911
Acquired allowance of NAD..................................................... 1,893
Additions charged to costs and expenses....................................... 1,845
Recoveries.................................................................... 153
Write-offs.................................................................... (4,217)
-----
BALANCE, December 30, 1995....................................................... $ 2,585
=====
</TABLE>
S-5
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
- -------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement(1)........................................
3.1 Form of Restated Certificate of Incorporation of the Company(1)..........
3.2 Form of Amended and Restated By-Laws of the Company(1)...................
4.1 Form of Certificate for Class A Common Stock(1)..........................
5.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP(1)................
10.1 Amended and Restated Management Shareholders Agreement, dated May 31,
1995, among ProSource, Inc., Onex DHC LLC and the individuals party
thereto from time to time(1).............................................
10.2 Amended and Restated Director Shareholders Agreement, dated as of May 31,
1995, among ProSource, Inc., Onex DHC LLC and the individuals party
thereto from time to time(1).............................................
10.3 Stock Subscription Warrant, dated March 31, 1995, issued by ProSource,
Inc. in favor of The Martin-Brower Company to subscribe for
shares of Common Stock...................................................
10.4 Agreement, dated November 10, 1994, for the Purchase and Sale of the
National Accounts Division of The Martin-Brower Company and Martin-Brower
of Canada, Ltd., among ProSource, Inc., The Martin-Brower Company and
Martin-Brower of Canada, Ltd.............................................
10.5 Purchase Agreement Amendment, dated February 24, 1995, among The Martin-
Brower Company, Martin-Brower of Canada, Ltd. and ProSource, Inc.........
10.6 Second Purchase Agreement Amendment, dated February 28, 1995, among The
Martin-Brower Company, Martin-Brower of Canada, Ltd. and ProSource,
Inc......................................................................
10.7 Third Purchase Agreement Amendment, dated March 31, 1995, among The
Martin-Brower Company, Martin-Brower of Canada, Ltd. and ProSource,
Inc......................................................................
10.8 Loan and Security Agreement, dated as of March 31, 1995, among ProSource
Services Corporation, BroMar Services, Inc., ProSource Distribution
Services Limited, the Financial Institutions party thereto and
NationsBank of Georgia, N.A., The First National Bank of Boston and
Shawmut Capital Corporation, as Co-Agents, and NationsBank of Georgia,
N.A., as Administrative Agent............................................
10.9 Amendment No. 1, dated as of December 29, 1995, to Loan and Security
Agreement, among ProSource Services Corporation, BroMar Services, Inc.,
ProSource Distribution Services Limited, the Financial Institutions party
thereto and NationsBank of Georgia, N.A., The First National Bank of
Boston and Shawmut Capital Corporation, as Co-Agents, and NationsBank of
Georgia, N.A., as Administrative Agent...................................
10.10 Amendment No. 2 and Waiver, dated as of March 28, 1996, to Loan and
Security Agreement, among ProSource Services Corporation, BroMar
Services, Inc., ProSource Distribution Services Limited, the Financial
Institutions party thereto and NationsBank, N.A. (South), The First
National Bank of Boston and Fleet Capital Corporation, as Co-Agents, and
NationsBank, N.A. (South), as Administrative Agent.......................
10.11 Pledge Agreement, made as of March 31, 1995, by ProSource, Inc. in favor
of NationsBank of Georgia, N.A., as Administrative Agent.................
10.12 Pledge Agreement, made as of March 31, 1995, by ProSource Services
Corporation in favor of NationsBank of Georgia, N.A., as Administrative
Agent....................................................................
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
- -------- ----------
<C> <S> <C>
10.13 Subordination Agreement, dated as of March 31, 1995, made by ProSource
Services Corporation and Onex Corporation in favor of NationsBank of
Georgia, N.A., as Administrative Agent...................................
10.14 Unconditional Guaranty, made as of March 31, 1995, by ProSource, Inc. in
favor of NationsBank of Georgia, N.A., as Administrative Agent...........
10.15 Subordinated Note, dated March 31, 1995, executed by ProSource, Inc. and
payable to the order of The Martin-Brower Company in the original
principal amount of $10,000,000..........................................
10.16 Subordinated Note, dated March 31, 1995, executed by ProSource Services
Corporation and payable to the order of Onex Ohio Holdings, Inc. in the
original principal amount of $15,000,000.................................
10.17 Form of Distribution Agreement, dated as of June 30, 1992, between Burger
King Corporation and ProSource Services Corporation......................
10.18 Form of Amendment Agreement, dated as of June 30, 1992, between Burger
King Corporation and ProSource Services Corporation......................
10.19 Addendum to Forms of Distribution Agreement and Amendment Agreement......
10.20 Amended and Restated Employment Agreement, dated as of July 1, 1992,
between ProSource Services Corporation and David R. Parker(1)............
10.21 Amended and Restated Employment Agreement, dated July 1, 1992, between
ProSource Services Corporation and Thomas C. Highland(1).................
10.22 Employment Agreement, dated as of April 1, 1995, between ProSource
Services Corporation and Daniel Adzia....................................
10.23 Employment Agreement, dated July 1, 1992, between ProSource Services
Corporation and Paul A. Garcia de Quevedo................................
10.24 Employment Agreement, dated as of July 1, 1995, between ProSource
Services Corporation and Dennis Andruskiewicz............................
10.25 Employment Agreement, dated April 1, 1994, between ProSource Services
Corporation and John E. Foley............................................
10.26 Amended Management Option Plan (1995)(1).................................
10.27 1996 Stock Option Plan(1)................................................
10.28 Truck Lease and Service Agreement, dated as of January 1, 1993, between
Ryder Truck Rental, Inc. and ProSource Services Corporation (1)..........
21.1 Subsidiaries of the Company..............................................
23.1 Consent of KPMG Peat Marwick LLP.........................................
23.2 Consent of Price Waterhouse LLP..........................................
23.3 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included in
Exhibit 5.1)(1)..........................................................
24.1 Powers of Attorney (included on signature page)..........................
27.1 Financial Data Schedule..................................................
</TABLE>
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(1) To be filed by amendment.
<PAGE> 1
Exhibit 10.3
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THIS WARRANT CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR
TRANSFERRED, UNLESS AND UNTIL THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION TO
SUCH REGISTRATION IS THEN AVAILABLE.
No. W-1 Warrant to Subscribe for 2,834.25 Shares
of Common Stock
STOCK SUBSCRIPTION WARRANT
To Subscribe for and Purchase Common Stock of
PROSOURCE, INC.
ProSource, Inc., a Delaware corporation (the "Company"),
hereby certifies that, for value received, The Martin-Brower Company
("Martin-Brower") or its registered assigns is entitled to subscribe for and
purchase from the Company at an exercise price equal to $1,234.89 per share
(subject to adjustment as provided in this Warrant, the "Exercise Price"),
2,834.25 duly authorized, validly issued, fully paid and nonassessable shares of
the Company's Common Stock (as hereinafter defined) and to exercise the other
rights, powers and privileges hereinafter provided, all on the terms and
conditions set forth below. The Exercise Price and number of shares of Common
Stock (and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided in Section 3. The rights
of the holder of this Warrant to exercise this Warrant shall expire at the end
of the Normal Exercise Period provided in Section 1, or, if earlier, upon
exercise of this Warrant in full by the holder of this Warrant or upon the
consummation of an Exercise Event.
This Warrant is subject to the following provisions, terms and
conditions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period.
This Warrant may be exercised (a) during the period commencing
on April 1, 1997 and ending on March 31, 2000 (the "Normal Exercise Period"),
(b) during an Accelerated Exercise Period (as defined in Section 7) and (c)
immediately prior to the consummation of an Exercise Event (as defined below),
whichever shall first occur. However, this Warrant shall terminate and cease to
be exercisable upon consummation of an Exercise Event. Any exercise of this
Warrant by the registered holder may be for the purchase of all or any portion
of the shares of Common Stock and Other Securities for which it is then
exercisable.
<PAGE> 2
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised by the
registered holder when the following actions have been completed and all of the
following items have been delivered to the Company (the "Exercise Date"):
(a) give a notice of exercise, in substantially the
form of Exhibit A hereto (the "Notice of Exercise"), to the Company;
(b) surrender this Warrant at the principal office of
the Company (or such other office or agency as the Company may designate by
notice to the holder hereof);
(c) at the option of the registered holder hereof,
(i) pay the Exercise Price to the Company by bank wire transfer or by certified
or official bank check, in immediately available funds, to an account specified
by the Company by notice to the holder of this Warrant not less than three
business days prior to the proposed date of purchase; or (ii) if this Warrant
and the Subordinated Note due March 31, 2002 (the "Note") of the Company, are
both held by a member of the Dalgety Group, the registered holder hereof may, at
its option, by written notice accompanying the Notice of Exercise, apply the
Note at its then fair market value (as determined by an independent financial
advisor mutually selected by the Company and the registered holder whose
determination shall be final and binding on the parties and whose fees and
expenses shall be borne equally by the holder and the Company) to the payment of
the Exercise Price, in which case the holder shall deliver the Note to the
Company with the Notice of Exercise. In lieu of delivering the Exercise Price as
set forth in clauses (i) and (ii) of this Section 1B(i)(c), the holder of this
Warrant may instruct the Company in writing ("Notice of Conversion") to deliver
to the holder (without payment by the holder of any Exercise Price or of any
other cash or consideration) that number of shares of Common Stock equal to the
quotient obtained by dividing: (x) the value of this Warrant at the time the
conversion right is exercised (determined by subtracting the aggregate Exercise
Price of the shares of Common Stock issuable upon exercise of this Warrant in
effect immediately prior to the exercise of the conversion right from the
aggregate Current Market Price of the shares of Common Stock issuable upon
exercise of this Warrant immediately prior to the exercise of the conversion
right) by (y) the Current Market Price of one share of Common Stock immediately
prior to the exercise of the conversion right. The Notice of Conversion may be
given by completing the appropriate box in the Exercise Notice.
If the Exercise Price is paid in accordance with clause (c)
(ii) above and the Exercise Price exceeds the fair market value of the Note (as
so determined), the Note shall be cancelled and the holder shall pay the excess
in immediately available funds as provided above. If the Exercise Price is less
than the fair market value of the Note (as so determined), the principal of and
accrued interest on the Note as of the Exercise Date shall be reduced to the
respective amounts obtained by multiplying such principal and accrued interest
as of the Exercise Date by
2
<PAGE> 3
(x) 1.0 minus (y) a fraction, the numerator of which is the Exercise Price and
the denominator of which is the fair market value of the Note (as so
determined); and
(d) exercise and deliver to the Company a
shareholders' agreement in the form of Exhibit B (the "Shareholders Agreement").
(ii) The shares of Common Stock and Other Securities issuable
upon exercise of this Warrant shall be deemed to be issued to the registered
holder hereof as the record owner of such shares and Other Securities as of the
close of business on the Exercise Date (in the case of an exercise during the
Normal Exercise Period), or upon the effectiveness of such exercise as provided
in Section 7B following compliance with this Section 1 (in the case of an
exercise during the Accelerated Exercise Period) or immediately prior to the
consummation of an Exercise Event, as applicable. The Company shall, within five
days after satisfaction of the conditions set forth in clauses (a)-(d) of
Section 1B(i) above, execute and deliver or cause to be executed and delivered,
in accordance with Exercise Notice, a certificate or certificates representing
the aggregate number of shares of Common Stock and Other Securities, not
exceeding the maximum number then issuable upon exercise of this Warrant
specified in said notice. The certificate or certificates so delivered shall be
in such denominations as may be specified in said notice and shall be issued in
the name of such holder or such other name as shall be designated in said
notice. Such certificate or certificates shall be deemed to have been issued,
and such holder or holders or any other person so designated to be named therein
shall be deemed for all purposes to have become a holder of record of such
shares and Other Securities, as of the date said notice is received by the
Company as aforesaid. If this Warrant shall have been exercised only, in part,
the Company shall, at the time of delivery of said certificate or certificates,
deliver to such holder a new Warrant evidencing the rights of such holder to
purchase the remaining shares of Common Stock and Other Securities called for by
this Warrant, which new Warrant shall in all other respects be identical to this
Warrant, or, at the request of such holder, appropriate notation may be made on
this Warrant and the same returned to such holder.
(iii) If an exercise of this Warrant is made in connection
with an Exercise Event, such exercise shall be conditioned upon the consummation
of such Exercise Event, so that such exercise shall not be deemed to be
effective until immediately prior to the consummation of such Exercise Event
and, if such Exercise Event is not consummated, such exercise shall be deemed
ineffective. The Company shall give the registered holder of this Warrant notice
of an Exercise Event not less than thirty (30) days prior to the consummation
thereof.
(iv) Upon any exercise of this Warrant, the Company may
require customary representation and warranties from the holder of this Warrant
to assure that the issuance of the shares of Common Stock and Other Securities
issuable upon exercise of this Warrant shall not require registration or
qualification under the Securities Act or any state securities laws.
3
<PAGE> 4
(v) The issuance of certificates for shares of Common Stock
and Other Securities upon exercise of this Warrant will be made without charge
to the holder for any stock transfer or issuance tax in respect thereof or any
other costs, expenses or charges incurred by the Company in connection with such
exercise and the related issuance of the shares of Common Stock or Other
Securities, unless such certificates are issued in the name of any Person other
than the holder of this Warrant, in which event the holder shall bear any
resulting tax, costs, expenses or charges.
SECTION 2. Shares to Be Fully Paid; Reservation of Sharers;
Continuous Obligation. All shares of Common Stock and Other Securities which may
be issued upon the exercise of this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable. Until expiration or
cancellation of this Warrant, the Company will at all times have authorized and
reserved for the purpose of issuance upon exercise of the rights evidenced by
this Warrant a sufficient number of shares of its Common Stock and Other
Securities to provide for the exercise of this Warrant.
The Company will, at the time of any exercise of this Warrant,
in whole or in part, upon request of the holder hereof, acknowledge in writing,
in form reasonably satisfactory to such holder, its continuing obligation to
such holder in respect of all rights (including, without limitation, any right
to registration of the shares of Common Stock and Other Securities issued upon
such exercise) to which such holder shall continue to be entitled after such
exercise in accordance with this Warrant; provided, however, that the failure of
such holder to make any such request shall not affect the continuing obligations
of the Company to such holder in respect of such rights.
SECTION 3. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 3, and the number of shares obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 3.
3A. Dividends, Reclassifications, etc. If, at any time when
this Warrant is outstanding, the Company shall (i) pay a dividend or make any
other distribution, upon any shares of Common Stock or Other Securities then
issuable upon exercise of this Warrant, payable in Common Stock, Options,
Convertible Securities or other securities of which the Company is the issuer,
(ii) issue Common Stock, Options, Convertible Securities or other securities of
which the Company is the issuer for no consideration, (iii) reclassify, split,
combine or change outstanding shares of Common Stock or Other Securities then
issuable upon exercise of this Warrant, or (iv) consolidate or merge the Company
with or into another corporation, or sell all or substantially all of its
assets, on terms such that holders of shares of Common Stock or Other Securities
then issuable upon exercise of this Warrant receive Common Stock, Options,
Convertible Securities or other securities of which the Person surviving such
merger or consolidation, or purchasing such
4
<PAGE> 5
assets, is the issuer, the Company shall, in each case, give to the registered
holder of this Warrant twenty (20) days' prior written notice thereof, and the
registered holder of this Warrant shall be entitled to receive, upon exercise of
this Warrant, the kind and amount of securities and other consideration that a
holder of the securities issuable upon exercise of this Warrant immediately
prior to such event would have received upon such event if this Warrant had been
exercised immediately prior to such event plus any shares of Common Stock and
Other Securities issuable upon exercise of this Warrant that would have remained
outstanding after such event if this Warrant had been exercised immediately
prior to such event.
3B. Notice of Adjustment. Not later than 30 days after any
event described in Section 3A, the Company shall deliver to the registered
holder of this Warrant written notice setting forth the number of shares of
Common Stock and Other Securities issuable upon exercise of this Warrant,
immediately after such event, setting forth in reasonable detail and certifying
the calculation of such adjustment; provided that if the registered holder of
this Warrant objects to such determination by the Company within ten days of its
receipt of such notice and the Company and such holder fail to agree on such
determination within five days after good faith negotiations, the Company and
such holder shall mutually select an independent financial adviser to make such
determination. The determination of such advisor shall be final and binding on
the parties, and the fees and expenses of such financial advisor shall be borne
equally by the Company and the holder of this Warrant.
SECTION 4. Registration. If any shares of Common Stock or
Other Securities issuable upon exercise of this Warrant require registration
with or approval of any governmental authority under any United States federal
or state law, or listing on any domestic securities exchange, before such shares
or securities may be issued to the holder of this Warrant upon exercise, the
Company will, at its expense, use its best efforts to cause such shares or
securities to be duly registered or approved or listed on the relevant domestic
securities exchange, as the case may be, and, if shares or securities of the
same class as the Common Stock and Other Securities issuable upon exercise of
this Warrant are listed on a domestic securities exchange, the Company will use
its best efforts to cause the shares or securities of such class to be listed on
such exchange. Shares of Common Stock and Other Securities issued upon exercise
of this Warrant shall be registered by the Company under the Securities Act or
similar statute then in force (and registered or qualified under any applicable
state blue sky or securities laws) only if required by Section 7C and subject to
the conditions stated in Section 7C.
SECTION 5. No Voting Rights. This Warrant shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the
Company.
SECTION 6. Transfer; Registration of Transfer.
6A. Restrictions on Transfer. The registered holder hereof, by
accepting this Warrant, represents, warrants and agrees that this Warrant is
being acquired for its own account
5
<PAGE> 6
and this Warrant and the shares or securities issued upon exercise of this
Warrant will not be transferred in violation of the securities laws of the
United States, any state of the United States or any other applicable
jurisdiction. The Company may refuse to register any transfer by the registered
holder of this Warrant or of the shares of Common Stock or Other Securities
issued upon exercise of this Warrant on its transfer books if such transfer
would, in the written opinion of counsel for the Company, violate the securities
laws of the United States or any state of the United States or any other
applicable jurisdiction, this Section 6 or the Shareholder's Agreement unless
such holder provides an opinion of McDermott, Will & Emery or other counsel
reasonably acceptable to the Company as to compliance with the foregoing. This
Warrant may be transferred in whole or in part and may only be transferred to a
member of the Dalgety Group or in a sale to a Qualified Purchaser, following
compliance with Section 6B. Any purported transfer in any manner contrary to the
terms of this Warrant shall be void. For purposes of this Warrant, the term
"transfer" shall mean any sale, exchange, assignment, gift, bequest, pledge,
creation of a lien or security interest, encumbrance on the voting rights, or
other disposition, whether voluntary or involuntary or by operation of law,
affecting title to or possession of this Warrant.
6B. Right of First Refusal. If the registered holder of this
Warrant desires to transfer this Warrant in whole or in part to a Qualified
Purchaser pursuant to a bona fide written offer (an "Offer") to purchase this
Warrant for cash, the registered holder shall give Onex and the Company written
notice thereof ("Notice"), attaching a copy of such Offer. If a Notice is given,
Onex or any member of the Onex Group designated by it or, at Onex's option, the
Company, shall then have the option exercisable by notice to the registered
holder within 30 days after the date of receipt of the Notice, to purchase this
Warrant at the same price and on the same terms as the Offer. If the option is
not exercised within such 30-day period, the registered holder shall have the
right at any time within 60 days after the expiration of the 30-day option
period provided for in this Section 6B, to sell this Warrant to the proposed
transferee at the price and on the other terms set forth in the Offer; any
transferee shall be bound by the provisions of this Warrant, including, but not
limited to, this Section 6B. If this Warrant is not sold to the proposed
transferee during such 60-day period, this Warrant may not thereafter be
transferred unless the registered holder again complies with this Section 6B.
The closing of any purchase and sale of this Warrant pursuant to exercise by the
Company, Onex or a member of the Onex Group of a right under this Section 6B
shall be held at the principal offices of the Company on a date designated by
the purchaser, but in any event not later than 30 days after the date of the
Notice. At the closing, the holder shall deliver to the purchaser this Warrant
duly endorsed for transfer and free and clear of all claims, liens, encumbrances
and security interests and the purchaser shall deliver to the holder the
consideration payable upon closing.
6C. Warrant Register. The Company shall keep at its principal
office a register for registration, transfer and exchange of this Warrant. The
Company shall not at any time, except upon dissolution, liquidation or
winding-up of the Company, close such register so as to result in preventing or
delaying the exercise, exchange or transfer of this Warrant. Upon surrender of
this Warrant, the transfer of this Warrant, if permitted by this Section 6, is
registrable by the registered
6
<PAGE> 7
holder hereof, in person or by his attorney duly authorized in writing on the
registry books of the Company, at the principal office of the Company, without
payment of any charge, other than a sum sufficient to reimburse the Company for
any tax, or other governmental charge incident thereto. Upon any such
registration of transfer, a new Warrant for the aggregate number of shares
transferred by the holder hereof, will be issued to the transferee in exchange
herefor. Prior to due presentment for registration of transfer, the Company may
deem and treat the person in whose name this Warrant shall be registered upon
the registry books of the Company as the absolute owner of this Warrant for all
purposes (notwithstanding any notation of ownership or other writing hereon),
and the Company shall not be affected by any notice to the contrary.
SECTION 7. Accelerated Exercise; Registration.
7A. Proposal to Register. So long as this Warrant is
outstanding, on each occasion on which the Company proposes to register shares
of Common Stock or Other Securities of the same class as the shares and
securities then issuable upon exercise of this Warrant under the Securities Act
(including a registration in accordance with Section 7C(i)), the Company will
give notice (the "Offering Notice") to the registered holder of this Warrant of
its intention to do so. The registered holder of this Warrant shall then have
the right to exercise this Warrant during the 10-day period commencing with the
delivery of the Offering Notice (the "Accelerated Exercise Period").
A Notice of Exercise pursuant to this Section 7A may be
accompanied by a request to have shares included in the registration statement
contemplated by the Offering Notice under the circumstances contemplated by, and
in accordance with, Section 7C(i). A Public Offering Notice (as hereinafter
defined) given pursuant to Section 7C(i) while this Warrant is outstanding shall
also constitute an Offering Notice for purposes of this Section 7A.
7B. Exercise. The registered holder of this Warrant, upon
delivery to the Company of a notice of exercise pursuant to Section 7A and
compliance with Section 1, shall be deemed to have exercised this Warrant
concurrently with the consummation of the Public Offering and only to the extent
Holder's Shares are included therein; such exercise shall be effective as of,
and shall be conditioned upon the occurrence of, the closing of the Public
Offering. If for any reason the closing of the Public Offering does not occur,
the holder's exercise of this Warrant shall be void.
7C. Registration Rights. (i) If the Company proposes to effect
an offering of securities registered under the Securities Act (a "Public
Offering") which involves an offering of securities of the same class as any of
the shares of Common Stock or Other Securities ("Holder's Shares") then issuable
upon exercise of this Warrant or which have been issued upon exercise of this
Warrant (and which have not been transferred except to a member of the Dalgety
Group following receipt upon exercise), it shall give written notice of its
intention to do so (the "Public Offering Notice") to the registered holder of
this Warrant or, if this Warrant shall have been exercised, to the registered
holder of Holder's Shares who effected such exercise (the
7
<PAGE> 8
"Warrantholder"); provided that the Company shall not be required to give a
Public Offering Notice if the registration of securities of the Company being
proposed cannot, under then existing law and regulations, be combined (on the
registration form proposed to be used) with a registration of sales of Holder's
Shares under the Securities Act. If a Public Offering Notice is given, then, on
the written request (a "Holder's Request") of the Warrantholder given no later
than 30 days after receipt of the Public Offering Notice if the Company is not
then a public company subject to the reporting requirements of the Exchange Act
(a "Public Company") or 10 days after receipt of the Public Offering Notice if
the Company is then a Public Company (which request shall specify the number of
Holder's Shares intended to be sold or disposed of by the Warrantholder (such
notice may specify that the Warrantholder intends to sell as many Holder's
Shares as it has the right to register), and describe the nature of any proposed
sale or other disposition thereof (if the offering described in the Public
Offering Notice is to be underwritten, the Warrantholder shall be required to
make its offering through the same underwriters and to sign a customary
underwriting agreement for transactions of this type)), the Company will, at its
expense (excluding commissions and expenses payable to underwriters in respect
of Holder's Shares and the fees of any counsel or other advisors engaged by the
Warrantholder), use its best efforts to cause the registration under the
Securities Act of the Holder's Shares stated in the Holder's Request, or, if
less, the Pro Rata Number of such Holder's Shares, for disposition in accordance
with the intended method of disposition as stated in the Holder's Request.
However, the Company may at any time delay, abandon or withdraw any such
registration statement without any liability or obligation to the Warrantholder.
The Company shall not be required to register Holder's Shares pursuant to this
Section 7C(i) in connection with any proposed registration to be sold through
underwriters, if, in the opinion of the managing underwriter, assuming the
inclusion of all securities proposed to be sold by the Company, the inclusion of
securities to be offered by a holder of the same class and number as such
Holder's Shares would materially and adversely affect the distribution of the
shares, but only to the extent such inclusion would materially and adversely
affect the distribution of the shares. In the case of any registration pursuant
to this Section 7C(i) in which securities to be sold by any Person other than
the Company are to be sold, the holders of shares of the class being registered
shall be entitled to register such number of shares as, in the opinion of the
managing underwriter, may reasonably be sold by holders thereof (as
distinguished from the Company) without materially and adversely affecting the
offering in accordance with their respective Pro Rata Number of such shares. As
used in this Section 7C, the term "Pro Rata Number" shall mean the product of
(x) the total number of securities of the class being offered held (or to be
held upon an exercise of this Warrant with respect to which the Warrantholder
has complied with Section 1) by the Warrantholder or other holder, as the case
may be, and requested to be registered and (y) a fraction, the numerator of
which is the number of securities of the class being offered by selling security
holders which are to be registered and the denominator of which is the number of
securities of the same class which are requested to be registered by all holders
thereof, including the Warrantholder (as distinguished from the Company).
7D Company's Obligations in Registration. (i) If and whenever
the Company is obligated by the provisions of this Section 7 to effect the
registration of Holder's Shares under
8
<PAGE> 9
the Securities Act, the Company, as expeditiously as possible (but subject to
any delay resulting from the failure of any Warrantholder participating in the
registration to comply with Section 7F below),
(a) prepare and file with the Commission a
registration statement with respect to such Holder's Shares and use its
best efforts to cause such registration statement to become and remain
effective during the period required for the distribution of the
securities covered by the registration statement; provided, however,
that in the event that the Holder's Shares covered by such registration
statement are not to be sold to or through underwriters acting for the
Company, the Company shall not be required to keep such registration
statement effective, or to prepare and file any amendment or supplement
thereto, after the expiration of 180 days following the date on which
such registration statement becomes effective under the Securities Act
or such longer period during which the Commission requires that such
registration statement be kept effective with respect to any of the
Holder's Shares so registered;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all Holder's
Shares covered by such registration statement;
(c) furnish to the Warrantholder for whom such
Holder's Shares are registered or are to be registered such number of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as
such Warrantholder may reasonably request in order to facilitate the
disposition of such Holder's Shares;
(d) use its best efforts to register or qualify the
Holder's Shares covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the other shares
covered by the registration statement;
(e) if at any time a prospectus relating to the
Holder's Shares covered by such registration statement is required to
be delivered under the Securities Act and any event occurs as a result
of which the prospectus included in such registration statement as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
prospectus to comply with the Securities Act, the Company promptly will
prepare and file with
9
<PAGE> 10
the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance
and shall use its best efforts to cause any amendment of such
registration statement containing an amended prospectus to be made
effective as soon as possible.
7E Payment of Registration Expenses. The costs and expenses of
all registrations and qualifications under the Securities Act and the Exchange
Act pursuant to Section 7C hereof, and of all other actions which the Company is
required to take or effect pursuant to this Section 7 shall be paid by the
Company (including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company and
expenses of any special audit incident to or required in connection with any
such registration) (collectively, "Registration Expenses"); provided, however,
that the Company shall not be obligated to pay the fees and disbursements of
counsel representing the Warrantholder or the underwriters' discount or
commission in respect of such Holder's Shares.
7F Information from Warrantholders. Notices and requests
delivered by the Warrantholder to the Company pursuant to this Section 7 shall
contain such information regarding the Holder's Shares and the intended method
of disposition thereof as shall reasonably be required in connection with the
action to be taken; provided, that notwithstanding any other provision contained
herein.
7G Company's Indemnification. In the event of any registration
under the Securities Act of Holder's Shares pursuant to this Section 7, the
Company hereby agrees to indemnify and hold harmless the Warrantholder disposing
of such Holder's Shares and each other person, if any, who controls such
Warrantholder within the meaning of Section 15 of the Securities Act and each
other person (including any underwriter) who participates in the offering of
such Holder's Shares, against any loss, claim, damage or liability, joint or
several, to which such Warrantholder or controlling person or participating
person may become subject under the Securities Act, the Exchange Act or other
Federal or state law or regulation, at common law or otherwise, to the extent
that such loss, claim, damage or liability (or proceeding in respect thereof)
arises out of or is based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Holder's Shares were registered under the Securities Act, in any preliminary
prospectus or final prospectus contained therein, or in any amendment or
supplement thereto, or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse such
Warrantholder and each such controlling person or participating person for any
legal or other expense reasonably incurred by such Warrantholder or such
controlling person or participating person in connection with investigating or
defending any such loss, claim, damage, liability or proceeding; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon (i) an untrue statement or alleged untrue statement made in or an omission
or alleged omission in, such registration statement, said
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<PAGE> 11
preliminary or final prospectus or said amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by an
instrument duly executed by such Warrantholder or such controlling or
participating person, as the case may be, specifically for use in the
preparation thereof or (ii) unless the Warrantholder is selling through
underwriters selected by the Company, any claim by a purchaser of such
Warrantholder's Holder's Shares who did not receive a final prospectus in a
timely basis based on any untrue statement, alleged untrue statement, omission
or alleged omission in a preliminary prospectus that was corrected in the final
prospectus. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
7H Warrantholder's Indemnification. It shall be a condition of
the Company's obligation under this Section 7 to effect any registration under
the Securities Act that there shall have been delivered to the Company an
agreement duly executed by the Warrantholder whereby such Warrantholder agrees
to indemnify and hold harmless the Company in respect of such registration
statement against any loss, claim, damage or liability, joint or several, to
which the Company may become subject under the Securities Act, the Exchange Act
or other Federal or state law or regulation, at common law or otherwise, but
only to the extent that such loss, claim, damage or liability (or proceeding in
respect thereof) arises out of or is based upon (i) any untrue statement of a
material fact contained in any registration statement under which such Holder's
Shares were registered under the Securities Act, in any final prospectus
contained therein or in any amendment or supplement thereto, or arises out of or
is based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, which, in each such case, has been made in or omitted from such
registration statement, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by the Warrantholder specifically for use
in the preparation thereof, provided, that such indemnification by the
Warrantholder shall be limited to the net proceeds received by the Warrantholder
from the sale of his Warrant Shares in such offering or (ii) unless the
Warrantholder is selling through underwriters selected by the Company, any claim
by a purchaser of such Warrantholder's Holder's Shares who did not receive a
final prospectus in a timely basis based on any untrue statement, alleged untrue
statement, omission or alleged omission in a preliminary prospectus that was
corrected in the final prospectus. This indemnity agreement will be in addition
to any liability which any Warrantholder may otherwise have.
7I Notification of and Participation in Actions. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 7. In
case any such action is brought against any indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in and, to the extent that it may wish,
11
<PAGE> 12
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
as to assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. With respect to any loss
or liability as to which a party is entitled to indemnification hereunder, the
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if such a proceeding is settled with
such consent or if in such a proceeding a final judgment is entered for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any such loss or liability arising out of such settlement or
judgment.
7J Public Information. At any time when the Warrantholder so
entitled desires to make sales of any Holders Shares in reliance on Rule 144 or
Rule 144A promulgated under the Securities Act, the Company covenants and agrees
that either there will be available adequate current public information with
respect to the Company as required by paragraph (c) of said Rule 144 or the
Company will use its best efforts to make such information available without
delay if such information is not available. Without limiting the foregoing, the
Company will timely file with the Commission all reports required to be filed
under Sections 13 and 15(d) of the Exchange Act and will promptly furnish to the
Warrantholder, upon request a written statement that the Company has complied
with all such reporting requirements.
SECTION 8. Legend on Stock. It is understood that the Company
will cause to be placed upon certificates for shares of Common Stock and Other
Securities issued upon the exercise hereof, a legend in substantially the form
called for by the Shareholders Agreement.
SECTION 9 Preemptive Right. If the Company intends to sell for
cash shares of its capital stock, or options, warrants, rights to purchase, or
securities convertible into its capital stock (other than (i) to (or pursuant to
plans or arrangements for the benefit of) directors, officers or employees of
the Company, (ii) pursuant to options or arrangements existing on the date of
this Warrant listed on Schedule 1, (iii) in a public offering or (iv) shares of
its capital stock issued pursuant to options, warrants, rights to purchase, or
securities convertible into its capital stock issued after the date of this
Warrant), it shall give notice thereof ("Sale Notice") to the registered holder
of this Warrant describing the price and other terms of the sale in reasonable
detail. The registered holder of this Warrant shall then have the right,
exercisable by notice to the Company within 15 days after the Sale Notice is
given, to purchase its Pro Rata Share of the securities referred to in the Sale
Notice for the same price per share and on the same terms as are contained in
the Sale Notice, simultaneously with and conditioned upon the closing of the
sale referred to in the Sale Notice. As used in this Section 9, the term "Pro
Rata Share" shall mean the product of (x) the total number of securities
referred to in the Sale Notice and (y) a fraction, the numerator of which is the
number of shares of Common Stock then issuable upon exercise of this Warrant
12
<PAGE> 13
and the denominator of which is the number of shares of Common Stock then
outstanding on a fully-diluted basis (including as outstanding the shares
issuable upon exercise of this Warrant).
SECTION 10. Rights and Obligations Survive Exercise of
Warrant. The rights and obligations of the Company, of the registered holder of
this Warrant, and of the holder of shares of Common Stock or Other Securities
issued upon exercise of this Warrant, contained in Sections 6 and 7 shall
survive the exercise of this Warrant.
SECTION 11. Definitions.
"Affiliate" shall mean, with respect to a person, any person
(other than a subsidiary) that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such given person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person, whether through ownership of voting securities or
partnership or other voting interest, by contract or otherwise.
"Commission" shall mean the Securities and Exchange Commission
or any other Federal Agency then administering the Securities Act.
"Common Stock" shall mean and include the Company's authorized
Common Stock, $0.01 par value, as constituted on the date hereof, and shall also
include any capital stock of any class of the Company thereafter authorized
which shall not have priority and shall not be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company; provided
that, except as provided in Section 4, the shares issuable upon exercise of this
Warrant shall include only shares designated as Common Stock of the Company on
the date hereof or, in case of an event described in Section 4, the stock or
securities provided for in Section 4.
"Convertible Securities" shall mean any stock or securities
issued by the Company and convertible into or exchangeable for shares of Common
Stock or Other Securities.
"Current Market Price" per share of Common Stock at any date;
the average of the daily market prices over a period of 20 consecutive business
days before such date. The market price for each such business day shall be (i)
the last reported sale price on such day on the New York Stock Exchange or
American Stock Exchange if the Common Stock is then listed or admitted to
trading thereon, or, if no sale takes place on such day on any such exchange,
the average of the closing bid and asked prices on such day as officially quoted
on any such exchange, or (ii) if the Common Stock is not then listed or admitted
to trading on any such stock exchange, the market price for each such business
day shall be the last reported sales price on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), or any similar
system of
13
<PAGE> 14
automated dissemination of quotations of securities prices then in use, if so
quoted, or (iii) if not quoted in clause (ii), the average of the closing bid
and asked prices on such day in the over-the-counter market, as reported through
NASDAQ, or, if such prices are not at the time so reported, as furnished by any
member of the National Association of Securities Dealers, Inc. selected by the
Company. If and so long as there shall be no exchange or over-the-counter market
for the Common Stock during the 20-day period prior to the date on which Current
Market Price is to be determined, the Current Market Price shall be determined
by an independent financial advisor mutually selected by the Company and the
registered holder whose determination shall be final and binding on the parties
and whose fees and expenses shall be borne equally by the holder and the
Company.
"Dalgety Group" shall mean Dalgety plc and its subsidiaries.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"Exercise Event" shall mean the occurrence of any one of the
following events: (a) the acquisition by any Person other than a member of the
Onex Group of capital stock of the Company possessing the voting power under
normal circumstances to elect a majority of the Company's Board of Directors
(whether by merger, consolidation or sale or transfer of the Company's capital
stock) or (b) the sale of all or substantially all of assets of the Company and
its subsidiaries.
"Onex" shall mean Onex Corporation, a corporation organized
under the laws of Ontario, Canada.
"Onex Group" shall mean Onex and its subsidiaries.
"Options" shall mean any options, warrants or other rights
issued by the Company to purchase shares of Common Stock, Convertible Securities
or Other Securities.
"Other Securities" shall mean any securities or assets other
than Common Stock issuable upon exercise of this Warrant.
"Person" shall mean an individual, corporation, partnership,
association, trust or unincorporated organization, or a government or any agency
or political subdivision thereof.
"Qualified Purchaser" shall mean any Person not engaged in the
food distribution business or the fast food or casual dining restaurant
business.
14
<PAGE> 15
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
thereunder of the Commission or any other federal agency then administering the
Securities Act, all as the same shall be in effect at the time.
SECTION 12. Notices. All notices, requests and other
communications under this Warrant shall be in writing and shall be considered to
have been given when (a) delivered by hand, (b) sent by telecopier (with receipt
confirmed), provided that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by Express Mail,
Federal Express or other express delivery service (receipt requested), in each
case to the appropriate addresses and telecopier numbers set forth below (or to
such other addresses, telex numbers and telecopier numbers as a party may
designate as to itself by notice to the other parties):
a. If to Holder, to:
The Martin-Brower Corporation
1020 West 31st Street
Downers Grove, Illinois 60515-5508
Attention: President
Phone: (708) 663-4355
Facsimile: (708) 663-4237
with copies to:
Dalgety plc
100 George Street
London W1H 5RH
United Kingdom
Attention: Commercial Director
Facsimile: 44/71/493-0892
and
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60603-4067
Attention: C.E. Hussey II
Facsimile: (312) 984-2097
15
<PAGE> 16
(b) If to the Company, to:
ProSource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attention: President
Facsimile: (305) 529-2573
with copies to:
Onex Corporation
161 Bay Street - 49th Floor
Toronto, Ontario, Canada M5J 2S1
Attention: Gerald W. Schwartz
Facsimile: (416) 362-5765
and
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Phone: (212) 836-8201
Facsimile: (212) 836-7149
(c) If to Onex Corporation, to:
Onex Corporation
161 Bay Street - 49th Floor
P.O. Box 700
Toronto, Ontario, Canada M5J 2S1
Attention: Gerald W. Schwartz
Facsimile: (416) 362-5765
16
<PAGE> 17
with copies to:
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Phone: (212) 836-8201
Facsimile: (212) 836-7149
SECTION 13. Captions and Governing Law. The captions in this
Warrant are for convenience of reference only and shall not be given any effect
in the construction of this Warrant. This Warrant shall be governed by the
internal law of the State of New York, without regard to the conflicts of law
principles thereof.
Dated: March 31, 1995 PROSOURCE, INC
By /s/ D.R. Parker
-------------------------------------
Chairman
17
<PAGE> 18
Schedule 1
Shares outstanding, and options or arrangements
existing on the date of this Warrant referred to in
clause (ii) of Section 9.
<TABLE>
<CAPTION>
SECURITY SHARES ISSUABLE ON THE
DATE OF THIS WARRANT
<S> <C>
Shares outstanding 23,271 shares
Convertible debt held by an affiliate of Onex Corporation 3,164 shares
Convertible debt held by Malone's Products, Inc. 250 shares
Shares and convertible debt to be issued at closing 30,000 shares
Total shares and convertible debt to be outstanding 56,685 shares
</TABLE>
18
<PAGE> 19
EXHIBIT A
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To PROSOURCE, INC.
Subject to and upon the terms and conditions of the Warrant to
purchase shares of Common Stock of ProSource, Inc. originally dated March 31,
1995, the undersigned registered holder thereof hereby exercises such Warrant
for shares and agrees to make payment therefor in the amount of $________.
[The undersigned is also the registered holder of the
Subordinated Note due March 31, 2002 (the "Note") of ProSource, Inc. and hereby
elects to apply the Note to the Exercise Price (as defined in the Warrant) as
provided in Section 1B(i)(c) of the Warrant.(1)
[Subject to and upon the terms and conditions of the Warrant
to purchase shares of Common Stock of ProSource, Inc. originally dated March 31,
1995, the undersigned registered holder thereof hereby exercises such warrant
for _____ shares and agrees to make payment therefor by delivery of____ shares
to the Company.]
Dated; ________, 19
_______________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
________________
(1) This paragraph may be used only if the registered holder of the Warrant
is a member of the Dalgety Group and is also the holder of the Note.
<PAGE> 20
EXHIBIT A
SHAREHOLDERS AGREEMENT
Shareholders Agreement dated as of , 19 among
ProSource, Inc., a Delaware corporation (the "Corporation"), ____________
[majority stockholder of the Corporation] ("Onex"), and ___________________
("Holder").
Holder has acquired ___ shares of Common Stock [and ]*
(collectively, and together with any shares of capital stock or securities
convertible into shares of capital stock of the Corporation that may from time
to time be issued to the Holder with respect to those securities, "Holder's
Shares"), in accordance with the Stock Subscription Warrant, originally dated
March 31, 1995, to purchase shares of common stock of the Corporation (the
"Warrant").
The parties, intending to be legally bound hereby, subject to
the terms and conditions hereof, agree as follows:
1. Restrictions on Transfer of Shares
1.1 Holder's Shares shall not be transferred to any Person other
than a Qualified Purchaser or in violation of this Agreement, the securities
laws of the United States, the laws of any state of the United States or any
other jurisdiction. Holder's Shares may be transferred only to a member of the
Dalgety Group, pursuant to Section 1.2 or Section 2, or pursuant to Section 7C
of the Warrant. The Corporation may refuse to register any transfer of Holder's
Shares on its transfer books if such transfer would, in the written opinion of
counsel for the Corporation, violate the securities laws of the United States or
any state of the United States or any other jurisdiction or this Agreement or
any then existing agreement entered into between the registered holder of such
Holder's Shares or Holder and the Corporation or a member of the Onex Group
(unless such holder provides an opinion of McDermott, Will & Emory or other
counsel reasonably acceptable to the Corporation as to compliance with the
foregoing), or if such holder fails to furnish to the Corporation, if so
requested by the Corporation, an opinion of counsel reasonably acceptable to the
Corporation as to compliance with the foregoing. Any purported transfer in any
manner contrary to the terms of this Agreement shall be void. For purposes of
this Section 1.1 and Section 1.2, the term "transfer" shall mean any sale,
exchange, assignment, gift, bequest, pledge, creation of a lien or security
interest, or other disposition, whether voluntary or involuntary, affecting
title to or possession of, or the grant to any Person of the right to vote or
direct the voting of, Holder's Shares.
1.2 If Holder desires to transfer all of its Holder's Shares to a
Qualified Purchaser pursuant to a bona fide written offer (an "Offer") to
purchase Holder's Shares for cash, Holder shall give Onex and the Corporation
written notice thereof ("Notice"), attaching a copy of such Offer. If a Notice
is given, Onex or any member of the Onex Group designated by it or, at Onex's
________________
* Describe other securities, if any, so acquired.
<PAGE> 21
option, the Corporation, shall then have the option exercisable by notice to
Holder within 30 days after the date of receipt of the Notice, to purchase
Holder's Shares at the same price and on the same terms as the Offer. If the
exercise is not exercised within such 30-day period, Holder shall have the right
at any time within 60 days after the expiration of the 30-day option period
provided for in this Section 1.2, to sell Holder's Shares to the proposed
transferee or any other Qualified Purchaser at the price and on the other terms
set forth in the Offer; any transferee shall be bound by the provisions of this
Warrant, including, but not limited to, this Section 1.2. If Holder's Shares
shall remain unsold at the end of such 60-day period, Holder's Shares may not
thereafter be transferred unless the registered holder again complies with this
Section 1.2. The closing of any purchase and sale of Holder's Shares pursuant to
exercise by the Corporation, Onex or a member of the Onex Group of a right under
this Section 1.2 shall be held at the principal offices of the Corporation on a
date designated by the purchaser, but in any event not later than 30 days after
the date of the Notice. At the closing, the holder shall deliver to the
purchaser the certificates representing Holder's Shares duly endorsed for
transfer and free and clear of all claims, liens, encumbrances and security
interests and the purchaser shall deliver to Holder the consideration payable
upon closing.
2. Sale of Shares by Onex and the Corporation
2.1 If at any time any member of the Onex Group proposes to sell
any or all of the ProSource Shares of the same class as any of Holder's Shares
to any person or entity (excluding (i) any sale to another member of the Onex
Group, (ii) sales effected on a national securities exchange or in the
over-the-counter market, and (iii) sales made pursuant to a registration
statement under the Securities Act) (a "Disposition"), Onex shall, at least 20
days prior to the Disposition, give notice to Holder describing the terms of the
Disposition in reasonable detail (including the price, closing date (if known)
and identity of the purchaser) and stating that Holder has the option to sell to
the proposed purchaser the same percentage of its holdings of a class of
Holder's Shares on the same terms as the members of the Onex Group are selling
of ProSource Shares of the same class, simultaneously with and conditioned upon
the closing of the Disposition, at the price per unit and on the other terms of
the Disposition.
2.2 The option shall be exercised by notice to Onex, given within
the time specified in Onex's notice, which shall not be less than 10 days after
such notice. If Holder gives notice of its election to sell, it shall be
obligated to sell, conditioned upon the closing of the Disposition.
2.3 If at any time the members of the Onex Group propose to sell
all, or substantially all, of their ProSource Shares in a Disposition, they may
also in the notice pursuant to Section 2.1 require Holder to sell all of its
holdings of Holder's Shares, simultaneously with and conditioned upon the
closing of the Disposition, at the price per unit and on the other terms of the
Disposition, and Holder shall thereupon be obligated to make such disposition.
2
<PAGE> 22
2.4 In connection with any Disposition, in which Holder's Shares
are to be sold by Holder, Onex may require Holder to enter into agreements with
the purchaser determined by Onex to be on terms substantially the same (except
as may refer to the number of securities being sold) as the selling members of
the Onex Group.
3. Legend
All certificates representing Holder's Shares held by Holder and
Affiliates of Holder shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
the transfer of such securities is subject to conditions
specified in the Shareholders Agreement dated ______, ______,
19__ between the Corporation, Onex Corporation and the holder
hereof and no transfer of such securities shall be valid or
effective until such conditions have been fulfilled with
respect to such transfer. A copy of such Agreement will be
furnished by the Corporation to the holder of this Certificate
upon written request and without charge."
4. Definitions
4.1 The term "Dalgety Group" shall mean Dalgety plc and its
subsidiaries.
4.2 The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and any similar or successor federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at the time.
4.3 The term "Onex Group" shall mean Onex Corporation and its
subsidiaries.
4.4 The term "ProSource Shares" shall mean the shares of capital
stock of the Corporation, and, if any, securities convertible into shares of
capital stock of the Corporation, and other securities of the Corporation of the
same class as Holder's Shares, if any, held by the Onex Group.
4.5 The term "Person" shall mean an individual, corporation,
partnership, association, trust or unincorporated organization, or a government
or any agency or political subdivision thereof.
4.6 The Corporation is a "Public Company" if shares of its capital
stock are registered under section 12 of, or the Corporation is subject to
reporting requirements under Section 15(d) of, the Exchange Act or similar
federal statute in force.
3
<PAGE> 23
4.7 The term "Public Offering" shall mean an offering of shares of
capital stock of the Corporation registered under the Securities Act.
4.8 The term "Qualified Purchaser" shall mean any Person not
engaged in the food distribution business or the fast food or casual dining
restaurant business.
4.9 The term "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar federal statute, and the rules and regulations
thereunder of the Commission or any other federal agency then administering the
Securities Act, all as the same shall be in effect at the time.
5. Termination
This Agreement shall terminate (i) if, at any time, the
members of the Onex Group cease to hold in the aggregate at least a majority of
the outstanding capital stock of the Corporation or (ii) on March 31, 2002,
whichever is earlier.
6. Miscellaneous
6.1 Notices
All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by Express Mail, federal Express or other
express delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the other
parties):
(a) If to the Corporation, to:
ProSource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attention: President
Facsimile: (305) 378-7866
4
<PAGE> 24
with copies to:
Onex Corporation
161 Bay Street - 49th Floor
P.O. Box 700
Toronto, Ontario, Canada M5J 2S1
Attention: Gerald W. Schwartz
Facsimile: (416) 362-5765
and
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Phone: (212) 836-8201
Facsimile: (212) 836-7149
(b) If to Onex Corporation, to:
Onex Corporation
161 Bay Street - 49th Floor
P.O. Box 700
Toronto, Ontario, Canada M5J 2S1
Attention: Gerald W. Schwartz
Facsimile: (416) 362-5765
with copies to:
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Phone: (212) 836-8201
Facsimile: (212) 836-7149
(c) if to Holder, to:
[to be designated by Holder when this agreement is
executed]
6.2 Assignment
5
<PAGE> 25
No party may assign any rights or delegate any of its duties
under this Agreement, but this Agreement shall be binding upon and inure to the
benefit of the successors to the business and assets of the Corporation, Onex
and Holder.
6.3 No Waiver
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
6.4 Exclusive Agreement and Amendment
This Agreement supersedes all prior agreements among the
parties with respect to its subject matter, is intended as a complete and
exclusive statement of the terms of the Agreement among the parties with respect
thereto and cannot be changed or terminated orally.
6.5 Governing Law
This Agreement and all amendments hereof and waivers and
consents hereunder shall be governed by the internal law of the State of New
York, without regard to the conflicts of law principles thereof.
6.6 Captions
The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
Agreement.
6.7 Jurisdiction
Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement may be brought against any
of the parties in the courts of the State of New York, or, if it has or can
acquire jurisdiction, in the United States District Court for the Southern
District of New York, and each of the parties hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding, and waives any objection to venue laid therein.
Process in any such action or proceeding may be served anywhere in the world,
whether within or without the State of New York.
6
<PAGE> 26
6.8 Counterparts
This Agreement may be executed in counterparts, each of which
shall be considered an original, but all of which together shall constitute one
and the same instrument.
6.9 Severability
The provisions of this Agreement are intended to be and shall
be deemed severable. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
[HOLDER]
By:___________________
[ ]
By:___________________
PROSOURCE, INC.
By:___________________
7
<PAGE> 1
Exhibit 10.4
AGREEMENT FOR THE PURCHASE
AND SALE OF THE NATIONAL ACCOUNTS DIVISION
OF THE MARTIN-BROWER COMPANY
AND MARTIN-BROWER OF CANADA, LTD.
BY AND BETWEEN
PROSOURCE, INC.
AND
THE MARTIN-BROWER COMPANY and
MARTIN-BROWER OF CANADA, LTD.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I: DEFINITIONS ....................................................... 1
1.1 Definitions ................................................. 1
1.2 Schedules and Annexes ....................................... 8
1.3 U.S. Dollars ................................................ 8
ARTICLE II: THE TRANSACTION .................................................. 8
2.1 Agreement to Purchase ....................................... 8
2.2 Transfer of Assets .......................................... 8
2.3 Payment of Purchase Price ................................... 8
2.4 Assets Not Transferred ...................................... 9
2.5 Documents of Transfer ....................................... 9
2.6 Further Assurances .......................................... 9
2.7 Restricted Assets ........................................... 10
ARTICLE III: ASSUMPTION OF CERTAIN LIABILITIES ........................... 12
3.1 Liabilities Assumed ......................................... 12
3.2 Liabilities Not Assumed ..................................... 12
3.3 Documents of Assumption ..................................... 13
3.4 Risk of Loss ................................................ 13
ARTICLE IV: PURCHASE PRICE MATTERS ........................................... 13
4.1 Purchase Price Adjustment ................................... 13
4.2 Allocation of Purchase Price ................................ 15
4.3 No Brokerage Commission ..................................... 16
4.4 Transaction Taxes and Other Closing Costs ................... 16
4.5 Canadian Tax Elections ...................................... 16
ARTICLE V: REPRESENTATIONS AND WARRANTIES BY THE SELLERS ..................... 17
5.1 Organization and Qualifications ............................. 17
5.2 Authority ................................................... 17
5.3 No Conflict; No Consents or Approvals ....................... 17
5.4 Financial Statements ........................................ 18
5.5 Tax Matters ................................................. 18
5.6 Title to Properties ......................................... 19
5.7 Real Estate ................................................. 19
5.8 Equipment Used in the Business .............................. 19
5.9 Equipment Leased by the Business ............................ 20
5.10 Accounts Receivable ......................................... 20
5.11 Proprietary Rights .......................................... 20
5.12 Insurance Policies .......................................... 21
5.13 Contracts ................................................... 21
5.14 Inventory ................................................... 22
5.15 Litigation .................................................. 22
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
5.16 Compliance with Law ......................................... 23
5.17 Absence of Subsequent Actions ............................... 23
5.18 No Adverse Change ........................................... 24
5.19 Labor Matters ............................................... 24
5.20 Employee Benefit Plans ...................................... 25
5.21 Indebtedness and Guaranties ................................. 26
5.22 Government Contracts and Proceedings ........................ 26
5.23 Environmental Matters ....................................... 26
ARTICLE VI: REPRESENTATIONS AND WARRANTIES BY THE BUYER ................. 28
6.1 Organization and Good Standing .............................. 28
6.2 Authority ................................................... 28
6.3 No Conflict; No Consents or Approvals ....................... 29
ARTICLE VII: OTHER AGREEMENTS ................................................ 30
7.1 Conduct of Business ......................................... 30
7.2 Supplying of Information .................................... 30
7.3 Filings and Authorizations .................................. 31
7.4 Damage or Destruction of Property ........................... 32
7.5 Bulk Sales .................................................. 32
7.6 Employment of Business Work Force ........................... 33
7.7 Employee Benefits ........................................... 33
7.8 Retention of Records ........................................ 36
7.9 Tax Matters ................................................. 37
7.10 Trademark ................................................... 39
7.11 Environmental Inspection .................................... 39
7.12 Service Agreement ........................................... 40
7.13 Covenant Not to Compete with the Business ................... 40
7.14 Financing ................................................... 44
7.15 Orlando Financing ........................................... 44
7.16 Recovery of Undercharges and
Uncollected Sales Tax ....................................... 44
ARTICLE VIII: CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE BUYER TO CLOSE ........................... 45
8.1 The Sellers' Fulfillment of Covenants ....................... 45
8.2 The Sellers' Certificate as to Representations .............. 45
8.3 The Buyer's Receipt of the Sellers' Authority to
Consummate .................................................. 45
8.4 Authorizations; Consents; Legal Prohibition ................. 45
8.5 Receipt of Financing ........................................ 46
8.6 Other Agreements ............................................ 46
8.7 Legal Opinion ............................................... 46
8.8 Environmental Investigation ................................. 47
8.9 Audited Financial Statements ................................ 47
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX: CONDITIONS PRECEDENT TO THE
SELLERS' OBLIGATION TO CLOSE ................................ 47
9.1 The Buyer's Fulfillment of Covenants ........................ 47
9.2 The Sellers' Receipt of the Buyer's Authority to
Consummate .................................................. 47
9.3 The Buyer's Certificate as to Representations ............... 47
9.4 Authorizations; Consents; Legal Prohibition ................. 48
9.5 Other Agreements ............................................ 48
9.6 Legal Opinion ............................................... 49
ARTICLE X: CLOSING DATE ...................................................... 49
10.1 Closing ..................................................... 49
ARTICLE XI: INDEMNIFICATION AND REIMBURSEMENT ................................ 49
11.1 Survival .................................................... 49
11.2 Time Limitations ............................................ 49
11.3 Indemnification by Sellers .................................. 50
11.4 Environmental Indemnification ............................... 51
11.5 Indemnification by the Buyer ................................ 51
11.6 Limitations as to Amount -- Sellers ......................... 52
11.7 Limitations as to Amount -- the Buyer ....................... 52
11.8 Third Party Claims .......................................... 52
ARTICLE XII: TERMINATION ..................................................... 54
12.1 Termination Events .......................................... 54
12.2 Effect of Termination ....................................... 54
12.3 Buyer's Investigation ....................................... 55
ARTICLE XIII: MISCELLANEOUS .................................................. 55
13.1 Amendments .................................................. 55
13.2 Notices ..................................................... 55
13.3 Expenses .................................................... 57
13.4 Successors and Assigns ...................................... 57
13.5 Waiver ...................................................... 57
13.6 Headings .................................................... 57
13.7 Severability ................................................ 57
13.8 Entire Agreement ............................................ 57
13.9 Assignment .................................................. 58
13.10 Governing Law; Jurisdiction ................................. 58
13.11 Forum; Service of Process ................................... 58
13.12 Counterparts ................................................ 58
13.13 Publicity ................................................... 58
13.14 Confidential Information .................................... 59
</TABLE>
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<PAGE> 5
LIST OF ANNEXES
<TABLE>
<CAPTION>
Additional Paragraph
Annex Name References
- ----- ---- ----------
<S> <C> <C>
2.1 Funding Agreement
8.7 Opinion of Sellers' Legal Counsel
9.6 Opinion of Buyer's Legal Counsel
</TABLE>
iv
<PAGE> 6
LIST OF SCHEDULES
<TABLE>
<CAPTION>
Additional Paragraph
Schedule Name Reference
- ----- ---- ---------
<S> <C> <C>
1.1 Assets
2.4 Assets Retained
2.7 Restricted Asset
3.2 Liabilities Not Assumed
4.1 Accounting Principles 1.1, 5.4
5.3 Consent of Governmental Bodies
5.4 Financial Statements 1.1
5.6 Other Encumbrances 1.1
5.7 Real Property Owned or Leased
5.8 Certain Equipment Used in the
Business
5.9 Certain Equipment Leased in the 1.1
Business
5.11(a) Proprietary Rights 1.1
5.11(b) License and Confidentiality
Agreements
5.12 List of Insurance Policies
5.13 Contracts Relating to the Business 5.18
5.15 Litigation 1.1
5.16 Compliance with Laws and Regulations
5.17 Subsequent Actions
5.19 Labor Matters
</TABLE>
v
<PAGE> 7
LIST OF SCHEDULES (continued)
<TABLE>
<CAPTION>
Additional Paragraph
Schedule Name Reference
- ----- ---- ----------
<S> <C> <C>
5.20(a) Employee Benefit Plans
5.20(b) Medical Plan Claims
5.21 Indebtedness and Guaranties
5.22 Government Contracts
5.23 Hazardous Wastes or Substance and
Underground Storage Tanks
6.3 Consent of Governmental Bodies
7.1 Conduct of Business
7.6 Non-Transferred Employee List 1.1
7.7(a) Employee Memorandum
7.7(b) Acturial Assumptions
7.7(f) Retired Employees
7.13(e) Restricted Employees of Buyer
7.13(f) Restricted Employees of Seller
7.13(i) Identified Customers
8.5 Terms of Financing
</TABLE>
vi
<PAGE> 8
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 10th day of November, 1994 by and among The Martin-Brower Company, a
corporation organized under the laws of Delaware and Martin-Brower of Canada,
Ltd., a corporation organized under the laws of Ontario, Canada (collectively
the "Sellers"), and ProSource, Inc., a corporation organized under the laws of
Delaware (the "Buyer").
WHEREAS, the Sellers desire to sell the Business (as herein
defined); and
WHEREAS, the Buyer desires to purchase from the Sellers and
the Sellers desire to sell to the Buyer assets, properties, rights and claims of
the Business on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE I: DEFINITIONS
1.1 Definitions. The terms defined in this Article I,
whenever used herein, shall have the following meanings for all purposes of this
Agreement.
"Adjusted Purchase Price" shall have the meaning given
such term in Section 4.1(c).
"Adjustment" shall have the meaning given such term in
Section 7.9(b).
"Assets" mean all of the assets, whether real, personal,
tangible or intangible, and contract rights, of the Sellers
relating to the Business (including the Proprietary Rights)
owned (legally or beneficially) by the Sellers, except for the
Excluded Assets. The "Assets" shall include, without
limitation, the Owned Real Property, Leased Real Property,
accounts receivable arising from the Business, inventories and
supplies of the Business, owned or leased machinery,
equipment, vehicles and other personal property used in the
Business, contracts of the Business, all documents, files,
records and similar material (in any form or media)
<PAGE> 9
of the Business, all of the outstanding capital stock of
BroMar, all assets listed in Schedule 1.1* and, to the extent
assignable, governmental licenses and permits of the Business.
"Assignment and Assumption" shall have the meaning given
such term in Section 2.2.
"Balance Sheet" means the unaudited balance sheet of the
Business as of September 30, 1994, which is included in the
Financial Statements.
"Balance Sheet Date" means September 30, 1994.
"BroMar" means BroMar Services, Inc., a Delaware
corporation and wholly-owned subsidiary of The Martin-Brower
Company.
"Business" means the business of BroMar and the business
conducted by National Accounts Division ("NAD") of the
Sellers, including distributing, purchasing, selling,
transporting, warehousing and handling of products (including,
but not limited to, food products, restaurant supplies, paper
goods and premium and promotional items) for use by casual
dining and fast food restaurants in the United States, Canada
and elsewhere, exclusive of McDonald's. The Business shall not
include the business of MBX Services, Inc., and the MBX and
MTX divisions of the Sellers; that business consists of the
transportation of goods as a common and contract carrier and
the brokerage of transportation of goods.
"Business Day" means any day of the week exclusive of
Saturday, Sunday and any official holiday of the United States
federal government or the Canadian federal government.
________________
* Schedule 1.1 to include headquarters furniture.
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<PAGE> 10
"Buyer's Advisors" shall have the meaning given such
term in Section 7.2.
"Buyer's Defined Contribution Plan" shall have the
meaning given such term in Section 7.7(c).
"Cleanup" shall have the meaning given such term in
Section 11.4(a).
"Closing" shall have the meaning given such term in
Section 10.1.
"Closing Date" means December 30, 1994 or such later
Fiscal Closing Date by which governmental clearances are
received pursuant to Sections 8.4 and 9.4 and all other
conditions specified in Section 2.7(a) and Articles VIII and
IX are satisfied or waived by the party entitled to the
benefit of such conditions or such other date as Buyer and the
Sellers may mutually agree pursuant to Section 10.1.
"Code" means the U.S. Internal Revenue Code of 1986, as
amended.
"Dalgety Non-Compete Agreement" shall have the meaning
given such term in Section 7.13(m).
"Damages" shall have the meaning given such term in
Section 11.3.
"Damage Threshold" shall have the meaning given such
term in Section 11.3.
"Defined Benefit Plan" shall have the meaning given such
term in Section 7.7(b).
"Defined Contribution Plans" shall have the meaning
given such term in Section 7.7(c).
"Designated Transferee" shall have the meaning given
such term in Section 2.2.
"Disclosure Schedule" means all the Schedules delivered
with this Agreement and made a part hereof.
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<PAGE> 11
"Disputed Amount" shall have the meaning given such term
in Section 4.1(a).
"Employee" shall have the meaning given such term in
Section 7.7(a).
"Environmental Law" shall have the meaning given such
term in Section 5.23.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Excluded Assets" shall have the meaning given such term
in Section 2.4.
"Excluded Proprietary Rights" shall have the meaning
given such term in Section 5.11.
"Exclusive License and Confidentiality Agreements" shall
have the meaning given such term in Section 5.11.
"Financial Statements" means the unaudited balance
sheets of the Business as at June 30, 1994 and September 30,
1994, and the unaudited income (loss) statements for the year
and the three (3) months then ended, as prepared by the
Sellers and attached as Schedule 5.4.
"Fiscal Closing Date" means each of December 30, 1994,
January 27, 1995 and February 24, 1995.
"Funding Agreement" shall have the meaning given such
term in Section 6.2(b).
"Governmental Body" shall have the meaning given such
term in Section 5.15.
"Group RRSP" shall have the meaning given such term in
Section 5.20(d).
"Hazardous Substance" shall have the meaning given such
term in Section 5.23.
"Hired Employees" shall have the meaning given such term
in Section 7.7(a).
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<PAGE> 12
"Inadvertent Immaterial Matters", when used as an
exception to a representation and warranty or covenant, means
matters required to be disclosed by such representation and
warranty or covenant that, individually or in the aggregate,
are not material and were not known to Sellers despite the
exercise of reasonable diligence.
"Indemnified Persons" shall have the meaning given such
term in Section 11.3.
"Indemnitee" shall have the meaning given such term in
Section 11.8(a).
"Indemnitor" shall have the meaning given such term in
Section 11.8(a).
"IRS" means the U.S. Internal Revenue Service.
"Laws and Regulations" shall have the meaning given such
term in Section 5.16 (a)
"Leased Real Property" shall have the meaning given such
term in Section 5.7.
"Liabilities" shall have the meaning given such term in
Section 3.1.
"License and Confidentiality Agreements" shall have the
meaning given such term in Section 5.11.
"Material Adverse Effect" means, except for purposes of
Article XI, a material adverse effect on the business,
properties, financial condition, operations or prospects of
the Business, taken as a whole. Solely for purposes of Article
XI, it shall have the meaning given to that term in Section
11.3.
"Non-Cleanup Injury" shall have the meaning given such
term in Section 11.4(a).
"Non-Exclusive License and Confidentiality Agreements"
shall have the meaning given such term in Section 5.11.
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<PAGE> 13
"Non-Hired Employees" shall have the meaning given such
term in Section 7.7(a).
"Owned Real Property" shall have the meaning given such
term in Section 5.7.
"Permits" shall have the meaning given such term in
Section 5.16(b).
"Permitted Encumbrances" means (a) the liens, easements,
security interests, charges, mortgages, indentures and other
encumbrances as described on Schedule 5.6, and (b) the
Permitted Exceptions.
"Permitted Exceptions" means (a) liens for current taxes
and assessments not yet due or payable or taxes the validity
of which are being contested in good faith by appropriate
proceedings and for which adequate reserves (determined in
accordance with generally accepted accounting principles, as
modified on Schedule 4.1) are provided in the Balance Sheet
and the Statement of Net Assets Sold, (b) such restrictions,
easements and imperfections of title, including, but not
limited to, encroachments and overlaps of a minor nature and
customary utility easements, if any, as do not materially
impair the value of the affected properties or the utility of
the affected properties in their current use in the Business,
(c) liens of employees, laborers, carriers, warehousemen,
mechanics and materialmen for current wages or accounts
payable not yet delinquent, (d) liens and charges incident to
construction or maintenance, which have either not been filed
of record or have been filed of record and are being contested
in good faith by appropriate action diligently pursued and
have not yet proceeded to judgment and for which adequate
reserves (determined in accordance with generally accepted
accounting principles, as modified on Schedule 4.1) are
provided in the Balance Sheet and the Statement of Net Assets
Sold, (e) liens or security interests, if any, reflected on,
or securing Liabilities reflected on, the Financial Statements
and the Statement of Net
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<PAGE> 14
Assets Sold, (f) liens or security interests, if any, created
in the ordinary course of business subsequent to September 30,
1994 securing Liabilities reflected on the Statement of Net
Assets Sold, (g) landlord liens for rent included in the
Liabilities not yet due and payable, and (h) liens or security
interests created as a result of capitalized lease obligations
disclosed in Schedule 5.9; provided that any judicial
proceedings intended to be referred to in subsections (a) and
(d) are set forth in Schedule 5.15.
"Person" means an individual, firm, corporation,
division, partnership, joint venture, unincorporated
association, government agency or political subdivision
thereof, or other entity.
"Plans" shall have the meaning given such term in
Section 5.20(a).
"Proprietary Rights" shall have the meaning given such
term in Section 5.11.
"Purchase Price" shall have the meaning given such term
in Section 2.1.
"Restricted Asset" shall have the meaning given such
term in Section 2.7.
"Retirement Plans" shall have the meaning given such
term in Section 5.20(a).
"Secrets" shall have the meaning given such term in
Section 5.11.
"Service Agreement" shall have the meaning given such
term in Section 7.12.
"Statement of Net Assets Sold" shall have the meaning
given such term in Section 4.1(a).
"Taxes" means all Federal, state, provincial, local,
municipal and foreign income, profits, franchise, capital,
sales, value added, use, employment, payroll,
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<PAGE> 15
transfer, occupation, property, severance, production, excise,
goods and services and other taxes (including interest,
additions to tax and penalties with respect to any such tax),
but excluding all sales, value added, use, transfer and
similar taxes imposed in connection with the consummation of
the transactions contemplated hereunder.
"Termination Date" means February 25, 1995.
1.2 Schedules and Annexes. A "SCHEDULE" which is identified
in this Agreement shall be part of the Disclosure Schedule prepared by the
sellers and delivered to the Buyer with this Agreement to disclose factual
matters concerning the Business. An "ANNEX" is an agreement or other document
attached hereto and made a part hereof.
1.3 U.S. Dollars. Unless otherwise indicated herein or on
the Schedules, all references to amounts in dollars ($) shall mean dollars of
the United States of America.
ARTICLE II: THE TRANSACTION
2.1 Agreement to Purchase. In reliance upon the
representations and warranties of the Buyer contained herein, and on the terms
and subject to the conditions herein set forth, the Sellers agree to sell and
deliver the Assets to the Buyer, and transfer the Liabilities. In reliance upon
the representations and warranties of the Sellers contained herein, and on the
terms and subject to the conditions herein set forth, the Buyer agrees to
purchase, or cause to be purchased, the Assets and assume the Liabilities. In
consideration of the sale of the Assets, the Buyer agrees to pay an aggregate
purchase price of One Hundred Forty Million Dollars ($140,000,000) (the
"PURCHASE PRICE"). Simultaneously with the execution and delivery of this
Agreement, Onex Corporation is entering into the Funding Agreement attached
hereto as Annex 2.1.
2.2 Transfer of Assets. At Closing, the Sellers shall
deliver to the Buyer, or one or more transferees designated by the Buyer
("DESIGNATED TRANSFEREE"), an Assignment and Assumption Agreement in a form
reasonably satisfactory to the Buyer and the Sellers duly executed and
sufficient to convey good title to the Assets owned by the Sellers (and, subject
to Section 2.7, the leases and other contracts under which the Sellers use the
Assets not owned by them) free and clear of all mortgages, liens,
-8-
<PAGE> 16
security interests and other encumbrances other than Permitted Encumbrances.
2.3 Payment of Purchase Price. At Closing, the Buyer or its
Designated Transferee shall deliver by wire transfer of immediately available
funds to the account of The Martin-Brower Company, for the benefit of the
Sellers, the Purchase Price. The wire transfer shall be made to Citibank, N.A.,
399 Park Avenue, ABA 021000089, Account Number 40590527; provided, however, that
the Sellers may designate an alternative account by notice to Buyer at least
five business days prior to the Closing Date for the transfer of the Purchase
Price.
2.4 Assets Not Transferred. Notwithstanding the foregoing,
the Assets to be transferred shall not include the following (the "EXCLUDED
ASSETS") (a) cash or cash equivalents; (b) all of the rights, properties and
assets used in the Business which shall have been transferred or disposed of by
the Business prior to the Closing Date in transactions conducted in the ordinary
course of business and not in violation of this Agreement; (c) tangible assets
in possession of the Business but owned by unaffiliated parties; (d) Excluded
Proprietary Rights as set forth in Schedule 5.11(a); (e) the assets primarily
used in the McDonald's Division of each of the Sellers except as otherwise
provided in Schedule 1.1 to this Agreement and (f) miscellaneous assets set
forth in Schedule 2.4 or as mutually agreed by the parties in writing prior to
the Closing.
2.5 Documents of Transfer. At Closing, in addition to the
documents of transfer described in Section 2.2, the Sellers will execute,
acknowledge and deliver to the Buyer or its Designated Transferee such deeds (in
form sufficient for the Buyer or Designated Transferee to obtain title insurance
in the jurisdiction in which the Owned Real Property being conveyed thereby is
located), bills of sale, endorsements, assignments, stock powers and other good
and sufficient instruments of conveyance, sale, transfer and assignment, as
shall be required in order to effectively vest in the Buyer or its Designated
Transferee all of the Sellers' right, title and interest in and to the Assets.
As promptly as practicable, and in any event within ninety (90) days after the
Closing, the Sellers will deliver to the Buyer or its Designated Transferee all
of the files, documents, papers, contracts, agreements, legal descriptions, open
books of account or ledgers and documentation in support thereof, and all
information appearing in writing or other media as pertains primarily to the
Assets and which is in the Sellers' possession or subject to their control;
pending such delivery, Buyer shall be afforded reasonable and timely access to
such materials.
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<PAGE> 17
2.6 Further Assurances. At Closing, and at any time or from
time to time thereafter until two years after the Closing Date or such longer
period as may be required for any tax or other regulatory audit or assessment
under any applicable statute of limitations or limitation period, the Sellers
shall at the request of the Buyer also take such reasonable action as is
necessary to put the Buyer or its Designated Transferee in actual possession and
operating control of the Assets, and shall execute, acknowledge and deliver such
further instruments of conveyance, sale, transfer and assignment, and take such
other action as the Buyer may reasonably request in order to more effectively
convey, sell, transfer and assign to the Buyer any of the Assets and to assist
the Buyer in exercising rights with respect thereto.
2.7 Restricted Assets.
(a) Schedule 2.7 sets forth each contract, license, lease,
sales order, permit, right or other agreement or commitment included in
the Assets (without regard to any qualification as to assignability)
that is not capable of being validly assigned, transferred or subleased
without the consent or waiver of the issuer thereof or the other party
thereto or any third person (including a government or governmental
unit) , or with respect to which such assignment, transfer or sublease
or attempted assignment, transfer or sublease could constitute a breach
thereof or a violation of any law, decree, order, regulation or other
governmental edict (such Asset is hereinafter referred to as a
"RESTRICTED ASSET"). Part A of Schedule 2.7 sets forth the Restricted
Assets for which the receipt of the necessary consents and waivers for
the assignment, transfer or sublease of such Assets is a condition
precedent to the Buyer's obligations hereunder. Part B of Schedule 2.7
sets forth the Restricted Assets in respect of which, if the necessary
consents and waivers are not received on or before the Closing Date,
this Agreement shall not constitute an assignment, transfer or sublease
thereof, or an attempted assignment, transfer or sublease thereof;
provided, however, to the extent the Sellers may do so without
incurring any material liability the Sellers shall assign and the Buyer
shall assume the beneficial ownership and all rights and obligations
under the Restricted Assets so the Buyer can enjoy the practical
benefits of the assets in Part B until they can be legally assigned and
assumed by the Sellers and the Buyer, respectively.
(b) The Sellers shall use reasonable efforts, and
the Buyer shall cooperate with the Sellers (i) to
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<PAGE> 18
obtain the consents and waivers necessary to convey to the Buyer all of
the Restricted Assets, and (ii) to promptly convey to the Buyer the
Restricted Assets for which the Sellers have received the necessary
consents and waivers; provided, however, that any consideration paid
therefor to the person from whom the consent or waiver is requested for
the use of any Restricted Asset by both the Buyer and at least one of
the Sellers and their affiliates (or which is required to permit Buyer
to provide services to Sellers under the Services Agreement) shall be
borne by the Sellers; provided, further, that any consideration paid
therefor with the approval of the Buyer and the Sellers to the person
from whom the consent or waiver is requested for any other Restricted
Asset shall be borne equally by the Buyer and the Sellers; provided,
further, that the Sellers shall not amend or change any Restricted
Asset without the prior written consent of the Buyer. The Sellers shall
cooperate with the Buyer in making applications and filings or taking
any other action necessary for the Buyer to obtain such franchises,
licenses, permits or other instruments or agreements, if any, as are
substantially equivalent to the Restricted Assets.
(c) To the extent that the consents and waivers necessary to
assign, transfer or sublease the Restricted Assets set forth in Part B
of Schedule 2.7 are not obtained by the Sellers, the Sellers shall use
reasonable efforts to (i) provide to the Buyer the benefits of any
Restricted Asset not assigned, transferred or subleased due to the
Sellers' failure to obtain such consent or waiver, (ii) cooperate with
the Buyer to reach a reasonable and lawful arrangement designed to
provide such benefits to the Buyer, and (iii) enforce, at the request
of the Buyer, any rights of the Sellers under any Restricted Asset,
against the issuer thereof or the other party or parties thereto
(including the right to elect to terminate or renew such of the
foregoing in accordance with the terms thereof upon the advice of the
Buyer); provided, however, that all costs and expenses of the Sellers
incurred with respect to any of the actions related under (iii) above
shall be promptly paid or reimbursed by the Buyer to the Sellers.
(d) To the extent that the Buyer is provided the benefits
pursuant to this Section 2.7 of any Restricted Asset, the Buyer shall
perform for the benefit of the issuer thereof, or the other party or
parties thereto, the obligations of the Sellers thereunder or in
connection
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<PAGE> 19
therewith, but only to the extent that (i) such action by the Buyer
would not result in any default thereunder or in connection therewith,
and (ii) such obligation would have been a Liability but for the
non-assignability or non-transferability thereof; provided, however,
that if the Buyer shall fail to perform to the extent required herein
(and such failure shall have continued following notice thereof to
Buyer), the Sellers shall thereafter cease to be obligated under this
Section 2.7 in respect of the Restricted Asset which is the subject of
such failure to perform unless and until such situation is remedied,
or, at the sole option of the Sellers, the Buyer shall promptly pay or
reimburse the Sellers all costs incurred by the Sellers to remedy such
failure to perform during such period of failure of performance.
(e) To the extent that the Sellers do not sell, assign and
transfer any Restricted Asset to the Buyer on the Closing Date pursuant
to this Section, Sellers shall (i) reimburse the Buyer for all
incremental costs (including, but not limited to, increased rents
payable for replaced leased property) associated with the procurement
by Buyer of a substantially identical replacement for such Restricted
Asset or (ii) procure for the Buyer a substantially identical
replacement for such Restricted Asset on terms that, after giving
effect to reimbursement of incremental costs by Sellers in accordance
with clause (i), are no less favorable to Buyer than the terms on which
the corresponding Restricted Asset was available to the Business.
(f) At the request of Sellers and subject to the consent of
the other contracting parties, Buyer or its Designated Transferees will
enter into novations of contracts to be assigned to Buyer under this
Agreement in order to relieve Sellers from liability thereunder, so
long as such novations do not alter the terms of the contracts or
Buyer's or the Designated Transferee's liability thereunder.
ARTICLE III: ASSUMPTION OF CERTAIN LIABILITIES
3.1 Liabilities Assumed. On the Closing Date, subject to the
terms and conditions herein set forth, the Sellers shall assign to the Buyer,
and the Buyer shall assume from the Sellers all liabilities of any nature,
known or unknown, fixed, contingent or otherwise, arising out of the Business
(subject to Section 3.2, the "LIABILITIES").
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3.2 Liabilities Not Assumed. Other than the Liabilities, no
liabilities relating to the business of the Sellers shall be assumed by the
Buyer and such liabilities shall remain obligations of the Sellers. The
Liabilities shall not include, and Buyer shall have no liability for, (i) any
bank overdraft or letter of credit facility, credit line or indebtedness for
money borrowed, including all intercompany payables owed to Dalgety, Inc., (ii)
any liability with respect to actions, suits, proceedings or investigations with
respect to the Business, at law, in equity or otherwise, pending in or before,
or by, any court or Governmental Body as of the Closing Date, (iii) any Taxes
incurred by Seller relating to periods (or to the extent not incurred with
respect to periods, events occurring) prior to the Closing Date (or any
interest, penalty or other amount payable with respect thereto), (iv) state
sales taxes arising from sales prior to the Closing Date, which are or will
become due and payable, (v) any unfunded liability for the Defined Benefit Plan
or Defined Contribution Plans or any liability for any withdrawal liability
imposed by any multiemployer plan which is attributable to any contributions
made by or otherwise attributable to Sellers, including contributions for closed
facilities, relating to the Business prior to Closing Date, (vi) any contract,
lease or agreement the existence of which is inconsistent with the last
paragraph of Section 5.13 (without regard to any knowledge qualification
therein) or that would purport to limit the business activities of Buyer or any
affiliate of Buyer, after giving effect to consummation of the transactions
contemplated by this Agreement unless, in either case, Buyer expressly elects to
assume the same in a notice to Sellers that refers to this Section 3.2(vi),
(vii) any liability or obligation that is the responsibility of Sellers under
Article VII, (viii) any liability or obligation to customers or former customers
of the Business for refund or adjustment of any amount charged to such customer
or former customer prior to the Closing Date; or (ix) any liability set forth in
Schedule 3.2.
3.3 Documents of Assumption. The assumption of the
Liabilities by the Buyer or its Designated Transferees shall be evidenced by the
Assignment and Assumption Agreement.
3.4 Risk of Loss. The risk of loss of any of the Assets
shall be the responsibility of the Buyer as of the Closing Date. All casualty or
other losses of Assets occurring after such time shall be the responsibility of
the Buyer, whether or not the Buyer has purchased or obtained any insurance
coverage.
ARTICLE IV: PURCHASE PRICE MATTERS
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4.1 Purchase Price Adjustment.
(a) Within forty-five (45) calendar days following the
Closing Date, the Sellers shall (i) cause to be prepared and delivered
to the Buyer a statement of net assets sold of the Business as of the
Closing Date (the "STATEMENT OF NET ASSETS SOLD") together with an
opinion of Price Waterhouse LLP ("PRICE WATERHOUSE") that such
Statement of Net Assets Sold presents fairly the Assets sold and
Liabilities assumed of the Business at the Closing Date, and (ii)
provide to KPMG Peat Marwick and the Buyer complete and timely access
to copies of all work papers and other relevant documents and analysis
prepared by Price Waterhouse for purposes of rendering such opinion.
The Statement of Net Assets Sold shall be prepared in accordance with
U.S. generally accepted accounting principles applied on a basis
consistent with those used to prepare the Balance Sheet and subject to
such exceptions and clarifications as shall be specified and as set
forth in Schedule 4.1. The Statement of Net Assets Sold shall be
audited by Price Waterhouse in accordance with U.S. generally accepted
auditing standards, including, but not limited to, observation of a
physical inventory as of the Closing Date. KPMG Peat Marwick and the
Buyer shall have the right to review all workpapers of the audit
prepared by Price Waterhouse and to participate in the observation of
all physical counts of assets conducted by Sellers or Price Waterhouse.
The Buyer shall give the Sellers and their representatives (including
Price Waterhouse) reasonable access to the books, records, and
personnel of the Business for the purpose of preparing and examining
the Statement of Net Assets Sold. The Buyer shall have a period of
thirty (30) calendar days after the later of the delivery to it of the
Statement of Net Assets Sold or the access to copies of all workpapers
and other relevant documents and analysis prepared by Price Waterhouse
for purposes of rendering their opinion, to review it and to make any
objections that the Buyer may have in writing to the Sellers. If no
written objections to the Statement of Net Assets Sold are delivered to
the Sellers within such thirty (30) day period, the Statement of Net
Assets sold shall be deemed to be accepted and approved by the Buyer.
If written objections of the Buyer to the Statement of Net Assets Sold
are delivered to the Sellers within such thirty (30) day period, then
the Buyer and the Sellers shall attempt to resolve the item or items in
dispute. However, if the Buyer's written objections with respect to
such items in dispute would, if accepted, result in a change in the Net
Assets Sold of the Business as of the Closing Date of Two Hundred
Thousand Dollars ($200,000) or less (such amount being the "DISPUTED
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AMOUNT") and KPMG Peat Marwick confirms its concurrence with such
objections in a writing delivered to Sellers, then 50% of the Disputed
Amount shall be deemed accepted and approved by Buyer (allocated by
accepting 50% of the amount in dispute with respect to each disputed
item) and, as so revised the Statement of Net Assets Sold shall be
deemed to be conclusively accepted and approved by the Buyer and the
Sellers. The Buyer shall quantify its objections to the extent
reasonably practicable in all written objections delivered to Sellers
with respect to the Statement of Net Assets Sold.
(b) If such disputes cannot be resolved by the Buyer and the
Sellers within thirty (30) days after the delivery of the objections to
the Statement of Net Assets Sold, then the specific matters in dispute
shall be submitted to Deloitte & Touche, or to such other independent
accounting firm as may be approved by the Buyer and the Sellers, which
firm shall render its opinion as to such matters. Buyer and Sellers
shall instruct Deloitte & Touche to render such opinion within thirty
(30) days after submission of matters in dispute. Based on such
opinion, Deloitte & Touche shall then send to the Buyer and to the
Sellers a written determination of the matters in dispute based upon
such opinion and a written determination of the Adjusted Purchase Price
based upon such opinion, whereupon the confirmed or revised Statement
of Net Assets sold shall be final and binding upon the Buyer and the
Sellers.
(c) Within five Business Days after the determination of the
Net Assets Sold of the Business in accordance with paragraphs (a) and
(b) above, the Buyer shall pay to the Sellers the amount, if any, by
which the Adjusted Purchase Price exceeds the Purchase Price; or the
Sellers shall pay to the Buyer the amount, if any, by which the
Adjusted Purchase Price is less than the Purchase Price. Any payment
pursuant to this Section 4.1(c) shall include interest thereon at the
prime rate announced by Citibank, N.A. from time to time, accruing on
such payment amount from the Closing Date until paid. Such payment
shall be made by wire transfer to an account designated in writing to
the obligated party by the receiving party. The "ADJUSTED PURCHASE
PRICE" of the Business shall be an amount equal to (i) the Net Assets
Sold of the Business on the Closing Date, which shall be equal to total
Assets minus total Liabilities of the Business as reflected on the
Statement of Net Assets Sold agreed by the parties pursuant to Section
4.1(a), or as determined by Deloitte & Touche pursuant to Section
4.1(b), plus (ii) Twenty Million Dollars ($20,000,000).
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(d) The Sellers shall pay all costs, fees and expenses
charged or incurred by Price Waterhouse. The Buyer shall pay all costs,
fees and expenses charged or incurred by KPMG Peat Marwick. All costs,
fees and expenses charged or incurred by Deloitte & Touche, if any,
shall be borne equally by the Sellers and the Buyer.
4.2 Allocation of Purchase Price. The Purchase Price shall
be allocated among the Assets and commitments and covenants as the Buyer and the
Sellers may agree in writing. Such allocation shall be based upon the residual
method of allocation as required by Section 1060 of the Code and shall be fair
and reasonable as between the United States and Canadian Assets and commitments
and covenants as well as among the various Canadian Assets and among the various
United States Assets.
4.3 No Brokerage Commission. Except for Morgan Stanley & Co.
Incorporated, the Sellers have not employed any broker, agent or finder in
connection with any transaction contemplated by this Agreement, and the Sellers
hereby indemnify the Buyer against any liability for a brokerage commission or
finder's fee of any description payable to Morgan Stanley & Co. Incorporated or
otherwise incurred by the Buyer with respect to any of any action contemplated
by this Agreement. Except for Smith Barney Inc., the Buyer has not employed any
broker, agent or finder in connection with any transaction contemplated by this
Agreement, and the Buyer hereby indemnifies the Sellers against any liability
for a brokerage commission or finder's fee of any description payable to Smith
Barney Inc. or otherwise incurred by the Sellers with respect to any transaction
contemplated by this Agreement.
4.4 Transaction Taxes and Other Closing Costs. Any state,
county, federal, provincial, local, municipal or foreign sales, use or other
transfer taxes, and any transfer, recording or similar fees and charges arising
in connection with the transfer of the Assets from the Sellers to the Buyer
shall be borne fifty percent (50%) by the Buyer and fifty percent (50%) by the
Sellers.
4.5 Canadian Tax Elections.
(a) The Buyer and the Sellers will, on or before the Closing
Date, jointly execute an election, in prescribed form and containing
the prescribed information, to have subsection 167(1.1) of the Excise
Tax Act (Canada) apply to the sale and purchase of the Assets hereunder
so that no tax is payable in respect of such sale and purchase under
Part IX of the Excise Tax Act (Canada). The Buyer will file such
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election with the Minister of National Revenue within the time
prescribed by the Excise Tax Act (Canada).
(b) The Buyer and the Sellers will, at the Closing, jointly
execute an election under section 22 of the Income Tax Act (Canada) as
to the sale of the accounted receivable of the Sellers to be purchased
hereunder, will designate therein the applicable portion of the
purchase price as the consideration paid by the Buyer therefor and will
each file such election with the Minister of National Revenue forthwith
after the closing Date.
ARTICLE V: REPRESENTATIONS AND WARRANTIES BY THE SELLERS
The Sellers represent and warrant to, and agree with, the
Buyer as follows (except as the context otherwise clearly requires, as used in
this Article V, the term "Sellers" includes BroMar):
5.1 Organization and Qualifications. The Martin-Brower
Company and BroMar are corporations both duly incorporated and organized,
validly existing and in good standing under the laws of Delaware, and
Martin-Brower of Canada, Ltd. is a corporation duly incorporated and organized
under the laws of the Province of Ontario, Canada. The Martin-Brower Company
owns all of the issued and outstanding shares of capital stock of BroMar. There
are no options, warrants, conversion or other rights, agreements or commitments
of any kind obligating BroMar, contingently or otherwise, to issue or sell any
shares of its capital stock of any class or any securities convertible into or
exchangeable for any such shares, and no authorization therefor has been given.
Each of the corporations has the corporate power and authority to own or lease
its properties and carry on the Business as presently owned or conducted, and is
in good standing as a foreign corporation and licensed or qualified to transact
business in each jurisdiction in which the nature of the properties owned or
leased by it or the business transacted by it requires it to be so licensed or
qualified, except those jurisdictions, if any, in which the failure to so
qualify would not, individually or in the aggregate, have a Material Adverse
Effect.
5.2 Authority. The Sellers have all requisite corporate
power and authority to enter into, deliver and perform this Agreement and any
other agreement or document necessary to perform this Agreement, the Sellers
have all requisite corporate power and authority to consummate the transaction
contemplated herein, and this Agreement has been duly executed and delivered
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by the Sellers pursuant to all necessary corporate authorization of the Sellers
(including approval by their respective Boards of Directors). This Agreement is
legal, valid and binding upon and enforceable against the Sellers in accordance
with its terms.
5.3 No Conflict; No Consents or Approvals.
(a) Neither the execution and delivery by the Sellers of
this Agreement, the consummation of the transactions contemplated
herein by the Sellers, nor compliance by the Sellers with any of the
provisions hereof shall (i) conflict with, result in a breach of or
constitute a default under, (A) the certificates of incorporation or
by-laws of the Sellers, (B) any contract, agreement, license or permit
of the Business or the Sellers, or (C) any law, statute, ordinance,
regulation or court or administrative order by which the Sellers or any
of the properties or assets of the Business are subject or bound; (ii)
result in the creation of, or give any party the right to create, any
lien, charge, encumbrance or security interest upon the Assets; or
(iii) terminate or modify, or give any third party the right to
terminate or modify, the provisions or terms of any contract or
agreement of the Business; except, in the case of (i) (B), or (iii),
such violations, breaches, defaults, liens, terminations and
modifications (I) which would not, individually or in the aggregate,
have a Material Adverse Effect or (II) are set forth on Schedule 5.3.
(b) Except as disclosed in Schedule 5.3, the Sellers are not
required to submit any notice, report or other filing with any
Governmental Body in connection with the execution, delivery or
performance of this Agreement by the Sellers and the consummation of
the transactions contemplated hereby by the Sellers, except for
failures to submit such notices, reports or filings that would not,
individually or in the aggregate, have a Material Adverse Effect.
5.4 Financial Statements. Attached hereto as Schedule 5.4
are the Financial Statements. The Financial Statements, which are unaudited,
present fairly (and the financial statements referred to in Section 8.9 will
present fairly) the financial condition and results of the Business as of the
dates and for the periods indicated and have been (and the financial statements
referred to in Section 8.9 will be) prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis, except as set
forth therein or on schedule 4.1 and excluding any required footnote
disclosures.
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5.5 Tax Matters.
(a) The Sellers have filed all Federal, provincial, state,
county, local and foreign tax returns, reports and forms for income,
excise, social security, property and other Taxes (including payroll
deductions and contributions required by law), which are required to
be filed by each and which relate to the Business.
(b) The Sellers have paid all Taxes required to be paid by
each and which relate to the Business.
(c) The Buyer is acquiring the ownership, possession or use
under this Agreement of all or substantially all of the property that
can reasonably be regarded as being necessary for the Buyer to be
capable of carrying on the Business as a business within the meaning of
Section 167 of the Excise Tax Act (Canada);
(d) Martin-Brower of Canada, Ltd. is registered under Part
IX of the Excise Tax Act (Canada) with registration number R103544284;
and
(e) Martin-Brower of Canada, Ltd. is not a non-resident
person within the meaning of Section 116 of the Income Tax Act
(Canada).
5.6 Title to Properties.
(a) Except as set forth in Schedule 5.6 attached hereto, the
Sellers have good and, in the case of Owned Real Property, marketable
title to all the assets and properties shown on the Balance Sheet or
acquired by the Business after the Balance Sheet Date (other than
inventory sold or otherwise disposed of in the ordinary course of
business subsequent to said date) , in each case free and clear of all
liens, claims, security interests and encumbrances, except for
Permitted Encumbrances.
(b) The Assets constitute all of the material assets
of or utilized by the Business on the date hereof.
5.7 Real Estate. Schedule 5.7 contains a list of all real
property owned (the "OWNED REAL PROPERTY") or leased (the "LEASED REAL
PROPERTY") by the Sellers and which is part of the Assets. The Business is not
in material default under any such lease and there is not, under any such lease,
any event which, with notice and/or lapse of time, would constitute a material
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default by any party to any such lease, nor is there any default or event that
could result in the termination of any such lease. Except (i) as disclosed on
schedule 5.7 and (ii) for such encroachments that do not materially restrict or
impair the value or the use by the Business of the property subject thereto and
will not subject Buyer to material cost or liability, each of the buildings and
other structures on the Owned Real Property and used in connection with the
operation of the Business is located entirely within the boundaries of such
Owned Real Property.
5.8 Equipment Used in the Business. Schedule 5.8 contains a
list of all machinery, equipment, vehicles and other tangible personal property
currently used in the Business which has a per item book value in excess of
Fifteen Thousand Dollars ($15,000) and the location of such equipment. The
machinery, equipment, vehicles and other tangible personal property used in the
Business are in reasonable operating condition, ordinary wear and tear excepted.
5.9 Equipment Leased by the Business. Schedule 5.9 contains
a list of all leases of machinery, equipment, vehicles and other tangible
personal property currently used in the Business involving an annual expense per
lease in excess of Six Thousand Dollars ($6,000) to which the Sellers are
lessees. The Sellers are not in material default under any such lease, and, to
the Sellers' knowledge, there is not, under any such lease, any event which,
with notice and/or lapse of time, would constitute a material default by any
party to any such lease.
5.10 Accounts Receivable. All accounts receivable of the
Business (including those reflected in the Financial Statements or to be
reflected in the Statement of Net Assets Sold) represent valid or will represent
valid obligations for sales actually made, and other miscellaneous receivables
(not in excess of $1,000,000) created, in the ordinary course of the Business.
As of the Closing Date, no outstanding accounts receivable of the Business will
have been factored or otherwise assigned by the Sellers.
5.11 Proprietary Rights. (a) Schedule 5.11(a) contains a list
of all patents, inventions, trademarks, logos, corporate names, trade names,
service marks, software (including internally developed software) and copyrights
utilized in the Business, whether or not registered, and including all
registrations and applications for registration thereof (collectively,
"PROPRIETARY RIGHTS"), other than Inadvertent Immaterial Matters. The Sellers
own or possess adequate licenses or other rights to use, and will at the Closing
Date transfer to the Buyer or a Designated Transferee, all Proprietary Rights
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(other than Excluded Proprietary Rights, as hereinafter defined) and all shop
rights, know how, trade secrets, confidentiality agreements and confidential
information utilized in the conduct of the Business as presently conducted
("SECRETS"). The Sellers have not received any notice of infringement,
misappropriation or conflict from any other Person with respect to such
Proprietary Rights or Secrets, and to the Sellers' knowledge, the conduct of the
Business has not infringed, misappropriated or otherwise conflicted with
Proprietary Rights or Secrets of any such Person. Schedule 5.11(a) also sets
forth those Proprietary Rights which will not be transferred to the Buyer or a
Designated Transferee at the Closing ("EXCLUDED PROPRIETARY RIGHTS").
(b) Schedule 5.11(b) lists all license and confidentiality
agreements relating to the Business (collectively, the "LICENSE AND
CONFIDENTIALITY AGREEMENTS"), and indicates thereon which will be used
exclusively by the Business (including use by the Buyer to provide services to
Sellers under the Services Agreement) (the "EXCLUSIVE LICENSE AND
CONFIDENTIALITY AGREEMENTS") and which are used both by the Business and other
businesses of the Sellers (the "NON-EXCLUSIVE LICENSE AND CONFIDENTIALITY
AGREEMENTS"). At the Closing (and subject to Section 2.7), the Sellers (i) will
assign to the Buyer or a Designated Transferee the Exclusive Licenses and
confidentiality Agreements; and (ii) will arrange, at the Sellers' expense, for
the Buyer or a Designated Transferee to receive the benefits of the
Non-Exclusive Licenses and Confidentiality Agreements on the same terms as
applicable to use thereof by the Business prior to the Closing.
5.12 Insurance Policies.
(a) Schedule 5.12 sets forth a list of all policies of fire,
casualty, liability, burglary, fidelity, workers' compensation, and
other forms of insurance held by the Sellers relating to the Business,
other than Inadvertent Immaterial Matters; and
(b) all premiums due and payable for such insurance have
been duly paid, and such policies or extensions or renewals thereof in
such amounts will be outstanding and duly in full force without
interruption until the Closing Date.
5.13 Contracts. Except as elsewhere disclosed in this
Agreement or another Schedule to this Agreement, attached hereto as Schedule
5.13 is a list of the following contracts, understandings, commitments and
agreements (written or oral) relating to the Business as of September 30, 1994:
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(a) all contracts, understandings or commitments (other than
leases), whether in the ordinary course of business or not, involving a
present or future obligation to purchase or deliver goods or services
of an amount or value in excess of One Hundred Thousand Dollars
($100,000) each, or for a term in excess of one year;
(b) all collective bargaining agreements or other
contracts or commitments to or with any labor union, employee
representative or group of employees; and
(c) all employment contracts, and all other contracts,
agreements or commitments to or with individual employees, agents,
representatives or consultants, for a period in excess of thirty (30)
days, or for a remuneration which exceeds or will exceed in accordance
with present commitments, One Hundred Thousand Dollars ($100,000) per
annum.
There has not been any default in any obligation to be performed by the Sellers
under any such contract, commitment or agreement which default could result in
the termination of such contract, commitment or agreement or a Material Adverse
Effect, and the Sellers have not waived any material right under any such
contract, commitment or agreement. True and complete copies of all such written
contracts and written summaries of all such oral contracts have been made
available (and on request will be delivered) to the Buyer.
To the knowledge of the Sellers, Sellers are not party to or otherwise bound by
any contract or commitment that would, after giving effect to consummation of
the transactions contemplated by this Agreement, prohibit or restrict Buyer from
engaging in any aspect of the distribution business with any customer anywhere
in the world.
5.14 Inventory. Except for reserves shown on the Financial
Statements and Statement of Net Assets Sold, all inventories of the Business of
finished goods, packing materials and supplies, are current and are of
consistent and merchantable quality, of the grade specified, were produced in
accordance with the Business' standards, meet the usual standards of the
relevant franchisor, are suitable for use in the Business and exist at levels
consistent with past practice. With respect to inventory on order to be
purchased by the Buyer or a Designated Transferee after the Closing Date and in
the hands of suppliers for which the Business is committed as of the date hereof
or the Closing Date, such inventory, after giving effect to any such reserves in
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the statement of Net Assets Sold, will be usable in the ordinary course of
business as presently being conducted.
5.15 Litigation. Except as described in Schedule 5.15
attached hereto, there is no suit, action, investigation, claim, complaint,
accusation, criminal charge or prosecution pending, or to the knowledge of the
Sellers, threatened against, the Sellers relating to the Business and to which
the Sellers are individually or collectively a party, in any court or before any
arbitration panel of any kind or before or by any federal, provincial, state,
local, foreign or other governmental agency, department, commission, board,
bureau, instrumentality or body ("GOVERNMENTAL BODY") relating to the Business,
other than Inadvertent Immaterial Matters. There is no outstanding order, writ,
injunction, decree, judgment or award by any court, arbitration panel or
Governmental Body against or affecting the Business, except as described in
Schedule 5.15.
5.16 Compliance with Law. Except as set forth in Schedule
5.16:
(a) the Sellers have complied in all material respects with
all laws, rules, decrees, regulations, ordinances and orders (the "LAWS
AND REGULATIONS") including, without limitation, Laws and Regulations
related to the environment or environmental matters, applicable to the
Business and have filed with the proper authorities all statements and
reports, other than Inadvertent Immaterial Matters, required by all
applicable Laws and Regulations; and
(b) the Sellers have not received notice of any violation of
any Laws and Regulations applicable to the Business or operations of
the Business, other than Inadvertent Immaterial Matters. The Sellers
have secured all material licenses, certificates, registrations or
permits (collectively, the "PERMITS") required in the operation of the
Business.
5.17 Absence of Subsequent Actions. Except as set forth in
Schedule 5.17, since the Balance Sheet Date, the Sellers have not, with respect
to the Business: (a) incurred any fixed, non-contingent liability or the basis
therefor, including, without limitation, any liability for or in respect of
borrowed money, in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate, except current liabilities incurred, and liabilities under contracts
entered into, in the ordinary course of business; (b) discharged or satisfied
any claim with respect to borrowed money, or paid any obligation or liability
(fixed or contingent) for money borrowed other than current liabilities
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shown on the Balance Sheet and current liabilities incurred since the Balance
Sheet Date in the ordinary course of business; (c) mortgaged, pledged or
subjected to any claim any of their assets, tangible or intangible; (d) made any
material additions to or sold, assigned, transferred or otherwise disposed of
any of their tangible assets or cancelled any debts or claims, in whole or in
part, except in each case in the ordinary course of business; (e) sold,
assigned, licensed, sublicensed or transferred any Proprietary Rights; (f) made
any capital expenditure or commitment therefor in excess of One Hundred Thousand
Dollars ($100,000); (g) changed their credit policy as to sale of inventories or
collection of receivables; (h) decreased in any material respect expenditures
with respect to promotion and advertising or maintenance and repairs; (i)
entered into any joint venture, partnership or similar arrangement; (j) suffered
any damage, destruction or other casualty loss not covered by adequate insurance
or adequate reserves reflected on the appropriate balance sheet; (k) amended,
modified or terminated any employment or other agreement referred to in Schedule
5.13 attached hereto; (l) except as described in Schedule 5.17, (x) entered into
any employment contract (other than the oral contract implicit in the hiring of
employees in the ordinary course of business on an at-will basis), increased the
compensation payable or to become payable by Sellers to any of the officers or
employees of the Business (other than increases of compensation in the ordinary
course of business of employees other than directors or officers of the
business) or increased any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made by the Sellers, for or with any such officers
or employees, (y) suffered any labor dispute or work refusal, other than routine
matters involving individual employees or (z) received a notice, pursuant to the
rules and regulations promulgated by the National Labor Relations Board ("NLRB")
or the Ontario Labor Relations Board ("OLRB"), of an effort to organize workers
by a labor union or similar organization; (m) entered into any other material
transaction (except for the transactions contemplated by this Agreement) other
than in the ordinary course of business; or (n) agreed to do any of the things
listed in clauses (a) through (n) of this subsection.
5.18 No Adverse Change. Since the Balance Sheet Date, (a) the
business and properties of the Business, taken as a whole, have not been
adversely affected as the result of any fire, explosion, accident, riot, civil
or labor disturbance, strike, boycott, lockout, work refusal, flood, drought,
storm, earthquake, embargo or other casualty or act of God or public enemy; and
(b) there has been no material change in the condition of the Business, other
than changes occurring in the ordinary
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course of business and, with respect to (a) and (b) such changes and events that
do not, individually or in the aggregate, have a Material Adverse Effect.
5.19 Labor Matters. Except as set forth on Schedule 5.19,
there are not in existence and, to the knowledge of the Sellers there are not
threatened, any (a) strike or work stoppages respecting employees of the
Business, (b) grievance or arbitration proceedings arising out of collective
bargaining agreements covering employees of the Business (other than routine
grievances and arbitration proceedings by individual employees which will not,
individually or in the aggregate, be material to the business, operations,
prospects or financial condition of the Business taken as a whole, (c) unfair
labor practice complaints related to the Business, (d) representation proceeding
before the NLRB, the OLRB, or any similar state, provincial or local agency. No
collective bargaining agreement relating to employees of the Business is
currently being negotiated.
5.20 Employee Benefit Plans.
(a) Schedule 5.20(a) lists (i) all employee benefit plans
(as defined in Section 3(3) of ERISA) and all bonus, deferred
compensation, incentive compensation, severance or termination pay,
change in control compensation, death benefit, stock purchase and stock
option plans or arrangements, and (ii) each other employee benefit
plan, agreement or arrangement which obligates or may reasonably be
expected to obligate the Business to pay more than One Hundred Thousand
Dollars ($100,000) annually, and which is maintained or contributed to
by the Sellers applicable to employees of the Business (the "PLANS").
Each of the Plans which is an "employee pension benefit plan" as such
term is defined in Section 3(2) of ERISA (collectively, the "RETIREMENT
PLANS") and any corresponding trust intended to qualify under Sections
401(a) and 501(a) of the Code do so qualify. The IRS has issued a
favorable determination letter with respect to such qualification of
each Retirement Plan and nothing has occurred, in operation or
amendment of the Plans or otherwise, since the date of each such most
recent determination letter that could reasonably be expected to cause
the relevant Retirement Plan or trust to lose such qualification or
exemption. The Sellers have heretofore delivered to the Buyer true and
complete copies of all of the plans and, where applicable, related
trusts, including all amendments, as well as, with respect to each Plan
required to file such report and description, the most recent report on
Form 5500 and summary plan description, and
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the most recent IRS determination letter regarding each of the
Retirement Plans.
(b) Except (as described in Schedule 5.15, there are no
actions, suits or claims (other than claims for benefits) pending or
threatened against any Plan or the assets thereof which could
disqualify under Code Sections 401(a) and 501(a) or diminish in value
any transferred retirement plan assets. Schedule 5.20(b) is an accurate
representation of the claims experience under the Sellers' medical plan
for the period from January 1, 1994 through September 30, 1994.
(c) The only retirement benefit plan for the Sellers'
employees in Canada is the group registered retirement savings plan
known as the "Martin-Brower of Canada, Ltd. Group Registered Retirement
Savings Plan for Eligible Salaried and Hourly Employees" (the "GROUP
RRSP"). The issuer of the Group RRSP is The Mutual Group and the only
agreement between the issuer and the Sellers (or either of them)
relating to the Group RRSP is the agreement dated June 7, 1990 referred
to in Schedule 5.20(a). All contributions agreed or directed to be made
by either of the Sellers on behalf of the Sellers' employees to their
individual registered retirement savings plan issued under the Group
RRSP to the date hereof have been made. To the best of the Sellers'
knowledge, the retirement savings plans offered under the Group RRSP
are duly registered and have been administered in compliance with the
requirements of the Income Tax Act and any regulations and policies
issued thereunder, and no events have occurred which would jeopardize
their registered status.
5.21 Indebtedness and Guaranties. Schedule 5.21 sets forth as
of the Balance Sheet Date a true and complete list, including the names of
parties thereto, of all debt instruments, loan agreements, indentures,
guaranties or other written obligations, which relate to (a) indebtedness for
borrowed money, (b) money loaned to others, or (c) the performance of any
obligation, relating to the Business, provided that the Sellers shall not be
required to list any accounts payable incurred in the ordinary course of
business or any obligations which are general corporate obligations of the
Sellers, which are not secured by any of the Assets and which do not constitute
a Liability. All of the aforesaid items were entered into in the ordinary course
of the Business, are valid and binding, in full force and effect and are
enforceable in accordance with their respective terms; and there exists no
breach or default, or any event which with notice or lapse of time or both,
would constitute a breach or default by any party thereto.
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5.22 Government Contracts and Proceedings. Except as
disclosed in Schedule 5.22, there are with respect to the Business no present
audits, investigations, suits or actions, arising from or related to any
government audit, investigation, claim or suit or action, whether or not
presently known, to the extent that such audit, investigation, claim, suit or
action relates to or is based on contracts or agreements with a governmental
entity.
5.23 Environmental Matters. For purposes of this Agreement,
the following terms shall have the indicated meaning: "ENVIRONMENTAL LAW" means
any federal, state, provincial or local law, statute, ordinance, rule,
regulation, guidelines, code, license, permit, authorization, approval, consent,
order, judgment, decree, injunction or agreement with any governmental entity
relating to (1) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (2) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of Hazardous Substances. The term Environmental Law includes without
limitation (1) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; the
Clean Air Act, as amended, 42 U.S.C. Section 7401, et seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; the Toxic
Substances Control Act, as amended, 15 U.S.C. Section 9601, et seq. ; the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 1101 et
seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.; and all
comparable state and local laws, (2) the Environmental Protection Act (Ontario),
Ontario Water Resources Act, Gasoline Handling Act (Ontario), Canadian
Environmental Protection Act (of Canada), and Transportation of Dangerous Goods
Act, 1992 (of Canada), and (3) any common law (including without limitation
common law that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Substance. "HAZARDOUS SUBSTANCE" means
any substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law, whether by type or by quantity, including any material containing any such
substance as a component, and specifically including petroleum, polycholorinated
biphenyls, urea formaldehyde, asbestos, cholorofluorocarbons and any products or
fractions thereof.
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Except as disclosed in Schedule 5.23. to the best knowledge of
Sellers: (a) Sellers are not and have not been in violation of, liable under or
subject to any obligation for cleanup, removal, containment or other remediation
pursuant to, any Environmental Law, nor is there any basis for such liability or
obligation; (b) (i) there are no actions, suits, investigations or proceedings
pending relating (whether on-site or off-site) to the Owned Real Property, the
Leased Real Property or any other facility or above, on or under any real
property used in the Business under any Environmental Law by any federal, state,
provincial or local environmental agency or third party and (ii) Sellers have
not received any written notice from the owner of any Leased Real Property of
any violation of Environmental Law or requesting Sellers to take remedial action
with respect to the presence of any Hazardous Substance; and (c) there are no
demands, notices or claims pending or threatened relating to the Owned Real
Property, the Leased Real Property or such other facility or real property under
any Environmental Law, including without limitation any notices, demand letters
or requests for information from any federal, state, provincial or local
environmental agency or third party relating to any liabilities under or
violations of Environmental Law.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES BY THE BUYER
The Buyer represents and warrants to, and agrees with, the
Sellers as follows:
6.1 Organization and Good Standing. The Buyer is a
corporation duly incorporated and organized, validly existing and in good
standing under the laws of Delaware. Any Designated Transferee of the Buyer will
be a corporation duly incorporated and organized, validly existing and, if
applicable, in good standing under the laws of its jurisdiction of
incorporation.
6.2 Authority.
(a) The Buyer has all requisite corporate power and
authority to enter into this Agreement and perform its obligations
hereunder. The execution of this Agreement by the Buyer, its delivery
to the Sellers and the performance of its terms have been fully
authorized by the Board of Directors of the Buyer, and no further
corporate action will be necessary on its part to make this Agreement
valid and binding upon the Buyer in accordance with its terms.
(b) Onex Corporation has all requisite corporate power
and authority to enter into the Funding Agreement contained
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in Annex 2.1 (the "FUNDING AGREEMENT") and perform its obligations
thereunder. The execution of the Funding Agreement by Onex Corporation,
its delivery to the Sellers and the performance of its terms have been
fully authorized by the Board of Directors of Onex Corporation, and no
further corporate action will be necessary on its part to make the
Funding Agreement valid and binding upon Onex Corporation in accordance
with its terms.
6.3 No Conflict; No Consents or Approvals.
(a) Except for the matters set forth in Schedule 6.3, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not (i) conflict with, violate or
result in a breach of any provision of the Articles of Incorporation
or By-laws of the Buyer, (ii) to the Buyer's knowledge, conflict with
or violate law, rule, regulation, ordinance, order, writ, injunction,
any decree applicable to the Buyer or its affiliates or by which any of
its properties or assets may be bound or affected, or (iii) conflict
with, violate, effect an acceleration of, or result in termination,
cancellation or modification of any agreement, indenture, instrument,
lease, contract or other undertaking to which the Buyer or any of its
affiliates is a party or by which any of them or their assets are
bound.
(b) Except for matters set forth in Schedule 6.3, the Buyer
is not required to submit any notice, report or other filing with, or
obtain any waiver, consent, approval or authorization of, any
Governmental Body in connection with the execution, delivery or
performance of this Agreement by the Buyer and the consummation of the
transactions contemplated hereby, except for failures to submit such
notices, reports or filings that would not, individually or in the
aggregate, have a material adverse effect on the business, properties,
financial condition or operations of the Buyer, taken as a whole.
(c) Except for the matters set forth in Schedule 6.3, and
except for waivers, consents, approvals or authorizations required to
transfer Restricted Assets, no waiver, consent, approval or
authorization of any Governmental Body or any other Person is required
to be obtained or made by the Buyer in connection with the execution,
delivery or performance of this Agreement and the transactions
contemplated hereby, except for failures to obtain such waivers,
consents, approvals or make such other
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filings that would not, individually or in the aggregate, have a
material adverse effect on the business, properties, financial
condition or operations of the Buyer, taken as a whole.
(d) No litigation, claim, administrative proceeding or other
proceeding or governmental investigation is pending or threatened which
would prevent or delay the execution, delivery or performance of this
Agreement by the Buyer or the consummation by the Buyer of the
transactions contemplated hereby.
ARTICLE VII: OTHER AGREEMENTS
7.1 Conduct of Business. Except to the extent waived or
consented to in writing by the Buyer or as disclosed on Schedule 7.1, the
Sellers and the Buyer agree that pending the Closing;
(a) the Business shall be conducted only in the
ordinary course and consistent with past practice:
(b) (i) no increase shall be made in the compensation of any
director or officer of the Business, and (ii) no increase shall be made
in the compensation of any other employee of the Business, except in
the ordinary course of business, and (iii) no new agreement or
arrangement, written or oral, shall be made with any employee with
respect to employment for a term which extends more than thirty (30)
days after the Closing Date;
(c) the Sellers will use such efforts as are consistent with
prior practices to keep the Business intact, to maintain, preserve and
protect the property used to conduct the Business, to keep in faithful
service the present key employees, and to preserve the good will of
suppliers and customers and others having business relations with the
Business; and
(d) the Buyer shall be promptly notified of any lawsuits,
claims, proceedings or investigations which are threatened or commenced
against the Sellers or its officers or directors, in each case with
respect to the Business, between the date of this Agreement and the
Closing Date, other than Inadvertent Immaterial Matters. From the date
of this Agreement until the Closing Date, the Sellers shall comply
substantially with all laws, regulations, orders and decrees applicable
to the Business.
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7.2 Supplying of Information. Between the date of this
Agreement and the Closing Date, Sellers will (a) afford Buyer and its
representatives and prospective lenders and their representatives (collectively,
"BUYER'S ADVISORS") reasonable access to the personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data
of or relating to the Business, (b) furnish Buyer and Buyer's Advisors with
copies of all such contracts, books and records, and other existing documents
and data of or relating to the Business as Buyer may reasonably request, and (c)
furnish Buyer and Buyer's Advisors with such additional financial, operating,
and other data and information of or relating to the Business as Buyer may
reasonably request (so long as, in the case of requests under this clause (c)
Buyer agrees to pay any out-of-pocket fees and expenses of third parties which
Sellers may incur to satisfy such request). In connection therewith, the Sellers
shall direct and authorize their independent public accountants to make
available to the Buyer and to the independent public accountants representing
the Buyer all working papers pertaining to the examination and audit by such
accountants of the Business. Any data and information obtained by the Buyer from
the Sellers shall be kept confidential and shall be returned to the Sellers if
for any reason the sale of the Business to the Buyer does not close on the
Closing Date. In the event that Buyer or Buyer's Advisors elect to do subsurface
or other testing, Buyer shall indemnify and hold Sellers harmless from and
against any damage to Sellers' property and/or any third party claim arising as
a result thereof. Section 11.8 shall apply to any such third party claim. This
indemnity does not extend to any damages suffered by Sellers to the extent that
such damages arise from any existing facts or circumstances, including, but not
limited to, the presence of any Hazardous Substance or any past or present
violation of Environmental Law revealed by such testing.
7.3 Filings and Authorizations. Each of the Sellers and the
Buyer, as promptly as practicable
(a) will make, or cause to be made, all such filings and
submissions required under laws, rules and regulations applicable to
it, as may be required for it to consummate the purchase and sale of
the Assets in accordance with the terms of this Agreement;
(b) will use its commercially reasonable efforts to obtain,
or cause to be obtained, all authorizations, approvals, consents and
waivers from all persons and governmental authorities necessary to be
obtained by it, in order for it to consummate such transfer; and
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(c) will use its commercially reasonable efforts to take or
cause to be taken, all other actions necessary, proper or advisable in
order for it to fulfill its obligations hereunder.
In particular, the sellers and the Buyer agree that they shall
file or cause to be filed a "short-form" notification with the Director of
Investigation and Research under the Competition Act (Canada). The parties will
use their best efforts to make this filing promptly upon execution of this
Agreement, and shall provide their full co-operation and assistance in the
preparation and filing of any subsequent information required by the Director.
The parties shall further use all reasonable efforts to cause waiting periods
under the Competition Act to terminate or expire at the earliest possible date.
Each party shall supply the other with a copy of all notices
and information supplied or filed by it after the date hereof under the
Competition Act forthwith after such notices or information are supplied or
filed and shall indicate thereon the date of supply or filing. Each party shall
also supply the other with a copy of all notices or correspondence received
from, or the details of any communications with, the Director of Investigation
and Research or on his behalf forthwith upon receipt of such notices or other
correspondence or the occurrence of such communications.
7.4 Damage or Destruction of Property. If any material
portion of the Assets shall be substantially damaged or destroyed by fire or
other cause on or prior to the Closing Date, the Sellers shall immediately
notify the Buyer and furnish to Buyer a written statement of the amount of
insurance, if any, payable on account thereof. In the event of damage or
destruction of a portion of the Assets having a Material Adverse Effect, the
Buyer may elect to require that the Sellers (a) restore the property to its
condition on the date of this Agreement, limited to the amount of the insurance
proceeds (plus any deductible or retention amount); (b) pay the insurance
proceeds to the Buyer at the Closing Date (plus any deductible or retention
amount); or (c) terminate this Agreement.
7.5 Bulk Sales. It may not be practicable to comply or
attempt to comply with the procedures of bulk sales acts or similar law of any
or all of the states or other jurisdictions in which the Assets are situated (or
of any state or jurisdiction which may be asserted to be applicable to the
transactions contemplated hereby). Accordingly, to induce the Buyer to waive any
requirements for compliance with any or all of such laws, the
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Sellers hereby agree to indemnify the Buyer against any claim asserted against
the Buyer arising out of or resulting from the failure of the Buyer or the
Sellers to comply with any such laws or any similar law of which may be asserted
to be applicable, except for the Liabilities.
7.6 Employment of Business Work Force.
(a) At least twenty (20) days prior to the Closing Date, the
Buyer shall make an offer of employment, effective as of the Closing
Date or first day thereafter, to all active employees of the Sellers
employed in the Business except (i) those employees listed on Schedule
7.6 and (ii) those headquarters employees to whom Buyer elects not to
make offers of employment (such offers shall be made to the 34
individuals previously identified by Buyer and Sellers (the "34")).
Schedule 7.6 shall include all inactive employees, including those on
paid or unpaid leave, long term and worker's compensation disability or
layoff. Offers of employment will be made to such inactive employees
upon the termination of leave, release from disability to the extent
essential job functions can be performed, or availability of a
comparable position for which a laid off employee is eligible for
recall. The parties hereto do not intend to create any third-party
beneficiary rights respecting any employee as a result of the
provisions herein and specifically hereby negate any such intention.
(b) The Buyer agrees to provide any notification required
under the Worker Adjustment Retraining Notification Act ("WARN") and
any similar state law and the Buyer for these purposes shall act as the
Sellers' agent should any actions contemplated by the Buyer create or
give rise to a notice obligation under such laws.
(c) At least thirty (30) days prior to Closing Date, Sellers
will furnish to Buyer the names and current addresses of all employees
of the Business and, at least seven days prior to Closing Date, shall
update this information. Sellers will also provide reasonable
assistance to Buyer with regard to the actual physical distribution of
any such WARN notification provided by Buyer.
7.7 Employee Benefits.
(a) Employment With Buyer. If an employee employed in the
Business ("EMPLOYEE") is offered employment with the Buyer with
compensation at the Employee's current rate of
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pay and benefits, taken as a whole, with equal or greater cost value as
the benefits provided by Sellers on Closing Date (or, in the case of
the 34, offered employment at their current rate of pay and the same
benefit package offered other Hired Employees) and such employee
decides not to accept such employment, the Sellers shall be liable for
any applicable severance pay and for any COBRA obligations under
Section 7.7(e). If an Employee is offered employment with the Buyer
with compensation at a rate lower than the Employee's current rate of
pay or (except in the case of the 34) benefits, taken as a whole, with
a cost value less than the benefits provided by the Sellers on Closing
Date and such employee decides not to accept such employment, the Buyer
shall be liable for any applicable severance pay, even if such
severance pay is owed under a severance pay plan maintained by Sellers,
and shall be liable for any COBRA obligations under Section 7.7(e);
provided, however, the Buyer's obligation for severance pay shall not
exceed one week's pay for each year of service with the Sellers. With
respect to the 34, if Buyer makes any offer of employment, such offer
shall be at the current rate of pay and same benefit package offered
other Hired Employees. If an offer of employment is not made to one or
more of the 34, the Sellers and Buyer shall share in the obligation for
severance in proportion with the budgeted allocation of that individual
employee's department prior to the sale contemplated hereunder, taking
into account the number of employees that have been employed by the
respective division, as set forth in the October 19, 1994 memorandum, a
copy of which is attached hereto as Schedule 7.7(a). The employees who
accept employment with the Buyer on the Closing Date are the "HIRED
EMPLOYEES" and the employees who do not accept employment with the
Buyer on the Closing Date are the "NON-HIRED EMPLOYEES".
(b) Defined Benefit Plan. The Sellers maintain a defined
benefit plan for the benefit of certain non-union and union hourly
employees (the "DEFINED BENEFIT PLAN"). The Buyer will not assume
sponsorship of the Defined Benefit Plan as of the Closing Date for
these employees, and shall have no liability or obligations thereunder
for these employees. At or prior to the Closing Date, the Sellers shall
take the action necessary to fully vest these benefits for the Hired
Employees covered under this Plan as of Closing Date. The Sellers shall
cause liquid assets sufficient to fully fund the actuarial liability
for accrued benefits as of Closing Date under the Defined Benefit Plan
for the Hired Employees covered under this Plan to be transferred to a
defined benefit plan maintained by the
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Buyer or one of its affiliates. The actuarial assumptions used by the
Plan for funding purposes under the Defined Benefit Plan as of Closing
Date as set forth on Schedule 7.7(b) may be used for this purpose,
provided the interest rate assumption may not exceed 8.5 percent per
annum. The Hired Employees shall be credited with service, for
eligibility and vesting purposes, under the Buyer's defined benefit
plan that they had under the Defined Benefit Plan on the Closing Date.
(c) U.S. Defined Contribution Plans. Effective as of the
Closing Date, the Sellers shall cause each of the Employees to have a
fully nonforfeitable right to the Employee's account balance under the
Sellers' 401(k) Plan and the Sellers Money Purchase Pension Plan (the
"Defined Contribution Plan"). As soon as practicable, but effective as
of the Closing Date, the Buyer shall take all action necessary and
appropriate to extend coverage under one or more new or existing
defined contribution plans qualified under Sections 401(a) and 501(a)
of the Code (the "Buyer's Defined Contribution Plan"), to the Hired
Employees having account balances under the Defined Contribution Plans
as of the Closing Date. Such Hired Employees shall be credited, for
eligibility and vesting purposes, with the service credited under the
terms of the Defined Contribution Plans. As soon as practicable
following the Closing Date and the establishment of the Buyer's Defined
Contribution Plan, but no earlier than thirty (30) days after the
Closing Date, the Sellers shall cause to be transferred from the
trustee of the Defined Contribution Plans to the trustee of the Buyer's
Defined Contribution Plan an amount in cash or in kind (with any in
kind transfer to be agreed upon by Sellers and Buyer) equal to the
aggregate account balances of the Hired Employees under the Defined
Contribution Plans determined as of the transfer date (which shall be a
valuation date) in accordance with the methods of valuation set forth
in the Defined Contribution Plans. From and after the date of such
transfer, the Buyer shall cause the Buyer's Defined Contribution Plan
to assume the obligations of the Defined Contribution Plans with
respect to benefits accrued by the Hired Employees under the Defined
Contribution Plans and the Defined Contribution Plans shall cease to be
responsible therefor. The Sellers shall cause to be made any matching
or regular contributions that are required under the Defined
Contribution Plans for the period prior to the Closing Date. The
Sellers and the Buyer shall cooperate in making all appropriate
Internal Revenue Service filings in connection with the transfer
described above.
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(d) Canadian Defined Contribution Plan. The Buyer shall,
from and after the Closing, assume responsibility as employer under the
Group RRSP for those Hired Employees who currently maintain individual
accounts as part of the Group RRSP and the Buyer agrees to take such
steps as may be necessary to enter into its own arrangements with the
Mutual Group or another Canadian entity in the business of offering
"registered retirement savings plans" within the meaning thereof under
the Income Tax Act (Canada). The Buyer assumes no liability or
responsibility for the Sellers' contribution obligations under the
Group RRSP up to the Closing Date and the Sellers shall ensure that all
such contribution obligations are paid up to the Closing Date.
(e) Welfare Plan. Effective as of the Closing Date the
Sellers shall cause each Hired Employee to cease to participate in each
welfare benefit plan sponsored by the Sellers. The Sellers shall be
liable for all claims incurred (i.e. runoff for treatments or services
rendered), whether submitted or not, prior to Closing Date for Non-
Hired Employees and prior to effective date of hire for Hired
Employees. The Buyer shall offer participation under its welfare plan
to all Hired Employees in accordance with the terms of the plans giving
the Hired Employees credit for all years of service for employment with
the Sellers including all years of service with Sellers under any
applicable vacation pay policy of the Buyer. The Sellers shall satisfy
any requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985 ("COBRA") for Non-Hired Employees who were offered employment
with the Buyer with compensation at the Employee's current rate of pay
and benefits, taken as a whole, equal or greater in cost value to the
benefits provided by the Sellers on the Closing Date. The Buyer shall
satisfy any requirements of COBRA for Hired Employees and Non-Hired
Employees who are not offered employment with the Buyer with
compensation at Employee's current rate of pay or benefits, taken as a
whole, with equal or greater cost value than the benefits provided by
Sellers on Closing Date. Payments made by Hired Employees during the
current plan year toward the Sellers' medical plan deductibles shall be
credited toward any deductible requirement in the Buyer's medical plan
for the concurrent or overlapping plan year.
(f) Retiree Medical Benefits. The Buyer shall have no
obligation to provide retiree medical plan coverage for any Hired
Employees, Non-Hired Employees or former Employees of the Business and
the failure to do so shall not constitute a
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failure to offer benefits with equal or greater cost values as benefits
offered by Sellers.
(g) Multiemployer Plans. The Buyer shall not be obligated to
contribute to any multiemployer plan (as defined in ERISA) or make any
withdrawal liability payments. Sellers shall be liable for applicable
withdrawal liability and shall indemnify Buyer from any such withdrawal
liability as of Closing Date or requirements related thereto, which is
attributable to contributions made by or attributable to the Sellers.
7.8 Retention of Records. The Buyer shall retain for a
period of seven (7) years after the Closing Date or longer if required by any
applicable statute of limitations the books and records relating to the Business
transferred hereby (unless the Sellers request a longer period, in which case
such books and records shall be stored by the Buyer, at the Sellers' expense,
and Buyer agrees, during regular business hours, to (a) give the Sellers and
their authorized representatives reasonable access to all of their books,
records, offices and other facilities and properties, (b) permit the Sellers to
make such inspections (and copies of any documents at the Sellers' expense)
thereof as the Sellers may reasonably request, and (c) furnish the Sellers with
such financial and operating data and other information for periods prior to the
Closing Date or otherwise relating to the Sellers' responsibilities, with
respect to their business, operations and properties as the Sellers may from
time to time reasonably request, including data and information needed for
financial and tax reporting and statutory filings. However, the Buyer may from
time to time during the periods set forth above notify the Sellers of its
intention to destroy any of the foregoing material and may do so unless the
Sellers elect, within ninety (90) days after that notice, to take possession
of the material proposed to be destroyed. The Sellers shall keep such
information confidential except for (i) information in the public domain, (ii)
disclosures that may be required by law or regulation or in connection with
legal process, or (iii) disclosures to its attorneys and accountants, who
shall respect the above restrictions.
7.9 Tax Matters.
(a) Liability for Taxes. The Sellers will file or cause to
be filed with the appropriate taxing authority all returns and reports
relating to Taxes of the Business for any period (or portion thereof)
ending on or before the Closing Date. Except to the extent reserved for
on the Balance Sheet, for any pre-Closing period, the Sellers shall
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be liable for and shall hold the Buyer and BroMar harmless from any and
all Taxes due or payable with respect to the Business for any period
(or portion thereof) ending on or before the Closing Date. For purposes
of this Section 7.9, a "pre-Closing period" is any taxable period (or
portion thereof) ending on or prior to the Closing Date and a
"post-Closing period" is any taxable period (or portion thereof) in
respect of such Taxes that is not a pre-Closing period.
(b) Audit Adjustments. If an audit adjustment, claim for
refund or amended return ("Adjustment") after the date hereof shall
both increase a Tax liability of BroMar which is allocated to Sellers
under subsection (a) of this Section 7.9 for a pre-Closing period and
decrease a Tax liability of BroMar for a post-Closing period, then,
when and to the extent that BroMar derives a benefit from such decrease
(through a reduction of Taxes, refund of Taxes paid or credit against
Taxes due), BroMar shall promptly pay to the Sellers an amount equal
to the amount of such refund, reduction or credit. Similarly, if an
Adjustment shall both decrease a Tax liability of BroMar which is
allocated to Sellers under subsection (a) of this Section 7.9 for a
pre-Closing period and increase the Tax liability of BroMar (or reduce
losses or credits otherwise available to BroMar) for a post-Closing
period, then, when and to the extent that Sellers derive a benefit from
such decrease (through a refund or reduction of Taxes paid or credit
against Taxes due), the Sellers shall promptly pay to the Buyer an
amount equal to the amount of such refund, reduction or credit.
(c) Contests. If an audit is commenced, an audit adjustment
is proposed or any other claim is made by any Tax authority with
respect to a Tax liability of BroMar which is the responsibility of the
Sellers under subsection (a) of this Section 7.9, the Buyer shall
promptly notify the Sellers of such audit or such proposed adjustment
or such claim (unless the Sellers previously were notified directly by
the relevant Tax authority). If the Sellers so request and at the
Sellers' expense, the Buyer shall cause BroMar to contest such claim on
audit or by appropriate claim for refund or credit of Taxes or in a
related administrative or judicial proceeding, and shall permit the
Sellers, at their expense, to participate in the prosecution of any
such audit or refund claim or related administrative or judicial
proceeding with respect to those matters that would affect the Sellers'
liability hereunder.
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Each party shall keep the other party fully and timely
informed with respect to all matters relating to any proceeding which involves
Taxes for which both parties are responsible hereunder and shall allow the other
party to participate in the development of any litigation or settlement
positions. The Sellers' right to participate in any such proceeding shall be
limited to amounts and issues in dispute that could result in a Tax or
indemnification payment by the Sellers. With respect to such amounts and issues,
the Buyer shall not settle, concede or otherwise dispose of any such proceeding
without the Sellers' consent (which shall not be unreasonably withheld). Any
refund of Taxes of BroMar with respect to a pre-Closing Period described in
subsection (a) of this Section 7.9 obtained by BroMar shall be paid promptly to
the Sellers.
(d) Information and Cooperation. From and after the Closing
Date, the Buyer shall deliver to the Sellers (including, for purposes
of this sentence, the Sellers' Tax advisors) , as soon as practicable
after the Sellers' request, such full and complete information and data
concerning the pre-Closing operations of the Business and make
available such knowledgeable employees of the Business as the Sellers
may reasonably request, including providing the full and complete
information and data required by the Sellers in order to enable the
Sellers to satisfy their accounting and Tax requirements. From and
after the Closing Date, the Sellers shall deliver to the Buyer
(including, for purposes of this sentence, the Buyer's Tax advisors),
as soon as practicable after the Buyer's request, such full and
complete information and data concerning any Tax attributes that are
allocated to the Business to be acquired by the Buyer and the
pre-Closing operations of the Sellers and make available such
knowledgeable employees of the Sellers as the Buyer may reasonably
request that are necessary in order to enable the Buyer to complete and
file all Tax forms or reports that it may be required to file with
respect to the activities of the Buyer, from and after the Closing
Date, to respond to audits by any taxing authorities with respect to
such activities and to otherwise enable the Buyer to satisfy its
accounting and Tax requirements.
(e) Affiliates. For purposes of this Section 7.9, "Buyer"
and "Sellers" respectively shall include each member of the affiliated
group of corporations of which it is or becomes a member.
7.10 Trademark. The Buyer and the Sellers shall, on or prior
to the Closing Date, enter into a royalty-free Trademark
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License Agreement in a form reasonably satisfactory to the Sellers and the Buyer
which shall provide for (i) the continued display on the vehicles and facilities
included in the Assets for a period of six months following the Closing Date of
the marks and other Proprietary Rights displayed on those vehicles and
facilities prior to the Closing Date and (ii) the use by the Buyer of the mark
"M-B" without coloring or with coloring that is not the same as or confusingly
similar to the coloring of that mark as presently used by the Business.
7.11 Environmental Inspection. Prior to the Closing Date, the
Buyer shall have the right to inspect or test, or, at its sole cost and expense,
contract with a third party to inspect and test the Owned Real Property, Leased
Real Property and other Assets (at reasonable times), for purposes of confirming
the presence of all required Permits, assessing compliance with Environmental
Laws and determining whether any Hazardous Substance is present. If the Buyer
asserts or claims that there has been a breach of the representations and
warranties in Section 5.23 or a failure to satisfy the condition in Section 8.8,
as a result of any reports prepared at the request of the Buyer by any third
parties, then the Buyer shall, upon request of the Sellers, deliver copies to
the Sellers' counsel of all such reports upon which such assertion or claims are
based.
7.12 Service Agreement. The Buyer and the Sellers shall, on
or prior to the Closing Date, enter into a Service Agreement in a form
reasonably satisfactory to the Sellers and Buyer relating to the sharing of and
compensation for services, facilities and equipment to be provided to each other
after the Closing (the "Service Agreement").
7.13 Covenant Not to Compete with the Business.
(a) The Sellers agree that, effective as of the Closing Date
and for a period of five (5) years thereafter, they shall not, without
the consent of the Buyer, directly or indirectly, conduct, participate
or engage in any business with an Identified Customer that is
competitive in any material way with the Business in North America.
(b) The Sellers agree that, effective as of the Closing Date
and for a period of three (3) years thereafter, they shall not, without
the consent of the Buyer, directly or indirectly, conduct, participate
or engage in any business that is competitive in any material way with
the Business in North America.
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(c) The Sellers agree that, effective as of the Closing Date
and for a period of three (3) years thereafter, they shall not, without
the consent of the Buyer, directly or indirectly, conduct, participate
or engage in any business that is competitive in any material way with
the Business in any geographic area outside of North America that is
within 250 miles of any location served by the Business at any time
during the one-year period ending on the Closing Date.
(d) The Sellers agree that, effective as of the Closing Date
and for a period of three (3) years thereafter, they shall not, without
the consent of the Buyer, directly or indirectly, conduct, participate
or engage in any business involving the export from North America of
any products of the type dealt in by the Business prior to the Closing
(including, but not limited to, food products, restaurant supplies,
paper goods and premium and promotional items) for use by casual dining
or fast-food restaurants to any country served by the Business at any
time during the one-year period ending on the Closing Date.
(e) The Sellers agree that, effective as of the Closing Date
and for a period of three (3) years thereafter, they shall not, without
the consent of the Buyer, directly or indirectly, employ or retain, or
participate in the employment or retention of, or solicit or encourage
to leave the employ of Buyer, any individual listed on Schedule
7.13(e).
(f) The Buyer agrees that, effective as of the Closing Date
and for a period of three (3) years thereafter, it shall not, without
the consent of the Sellers, employ or retain, or participate in the
employment or retention of, or solicit or encourage to leave the employ
of Seller, any individual listed on schedule 7.13(f). The Buyer
acknowledges that a remedy at law for any breach or attempted breach of
this Section 7.13(f) will be inadequate and further agree that any
breach of this Section 7.13(f) will result in irreparable harm to the
Sellers; and the Buyer covenants and agrees that any breach or
attempted breach may be the subject of a demand for specific
performance and injunctive and other equitable relief and no bond or
security shall be required in connection therewith. Whenever possible,
each provision of this Section 7.13(f) shall be interpreted in such
manner as to be effective and valid under applicable law but if any
provision of this Section 7.13(f) shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the
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extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Section
7.13(f). If any provision of this Section 7.13(f) shall, for any
reason, be judged by any court of competent jurisdiction to be invalid
or unenforceable, such judgment shall not affect, impair or invalidate
the remainder of this Section 7.13(f) but shall be confined in its
operation to the provision of this Section 7.13(f) directly involved
in the controversy in which such judgment shall have been rendered. In
the event that the provisions of this Section 7.13(f) should ever be
deemed to exceed the time or geographic limitations permitted by the
applicable laws, then such provision shall be reformed to the maximum
time or geographic limitations permitted by applicable law.
(g) Paragraphs (b), (c) and (d) shall not restrict the
Sellers from conducting any business activities with McDonald's
Corporation, its subsidiaries, its affiliates and licensees and, to the
extent initiated by McDonald's, with customers operating in association
or conjunction with McDonald's, its subsidiaries, affiliates or a
licensee of the foregoing. However, this paragraph (g) shall not permit
the Sellers to conduct any business with an Identified Customer that
may be acquired by McDonald's Corporation or any such subsidiary,
affiliate or licensee.
(h) Paragraphs (b), (c) and (d) shall not restrict the
Sellers from making any acquisition (whether by way of assets, stock or
otherwise) of an interest in, or any investment in, in either case
whether directly or indirectly, any business or entity that derives 25%
or less of its gross revenues from the sale or provision of goods or
services that are competitive in any material way with the Business, if
that portion or those portions of the business of the acquired interest
or business entity that are competitive with the Business are sold or
otherwise divested within twelve months after the date of acquisition
or investment.
(i) As used in this Section 7.13, an "Identified Customer"
is any customer listed on Schedule 7.13(i), for both existing and new
concepts, any subsidiaries of such customer, any successor to all or
any substantial portion of their businesses (but only with respect to
the portion of the successor's business that succeeds to the business
of an Identified Customer, as it may develop) and any franchisee or
licensee thereof.
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(j) As used in this Section 7.13, "North America" includes
the United States of America, Canada, Mexico, their territories or
possessions, and any country that may be formed within the boundaries
of any of the foregoing as they exist on the date of this agreement.
(k) As used in this Section 7.13, references to licensees or
franchisees of a person or entity means licensees or franchisees of
such person or entity in their capacities as such.
(l) The Sellers acknowledge that a remedy at law for any
breach or attempted breach of this Section 7.13 will be inadequate and
further agree that any breach of this Section 7.13 will result in
irreparable harm to the Business; and the Sellers covenant and agree
that any breach or attempted breach may be the subject of a demand for
specific performance and injunctive and other equitable relief and no
bond or security shall be required in connection therewith. Whenever
possible, each provision of this Section 7.13 shall be interpreted in
such manner as to be effective and valid under applicable law but if
any provision of this Section 7.13 shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Section 7.13. If
any provision of this Section 7.13 shall, for any reason, be judged by
any court of competent jurisdiction to be invalid or unenforceable,
such judgment shall not affect, impair or invalidate the remainder of
this Section 7.13 but shall be confined in its operation to the
provision of this Section 7.13 directly involved in the controversy in
which such judgment shall have been rendered. In the event that the
provisions of this Section 7.13 should ever be deemed to exceed the
time or geographic limitations permitted by the applicable laws, then
such provision shall be reformed to the maximum time or geographic
limitations permitted by applicable law.
(m) At the Closing, Sellers shall cause Dalgety plc to enter
into an agreement with Buyer (the "Dalgety Non-Compete Agreement") to
the effect that, effective as of the Closing Date and for a period of
five (5) years thereafter, it shall not, without the consent of the
Buyer, directly or indirectly, conduct, participate or engage in any
business with an Identified Customer that is competitive in any
material way with the Business in North America. Dalgety plc shall
acknowledge in the Dalgety Non-Compete Agreement that a remedy at law
for any breach or attempted breach of
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such agreement would be inadequate and Dalgety plc shall agree that any
breach of the Dalgety Non-Compete Agreement would result in irreparable
harm to the Business; and Dalgety plc shall covenant in such agreement
and agree that any breach or attempted breach may be the subject of a
demand for specific performance and injunctive and other equitable
relief and no bond or security shall be required in connection
therewith. The Dalgety Non-Compete Agreement shall also provide that:
whenever possible, each provision of the Dalgety Non-Compete Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but if any provision of such agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining
provisions of the Dalgety Non-Compete Agreement. If any provision of
the Dalgety Non-Compete Agreement shall, for any reason, be judged by
any court of competent jurisdiction to be invalid or unenforceable,
such judgment shall not affect, impair or invalidate the remainder of
such agreement but shall be confined in its operation to such provision
directly involved in the controversy in which such judgment shall have
been rendered. In the event that the provisions of the Dalgety
Non-Compete Agreement should ever be deemed to exceed the time or
geographic limitations permitted by the applicable laws, then such
provision shall be reformed to the maximum time or geographic
limitations permitted by applicable law.
The Dalgety Non-Compete Agreement shall also provide that: the
Dalgety Non-Compete Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (excluding its
conflicts of law provisions) as to all matters, including but not
limited to, matters of validity, construction, effect, performance and
remedies. Any legal suit, action or proceeding brought by Buyer, or any
of its respective affiliates, arising out of or based upon the Dalgety
Non-Compete Agreement shall be instituted in (a) the United States
District Court for the District of Delaware, or if such suit, action or
proceeding may not be brought in such court for jurisdictional reasons,
(b) the Courts of the State of Delaware, and Dalgety plc (on its behalf
and on behalf of its affiliates) waives any objections which it may now
or hereafter have to the laying of venue of any such proceeding, and
irrevocably submits to the exclusive jurisdiction of the Courts of the
State of Delaware in any such suit, action or proceeding. Process may
be served in any action based on the Dalgety Non-Compete
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Agreement anywhere in the world and Dalgety plc expressly accept such
jurisdiction. Dalgety plc shall irrevocably waive all right to a trial
by jury in any suit, action or proceeding (including any counterclaim)
arising out of or based upon such Agreement.
7.14 Financing. Buyer hereby agrees to use its reasonable
commercial efforts to obtain financing on the terms described on Schedule 8.5.
7.15 Orlando Financing. Sellers shall pay in full on November
30, 1994, the Industrial Development Revenue Bonds and accrued interest secured
by the distribution center located at 1090 Gills Drive, Orlando, Florida.
7.16 Recovery of Undercharges and Uncollected Sales Tax.
After the Closing, the Buyer agrees to cooperate as the Sellers may reasonably
request in obtaining payments from customers of the Business for undercharges
attributable to sales made prior to the Closing Date, and in connection with the
collection of sales taxes which were due on, but had not been collected from
customers of the Business, for sales made prior to the Closing Date. However,
Buyer shall not be required to incur any expense not reimbursed by Sellers or do
anything that in its good faith judgment it would not do with respect to such
customer in a similar situation.
7.17 Excess Accounts Receivable Losses. The Sellers shall
reimburse the Buyer for the amount (not exceeding $250,000) by which Buyer's
write-offs of accounts receivable (whether included in the Assets or generated
by the Business after the Closing Date) during the 12 months following the
Closing Date exceed $300,000, such reimbursement to be made promptly after Buyer
gives Sellers notice of the amount thereof.
ARTICLE VIII; CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE BUYER TO CLOSE
The obligation of the Buyer to close shall be subject to the
following conditions precedent:
8.1 The Sellers' Fulfillment of Covenants. The Sellers shall
fulfill their covenants, obligations and agreements as set forth in this
Agreement in all material respects.
8.2 The Sellers' Certificate as to Representations. The
representations and warranties of the Sellers contained in this Agreement shall
be accurate in all material respects on the date when made and on the Closing
Date to the same extent as if
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made on such date. The Sellers shall deliver to the Buyer certificates dated the
Closing Date and executed by an executive officer of each of the Sellers stating
that the representations and warranties made by it in this Agreement are
accurate in all material respects as of the Closing Date and that all covenants,
agreements and conditions required by this Agreement to be performed by it prior
to Closing have been performed in all material respects on or prior to the
Closing Date.
8.3 The Buyer's Receipt of the Sellers' Authority to
Consummate. The Buyer shall have received a certified copy of the resolutions of
the Board of Directors of the Sellers, certified by an appropriate officer or a
director, authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
8.4 Authorizations; Consents: Legal Prohibition. Except as
provided in Section 2.7,
(a) The Buyer shall have obtained and made all governmental
or other authorizations, approvals, consents, waivers and filings prior
to Closing, under any applicable law, rule or regulation, contract,
agreement or commitment of the Business (A) the lack of which (i) would
render legally impermissible the purchase hereunder of the Assets by
the Buyer, (ii) prevent the operation of the Business (or that portion
of the Business conducted from any distribution center) by the Buyer on
substantially the same basis as it was operated by the Sellers prior to
the Closing Date, (iii) have a Material Adverse Effect or (B) listed in
Part A of Schedule 2.7. In particular, all filings required to be made
under the Competition Act shall have been made and the waiting periods
thereunder shall have terminated or expired without any action or
proceeding having been taken or proposed by the Director under such
Act.
(b) The Sellers shall have obtained and made all
governmental or other authorizations, approvals, consents, waivers and
filings, the lack of which prior to the Closing Date, under any
applicable law, rule or regulation, contract, agreement or commitment
of the Business (i) would render legally impermissible the sale
hereunder of the Assets by the Sellers, (ii) prevent the operation of
the Business (or that portion of the Business conducted from any
distribution center) by the Buyer, or (iii) have a Material Adverse
Effect.
(c) There shall not exist any pending injunction or
other order of a court of competent jurisdiction which would
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make unlawful the consummation of the transactions contemplated by this
Agreement or which would require any divestiture or that any portion of
the Business be held separate.
(d) (i) No action, suit or proceeding by a Governmental Body
shall be pending or threatened that seeks to prohibit or restrict the
consummation of the transactions contemplated by this Agreement or to
require any divestiture or that any portion of the Business be held
separate or which questions the validity or legality of the
transactions contemplated by this Agreement and (ii) the waiting period
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (Section
7A of the Clayton Act, 15 U.S.C. Section 18a) shall have expired or
been terminated.
8.5 Receipt of Financing. Financing on terms substantially
similar to, or at least as favorable to Buyer as, the terms set forth on
Schedule 8.5 shall have been made available to Buyer.
8.6 Other Agreements. The Buyer and Sellers shall have
executed the Trademark License Agreement referred to in Section 7.10 and the
Service Agreement.
8.7 Legal Opinion. Buyer shall have received an opinion of
McDermott, Will & Emery, counsel to Sellers, dated the Closing Date and in the
form of Annex 8.7.
8.8 Environmental Investigation. The environmental
investigation conducted by Buyer as contemplated by Section 7.11 shall not have
revealed the presence or reasonable likelihood of presence (as indicated in a
written report of environmental consultants delivered to Sellers) of Hazardous
Substances that may require cleanup, removal, containment or other remediation
on any Owned Real Property or Leased Real Property and shall not have revealed
any material breach of applicable Environmental Law. The presence of
choloroflucarbons in equipment on Owned Real Property or Leased Real Property in
compliance with current standards shall not by itself cause this condition not
to be satisfied.
8.9 Audited Financial Statements. Buyer shall have received,
not later than 14 days prior to the Closing Date, balance sheets of the Business
as at June 30, 1994 and June 30, 1993, and the related statements of income and
cash flow for the fiscal years then ended, together with a report of Price
Waterhouse, to the effect that, based on an examination in accordance with
generally accepted auditing standards, such
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financial statements fairly present the financial condition and results of
operations of the Business in accordance with generally accepted accounting
principles, and such financial statements shall not disclose any material
variance from the Financial Statements, subject to variations attributable to
the accounting principles in schedule 4.1 (which apply to the Financial
Statements but not such audited financial statements).
ARTICLE IX: CONDITIONS PRECEDENT TO THE
SELLERS' OBLIGATION TO CLOSE
The Sellers' obligation to close shall be subject to the
following conditions precedent:
9.1 The Buyer's Fulfillment of Covenants. The Buyer shall
fulfill its covenants, obligations and agreements as set forth in this Agreement
in all material respects.
9.2 The Sellers' Receipt of the Buyer's Authority to
Consummate. The Sellers shall have received a certified copy of the resolutions
of the Board of Directors of the Buyer, certified by an appropriate officer or a
director, authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
9.3 The Buyer's Certificate as to Representations. The
representations and warranties of the Buyer contained in this Agreement shall be
accurate in all material respects on the date when made and on the Closing Date
to the same extent as if made on such date. The Buyer shall deliver to the
Sellers a certificate dated the Closing Date executed by an executive officer of
the Buyer stating that said representations and warranties made by it in this
Agreement are accurate in all material respects as of the Closing Date and that
all agreements and conditions required to be performed by the Buyer prior to
Closing have been performed on or prior to the Closing Date in all material
respects.
9.4 Authorizations; Consents; Legal Prohibition.
(a) The Buyer shall have obtained and made all governmental
or other authorizations, approvals, consents, waivers and filings, the
lack of which prior to Closing, under any applicable law, rule or
regulation would render legally impermissible the purchase hereunder of
the Assets by the Buyer. In particular, all filings required to be made
under the Competition Act shall have been made and the waiting
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periods thereunder shall have terminated or expired without any action
or proceeding having been taken or proposed by the Director under such
Act.
(b) The Sellers shall have obtained and made all
governmental or other authorizations, approvals, consents, waivers and
filings, the lack of which prior to the Closing Date, under any
applicable law, rule or regulation would render legally impermissible
the sale hereunder of the Assets by the Sellers.
(c) On the Closing Date, there shall not exist any pending
injunction or other order of a court of competent jurisdiction which
would make unlawful the consummation of the transactions contemplated
by this Agreement.
(d) (i) No action, suit or proceeding by a Governmental Body
shall be pending or threatened that seeks to prohibit or restrict the
consummation of the transactions contemplated by this Agreement or
which questions the validity or legality of the transactions
contemplated by this Agreement and (ii) the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976 (Section 7A of the
Clayton act, 15 U.S.C. Section 18a) shall have expired or been
terminated.
9.5 Other Agreements. The Buyer and Sellers shall have
executed the Trademark License Agreement referred to in Section 7.10 and the
Service Agreement.
9.6 Legal Opinion. Sellers shall have received an opinion of
Kaye, Scholer, Fierman, Hays & Handler, counsel to Buyer, dated the Closing Date
and in the form of Annex 9.6.
ARTICLE X: CLOSING DATE
10.1 Closing. Subject to the conditions set forth in Articles
VIII and IX hereof, the consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kaye, Scholer,
Fierman, Hays & Handler, 425 Park Avenue, New York, New York 10022, on the
Closing Date or on such other date and/or place as the Buyer and the Sellers may
mutually agree, such date hereinafter referred to as the "Closing Date". Failure
to close on such date shall not relieve either party hereto of its obligations
under this Agreement.
ARTICLE XI: INDEMNIFICATION AND REIMBURSEMENT
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11.1 Survival. All representations, warranties and agreements
contained in this Agreement or in any certificate delivered pursuant to this
Agreement shall survive the Closing notwithstanding any investigation conducted
or knowledge acquired with respect thereto.
11.2 Time Limitations. If the Closing occurs, Sellers shall
have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or agreement to be performed and complied with prior
to the Closing Date, other than those set forth in Sections 5.5, 5.20 and 5.23,
unless on or before May 31, 1996, Sellers are given notice asserting a claim
with respect thereto and specifying the factual basis of that claim in
reasonable detail to the extent then known by the Buyer; a claim with respect to
Section 5.23 may be made at any time until the fifth anniversary of the Closing
Date and a claim with respect to Sections 5.5 and 5.20 may be made at any time
until 30 days after the expiration of the statute of limitations applicable to
the underlying claim (as it may be extended); if the underlying claim may be
asserted at any time, a notice asserting a claim with respect thereto may be
given at any time. A claim pursuant to Section 11.3(A) (iii), (iv) and (v) may
be made at any time. If the Closing occurs, the Buyer shall have no liability
(for indemnification or otherwise) with respect to any representation or
warranty, or agreement to be performed and complied with prior to the Closing
Date, unless on or before May 31, 1996 the Buyer is given notice of a claim with
respect thereto and specifying the factual basis of that claim in reasonable
detail to the extent then known by Sellers. A claim pursuant to Section
11.5(iii) may be made at any time.
11.3 Indemnification by Sellers. Sellers, jointly and
severally, shall indemnify and hold harmless the Buyer, its Designated
Transferees (and their respective stockholders, affiliates, controlling persons,
directors, officers, employees and agents (collectively with the Buyer, the
"INDEMNIFIED PERSONS")) and shall reimburse the Indemnified Persons for, (A) any
loss, liability, claim, damage, expense (including, but not limited to, costs of
investigation and defense and reasonable attorneys' fees) or diminution of value
suffered or incurred by such Indemnified Persons and not reimbursed by
applicable insurance (collectively, "DAMAGES"), whether or not involving a
third-party claim, arising from or in connection with (i) any inaccuracy in any
of the representations and warranties of Sellers in this Agreement or in any
certificate delivered by Sellers pursuant to this Agreement, or any actions,
omissions or state of facts inconsistent with any such representation or
warranty, (ii) any failure by Sellers to perform or comply with any agreement in
this Agreement, (iii) any Taxes payable by the
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Sellers, or to which the Buyer or its property may be subject, arising from or
relating to any period ending, or action or state of facts occurring or
existing, on or before the Closing Date, except to the extent a reserve is
provided therefor in the Statement of Net Assets Sold, (iv) any obligation for
withdrawal liability imposed by any multiemployer plan to the extent
attributable to contributions made (or required to be made) by or attributable
to Sellers or their affiliates, or (v) any liability or obligation not included
in the Liabilities that relates to or arises from or in connection with, any
event or occurrence or circumstance relating to the Business prior to the
Closing Date and (B) 50% of the Damages not otherwise subject to indemnification
under this Agreement arising from or in connection with any Liability to the
extent not provided for on the Statement of Net Assets Sold to the extent
relating to, arising from or in connection with any event or occurrence or
circumstance relating to the Business prior to the Closing Date (except for the
matters in paragraphs F (second sentence), K (third sentence), L (third and
fourth sentence) or N of Schedule 4.1). For purposes of this Article XI, in
determining whether there is an inaccuracy in, or action, omission or state of
facts inconsistent with, any representation or warranty, the terms "material",
"materiality" and "Material Adverse Effect", when applied to such representation
and warranty, shall mean Damages in excess of $15,000 (the "DAMAGE THRESHOLD")
for each individual damage (or group of damages arising from the same or similar
events, conditions or courses of conduct) for which indemnification is being
sought. For this purpose, if the relevant representation and warranty contains a
material, materiality or Material Adverse Effect standard in the aggregate, the
Damage Threshold shall similarly apply in the aggregate. However, the Damage
Threshold shall be equal to $0 with respect to any intentional misrepresentation
or intentional breach of warranty.
11.4 Environmental Indemnification.
(a) Sellers shall indemnify and hold harmless Buyer, and
shall reimburse Buyer, for any loss, liability, damage or expense
(including, but not limited to, costs of investigation and defense,
reasonable attorneys' fees and costs of cleanup or other remediation)
of or arising from any cleanup, removal, containment or other
remediation (collectively, "CLEANUP") required by applicable law or
regulation of, or any injury or other damage ("NON-CLEANUP INJURY")
arising from, any Hazardous Substance that was (i) present on or prior
to the Closing Date above, on or under any Owned Real Property, Leased
Real Property or other facility owned or operated by the Business (or
present above, on or under any other property, if such Hazardous
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<PAGE> 59
Substance emanated from Owned Real Property, Leased Real Property or
other facility operated by the Business, and was present above, on or
under such Owned Real Property, Leased Real Property or other facility
on or prior to the Closing Date) or (ii) disposed of or abandoned by
Seller at any time on or prior to the Closing Date.
(b) Section 11.8 shall apply to any claim for monetary
damages subject to indemnification under this Section 11.4. Buyer shall
be entitled to control any Cleanup and related proceedings, and shall
afford Sellers the opportunity to be consulted with respect to any
Cleanup for which Buyer seeks indemnification under this Section 11.4.
Any cleanup for which indemnification is sought from the sellers shall
be conducted in a manner determined by Buyer in good faith to be
reasonable and cost effective.
11.5 Indemnification by the Buyer. The Buyer shall indemnify
and hold harmless Sellers, and shall reimburse Sellers (and their respective
stockholders, affiliates, controlling persons, directors, officers, employees
and agents) for, any Damages, whether, or not involving a third-party claim,
arising from or in connection with (i) any inaccuracy in any of the
representations and warranties of the Buyer in this Agreement or in any
certificate delivered by the Buyer pursuant to this Agreement, or any actions,
omissions or state of facts inconsistent with any such representation or
warranty, (ii) any failure by the Buyer to perform or comply with any agreement
in this Agreement, or (iii) any failure by Buyer to perform or discharge the
Liabilities.
11.6 Limitations as to Amount -- Sellers. Sellers shall have
no liability (for indemnification or otherwise) with respect to any matter
described in clause (i) or (ii) of Section 11.3 until the total of all such
Damages exceeds $750,000, and then only for the amount by which such Damages
exceed $750,000. Sellers' liability for Damages with respect to any matters
described in clauses (i) or (ii) of Section 11.3 or any matter described in
Section 11.4 shall not exceed of $84,000,000 in the aggregate. However, this
section shall not apply to (a) any intentional misrepresentation or any
intentional breach of warranty or (b) any intentional failure to perform or
comply with any agreement contained in this Agreement, and Sellers shall be
liable for all Damages with respect thereto.
11.7 Limitations as to Amount -- the Buyer. The Buyer shall
have no liability (for indemnification or otherwise) with respect to any matters
described in clause (i) or (ii) of Section 11.5 until the total of all such
Damages exceeds $750,000
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and then only for the amount by which such Damages exceed $750,000. Buyer's
liability for Damages with respect to any matters described in clauses (i) or
(ii) of Section 11.5 shall not exceed $84,000,000 in the aggregate. However,
this section shall not apply to (a) any intentional misrepresentation or
intentional breach of warranty or (b) any intentional failure to perform or
comply with any agreement contained in this Agreement, and the Buyer shall be
liable for all Damages with respect thereto.
11.8 Third Party Claims.
Except as provided in Section 11.4,
(a) In the event that any legal proceedings shall be
instituted or any claim or demand shall be asserted by any person in
respect of which indemnification may be sought by any party or parties
from any other party or parties under the provisions of this Article
XI, the party or parties seeking indemnification (collectively, the
"INDEMNITEE") shall cause written notice of the assertion of any claim
of which it has knowledge that is covered by this indemnity to be
forwarded promptly to the party or parties from which indemnification
is sought (collectively, the "INDEMNITOR"); provided that the failure
of an Indemnitee to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the Indemnitor has
been damaged by such failure. The Indemnitor shall have the right, at
its option and at its own expense, to be represented by counsel of its
choice and to participate in, or to take exclusive control of, the
defense, negotiation and/or settlement of any proceeding, claim or
demand which relates to any amounts indemnifiable or potentially
indemnifiable under this Article XI; provided, however, that the
Indemnitee may participate in any such proceeding with counsel of its
choice and at its own expense, shall have a right to notice of any
settlement, and the Indemnitor shall not execute or otherwise agree to
any consent decree which provides for any admission of a violation of
law or any remedy other than monetary payment that will be paid by
Indemnitor without the Indemnitee's prior written consent.
Notwithstanding the foregoing, the Indemnitee shall have the right to
pay or settle any such claim, provided that in such event it shall
waive any right to indemnity therefor by the Indemnitor. In the event
that the Indemnitor elects not to defend or settle such proceeding,
claim or demand and the Indemnitee defends, settles or otherwise deals
with any such proceeding, claim or demand, which settlement may be
without the consent of the Indemnitor, the Indemnitee will provide
fifteen days'
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advance written notice of any proposed settlement to the Indemnitor and
will act reasonably and in accordance with its good faith business
judgment. The parties hereto agree to cooperate fully with each other
in connection with the defense, negotiation or settlement of any such
legal proceeding, claim or demand. After final judgment or award shall
have been rendered by a court, arbitration board or administrative
agency of competent jurisdiction and the expiration of the time in
which to appeal therefrom, or a settlement shall have been consummated,
or the Indemnitee and the Indemnitor shall have arrived at a mutually
binding agreement with respect to each separate matter indemnified by
the Indemnitor, the Indemnitee shall forward to the Indemnitor notice
of any sums due and owing by the Indemnitor with respect to such matter
and the Indemnitor shall pay all of the sums so owing to the Indemnitee
by check within thirty (30) days after the date of such notice.
(b) In the event of any claim by a third party against an
Indemnitee, the Indemnitee will, at its own expense, use its best
efforts to make available to the Indemnitor those employees whose
assistance, testimony or presence is necessary to assist the Indemnitor
in evaluating and in defending such claims; provided, however, that any
such access shall be conducted in such a manner as not to interfere
unreasonably with the operations of the business of the Indemnitee but
failure to provide necessary witnesses or access to information will
excuse any failure of the Indemnitor to perform attributable thereto.
ARTICLE XII: TERMINATION
12.1 Termination Events. Subject to the provisions of Section
12.2, this Agreement may, by written notice given at or prior to the Closing in
the manner hereinafter provided, be terminated and abandoned:
(a) by either the Sellers or the Buyer if a material default
or breach shall be made by the other with respect to the due and timely
performance of any of its covenants and agreements contained herein, or
with respect to the due compliance with any of its representations and
warranties contained in Articles V and VI, as the case may be, and such
default cannot be cured and has not been waived;
(b) by
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(i) the Buyer if all of the conditions set forth in
Article VIII shall not have been satisfied on or before the
Termination Date or the satisfaction thereof shall have become
impossible, other than through failure of the Buyer to fully
comply with its obligations hereunder, or shall not have been
waived by it on or before such dates; or
(ii) the Sellers, (x) if all of the conditions set
forth in Article IX shall not have been satisfied on or before
the Termination Date or the satisfaction thereof shall have
become impossible, other than through failure of the Sellers
to fully comply with its obligations hereunder, or shall not
have been waived by it on or before such dates or (y) the
incremental costs for which Sellers are required to reimburse
the Buyer under Section 2.7(e) shall be reasonably estimated
to be at least equal to an amount that is material in the
context of the transaction contemplated by this Agreement; or
(iii) by mutual written consent of the Sellers and
the Buyer.
12.2 Effect of Termination. In the event this Agreement is
terminated pursuant to Sections 12.1 or 12.3, all further obligations of the
parties hereunder shall terminate, except that the obligations set forth in
Sections 13.3 and 13.13 shall survive; provided, however, that if this Agreement
is so terminated by one party pursuant to Section 12.1(a) or 12.1(b) (i) or (ii)
because one or more of the conditions to such party's obligations hereunder is
not satisfied as a result of the other party's failure to comply with its
obligations under any provision of this Agreement, it is expressly agreed and
understood that an aggrieved party's right to pursue all legal remedies for
breach of contract or otherwise, including, without limitation, damages relating
thereto, shall also survive such termination unimpaired.
12.3 Buyer's Investigation. Buyer may terminate this
Agreement on or before November 24, 1994, if, (i) as a result of Buyer's
discussions with representatives of General Mills, Long John Silver and TGIF,
Buyer determines in good faith that its acquisition of the Business could result
in a material adverse effect on the relationship of any of those customers with
the Business or (ii) as a result of Buyer's inspection of the facilities of the
Business and discussions with operating management of the Business and its
various distribution centers, Buyer determines in good faith that one or more
distribution
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centers or other facilities of the Business do not operate substantially in a
safe and sanitary manner and in accordance with industry and customer standards
or would require material capital expenditures not budgeted by Sellers. Sellers
agree to cooperate with Buyer in its investigations as described in this Section
.
ARTICLE XIII: MISCELLANEOUS
13.1 Amendments. This Agreement may be amended only by a
written agreement signed by the parties hereto.
13.2 Notices. All notices, requests, demands and other
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given on the date delivered, if delivered
personally or sent by telecopier or facsimile machine to the persons identified
below with receipt confirmed, addressed as follows:
(a) if to the Buyer:
ProSource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
U.S.A.
Attention: President
Facsimile: (305) 529-2573
with a copy to:
Kaye, Scholer, Fierman, Hays
& Handler
425 Park Avenue
New York, New York 10022
U.S.A.
Attention: Joel I. Greenberg
Facsimile: (212) 836-7149
(b) if to the Sellers:
THE MARTIN-BROWER COMPANY
1020 West 31st Street
Downers Grove, Illinois 60515-5508
U.S.A.
Attention: President
Facsimile: (708) 496-6290
with a copy to:
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<PAGE> 64
Dalgety plc
100 George Street
London W1H 5RH
United Kingdom
Attention: Commercial Director
Facsimile: 44/71/493-0892
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60603-4067
Attention: C. E. Hussey II
Facsimile: (312) 984-2097
Such addresses may be changed, from time to time, by means of
a notice given in the manner provided in this Section.
13.3 Expenses. Each party to this Agreement shall pay its own
costs and expenses (including all legal, accounting, broker, finder and
investment banker fees) relating to this Agreement, the negotiations leading up
to this Agreement and, except as otherwise provided herein, the transactions
contemplated by this Agreement.
13.4 Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the parties and their respective successors
and assigns; no party may assign any rights hereunder to any Person (other than
a Designated Transferee as contemplated herein) without the consent of the
others, except that any person that acquires all or a substantial portion of any
of their respective businesses as a going concern (other than pursuant to this
Agreement) shall assume the obligations of the transferor hereunder (without
relieving the transferor of such obligations). Each party shall give the others
at least twenty (20) days notice before effecting a sale of all or a substantial
portion of its business as a going concern.
13.5 Waiver. Waiver of any term or condition of this
Agreement by any party shall only be effective if in writing and shall not be
construed as a waiver of any subsequent breach or failure of the same term or
condition, or a waiver of any other term or condition of this Agreement.
13.6 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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13.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
13.8 Entire Agreement. This Agreement, including the Annexes
and Schedules attached hereto, constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties, with respect to the subject matter thereof.
13.9 Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that Buyer may assign its rights hereunder
to one or more Designated Transferees, provided that no such assignment shall
relieve Buyer of its obligations hereunder.
13.10 Governing Law; Jurisdiction. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Delaware
(excluding its conflicts of law provisions) as to all matters, including but not
limited to, matters of validity, construction, effect, performance and remedies.
13.11 Forum; Service of Process. Any legal suit, action or
proceeding brought by Sellers or Buyer, or any of their respective affiliates,
arising out of or based upon this Agreement shall be instituted in (a) the
United States District Court for the District of Delaware, or if such suit,
action or proceeding may not be brought in such court for jurisdictional
reasons, (b) the Courts of the State of Delaware (collectively, the "Courts"),
and each of the Sellers and Buyer (on its behalf and on behalf of such
affiliates) waives any objections which it may now or hereafter have to the
laying of venue of any such proceeding, and irrevocably submits to the exclusive
jurisdiction of the Courts in any such suit, action or proceeding. Process may
be served in any action based on this Agreement anywhere in the world and Buyer
and Sellers expressly accept such jurisdiction. Each of the parties hereto
hereby irrevocably waives all right to a trial by jury in any suit, action or
proceeding (including any counterclaim) arising out of or based upon this
Agreement.
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13.12 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
shall constitute one and the same agreement.
13.13 Publicity. Until the business day after the Closing Date
and except for any public disclosure which the Buyer and the Sellers in good
faith believe is required by law or applicable stock exchange rules, neither
party shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without the prior written approval of the
other party which will not be unreasonably withheld. The parties hereto shall
issue a mutually acceptable press release as soon as practicable after the date
hereof.
13.14 Confidential Information. In connection with the
negotiation of this Agreement and the preparation for the consummation of the
actions contemplated hereby, each party will have access to confidential
information relating to the other party. Each party shall treat such information
as confidential, preserve the confidentiality thereof and not duplicate or use
such information, except in connection with the transactions contemplated
hereby, and in the event of the termination of this Agreement for any reason
whatsoever, each party shall return to the other all documents, work papers and
other material (including all copies thereof) obtained in connection with the
transactions contemplated hereby and will use all reasonable efforts, including
instructing its employees who have had access to such information, to keep
confidential and not to use any such information, unless such information is
now, or is hereafter disclosed, through no act or omission of such party, in any
manner making it available to the general public.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
SELLERS:
THE MARTIN-BROWER COMPANY
By: /s/ John C. Winton
--------------------------------
Its: Sr. V.P. - Finance
-------------------------------
MARTIN-BROWER OF CANADA, LTD.
By: /s/ John C. Winton
--------------------------------
Its: Director
-------------------------------
BUYER:
PROSOURCE, INC.
By: /s/ D.R. Parker
--------------------------------
Its: Chairman
-------------------------------
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ANNEX 2.1
FUNDING AGREEMENT
In consideration of the benefit received by Onex corporation
from the purchase by its affiliate ProSource, Inc. of the National Accounts
Division ("NAD") of The Martin-Brower Company and Martin-Brower of Canada, Ltd.,
the undersigned Onex Corporation, an Ontario company, hereby agrees that,
subject to satisfaction of the conditions specified in Article VIII of the
Agreement to which this Agreement is an Annex (the "PURCHASE AGREEMENT"),
including, but not limited to, the concurrent satisfaction of the conditions set
forth in Section 8.5 of the Purchase Agreement, Onex will provide, or cause to
be provided, to ProSource, Inc. equity and subordinated debt financing (in such
proportions of equity and debt as shall be acceptable to NationsBank) in the
aggregate amount of U.S. $45,000,000 or such reduced amount as shall be
necessary for ProSource, Inc. to obtain the financing described in Section 8.5
of the Purchase Agreement. The financing described above shall be provided at
the Closing of the purchase as herein described in Article II of the purchase
Agreement.
Onex Corporation
By:_______________________________________
Dated: November __, 1994
<PAGE> 69
ANNEX 8.7
FORM OF SELLERS' OPINION
______________ _____ , 1994
ProSource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Gentlemen :
We have acted as counsel to The Martin-Brower Company, a
Delaware corporation, and Martin-Brower of Canada, Ltd., a corporation organized
under the laws of Ontario, Canada (collectively, the "Sellers") in connection
with the execution and delivery of the Agreement for the Purchase and Sale of
the National Accounts Division of The Martin-Brower Company and Martin-Brower of
Canada, Ltd., dated November __, 1994 (the "Agreement") , entered into by and
between ProSource, Inc., a Delaware corporation (the "Buyer"), and the Sellers
pertaining to the sale by the Sellers of the National Accounts Division of the
Sellers.
This letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord ("Accord") of the ABA Section of
Business Law 1991. As a consequence, it is subject to a number of
qualifications, exemptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord and this letter
should be read in conjunction therewith. Capitalized terms not defined herein
are defined as set forth in the Agreement or the Accord.
Based on the foregoing and subject to the limitations and
qualifications set forth in the Accord and hereafter, it is our opinion that as
of the date hereof:
1. The Agreement,the Assignment and Assumption Agreement, the
Trademark License Agreement and the Service Agreement are enforceable against
the Sellers.
2. Execution and delivery by the Sellers of, and performance
of, the Agreement, the Assignment and Assumption Agreement, the Trademark
License Agreement and the Service Agreement do not (i) violate the terms of the
Constituent
<PAGE> 70
Documents of the Sellers, (ii) breach or otherwise violate any existing
obligation of the Sellers under a Court Order listed in the attached officer's
certificate or (iii) violate applicable provisions of statutory law or
regulations.
3. Except as set forth on Schedule 5.3 to the Agreement, no
approval, authorization or other action by, or filing with, any governmental
authority, is required for the valid execution and delivery by the Sellers of,
and performance of their agreements in, the Agreement, the Assignment and
Assumption Agreement, the Trademark License Agreement and the Service Agreement.
4. BroMar Services, Inc. ("BroMar"), a wholly-owned subsidiary
of The Martin-Brower Company, has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware and is in good
standing as a foreign corporation in Illinois. BroMar has the corporate power
and authority to conduct its business.
5. BroMar's authorized capital stock consists of _________
shares of common stock, par value _____ per share of which 2000 shares are
issued and outstanding and held of record by The Martin-Brower Company.
The law covered by the opinions expressed herein is limited to
the federal law of the United States and the law of the State of Illinois.
This opinion has been rendered to you in accordance with the
provisions of Section 8.7 of the Agreement and may be relied upon by you only in
connection with the transactions contemplated thereunder and is not to be
circulated or quoted or otherwise relied upon by you for any other purpose or
any other person without our prior written consent. We hereby consent to
delivery of this opinion to the lenders providing the financing contemplated by
Section 8.5 of the Agreement.
Very truly yours,
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ANNEX 9.6
FORM OF BUYER'S OPINION
____ , 1994
The Martin-Brower Company
1020 West 31st Street
Downers Grove, Illinois 60515-5508
Gentlemen:
We have acted as counsel to ProSource, Inc., a Delaware
corporation (the "Buyer") in connection with the execution and delivery of the
Agreement for the Purchase and Sale of the National Accounts Division of The
Martin-Brower Company and Martin-Brower of Canada, Ltd., dated November __, 1994
(the "Agreement") , entered into by and between the Buyer, and The Martin-Brower
Company, a Delaware corporation and Martin-Brower of Canada, Ltd. (the
"Sellers") pertaining to the sale by the Sellers of the National Accounts
Division of the Sellers.
This letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord ("Accord") of the ABA Section of
Business Law 1991. As a consequence, it is subject to a number of
qualifications, exemptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord and this letter
should be read in conjunction therewith. Capitalized terms not defined herein
are defined as set forth in the Agreement or the Accord.
Based on the foregoing and subject to the limitations and
qualifications set forth in the Accord and hereafter, it is our opinion that as
of the date hereof:
1. The Agreement, the Assignment and Assumption Agreement, the
Trademark License Agreement and the Service Agreement are enforceable against
the Buyer.
2. Execution and delivery by the Buyer of, and performance of,
the Agreement, the Assignment and Assumption Agreement, the Trademark License
Agreement and the Service Agreement do not (i) violate the terms of the
Constituent Documents of the Buyer, (ii) breach or otherwise violate any
existing obligation of the Buyer under a Court Order listed in
<PAGE> 72
the attached officer's certificate or (iii) violate applicable provisions of
statutory law or regulations;
3. Except as set forth on schedule 6.3 to the Agreement, no
approval, authorization or other action by, or filing with, any governmental
authority, is required for the valid execution and delivery by the Buyer of, and
performance of its agreements in, the Agreement, the Assignment and Assumption
Agreement, the Trademark License Agreement and the Service Agreement.
The law covered by the opinions expressed herein is limited to
the federal law of the United States and the law of the State of New York.
This opinion has been rendered to you in accordance with the
provisions of Section 9.6 of the Agreement and may be relied upon by you only in
connection with the transactions contemplated thereunder and is not to be
circulated or quoted or otherwise relied upon by you for any other purpose or
any other person without our prior written consent.
Very truly yours,
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<PAGE> 73
Purchase Agreement
among
The Martin-Brower Company,
Martin-Brower of Canada, Ltd.
and
ProSource, Inc.
Schedule 2.7
Restricted Assets
Part A: Restricted Assets
Consents to Assignment Constitute Conditions Precedent
to Closing
1. License and Service Agreements
(a) Vertex Systems, Inc. :
- Salestax Magnetic Tape and Salestax PC
Returns Agreements dated 9/5/89, as amended
(b) SDI:
- Computer Software License Order No. 12053
dated 2/10/89 (Instant FBA-Group 40)
(c) BlueLine Software Inc. :
- License and Support Service Agreement dated
6/12/89 (RD/Share)
(d) McCormack & Dodge:
- License and Maintenance Agreement dated
11/21/88 (Millennium)
(e) Manugistics, Inc., formerly STSC:
- Agreement for Consulting and Programming
Services and Work Assignment Schedule dated
9/13/83
- Agreement for APL*Plus Time Sharing Services
and TRUCKS Supplement, dated 9/13/83
- Work Assignment Schedule dated 6/18/87
- Amended and Restated Software License
Agreement dated 2/12/88
- Addendum to Software License Agreement dated
2/12/88 and Letter dated 12/4/91
<PAGE> 74
- Amendment to Work Assignment Schedule dated
4/27/89
- Work Assignment Schedule dated 9/8/89
- Work Assignment Schedule dated 7/13/90
- Name Change Notice from STSC dated 5/1/92
(f) Mobius Management Systems, Inc. :
- License Agreement dated 2/12/88
(g) VM Software, Inc. :
- License Agreement with Amendment dated
8/23/88
(h) Phoenix Software Company:
- Perpetual Agreement for Phoenix Software
Products dated 12/5/88 (DOS FALCON/PLUS)
(i) DNS Associates, Inc. :
- Software License Agreement dated 12/20/88
(EDI/EDGE)
(j) Westinghouse Electric Corp. :
- Software Product License Agreement dated
4/28/88 (Disk Utility)
(k) Computer Associates:
- License Agreement for Program Product dated
3/15/89 (CA-DYNAM/T VM and VSE)
- Pansophic Systems, Inc. Software License
Agreement dated 10/12/90 (Warehouse BOSS)
- Order Form 3/31/93 (Warehouse BOSS)
(l) Distribution Management Systems, Inc. :
- Sales Agreement (Digital 11/84 Processor and
related equipment) dated 2/5/87
(m) XcelleNet, Inc. :
- Software License Agreement dated 5/4/93
- Software Assurance Plan Agreement dated
5/4/93
- Source Code Escrow Addendum dated 5/4/93 to
- Master Source Code Escrow Agreement with
XcelleNet and Fort Knox Safe Deposit, Inc.
dated 3/18/93
(n) CATOC Systems:
- Agreement
(o) Information Builders, Inc.:
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<PAGE> 75
- Letter Agreements, dated 6/24/82 and 10/4/94
with Information Builders Inc. (FOCUS
software)
(p) CompuServe:
- Network Services Agreement
(q) MSA (Dun & Bradstreet)
- Payroll and Human Resources Software
2. Consulting Agreements
(a) Information & Communication Systems, Inc. :
- Agreement for Consulting Services dated
3/28/89
(b) Distribution Software, Inc. :
- Implementation Services Contract
(c) Comsi, formerly Zink & Katich, Inc.:
- Software Services Agreement dated 6/12/87
(d) CSC Consulting:
- Consulting Agreement
(e) CSC Index:
- Letter Agreements for Consulting Work
3. Other Agreements
(a) Central Management Corp. (LIS)
- Agency Agreement
4. Customers Contracts
(a) Long John Silver's
- Agreement dated 4/7/94
(b) T.G.I. Friday's
- Master Distribution Agreement dated 4/1/91
5. Equipment Lease contracts
(a) UPS Truck Leasing, Inc. :
- Vehicle Lease Agreement with Hill Truck
Rentals, Inc. dated 10/1/77 Maintenance
Agreement (Trailers) dated 5/17/93
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<PAGE> 76
(b) Pitney Bowes Credit Corp. :
- Master Equipment Lease Agreement dated 3/9/89
Revised Addendum "B" Stipulated Loss Values
(Trailers) dated 1/17/90
(c) BLC Corporation:
- Master Lease Agreement dated 8/1/92
(Tractors/Trailers)
- Rider No. 1 dated 9/1/94
(d) Metlife Capital, Limited Partnership:
- Motor Vehicle Lease Agreement (Trailers)
dated 2/7/89
(e) MCC Leasing/Trust No. 89-22:
- Motor Vehicle Lease Agreement (Trailers)
dated 2/7/89
(f) Ryder Truck Rental, Inc. :
- Assumption Agreement dated 1/7/93 (Gridley)
- Master Lease - Tractors (not included)
(g) NationsBank (formerly Sovran Leasing Corp.):
- Motor Vehicle Lease Agreement (Trailers)
dated 4/10/94, as amended
(h) John Hancock Leasing Corp.:
- Master Lease dated 7/16/91 Acceptance
Supplement (Trailers) dated 11/18/91
(i) Lend Lease Trucks, Inc.:
- Vehicle Lease Agreement dated 9/16/78
- Letter of Understanding dated 7/6/91 and
Schedules M (College Park, GA)
(j) Frontier Nationalease, Inc. :
- Maintenance Service Agreement (Trailers)
(k) LaSalle Computer Corporation:
- Computer Equipment Lease - Master Terms and
Conditions (computers)
- Schedule 32 dated 2/14/92
- Schedule 33 dated 7/12/94
(l) Data Exchange:
- Lease Agreement (computers) dated 12/21/87
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<PAGE> 77
(m) IBM Corporation:
- Lease dated 7/26/93 (computers)
(n) Donlen Corporation:
- Motor Vehicle Lease Agreement dated 8/18/93
and Revised Schedule B dated 1/6/94 (cars)
(o) The Associates:
- Master Automobile Lease dated 5/2/94 (cars)
(p) PHH Canada (cars)
6. Real Estate Leases
(a) 1020 31st Street, Downers Grove, Illinois
- 6th Floor Lease dated 11/30/93
- Lower Level Lease dated 5/31/94
- Notice of Sale of Property dated 10/4/94
(b) 4800 South Austin Avenue, Chicago, Illinois
- Office Lease dated 11/22/77
(c) CENTER 04 - ATLANTA, GEORGIA
5155 Welcome All Road
Atlanta, Ga 30349
- Warehouse Lease and Construction Agreement
dated 9/14/90, as amended
(d) CENTER 45 - CHESTER, NEW YORK
65 Leone Lane
Chester, NY 10918
- Warehouse Lease and Construction Agreement
dated 2/17/86
(e) CENTER 25 - COLUMBUS, OHIO
4465 Industrial Center Drive
Village of Obetz, OH 43207
- Warehouse Lease and Construction Agreement
dated 9/9/92
(f) CENTER 09 - DALLAS, TEXAS
1603 North Gardenridge Blvd.
Lewisville, Texas 75067
- Carrolton Dry Storage
- King William Freezer
- Bradford County Freezer
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<PAGE> 78
(g) CENTER 18 - WASHINGTON, D.C.
425 Lee Hill Drive
Fredericksburg, VA 22408
- Lease and Construction Agreement dated
9/28/76
- Warehouse Lease dated 7/1/93 for Stafford
County
- Agreements with RTC dated 7/93
(h) CENTER 31 - KANSAS CITY, KANSAS
9854 Industrial Blvd.
Lenexa, KS 66215
- Warehouse Lease dated 9/1/78
- Lease Agreement dated 9/1/93 for
Edwardsville , Kansas
(i) CENTER 03 - LOS ANGELES, CALIFORNIA
5598 Lindbergh Lane
City of Bell, CA 90201
- Lease Agreement dated 3/6/80, as amended
(j) CENTER 43 - LOS ANGELES, CALIFORNIA
145 North Willow
City of Industry, CA 91746
- Industrial Real Estate Lease dated 1/20/92
(k) CENTER 22 - PORTLAND, OREGON
13130 N.E. Airport Way
Portland, OR 97230
- Standard Industrial Lease dated 7/28/89
(l) CENTER 33 - TRENTON, ONTARIO
160 North Murray Street
Trenton, Ontario
- Lease dated 12/91
Part B: Restricted Assets
Consents to Assignment not a Condition Precedent to
Closing
1. License and Service Agreements
(a) EDP Security, Inc. :
- Disaster Plan/90 License Agreement dated
___________ , 1989
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<PAGE> 79
(b) DatagraphiX:
- Program License Agreement dated 5/10/89 (XC
software)
- Maintenance Agreement dated 5/10/89
(c) Data Base of Chicago, Inc. :
- Service Agreement dated June 30, 1988
(d) Sprint Communications Company L.P. :
- Video Conferencing Equipment
(e) EMC Corporation:
- Master Lease Agreement
2. Other Agreements
(a) Dell Marketing L.P.
- Corporate Performance Agreement
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<PAGE> 80
Purchase Agreement
among
The Martin-Brower Company,
and
ProSource, Inc.
Schedule 3.2
Liabilities Not Assumed
1. Industrial Development Revenue Bonds and accrued Interest
Secured by the Distribution Center locate at 1090 Gills
Drive, Orlando, Florida.
2. The liability for purged receivers.
3. The liability for Workers' Compensation Claims for accidents
occurring prior to Closing.
4. The liability for medical claims incurred prior to the
closing.
5. All liabilities associated with the "old columbus"
distribution center.
6. The liability for relocation services arising from employee
actions prior to the Closing.
7. The liability for litigation matters listed or required to
be listed in Schedule 5.15.
8. The liability for vehicle accidents occurring prior to the
Closing.
9. The liability for The Martin-Brower Company 401(k) Thrift
Plan.
10. The liability for The Money Purchase Plan For Salaried
Employees of The Martin-Brower Company.
11. The liability for The Martin-Brower Company Pension Plan for
Hourly Paid Employees.
12. The liability for Martin-Brower of Canada, Ltd. Group RRSP.
<PAGE> 81
13. The liability for executive added compensation due to profit
performance through the date of the Closing.
14. The liability for occurrences prior to Closing that would generate a claim
under property and general insurance, as well as premiums for related
insurance.
15. The liability for audit fees of Price Waterhouse.
16. Any liability incurred in violation of this Agreement.
17. Any liability or obligation related to or associated with a Restricted
Asset the benefit of which is not assigned or transferred to the Buyer.
18. Any liability or obligation that is otherwise expressly stated in this
Agreement as the responsibility of the Sellers or expressly not assumed by
the Buyer.
19. Any reserve relating to any liability not assumed by the
Buyer shall be retained by the Sellers.
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<PAGE> 82
SCHEDULE 4.1
National Accounts Division
(A Division of The Martin-Brower Company)
Accounting Principles
A. Principles of Consolidation: The Financial Statements include and the
Statement of Net Assets Sold will include the accounts of (a) National Accounts
Division ("NAD"), a division of The Martin-Brower Company, (b) the NAD division
of Martin-Brower of Canada, Ltd. ("NAD CANADA"), a subsidiary of The
Martin-Brower Company, and (c) BroMar Services, Inc. ("BROMAR"), a subsidiary
of The Martin-Brower Company. All significant intercompany transactions have
been eliminated in the Financial Statements and will be eliminated in the
Statement of Net Assets Sold, except as noted below.
B. Translation of Foreign Currency. The accounts of NAD Canada are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52 as follows:
Assets and Liabilities: Exchange rate at date of
balance sheet.
Revenue and Expenses: Average monthly exchange rates.
C. Inventories. Inventories on the Financial Statements and the Statement
of Net Assets Sold, consisting of product for resale, are and will be stated at
the lower of cost or market, cost being determined using the first-in first-out
method. Certain items in inventory have been transported to the Seller's
distribution centers on the Seller's own transportation equipment
("backhauled"). Inventory is valued for such items as if a third party had
provided the inbound transportation service (approximately $400,000 over actual
cost). Such backhauled inventory is not stated above market. The inventories on
the Statement of Net Assets Sold will not be stated in excess of net realizable
value.
D. Property. Plant and Equipment. Property additions, major renewals and
betterments are included in asset accounts at cost. Interest charges incurred
during the period required to construct major properties are capitalized as part
of the project cost and amortized over the life of the asset in accordance with
generally accepted accounting principles. The assets and obligations associated
with The Martin-Brower Company's leasehold of one of its distribution centers
("old Columbus"') are not
<PAGE> 83
Assets or Liabilities, are included in the Financial Statements but will not be
included in the Statement of Net Assets Sold. The cost of furniture at the
headquarters location listed in Schedule 1.1 shall be included in the Statement
of Net Assets Sold at the lesser of (x) 50% of the net book value thereof and
(y) the excess of the net book value thereof over $212,500.
E. Depreciation. Depreciation is computed generally using
the straight line method over the estimated useful lives of the
assets. Amortization of leasehold improvements and equipment
under capital leases is computed using the straight line method
generally over the shorter of the useful lives or the remaining
lease terms.
F. Accounts Receivable. All accounts receivable of the Business will be
transferred to the Buyer at the Closing. The Statement of Net Assets Sold will
include a reserve for doubtful accounts of $1,000,000 (and such other reserves
as may be required with respect to specified accounts based upon any event
occurring or circumstance coming into existence after November 10, 1994) , which
reserve is agreed by the parties to be adequate, irrespective of the amount that
may be required under generally accepted accounting principles.
G. Income Taxes. The liability for income taxes relating
to periods up to the Closing Date is an obligation of the
Sellers. No income tax expense is included in the Financial
Statements and no liability for income taxes will be included in
the Statement of Net Assets Sold.
H. Intercompany Transactions. The Martin-Brower Company
is charged interest on borrowings from its parent company,
Dalgety, Inc. The liability for borrowings and interest thereon
due to Dalgety, Inc. are not Liabilities and will remain an
obligation of the Sellers and are not included in the Financial
Statements and will not be included on the Statement of Net
Assets Sold.
I. Medical Benefits for Retired Employees. The Sellers have a post
retirement medical benefit plan that covers employees who had met certain age
and length of service requirements on or before December 1, 1989. Those
liabilities will remain an obligation of the Sellers following the Closing, are
not included in the Financial Statements, and will not be included in the
Statement of Net Assets Sold.
J. Employee Benefit Plans. The Sellers provide various
employee and retirement benefits for substantially all of their
employees through various plans. The liability for continuation
of these plans is not being transferred to the Buyer, is included
2
<PAGE> 84
in the Financial Statements, but will not be included in the
Statement of Net Assets Sold.
K. Vacation Pay. Employees of the Sellers are generally entitled to a full
year's vacation benefit on January 1 each year. The Financial Statements include
an accrual of liability for vacation obligations. The Statement of Net Assets
Sold will include a liability of $500,000 for vacation obligations, the amount
of which reserve is agreed by the parties to be adequate, irrespective of the
amount that may be required under generally accepted accounting principles.
L. Executive Added Compensation. Certain management employees of the
Sellers are covered under an Executive Added Compensation (E.A.C.) bonus
arrangement under which they are entitled to additional compensation following
the end of a fiscal year based on the achievement of certain individual goals
and objectives ("OBJECTIVES PORTION") and the increase in profitability of the
division over the prior year ("PROFITABILITY PORTION"). As of the Closing, NAD
has not achieved increased profitability over the comparable period in the prior
year and no accrual of liability or reserve for the profitability portion will
be included in the Statement of Net Assets Sold. The Statement of Net Assets
Sold will contain an accrual for the objectives portion equal to the amount of
the objectives portion attributable to the period prior to the Closing Date. The
E.A.C. for fiscal year 1995 shall constitute a Liability, including any amount
payable to covered employees under the profitability portion.
M. Excluded Assets and Liabilities. The Statement of Net Assets Sold
excludes certain assets and liabilities included in the seller's September 30,
1994 Balance Sheet to the extent such assets and liabilities will not be
transferred to Buyer pursuant to the Agreement for the Purchase and Sale of the
National Accounts division of The Martin-Brower Company and Martin-Brower of
Canada, Ltd. by and between ProSource, Inc. and The Martin-Brower Company and
Martin-Brower of Canada, Ltd.
N. Re-engineering Consulting Services. The Statement of Net Assets Sold
shall not reflect as an Asset any amount in respect of re-engineering consulting
services nor shall any amount attributable to the contingent liability to CSC
Index of $690,000 plus interest, which may be payable on August 15, 1995 (the
"CSC INDEX COST"), be included as a liability or reserve on the Statement of Net
Assets Sold. Notwithstanding the foregoing, Buyer shall assume as a Liability
any amounts which may become payable relating to the CSC Index Cost.
3
<PAGE> 85
O. Accounts Payable. The Financial Statements reflect a
liability for payments due to vendors which is less than the
actual amount due. The Statement of Net Assets sold will include
the actual amount due vendors as reconciled as of the Closing
Date.
4
<PAGE> 86
SCHEDULE 7.13(i)
IDENTIFIED CUSTOMERS
Arby's
Brown's Chicken & Pasta
Chick-fil-A
Chili's Grill & Bar
China Coast
Dalt's Grill
Fazoli's
Front Row
Jack's
Itali Anni's
Long John Silver's
The Olive Garden
Red Lobster
TCBY
T.G.I. Friday's
General Mills Restaurants
Brinker International
<PAGE> 87
SCHEDULE 7.13(f)
Purchase Agreement
among
The Martin-Brower Company,
Martin-Brower of Canada, Ltd.
and
ProSource, Inc.
Restricted Employees of Buyer
Dan Adzia - Executive Vice President
Dennis Andruskiewicz - Vice President, Operations
Jim Dimos - Vice President, Sales & Marketing
Jim Green - Vice President, Business Planning & Development
Jerry Noonan - Vice President, NAD Finance
Mark Cartwright - Senior Director, Transportation
Tom McKinnon - Vice President/General Manager, Bromar
Mike Eaton - Traffic Manager
George Gertenbach - General Manager, Atlanta
Brad Anderson - General Manager, Bloomington
Mark Bringham - General Manager, Chester
Bob Boehm - General Manager, Columbus
Anthony Glenn - General Manager Dallas
(Open) - Distribution Center Manager, Houston
Sonny Welty - Distribution Center Manager, Kansas City
Bob Cagic - General Manager, Los Angeles
Bob Gertenbach - General Manager, Orlando
Dave Simmons - Distribution Center Manager, Portland
Ed Robinson - General Manager, Washington
Merv McBride - General Manager, Trenton
Jim Slattery - Account General Manager
Bill Quantock - Account General Manager
Norm Dick - Account General Manager
Gretchen Sussman - Account General Manager
Tim Zak - Account General Manager
Jeff Waek - Account General Manager
Steve Edwards - Account General Manager
<PAGE> 88
Al Lovato - Director, Data Processing
Pam Malek - Account Product Manager
Wally Johnson - Account Product Manager
2
<PAGE> 1
Exhibit 10.5
PURCHASE AGREEMENT AMENDMENT
Amendment dated February 24, 1995 to Agreement for the Purchase and
Sale of the National Accounts Division of the Martin-Brower Company and
Martin-Brower of Canada, Ltd. dated November 10, 1994 (the "Agreement") among
The Martin-Brower Company, a corporation organized under the laws of Delaware
and Martin-Brower of Canada, Ltd., a corporation organized under the laws of
Ontario, Canada (collectively the "Sellers"), and ProSource, Inc., a corporation
organized under the laws of Delaware (the "Buyer").
The Agreement is hereby amended as follows:
1. The definition of "Fiscal Closing Date" in Section 1.1 of the
Agreement is amended to read in its entirety as follows :
"Fiscal Closing Date" means each of December 30, 1994, January
27, 1995, February 24, 1995 and March 31, 1995.
2. Section 1.1 of the Agreement is amended to add the following new
definition:
"Note and Warrant" means a subordinated note and a warrant
issued by the Buyer to The Martin-Brower Company having the terms
set forth in Annex 1.1N.
3. The definition of "Termination Date" in Section 1.1 of the
Agreement is amended to read in its entirety as follows:
"Termination Date" means March 31, 1995.
4. Section 2.1 of the Agreement is amended to read in its entirety
as follows:
2.1 Agreement to Purchase. In reliance upon the representations and
warranties of the Buyer contained herein, and on the terms and subject to
the conditions herein set forth, the Sellers agree to sell and deliver the
Assets to the Buyer, and transfer the Liabilities. In reliance upon the
representations and warranties of the Sellers contained herein, and on the
terms and subject to the conditions herein set forth, the Buyer agrees to
purchase, or cause to be purchased, the Assets and assume the Liabilities.
In consideration of the sale of the Assets, the Buyer agrees to pay an
aggregate purchase price of One Hundred Thirty-Two Million Dollars
($132,000,000) (the "PURCHASE PRICE"),
<PAGE> 2
of which One Hundred Twenty-Two Million Dollars ($122,000,000) shall be
payable in cash at the Closing and Ten Million Dollars $(10,000,000) shall
be payable by delivery of the Note and Warrant at the Closing.
Simultaneously with the execution and delivery of this Agreement, Onex
Corporation is entering into the Funding Agreement attached hereto as
Annex 2.1.
5. Section 2.3 of the Agreement is amended to read in its entirety
as follows:
2.3 Payment of Purchase Price. At Closing, the Buyer or its
Designated Transferee shall pay the Purchase Price by (i) delivering the
Note and Warrant to Sellers and (ii) delivering by wire transfer of
immediately available funds to the account of The Martin-Brower Company,
for the benefit of the Sellers, One Hundred Twenty-Two Million Dollars
($122,000,000). The wire transfer shall be made to Citibank, N.A., 399
Park Avenue, ABA 021000089, Account Number 40590527; provided, however,
that the Sellers may designate an alternative account by notice to Buyer
at least five business days prior to the Closing Date.
6. Section 2.7(b) of the Agreement is amended to read in its
entirety as follows:
(b) The Sellers shall use reasonable efforts, and the Buyer shall
cooperate with the Sellers (i) to obtain the consents and waivers
necessary to convey to the Buyer all of the Restricted Assets, and (ii) to
promptly convey to the Buyer the Restricted Assets for which the Sellers
have received the necessary consents and waivers; provided, however, that
any consideration paid therefor to the person from whom the consent or
waiver is requested for the use of any Restricted Asset by both the Buyer
and at least one of the Sellers and their affiliates (other than any
Restricted Asset required to permit Buyer to provide services to Sellers
under the Services Agreement) shall be borne by the Sellers; provided,
further, that any consideration paid therefor with the approval of the
Buyer and the Sellers to the person from whom the consent or waiver is
requested for the use of any Restricted Asset by both the Buyer, and at
least one of the Sellers and their affiliates pursuant to the Services
Agreement, or any consideration paid therefor with the approval of the
Buyer and the Sellers to the person from whom the consent or waiver is
requested for any other Restricted Asset, shall be borne equally by the
Buyer and the Sellers; provided, further, that the Sellers shall not amend
or change any Restricted Asset without the prior written consent of the
Buyer. The Sellers shall cooperate with the Buyer in making applications
and filings or taking
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<PAGE> 3
any other action necessary for the Buyer to obtain such franchises,
licenses, permits or other instruments or agreements, if any, as are
substantially equivalent to the Restricted Assets.
7. Section 4.1(c) of the Agreement is amended to read in its
entirety as follows:
(c) Within five Business Days after the determination of the Net
Assets Sold of the Business in accordance with paragraphs (a) and (b)
above, the Buyer shall pay to the Sellers the amount, if any, by which the
Adjusted Purchase Price exceeds the Purchase Price; or the Sellers shall
pay to the Buyer the amount, if any, by which the Adjusted Purchase Price
is less than the Purchase Price. Any payment pursuant to this Section
4.1(c) shall include interest thereon at the prime rate announced by
Citibank, N.A. from time to time, accruing on such payment amount from the
Closing Date until paid. Such payment shall be made by wire transfer to an
account designated in writing to the obligated party by the receiving
party. The "ADJUSTED PURCHASE PRICE" of the Business shall be an amount
equal to (i) the Net Assets Sold of the Business on the Closing Date,
which shall be equal to total Assets minus total Liabilities of the
Business as reflected on the Statement of Net Assets Sold agreed by the
parties pursuant to Section 4.1(a), or as determined by Deloitte & Touche
pursuant to Section 4.1(b), plus (ii) Twelve Million Dollars
($12,000,000).
8. Section 7.7(e) of the Agreement is amended to read in its
entirety as follows:
(e) Welfare Plan. Effective as of the Closing Date the Sellers shall
cause each Hired Employee to cease to participate in each welfare benefit
plan sponsored by the Sellers. The Sellers shall be liable for all claims
incurred for treatments actually provided or services actually rendered,
whether submitted or not, prior to Closing Date for Non-Hired Employees
and prior to effective date of hire for Hired Employees. The Buyer shall
offer participation under its welfare plan to all Hired Employees in
accordance with the terms of the plans giving the Hired Employees credit
for all years of service for employment with the Sellers including all
years of service with Sellers under any applicable vacation pay policy of
the Buyer. The Sellers shall satisfy any requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") for Non-Hired
Employees who were offered employment with the Buyer with compensation at
the Employee's current rate of pay and benefits, taken as a whole, equal
or greater in cost value
-3-
<PAGE> 4
to the benefit provided by the Sellers on the Closing Date. The Buyer
shall satisfy any requirements of COBRA for Hired Employees and Non-Hired
Employees who are not offered employment with Buyer with compensation at
Employee's current rate of pay or benefits, taken as a whole, with equal
or greater cost value than the benefits provided by Sellers on Closing
Date. Payments made by Hired Employees during the current plan year toward
the Sellers' medical plan deductibles shall be credited toward any
deductible requirement in the Buyer's medical plan for the concurrent or
overlapping plan year.
9. Section 7.10 of the Agreement is amended to read in its entirety
as follows:
7.10 Trademark. The Buyer and the Sellers shall, at the Closing,
enter into the Trademark License Agreement attached as Annex 7.10.
10. Section 7.11 of the Agreement is amended to read in its entirety
as follows:
7.11 Environmental Inspection. The Buyer has had the right to
inspect or test, or, at its sole cost and expense, contract with a third
party to inspect and test the Owned Real Property, Leased Real Property
and other Assets (at reasonable times), for purposes of confirming the
presence of all required Permits, assessing compliance with Environmental
Laws and determining whether any Hazardous Substance is present. If the
Buyer asserts or claims that there has been a breach of the
representations and warranties in Section 5.23, as a result of any reports
prepared at the request of the Buyer by any third parties, then the Buyer
shall, upon request of the Sellers, deliver copies to the Sellers' counsel
of all such reports upon which such assertion or claims are based.
11. Section 8.8 of the Agreement is deleted in its entirety.
12. Section 11.6 of the Agreement is amended to read in its entirety
as follows:
11.6 Limitations as to Amount -- Sellers. Sellers shall have no
liability (for indemnification or otherwise) with respect to any matter
described in clause (i) or (ii) of Section 11.3 until the total of all
such Damages exceeds $750,000, and then only for the amount by which such
Damages exceed $750,000. Sellers' liability for Damages with respect to
any matters described in clauses (i) or (ii) of Section 11.3 or any matter
described in Section 11.4 shall not exceed $78,000,000 in the aggregate.
However, this
-4-
<PAGE> 5
section shall not apply to (a) any intentional misrepresentation or any
intentional breach of warranty or (b) any intentional failure to perform
or comply with any agreement contained in this Agreement, and Sellers
shall be liable for all Damages with respect thereto.
13. Section 11.7 of the Agreement is amended to read in its
entirety as follows:
11.7 Limitations as to Amount -- the Buyer. The Buyer shall have no
liability (for indemnification or otherwise) with respect to any matters
described in clause (i) or (ii) of Section 11.5 until the total of all
such Damages exceeds $750,000 and then only for the amount by which such
Damages exceed $750,000. Buyer's liability for Damages with respect to any
matters described in clauses (i) or (ii) of Section 11.5 shall not exceed
$78,000,000 in the aggregate. However, this section shall not apply to (a)
any intentional misrepresentation or intentional breach of warranty or (b)
any intentional failure to perform or comply with any agreement contained
in this Agreement, and the Buyer shall be liable for all Damages with
respect thereto.
14. The Agreement is amended to add Schedule 2.7 in the form
attached to this Amendment, with the prior Schedule 2.7 deleted in its entirety.
In the event that the consent received for any real or personal property listed
on the original Schedule 2.7 is not valid on the Closing Date, such property
shall be listed in the revised Schedule 2.7.
15. A new Section 13.15 is added to the Agreement as follows:
13.15 Right to Entertain Offers. Notwithstanding any other provision
of this Agreement, Sellers shall have the absolute right to entertain
discussions with respect to the sale of the Business with parties other
than the Buyer. Without limiting the generality of the foregoing, such
right shall include a right to provide any potential purchaser of the
Business with any documents, work papers and other materials in the
possession of the Sellers relating to the Business, whether or not
confidential, so long as the provision of such information is subject to
comparable confidentiality limitations as those set forth in Section 13.14
of the Agreement. The parties expressly agree that entertainment of offers
and provision of information by the Sellers in the manner set forth herein
shall not constitute a violation or breach of this Agreement by the
Sellers. In the event that prior to the Closing Date the Sellers receive a
bona fide offer from a financially responsible party to purchase the
Business at a price (and a cash component thereof) equal to or greater
than the Purchase Price (and
-5-
<PAGE> 6
the cash component thereof) pursuant to a definitive agreement (the
"Alternate Agreement"), Sellers shall have the absolute right (the
"Alternate Agreement Termination Right"), with no liability to the Buyer,
to give notice to Buyer that this Agreement will terminate concurrently
with the execution and delivery of the Alternate Agreement on a date, not
earlier that two Business Days after such notice is given, specified in
such notice unless Buyer receives a commitment letter as described in the
following sentence. Sellers' Alternate Agreement Termination Right shall
terminate upon receipt by Sellers of a commitment letter in customary form
from Buyer's bank for the financing required for the acquisition of the
Business. Termination of Sellers' Alternate Agreement Termination Right
shall not be interpreted (a) to preclude or restrict Sellers' right to
entertain offers and provide information to potential purchasers of the
Business set forth in this Section 13.15, or (b) to extend the Termination
Date of this Agreement beyond March 31, 1995.
16. The Agreement is amended to add Annex 1.1N in the
form attached to this Amendment.
17. Annex 8.7 of the Agreement is amended to read in its entirety as
attached hereto, with the prior Annex 8.7 deleted in its entirety.
18. The parties agree that notwithstanding any provision contained
in the Agreement (other than Section 8.5), the failure of General Mills to make
a final determination as to the renewal of its customer contract with the
Sellers on or before the Closing Date shall not provide the Buyer with a basis
for refusing to close the transaction contemplated therein.
SELLERS :
THE MARTIN-BROWER COMPANY.
By:/s/ John C. Winton
----------------------------
Its: Sr VP Finance
---------------------------
MARTIN-BROWER OF CANADA, LTD.
By:/s/ John C. Winton
----------------------------
Its: Director
---------------------------
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<PAGE> 7
BUYER:
PROSOURCE, INC.
By:/s/ D. R. PARKER
----------------------------
Its: Chairman
---------------------------
-7-
<PAGE> 8
SCHEDULE 2.7
Restricted Assets
PART A. : Consents to Assignment Constitute Conditions Precedent
to Closing
1. Assignment of Following License and Service Agreements
Requires Approval of Buyer
a. Dun & Bradstreet Software Services, Inc. (McCormack &
Dodge):
- License and Maintenance Agreement. (Millennium)
b. Manugistics. Inc., formerly STSC:
- Agreement for Consulting and Programming Services and Work
Assignment Schedule dated 9/13/83
- Agreement for APL*Plus Time Sharing Services and TRUCKS
Supplement, dated 9/13/83
- Work Assignment Schedule dated 6/18/87
- Amended and Restated Software License Agreement dated 2/12/88
- Addendum to Software License Agreement dated 2/12/88 and Letter
dated 12/4/91
c. Computer Associates:
- License Agreement for Program Product dated 3/15/89 (CA-DYNAM/T VM
and VSE)
- Pansophic Systems, Inc. Software License Agreement dated 10/12/90
(Warehouse BOSS)
- Order Form 3/31/93 (Warehouse BOSS)
d. Analysis, Inc. (CATOC Systems) :
- Proposal for the Implementation of the CATOC Transportation
Software System dated 9/2/92
- Software Agreement dated 9/2/92
- Software Support Agreement dated 9/2/92
e. CompuServe:
- Network Services Agreement
f. Sterling Software (Netmaster):
- License
g. Xerox Corporation:
- Agreement for Maintenance of 2 Printers
2. Equipment Lease Contracts
a. MetLife Capital, Limited Partnership:
- Motor Vehicle Lease Agreement (Trailers) dated 2/4/87
<PAGE> 9
b. MCC Leasing/Trust No. 92-01:
- Motor Vehicle Lease Agreement (Trailers)
Draft dated 2/2/95 approved by all parties; awaiting execution copies.
3. Real Estate Leases and Sidetrack Agreements
a. 1020 31st Street, Downers Grove, Illinois
- 6th Floor Lease dated 11/30/93
- Lower Level Lease dated 5/31/94
b. 4600 South Austin Avenue, Chicago, Illinois
- Office Lease dated 11/22/77
c. CENTER 04 - ATLANTA, GEORGIA
5155 Welcome All Road
Atlanta, GA 30349
- Warehouse Lease and Construction Agreement dated 9/14/90, as
amended
- Sidetrack Agreement with CSX Transportation
d. CENTER 45 - CHESTER, NEW YORK
65 Leone Lane
Chester, NY 10918
- Warehouse Lease and Construction Agreement dated 2/17/86
e. CENTER 25 - COLUMBUS, OHIO
4465 Industrial Center Drive
Village of Obetz, OH 43207
- Warehouse Lease and Construction Agreement dated 9/9/92
- Sidetrack Agreement with CSX Transportation
f. CENTER 09 - DALLAS, TEXAS
1603 North Gardenridge Blvd.
Lewisville, Texas 75067
- Commercial Lease dated 10/3/88
- Standard Industrial Net Lease dated 9/4/91
- Standard Commercial Lease dated 4/1/94
- Sublease dated 7/20/93
g. CENTER 18 - WASHINGTON, D.C.
425 Lee Hill Drive
Fredericksburg, VA 22408
- Sidetrack Agreement with CSX Transportation
h. CENTER 03 - LOS ANGELES, CALIFORNIA
5598 Lindbergh Lane
City of Bell, CA 90201
- Lease Agreement dated 3/6/80, as amended
-2-
<PAGE> 10
i. CENTER 43 - LOS ANGELES, CALIFORNIA
145 North Willow
City of Industry, CA 91746
- Industrial Real Estate Lease dated 1/20/92
j. CENTER 22 - PORTLAND , OREGON
13130 N.E. Airport Way
Portland, OR 97230
- Standard Industrial Lease dated 7/28/89
k. CENTER 33 - TRENTON, ONTARIO
160 North Murray Street
Trenton, Ontario
- Lease dated 12/91
- Agreement dated 11/8/91
4. Owned Real Estate Sidetrack Agreements
a. CENTER 19 - ORLANDO, FLORIDA
1090 Gills Drive
Orlando, Florida 32824
- Sidetrack Agreement with CSX Transportation
b. CENTER 01 - GRIDLEY, ILLINOIS
202 North Ford Street
Gridley, , Illinois 61744
- Sidetrack Agreement with T, P & W
5. Agreements in Form Approved by Buyer Requiring Third Party
Signature Only
a. Access International:
- Agreement
b. Anacomp, Inc.
- Agreement (Microfiche)
c. IBM:
- IBM Customer Agreement
d. Information Builders, Inc. :
- License (FOCUS software)
e. Integral Systems
- License for A/P Program
f. Macro 4, Inc. :
- License
g. Phoenix Software Company:
- License Agreement for Phoenix Software Products (DOS FALCON/PLUS)
h. Premenos Corp.:
- License
i. Sentinel Computer Services:
- Maintenance Agreement
j. Software Diversified Services:
- License Agreement
-3-
<PAGE> 11
k. The Associates:
- Transfer and Assumption Agreement
l. Deutsche Credit Corporation:
- Consent to Assignment
6. Assignment of Following Customer Contracts Requires Buyer
Signature Only
a. Long John Silver's
- Agreement dated 4/7/94
- Letter Agreements re: Fish Stockpiling and Buy-Ins
7. Consents to Assignment Requiring Acknowledgment of
Modifications Only
a. Sterling Software (VM software, Inc.):
- License Agreement with Amendment dated 8/23/88
b. Pitney Bowes Credit Corp. :
- Master Equipment Lease Agreement dated 3/9/89
- Revised Addendum "B" Stipulated Loss Values (Trailers) dated
1/17/90
c. John Hancock Leasing Corp. :
- Master Lease dated 7/16/91
- Acceptance Supplement (Trailers) dated 11/18/91
d. Data Exchange:
- Lease Agreement (computers) dated 12/21/87
e. Tandet Eastern Limited:
- Vehicle Lease
PART B. : Consents to Assignment not a Condition Precedent to Closing
1. License and Service Agreements in Form Approved by Buyer
requiring third party Signature Only
a. Data Base of Chicago, Inc. :
- Service Agreement dated June 30, 1988
b. Dell Marketing I.P.
- Corporate Performance Agreement
-4-
<PAGE> 12
ANNEX 1.1N
PROSOURCE, INC./THE MARTIN-BROWER COMPANY
SUMMARY OF TERMS OF SUBORDINATED NOTE AND WARRANT
Subordinated Note:
Principal amount $10,000,000
Maturity March 31, 2002
Amortization of
principal None
Interest Rate: 0% in year 1; 4% per
annum in years 2 and 3; 7% per
annum in year 4; 10% per annum
in year 5; and 13% per annum
in years 6 and 7. Payment:
PIK in years 2 and 3; semi-
annual thereafter .
Subordination Subordinate to all bank and
other third party indebtedness
for money borrowed on terms
satisfactory to the senior
bank lenders. Senior in
liquidation and upon default
to subordinated indebtedness
provided by affiliates.
Security None
Covenants As Per Attachment
Transfer First refusal in favor of
Onex. No transfer to a person
engaged in the food
distribution business or the
fast food or casual dining
restaurant business.
Events of Default As Per Attachment
<PAGE> 13
Warrant :
Securities subject to 5% of the fully-diluted common
purchase stock of ProSource, Inc., as
of, and giving effect to
common stock and options
issued in connection with, the
closing of the acquisition
Exercise price $3,500,000.00
Payment If both the subordinated note
and the warrant are held by
Dalgety PLC or one of its
subsidiaries, at the option of
the holder, the exercise price
of the warrant may be paid
with part or all of the
subordinated note, valued at
its then fair market value
Exercise period April 1, 1997 to March 31, 2000. Exercisable
prior to that period in connection with a
public offering by or sale of ProSource, Inc.
Anti-dilution Adjustment for stock
dividends, stock splits,
recapitalizations and the like
Transfer First refusal in favor of
Onex. No transfer to a person
engaged in the food
distribution business or the
fast food or casual dining
restaurant business
Registration rights The holder of the common stock issued upon
exercise of the warrant will have piggy-back
registration rights on a parity with other
stockholders
Stockholders agreement The holder of the common stock issued upon
exercise of the warrant will have tag-along
rights and be subject to drag-along and first
refusal obligations
-2-
<PAGE> 14
Detachability Warrants can be fully tradable
apart from the underlying
note, subject to the
restrictions above under the
caption "Transfer"
-3-
<PAGE> 15
Attachment to Annex 1.1N
Covenants
1. For each dollar of debt to affiliates/parent or subsidiaries to be
retired/exchanged while the subordinated note is outstanding, Debtor
must retire 66.6 cents of the subordinated note.
2. Holder will have continuing access to financial statements of
debtor.
3. Debtor will maintain corporate existence, pay all required taxes and
fees.
4. Debtor will not claim benefit of any stay, extension or usury law
that may affect its obligation to pay under the subordinated note.
5. Prohibition of dividends prior to repayment of the note in full,
except ordinary dividends in line with comparable companies.
6. Limitations on the sale of substantially all of the assets of the
debtor, unless note retired at face.
7. Restrictions on transactions with affiliates, or investments in
other entities (whether in the form of loans or equity), excluding
the $750,000 per annum (subject to annual increase for increases in
the CPI) management fee to be paid by debtor to Onex Corporation,
which would have the same effect as a prohibited dividend.
Events of Default
1. Failure to pay interest or principal on the note.
2. Breach of any covenant, condition or agreement in the note.
3. Bankruptcy.
4. Cross acceleration.
-4-
<PAGE> 16
ANNEX 7.10
TRADEMARK LICENSE AGREEMENT
This Agreement, executed and entered into this ___ day of ____,
1995, is by and between The Martin-Brower Company, a Delaware corporation,
having its principal place of business at 1020 West 31st Street, Downers Grove,
Illinois 60515-5508 (hereinafter referred to as "Licensor") and ProSource, Inc.,
a Delaware corporation, having its principal place of business at 550 Biltmore
Way, 10th Floor, Coral Gables, Florida 33134 (hereinafter referred to as the
"Licensee") .
WITNESSETH:
WHEREAS, pursuant to that certain Agreement for the Purchase and
Sale of the National Accounts Division of Licensor and Martin-Brower of Canada,
Ltd. by and between Licensee, Licensor and Martin-Brower of Canada, Ltd. dated
November 10, 1994 (the "Purchase Agreement") Licensee agreed to acquire the
Business (as such term is defined in the Purchase Agreement);
WHEREAS, capitalized terms used herein shall have the meanings set
forth in the Purchase Agreement, except as otherwise expressly defined herein;
WHEREAS, Licensor is the owner of the trademark registration listed
in Exhibit A hereto (hereinafter the "Mark"); and
WHEREAS, the Licensee is desirous of using the Mark on the terms and
conditions set forth herein;
NOW, THEREFORE, the parties hereto hereby expressly agree as
follows:
1. LICENSE GRANT.
1.1 License. Subject to the termination provisions contained in
Section 1.3 hereof, and the other terms and conditions set forth herein,
Licensor hereby grants a royalty free, non-exclusive, non-transferable,
perpetual license to the Licensee and its subsidiaries to use the Mark within
the Territory (as hereinafter defined) in the manner specified herein. The
Licensee shall be entitled to use the Mark only in conjunction with the name
ProSource, and in such cases, solely in activities related to the Business, or
such other names as Licensee may use in the conduct of the Business. Except as
provided in Section 1.2 hereof, Licensee shall not have the right to use the
Mark with any coloring or colors that are the same as or confusingly similar to
the dark blue and light blue colors used in the Mark by the Business on the date
hereof. As used
<PAGE> 17
herein the Territory shall mean the United States, Canada and any country in
which the Business was conducted prior to the Closing of the Agreement.
1.2 Interim Use of Other Marks. During the six (6) month period
commencing on the date of this Agreement, Licensee may continue to display on
tractors, trailers, other vehicles and facilities acquired (or the use of which
was acquired) by Licensee under the Purchase Agreement all names, designs, marks
and other Proprietary Rights (collectively "IP Items") displayed on such
tractors, trailers, other vehicles and facilities on the Closing Date.
1.3 Termination. Upon the occurrence of a material breach of or
default under this Agreement by the Licensee, Licensor shall provide written
notice to the Licensee of that breach, and said breach shall be remedied or
cured within sixty days of said notice. If the Licensee does not remedy or cure
such breach or default within such sixty day period, the License granted herein
shall automatically terminate at the end of said sixty day period. In the event
of the termination of the License, the Licensee shall immediately discontinue
all use of the Mark.
1.4 Quality Control. The Licensee shall at all time during the term
of this Agreement in conjunction with the use of the Mark maintain quality
standards at least equal to those provided or established and maintained by
Licensor as of the date hereof with respect to the Business.
1.5 Use of the Mark. Licensee hereby acknowledges and agrees that
(i) the Mark is the exclusive property of Licensor, (ii) it will not do anything
that, to the knowledge of Licensee, could reasonably be expected to invalidate
the Mark or adversely affect Licensor's ownership thereof, and (iii) it will not
during the term of this Agreement or thereafter, except with the prior written
permission of Licensor, obtain or attempt to obtain any registration of the same
Mark or any combination thereof with another name. The Licensee shall use such
appropriate markings as required by applicable law in conjunction with the
Licensee's use of the Mark, so as to show the protected or registered status of
the Mark. The Licensee shall promptly furnish to Licensor upon written request,
at the Licensee's sole expense, samples or photographs of the Licensee's
advertisement and other uses of the Mark. Licensor shall have the right to
review and consent in advance to any use of the Mark by Licensee, such consent
not to be unreasonably withheld or delayed.
-2-
<PAGE> 18
2 INDEMNIFICATION.
2.1 Indemnification by the Licensee. The Licensee hereby expressly
acknowledges and agrees that maintenance of the required minimum quality control
standards as set forth in Section 1.3 is the responsibility of the Licensee. The
Licensee shall indemnify and hold Licensor harmless from all claims, demands,
suits, actions, proceedings, costs, damages, expenses, and/or losses of any kind
(including product liability) resulting from, arising out of, or in connection
with, the Licensee's use of the Mark or interim use of an IP Item pursuant to
the License granted herein, except to the extent resulting from, arising out of
or in connection with any breach of the representations and warranties set forth
in Section 2.2 or any actions, omissions or state of facts inconsistent with
such representations and warranties. The Licensee may, at its own expense,
promptly defend and continue the defense of any such claim, demand, suit, action
or proceeding. If the Licensee fails to retain counsel or to undertake and
continue such defense as aforesaid, Licensor shall have the right to make and
continue such defense as may to it seem appropriate, and the expenses and costs
thereof, including, but not limited to, attorneys' fees, out-of-pocket costs,
and the costs of an appeal and the bond thereof, together with the amount of any
judgment paid by Licensor, shall be paid by the Licensee upon demand. Nothing
hereinbefore stated shall prevent Licensor from defending any such claim,
demand, suit, action or proceeding at its own expense and risk through its own
attorneys, notwithstanding that the defense thereof may have been undertaken by
the Licensee, and the Licensee shall promptly notify Licensor of the
commencement or threatened commencement of any such claim, demand, suit, action,
or proceeding of which it has knowledge.
2.2 Representations/Warranties of Licensor; Indemnification by
Licensor. Licensor represents and warrants with respect to the Mark that (i) to
the knowledge of Licensor, the Mark is duly registered with countries in which
registrations have been filed and issued, (ii) Licensor has no knowledge of any
litigation, proceedings, investigations or claims of any nature pending or
threatened related to the Mark, and (iii) that use of the Mark in accordance
with this Agreement will not violate the rights of any person or entity. Subject
to the limitations on indemnification (both as to amount and time) set forth in
Sections 11.2 and 11.6 of the Purchase Agreement, the Licensor shall indemnify
and hold Licensee harmless from all claims, demands, suits, actions,
proceedings, costs, damages, expenses, and/or losses of any kind resulting from,
arising out of, or in connection with, any breach of the foregoing
representations and warranties or any actions, omissions or state of facts
inconsistent with such representations and warranties. Licensor may, at its own
expense, defend any claim, demand, suit, action or proceeding with respect to
the Mark. If the Licensor fails to
-3-
<PAGE> 19
retain counsel or to undertake and continue such defense as aforesaid, the
Licensee shall have the right to make and continue such defense as it deems
appropriate, and the expenses and costs thereof, including but not limited to,
attorneys' fees, out-of-pocket costs, and the costs of an appeal and the bond
thereof, together with the amount of any judgment paid by the Licensee, shall be
paid by Licensor upon demand. Nothing hereinbefore stated shall prevent Licensee
from defending any such claim, demand, suit, action or proceeding at its own
expense and risk through its own attorneys, notwithstanding that the defense
thereof may have been undertaken by the Licensor, and the Licensor shall
promptly notify Licensee of the commencement of any such claim, demand, suit,
action, or proceeding.
3. REGISTRATION AND ASSIGNMENT.
3.1 Rights Non-Transferable. The Licensee agrees and understands
that this License and the rights granted hereunder are nonassignable and
nontransferable by the Licensee without the express written consent of the
Licensor, which may be determined in Licensor's reasonable discretion.
Notwithstanding the foregoing, Licensor shall have the absolute right to refuse
an assignment of the rights granted hereunder to any transferee which, on the
date of such proposed assignment, is a competitor (whether directly or
indirectly) or Licensor, its ultimate parent, or any subsidiary or affiliate of
such parent. Licensor has the right to assign or transfer its rights in and to
the Mark (subject to the License granted hereunder) to any person, persons,
entity or entities which it deems necessary and proper.
4. MISCELLANEOUS
4.1 Nature of Relationship. Nothing herein contained shall be
construed to place the parties hereto in a relationship of partners or joint
venturers, and neither party shall have the power to obligate or bind the other
in any manner whatsoever.
4.2 Severability. The provisions of this Agreement shall be
severable, and if any provision of this Agreement shall be held or declared to
be illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability shall not affect any other provision hereof, and the remainder
of this Agreement disregarding such invalid portion shall continue in full force
and effect as though such void provision had not been contained herein.
4.3 Governing Law. The validity, construction,
interpretation, and enforcement of this Agreement shall be
governed by the laws of the State of Delaware.
4.4 Waiver. The waiver by either of the parties
hereto of any breach of any provision hereof by the other party
-4-
<PAGE> 20
shall not be construed to be either a waiver of any succeeding breach of any
such provision or a waiver of the provision itself.
4.5 Notices. All notices hereunder shall be made as
set forth in Section 13.2 of the Purchase Agreement.
4.6 Heading and Number. The heading for each paragraph of this
Agreement is included for convenience of reference only and is not to be
considered a part hereof, and shall not be deemed to modify, restrict, or
enlarge any of the terms or provisions of this Agreement. Whenever herein the
singular number is used, the same shall include the plural where appropriate .
4.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes any and all other agreements, understanding, negotiations, or
representations, oral or written, between such parties.
4.5 Execution in Counterparts. This Agreement and any amendments
thereto shall be executed in multiple counterparts. Each counterpart shall be
deemed an original, but all counterparts together shall constitute one and the
same instrument .
4.9 Amendment. No terms or provision contained herein shall be
amended, modified or varied, except in writing signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have subscribed hereto
through their duly authorized officers as of the date first written above.
ProSource, Inc.
By:_______________________
Print Name: ___________________
Print Title: _________________
The Martin-Brower Company
By:_______________________
Print Name:__________________
Print Title: __________________
-5-
<PAGE> 21
EXHIBIT A
The Mark
MB, including those letters in the style currently used by the
Business, except with any coloring or colors that are the same as or confusingly
similar to the dark blue and light blue colors used by the Business on the date
hereof.
-6-
<PAGE> 22
ANNEX 8.7
________________ 1995
Prosource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Re: National Accounts Division of The Martin-Brower
Company and Martin-Brower of Canada, Ltd.
Ladies and Gentlemen:
We have acted as special counsel to The Martin-Brower Company ("MBC") , a
Delaware corporation, and Martin-Brower of Canada, Ltd ("MBCL"), a corporation
organized under the laws of Ontario, Canada (collectively, the "Sellers"), in
connection with the execution and delivery of the Agreement for the Purchase and
Sale of the National Accounts Division of The Martin-Brower Company and
Martin-Brower of Canada, Ltd., dated November 10, 1994 (as amended on February
24, 1995, the Agreement") , entered into by and between ProSource, Inc., a
Delaware corporation (the "Buyer"), and the Sellers pertaining to the sale by
the Sellers of the National Accounts Division of the Sellers, and certain other
agreements, instruments and documents related to the Agreement. This opinion is
being delivered pursuant to Section 8.7 of the Agreement. capitalized terms used
herein and not otherwise defined herein shall have the same meanings herein as
ascribed thereto in the Agreement.
In our examination we have assumed the genuineness of all signatures
including indorsements, the legal capacity of natural persons, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such copies. As to any facts material
to this opinion which we did not independently establish or verify, we have
relied upon statements and representations of the Sellers and of BroMar
Services, Inc. (the "Company") and its officers and other representatives and of
public officials, including the facts set forth in the Officer's certificate
described below.
In rendering opinions set forth herein, we have examined and relied on
originals or copies of the following:
(a) the Agreement;
(b) the Assignment and Assumption Agreement, the Trademark License
Agreement, and the Service Agreement;
<PAGE> 23
(c) certificate of the Sellers executed by dated
the date hereof;
(d) copies of the Articles of Incorporation and By-
laws of the Sellers and the Company;
(g) certificate from public officials in the state of
Delaware and Illinois as to the good standing of the Company
in each such jurisdiction; and
(h) such other documents as we have deemed necessary or appropriate
as a basis for the opinions set forth below.
The Agreement and the Assignment and Assumption Agreement, the
Trademark License Agreement, and the Service Agreement shall hereinafter be
referred to collectively as the "Documents". References to (i) "Applicable Laws"
shall mean those laws, rules and regulations of the State of Illinois and of the
United States of America which, in our experience, are normally applicable to
transactions of the type contemplated by the Documents; (ii) the term
"Governmental Authorities" means any Illinois or federal executive, legislative,
judicial, administrative or regulatory body; (iii) the term "Governmental
Approval" means any consent, approval, license, authorization or validation of,
or filing, recording or registration with, any Governmental Authority pursuant
to Applicable Laws of the State of Illinois and the United States of America to
the extent specifically referred to herein; (iv) the term "Applicable Orders"
means those orders or decrees of Governmental Authorities identified on Schedule
II to the Officer's Certificate; and (v) "Applicable Contracts" mean those
agreements or instruments set forth on Schedule III to the officer's Certificate
and which have been identified to us as all the agreements and instruments which
are material to the business or financial condition of the Company.
The law covered by the opinions expressed herein is limited to the
federal law of the United States and the law of the State of Illinois. We
express no opinion as to the laws of any other jurisdiction. In this respect we
call to your attention that certain of the transaction documents are governed by
laws of jurisdictions other than those described above and have rendered the
opinions herein as if such documents were governed by the laws of the State of
Illinois; we express no opinion as to the effect of any such other laws on the
opinions expressed herein.
Our opinions are also subject to the following assumptions and
qualifications:
-2-
<PAGE> 24
(a) each of the Documents constitutes the legal, valid and binding
obligation of each party to the Documents (other the Sellers) enforceable
against such parties (other than the Sellers) in accordance with their terms;
(b) we express no opinion as to the effect on the opinions herein
stated of (i) the compliance or non-compliance of any party (other than the
Company) to the Documents with any state, federal or other laws or regulations
applicable to them or (ii) the legal or regulatory status or the nature of the
business of such other parties.
(c) In rendering our opinions expressed below, we express no opinion
as to the applicability or effect of any fraudulent transfer, bankruptcy
preference or similar law on the Documents or any transactions contemplated
thereby;
(d) In rendering our opinions expressed below, we express no opinion
as to the applicability or effect of any preference or similar law on the
Documents or any transaction contemplated thereby;
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:
1. The Agreement, the Assignment and Assumption Agreement, the
Trademark License Agreement and the Service Agreement constitute binding
obligations of the Sellers, enforceable against them in accordance with their
respective terms, subject to the following qualifications:
(i) enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in equity or at law);
(ii) we express no opinion as to: the enforceability of any rights
to contribution or indemnification provided for in the Documents which are
violative of the public policy underlying any law, rule or regulation (including
any federal or state securities law, rule or regulation);
(iii) we express no opinion with respect to the enforceability of
Section 7.13 of the Agreement to the extent it states that the provisions of the
Documents are severable;
-3-
<PAGE> 25
(iv) we express no opinion with respect to the enforceability of the
covenants contained in Section 13.7 of the Agreement which are violative of the
public policy underlying any law, rule or regulation; and
(v) we express no opinion with respect to the enforceability of
Section 13.11 of the Agreement to the extent it states that the parties waive
all right to a trial by jury.
2. Execution and delivery by the Sellers of, and performance of, the
Agreement, the Assignment and Assumption Agreement, the Trademark License
Agreement and the Service Agreement do not (i) violate the terms of the
constituent documents of the sellers, (ii) breach or otherwise violate any
existing obligation of the Sellers under a Court Order listed in the attached
officer's certificate or (iii) violate applicable provisions of statutory law or
regulations .
3. Except as set forth on Schedule 5.3 to the Agreement, no
approval, authorization or other action by, or filing with, any governmental
authority, is required for the valid execution and delivery by the Sellers of,
and performance of their agreements in, the Agreement, the Assignment and
Assumption Agreement, the Trademark License Agreement and the Service Agreement.
4. The Company, a wholly-owned subsidiary of MBC, has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Delaware and is in good standing as a foreign corporation in Illinois.
The Company has the corporate power and authority to conduct its business .
5. The Company's authorized capital stock consists of _____________
shares of common stock, par value ________ per share of which 2000 shares are
issued and outstanding and held of record by MBC.
This opinion is being furnished only to you and is solely for your
benefit and is not to be used, circulated, quoted, relied upon or otherwise
referred to for any purpose without our prior written consent. We hereby consent
to the delivery of this opinion to the lenders providing the financing
contemplated by Section 8.5 of the Agreement.
Very truly yours,
-4-
<PAGE> 1
Exhibit 10.6
SECOND PURCHASE AGREEMENT AMENDMENT
Second Amendment dated February 28, 1995 to Agreement for the
Purchase and Sale of the National Accounts Division of the Martin-Brower Company
and Martin-Brower of Canada, Ltd. dated November 10, 1994 (the "Agreement")
among The Martin-Brower Company, a corporation organized under the laws of
Delaware and Martin-Brower of Canada, Ltd., a corporation organized under the
laws of Ontario, Canada (collectively the "Sellers") , and ProSource, Inc., a
corporation organized under the laws of Delaware (the "Buyer") .
WHEREAS, on November 10, 1994, the Sellers and the
Buyer entered into the Agreement;
WHEREAS, the Sellers and the Buyer entered into a Purchase Agreement
Amendment on February 24, 1995 (the "Purchase Agreement Amendment") ; and
WHEREAS, the Sellers and the Buyer wish to clarify two items
contained in the Purchase Agreement Amendment.
NOW, THEREFORE, the Agreement and the Purchase Agreement Amendment
are hereby amended as follows:
1. Paragraph 15 of the Purchase Agreement Amendment
is amended to read in its entirety as follows:
13.15 Right to Entertain Offers. Notwithstanding any other provision
of this Agreement, Sellers shall have the absolute right to entertain
discussions with respect to the sale of the Business with parties other than the
Buyer. Without limiting the generality of the foregoing, such right shall
include a right to provide any potential purchaser of the Business with any
documents, work papers and other materials in the possession of the Sellers
relating to the Business, whether or not confidential, so long as the provision
of such information is subject to comparable confidentiality limitations as
those set forth in Section 13.14 of this Agreement. The parties expressly agree
that entertainment of offers and provision of information by the Sellers in the
manner set forth herein shall not constitute a violation or breach of this
Agreement by the Sellers. In the event that prior to the Closing Date the
Sellers receive a bona fide offer from a financially responsible party to
purchase the Business at a price (and a cash component thereof) equal to or
greater than the Purchase Price (and the cash component thereof) pursuant to a
definitive agreement (the "Alternate Agreement") , Sellers shall have the
absolute right (the "Alternate Agreement Termination Right"), with no liability
to the Buyer, to give notice to
<PAGE> 2
Buyer that this Agreement will terminate concurrently with the execution and
delivery of the Alternate Agreement on a date, not earlier that two Business
Days after such notice is given, specified in such notice unless Buyer receives
a definitive loan agreement or commitment letter as described in the following
sentence. Sellers' Alternate Agreement Termination Right shall terminate upon
receipt by Sellers of a copy of a definitive loan agreement or a commitment
letter in customary form from Buyer's bank for the financing required for the
acquisition of the Business. Termination of sellers' Alternate Agreement
Termination Right shall not be interpreted (a) to preclude or restrict Sellers'
right to entertain offers and provide information to potential purchasers of the
Business set forth in this Section 13.15, or (b) to extend the Termination Date
of this Agreement beyond March 31, 1995.
2. Subparagraph 7 under Covenants in Attachment to
Annex 1.1N of the Purchase Agreement Amendment is amended to read
in its entirety as follows:
7. Restrictions on transactions with affiliates, or investments in
other entities (whether in the form of loans or equity), excluding
the $792,796 per annum (subject to annual increase for increases in
the CPI) management fee to be paid by debtor to Onex Corporation, or
a subsidiary thereof, which would have the same effect as a
prohibited dividend.
SELLERS :
THE MARTIN-BROWER COMPANY
By:/s/ John C. Winton
--------------------------
Its: Sr. V.P. Finance
-------------------------
MARTIN-BROWER OF CANADA, LTD.
By:/s/ John C. Winton
--------------------------
Its: Director
-------------------------
BUYER:
PROSOURCE, INC.
By:/s/ D.R. Parker
--------------------------
Its: Chairman
-------------------------
-2-
<PAGE> 1
Exhibit 10.7
THIRD PURCHASE AGREEMENT AMENDMENT
Third Amendment dated March 31, 1995 to Agreement for the purchase
and Sale of the National Accounts Division of the Martin-Brower Company and
Martin-Brower of Canada, Ltd. dated November 10, 1994 (the "Agreement") among
The Martin-Brower Company, a corporation organized under the laws of Delaware
and Martin-Brower of Canada, Ltd., a corporation organized under the laws of
Ontario, Canada (collectively the "Sellers"), and ProSource, Inc., a corporation
organized under the laws of Delaware (the "Buyer") .
WHEREAS, on November 10, 1994, the Sellers and the Buyer
entered into the Agreement;
WHEREAS, the Sellers and the Buyer entered into a Purchase Agreement
Amendment on February 24, 1995 (the "Purchase Agreement Amendment") and a Second
Purchase Agreement Amendment on February 28, 1995 (the "Second Purchase
Agreement Amendment") ;
WHEREAS, the Sellers and the Buyer wish to clarify two
further items prior to the Closing; and
WHEREAS, capitalized terms used herein shall have the meanings set
forth in the Agreement.
NOW, THEREFORE, the Agreement, the Purchase Agreement Amendment and
the Second Purchase Agreement Amendment are hereby amended as follows:
1. The parties acknowledge and agree that a collective bargaining
agreement relating to Sellers' warehousemen employees at its Columbus, Ohio
distribution facility is now under negotiation, and the existence of such
negotiation shall not constitute a breach of the Agreement by the Sellers.
2. As of the date hereof Sellers have delivered to the Buyer updated
Schedules, as that term is defined in Section 1.2 of the Agreement. All such
Schedules will be deemed to be updated to the date hereof, unless otherwise
noted on the relevant Schedule. With respect to those Schedules not updated to
the date hereof, Sellers will, as quickly as reasonably possible after the
Closing, deliver to the Buyer Schedules updated to the date hereof. All changes
in such updated Schedules delivered after the Closing from Schedules delivered
prior to the Closing shall reflect only transactions which have occurred in the
ordinary course of the Business.
<PAGE> 2
3. With respect to the inventory of the Business located at Trident
Seafoods Corporation ("Trident"), Sellers shall, no later than May 15, 1995,
either (i) cause Trident to enter into agreements with the Buyer establishing
ownership and control of such inventory by the Buyer, the first priority (except
with respect to liens caused by the Buyer) of the security interest in such
inventory granted to the Buyer's secured lenders; and the terms on which such
inventory is stored by Trident, all on terms reasonably satisfactory to the
Buyer and its secured lenders or (ii) cause such inventory to be moved to a
storage facility reasonably satisfactory to the Buyer. If the Sellers do not
satisfy the requirements of the preceding sentence, or if any of the inventory
referred to in the preceding sentence cannot be accounted for at the end of the
period referred to therein, the Buyer may elect, by notice to the Sellers, to
exclude the inventory referred to in that sentence, or the inventory not
accounted for, from the Assets sold to the Buyer pursuant to the Agreement.
SELLERS :
THE MARTIN-BROWER COMPANY
By:/s/ John C. Winton
-----------------------------
Its: SR V.P.-FINANCE
----------------------------
MARTIN-BROWER OF CANADA, LTD.
By:/s/ John C. Winton
-----------------------------
Its: DIRECTOR
----------------------------
BUYER:
PROSOURCE, INC.
By:/s/ D.R. PARKER
-----------------------------
Its: CHAIRMAN
----------------------------
2
<PAGE> 1
Exhibit 10.8
[EXECUTION COPY]
- ------------------------------------------------------------------------------
$240,000,000
LOAN AND SECURITY AGREEMENT
DATED AS OF MARCH 31, 1995
AMONG
PROSOURCE SERVICES CORPORATION
BROMAR SERVICES, INC.
PROSOURCE DISTRIBUTION SERVICES LIMITED
(AS BORROWERS)
AND
THE FINANCIAL INSTITUTIONS PARTY
HERETO FROM TIME TO TIME
(AS LENDERS)
AND
NATIONSBANK OF GEORGIA, N.A.
THE FIRST NATIONAL BANK OF BOSTON
SHAWMUT CAPITAL CORPORATION
(AS CO-AGENTS)
AND
NATIONSBANK OF GEORGIA, N.A.
(AS ADMINISTRATIVE AGENT)
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions................................................. 2
SECTION 1.2. Other Referential Provisions and Rules of Construction.....42
ARTICLE 2
REVOLVING CREDIT FACILITY
SECTION 2.1. Revolving Credit Loans.....................................44
SECTION 2.2. Manner of Borrowing Revolving Credit Loans.................44
SECTION 2.3. Repayment of Revolving Credit Loans........................46
SECTION 2.4. Revolving Credit Notes.....................................47
SECTION 2.5. Extension of Revolving Credit Facility.....................47
ARTICLE 3
LETTER OF CREDIT FACILITY
SECTION 3.1. Agreement to Issue.........................................48
SECTION 3.2. Amounts....................................................48
SECTION 3.3. Conditions.................................................48
SECTION 3.4. Issuance of Letters of Credit..............................49
SECTION 3.5. Duties of NationsBank......................................50
SECTION 3.6. Payment of Reimbursement Obligations.......................50
SECTION 3.7. Participations.............................................50
SECTION 3.8. Indemnification, Exoneration...............................52
SECTION 3.9. Supporting Letter of Credit; Cash Collateral...............53
This Table of Contents is included for reference purposes only and does not
constitute part of the Loan and Security Agreement.
i
<PAGE> 3
ARTICLE 4
TERM LOAN FACILITY
SECTION 4.1. Term Loans..................................................55
SECTION 4.2. Manner of Borrowing Term Loan...............................55
SECTION 4.3. Repayment of Term Loans.....................................55
SECTION 4.4. Term Notes..................................................56
ARTICLE 5
GENERAL LOAN PROVISIONS
SECTION 5.1. Interest....................................................57
SECTION 5.2. Underwriting Fee............................................59
SECTION 5.3. Administrative Agent Fee....................................59
SECTION 5.4. Unused Facility.............................................59
SECTION 5.5. Letter of Credit Fees.......................................59
SECTION 5.6. Notice of Conversion or Continuation of Loans...............60
SECTION 5.7. Conversion or Continuation..................................60
SECTION 5.8. Duration of Interest Periods................................61
SECTION 5.9. Changed Circumstances.......................................61
SECTION 5.10. Payments Not at End of Interest Period; Failure to Borrow..62
SECTION 5.11. Assumptions Concerning Funding of Eurodollar Rate Loans....63
SECTION 5.12. Manner of Payment..........................................63
SECTION 5.13. General....................................................64
SECTION 5.14. Loan Accounts; Statements of Account.......................64
SECTION 5.15. Termination of Agreement...................................64
SECTION 5.16. Making of Loans............................................65
SECTION 5.17. Settlement Among Lenders...................................67
SECTION 5.18. Prepayments................................................71
SECTION 5.19. Prepayment; Early Termination..............................72
SECTION 5.20. Cash Collateral in Lieu of Repayment.......................73
SECTION 5.21. Borrowers' Representative..................................74
SECTION 5.22. Joint and Several Liability................................74
SECTION 5.23. Obligations Absolute.......................................75
SECTION 5.24. Waiver of Suretyship Defenses..............................75
SECTION 5.25. Judgment Currency..........................................76
SECTION 5.26. Payments Free of Tax.......................................76
ii
<PAGE> 4
ARTICLE 6
CONDITIONS PRECEDENT
SECTION 6.1. Conditions Precedent to Initial Loans..................... 77
SECTION 6.2. All Loans; Letters of Credit.............................. 83
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 7.1. Representations and Warranties............................ 84
SECTION 7.2. Survival of Representations and Warranties, Etc........... 98
ARTICLE 8
SECURITY INTEREST
SECTION 8.1. Security Interest......................................... 99
SECTION 8.2. Continued Priority of Security Interest...................100
ARTICLE 9
COLLATERAL COVENANTS
SECTION 9.1. Collection of Receivables.................................102
SECTION 9.2. Verification and Notification.............................103
SECTION 9.3. Disputes, Returns and Adjustments.........................104
SECTION 9.4. Invoices..................................................104
SECTION 9.5. Delivery of Instruments...................................105
SECTION 9.6. Sales of Inventory........................................105
SECTION 9.7. Ownership and Defense of Title............................105
SECTION 9.8. Insurance.................................................105
SECTION 9.9. Location of Offices and Collateral........................106
SECTION 9.10. Records Relating to Collateral...........................107
SECTION 9.11. Inspection...............................................107
SECTION 9.12. Information and Reports..................................108
SECTION 9.13. Power of Attorney........................................109
SECTION 9.14. Additional Real Estate and Leases........................109
iii
<PAGE> 5
SECTION 9.15. Assignment of Claims Act................................110
ARTICLE 10
AFFIRMATIVE COVENANTS
SECTION 10.1. Preservation of Corporate Existence and Similar Matters..111
SECTION 10.2. Compliance with Applicable Law...........................111
SECTION 10.3. Maintenance of Property..................................111
SECTION 10.4. Conduct of Business......................................111
SECTION 10.5. Insurance................................................112
SECTION 10.6. Payment of Taxes and Claims..............................112
SECTION 10.7. Accounting Methods and Financial Records.................112
SECTION 10.8. Use of Proceeds..........................................112
SECTION 10.9. Hazardous Waste and Substances; Environmental
Requirements.............................................113
SECTION 10.10. Interest Rate Protection Agreement......................113
SECTION 10.11. Distribution Agreements.................................113
SECTION 10.12. Use of Resources........................................114
ARTICLE 11
INFORMATION
SECTION 11.1. Financial Statements.....................................115
SECTION 11.2. Accountants' Certificate.................................116
SECTION 11.3. Officer's Certificate....................................116
SECTION 11.4. Copies of Other Reports..................................117
SECTION 11.5. Notice of Litigation and Other Matters...................118
SECTION 11.6. ERISA....................................................118
SECTION 11.7. Revisions or Updates to Schedules........................119
SECTION 11.8. Restricted Distribution Certificate......................119
SECTION 11.9. Onex Management Fee Payments.............................119
ARTICLE 12
NEGATIVE COVENANTS
SECTION 12.1. Financial Ratios..........................................121
SECTION 12.2. Debt......................................................122
SECTION 12.3. Guaranties................................................122
iv
<PAGE> 6
SECTION 12.4. Investments..............................................123
SECTION 12.5. Capital Expenditures.....................................123
SECTION 12.6. Restricted Payments and Distributions, Etc...............123
SECTION 12.7. Merger, Consolidation and Sale of Assets.................125
SECTION 12.8. Transactions with Affiliates.............................125
SECTION 12.9. Liens....................................................126
SECTION 12.10. Capitalized Lease Obligations and Purchase Money Debt...126
SECTION 12.11. Real Estate Leases......................................126
SECTION 12.12. Plans...................................................126
SECTION 12.13. Sales and Leasebacks....................................126
SECTION 12.14. Amendments to Other Agreements..........................126
SECTION 12.15. Additional Intangible Assets............................126
SECTION 12.16. Limitation on Acquisition Reserves......................126
ARTICLE 13
DEFAULT
SECTION 13.1. Events of Default........................................128
SECTION 13.2. Remedies.................................................131
SECTION 13.3. Application of Proceeds..................................136
SECTION 13.4. Power of Attorney........................................136
SECTION 13.5. Miscellaneous Provisions Concerning Remedies.............138
ARTICLE 14
ASSIGNMENTS
SECTION 14.1. Successors and Assigns; Participations...................139
SECTION 14.2. Representation of Lenders................................142
ARTICLE 15
ADMINISTRATIVE AGENT
SECTION 15.1. Appointment of Administrative Agent......................143
SECTION 15.2. Delegation of Duties.....................................143
SECTION 15.3. Exculpatory Provisions...................................143
v
<PAGE> 7
SECTION 15.4. Reliance by Administrative Agent..........................144
SECTION 15.5. Notice of Default.........................................144
SECTION 15.6. Non-Reliance on Administrative Agent and Other Lenders....144
SECTION 15.7. Indemnification...........................................145
SECTION 15.8. NationsBank in Its Individual Capacity....................146
SECTION 15.9. Resignation and Removal of Administrative Agent...........146
SECTION 15.10. Notices from Administrative Agent to Lenders.............146
SECTION 15.11. Co-Agents................................................146
ARTICLE 16
MISCELLANEOUS
SECTION 16.1. Notices...................................................148
SECTION 16.2. Expenses..................................................149
SECTION 16.3. Stamp and Other Taxes.....................................151
SECTION 16.4. Setoff....................................................151
SECTION 16.5. Litigation................................................152
SECTION 16.6. Waiver of Rights..........................................152
SECTION 16.7. Consent to Advertising and Publicity......................153
SECTION 16.8. Reversal of Payments......................................153
SECTION 16.9. Injunctive Relief.........................................153
SECTION 16.10. Accounting Matters.......................................153
SECTION 16.11. Amendments...............................................154
SECTION 16.12. Binding Effect...........................................156
SECTION 16.13. Performance of Borrower's Duties.........................156
SECTION 16.14. Indemnification..........................................156
SECTION 16.15. All Powers Coupled with Interest.........................157
SECTION 16.16. Survival.................................................157
SECTION 16.17. Titles and Captions......................................157
SECTION 16.18. Severability of Provisions...............................157
SECTION 16.19. Governing Law............................................158
SECTION 16.20. Counterparts.............................................158
SECTION 16.21. Reproduction of Documents................................158
SECTION 16.22. Term of Agreement........................................158
SECTION 16.23. Increased Capital........................................158
SECTION 16.24. Pro-Rata Participation...................................159
SECTION 16.25. Superseded Agreements....................................160
SECTION 16.26. Interest Computation (Canada)............................160
vi
<PAGE> 8
ANNEX A COMMITMENTS
EXHIBIT A FORM OF REVOLVING CREDIT NOTE
EXHIBIT B-1 FORM OF TERM NOTE A
EXHIBIT B-2 FORM OF TERM NOTE B
EXHIBIT C-1 FORM OF WEEKLY BORROWING BASE CERTIFICATE
EXHIBIT C-2 FORM OF MONTHLY BORROWING BASE CERTIFICATE
EXHIBIT D FORM OF OPINION OF COUNSEL FOR BORROWERS
EXHIBIT E FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT F FORM OF SETTLEMENT REPORT
Schedule 1.1A Division Acquisition Documents
Schedule 1.1B Pricing Matrix
Schedule 1.1C BKC Agreements
Schedule 1.1D Negative Pledge Agreements
Schedule 1.1E Permitted Investments
Schedule 1.1F Permitted Liens
Schedule 1.1G Valley Agreements
Schedule 1.1H Malone Agreements
Schedule 1.1I Superseded Agreements
Schedule 7.1(a) Organization
Schedule 7.1(b) Capitalization
Schedule 7.1(d) Subsidiaries; Ownership of Stock
Schedule 7.1(f) Compliance of Agreement with Laws
Schedule 7.1(h) Governmental Approvals
Schedule 7.1(i) Permitted Encumbrances
Schedule 7.1(j) Liens
Schedule 7.1(k) Indebtedness and Guaranties
Schedule 7.1(l) Litigation
Schedule 7.1(m) Tax Matters
Schedule 7.1(q) ERISA
Schedule 7.1(u) Location of Offices and Receivables
Schedule 7.1(v) Location of Inventory
Schedule 7.1(w) Equipment
Schedule 7.1(x) Real Estate
Schedule 7.1(y) Corporate and Fictitious Names
Schedule 7.1(bb) Employee Relations
Schedule 7.1(cc) Proprietary Rights
Schedule 7.1(dd) Trade Names
Schedule 7.1(hh) Lockbox, Demand Deposit and Other Bank Accounts
Schedule 9.3(c) Receivables Under Discussion
vii
<PAGE> 9
Schedule 10.8 Use of Proceeds
viii
<PAGE> 10
LOAN AND SECURITY AGREEMENT
Dated as of March 31, 1995
PROSOURCE SERVICES CORPORATION, a Delaware corporation (PROSOURCE), BROMAR
SERVICES, INC., a Delaware corporation (BROMAR), and PROSOURCE DISTRIBUTION
SERVICES LIMITED, a Canadian corporation (PROSOURCE CANADA and together with
ProSource and BroMar, the BORROWERS), the financial institutions party to this
Agreement from time to time (the LENDERS), NATIONSBANK OF GEORGIA, N.A., a
national banking association (NATIONSBANK), THE FIRST NATIONAL BANK OF BOSTON,
a national banking association (BANK OF BOSTON), SHAWMUT CAPITAL CORPORATION, a
Delaware corporation (SCC), as co-agents (each in that capacity a CO-AGENT and
collectively the CO-AGENTS) and NATIONSBANK OF GEORGIA, N.A., as administrative
agent for the Lenders (in that capacity, together with any successors in that
capacity, the ADMINISTRATIVE AGENT), agree as follows:
PRELIMINARY STATEMENT
1. ProSource, Inc., a Delaware corporation and owner of all of the
outstanding capital stock of ProSource (the PARENT), has entered into an
Agreement for the Purchase and Sale of the National Accounts Division of The
Martin-Brower Company and Martin-Brower of Canada, Ltd. with The Martin-Brower
Company and Martin-Brower of Canada, Ltd. (collectively, the SELLERS), dated
November 10, 1994, as amended by Purchase Agreement Amendment dated February 24,
1995 and Second Purchase Agreement Amendment dated February 28, 1995, and has
assigned its interests as buyer thereunder to ProSource (such agreement, as
assigned, being referred to herein as the DIVISION ACQUISITION AGREEMENT).
Pursuant to the Division Acquisition Agreement, ProSource has agreed, subject to
the terms and conditions thereof, to purchase the assets and assume the
liabilities (to the extent described therein) relating to the business of the
National Accounts Division of the Sellers in the United States and Canada (the
DIVISION), including, without being limited to, all of the issued and
outstanding shares of capital stock of BroMar.
2. ProSource has entered into an Agreement of Merger dated as of March 30,
1995 (the MERGER AGREEMENT), with ProSource Distribution Services, Inc., a
Delaware corporation wholly-owned by the Parent (PDS), pursuant to which PDS
will, substantially simultaneously with the consummation of the transactions
contemplated by this Agreement and subject to the terms and conditions set
forth therein, merge with and into ProSource with ProSource as the surviving
corporation (the MERGER). Among other things, immediately prior to (but
substantially simultaneously with) consummation of the Merger, ProSource will
pay a dividend to the Parent in an amount equal to $7,000,000 by delivering to
the Parent the Parent's cancelled promissory note dated March 31, 1993, in the
original principal amount of $7,000,000 and under which principal in the amount
of $7,000,000 is outstanding. The proceeds of the loan from ProSource to the
Parent evidenced by such note were applied by the
<PAGE> 11
Parent to acquire preferred stock of PDS which, in turn, used such proceeds to
finance, in part, the acquisition of the assets of Valley (as hereinafter
defined). Pursuant to the Merger Agreement, said preferred stock, which was
pledged by the Parent to ProSource as collateral for the aforesaid note, will,
together with the common stock of PDS, be converted into 10 shares of common
stock of ProSource.
3. ProSource has requested that the Co-Agents underwrite and extend to the
Borrowers a credit facility in the aggregate principal amount of $240,000,000
to provide financing in whole or in part for (a) the acquisition of the
Division, (b) the refinancing of the indebtedness outstanding under the Amended
and Restated Loan and Security Agreement, dated as of January 18, 1994, among
ProSource, as borrower, the financial institutions party thereto, as lenders,
and NationsBank, as agent, as amended (the EXISTING LOAN AGREEMENT) and the
Loan and Security Agreement, dated as of March 31, 1993, between PDS, as
borrower, and NationsBank, as lender, as amended (the EXISTING PDS LOAN
AGREEMENT) and (c) for the ongoing working capital and other business needs of
the Borrowers. ProSource has contracted with the Arrangers (as hereinafter
defined) pursuant to a separate agreement to syndicate such credit facility.
4. The parties hereto desire to set forth in writing their respective
agreements relating to such credit facility.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the extensions of
credit to be made in connection herewith, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Borrowers, the Co-Agents, the Lenders and the Administrative Agent hereby
agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. For the purposes of this Agreement:
ACCOUNT DEBTOR means a Person who is obligated on a Receivable.
ACQUIRE, ACQUIRED OR ACQUISITION, as applied to any Business Unit or
Investment, means the acquiring or acquisition of such Business Unit or
Investment by purchase, exchange, issuance of stock or other securities, or by
merger, reorganization or any other method, including, where the context
indicates, the acquisition of the Division Assets under the Division
Acquisition Documents.
2
<PAGE> 12
ADJUSTED INTEREST EXPENSE for any period means Consolidated Interest
Expense for such period, LESS any amount included therein for interest that is
payable by increasing the principal amount of the relevant Debt or is otherwise
payable other than in cash in a manner acceptable to the Administrative Agent.
ADJUSTED NET WORTH means Consolidated Net Worth, LESS the amount included
therein for any amounts due from Affiliates in excess of $100,000 in the
aggregate.
ADMINISTRATIVE AGENT means NationsBank, and any successor administrative
agent appointed pursuant to SECTION 15.9 hereof.
ADMINISTRATIVE AGENT'S OFFICE means the office of the Administrative Agent
specified in or determined in accordance with the provisions of SECTION 16.1.
AFFILIATE means, with respect to a Person, (a) any partner, officer,
shareholder (if holding more than 10% of the outstanding shares of capital
stock of such Person), director, employee or managing agent of such Person, (b)
any other Person (other than a Subsidiary) that, (i) directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such given Person, (ii) directly or indirectly
beneficially owns or holds 10% or more of any class of voting stock or
partnership or other voting interest of such Person or any Subsidiary of such
Person, or (iii) 10% or more of the voting stock or partnership or other voting
interest of which is directly or indirectly beneficially owned or held by such
Person or a Subsidiary of such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities or partnership or other voting interest, by contract or
otherwise. For the purposes of this Agreement and the other Loan Documents,
Affiliates of the Lenders shall include only financial institutions.
AGENCY ACCOUNT means an account of a Borrower maintained by it with a
Clearing Bank pursuant to an Agency Account Agreement.
AGENCY ACCOUNT AGREEMENT means an agreement among a Borrower, the
Administrative Agent and a Clearing Bank, in form and substance satisfactory to
the Administrative Agent, concerning the collection of payments which represent
the proceeds of Receivables or of any other Collateral.
AGREEMENT means and includes this Loan and Security Agreement, including
all Schedules, Exhibits and other attachments hereto, and all amendments,
modifications and supplements hereto and thereto.
AGREEMENT DATE means the date as of which this Agreement is dated.
3
<PAGE> 13
ANNIVERSARY DATE means the first and each subsequent anniversary of the
Effective Date.
APPLICABLE LAW means all applicable provisions of constitutions, statutes,
rules, regulations and orders of all governmental bodies and of all orders and
decrees of all courts and arbitrators, including, without limitation,
Environmental Laws, as in effect from time to time.
APPLICABLE L/C FEE means when used in reference to Letters of Credit (i)
fully secured by Cash Collateral, 1.0% per annum and (ii) not secured by Cash
Collateral, a rate per annum equal to the Eurodollar Rate Margin on the date of
determination.
ARRANGERS means NationsBanc Capital Markets, Inc., Bank of Boston and SCC.
ASSET DISPOSITION means the disposition of any asset of a Borrower or any
of its Subsidiaries, other than sales of Inventory in the ordinary course of
business.
ASSIGNMENT AND ACCEPTANCE means an assignment and acceptance in the form
attached hereto as EXHIBIT E assigning all or a portion of a Lender's
interests, rights and obligations under this Agreement pursuant to SECTION
14.1.
AVAILABILITY means at any time (a) the Borrowing Base at such time, MINUS
(b) the aggregate principal amount of Revolving Credit Loans outstanding at
such time.
BKC means Burger King Corporation, a Florida corporation, and its
successors and assigns.
BKC AGREEMENTS means the agreements listed on SCHEDULE 1.1C - BKC
AGREEMENTS, as amended and in effect from time to time.
BENEFIT PLAN means an "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) in respect of which a
Borrower or any Related Company is, or within the immediately preceding six
years was, an "employer" as defined in Section 3(5) of ERISA, including such
plans as may be established after the Agreement Date.
BORROWER means each of (i) ProSource and, where appropriate in the
context, includes PDS prior to the Merger, (ii) BroMar and (iii) ProSource
Canada.
4
<PAGE> 14
BORROWING BASE means at any time an amount equal to the lesser of:
(a) the Revolving Credit Facility, MINUS the SUM OF
(i) the aggregate amount of the Letter of Credit Obligations, PLUS
(ii) the aggregate amount of the Environmental Compliance Reserves, PLUS
(iii) the aggregate amount of reserves, if any, established by the Agent
in its reasonable discretion in respect of ACH (automated clearing house)
transfers or obligations of the Borrowers under Interest Rate Protection
Agreements,
OR
(b) an amount equal to
(i) 85% (or such lesser percentage as either the Administrative Agent or
the Required Lenders, in their absolute discretion, may establish from time to
time after the occurrence and during the continuation of an Event of Default)
of the face value of Eligible Receivables due and owing at such time, PLUS
(ii) the lesser of
(A) 50% (or such lesser percentage as either the Administrative
Agent or the Required Lenders, in their absolute discretion, may establish
from time to time after the occurrence and during the continuation of an
Event of Default) of the lesser of cost determined on a weighted moving
average accounting basis and fair market value of Eligible Inventory, net
of any amount included therein for the value of fuel and net of the
Borrowers' reserves for obsolescence, at such time, AND
(B) $75,000,000, MINUS
(iii) the sum of
(A) $25,000,000, PLUS
(B) the Letter of Credit Reserve, PLUS
5
<PAGE> 15
(C) the outstanding principal amount of Term Loan B, PLUS
(D) the aggregate amount of the Environmental Compliance Reserves,
PLUS
(E) the aggregate amount of reserves, if any, established by the
Administrative Agent in its reasonable discretion in respect of ACH
transfers or obligations of the Borrowers under Interest Rate Protection
Agreements, PLUS
(F) such other reserves as the Administrative Agent may in its
reasonable discretion establish from time to time based on customary credit
and collateral criteria utilized by asset based lenders.
BORROWING BASE CERTIFICATE means a Weekly Borrowing Base Certificate or a
Monthly Borrowing Base Certificate.
BROMAR means BroMar Services, Inc., a Delaware corporation and Wholly
Owned Subsidiary of ProSource.
BUSINESS DAY means any day other than a Saturday, Sunday or other day on
which banks in Atlanta, Georgia are authorized to close and, when used with
respect to Eurodollar Rate Loans, means any such day on which dealings are also
carried on in the applicable interbank Eurodollar market.
BUSINESS UNIT means the assets constituting the business or a division or
operating unit thereof of any Person.
CANADIAN BACKUP L/C means a standby Letter of Credit in the face amount of
$3,000,000, issued for the account of ProSource and for the benefit of the
Canadian Lender on the Effective Date, for a period of 90 days.
CANADIAN DOLLAR and C$ each means freely transferable Canadian dollars.
CANADIAN LENDER means The Bank of Nova Scotia and any successor in such
capacity selected by ProSource and acceptable to the Required Lenders in their
reasonable judgment.
CAPITAL EXPENDITURES means, with respect to any Person, all expenditures
made and liabilities incurred for the acquisition of assets (other than assets
which constitute a Business Unit) which are not, in accordance with GAAP,
treated as expense items for such Person in the year made or incurred or as a
prepaid expense applicable to a future year or years.
6
<PAGE> 16
CAPITALIZED LEASE means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
CAPITALIZED LEASE OBLIGATION means Indebtedness represented by obligations
under a Capitalized Lease, and the amount of such Indebtedness shall be the
capitalized amount of such obligations determined in accordance with GAAP.
CASH COLLATERAL means collateral consisting of cash or Cash Equivalents on
which the Administrative Agent has a first priority Lien.
CASH EQUIVALENTS means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States Government or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within one
year from the date of acquisition thereof;
(b) commercial paper maturing no more than one year after the date issued
and, at the time of acquisition thereof, having a rating of at least A-1 from
Standard & Poor's Corporation or at least P-1 from Moody's Investors Service,
Inc.;
(c) certificates of deposit or bankers' acceptances issued in Dollar
denominations and maturing within one year after the date of issuance thereof
issued by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia or Canada having
combined capital and surplus of not less than $100,000,000 and, unless issued
by the Administrative Agent, a Co-Agent or a Lender, not subject to set-off or
offset rights in favor of such bank arising from any banking relationship with
such bank; and
(d) repurchase agreements in form and substance and for amounts
satisfactory to the Administrative Agent.
CLEARING BANK means NationsBank and any other banking institution with
which an Agency Account has been established pursuant to an Agency Account
Agreement.
COLLATERAL means and includes all of each Borrower's right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising:
(a) all Receivables,
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(b) all Inventory,
(c) all Equipment,
(d) all Contract Rights,
(e) all General Intangibles,
(f) all Real Estate,
(g) all goods and other property, whether or not delivered,
(i) the sale or lease of which gives or purports to give rise to any
Receivable, including, but not limited to, all merchandise returned or
rejected by or repossessed from customers, or
(ii) securing any Receivable,
including, without limitation, all rights as an unpaid vendor or lienor
(including, without limitation, stoppage in transit, replevin and reclamation)
with respect to such goods and other property,
(h) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements, and other
agreements and property which secure or relate to any Receivable or other
Collateral, or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all documents of title, policies and certificates of insurance,
securities, chattel paper and other documents and instruments evidencing or
pertaining to any and all items of Collateral,
(j) all files, correspondence, computer programs, tapes, discs and related
data processing software which contain information identifying or pertaining to
any of the Receivables or any Account Debtor, or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization thereon
or the collection thereof,
(k) all cash deposited with the Administrative Agent or any Lender or any
Affiliate of the Administrative Agent or any Lender or which the Administrative
Agent, for the benefit of the Lenders, or any Lender or such Affiliate is
entitled to retain or otherwise possess as collateral pursuant to the
provisions of this Agreement or any of the Security Documents or any agreement
relating to any Letters of Credit,
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(l) any and all products and proceeds of the foregoing (including, but not
limited to, any claim to any item referred to in this definition, and any claim
against any third party for loss of, damage to or destruction of any or all of,
the Collateral or for proceeds payable under, or unearned premiums with respect
to, policies of insurance) in whatever form, including, but not limited to,
cash, negotiable instruments and other instruments for the payment of money,
chattel paper, security agreements and other documents;
PROVIDED that the Collateral shall not include a Borrower's interest under any
agreement listed on SCHEDULE 1.1D - NEGATIVE PLEDGE AGREEMENTS during any time
that such agreement prohibits such Borrower from granting a security interest in
its interest thereunder.
COMMITMENT means, as to each Lender, the amount set forth opposite such
Lender's name on ANNEX A hereto, representing such Lender's obligation, upon
and subject to the terms and conditions of this Agreement (including the
applicable provisions of SECTION 14.1), to make Revolving Credit Loans and Term
Loans and to purchase participations in Letters of Credit or, after the
Effective Date, set forth as to such Lender in the Register (as defined in
SECTION 14.1) representing such Lender's obligation to make Revolving Credit
Loans and to purchase participations in Letters of Credit and its corresponding
interest in Term Loans outstanding.
COMMITMENT PERCENTAGE means, as to any Lender, the percentage of the Total
Commitment obtained by dividing such Lender's Commitment by the Total
Commitment.
COMPLIANCE CERTIFICATE has the meaning specified in SECTION 11.3.
CONSOLIDATED, when used with reference to EBITDA, Interest Expense,
Adjusted Interest Expense, Debt, Indebtedness, Total Debt, Fixed Charges,
Long-Term Liabilities, Liabilities, Net Income, or Net Worth, shall mean the
sum of the EBITDA, Interest Expenses, Adjusted Interest Expenses, Debt,
Indebtedness, Total Debt, Fixed Charges, Long-Term Liabilities, Liabilities,
Net Incomes, or Net Worths, as the case may be, of ProSource and its
Consolidated Subsidiaries, as consolidated after the elimination of
intercompany items and, in the case of Net Income and Net Worth, after
appropriate deductions for any minority interests in any Subsidiaries.
CONSOLIDATED SUBSIDIARIES means BroMar, ProSource Canada, and ProSource
Investments, Inc., a Delaware corporation wholly owned by ProSource, and any
other Subsidiaries of ProSource whose accounts are at the time in question, in
accordance with GAAP and pursuant to the written consent of the Required
Lenders, which consent may be withheld in their absolute discretion conditioned
upon, inter alia, the execution and delivery of guaranties, security
agreements, mortgages and other documents required by the Required Lenders in
their absolute discretion, consolidated with those of ProSource.
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CONTAMINANT means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
CONTRACT RIGHTS means any rights under contracts not yet earned by
performance and not evidenced by an instrument or chattel paper.
CONTROLLED DISBURSEMENT ACCOUNT means one or more accounts maintained by
and in the name of a Borrower with a Disbursing Bank for the purposes of
disbursing Revolving Credit Loan proceeds.
COPYRIGHTS means and includes, in each case whether now existing or
hereafter arising, all of each Borrower's right, title and interest in and to
(a) all copyrights, rights and interests in copyrights, works protectable
by copyright, copyright registrations and copyright applications;
(b) all renewals of any of the foregoing;
(c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of
the foregoing; and
(e) all rights corresponding to any of the foregoing throughout the world.
DEBT means,
(a) Indebtedness for money borrowed,
(b) Indebtedness, whether or not in any such case the same was for money
borrowed,
(i) represented by notes payable, and drafts accepted, that represent
extensions of credit,
(ii) constituting obligations evidenced by bonds, debentures, notes or
similar instruments, or
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(iii) upon which interest charges are customarily paid or that was
issued or assumed as full or partial payment for property (other than trade
credit that is incurred in the ordinary course of business),
(c) Indebtedness that constitutes a Capitalized Lease Obligation, and
(d) Indebtedness that is such by virtue of CLAUSE (c) of the definition
thereof, but only to the extent that the obligations Guaranteed are obligations
that would constitute Debt under the foregoing clauses (a), (b) or (c).
DEBT SERVICE COVERAGE RATIO means, for each specified period, the ratio of
(i) Consolidated EBITDA for such period to (ii) the sum of Adjusted Interest
Expense and the aggregate amount of all principal repayments scheduled to be
made during such period in respect of Term Loan A.
DEFAULT means any of the events specified in SECTION 13.1 which with the
passage of time or giving of notice or both would constitute an Event of
Default.
DEFAULT MARGIN means 2.0%.
DISBURSING BANK means any commercial bank with which a Controlled
Disbursement Account is maintained.
DISTRIBUTION AGREEMENT ASSIGNMENT means the Collateral Assignment of
Rights Under BKC Agreements, dated as of June 30, 1992, made by ProSource in
favor of NationsBank, as agent under the Existing Loan Agreement and consented
to and confirmed as in effect with respect to this Agreement by BKC pursuant to
the Confirmation and Acknowledgement dated as of December 7, 1994 between BKC
and NationsBank.
DIVISION means the business operated as the "National Accounts Division"
of the Sellers.
DIVISION ACQUISITION means the Acquisition of the Division Assets and the
assumption of the Division Liabilities contemplated by the Division Acquisition
Agreement and the other Division Acquisition Documents.
DIVISION ACQUISITION AGREEMENT has the meaning specified in paragraph 1 of
the Preliminary Statement.
DIVISION ACQUISITION AGREEMENT ASSIGNMENT means the Collateral Assignment
of Rights Under Acquisition Agreement, in form and substance satisfactory to
the Co-Agents,
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dated on or about the Effective Date, made by ProSource in favor of the
Administrative Agent and consented to by the Sellers.
DIVISION ACQUISITION DOCUMENTS means, collectively, the Division
Acquisition Agreement and all other documents, agreements, instruments and
certificates executed in connection with the consummation of the transactions
contemplated by the Division Acquisition Agreement, including, without
limitation, those listed on SCHEDULE 1.1A - DIVISION ACQUISITION DOCUMENTS
attached hereto.
DIVISION ASSETS means the assets Acquired by ProSource from the Sellers
pursuant to the Division Acquisition Documents.
DIVISION LIABILITIES means the Liabilities and obligations assumed by
ProSource pursuant to the Division Acquisition Documents.
DLKC means D and L Corp. of K.C., a Kansas corporation.
DOLLAR and "$" means freely transferable United States dollars.
EBITDA means, for any specified period, Consolidated Net Income for such
period, before provision for Interest Expense, depreciation, amortization of
intangible assets and income taxes of ProSource and its Consolidated
Subsidiaries for such period (determined on a Consolidated basis) and, in
addition, as determined for Fiscal Year 1995, before recognizing the write-off
of up to $1,510,000 of unamortized deferred loan fees associated, in part, with
the Existing Loan Agreement and the Existing PDS Loan Agreement.
ERISA means the Employee Retirement Income Security Act of 1974, as in
effect from time to time.
EFFECTIVE DATE means the later of:
(a) the Agreement Date, and
(b) the first date on which all of the conditions set forth in ARTICLE 6
shall have been fulfilled.
EFFECTIVE INTEREST RATE means each rate of interest per annum on the
Revolving Credit Loans and the Term Loans in effect from time to time pursuant
to the provisions of SECTIONS 5.1(A) and (B).
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ELIGIBLE ASSIGNEE means (i) a commercial bank organized under the laws of
the United States, or any State thereof, having total assets in excess of
$1,000,000,000 or any commercial finance or asset based lending affiliate of
any such commercial bank (including, specifically, Fleet Bank and its
Affiliates) and (ii) any Lender listed on the signature page of this Agreement;
PROVIDED in each case that the representation contained in SECTION 14.2 hereof
shall be true with respect to such institution or Lender.
ELIGIBLE INVENTORY means Inventory which the Administrative Agent, in its
sole and absolute discretion determines to meet all of the following
requirements:
(a) such Inventory is owned by ProSource or ProSource Canada, is stored at
a location listed on SCHEDULE 7.1(v) or notified to the Administrative Agent in
accordance with Sections 9.9(b) and 9.12(b), is subject to the Security
Interest, which is perfected as to such Inventory, and is subject to no other
Lien whatsoever other than a Permitted Lien,
(b) such Inventory consists of finished goods (including expressly the
"seafood stockpile" as defined in agreements with Long John Silver's
Restaurants, Inc. (or its Subsidiaries) in effect on the Effective Date) and
not supplies,
(c) such Inventory meets all standards imposed by any governmental agency,
or department or division thereof, having regulatory authority over such goods,
their use or sale,
(d) such Inventory is currently either usable or salable, at prices
approximating at least cost, in the normal course of the relevant Borrower's
business and is not slow moving or stale,
(e) such Inventory is not obsolete or returned or repossessed or used
goods taken in trade,
(f) such Inventory is in the possession and control of the relevant
Borrower and not any third party or if the Inventory is held by a third party
bailee and a negotiable instrument has not been issued with respect to it (i) a
financing statement which names the third party bailee as the debtor/bailee,
names the relevant Borrower as the secured party/bailor, names the
Administrative Agent as assignee of the secured party/bailor and contains a
description of such Inventory acceptable to the Administrative Agent and
otherwise in compliance with the requirements of Section 9-304(3) of the UCC
has been filed in the appropriate filing office and (ii) such other steps as
the Administrative Agent may reasonably require in order to establish and
preserve the priority of the Security Interest against secured creditors of the
third party bailee or the Borrowers shall have been taken,
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<PAGE> 23
(g) if such Inventory is located in a warehouse or other facility leased
by a Borrower, the lessor has delivered to the Administrative Agent, on behalf
of the Lenders, a waiver and consent in form and substance satisfactory to the
Administrative Agent that permits the Administrative Agent, on behalf of the
Lenders, to obtain possession of and to dispose of such Inventory, free and
clear of any Lien in favor of the lessor and without any obligation to the
lessor other than to pay for the repair of physical damage to the leased
premises caused by the Administrative Agent's or any Lender's obtaining
possession or disposing of such Inventory and other than the payment of rent
during any period of up to 60 days that the Administrative Agent elects that
the Inventory remain on the leased premises after the receipt by the
Administrative Agent of written notice by the lessor directing removal thereof,
and
(h) such Inventory is not determined by the Administrative Agent, on
behalf of the Lenders, in its discretion to be ineligible based on customary
credit and collateral criteria utilized by asset based lenders.
ELIGIBLE RECEIVABLE means a Receivable that consists of the unpaid portion
of the obligation stated on the invoice issued to an Account Debtor with
respect to Inventory sold and shipped to or services performed for such Account
Debtor in the ordinary course of business, net of any credits or rebates owed
by a Borrower to the Account Debtor and net of any commissions payable by a
Borrower to third parties and that the Administrative Agent, in its sole and
absolute discretion determines to meet all of the following requirements:
(a) such Receivable is owned by ProSource or ProSource Canada and
represents a complete bona fide transaction which requires no further act under
any circumstances on the part of such Borrower to make such Receivable payable
by the Account Debtor,
(b) the due date for such Receivable is not more than 30 days after the
date of the shipment of the goods the sale of which gave rise to such
Receivable (or the date of performance of services for Receivables arising from
the performance of services), PROVIDED that up to 30% of Receivables on which
the Account Debtors are BKC franchisees, may specify due dates up to 45 days
after date of shipment (or performance of services) without thereby being
rendered ineligible,
(c) no more than 61 days have elapsed from the date of the original
invoice,
(d) the goods the sale of which gave rise to such Receivable were shipped
or delivered 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
material part of such goods has been returned or rejected,
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<PAGE> 24
(e) such Receivable is not evidenced by chattel paper or an instrument of
any kind unless such chattel paper or instrument has been collaterally assigned
to the Administrative Agent pursuant to an assignment in form and substance
satisfactory to the Administrative Agent and is in the possession of the
Administrative Agent,
(f) the Account Debtor with respect to such Receivable is not insolvent or
the subject of any bankruptcy or insolvency proceedings of any kind or of any
other proceeding or action, threatened or pending, which might, in the
Administrative Agent's sole judgment, have a Materially Adverse Effect on such
Account Debtor, and is not, in the reasonable discretion of the Administrative
Agent, deemed ineligible for credit or other reasons,
(g) such Receivable is not owing by an Account Debtor having 50% or more
in face value of its then-existing accounts owing to the Borrowers past due
more than 30 days from the due date of the original invoice,
(h) such Receivable is not owing by an Account Debtor whose then-existing
accounts owing to the Borrowers exceed in face amount 7% of the Borrowers'
total Eligible Receivables, PROVIDED that for the purpose of this CLAUSE (h),
only the Receivables of such Account Debtor in excess of 7% of the Borrowers'
total Eligible Receivables shall be deemed to be ineligible, and PROVIDED
FURTHER that as to Receivables on which GMRC is the Account Debtor, such
percentage shall be 25%,
(i) if such Receivable arises from the performance of services, such
services have been fully rendered and do not relate to any warranty claim or
obligation,
(j) such Receivable is not owing by an Account Debtor that is located
outside of the United States of America (for this purpose, the Commonwealth of
Puerto Rico shall be considered located within the United States of America)
or, if such Receivable is a Receivable of ProSource Canada, outside Canada.
(k) such Receivable is a valid, legally enforceable obligation of the
Account Debtor with respect thereto and is not subject to any present or
contingent (and no facts exist which are the basis for any future) offset,
deduction or counterclaim, dispute or other defense on the part of such Account
Debtor; PROVIDED, HOWEVER, that a Receivable shall be deemed eligible for the
purpose of this CLAUSE (k) to the extent of the amount thereof that the
Administrative Agent shall have determined in its reasonable discretion is not
subject to offset, deduction, counterclaim, dispute or other defense or
otherwise adversely affected thereby,
(l) such Receivable is subject to the Security Interest, which is
perfected as to such Receivable, and is subject to no other Lien whatsoever
other than a Permitted Lien,
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(m) such Receivable is evidenced by an invoice or other documentation in
form acceptable to the Administrative Agent,
(n) such Receivable is not subject to the Assignment of Claims Act of
1940, as amended from time to time, or any Applicable Law now or hereafter
existing similar in effect thereto, or to any other prohibition (under
Applicable Law, by contract or otherwise) against its assignment or requiring
notice of or consent to such assignment, unless all such required notices have
been given, all such required consents have been received and all other
procedures have been complied with such that such Receivable shall have been
duly and validly assigned to the Administrative Agent, for the benefit of the
Lenders,
(o) the goods giving rise to such Receivable were not, at the time of the
sale thereof, subject to any Lien, except the Security Interest and Permitted
Liens,
(p) the relevant Borrower is not in breach of any express or implied
representation or warranty with respect to the goods the sale of which gave
rise to such Receivable nor in breach of any representation or warranty,
covenant or other agreement contained in the Loan Documents with respect to
such Receivable,
(q) such Receivable does not arise out of any transaction with any
Subsidiary, Affiliate, creditor (other than BKC, Long John Silver's
Restaurants, Inc., its Wholly Owned Subsidiary, Long John Silver's, Inc., or
GMRC), tenant, lessor or supplier of a Borrower,
(r) the relevant Borrower is not the beneficiary of any letter of credit,
nor has any bond or other undertaking by a guarantor or surety been obtained,
supporting such Receivable and the Account Debtor's obligations in respect
thereof,
(s) such Receivable does not arise out of finance or similar charges by
the relevant Borrower or other fees for the time value of money,
(t) the Account Debtor with respect to such Receivable is not located in
New Jersey, Minnesota or any other state denying creditors access to its courts
in the absence of qualification to transact business in such state or the
filing of a Notice of Business Activities Report or other similar filing,
unless the relevant 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,
(u) neither the Account Debtor with respect to such Receivable, nor such
Receivable, is determined by the Administrative Agent in its discretion to be
ineligible based on customary credit and collateral criteria utilized by asset
based lenders.
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<PAGE> 26
ENVIRONMENTAL COMPLIANCE RESERVES means reserves for the cost of Remedial
Action by a Borrower determined by the Administrative Agent from time to time
in its reasonable discretion based upon the reports delivered pursuant to
SECTION 10.9(b) and such other advice, analysis and engineering studies as it
deems appropriate; PROVIDED, HOWEVER, such reserves shall not include any
amount in respect of the cost of a Remedial Action for which BKC, Valley, the
Sellers or Malone, as applicable, (a) is obligated to indemnify ProSource
(including as a successor to PDS) under the Acquisition Agreement (included in
the BKC Agreements), the Valley Agreements, the Division Acquisition Agreement
or the Malone Acquisition Agreement, as the case may be, (b) has affirmed such
obligation in writing after ProSource obtains knowledge of the circumstances
necessitating such Remedial Action and (c) is not in default of such
obligation.
ENVIRONMENTAL LAWS means all federal, state, local and foreign laws now or
hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, Releases or threatened
Releases of pollutants, Contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport, or handling of pollutants, Contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes, and any and
all regulations, notices or demand letters issued, entered, promulgated or
approved thereunder; such laws and regulations include but are not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended; the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., as amended; the Clean Air Act, 46 U.S.C.
Section 7401 et seq., as amended; and state and federal lien and environmental
cleanup programs.
ENVIRONMENTAL LIEN means a Lien in favor of any governmental entity for
(a) any liability under Environmental Laws or (b) damages arising from, or
costs incurred by such governmental entity in response to, a Release or
threatened Release of Contaminant into the environment.
EQUIPMENT means and includes, as to any Person, all of such Person's then
owned or existing and future acquired or arising, machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings,
fixtures and other tangible personal property (other than Inventory) of every
kind and description used in such Person's business operations or owned by such
Person or in which such Person has an interest, and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
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EURODOLLAR RATE means, with respect to any Eurodollar Rate Loan for the
Interest Period applicable thereto, a simple per annum interest rate determined
pursuant to the following formula:
Interbank Offered Rate
Eurodollar Rate = -----------------------------------
1 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
EURODOLLAR RATE LOAN means a Eurodollar Rate Revolving Credit Loan or a
Eurodollar Rate Term Loan.
EURODOLLAR RATE MARGIN means 3.00% from the Effective Date until the first
day of the first calendar month beginning after the date on which a New
Subordinated Debt Rate Reduction Event, if any, occurs and 2.25% thereafter;
PROVIDED, HOWEVER, that (a) if for the Fiscal Year ending on December 30, 1995,
ProSource and its Consolidated Subsidiaries shall have achieved Consolidated
EBITDA of not less than $25,500,000 and no Default or Event of Default shall
have occurred and be continuing, such margin shall be reduced to 2.75%,
effective as of the first day of the month following delivery (in accordance
with the provisions of SECTION 11.1(b)) of audited financial statements for
Fiscal Year 1995 permitting the Administrative Agent to verify such achievement
and (b) from and after the third Anniversary Date, such margin shall be subject
to reduction (but not increase) in accordance with the pricing matrix attached
to this Agreement as SCHEDULE 1.1B - PRICING MATRIX based on the Fixed Charge
Coverage Ratio and Total Debt to EBITDA Ratio set forth in a timely delivered
Compliance Certificate. Any of the foregoing margin reductions shall be
effective, provided no Default or Event of Default shall have occurred and be
continuing, from the first day of the first month following the relevant event
or the last date covered by the relevant Compliance Certificate.
EURODOLLAR RATE REVOLVING CREDIT LOAN means any Revolving Credit Loan
bearing interest at the time in question determined with reference to the
Eurodollar Rate.
EURODOLLAR RATE TERM LOAN as to each Term Loan, means that portion of the
unpaid principal amount thereof bearing interest at the time in question
determined with reference to the Eurodollar Rate.
EURODOLLAR RESERVE PERCENTAGE, means that percentage (expressed as a
decimal) which is in effect from time to time under Regulation D of the Board
of Governors of the Federal Reserve System, as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental, emergency,
special, or marginal reserves) applicable with respect to
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<PAGE> 28
Eurocurrency liabilities as that term is defined in Regulation D (or against
any other category of liabilities that includes deposits by reference to which
the interest rate of Eurodollar Rate Loans is determined), whether or not any
Lender has any Eurocurrency liabilities subject to such reserve requirement at
that time. Eurodollar Rate Loans shall be deemed to constitute Eurocurrency
liabilities and as such shall be deemed subject to reserve requirements without
benefits of credits for proration, exceptions or offsets that may be available
from time to time to any Lender.
EVENT OF DEFAULT means any of the events specified in SECTION 13.1,
PROVIDED that any requirement for notice or lapse of time or any other
condition has been satisfied.
EXISTING LETTER OF CREDIT means each letter of credit issued by
NationsBank for the account of ProSource or PDS, as the case may be, pursuant
to the Existing Loan Agreement or the Existing PDS Loan Agreement,
respectively, which is outstanding on the Effective Date or as to which an
unsatisfied "Reimbursement Obligation" as defined in the Existing Loan
Agreement or the Existing PDS Loan Agreement exists on the Effective Date.
EXISTING LOAN AGREEMENT has the meaning specified in paragraph 3 of the
Preliminary Statement.
EXISTING PDS LOAN AGREEMENT has the meaning specified in paragraph 3 of
the Preliminary Statement.
FEDERAL FUNDS EFFECTIVE RATE means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve system arranged by federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding Business Day) by
the Federal Reserve Bank of Atlanta, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by NationsBank from three federal funds brokers of
recognized standing selected by NationsBank.
FINANCIAL OFFICER means the chief financial officer, Treasurer or
Controller of the Borrower.
FINANCING STATEMENTS means any and all Uniform Commercial Code financing
statements, in form and substance satisfactory to the Administrative Agent,
executed and delivered by the Borrower to the Administrative Agent, naming the
Administrative Agent as secured party and the Borrower as debtor, in connection
with this Agreement.
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FISCAL MONTH means the period of four or five consecutive weeks beginning
on the first day of a Fiscal Year of the Borrower and ending on the last
Saturday on or before the following January 31 and each period of four or five
consecutive weeks beginning on the Sunday following the end of the preceding
Fiscal Month and ending on the last Saturday on or before the last day of the
next calendar month (or of the same calendar month, if the first day of the
Fiscal Month was also the first day of a calendar month).
FISCAL QUARTER means the period of three consecutive Fiscal Months
beginning on the first day of a Fiscal Year of the Borrower and each succeeding
consecutive period of three consecutive Fiscal Months.
FISCAL YEAR means each period of 52 or 53 consecutive weeks beginning on
the Sunday following the last Saturday in one calendar year and ending on the
last Saturday in the next calendar year and when followed by the designation of
a year, means such period ending on the last Saturday in such designated year.
FIXED CHARGES for any specified period means the sum of Adjusted Interest
Expense for such period, principal repayments scheduled to be made by any
Borrower in respect of long-term Debt during such period (whether or not such
repayment is made), Capital Expenditures made by the Borrowers during such
period other than from the proceeds of Debt (excluding proceeds of the Loans)
and cash income taxes paid by any Borrower during such period.
FIXED CHARGE COVERAGE RATIO means for any specified period, the ratio of
EBITDA for such period to Consolidated Fixed Charges for such period.
GAAP means generally accepted accounting principles consistently applied
and maintained throughout the period indicated and, when used with reference to
ProSource or any Subsidiary, consistent with the prior financial practice of
ProSource, as reflected on the financial statements referred to in SECTION
7.1(o); PROVIDED, HOWEVER, that, in the event that changes shall be mandated by
the Financial Accounting Standards Board or any similar accounting authority of
comparable standing, or shall be recommended by the Borrowers' independent
public accountants, such changes shall be included in GAAP as applicable to the
Borrowers only from and after such date as the Borrowers, the Required Lenders
and the Administrative Agent shall have amended this Agreement to the extent
necessary to reflect any such changes in the financial covenants set forth in
ARTICLE 12; PROVIDED, FURTHER, that in the event of any such change in GAAP,
prior to the time that this Agreement shall have been so amended to reflect
changes in financial covenants, the requirement of SECTION 11.1 with respect to
the conformity of the financial statements delivered pursuant thereto to GAAP
shall mean GAAP including such changes only if the Borrowers shall accompany
any financial statement so delivered with a reconciliation of the amounts set
forth in such financial statement to the amounts that would have been set forth
therein pursuant to GAAP without such changes.
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GMRC means General Mills, Inc. so long as it is the owner of any
restaurant concepts that are customers of a Borrower (as of the Agreement Date,
these concepts are Red Lobster, Olive Garden and China Coast) and any
subsequent owner or owners of such concepts.
GENERAL INTANGIBLES means, as to any Person, all of such Person's then
owned or existing and future acquired or arising general intangibles, choses in
action and causes of action and all other intangible personal property of such
Person of every kind and nature (other than
Receivables), including, without limitation, all Proprietary Rights, corporate
or other business records, inventions, designs, blueprints, plans,
specifications, goodwill, computer software, customer lists, registrations,
licenses, franchises, tax refund claims, reversions or any rights thereto and
any other amounts payable to such Person from any Plan or other employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof,
property, casualty or any similar type of insurance and any proceeds thereof,
proceeds of insurance covering the lives of key employees on which such Person
is beneficiary and any letter of credit, guarantee, claims, security interest
or other security held by or granted to such Person to secure payment by an
Account Debtor of any of the Receivables.
GOVERNMENTAL APPROVALS means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local or foreign national or
provincial and all agencies thereof.
GUARANTY, GUARANTEED OR TO GUARANTEE as applied to any obligation of
another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), directly or indirectly, in any
manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or lessor) of property or
the purchase or sale of services primarily for the purpose of enabling the
obligor with respect to such obligation to make any payment or performance
(or payment of damages in the event of nonperformance) of or on account of
any part or all of such obligation, or to assure the owner of such
obligation against loss,
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(iii) the supplying of funds to or in any other manner investing in
the obligor with respect to such obligation,
(iv) repayment of amounts drawn down by beneficiaries of letters of
credit, or
(v) the supplying of funds to or investing in a Person on account of
all or any part of such Person's obligation under a Guaranty of any
obligation or indemnifying or holding harmless, in any way, such Person
against any part or all of such obligation.
INDEBTEDNESS of any Person means, without duplication, all Liabilities of
such Person, and to the extent not otherwise included in Liabilities, the
following:
(a) all obligations for money borrowed or for the deferred purchase price
of property or services,
(b) all obligations (including, during the noncancellable term of any
lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall
have been assumed by such Person,
(c) all obligations of other Persons which such Person has Guaranteed,
including, but not limited to, all obligations of such Person consisting of
recourse liability with respect to accounts receivable sold or otherwise
disposed of by such Person,
(d) all obligations (including contingent obligations) of such Person in
respect of Interest Rate Protection Agreements, and
(e) in the case of the Borrowers (without duplication) all Secured
Obligations and all obligations under the Parent Subordinated Debt and the New
Subordinated Debt.
INSTALLMENT PAYMENT DATE means the first day of each January, April, July
and October commencing on July 1, 1995.
INTERBANK OFFERED RATE means, with respect to any Eurodollar Rate Loan for
the Interest Period applicable thereto, the average (rounded upward to the
nearest one-sixteenth (1/16) of one percent) per annum rate of interest
determined by the Administrative Agent (each such determination to be
conclusive and binding absent manifest error) as of two Business Days prior to
the first day of such Interest Period from Telerate Page 3750 as the
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effective rate at which deposits in immediately available funds in Dollars are
being offered or quoted to major banks in the interbank market for Eurodollar
deposits for a term comparable to such Interest Period and in the amount of the
Eurodollar Rate Loan. If such rate is unavailable on such service, then such
rate may be determined by the Administrative Agent from any other interest rate
reporting service of recognized standing that the Administrative Agent shall
select.
INTEREST EXPENSE as applied to any Person, means the aggregate of all
interest paid or accrued by such Person, including, without limitation, all
interest, fees and costs payable with respect to Indebtedness (other than fees
and costs that may be capitalized as transaction costs in accordance with
GAAP), all as determined in accordance with GAAP.
INTEREST MARGIN means (a) with respect to a Prime Rate Loan, the Prime
Rate Margin, and (b) with respect to a Eurodollar Rate Loan, the Eurodollar
Rate Margin.
INTEREST PAYMENT DATE means the first day of each calendar month
commencing on May 1, 1995 and continuing thereafter until the Secured
Obligations have been irrevocably paid in full.
INTEREST PERIOD means with respect to each Eurodollar Rate Loan, the
period commencing on the date of the making or continuation of or conversion to
such Eurodollar Rate Loan and ending one, two, three or six months thereafter,
as the Borrowers may elect in the applicable Notice of Borrowing or Notice of
Conversion or Continuation; PROVIDED, that:
(i) any Interest Period that would otherwise end on a day that is not
a Business Day shall, subject to the provisions of CLAUSE (iii) below, 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 immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to CLAUSE (iii) below, end on the last Business Day of a calendar
month;
(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date;
(iv) no Interest Period applicable to a Eurodollar Rate Term Loan may
end after the next Installment Payment Date unless the aggregate principal
amount of Base Rate Term Loans and Eurodollar Rate Term Loans having
Interest Periods
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ending prior to such Installment Payment Date is at least equal to the
amount of the principal repayment due hereunder on such Installment Payment
Date; and
(v) notwithstanding CLAUSE (iii) above, no Interest Period shall have
a duration of less than one month and if any applicable Interest Period
would be for a shorter period, such Interest Period shall not be available
hereunder.
INTEREST RATE PROTECTION AGREEMENT shall mean an interest rate swap, cap
or collar agreement or similar arrangement between the Borrowers (or either of
them) and a Lender providing for the transfer or mitigation of interest risks
either generally or under specific contingencies.
INTERNAL REVENUE CODE means the Internal Revenue Code of 1986, as amended
from time to time.
INVENTORY means and includes, as to any Person, all of such Person's
then-owned or existing and future acquired or arising inventory as such term is
defined in the Uniform Commercial Code and shall include, without limitation,
(a) all goods intended for sale or lease by such Person, or for display or
demonstration, including, without limitation, food and paper supplies and other
products intended for sale by such Person to its customers,
(b) all work in process,
(c) all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the manufacture,
packing, shipping, advertising, selling, leasing or furnishing of such goods or
otherwise used or consumed in such Person's business, and
(d) all documents evidencing and General Intangibles relating to any of
the foregoing.
INVESTMENT means, with respect to any Person:
(a) the acquisition or ownership by such Person of any share of capital
stock, evidence of Indebtedness or other security issued by any other Person,
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(b) any loan, advance or extension of credit to, or contribution to the
capital of, any other Person, excluding advances to employees in the ordinary
course of business for business expenses,
(c) any Guaranty of the obligations of any other Person,
(d) any other investment (other than the Acquisition of a Business Unit)
in any other Person, and
(e) any commitment or option to make any of the investments listed in
CLAUSES (a) through (d) above if, in the case of an option, the consideration
therefor exceeds $100.
LENDER means at any time any financial institution party to this agreement
at such time, including any such Person becoming a party hereto pursuant to the
provisions of ARTICLE 14, and its successors and assigns, and LENDERS means at
any time all of the financial institutions party to this Agreement at such
time, including any such Persons becoming parties hereto pursuant to the
provisions of ARTICLE 14, and their successors and assigns.
LETTER OF CREDIT means any letter of credit issued by NationsBank for the
account of a Borrower after the Effective Date pursuant to ARTICLE 3, and each
Existing Letter of Credit.
LETTER OF CREDIT AMOUNT means, with respect to any or all Letter(s) of
Credit, the aggregate maximum amount at any time available for drawing
(assuming all conditions to drawing are satisfied) under such Letter(s) of
Credit.
LETTER OF CREDIT FACILITY means a subfacility of the Revolving Credit
Facility consisting of Letter of Credit Obligations in an aggregate amount not
to exceed $20,000,000.
LETTER OF CREDIT OBLIGATIONS means, at any time, the sum of (a) the
Reimbursement Obligations of the Borrowers at such time, PLUS (b) the aggregate
Letter of Credit Amount of Letters of Credit outstanding at such time, PLUS (c)
the aggregate Letter of Credit Amount of Letters of Credit that NationsBank is
obligated to cause to be issued pursuant to SECTION 3.4(b) but that have not
yet been issued, in each case as determined by the Administrative Agent.
LETTER OF CREDIT RESERVE means, at any time, the aggregate Letter of
Credit Obligations at such time, other than Letter of Credit Obligations that
are fully secured by Cash Collateral.
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LIABILITIES of any Person means all items (except for items of capital
stock, additional paid-in capital or retained earnings, or of general
contingency or deferred tax reserves) which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Liabilities are to be
determined.
LIEN as applied to the property of any Person means:
(a) any mortgage, deed to secure debt, deed of trust, lien, pledge,
collateral assignment, charge, lease constituting a Capitalized Lease
Obligation, conditional sale or other title retention agreement, or other
security interest, security title or encumbrance of any kind in respect of any
property of such Person, or upon the income or profits therefrom,
(b) any arrangement, express or implied, under which any property of such
Person is transferred, sequestered or otherwise identified for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person,
(c) any Indebtedness which is unpaid more than 30 days after the same
shall have become due and payable and which if unpaid might by law (including,
but not limited to, bankruptcy and insolvency laws) other than pursuant to
Section 507 of the Bankruptcy Code, or otherwise, be given any priority
whatsoever over the Secured Obligations, and
(d) the filing of, or any agreement to give, any financing statement under
the Uniform Commercial Code or its equivalent in any jurisdiction, excluding
informational financing statements relating to property leased by a Borrower.
LOAN means any Revolving Credit Loan or Term Loan, as well as all such
loans collectively, as the context requires.
LOAN ACCOUNT and LOAN ACCOUNTS have the meanings specified in SECTION
5.14.
LOAN DOCUMENTS means collectively this Agreement, the Notes, the Security
Documents and each other instrument, agreement or document (which has not been
terminated in writing) executed by a Borrower, the Parent or any Affiliate or
Subsidiary of a Borrower or the Parent in connection with this Agreement, the
Existing Loan Agreement or the Existing PDS Loan Agreement, whether prior to,
on or after the Effective Date and each other instrument, agreement or document
referred to herein or contemplated hereby.
LOCKBOX means each U. S. Post Office Box specified in a Lockbox Agreement.
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LOCKBOX AGREEMENT means each agreement between a Borrower and a Clearing
Bank concerning the establishment of a Lockbox for the collection of
Receivables.
LONG-TERM LIABILITIES means, with respect to any Person, the aggregate
amount of all Liabilities of such Person other than Liabilities of such Person
which should properly be classified as current liabilities in accordance with
GAAP.
MALONE means Malone Products, Inc., an Oklahoma corporation.
MALONE ACQUISITION AGREEMENT means the Asset Purchase Agreement dated
August 19, 1994 among Malone, Bill G. Malone, Rosa K. Malone, Shirley Malone,
James D. Malone, Jack Russell and PDS, as amended through November 1, 1994.
MALONE AGREEMENTS means the agreements listed on SCHEDULE 1.1H - MALONE
AGREEMENTS, as amended and in effect from time to time.
MARGIN STOCK means margin stock as defined in Section 221.1(h) of
Regulation U, as the same may be amended or supplemented from time to time.
MATERIAL DEFAULT means any Default other than a Non-Material Default.
MATERIALLY ADVERSE EFFECT means, with respect to any Person, a materially
adverse effect upon such Person's business, assets, liabilities, condition
(financial or otherwise), results of operations or business prospects, and in
addition (i) with respect to the Borrowers, means a materially adverse effect
upon a Borrower's ability to perform its obligations hereunder or under any
other Loan Document to which it is a party or upon the enforceability of such
obligations against such Borrower and (ii) with respect to Parent, means a
materially adverse effect upon Parent's ability to perform its obligations
under the Parent Guaranty, the Pledge Agreement or under any other Loan
Document to which it is a party or upon the enforceability of such obligations
against Parent.
MERGER means the merger of PDS with and into ProSource with ProSource as
the surviving corporation, effected pursuant to the Merger Documents.
MERGER DOCUMENTS means the Merger Agreement and other related agreements
and documents, each in form and substance satisfactory to the Co-Agents in
their reasonable judgment, setting forth the terms and conditions of the
Merger.
MINIMUM COMMITMENT means an amount equal to $10,000,000.
MONTHLY BORROWING BASE CERTIFICATE means a certificate, in the form of
EXHIBIT C-2 hereto or as otherwise reasonably required by the Administrative
Agent, setting forth by
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category Eligible Receivables and Eligible Inventory and the computations
necessary to determine the Borrowing Base as of its date.
MORTGAGES means and includes any and all of the mortgages, deeds of trust,
deeds to secure debt, assignments and other instruments executed and delivered
by a Borrower to or for the benefit of the Administrative Agent by which the
Administrative Agent acquires a Lien on a Borrower's Real Estate or a
collateral assignment of a Borrower's interest under leases of Real Estate, and
all amendments, modifications and supplements thereto.
MULTIEMPLOYER PLAN means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which a Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding six years.
NATIONSBANK means NationsBank of Georgia, N.A., a national banking
association.
NATIONSBANK ASSIGNMENT means the Non-Recourse Assignment of Rights, in
form and substance satisfactory to the Co-Agents, made by NationsBank to the
Administrative Agent, for the benefit of the Lenders, relating to NationsBank's
assignable rights under the BKC Agreements, the Valley Agreements and the
Malone Agreements.
NET AMOUNT means, with respect to any Investments made by any Person, the
gross amount of all such Investments, MINUS the aggregate amount of all cash
received and the fair value, at the time of receipt by such Person, of all
property received as payments of principal or premiums, returns of capital,
liquidating dividends or distributions, proceeds of sale or other dispositions
with respect to such Investments.
NET INCOME means, as applied to any Person, the net income (or net loss)
of such Person for the period in question after giving effect to deduction of
or provision for all operating expenses, all taxes and reserves (including
reserves for deferred taxes) and all other proper deductions, all determined in
accordance with GAAP, provided that there shall be excluded:
(a) the net income (or net loss) of any Person accrued prior to the date
it becomes a Subsidiary of, or is merged into or consolidated with, the Person
whose Net Income is being determined or a Subsidiary of such Person,
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(b) the net income (or net loss) of any Person in which the Person whose
Net Income is being determined or any Subsidiary of such Person has an
ownership interest, except, in the case of net income, to the extent that any
such income has actually been received by such Person or such Subsidiary in the
form of cash dividends or similar distributions,
(c) any restoration of any contingency reserve, except in the ordinary
course of business or except to the extent that provision for such reserve was
made out of income during such period,
(d) any net gains or losses on the sale or other disposition, not in the
ordinary course of business, of Investments, Business Units and other capital
assets, provided that there shall also be excluded any related charges for
taxes thereon,
(e) any net gain arising from the collection of the proceeds of any
insurance policy,
(f) any write-up of any asset, and
(g) any other extraordinary item.
NET OUTSTANDINGS of any Lender means, at any time, the sum of (a) all
amounts paid by such Lender (other than pursuant to SECTION 15.7) to the
Administrative Agent in respect of Revolving Credit Loans, MINUS (b) all
amounts paid by the Administrative Agent to such Lender which are received by
the Administrative Agent and which, pursuant to this Agreement, are paid over
to such Lender for application in reduction of the outstanding principal
balance of the Revolving Credit Loans.
NET PROCEEDS means proceeds received by ProSource or any of its
Subsidiaries in cash from any Asset Disposition (including, without limitation,
payments under notes or other debt securities received in connection with any
Asset Disposition), net of: (a) the transaction costs of such sale, lease,
transfer or other disposition; (b) any tax liability arising from such
transaction; and (c) amounts applied to repayment of Indebtedness (other than
the Secured Obligations) secured by a Lien on the asset or property disposed.
NET WORTH means, with respect to any Person, such Person's total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings, after deducting treasury stock) which would appear as such
on a balance sheet of such Person prepared in accordance with GAAP.
NEW SUBORDINATED DEBT means Subordinated Debt (other than Parent
Subordinated Debt or other Debt owing to the Parent or an Affiliate of
ProSource) issued by
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ProSource after the Effective Date, in a principal amount of up to $75,000,000,
on terms and conditions satisfactory to the Required Lenders in their
reasonable discretion.
NEW SUBORDINATED DEBT RATE REDUCTION EVENT means the receipt by ProSource
in cash of net proceeds as of the issuance and sale of New Subordinated Debt in
an amount which, when added to the net proceeds to ProSource of all other New
Subordinated Debt then outstanding, equals or exceeds $60,000,000.
NON-MATERIAL DEFAULT means a Default, of the existence of which the
Administrative Agent has actual notice, as to which the Administrative Agent
and the Required Lenders have elected not to take any action required to be
taken hereunder as a condition to such Default becoming an Event of Default.
NON-RATABLE LOAN means a Prime Rate Revolving Credit Loan made by
NationsBank in accordance with the provisions of SECTION 5.17(c).
NOTE means any of the Revolving Credit Notes and the Term Notes and NOTES
means more than one such Note.
NOTICE OF CONVERSION OR CONTINUATION has the meaning specified in SECTION
5.6.
ONEX means Onex Corporation, a corporation organized under the laws of
Ontario, Canada.
ONEX SUBORDINATION AGREEMENT means the Subordination Agreement dated as of
the Effective Date, by and among the Administrative Agent, Onex and ProSource.
OPERATING LEASE means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
PBGC means the Pension Benefit Guaranty Corporation and any successor
agency.
PARENT means ProSource, Inc., a Delaware corporation formerly known as
Onex Distribution, Inc.
PARENT GUARANTY means the Unconditional Guaranty, dated as of a date on or
about the Effective Date, in form and substance satisfactory to the Lenders,
executed by the Parent in favor of the Administrative Agent.
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PARENT PLEDGE AGREEMENT means the Stock Pledge Agreement, in form and
substance satisfactory to the Lenders, dated as of the Effective Date, between
the Parent and Administrative Agent.
PARENT SUBORDINATED DEBT means the Indebtedness of ProSource evidenced by
the Parent Subordinated Notes, including principal thereof and interest and
premium, if any, thereon, and any other Indebtedness related thereto.
PARENT SUBORDINATED NOTE means each of (i) the Subordinated Promissory
Note dated as of June 30, 1992 in the original principal amount of $2,500,000
executed by ProSource in favor of the Parent and (ii) the Subordinated
Promissory Note, dated as of a date on or about the Effective Date, in the
original principal amount of $15,000,000 executed by ProSource in favor of Onex
Ohio Holdings, Inc., in each case as the same may be amended, modified,
extended, renewed or replaced from time to time with the consent of the
Required Lenders.
PATENTS means and includes, in each case whether now existing or hereafter
arising, all of the Borrowers' right, title and interest in and to
(a) any and all patents and patent applications,
(b) inventions and improvements described and claimed therein,
(c) reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof,
(d) income, royalties, damages, claims and payments now or hereafter due
and/or payable under and with respect thereto, including, without limitation,
damages and payments for past and future infringements thereof,
(e) rights to sue for past, present and future infringements thereof, and
(f) all rights corresponding to any of the foregoing throughout the world.
PERMITTED INVESTMENTS means Investments of any Borrower in:
(a) negotiable certificates of deposit and time deposits issued by
NationsBank or by any United States or Canadian bank or trust company having
capital, surplus and undivided profits in excess of $100,000,000,
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(b) any direct obligation of the United States of America or any Agency or
instrumentality thereof which has a remaining maturity at the time of purchase
of not more than one year and repurchase agreements relating to the same,
(c) sales of inventory on credit in the ordinary course of business,
(d) shares of capital stock, evidence of Indebtedness or other security
acquired by such Borrower in consideration for or as evidence of past-due or
restructured Receivables in an aggregate face amount of such Receivables as to
all Borrowers that does not exceed at any time, net of all reserves properly
established by the appropriate Borrower and attributable to such Receivables
(or stock, notes, etc.), $6,000,000,
(e) Guaranties permitted pursuant to SECTION 12.3,
(f) those items described on SCHEDULE 1.1E - PERMITTED INVESTMENTS, and
(g) other Investments not in excess of $10,000 individually or $50,000 in
the aggregate in any Fiscal Year.
PERMITTED LIENS means:
(a) Liens securing taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA)
or the claims of materialmen, mechanics, carriers, warehousemen or landlords
for labor, materials, supplies or rentals incurred in the ordinary course of
business, but (i) in all cases only if payment shall not at the time be
required to be made in accordance with SECTION 10.6, and (ii) in the case of
warehousemen or landlords, only if such liens are junior to the Security
Interest in any of the Collateral,
(b) Liens consisting of deposits or pledges made in the ordinary course of
business in connection with, or to secure payment of, obligations under
workers' compensation, unemployment insurance or similar legislation or under
payment or performance bonds,
(c) encumbrances in the nature of zoning restrictions, easements, and
rights or restrictions of record on the use of real property, which do not
materially detract from the value of such property or impair the use thereof in
the business of the Borrower,
(d) Purchase Money Liens securing Permitted Purchase Money Debt,
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(e) Liens and encumbrances shown on SCHEDULE 1.1F - PERMITTED LIENS, and
(f) Liens of the Administrative Agent, for the benefit of the Lenders,
arising under this Agreement and the other Loan Documents.
PERMITTED PURCHASE MONEY DEBT means Purchase Money Debt of ProSource
incurred after the Agreement Date
(a) which is secured by a Purchase Money Lien,
(b) the aggregate principal amount of which does not exceed an amount
equal to 100% of the lesser of
(i) the cost (including the principal amount of such, Indebtedness
whether or not assumed) of the property subject to such Lien, and
(ii) the fair value of such property at the time of its acquisition,
and
(c) which, when aggregated with the principal amount of all other such
Debt and Capitalized Lease Obligations of the Borrowers at the time
outstanding, does not exceed the amount set forth in SECTION 12.10.
PERSON means an individual, corporation, partnership, association, trust
or unincorporated organization, or a government or any agency or political
subdivision thereof.
PLAN means any employee benefit plan as defined in Section 3(3) of ERISA
in respect of which a Borrower or any Related Company is, or within the
immediately preceding six years was, an "employer" as defined in Section 3(5)
of ERISA.
PLEDGE AGREEMENT means a Pledge Agreement dated as of the Effective Date,
made by the Parent in favor of the Administrative Agent.
PRIME RATE means on any day the interest rate per annum equal to the rate
of interest publicly announced by the Administrative Agent at its head office
as its "prime" rate, as in effect on the last Business Day of the calendar
month immediately preceding the month in which such day falls. The
Administrative Agent lends at rates above and below the Prime Rate.
PRIME RATE LOAN means a Prime Rate Revolving Credit Loan or a Prime Rate
Term Loan.
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PRIME RATE MARGIN means .50% from the Effective Date until the first day
of the first calendar month following the month in which the New Subordinated
Debt Rate Reduction Event occurs and .25% thereafter.
PRIME RATE REVOLVING CREDIT LOAN means a Revolving Credit Loan bearing
interest at the time in question determined with reference to the Prime Rate.
PRIME RATE TERM LOAN as to each Term Loan, means that portion of the
unpaid principal amount thereof bearing interest at the time in question
determined with reference to the Prime Rate.
PRO FORMA means the pro forma consolidated balance sheet of the Borrowers
as at the Effective Date, immediately after giving effect to the transactions
contemplated by this Agreement, the Division Acquisition Agreement, the other
Division Acquisition Documents and the Merger Documents.
PROJECTIONS means the forecasted (a) balance sheets, (b) income statements
and (c) cash flow statements of the Borrowers for the 1995 through 2001 Fiscal
Years, prepared on a Fiscal Month basis for the 1995 and 1996 Fiscal Years and
on an annual basis for each Fiscal Year thereafter, together with appropriate
supporting details and a statement of underlying assumptions.
PROPRIETARY RIGHTS means all of the Borrowers' now owned and hereafter
arising or acquired: Patents, Copyrights, Trademarks, including, without
limitation, those Proprietary Rights set forth on SCHEDULE 7.1(cc) hereto, and
all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions, continuations, and continuations-in-part of any of the
foregoing, and all rights to sue for past, present and future infringement of
any of the foregoing.
PROSOURCE PLEDGE AGREEMENT means a Pledge Agreement dated as of the
Effective Date, made by ProSource in favor of the Administrative Agent.
PURCHASE MONEY DEBT means
(a) Debt (other than the Parent Subordinated Debt) issued in full or
partial payment of all or any part of the purchase price of any property (other
than Inventory),
(b) any Debt (other than the Parent Subordinated Debt) incurred at the
time of or within 30 days prior to or after the acquisition of any property
(other than Inventory) for the purpose of financing all or any part of the
purchase price thereof, and
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(c) any renewals, extensions or refinancings of the foregoing, but not any
increases in the principal amounts thereof outstanding at the time of any such
renewal, extension or refinancing.
PURCHASE MONEY LIEN means any Lien securing Purchase Money Debt, but only
if such Lien shall at all times be confined solely to the property the purchase
price of which was financed through the incurrence of the Purchase Money Debt
secured by such Lien.
REAL ESTATE means all of the Borrowers' now or hereafter owned or leased
estates in real property, including, without limitation, all fees, leaseholds
and future interests, together with all of the Borrower's now or hereafter
owned or leased interests in the improvements and emblements thereon, the
fixtures attached thereto and the easements appurtenant thereto, including,
without limitation the real property described on SCHEDULE 7.1(x).
RECEIVABLES means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) rights to the payment
of money or other forms of consideration of any kind (whether classified under
the Uniform Commercial Code as accounts, contract rights, chattel paper,
general intangibles, or otherwise) including, but not limited to, accounts,
accounts receivable, letters of credit and the right to receive payment
thereunder, chattel paper, tax refunds, insurance proceeds, Contract Rights,
notes, drafts, instruments, documents, acceptances, and all other debts,
obligations and liabilities in whatever form from any Person, (b) all
guarantees, security and Liens for payment thereof, (c) all goods, whether now
owned or hereafter acquired, and whether sold, delivered, undelivered, in
transit or returned, which may be represented by, or the sale or lease of which
may have given rise to, any such right to payment or other debt, obligation or
liability, and (d) all proceeds of any of the foregoing.
REGULATION U means Regulation U of the Board of Governors of the Federal
Reserve System (or any successor).
REIMBURSEMENT AGREEMENT means, with respect to a Letter of Credit, such
form of application therefor and form of reimbursement agreement therefor
(whether in a single document or several documents) as NationsBank may employ
in the ordinary course of business for its own account, with such modifications
thereto as may be agreed upon by NationsBank and the Borrower, provided that
such application and agreement and any modifications thereto are not
inconsistent with the terms of this Agreement.
REIMBURSEMENT OBLIGATIONS means the reimbursement or repayment obligations
of the Borrowers to NationsBank pursuant to SECTION 3.6 or pursuant to a
Reimbursement Agreement with respect to amounts that have been drawn under
Letters of Credit.
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RELATED COMPANY means any (i) corporation which is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of the
Internal Revenue Code) as any Borrower; (ii) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Internal Revenue Code) with any Borrower; (iii) member
of the same affiliated service group (within the meaning of Section 414(m) of
the Internal Revenue Code) as any Borrower, any corporation described in CLAUSE
(i) above or any partnership, trade or business described in CLAUSE (ii) above;
or (iv) any other entity required to be aggregated with any Borrower pursuant
to Section 414 (o) of the Internal Revenue Code.
RELEASE means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any property, including the movement
of Contaminants through or in the air, soil, surface water or groundwater.
REMEDIAL ACTION means actions required to (i) clean up, remove, treat or
in any other way address Contaminants in the indoor or outdoor environment;
(ii) prevent the Release or threat of Release or minimize the further Release
of Contaminants so they do not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment; or (iii) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
REPORTABLE EVENT has the meaning set forth in Section 4043(b) of ERISA,
but shall not include a Reportable Event as to which the provision for 30 days'
notice to the PBGC is waived under applicable regulations.
REQUIRED LENDERS means, at any time, any combination of Lenders (other
than any Lender that, at the time of determination, is in breach of its
commitment to make Loans to the Borrowers hereunder) whose Commitment
Percentages at such time are at least equal to 66-2/3% of the Commitments of
all such Lenders or, if no Commitments are in effect, who hold at least 66-2/3%
in principal amount of the Notes outstanding at such time.
RESTRICTED DISTRIBUTIONS by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to
any such securities or partnership interests, (c) any loan or advance by such
Person to, or other investment by such Person in, the holder of any of such
securities or partnership interests, and (d) any other payment by such Person
in respect of such securities or partnership interests.
RESTRICTED PAYMENT means (a) any redemption or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of
any regularly
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scheduled installment or amortization payment with respect thereto, of any Debt
or of any Indebtedness that is junior and subordinate to the Secured
Obligations, (b) the payment by any Person of the principal amount of or
interest on any Indebtedness (other than trade debt) owing to a shareholder,
partner or equity holder of such Person or to any Affiliate of any such
shareholder, partner or equity holder and (c) the payment of any management,
consulting or similar fee by any Person to any Affiliate of such Person.
REVOLVING CREDIT FACILITY means the principal amount of $210,000,000 or
such lesser or greater amount as shall be agreed upon from time to time in
writing by the Administrative Agent, the Lenders and the Borrowers.
REVOLVING CREDIT LOANS means loans made to the Borrowers pursuant to
SECTION 2.1.
REVOLVING CREDIT NOTE means each Revolving Credit Note made by the
Borrowers payable to the order of a Lender evidencing the joint and several
obligation of the Borrowers to pay the aggregate unpaid principal amount of the
Revolving Credit Loans made to them by such Lender (and any promissory note or
notes that may be issued from time to time in substitution, renewal, extension,
replacement or exchange therefor whether payable to such Lender or to a
different Lender in connection with a Person becoming a Lender) substantially
in the form of EXHIBIT A hereto, with all blanks properly completed, either as
originally executed or as the same may from time to time be supplemented,
modified, amended, renewed, extended or refinanced, and Revolving Credit Notes
means all such Notes.
SCHEDULE OF INVENTORY means a schedule delivered by the Borrowers to the
Administrative Agent pursuant to the provisions of SECTION 9.12(b).
SCHEDULE OF RECEIVABLES means a schedule delivered by the Borrowers to the
Administrative Agent pursuant to the provisions of SECTION 9.12(a).
SECURED OBLIGATIONS means, in each case whether now in existence or
hereafter arising,
(a) the principal of, and interest and premium, if any, on, the Loans,
(b) the Reimbursement Obligations and all other obligations of the
Borrowers to NationsBank, the Administrative Agent or any Lender arising in
connection with the issuance of Letters of Credit,
(c) any and all obligations of the Borrowers to the Administrative Agent
or any Lender under any Interest Rate Protection Agreement to which the
Borrowers (or either of
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them) and the Administrative Agent or such Lender are parties, of which the
Administrative Agent has received notice from the Borrowers and which Interest
Rate Protection Agreement is acceptable to the Administrative Agent, in its
reasonable judgment, as reasonably related to this Agreement and the Loans, and
(d) all indebtedness, liabilities, obligations, covenants and duties of
the Borrowers to NationsBank as the issuer of a Letter of Credit, the
Administrative Agent, the Co-Agents or to the Lenders of every kind, nature and
description arising under or in respect of this Agreement, the Notes or any of
the other Loan Documents, whether direct or indirect, absolute or contingent,
due or not due, contractual or tortious, liquidated or unliquidated, and
whether or not evidenced by any note, and whether or not for the payment of
money, including without limitation, fees required to be paid pursuant to
ARTICLE 5 and expenses required to be paid or reimbursed pursuant to SECTION
16.2.
SECURITY DOCUMENTS means each of the following:
(a) the Mortgages,
(b) the Financing Statements,
(c) the Division Acquisition Agreement Assignment,
(d) the BKC Agreements,
(e) the Valley Agreements,
(f) the Parent Guaranty,
(g) the Parent Pledge Agreement,
(h) the ProSource Pledge Agreement, and
(i) each other writing executed and delivered by a Borrower or any other
Person securing or purporting to secure the Secured Obligations.
SECURITY INTEREST means the Liens of the Administrative Agent, for the
benefit of the Lenders, on and in the Collateral effected hereby or by any of
the Security Documents or pursuant to the terms hereof or thereof.
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SELLER NOTE means the Subordinated Note due March 31, 2002, dated on or
about the Effective Date, made by the Parent in favor of The Martin-Brower
Company in the original principal amount of $10,000,000, in the form reviewed
and accepted by the Administrative Agent prior to the Agreement Date, as the
same may be amended, modified or extended with the consent of all the Lenders
and the Administrative Agent.
SELLERS has the meaning specified in the Preliminary Statement.
SETTLEMENT DATE means each Business Day selected by the Administrative
Agent in its sole discretion subject to and in accordance with the provisions
of SECTION 5.17(c)(i) as of which a Settlement Report is delivered by the
Administrative Agent and on which settlement is to be made among the Lenders in
accordance with the provisions of SECTION 5.17.
SETTLEMENT REPORT means each report, substantially in the form attached
hereto as EXHIBIT F, prepared by the Administrative Agent and delivered to each
Lender and setting forth, among other things, as of the Settlement Date
indicated thereon and as of the next preceding Settlement Date, the aggregate
principal balance of all Revolving Credit Loans outstanding, each Lender's
Commitment Percentage thereof, each Lender's Net Outstandings and all
Non-Ratable Loans made, and all payments of principal, interest and fees
received by the Administrative Agent from the Borrowers during the period
beginning on such next preceding Settlement Date and ending on such Settlement
Date.
SHAREHOLDER LOAN GUARANTY means the Unconditional Guaranty dated as of
June 30, 1992, executed by ProSource in favor of NationsBank of Florida, N.A.,
providing for such Borrower's Guaranty of the payment of the principal amount
of loans made by NationsBank of Florida, N.A. to shareholders of the Parent,
the proceeds of which were contributed to the capital of the Parent and
contributed by the Parent to the capital of such Borrower, as amended,
modified, supplemented or restated from time to time with the written consent
of the Administrative Agent.
SHAREHOLDERS AGREEMENT means the Management Shareholders Agreement dated
June 30, 1992, among the Parent, Onex U.S. Investments, Inc. and the
individuals named from time to time to Schedule I thereto, as amended,
modified, supplemented or restated from time to time with the written consent
of the Administrative Agent.
SUBORDINATED DEBT means all unsecured Debt of ProSource or its
Subsidiaries which is validly and effectively made subordinate and junior in
right of payment to the Secured Obligations on terms and conditions
satisfactory to the Required Lenders.
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SUBSIDIARY
(a) when used to determine the relationship of a Person to another Person,
means a Person of which an aggregate of 50% or more of the stock of any class
or classes or 50% or more of other ownership interests is owned of record or
beneficially by such other Person, or by one or more Subsidiaries of such other
Person, or by such other Person and one or more Subsidiaries of such Person,
(i) if the holders of such stock, or other ownership interests, (A)
are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or other individuals performing
similar functions) of such Person, even though the right so to vote has
been suspended by the happening of such a contingency, or (B) are entitled,
as such holders, to vote for the election of a majority of the directors
(or individuals performing similar functions) of such Person, whether or
not the right so to vote exists by reason of the happening of a
contingency, or
(ii) in the case of such other ownership interests, if such ownership
interests constitute a majority voting interest, and
(b) when used with respect to a Plan, ERISA or a provision of the Internal
Revenue Code pertaining to employee benefit plans, also means any corporation,
trade or business (whether or not incorporated) which is under common control
with ProSource or which together with ProSource is part of an affiliated
service group and is treated as a single employer with ProSource under Sections
414(b), 414(c) or 414(m) of the Internal Revenue Code and the regulations
thereunder.
SUPPORT AGREEMENTS means the Support Agreements, in form and substance
satisfactory to the Administrative Agent, dated on or about the Effective Date,
made by Paul A. Garcia de Quevedo, Thomas C. Highland, David R. Parker and
Daniel Adzia in favor of the Administrative Agent.
TERM LOAN means either Term Loan A or Term Loan B, and TERM LOANS means
both such Loans.
TERM LOAN A means each loan made to the Borrowers pursuant to SECTION
4.1(a), as well as all such loans, as the context indicates.
TERM LOAN A FACILITY means the principal amount of $15,000,000.
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TERM LOAN B means the loan made to the Borrowers pursuant to SECTION
4.1(b), as well as all such loans, as the context indicates.
TERM LOAN B FACILITY means the principal amount of $15,000,000.
TERM LOAN FACILITY means either the Term Loan A Facility or the Term Loan
B Facility and TERM LOAN FACILITIES means both such facilities.
TERM NOTE means any Term Note A or Term Note B and TERM NOTES means all
such Notes.
TERM NOTE A means each Term Note A made by the Borrowers payable to the
order of a Lender evidencing the joint and several obligation of the Borrowers
to pay the aggregate unpaid principal amount of the Term Loan A made to them by
such Lender (and any promissory note or notes that may be issued from time to
time in substitution, renewal, extension, replacement or exchange therefor
whether payable to such Lender or to a different Lender in connection with a
Person becoming a Lender) substantially in the form of EXHIBIT B-1 hereto, with
all blanks properly completed, either as originally executed or as the same may
from time to time be supplemented, modified, amended, renewed, extended or
refinanced.
TERM NOTE B means each Term Note B made by the Borrowers payable to the
order of a Lender evidencing the joint and several obligation of the Borrowers
to pay the aggregate unpaid principal amount of the Term Loan B made to them by
such Lender (and any promissory note or notes that may be issued from time to
time in substitution, renewal, extension, replacement or exchange therefor
whether payable to such Lender or to a different Lender in connection with a
Person becoming a Lender) substantially in the form of EXHIBIT B-2 hereto, with
all blanks properly completed, either as originally executed or as the same may
from time to time be supplemented, modified, amended, renewed, extended or
refinanced.
TERMINATION DATE means the fifth Anniversary Date, such earlier date as
all Secured Obligations shall have been irrevocably paid in full and the
Revolving Credit Facility shall have been terminated, or such later date as to
which the same may be extended pursuant to the provisions of SECTION 2.5.
TERMINATION EVENT means
(a) a Reportable Event, or
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(b) the filing of a notice of intent to terminate a Plan or the treatment
of a Plan amendment as a termination under Section 4041 of ERISA, or
(c) the institution of proceedings to terminate a Plan by the PBGC under
Section 4042 of ERISA, or the appointment of a trustee to administer any Plan.
TOTAL COMMITMENT means the sum of the Commitments.
TOTAL DEBT means the aggregate principal amount of Consolidated Debt.
TOTAL DEBT TO EBITDA RATIO means the ratio of (i) the average daily
outstanding principal amount of Total Debt during the Fiscal Quarter ending
with the last day of any Fiscal Year to (ii) EBITDA for such Fiscal Year.
TOTAL FACILITIES means the aggregate of the Revolving Credit Facility and
the Term Loan Facilities.
TRADEMARKS means and includes in each case whether now existing or
hereafter arising, all of the Borrowers' right, title and interest in and to
(a) trademarks (including service marks), trade names and trade styles and
the registrations and applications for registration thereof and the goodwill of
the business symbolized by the trademarks,
(b) licenses of the foregoing, whether as licensee or licensor,
(c) renewals thereof,
(d) income, royalties, damages and payments now or hereafter due and/or
payable with respect thereto, including, without limitation, damages, claims
and payments for past and future infringements thereof,
(e) rights to sue for past, present and future infringements thereof,
including the right to settle suits involving claims and demands for royalties
owing, and
(f) all rights corresponding to any of the foregoing throughout the world.
TYPE means with respect to a Loan, its classification as a Eurodollar Rate
Loan or Prime Rate Loan.
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UNFUNDED VESTED ACCRUED BENEFITS means with respect to any Benefit Plan at
any time, the amount (if any) by which
(a) the present value of all vested nonforfeitable benefits under such
Benefit Plan exceeds
(b) the fair market value of all Benefit Plan assets allocable to such
benefits,
all determined as of the then most recent valuation date for such Benefit Plan.
UNIFORM COMMERCIAL CODE means the Uniform Commercial Code as in effect
from time to time in the State of Georgia.
UNUSED REVOLVING CREDIT FACILITY means at any time (a) the Revolving Credit
Facility, MINUS (b) the sum of (without duplication) (i) the aggregate principal
amount of Revolving Credit Loans outstanding at such time, PLUS (ii) the
aggregate amount of Letter of Credit Obligations at such time, PLUS (iii) the
aggregate of any reserves established by the Administrative Agent in respect of
ACH transfers at such time, PLUS (iv) the aggregate of any reserves established
by the Administrative Agent in respect of obligations of the Borrower under
Interest Rate Protection Agreements at such time, PLUS (v) the aggregate amount
of Environmental Compliance Reserves at such time, PLUS (vi) the aggregate
amount of such other reserves against the Borrowing Base as may be established
from time to time by the Administrative Agent in order to preserve the
Borrowers' borrowing capacity in light of a known, current or potential demand
on the Borrowers (or any of them) for payments, but not any such reserves
established to reflect a change in the value or probable value of the
Collateral.
VALLEY means Valley Food Services, Inc., a Kansas corporation, and its
successors and assigns.
VALLEY AGREEMENTS means the agreements listed on SCHEDULE 1.1G - VALLEY
AGREEMENTS, as amended and in effect from time to time.
WEEKLY BORROWING BASE CERTIFICATE means a certificate, in the form of
EXHIBIT C-1 hereto or as otherwise reasonably required by the Administrative
Agent, setting forth in summary form Eligible Receivables and Eligible
Inventory and the computations (including information necessary to permit
computation of net Receivables of any Account Debtor that is also a supplier or
otherwise a creditor of the relevant Borrower) necessary to determine the
Borrowing Base as of its date in such detail as may be required to permit the
reconciliation of the amounts reflected in such Borrowing Base Certificate to
the general ledgers of the Borrowers.
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WHOLLY OWNED SUBSIDIARY when used to determine the relationship of a
Subsidiary to its parent means a Subsidiary all of the issued and outstanding
shares (other than directors' qualifying shares) of the capital stock of which
shall at the time be owned by such parent or one or more of such parent's
Wholly Owned Subsidiaries or by such parent and one or more of such parent's
Wholly Owned Subsidiaries.
YEAR-END SALE OF ACCOUNTS means a transaction pursuant to which (1)
ProSource transfers to ProSource Investments, Inc. all of its trade accounts
receivable on the last day of a calendar year (or the immediately preceding
Business Day, if such last day is not a Business Day) (such accounts, the
TRANSFERRED ACCOUNTS) in exchange for a promissory note of ProSource
Investments, Inc. in an original principal amount equal to the aggregate face
value of the Transferred Accounts (the PII NOTE) and (2) ProSource Investments,
Inc. transfers to ProSource on the first Business Day following the first day
of the next calendar year, all Transferred Accounts remaining unpaid as of such
date and all collections of Transferred Accounts received during the period
between transfers, the value of the re-transferred Transferred Accounts and
such collections being applied to reduce the liability of ProSource
Investments, Inc. under the PII Note, PROVIDED that the PII Note shall be
assigned to the Administrative Agent as additional Collateral, ProSource and
ProSource Investments, Inc. shall execute and deliver, and cause to be filed,
such Uniform Commercial Code financing statements (or the equivalent in other
jurisdictions) in connection with the Transferred Accounts as the
Administrative Agent may prescribe, and the transaction shall otherwise be
satisfactory to the Administrative Agent in its sole discretion.
SECTION 1.
2. Other Referential Provisions and Rules of Construction.
(a) All terms in this Agreement and in the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan Documents,
unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting terms
not specifically defined herein shall have the meanings generally attributed to
such terms under GAAP including, without limitation, applicable statements and
interpretations issued by the Financial Accounting Standards Board and
bulletins, opinions, interpretations and statements issued by the American
Institute of Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all genders; the singular
shall include the plural, and the plural shall include the singular.
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(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for convenience
only, do not constitute part of this Agreement and neither limit nor amplify
the provisions of this Agreement, and all references in this Agreement to
Articles, Sections, Subsections, paragraphs, clauses, subclauses, Schedules or
Exhibits shall refer to the corresponding Article, Section, Subsection,
paragraph, clause or subclause of, or Schedule or Exhibit attached to, this
Agreement, unless specific reference is made to the articles, sections or other
divisions or subdivisions of, or to schedules or exhibits to, another document
or instrument.
(f) Each definition of a document in this Agreement shall include such
document as amended, modified, supplemented or restated from time to time in
accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a Loan
Document includes that party and its successors and assigns permitted hereunder
or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is referred to
in this Agreement or in any other Loan Document, such time shall be the local
time in the city in which the principal office of the Administrative Agent is
located as provided in SECTION 16.1(c).
(i) Whenever the phrase "to the knowledge of the Borrower(s)" or words of
similar import relating to the knowledge of a Borrower are used herein, such
phrase shall mean and refer to (i) the actual knowledge of the President or
Chief Financial Officer of ProSource or (ii) the knowledge that such officers
would have obtained if they had engaged in good faith in the diligent
performance of their duties, including the making of such reasonable specific
inquiries as may be necessary of the appropriate persons in a good faith
attempt to ascertain the accuracy of the matter to which such phrase relates.
(j) The terms "accounts", "chattel paper", "documents", "equipment",
"instruments", "general intangibles" and "inventory" as and when used (without
being capitalized) in the Loan Documents, shall have the respective meanings
given in the Uniform Commercial Code.
(k) Unless the context otherwise indicates, whenever in the Loan Documents
the defined term "Subsidiary" or "Wholly Owned Subsidiary" is used, it shall
mean and refer to a Subsidiary or Wholly Owned Subsidiary, as the case may be,
of ProSource.
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(l) The Security Interest, any other Lien referred to in this Agreement or
in any other Loan Document as having been created in favor of the
Administrative Agent, any agreement entered into by the Administrative Agent
pursuant to this Agreement or any other Loan Document, any payments made by or
to or funds received by the Administrative Agent pursuant to or as contemplated
by this Agreement or any other Loan Document, and any other act taken or
omitted by the Administrative Agent shall, unless expressly provided otherwise,
exist, be created, be entered into, be made or received, taken or omitted, for
the benefit or account of the Administrative Agent and the Lenders.
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ARTICLE 2
REVOLVING CREDIT FACILITY
SECTION 2.
1. Revolving Credit Loans. Upon the terms and subject to the conditions of, and
in reliance upon the representations and warranties made under, this Agreement,
each Lender agrees, severally, but not jointly, to make Revolving Credit Loans
to the Borrowers from time to time from the Effective Date to but not including
the Termination Date, as requested or deemed requested by the Borrowers in
accordance with the terms of SECTION 2.2, in amounts equal to such Lender's
Commitment Percentage of each such Loan requested or deemed requested hereunder
up to an aggregate amount at any one time outstanding equal to such Lender's
Commitment Percentage of the Borrowing Base; PROVIDED, HOWEVER, that the
aggregate principal amount of all outstanding Revolving Credit Loans (after
giving effect to the Loans requested) shall not exceed the Borrowing Base. It
is expressly understood and agreed that the Lenders may and at present intend
to use the Borrowing Base as a maximum ceiling on Revolving Credit Loans to the
Borrowers; PROVIDED, HOWEVER, that it is agreed that should the Revolving
Credit Loans exceed the ceiling so determined or any other limitation set forth
in this Agreement, such Revolving Credit Loans shall nevertheless constitute
Secured Obligations and, as such, shall be entitled to all benefits thereof and
security therefor. The principal amount of any Revolving Credit Loan which is
repaid may be reborrowed by the Borrowers, subject to the terms and conditions
of this Agreement, in accordance with the terms of this SECTION 2.1. The
Administrative Agent's and each Lender's books and records reflecting the date
and the amount of each Revolving Credit Loan and each repayment of principal
thereof shall constitute PRIMA FACIE evidence of the accuracy of the
information contained therein, subject to the provisions of SECTION 5.14.
SECTION 2.2. Manner of Borrowing Revolving Credit Loans. Borrowings under
the Revolving Credit Facility shall be made as follows:
(a) Requests for Borrowing.
(i) Prime Rate Revolving Credit Loans. Unless a Borrower shall
previously have requested a Eurodollar Rate Revolving Credit Loan and
authorized the application of the proceeds thereof to any purpose described
in CLAUSES (A) through (E) below and the Lenders shall have disbursed such
Eurodollar Rate Revolving Credit Loan for such purpose, a request for the
borrowing of a Prime Rate Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner:
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(A) a Borrower may request a Prime Rate Revolving Credit Loan by
notifying the Administrative Agent, before 11:30 a.m. on the proposed
borrowing date, of its intention to borrow, specifying the amount of the
proposed borrowing and the proposed borrowing date,
(B) whenever a check or other item is presented to a Disbursing Bank
for payment against a Controlled Disbursement Account in an amount greater
than the then available balance in such account, such Disbursing Bank
shall, and is hereby irrevocably authorized by the Borrowers to, give the
Administrative Agent notice thereof, which notice shall be deemed to be a
request for a Prime Rate Revolving Credit Loan on the date of such notice
in an amount equal to the excess of such check or other item over such
available balance, and such request shall be irrevocable,
(C) unless payment is otherwise made by a Borrower, the becoming due
of any amount required to be paid under this Agreement or any of the Notes
as interest shall be deemed to be a request for a Prime Rate Revolving
Credit Loan on the due date in the amount required to pay such interest,
and such request shall be irrevocable,
(D) unless payment is otherwise made by a Borrower, a becoming due of
any other Secured Obligation shall be deemed to be a request for a Prime
Rate Revolving Credit Loan on the due date in the amount then so due, and
such request shall be irrevocable, and
(E) the receipt by the Administrative Agent of notification from
NationsBank to the effect that a drawing has been made under a Letter of
Credit and that the Borrowers have failed to reimburse NationsBank therefor
in accordance with the terms of the Letter of Credit, the Reimbursement
Agreement and ARTICLE 3, shall be deemed to be a request for a Prime Rate
Revolving Credit Loan on the date such notification is received in the
amount of such drawing which is so unreimbursed;
PROVIDED that if any notice referred to in CLAUSE (A) above is received after
11:30 a.m. on the proposed borrowing date, the proposed borrowing will be
postponed automatically to the next Business Day.
(ii) Eurodollar Rate Revolving Credit Loans. A Borrower may request a
Eurodollar Rate Revolving Credit Loan by notifying the Administrative Agent
(which notice shall be irrevocable) not later than 11:30 a.m. on the date
three Business Days before the day on which the requested Eurodollar Rate
Revolving Credit Loan is
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to be made, specifying the effective date and amount of such Eurodollar
Rate Revolving Credit Loan requested and the duration of the applicable
Interest Period.
(iii) Notification of Lenders. Unless the Administrative Agent has
elected periodic settlements pursuant to SECTION 5.17, the Administrative
Agent shall promptly notify the Lenders of any notice of borrowing given or
deemed given pursuant to this SECTION 2.2(a) by 12:00 noon on the proposed
borrowing date (in the case of Prime Rate Revolving Credit Loans) or by
3:00 p.m. three Business Days before the proposed borrowing date (in the
case of Eurodollar Rate Revolving Credit Loans). Not later than 1:30 p.m.
on the proposed borrowing date, each Lender will make available to the
Administrative Agent, for the account of the Borrowers, at the
Administrative Agent's Office in funds immediately available to the
Administrative Agent, an amount equal to such Lender's Commitment
Percentage of the Revolving Credit Loans to be made on such borrowing date.
(b) Disbursement of Loans. The Borrowers hereby irrevocably authorize the
Administrative Agent to disburse the proceeds of each borrowing requested, or
deemed to be requested, pursuant to this SECTION 2.2(a) as follows:
(i) the proceeds of each borrowing requested under SECTIONS
2.2(a)(i)(A) or (B) or 2.2(a)(ii) shall be disbursed by the Administrative
Agent in Dollars in immediately available funds by wire transfer to a
Controlled Disbursement Account or, in the absence of a Controlled
Disbursement Account, by wire transfer to such other account as may be
agreed upon by the Borrowers and the Administrative Agent from time to
time,
(ii) the proceeds of each borrowing deemed requested under SECTION
2.2(a)(i)(C) or (D) shall be disbursed by the Administrative Agent by way
of direct payment of the relevant interest or Secured Obligation, as the
case may be, and
(iii) the proceeds of each borrowing deemed requested under SECTION
2.2(a)(i)(E) shall be disbursed by the Administrative Agent directly to
NationsBank on behalf of the Borrowers.
SECTION 2.3. Repayment of Revolving Credit Loans. The Revolving Credit
Loans will be repaid as follows:
(a) Whether or not any Default or Event of Default has occurred, the
outstanding principal amount of all the Revolving Credit Loans is due and
payable, and shall be repaid by the Borrowers in full, as their joint and
several obligation, not later than the Termination Date;
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(b) If at any time the aggregate outstanding unpaid principal amount of
the Revolving Credit Loans exceeds the Borrowing Base in effect at such time,
the Borrowers shall repay, as their joint and several obligation, the Revolving
Credit Loans in an amount sufficient to reduce the aggregate unpaid principal
amount of such Revolving Credit Loans by an amount equal to such excess,
together with accrued and unpaid interest on the amount so repaid to the date
of repayment; PROVIDED that the amount repaid shall be applied first to
repayment of Prime Rate Revolving Credit Loans and then, subject to the
provisions of SECTION 5.20, to repayment of Eurodollar Rate Revolving Credit
Loans; and
(c) The Borrowers hereby instruct the Administrative Agent to repay the
Revolving Credit Loans outstanding on any day in an amount equal to the amount
received by the Administrative Agent on such day pursuant to SECTION 9.1(b);
PROVIDED that the amount received pursuant to SECTION 9.1(b) shall be applied
first to repayment of Prime Rate Revolving Credit Loans and then, subject to
the provisions of SECTION 5.20, to repayment of Eurodollar Rate Revolving
Credit Loans.
SECTION 2.4. Revolving Credit Notes. To evidence the Revolving Credit
Loans, the Borrowers shall execute and deliver to each Lender a Revolving Credit
Note dated the Effective Date (or such later "effective date" as is specified in
the Assignment and Acceptance pursuant to which such Note is issued) in the
principal amount of such Lender's Commitment Percentage of the Revolving Credit
Facility, payable to the order of such Lender.
SECTION 2.5. Extension of Revolving Credit Facility. Upon the request of
the Borrowers, the Lenders may, in their sole discretion, effective as of any
Anniversary Date, agree to extend the Revolving Credit Facility for a period
such that the Termination Date would fall on a date that is up to but not in
excess of five years from such Anniversary Date. Any such extension shall be
effected by the delivery to the Borrowers of a written notice to that effect by
all of the Lenders, not less than 30 days prior to such Anniversary Date.
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ARTICLE 3
LETTER OF CREDIT FACILITY
SECTION 3.
1. Agreement to Issue. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, NationsBank agrees to issue for the account of any
Borrower one or more Letters of Credit in accordance with this ARTICLE 3, from
time to time during the period commencing on the Effective Date and ending on
the Termination Date as requested by the Administrative Agent.
SECTION 3.2. Amounts. NationsBank shall not, without the consent of all
the Lenders, have any obligation to issue any Letter of Credit at any time:
(a) if (i) prior to giving effect to the issuance of the requested Letter
of Credit, Availability (plus the amount of any deduction therefrom for any
Letter of Credit to be replaced by such Letter of Credit) is less than the
amount of Letter of Credit Obligations in respect of such Letter of Credit, or
(ii) after giving effect to the issuance of the requested Letter of Credit (A)
the aggregate Letter of Credit Obligations of the Borrowers would exceed the
Letter of Credit Facility then in effect or (B) the aggregate principal amount
of the Revolving Credit Loans outstanding would exceed the Borrowing Base; or
(b) which has a term longer than one calendar year or an expiration date
after the last Business Day that is more than one Business Day prior to the
Termination Date.
SECTION 3.3. Conditions. The obligation of NationsBank to issue any Letter
of Credit is subject to the satisfaction of (a) the conditions precedent
contained in ARTICLE 6 and (b) the following additional conditions precedent in
a manner satisfactory to the Administrative Agent and NationsBank:
(i) the Borrowers shall have delivered to NationsBank and the
Administrative Agent at such times and in such manner as NationsBank or the
Administrative Agent may prescribe an application in form and substance
satisfactory to NationsBank and the Administrative Agent for the issuance
of the Letter of Credit, a Reimbursement Agreement and such other documents
as may be required pursuant to the terms thereof, and the form and terms of
the proposed Letter of Credit shall be satisfactory to NationsBank and the
Administrative Agent; and
(ii) as of the date of issuance, no order of any court, arbitrator or
governmental authority having jurisdiction or authority over NationsBank
shall purport by its terms to enjoin or restrain banks generally from
issuing letters of credit of the
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type and in the amount of the proposed Letter of Credit, and no law, rule
or regulation applicable to banks generally and no request or directive
(whether or not having the force of law) from any governmental authority
with jurisdiction over banks generally shall prohibit, or request that
NationsBank refrain from, the issuance of letters of credit generally or
the issuance of such Letter of Credit.
SECTION 3.4. Issuance of Letters of Credit.
(a) Request for Issuance. The Borrowers shall give NationsBank and the
Administrative Agent written notice of the Borrowers' request for the issuance
of a Letter of Credit not later than five Business Days prior to the proposed
date of issuance of the Letter of Credit. Such notice shall be irrevocable and
shall specify which Borrower is to be named as the account party in such Letter
of Credit, the original face amount of the Letter of Credit requested, the
effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn in a
single or in multiple draws, the date on which such requested Letter of Credit
is to expire (which date shall be a Business Day earlier than the last Business
Day that is one Business Day prior to the Termination Date), the purpose for
which such Letter of Credit is to be issued and the beneficiary of the
requested Letter of Credit. The Borrowers shall attach to such notice the form
of the Letter of Credit that the Borrowers request be issued.
(b) Responsibilities of the Administrative Agent; Issuance. The
Administrative Agent shall determine, as of the Business Day immediately
preceding the requested effective date of issuance of the Letter of Credit set
forth in the notice from the Borrowers pursuant to SECTION 3.4(a), the amount
of the unused Letter of Credit Facility and the Borrowing Base. If (i) the
form of the Letter of Credit delivered by the Borrowers to the Administrative
Agent is acceptable to NationsBank and the Administrative Agent in their sole,
reasonable discretion, (ii) the undrawn face amount of the requested Letter of
Credit is less than or equal to the lesser of (A) the unused Letter of Credit
Facility and (B) the unused Borrowing Base, and (iii) the Administrative Agent
has received a certificate from the Borrowers stating (which statements shall
be true) that the applicable conditions set forth in ARTICLE 6 have been
satisfied, then the Administrative Agent shall request, and NationsBank will
cause, the Letter of Credit to be issued.
(c) Notice of Issuance. Promptly after the issuance of any Letter of
Credit, NationsBank shall give the Administrative Agent written or facsimile
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of such Letter of Credit, and the Administrative Agent shall give each
Lender written or facsimile notice, or telephonic notice confirmed promptly
thereafter in writing, of the issuance of such Letter of Credit.
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(d) No Extension or Amendment. No Letter of Credit shall be extended or
amended unless the requirements of this SECTION 3.4 are met as though a new
Letter of Credit were being requested and issued.
SECTION 3.5. Duties of NationsBank. Any action taken or omitted to be
taken by NationsBank under or in connection with any Letter of Credit, if taken
or omitted in the absence of gross negligence or willful misconduct, shall not
result in any liability of NationsBank to any Lender or relieve any Lender of
its obligations hereunder to NationsBank. In determining whether to honor any
request for a drawing under any Letter of Credit, NationsBank shall have no
obligation to any Lender other than to confirm that any documents required to be
delivered under such Letter of Credit in connection with such drawing have been
presented and appear on their face to comply with the requirements of such
Letter of Credit.
SECTION 3.6. Payment of Reimbursement Obligations.
(a) Payment to Issuer. Notwithstanding any provisions to the contrary in
any Reimbursement Agreement, the Borrowers agree, jointly and severally, to
reimburse NationsBank for any drawings (whether partial or full) under each
Letter of Credit and agree to pay to the Administrative Agent, for the account
of NationsBank, the amount of all Reimbursement Obligations and other amounts
payable to NationsBank under or in connection with such Letter of Credit
immediately when due, irrespective of any claim, set-off, defense or other
right which any Borrower may have at any time against NationsBank or any other
Person.
(b) Recovery or Avoidance of Payments. In the event any payment by or on
behalf of the Borrowers with respect to any Letter of Credit (or any
Reimbursement Obligation relating thereto) received by NationsBank, or by the
Administrative Agent and distributed by the Administrative Agent to the Lenders
on account of their respective participations therein, is thereafter set aside,
avoided or recovered from NationsBank or the Administrative Agent in connection
with any receivership, liquidation or bankruptcy proceeding, the Lenders shall,
upon demand by the Administrative Agent, pay to the Administrative Agent, for
the account of the Administrative Agent or NationsBank, their respective
Commitment Percentages of such amount set aside, avoided or recovered (but in
the case of amounts originally distributed by the Administrative Agent to a
Lender, no greater amount than was received by such Lender) together with
interest at the rate required to be paid by the Administrative Agent upon the
amount required to be repaid by it.
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SECTION 3.7. Participations.
(a) Purchase of Participations. Immediately upon the Effective Date as to
Existing Letters of Credit or upon the subsequent issuance thereof as to other
Letters of Credit, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received without recourse or warranty, an
undivided interest and participation in such Letter of Credit, equal to such
Lender's Commitment Percentage of the face amount thereof (including, without
limitation, all obligations of the Borrowers with respect thereto (other than
amounts owing to NationsBank under SECTION 5.5(b)), and any security therefor
or guaranty pertaining thereto).
(b) Sharing of Letter of Credit Payments. In the event that NationsBank
makes a payment under any Letter of Credit and NationsBank shall not have been
repaid such amount pursuant to SECTION 3.6, then NationsBank shall be deemed to
have made a Non-Ratable Loan in the amount of such payment, and notwithstanding
the occurrence or continuance of a Default or Event of Default at the time of
such payment, such Non-Ratable Loan shall be subject to the provisions of
SECTION 5.17(c) and the absolute obligations of the Lenders to pay for their
respective participation interests therein.
(c) Sharing of Reimbursement Obligation Payments. Whenever NationsBank
receives a payment from or on behalf of the Borrowers on account of a
Reimbursement Obligation as to which the Administrative Agent has previously
received for the account of and paid to NationsBank payment from a Lender
pursuant to this SECTION 3.7, NationsBank shall promptly pay to the
Administrative Agent, for the benefit of such Lender, such Lender's Commitment
Percentage of the amount of such payment received from or on behalf of the
Borrowers in Dollars. Each such payment shall be made by NationsBank on the
Business Day on which NationsBank receives immediately available funds pursuant
to the immediately preceding sentence if received prior to 11:00 a.m. on such
Business Day, and otherwise on the next succeeding Business Day.
(d) Documentation. Upon the request of any Lender, the Administrative
Agent shall furnish to such Lender copies of any Letter of Credit,
Reimbursement Agreement or application for any Letter of Credit and such other
documentation as may reasonably be requested by such Lender, including, without
being limited to, monthly reports of Letters of Credit outstanding in
reasonable detail.
(e) Obligations Irrevocable. The obligations of each Lender to make
payments to the Administrative Agent with respect to any Letter of Credit and
their participations therein pursuant to the provisions of SECTION 5.17(c)
hereof or otherwise and the obligations of the Borrowers to make payments to
NationsBank or to the Administrative Agent, for the account of Lenders, shall
be irrevocable, shall not be subject to any qualification or exception
whatsoever and shall be made in accordance with the terms and
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conditions of this Agreement (provided, in the case of the obligations of the
Lenders to make such payments, that the Letter of Credit has been issued in
accordance with SECTION 3.4), including, without limitation, any of the
following circumstances:
(i) Any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(ii) The existence of any claim, set-off, defense or other right which
any Borrower may have at any time against a beneficiary named in a Letter
of Credit or any transferee of any Letter of Credit (or any Person for whom
any such transferee may be acting), any Lender, NationsBank or any other
Person, whether in connection with this Agreement, any Letter of Credit,
the transactions contemplated herein or any unrelated transactions
(including any underlying transactions between any Borrower or any other
Person and the beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document presented under the
Letter of Credit upon which payment has been made in good faith and
according to its terms proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) The surrender or impairment of any Collateral or any other
security for the Secured Obligations or the performance or observance of
any of the terms of any of the Loan Documents;
(v) The occurrence of any Default or Event of Default; or
(vi) The Administrative Agent's failure to deliver to the Lenders the
notice provided for in SECTION 3.4(c) or NationsBank's failure to deliver
any documentation or report provided for in SECTION 3.7(d).
SECTION 3.8. Indemnification, Exoneration.
(a) Indemnification. In addition to amounts payable as elsewhere provided
in this ARTICLE 3, the Borrowers agree to protect, indemnify, pay and save the
Lenders and the Administrative Agent harmless from and against any and all
claims, demands, liabilities, damages, losses and reasonable costs, charges and
expenses (including reasonable attorneys' fees) which any Lender or the
Administrative Agent may incur or be subject to as a consequence, directly or
indirectly, of
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(i) the issuance of any Letter of Credit, other than as a result of
its gross negligence or willful misconduct, as determined by a court of
competent jurisdiction, or
(ii) the failure of NationsBank to honor a drawing under any 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 governmental authority (all such
acts or omissions being hereinafter referred to collectively as "GOVERNMENT
ACTS").
(b) Assumption of Risk by the Borrower. As among the Borrowers, the
Lenders and the Administrative Agent, the Borrowers assume all risks of the
acts and omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, subject to the provisions of the applications for
the issuance of Letters of Credit, the Lenders and the Administrative Agent
shall not be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect to
any of the Letters of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(iii) the failure of the beneficiary of any Letter of Credit to comply
duly with conditions required in order to draw upon such Letter of Credit;
(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 Letter of Credit or
of the proceeds thereof;
(vii) the misapplication by the beneficiary of any Letter of Credit of
the proceeds of any drawing under such Letter of Credit; or
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(viii) any consequences arising from causes beyond the control of the
Lenders or the Administrative Agent, including, without limitation, any
Governmental Approvals.
None of the foregoing shall affect, impair or prevent the vesting of any of the
Administrative Agent's rights or powers under this SECTION 3.8.
(c) Exoneration. In furtherance and extension, and not in limitation, of
the specific provisions set forth above, any action taken or omitted by the
Administrative Agent, NationsBank or any Lender under or in connection with any
of the Letters of Credit or any related certificates, if taken or omitted in
good faith, shall not result in any liability of any Lender or the
Administrative Agent to any Borrower or relieve any Borrower of any of its
obligations hereunder to any such Person.
SECTION 3.9. Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of SECTION 3.2(b), any Letter of Credit is
outstanding on the Termination Date, then on or prior to such Termination Date,
or in any case upon the occurrence of an Event of Default, the Borrowers shall,
promptly on demand by the Administrative Agent, deposit with the Administrative
Agent with respect to each Letter of Credit then outstanding, as specified by
the Administrative Agent, either (a) a standby letter of credit (a SUPPORTING
LETTER OF CREDIT) in form and substance satisfactory to the Administrative
Agent, issued by an issuer satisfactory to the Administrative Agent in its
reasonable judgment in an amount equal to the greatest amount for which such
Letter of Credit may be drawn, under which Supporting Letter of Credit the
Administrative Agent shall be entitled to draw amounts necessary to reimburse
the Administrative Agent and the Lenders for payments made by the Administrative
Agent and the Lenders under such Letter of Credit or under any reimbursement or
guaranty agreement with respect thereto, or (b) Cash Collateral in an amount
necessary to reimburse the Administrative Agent and the Lenders for payments
made by the Administrative Agent and the Lenders under such Letter of Credit or
under any reimbursement or guaranty agreement with respect thereto. Such
Supporting Letter of Credit or Cash Collateral shall be held by the
Administrative Agent, as security for, and to provide for the payment of, the
Reimbursement Obligations. In addition, the Administrative Agent may at any
time after the Termination Date apply any or all of such Cash Collateral to the
payment of any or all of the Secured Obligations then due and payable. At the
Borrowers' request, but subject to the Administrative Agent's reasonable
approval, the Administrative Agent shall invest any Cash Collateral consisting
of cash or any proceeds of Cash Collateral consisting of cash in Cash
Equivalents, and any commissions, expenses and penalties incurred by the
Administrative Agent in connection with any investment and redemption of such
Cash Collateral shall be Secured Obligations hereunder secured by the
Collateral, shall bear interest at the rates provided herein for the Loans and
shall be charged to the Borrowers' Loan Account, or, at the Administrative
Agent's option, shall be paid out of the proceeds of any earnings received by
the Administrative Agent from the investment of such Cash Collateral as
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provided herein or out of such cash itself. The Administrative Agent makes no
representation or warranty as to, and shall not be responsible for, the rate of
return, if any, earned on any Cash Collateral. Any earnings on Cash Collateral
shall be held as additional Cash Collateral on the terms set forth in this
SECTION 3.9.
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ARTICLE 4
TERM LOAN FACILITY
SECTION 4.
1. Term Loans.
(a) Term Loan A. Upon the terms and subject to the conditions of, and in
reliance upon the representations and warranties made under, this Agreement,
each Lender agrees, severally but not jointly, to make a Term Loan A to the
Borrowers on the Effective Date in a principal amount equal to such Lender's
Commitment Percentage of the Term Loan A Facility.
(b) Term Loan B. Upon the terms and subject to the conditions of, and in
reliance upon the representations and warranties made under, this Agreement,
each Lender agrees, severally but not jointly, to make a Term Loan B to the
Borrowers on the Effective Date in a principal amount equal to such Lender's
Commitment Percentage of the Term Loan B Facility.
SECTION 4.2. Manner of Borrowing Term Loans. The Borrowers shall give the
Administrative Agent at least two Business Days' written notice of the
occurrence of the Effective Date. Upon receipt of such notice from the
Borrowers, the Administrative Agent shall promptly notify each Lender thereof.
Each Lender will deliver an amount equal to its Commitment Percentage of the
aggregate principal amount of the Term Loans to the Administrative Agent, for
the account of the Borrowers, at the office of the Administrative Agent, prior
to 12:00 noon on the Effective Date in funds immediately available to the
Administrative Agent. Not later than 12:00 noon on the Effective Date, upon
satisfaction of the applicable conditions set forth in SECTIONS 6.1 and 6.2, the
Administrative Agent will disburse the Term Loans in same day funds in
accordance with the terms of the letter from the Borrowers to the Administrative
Agent referred to in SECTION 6.1(a).
SECTION 4.3. Repayment of Term Loans.
(a) Term Loan A. The principal amount of Term Loan A is due and payable,
and shall be repaid in full by the Borrowers, as their joint and several
obligation, in 20 consecutive installments as follows: 19 installments on
successive Installment Payment Dates, commencing on July 1, 1995, each in the
amount of $375,000.00 and the final installment on March 31, 2000 in the amount
of the then unpaid balance of Term Loan A.
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(b) Term Loan B. The principal amount of Term Loan B is due and payable,
and shall be repaid in full by the Borrower, on the Termination Date.
SECTION 4.4. Term Notes. To evidence the Term Loans, the Borrowers shall
execute and deliver to each Lender a Term Note A and a Term Note B, each dated
the Effective Date (or such later "effective date" as is specified in the
Assignment and Acceptance pursuant to which such Note is issued), each in the
principal amount of such Term Loan made by such Lender on the Effective Date and
each payable to the order of such Lender.
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ARTICLE 5
GENERAL LOAN PROVISIONS
SECTION 5.
1. Interest.
(a) (i) Prime Rate Revolving Credit Loans. Subject to the provisions of
SECTION 5.1(b), the Borrowers will pay interest on the unpaid principal amount
of the Prime Rate Revolving Credit Loans, for each day from the day such Loan
was made until such Loan is paid (whether at maturity, by reason of
acceleration or otherwise) or is converted to a Loan of a different Type, at a
rate per annum equal to the sum of (A) the Interest Margin applicable to Prime
Rate Loans and (B) the Prime Rate, payable monthly in arrears on each Interest
Payment Date and on the Termination Date.
(ii) Eurodollar Rate Revolving Credit Loans. Subject to the provisions of
SECTION 5.1(b), the Borrowers will pay interest on the unpaid principal amount
of each Eurodollar Rate Revolving Credit Loan for the Interest Period
applicable thereto at a rate per annum equal to the sum of (A) the Interest
Margin applicable to Eurodollar Rate Loans on the first day of such Interest
Period and (B) the Eurodollar Rate, payable monthly in arrears on each Interest
Payment Date, on the last day of such Interest Period and when such Eurodollar
Rate Revolving Credit Loan is paid (whether at maturity, by reason of
acceleration or otherwise).
(iii) Prime Rate Term Loans. Subject to the provisions of SECTION 5.1(b),
the Borrowers will pay interest on each Prime Rate Term Loan at a rate per
annum equal to the sum of (A) the Interest Margin applicable to Prime Rate
Loans and (B) the Prime Rate, payable monthly in arrears on each Interest
Payment Date and when such Term Loan is due (whether at maturity, by reason of
acceleration or otherwise).
(iv) Eurodollar Rate Term Loans. Subject to the provisions of SECTION
5.1(b), the Borrowers will pay interest on each Eurodollar Rate Term Loan for
the Interest Period applicable thereto at a rate per annum equal to the sum of
(A) the Interest Margin applicable to Eurodollar Rate Loans on the first day of
such Interest Period and (B) the Eurodollar Rate, payable monthly in arrears on
each Interest Payment Date, on the last day of such Interest Period and when
such Eurodollar Rate Term Loan is due (whether at maturity, by reason of
acceleration or otherwise).
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(b) If the Borrower shall fail to pay when due (whether at maturity, by
reason of acceleration or otherwise) all or any portion of the principal amount
of any Loan or if there shall occur another Event of Default, unpaid amounts
hereunder shall, at the election of the Required Lenders, no longer bear
interest in accordance with the terms of SECTION 5.1(a), but shall bear
interest for each day from the date of such failure to pay or occurrence of
such Event of Default, as the case may be, until such failure to pay or Event
of Default shall have been cured or waived, at a rate per annum equal to (i)
with respect to each Eurodollar Rate Loan, if such due date or Event of Default
occurs prior to the end of the Interest Period applicable thereto, the Default
Margin plus the interest rate applicable to such Eurodollar Rate Loan until the
expiration of such Interest Period and (ii) in all other cases, the Default
Margin plus the applicable rates under SECTION 5.1(a)(i) or (iii), in each case
payable on demand. The Administrative Agent will notify ProSource of an
election by the Required Lenders to apply the Default Margin. The interest
rates provided for in the preceding sentence shall, to the extent permitted by
Applicable Law, apply to and accrue on the amount of any judgment entered with
respect to any Secured Obligation and shall continue to accrue at such rate
during any proceeding described in SECTION 13.1(g) or (h).
(c) The Borrowers will, to the extent permitted by Applicable Law, pay
interest on the unpaid principal amount of any Secured Obligation that is due
and payable, other than the Loans, at the rate per annum applicable to Prime
Rate Revolving Credit Loans, in accordance with SECTION 5.1(a)(i) or 5.1(b), as
applicable, as if such Secured Obligation were a Loan.
(d) The interest rates provided for in SECTIONS 5.1(a), (b) and (c) shall
be computed on the basis of a year of 360 days and the actual number of days
elapsed. Interest rates provided for herein that are based on the Prime Rate
shall be adjusted automatically on the first day of each month for the Prime
Rate in effect as of the close of business on the last Business Day of the
preceding month.
(e) It is not intended by the Lenders, and nothing contained in this
Agreement or the Notes shall be deemed, to establish or require the payment of
a rate of interest in excess of the maximum rate permitted by Applicable Law
(the MAXIMUM RATE). If, in any month, the Effective Interest Rate, absent such
limitation, would have exceeded the Maximum Rate, then the Effective Interest
Rate for that month shall be the Maximum Rate, and, if in future months, the
Effective Interest Rate would otherwise be less than the Maximum Rate, then the
Effective Interest Rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amount of interest which would
have been paid if the same had not been limited by the Maximum Rate. In the
event that, upon payment in full of the Secured Obligations, the total amount
of interest paid or accrued under the terms of this Agreement is less than the
total amount of interest which would have been paid or accrued if the Effective
Interest Rate had at all times been in effect, then the Borrowers shall, to the
extent permitted by Applicable Law, pay to the Lenders an amount equal to the
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excess, if any, of (i) the lesser of (A) the amount of interest which would
have been charged if the Maximum Rate had, at all times, been in effect and (B)
the amount of interest which would have accrued had the Effective Interest
Rate, at all times, been in effect over (ii) the amount of interest actually
paid or accrued under this Agreement. In the event the Lenders receive,
collect or apply as interest any sum in excess of the Maximum Rate, such excess
amount shall be applied to the reduction of the principal balance of the
Secured Obligations, and if no such principal is then outstanding, such excess
or part thereof remaining, shall be paid to the Borrowers.
SECTION 5.2. Underwriting Fee. ProSource agrees to pay to the Arrangers,
solely for their own account, an arrangement fee in accordance with the
provisions of a separate agreement between ProSource and the Arrangers.
SECTION 5.3. Administrative Agent Fee. For administration and other
services performed by the Administrative Agent in connection with its continuing
administration of this Agreement, the Borrowers shall pay to the Administrative
Agent, for its own account, and not for the account of the Co-Agents or the
Lenders, an annual fee, payable on the Effective Date in an amount equal to
$250,000 and on each Anniversary Date (other than any Anniversary Date that is
also the Termination Date) in an amount equal to $200,000, so long as any
Secured Obligation remains outstanding or the Revolving Credit Facility shall
not have been terminated. The fee payable pursuant to this SECTION 5.3 shall be
fully earned by the Administrative Agent on the date payment thereof is due and
shall not be subject to refund or rebate.
SECTION 5.4. Unused Facility. In connection with and as consideration for
holding available for the use of the Borrowers hereunder the full amount of the
Revolving Credit Facility, the Borrowers shall pay a fee to the Administrative
Agent, for the ratable benefit of the Lenders, for each day from the Effective
Date until the Termination Date, in an amount equal to 0.50% per annum of the
amount of the Unused Revolving Credit Facility for such day; PROVIDED, HOWEVER,
that (i) from and after the New Subordinated Debt Rate Reduction Event such fee
shall be reduced to 0.375% and (ii) from and after the third Anniversary Date
such fee shall be subject to adjustment in accordance with the pricing matrix
attached hereto as SCHEDULE 1.1B - PRICING MATRIX, each such adjustment to
become effective upon receipt by the Administrative Agent of the quarterly
Compliance Certificate delivered in connection with financial statements
provided pursuant to SECTION 11.1(c) and shall be based upon the Fixed Charge
Coverage Ratio and the Funded Debt to EBITDA Ratio derived from the information
contained in such financial statements. Such fee shall be payable monthly in
arrears on each Interest Payment Date and shall be fully earned when due and
payable and shall not be subject to refund or rebate.
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SECTION 5.5. Letter of Credit Fees.
(a) The Borrowers agree to pay to the Administrative Agent, for the
ratable benefit of the Lenders, Letter of Credit fees equal to the Applicable
L/C Fee computed on the average daily aggregate Letter of Credit Amount of all
Letters of Credit from time to time outstanding during the term of this
Agreement. Notwithstanding the foregoing, the Borrowers shall not be obligated
to pay Letter of Credit fees pursuant to this CLAUSE (a) for any Letter of
Credit issued for the benefit of NCNB National Bank of Florida (now known as
NationsBank of Florida, N.A.) that secures ProSource's obligations under the
Shareholder Loan Guaranty.
(b) The Borrowers agree to pay to the Administrative Agent, for the
account of NationsBank, the standard fees and charges of NationsBank for
issuing, administering, amending, renewing, paying and canceling letters of
credit, as and when assessed.
SECTION 5.6. Notice of Conversion or Continuation of Loans. Whenever the
Borrowers desire, subject to the provisions of SECTION 5.7, to convert an
outstanding Revolving Credit Loan or Term Loan into a Loan of a different Type
provided for in this Agreement or to continue all or a portion of an outstanding
Eurodollar Rate Revolving Credit Loan or Term Loan for a subsequent Interest
Period, the Borrowers shall notify the Administrative Agent in writing (which
notice shall be irrevocable) by telecopy not later than 11:30 a.m. on the date
one Business Day before the day on which a proposed conversion of a Eurodollar
Rate Loan into a Prime Rate Loan is to be effective (which effective date shall
be the last day of the Interest Period applicable to such Eurodollar Rate Loan)
and two Business Days before the day on which a proposed conversion of a Prime
Rate Loan into, or continuation of a Eurodollar Rate Loan as, a Eurodollar Rate
Loan is to be effective (and such effective date of any continuation shall be
the last day of the Interest Period for such Eurodollar Rate Loan). Each such
notice (a NOTICE OF CONVERSION OR CONTINUATION) shall (i) identify the Loan to
be converted or continued, including the Type thereof, the aggregate outstanding
principal balance thereof and, in the case of a Eurodollar Rate Loan, the last
day of the Interest Period therefor, (ii) specify the effective date of such
conversion or continuation, (iii) specify the principal amount of such Loan to
be converted or continued and, if converted, the Type or Types of Loan into
which conversion of such principal amount or specified portions thereof is to be
made, and (iv) in the case of any conversion into or continuation as a
Eurodollar Rate Loan, the Interest Period to be applicable thereto, and shall be
immediately followed by a written confirmation thereof by the Borrowers in a
form acceptable to the Administrative Agent, PROVIDED that if such written
confirmation differs in any respect from the action taken by the Lenders, the
records of the Administrative Agent shall control absent manifest error.
SECTION 5.7. Conversion or Continuation. Provided that no Event of Default
shall have occurred and be continuing (but subject to the provisions of SECTIONS
5.8 and 5.9), a Borrower may request that all or any part of any outstanding
Loan of one Type (a)
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be converted into a Loan or Loans of any other Type provided for in this
Agreement, or (b) be continued as a Loan or Loans of the same Type, in the same
aggregate principal amount, on any Business Day (which, in the case of a
conversion or continuation of a Eurodollar Rate Loan, shall be the last day of
the Interest Period applicable to such Eurodollar Rate Loan), upon notice
(which notice shall be irrevocable) given in accordance with SECTION 5.6,
PROVIDED that nothing in this ARTICLE 5 shall be construed to permit the
conversion of a Revolving Credit Loan to a Term Loan or vice versa.
SECTION 5.8. Duration of Interest Periods; Maximum Number of Eurodollar
Rate Loans; Minimum Increments.
(a) Subject to the provisions of the definition "Interest Period", the
duration of each Interest Period applicable to a Eurodollar Rate Loan shall be
as specified in the applicable Notice of Borrowing or Notice of Conversion or
Continuation. A Borrower may elect a subsequent Interest Period to be
applicable to any Eurodollar Rate Loan by giving a Notice of Conversion or
Continuation with respect to such Loan in accordance with SECTION 5.6.
(b) If the Administrative Agent does not receive a notice of election in
accordance with SECTION 5.6 with respect to the continuation of a Eurodollar
Rate Loan within the applicable time limits specified in said SECTION 5.6, or
if, when such notice must be given, an Event of Default exists or such Type of
Loan is not available, the Borrowers shall be deemed to have elected to convert
such Eurodollar Rate Loan in whole into a Prime Rate Loan on the last day of
the Interest Period therefor.
(c) Notwithstanding the foregoing, a Borrower may not select an Interest
Period that would end, but for the provisions of the definition "Interest
Period," after the Termination Date.
(d) In no event shall there be more than nine Eurodollar Rate Loans
outstanding hereunder at any time. For the purpose of this SUBSECTION (d),
each Eurodollar Rate Revolving Credit Loan and each Eurodollar Rate Term Loan
having a distinct Interest Period shall be deemed to be a separate Loan
hereunder.
(e) Each Eurodollar Rate Loan shall be in a minimum amount of $1,000,000.
SECTION 5.9. Changed Circumstances.
(a) If the introduction of or any change in or in the interpretation of
(in each case, after the date hereof) any law or regulation makes it unlawful,
or any Governmental Authority asserts, after the date hereof, that it is
unlawful, for any Lender to perform its
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obligations hereunder to make Eurodollar Rate Loans or to fund or maintain
Eurodollar Rate Loans hereunder, such Lender shall notify the Administrative
Agent of such event and the Administrative Agent shall notify the Borrower of
such event, and the right of the Borrowers to select Eurodollar Rate Loans for
any subsequent Interest Period or in connection with any subsequent conversion
of any Loan shall be suspended until the Administrative Agent shall notify the
Borrowers that the circumstances causing such suspension no longer exist, and
the Borrowers shall forthwith prepay in full all Eurodollar Rate Revolving
Credit Loans then outstanding and shall convert each Eurodollar Rate Term Loan
into a Prime Rate Term Loan, and shall pay all interest accrued thereon through
the date of such prepayment or conversion, unless the Borrowers, within three
Business Days after such notice from the Administrative Agent, requests the
conversion of all Eurodollar Rate Loans then outstanding into Prime Rate Loans
in accordance with SECTIONS 5.6 and 5.7; PROVIDED, that if the date of such
repayment or proposed conversion is not the last day of the Interest Period
applicable to such Eurodollar Rate Loans, the Borrowers shall also pay any
amount due pursuant to SECTION 5.10.
(b) If the Administrative Agent shall, at least one Business Day before
the date of any requested Revolving Credit Loan or the effective date of any
conversion or continuation of an existing Loan to be made or continued as or
converted into a Eurodollar Rate Loan (each such requested Revolving Credit
Loan made and Loan to be converted or continued, a PENDING LOAN), notify the
Borrowers that the Eurodollar Rate will not adequately reflect the cost to the
Lenders of making or funding such Pending Loan as a Eurodollar Rate Loan or
that the Interbank Offered Rate is not determinable from any interest rate
reporting service of recognized standing, then the right of the Borrowers to
select Eurodollar Rate Loans for such Pending Loan, any subsequent Revolving
Credit Loan or in connection with any subsequent conversion or continuation of
any Loan shall be suspended until the Administrative Agent shall notify the
Borrowers that the circumstances causing such suspension no longer exist, and
each Loan comprising each Pending Loan and each such subsequent Loan requested
to be made, continued or converted shall be made or continued as or converted
into a Prime Rate Loan.
SECTION 5.10. Payments Not at End of Interest Period; Failure to Borrow.
If for any reason any payment of principal with respect to any Eurodollar Rate
Loan is made on any day prior to the last day of the Interest Period applicable
to such Eurodollar Rate Loan or, after having given a Notice of Borrowing with
respect to any Revolving Credit Loan to be comprised of Eurodollar Rate
Revolving Credit Loans or a Notice of Conversion or Continuation with respect to
any Loan to be continued as or converted into a Eurodollar Rate Loan, such Loan
is not made or is not continued as or converted into a Eurodollar Rate Loan due
to the Borrowers' failure to borrow or to fulfill the applicable conditions set
forth in ARTICLE 5 OR 6, the Borrowers shall pay to each Lender, in addition to
any amounts that may be due under SECTION 5.19, an amount (if a positive number)
computed pursuant to the following formula:
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L = (R - T) x P x D
---------------
360
L = amount payable
R = interest rate applicable to the Eurodollar Rate Loan unborrowed or
prepaid
T = effective interest rate per annum at which any readily marketable
bonds or other obligations of the United States, selected at the
Administrative Agent's sole discretion, maturing on or near the
last day of the then applicable or requested Interest Period for
such Loan and in approximately the same amount as such Loan, can be
purchased by such Lender on the day of such payment of principal or
failure to borrow
P = the amount of principal paid or the amount of the requested Loan
D = the number of days remaining in the Interest Period as of the date
of such payment or the number of days in the requested Interest
Period
The Borrowers shall pay such amount upon presentation by the Administrative
Agent of a statement setting forth the amount and the Administrative Agent's
calculation thereof pursuant hereto, which statement shall be deemed true and
correct absent manifest error.
SECTION 5.11. Assumptions Concerning Funding of Eurodollar Rate Loans.
Calculation of all amounts payable to the Lenders under this ARTICLE 5 shall be
made as though each Lender had actually funded or committed to fund its ratable
share of the relevant Eurodollar Rate Loan through the purchase of an underlying
deposit in an amount equal to the amount of such ratable share and having a
maturity comparable to the relevant Interest Period for such Eurodollar Rate
Loan; PROVIDED, HOWEVER, each Lender may fund its Eurodollar Rate Loans in any
manner it deems fit and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this ARTICLE 5.
SECTION 5.12. Manner of Payment.
(a) Except as otherwise expressly provided in SECTION 9.1(b), each payment
(including prepayments) by a Borrower on account of the principal of or
interest on the Loans or of any other amounts payable to the Lenders under this
Agreement or any Note shall be made not later than 12:00 noon on the date
specified for payment under this Agreement to the Administrative Agent, for the
account of the Lenders, at the Administrative Agent's Office, in Dollars, in
immediately available funds and shall be made without any setoff, counterclaim
or deduction whatsoever. Any payment received after such time but before 1:00
p.m. on such day shall be deemed a payment on such date for the purposes of
SECTION 13.1, but for all other purposes shall be deemed to have been made on
the next succeeding Business Day.
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(b) Each Borrower hereby irrevocably authorizes each Lender and each
Affiliate of such Lender and each participant herein to charge any account of
such Borrower maintained with such Lender or such Affiliate or participant with
such amounts as may be necessary from time to time to pay any Secured
Obligations (whether or not owed to such Lender, Affiliate or participant)
which are not paid when due.
SECTION 5.13. General. If any payment under this Agreement or any Note
shall be specified to be made on a day which is not a Business Day, it shall be
made on the next succeeding day which is a Business Day and such extension of
time shall in each case be included in computing interest, if any, due in
connection with such payment.
SECTION 5.14. Loan Accounts; Statements of Account.
(a) Each Lender shall open and maintain on its books a loan account in the
Borrowers' names (each, a LOAN ACCOUNT and collectively, the LOAN ACCOUNTS).
Each such Loan Account shall show as debits thereto each Loan made under this
Agreement by such Lender to a Borrower and as credits thereto all payments
received by such Lender and applied to principal of such Loan, so that the
balance of such Loan Account at all times reflects the principal amount due
such Lender from the Borrowers.
(b) The Administrative Agent shall maintain on its books a control account
for the Borrowers in which shall be recorded (i) the amount of each
disbursement made hereunder, (ii) the amount of any principal or interest due
or to become due from the Borrowers hereunder, and (iii) the amount of any sum
received by the Administrative Agent hereunder from a Borrower and each
Lender's share therein.
(c) The entries made in the accounts pursuant to SUBSECTIONS (a) and (b)
shall be PRIMA FACIE evidence, in the absence of manifest error, of the
existence and amounts of the obligations of the Borrowers therein recorded and
in case of discrepancy between such accounts, in the absence of manifest error,
the accounts maintained pursuant to SUBSECTION (b) shall be controlling.
(d) The Administrative Agent will account separately to the Borrowers
monthly with a statement of Loans, charges and payments made to and by the
Borrowers pursuant to this Agreement, and such accounts rendered by the
Administrative Agent shall be deemed final, binding and conclusive, save for
manifest error, unless the Administrative Agent is notified by the Borrowers in
writing to the contrary within 30 days after the date the account to the
Borrowers was so rendered. Such notice by the Borrowers shall be deemed an
objection only to those items specifically objected to therein. Failure of the
Administrative Agent to render such account shall in no way affect the rights
of the Administrative Agent or of the Lenders hereunder.
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SECTION 5.15. Termination of Agreement. Subject to the provisions of
SECTIONS 5.10 and 5.19, the Borrowers shall have the right, at any time, to
terminate this Agreement upon not less than 30 Business Days' prior written
notice of their intention to do so, which notice shall be irrevocable and shall
specify the effective date of such termination. Upon receipt of such notice,
the Administrative Agent shall promptly notify each Lender thereof. On the date
specified in such notice, such termination shall be effected, PROVIDED, that the
Borrowers shall, on or prior to such date, pay to the Administrative Agent, for
the account of the Lenders, in immediately available funds, an amount equal to
all Secured Obligations then outstanding, including, without limitation, all (i)
accrued interest thereon, (ii) all accrued fees provided for hereunder, and
(iii) any amounts payable to the Lenders pursuant to SECTION 5.10, 5.19, 16.2,
16.3 or 16.14, and, in addition thereto, shall deliver to the Administrative
Agent, in respect of each outstanding Letter of Credit, either Supporting
Letter(s) of Credit or Cash Collateral as provided in SECTION 3.9. Following a
notice of termination as provided for in this SECTION 5.15 and upon payment in
full of the amounts specified in this SECTION 5.15, this Agreement shall be
terminated and the Administrative Agent, the Co-Agents, the Lenders and the
Borrowers shall have no further obligations to any other party hereto except for
the obligations of the Borrowers to the Administrative Agent and the Lenders
pursuant to SECTION 16.14 hereof.
SECTION 5.16. Making of Loans.
(a) Nature of Obligations of Lenders to Make Loans. The obligations of
the Lenders under this Agreement to make the Loans are several and are not
joint or joint and several.
(b) Assumption by Administrative Agent. Subject to the provisions of
SECTION 5.16(c), notwithstanding the occurrence or continuance of a Default or
Event of Default or other failure of any condition to the making of Revolving
Credit Loans hereunder, unless the Administrative Agent shall have received
written notice from a Lender prior to 11:00 a.m. on the Business Day prior to a
proposed borrowing date that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of the amount to be borrowed
on such date, the Administrative Agent may assume that such Lender will make
such portion available to the Administrative Agent in accordance with SECTION
2.2(a) and may (but shall have no obligation to), in reliance upon such
assumption, make available to a Borrower on such date a corresponding amount.
If and to the extent such Lender shall not make such ratable portion available
to the Administrative Agent, such Lender and the Borrowers severally agree to
repay to the Administrative Agent forthwith on demand such corresponding amount
(the MAKE-WHOLE AMOUNT), together with interest thereon for each day from the
date such amount is made available to a Borrower until the date such amount is
repaid to the Administrative Agent at the Effective Interest Rate or, if lower,
subject to SECTION 5.1(e), the Maximum Rate; PROVIDED, HOWEVER, that if on the
Interest Payment Date next following the date on which any Lender pays interest
to the Administrative Agent at the Effective Rate or
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the Maximum Rate on a Make-Whole Amount as aforesaid, the Borrowers default in
making the interest payment due on such Interest Payment Date, then the
Administrative Agent shall reimburse such Lender for the excess, if any, of the
amount of interest paid by such Lender on the Make-Whole Amount over the amount
of interest that such Lender would have paid had the Lender paid interest on
the Make-Whole Amount at the Federal Funds Effective Rate. If such Lender
shall repay to the Administrative Agent such corresponding amount, the amount
so repaid shall constitute such Lender's Commitment Percentage of the Loan made
on such borrowing date for purposes of this Agreement. The Administrative
Agent shall not be required to make any Loan as to which it shall have received
notice from a Lender of such Lender's intention not to make its ratable portion
of such Loan available to the Administrative Agent unless all remaining Lenders
shall instruct the Administrative Agent to advance their respective ratable
shares of such Loan.
(c) Lender Not Excused from Funding. As to any Default or Event of
Default that may, in accordance with the provisions of SECTION 16.11, be waived
by the Required Lenders, unless and until the Administrative Agent shall have
received written notice from the Required Lenders as to the existence of a
Default, an Event of Default or some other circumstance which would relieve the
Lenders of their respective obligations to make Loans hereunder, which notice
shall be in writing, shall be signed by the Required Lenders and shall
expressly state that the Required Lenders do not intend to make available to
the Administrative Agent such Lenders' ratable shares of Loans made after the
effective date of such notice (which shall be the second Business Day after
receipt thereof by the Administrative Agent unless it shall agree otherwise),
the Administrative Agent shall be entitled to continue to make the assumptions
described in SECTION 5.16(b) as to all Lenders. If any Lender nevertheless
notifies the Administrative Agent that it does not intend to make its ratable
portion of any Loan available and one or more other Lenders (the FUNDING
LENDERS) make all or any portion of such first Lender's ratable portion of such
Loan available, amounts thereafter payable to the Lenders for application to
repayment of principal of or interest on Revolving Credit Loans, shall be paid
first to the Funding Lenders, ratably in accordance with the amounts by which
their outstanding Revolving Credit Loans exceed their respective Commitment
Percentages of all outstanding Revolving Credit Loans until such excess is
eliminated, and thereafter ratably to the Lenders.
(d) Rights and Obligations of Funding Lenders. The failure of any Lender
to make its Commitment Percentage of any Loan available shall not (without
regard to whether a Borrower shall have returned the amount thereof to the
Administrative Agent in accordance with this SECTION 5.16) relieve it or any
other Lender of its obligation, if any, hereunder to make its Commitment
Percentage of such Loan available on such borrowing date, but no Lender shall
be responsible for the failure of any other Lender to make its Commitment
Percentage of such Loan available on the borrowing date.
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(e) Delegation of Authority to Administrative Agent. Without limiting the
generality of SECTION 15.1, each Lender expressly authorizes the Administrative
Agent to determine on behalf of such Lender (i) any reduction or increase of
advance rates applicable to the Borrowing Base, so long as such advance rates
do not at any time exceed the rates set forth in the Borrowing Base definition
and so long as any increase in any advance rate is approved by the Required
Lenders, (ii) the creation or elimination of any reserves (other than the
Letter of Credit Reserve or the reserves (A) provided for in subsection
(b)(iii)(A) of the definition "BORROWING BASE" (which may be adjusted by the
Co-Agents as provided in SECTION 16.11(c)) or (B) in respect of Term Loan B
which may be reduced only by all Lenders) against the Revolving Credit Facility
and the Borrowing Base and (iii) whether or not Inventory or Receivables
constitutes Eligible Inventory or Eligible Receivables. Such authorization may
be withdrawn by the Required Lenders giving the Administrative Agent written
notice of such withdrawal signed by them; PROVIDED, HOWEVER, that unless
otherwise agreed by the Administrative Agent such withdrawal of authorization
shall not become effective until the 30th Business Day after receipt of such
notice by the Administrative Agent. Thereafter, the Required Lenders shall
jointly instruct the Administrative Agent in writing regarding such matters
with such frequency as the Required Lenders shall jointly determine.
(f) Withdrawal of Authority, Etc. No notice by a Lender of its intention
not to make its ratable portion of any Loan available to the Administrative
Agent or withdrawal of authority pursuant to SECTION 5.16(e) shall affect the
validity of any Loan made or action taken prior to the effectiveness of such
notice or withdrawal.
SECTION 5.17. Settlement Among Lenders.
(a) Term Loans. The Administrative Agent shall pay to each Lender on each
Interest Payment Date or Installment Payment Date, as the case may be, or, if
later, on the date of receipt thereof by the Administrative Agent, such
Lender's ratable share, based on the principal amount of the Term Loans owing
to it, of all payments received by the Administrative Agent hereunder in
respect of the principal of, or interest on, the Term Loans, net of any amounts
payable by such Lender to the Administrative Agent, by wire transfer of funds
of the same type received by the Administrative Agent.
(b) Revolving Credit Loans. It is agreed that each Lender's Net
Outstandings are intended by the Lenders to be equal at all times to such
Lender's Commitment Percentage of the aggregate principal amount of all
Revolving Credit Loans outstanding. Notwithstanding such agreement, the
several and not joint obligation of each Lender to fund Revolving Credit Loans
made in accordance with the terms of this Agreement ratably in accordance with
such Lender's Commitment Percentage and each Lender's right to receive its
ratable share of principal payments on Revolving Credit Loans in accordance
with its Commitment Percentage, the Lenders agree that, in order to facilitate
the administration of
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this Agreement and the Loan Documents, settlement among them may take place on
a periodic basis in accordance with the provisions of this SECTION 5.17.
(c) Settlement Procedures as to Revolving Credit Loans. To the extent and
in the manner hereinafter provided in this SECTION 5.17, settlement among the
Lenders as to Revolving Credit Loans may occur periodically on Settlement Dates
determined from time to time by the Administrative Agent, which may occur
before or after the occurrence or during the continuance of a Default or Event
of Default and whether or not all of the conditions set forth in SECTION 6.2
have been met. On each Settlement Date, payments shall be made by or to
NationsBank and the other Lenders in the manner provided in this SECTION 5.17
in accordance with the Settlement Report delivered by the Administrative Agent
pursuant to the provisions of this SECTION 5.17 in respect of such Settlement
Date so that as of each Settlement Date, and after giving effect to the
transactions to take place on such Settlement Date, each Lender's Net
Outstandings shall equal such Lender's Commitment Percentage of the aggregate
outstanding principal amount of Revolving Credit Loans.
(i) Selection of Settlement Dates. If the Administrative Agent
elects, in its discretion, but subject to the consent of NationsBank, to
settle accounts among the Lenders with respect to principal amounts of
Revolving Credit Loans less frequently than each Business Day, then the
Administrative Agent shall designate periodic Settlement Dates which may
occur on any Business Day, PROVIDED, that the Administrative Agent shall
designate as a Settlement Date each Business Day on which interest on the
loans is payable hereunder and a Settlement Date shall occur at least once
every seven days. The Administrative Agent shall designate a Settlement
Date by delivering to each Lender a Settlement Report not later than 12:00
noon on the proposed Settlement Date, which Settlement Report shall be
substantially in the form of EXHIBIT F hereto, with respect to the period
beginning on the next preceding Settlement Date and ending on such
designated Settlement Date.
(ii) Non-Ratable Loans and Payments. On Business Days other than
Settlement Dates, the Administrative Agent shall request and, subject to
the provisions of SECTION 5.16(b), NationsBank may (but shall not be
obligated to) advance to the Borrowers out of NationsBank's own funds, the
entire principal amount of any Prime Rate Revolving Credit Loan requested
or deemed requested pursuant to SECTION 2.2(a) (any such Revolving Credit
Loan being referred to as a NON-RATABLE LOAN). The making of each
Non-Ratable Loan by NationsBank shall be deemed to be a purchase by
NationsBank of a 100% participation in each other Lender's Commitment
Percentage of the amount of such Non-Ratable Loan. All payments of
principal, interest and any other amount with respect to such Non-Ratable
Loan shall be payable to and received by the Administrative Agent for the
account of NationsBank. Upon demand by NationsBank, with notice thereof to
the Administrative Agent, each other Lender shall pay to NationsBank, as
the repurchase of such participation, an amount equal to 100%
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of such Lender's Commitment Percentage of the principal amount of such
Non-Ratable Loan. Any payments received by the Administrative Agent
between Settlement Dates which in accordance with the terms of this
Agreement are to be applied to the reduction of the outstanding principal
balance of Revolving Credit Loans, shall be paid over to and retained by
NationsBank for such application, and such payment to and retention by
NationsBank shall be deemed, to the extent of each other Lender's
Commitment Percentage of such payment, to be a purchase by each such other
Lender of a participation in the Revolving Credit Loans (including the
repurchase of participations in Non-Ratable Loans) held by NationsBank.
Upon demand by another Lender, with notice thereof to the Administrative
Agent, NationsBank shall pay to the Administrative Agent, for the account
of such other Lender, as a repurchase of such participation, an amount
equal to such other Lender's Commitment Percentage of any such amounts
(after application thereof to the repurchase of any participations of
NationsBank in such other Lender's Commitment Percentage of any Non-Ratable
Loans) paid only to NationsBank by the Administrative Agent.
(iii) Net Decrease in Outstandings. If on any Settlement Date the
increase in the dollar amount of any Lender's Net Outstandings which is
required to comply with the first sentence of SECTION 5.17(b) is less than
such Lender's Commitment Percentage of amounts received by the
Administrative Agent but paid only to NationsBank since the next preceding
Settlement Date, such Lender and the Administrative Agent, in their
respective records, shall apply such Lender's Commitment Percentage of such
amounts to the increase in such Lender's Net Outstandings, and NationsBank
shall pay to the Administrative Agent, for the account of such Lender, the
excess allocable to such Lender.
(iv) Net Increase in Outstandings. If on any Settlement Date the
increase in the dollar amount of any Lender's Net Outstandings which is
required to comply with the first sentence of SECTION 5.17(b) exceeds such
Lender's Commitment Percentage of amounts received by the Administrative
Agent but paid only to NationsBank since the next preceding Settlement
Date, such Lender and the Administrative Agent, in their respective
records, shall apply such Lender's Commitment Percentage of such amounts to
the increase in such Lender's Net Outstandings, and such Lender shall pay
to the Administrative Agent, for the account of NationsBank, such excess.
(v) No Change in Outstandings. If a Settlement Report indicates that
no Revolving Credit Loans have been made during the period since the next
preceding Settlement Date, then such Lender's Commitment Percentage of any
amounts received by the Administrative Agent but paid only to NationsBank
shall be paid by NationsBank to the Administrative Agent, for the account
of such Lender. If a Settlement Report indicates that the increase in the
dollar amount of a Lender's Net
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Outstandings which is required to comply with the first sentence of SECTION
5.17(B) is exactly equal to such Lender's Commitment Percentage of amounts
received by the Administrative Agent but paid only to NationsBank since the
next preceding Settlement Date, such Lender and the Administrative Agent,
in their respective records, shall apply such Lender's Commitment
Percentage of such amounts to the increase in such Lender's Net
Outstandings.
(vi) Return of Payments. If any amounts received by NationsBank in
respect of the Secured Obligations (other than pursuant to SECTION 5.3,
5.5(b), 5.9, 16.2, 16.14 or 16.23) are later required to be returned or
repaid by NationsBank to the Borrower or any other obligor or their
respective representatives or successors in interest, whether by court
order, settlement or otherwise, in excess of the NationsBank's Commitment
Percentage of all such amounts required to be returned by all Lenders
(including returns deemed made by a Lender other than NationsBank upon the
return of funds held by NationsBank for application to such Lender's
repurchase of NationsBank's participation in such Lender's Commitment
Percentage of any Non-Ratable Loan), each other Lender shall, upon demand
by NationsBank with notice to the Administrative Agent, pay to the
Administrative Agent for the account of NationsBank, an amount equal to the
excess of such Lender's Commitment Percentage of all such amounts required
to be returned by all Lenders over the amount, if any, returned directly by
such Lender together with such Lender's share of any interest thereon
required to be paid by NationsBank.
(vii) Payments to Administrative Agent, Lenders. For purposes of this
SECTION 5.17:
(a) Payment by any Lender to the Administrative Agent shall be made not
later than 1:30 p.m. on the Business Day such payment is due, PROVIDED that if
such payment is due on demand by another Lender, such demand is made on the
paying Lender not later than 10:00 a.m. on such Business Day. Payment by the
Administrative Agent to any Lender shall be made by wire transfer, promptly
following the Administrative Agent's receipt of funds for the account of such
Lender and in the type of funds received by the Administrative Agent, PROVIDED
that if the Administrative Agent receives such funds at or prior to 1:30 p.m.,
the Administrative Agent shall pay such funds to such Lender by 2:30 p.m. on
such Business Day. If a demand for payment is made after the applicable time
set forth above, the payment due shall be made by 2:00 p.m. on the first
Business Day following the date of such demand.
(b) If a Lender shall, at any time, fail to make any payment to the
Administrative Agent required hereunder, the Administrative Agent may, but
shall not be required to, retain payments that would otherwise be made to such
Lender hereunder and apply such payments to such Lender's defaulted obligations
hereunder,
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at such time or times, and in such order, as the Administrative Agent may elect
in its sole discretion.
(c) With respect to the payment of any funds under this SECTION 5.17(c),
whether from the Administrative Agent to a Lender or from a Lender to the
Administrative Agent, the party failing to make full payment when due pursuant
to the terms hereof shall, upon demand by the other party, pay such amount
together with interest thereon, at the Federal Funds Effective Rate.
(d) Settlement of Other Secured Obligations. All other amounts received
by the Administrative Agent on account of, or applied by the Administrative
Agent to the payment of, any Secured Obligation owed to the Lenders (including,
without limitation, fees payable to the Lenders pursuant to SECTIONS 5.2, 5.4
and 5.5 and proceeds from the sale of, or other realization upon, all or any
part of the Collateral following an Event of Default) that are received by the
Administrative Agent on or prior to 1:30 p.m. on a Business Day will be paid by
the Administrative Agent to each Lender on the same Business Day, and any such
amounts that are received by the Administrative Agent after 1:00 p.m. will be
paid by the Administrative Agent to each Lender not later than 12:00 noon on
the following Business Day. Unless otherwise stated herein, the Administrative
Agent shall distribute fees payable to the Lenders pursuant to SECTIONS 5.2,
5.4 and 5.5 ratably to the Lenders based on each Lender's Commitment Percentage
and shall distribute proceeds from the sale of, or other realization upon, all
or any part of the Collateral following an Event of Default ratably to the
Lenders based on the amount of the Secured Obligations then owing to each
Lender.
SECTION 5.18. Prepayments.
(a) Mandatory Prepayments from Asset Dispositions. Immediately upon
receipt by ProSource or any of its Subsidiaries of the Net Proceeds of any
Asset Disposition, the Borrowers shall apply such Net Proceeds to the
prepayment of the Loans as provided in SECTION 5.18(e); PROVIDED, HOWEVER, that
the Borrowers shall not be required to make such prepayment to the extent that
the Net Proceeds from Asset Dispositions arise from a sale/leaseback
transaction of any vehicle, trailer or other asset as to which a certificate of
title has been issued, or to the extent that during any Fiscal Year such Net
Proceeds do not exceed, in the aggregate, $250,000. Concurrently with the
making of any such payment, the Borrowers shall deliver to Administrative Agent
a certificate of ProSource's Financial Officer demonstrating the calculations
of the amount required to be paid. Notwithstanding the foregoing, to the
extent that the gross proceeds from Asset Dispositions during any Fiscal Year
exceed, in the aggregate, $250,000, if ProSource reasonably expects such
proceeds to be reinvested within six months after receipt in productive assets
(other than Inventory) of a kind then used or useable in the business of a
Borrower and that are not subject to any Lien other than in favor of the
Administrative Agent, then (a) to the extent such proceeds do not exceed the
balance from time to time of the Revolving Credit Loan, such proceeds shall be
applied to
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the repayment of the outstanding balance of the Revolving Credit Loans and the
Administrative Agent shall, until the reinvestment of such proceeds, establish
and maintain a reserve against the Borrowing Base in the amount of the proceeds
so applied and (b) to the extent such proceeds exceed the balance from time to
time of the Revolving Credit Loans, the Borrowers shall deposit such proceeds
with the Administrative Agent to be held as Cash Collateral. Upon the
Administrative Agent's receipt of evidence satisfactory to it that ProSource
has received the Equipment or other goods in which such proceeds are to be
reinvested, the Administrative Agent shall release its security interest in any
such Cash Collateral and shall eliminate the related reserve against the
Borrowing Base. To the extent that ProSource fails so to reinvest such
proceeds (or to cause such proceeds to be reinvested) within six months after
receipt, the Borrowers irrevocably authorize and direct the Administrative
Agent to apply an amount equal to the unreinvested amount to the prepayment of
the Loans as provided in SECTION 5.18(e), the funds for such application to be
provided from any unreinvested amount then held as Cash Collateral and proceeds
of a Revolving Credit Loan in the amount of the related reserve against the
Borrowing Base, which reserve shall simultaneously be eliminated.
(b) Application of Division Acquisition Agreement Adjustments. Amounts
received after the Effective Date, by ProSource (or any Borrower) pursuant to
the Division Acquisition Agreement or any other Division Acquisition Document
as adjustment of purchase price, in respect of indemnification obligations of
the Seller, or for any other reason, shall be deposited to an Agency Account in
accordance with the provisions of this Agreement applicable to all collections
of Receivables or proceeds of other Collateral.
(c) Application of New Subordinated Debt. Proceeds of the issuance of New
Subordinated Debt shall be applied as agreed upon by the Borrowers and the
Required Lenders prior to the issuance thereof, and the provisions governing
such permitted application are expressly agreed to be part of the terms and
conditions of the New Subordinated Debt, PROVIDED that, except as set forth in
Section 12.6(d), such proceeds will not be used to make Restricted
Distributions or Restricted Payments.
(d) Prepayment of Term Loan B. If the Borrowers prepay Term Loan B, in
whole or in part, for any reason, the Revolving Credit Facility and the right
to request borrowings under this Agreement shall immediately terminate, and all
outstanding principal of the Revolving Credit Loan, together with accrued but
unpaid interest thereon and all fees and other amounts payable in respect
thereof shall become immediately due and payable.
(e) Application of Prepayments. Subject to the provisions of SECTION
5.20, all prepayments pursuant to SECTION 5.18(a) shall be applied first to the
outstanding principal of the Term Loan A to the extent thereof and second to
the outstanding Revolving Credit Loans to the extent thereof, with any excess
to be deposited with the Administrative Agent to be held as Cash Collateral for
the Secured Obligations (in addition to any Cash Collateral
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provided for under SECTION 5.20) and applied by the Administrative Agent from
time to time to outstanding Revolving Credit Loans promptly upon the making of
such Revolving Credit Loans or, after the Termination Date, to any of the
Secured Obligations in such manner as the Administrative Agent shall determine
in its sole discretion. All prepayments of the Term Loans shall be applied to
the principal installments payable thereon in inverse order of maturity.
Section 5.19. Prepayment; Early Termination.
(a) If the Borrowers terminate this Agreement for any reason (other than
as a result of the prepayment of the Loans with the proceeds of the issuance of
capital stock or other equity securities or of an additional capital
contribution in respect of existing capital stock or other equity securities)
prior to the fifth Anniversary Date, the Borrowers shall pay to the
Administrative Agent for the ratable benefit of the Lenders on such date of
termination, as liquidated damages for lost profits and benefits of the bargain
and compensation for the costs of making funds available to the Borrowers under
this Agreement, and not as a penalty, an amount equal to the percentage
specified below for the Loan Year in which such termination occurs MULTIPLIED
by, the Total Facility in effect on the Effective Date:
<TABLE>
<S> <C>
Loan Year Percent
--------- -------
1 1.50%
2 1.25%
3 1.00%
4 0.75%
5 0.50%
</TABLE>
(b) If the Borrowers terminate this Agreement directly or indirectly as
the result of the prepayment of the Loans with the proceeds of the issuance of
capital stock or other equity securities or of an additional capital
contribution in respect of existing capital stock or other equity securities
prior to the fifth Anniversary Date, the Borrowers shall pay to the
Administrative Agent for the ratable benefit of the Lenders on the date of
termination, as liquidated damages for lost profits and benefits of the bargain
and compensation for the costs of making funds available to the Borrowers under
this Agreement, and not as a penalty, an amount equal to the percentage
specified below for the Loan Year in which such prepayment is made MULTIPLIED
by, the Total Facility in effect on the Effective Date:
<TABLE>
<S> <C>
Loan Year Percent
--------- -------
1 0.75%
2 0.625%
3 0.50%
4 0.375%
5 0.25%
</TABLE>
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SECTION 5.20. Cash Collateral in Lieu of Repayment. In the event that a
Borrower is required to make a principal repayment of any Eurodollar Rate Loan
pursuant to SECTIONS 2.3(b) or (c) or 5.18 prior to the end of the Interest
Period therefor, then the Borrower may elect as to such Loan, by prior written
notice to the Administrative Agent, in lieu of such repayment, to deliver cash
to the Administrative Agent in the amount of such required repayment, to be held
by the Administrative Agent as Cash Collateral until the end of the Interest
Period for such Loan. The Administrative Agent shall deliver prompt written
notice of such election to each of the Lenders. Said Cash Collateral shall be
invested in such manner as the Administrative Agent shall elect in its sole
discretion, and any earnings on such Cash Collateral may, in Administrative
Agent's sole discretion, be applied in payment of accrued but unpaid interest on
such Loan. At the end of the Interest Period for such Loan, the Administrative
Agent shall apply such Cash Collateral in repayment of the principal amount of
such Loan; PROVIDED, HOWEVER, that upon the acceleration of the Secured
Obligations, the Administrative Agent may apply such Cash Collateral and any
earnings thereon to the repayment of the Secured Obligations in such order or
manner as the Administrative Agent may elect in its sole discretion. Prior to
the application of the Cash Collateral in repayment of such Loan, such Loan
shall be deemed to be outstanding for all purposes of this Agreement.
SECTION 5.21. Borrowers' Representative. Each of BroMar and ProSource
Canada hereby appoints ProSource as, and ProSource shall act under this
Agreement as, the representative of BroMar and ProSource Canada for all
purposes, including, without being limited to, requesting borrowings and
receiving account statements and other notices and communications to the
Borrowers (or any of them) from the Administrative Agent or any Lender. The
Administrative Agent and the Lenders may rely, and shall be fully protected in
relying, on any request for borrowing, disbursement instruction, report,
information or any other notice or communication made or given by ProSource,
whether in its own name, on behalf of any other Borrower or on behalf of "the
Borrowers," and neither the Administrative Agent nor any Lender shall have any
obligation to make any inquiry or request any confirmation from or on behalf of
any other Borrower as to the binding effect on it of any such request,
instruction, report, information, notice or communication, nor shall the joint
and several character of the Borrowers' liability for the Secured Obligations be
affected, PROVIDED that the provisions of this SECTION 5.21 shall not be
construed so as to preclude any Borrower from directly requesting borrowings or
taking other actions permitted to be taken by "a Borrower" hereunder. The
Administrative Agent and each Lender intend to maintain a single Loan Account in
the name of "ProSource Services Corporation" hereunder and each Borrower
expressly agrees to such arrangement and confirms that such arrangement shall
have no effect on the joint and several character of its liability for the
Secured Obligations.
SECTION 5.22. Joint and Several Liability.
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(a) Joint and Several Liability. The Secured Obligations shall constitute
one joint and several direct and general obligation of all of the Borrowers.
Notwithstanding anything to the contrary contained herein, each of the
Borrowers shall be jointly and severally, with each other Borrower, directly
and unconditionally liable to the Administrative Agent and the Lenders for all
Secured Obligations and shall have the obligations of co-maker with respect to
the Revolving Credit Loans, the Revolving Credit Notes, the Term Loans, the
Term Notes and the Secured Obligations, it being agreed that the advances to
each Borrower inure to the benefit of all Borrowers, and that the
Administrative Agent and the Lenders are relying on the joint and several
liability of the Borrowers as co-makers in extending the Loans hereunder. Each
Borrower hereby unconditionally and irrevocably agrees that upon default in the
payment when due (whether at stated maturity, by acceleration or otherwise) of
any principal of, or interest on, any Revolving Credit Loan, Term Loan or other
Secured Obligation payable to the Administrative Agent or any Lender, it will
forthwith pay the same, without notice or demand.
(b) No Reduction in Obligations. No payment or payments made by any of
the Borrowers or any other Person or received or collected by the
Administrative Agent or any Lender from any of the Borrowers or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Secured Obligations shall be deemed to modify, reduce, release or otherwise
affect the liability of each Borrower under this Agreement, which shall remain
liable for the Secured Obligations until the Secured Obligations are paid in
full and the Revolving Credit Facility is terminated.
SECTION 5.23. Obligations Absolute. Each Borrower agrees that the Secured
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any Lender with respect thereto. All Secured
Obligations shall be conclusively presumed to have been created in reliance
hereon. The liabilities under this Agreement shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of any Loan Documents or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payments of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver thereof or any consent to departure therefrom, including,
but not limited to, any increase in the Secured Obligations resulting from the
extension of additional credit to any Borrower or otherwise;
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(c) any taking, exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any guaranty
for all or any of the Secured Obligations;
(d) any change, restructuring or termination of the corporate structure or
existence of any Borrower; or
(e) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, any Borrower or a guarantor.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Secured Obligations is rescinded or
must otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as
though such payment had not been made.
SECTION 5.24. Waiver of Suretyship Defenses. Each Borrower agrees that the
joint and several liability of the Borrowers provided for in SECTION 5.22 shall
not be impaired or affected by any modification, supplement, extension or
amendment or any contract or agreement to which the other Borrowers may
hereafter agree (other than an agreement signed by the Administrative Agent and
the Lenders specifically releasing such liability), nor by any delay, extension
of time, renewal, compromise or other indulgence granted by the Administrative
Agent or any Lender with respect to any of the Secured Obligations, nor by any
other agreements or arrangements whatever with the other Borrowers or with
anyone else, each Borrower hereby waiving all notice of such delay, extension,
release, substitution, renewal, compromise or other indulgence, and hereby
consenting to be bound thereby as fully and effectually as if it had expressly
agreed thereto in advance. The liability of each Borrower is direct and
unconditional as to all of the Secured Obligations, and may be enforced without
requiring the Administrative Agent or any Lender first to resort to any other
right, remedy or security. Each Borrower hereby expressly waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Secured Obligations, the Revolving Credit Notes, the Term Notes, this Agreement
or any other Loan Document and any requirement that the Administrative Agent or
any Lender protect, secure, perfect or insure any Lien or any property subject
thereto or exhaust any right or take any action against any Borrower or any
other Person or any collateral, including any rights any Borrower may otherwise
have under O.C.G.A. Section 10-7-24.
SECTION 5.25. Judgment Currency. The obligation of the Borrowers in
respect of any sum due to the Administrative Agent or the Lenders hereunder
shall, notwithstanding any judgment in a currency (the "judgment currency")
other than Dollars, be discharged only to the extent that on the Business Day
next following receipt by the Administrative Agent for the account of the
Lenders of any sum adjudged to be so due in the judgment currency, the Agent may
in accordance with normal banking procedures purchase
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Dollars with the judgment currency at the spot rate of NationsBank on such
Business Day. If the amount in Dollars so purchased is less than the sum
originally due to the Administrative Agent and the Lenders, the Borrowers
agree, as a separate Secured Obligation and notwithstanding any such judgment,
that, if such a judgment is rendered against the Borrowers (or any of them),
they will, jointly and severally, indemnify the Administrative Agent and the
Lenders against such loss (and if the amount in Dollars so purchased exceeds
the sum originally due from the Borrowers to the Administrative Agent and
Lenders, the Administrative Agent agrees to remit to the Borrowers such
excess).
SECTION 5.26. Payments Free of Tax. All payments by the Borrowers
hereunder shall be made free of any tax, levy or withholding attributable to the
status or domicile of the Borrowers (or any of them) and should any such tax,
levy or withholding be applicable to any such payment by the Borrowers to the
Administrative Agent for the account of the Lenders hereunder, such payment
shall be increased by the amount necessary to assure that the Administrative
Agent receives, for the account of the Lenders, net of any such tax, levy or
withholding (and net of the income tax effect (at the highest corporate marginal
rate then in effect under the United States Internal Revenue Code of 1986, as
amended, or any successor statute) of the receipt of such increase), the amount
required to be paid to the Lenders hereunder.
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ARTICLE 6
CONDITIONS PRECEDENT
SECTION 6.
1. Conditions Precedent to Initial Loans. Notwithstanding any other provision
of this Agreement, the respective obligations of the Lenders to make the Term
Loans and the initial Revolving Credit Loan are subject to the satisfaction of
the following conditions:
(a) No 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 substantial damages in respect of, or which is related to or
arises out of, this Agreement, the Division Acquisition Agreements, or the
consummation of the transactions contemplated hereby, or which, in the Lenders'
reasonable discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement;
(b) Material Adverse Change. As of the Effective Date, there shall not
have occurred any change which is materially adverse, in the Lenders' sole
discretion, to the assets, liabilities, businesses, operations, condition
(financial or otherwise) or prospects of ProSource, BroMar or the Division from
those presented by the financial statements of ProSource, PDS and the Division
described in SECTIONS 7.1(o)(i) AND (ii);
(c) Notice. The Administrative Agent shall have received a Notice of
Borrowing;
(d) Fees. All fees payable to the Administrative Agent or the Lenders on
or prior to the Effective Date shall have been paid (or provision for payment
on such Date satisfactory to the Administrative Agent shall have been made);
(e) Documents. The Administrative Agent shall have received on or before
the Effective Day the following, each dated such day (unless otherwise
specified), in form and substance satisfactory to the Administrative Agent, its
special counsel and the Lenders and (except for the Notes) in sufficient copies
for each Lender:
1. Notes. Each Revolving Credit Note, each Term Note A and each Term Note
B, duly executed and delivered by the Borrowers.
2. Articles and Bylaws. Certified copies of the articles or certificate
of incorporation and bylaws of each Borrower and the Parent as in effect on the
Effective Date.
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3. Resolutions. Certified copies of all corporate action, including
shareholder approval, if necessary, taken by each Borrower and the Parent to
authorize the execution, delivery and performance of the Loan Documents to
which each is a party and in the case of each Borrower, the borrowings under
this Agreement and the execution, delivery and performance of the Division
Acquisition Documents and the Merger Documents.
4. Incumbency Certificates. Certificates of incumbency and specimen
signatures with respect to each of the officers of each Borrower and the Parent
authorized to execute and deliver any Loan Documents on behalf of a Borrower or
the Parent and any other document, certificate or instrument to be delivered in
connection with the Loan Documents and, in the case of the Borrowers, to
request borrowings under this Agreement.
5. Good Standing Certificates. A certificate (as of a recent date)
evidencing the good standing of each of each Borrower and the Parent in the
jurisdiction of its incorporation and in each other jurisdiction in which it is
required to be qualified to do business as a foreign corporation in order to
transact its business as presently conducted or as it is intended to be
conducted after giving effect to the Division Acquisition and the Merger.
6. Financing Statements. The Financing Statements duly executed and
delivered by each Borrower, and, as to ProSource, acknowledgement copies
evidencing the filing of certain of such Financing Statements in each
jurisdiction where such filing may be necessary or appropriate to perfect the
Security Interest and reports on Form UCC-11 or other acceptable reports of the
results of searches of the UCC records in each such jurisdiction, reflecting
the filing of such Financing Statements.
7. Mortgages. Copies of the Mortgages duly executed and delivered by
ProSource and evidencing the recording of each such instrument in the
appropriate jurisdiction for the recording thereof on the Real Estate subject
thereto or, at the option of the Administrative Agent, in proper form for
recording in such jurisdiction.
8. Title Insurance. One or more fully paid mortgagee title insurance
policies or, at the option of the Administrative Agent, unconditional
commitments for the issuance thereof with all requirements and conditions to
the issuance of the final policy deleted or marked satisfied, issued by a title
insurance company satisfactory to the Administrative Agent, each in an amount
equal to not less than the fair market value of the Real Estate subject to the
Mortgage insured thereby, insuring that such Mortgage creates a valid first
lien on, and security title to, all Real Estate
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described therein, with no survey exceptions and no other exceptions which the
Administrative Agent shall not have approved in writing.
9. Real Estate Surveys. Such materials and information concerning the
Real Estate as the Administrative Agent may require, dated such dates as may be
acceptable to the Administrative Agent, including, without limitation, (A)
current and accurate surveys satisfactory to the Administrative Agent of all of
the owned Real Estate, certified to the Administrative Agent and showing the
location of the 100-year and 50-year flood plains thereon, (B) zoning letters
as to the zoning status of all of the owned Real Estate, (C) certificates of
occupancy covering all of the Real Estate, and (D) owner's affidavits as to
such matters relating to the owned Real Estate as the Administrative Agent may
request.
10. Phase I Environmental Reports. A report (as of a recent date) from a
qualified engineering firm or other qualified consultant acceptable to the
Administrative Agent with respect to an investigation and audit of any
existing, potential or suspect conditions that could constitute a liability on,
affect the value of or restrict the use of all Real Estate included in the
Division Assets. The Report shall be based on a review of available
information concerning past and present uses, occupants, ownership and tenancy
of the property and/or adjacent properties and shall include, at least, the
following:
(A) a non-intrusive evaluation of surface water and subsurface geological
conditions;
(B) a review of regulatory agency databases of known or suspected
hazardous material contamination of the property or other properties in the
area;
(C) a review of aerial photographs;
(D) a visual site inspection noting, at a minimum, fills, storage tanks or
areas, ground discoloration or soil odors.
11. Landlord's Consent. Landlord's or mortgagee's waiver and consent
agreements (or confirmations of such agreements delivered in connection with
the Existing Loan Agreement) duly executed on behalf of each landlord or
mortgagee, as the case may be, of the Real Estate and any other real property
on which any Collateral is located.
12. Division Acquisition Agreement Assignment. The Division Acquisition
Agreement Assignment, duly executed by ProSource and acknowledged by the
Sellers.
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13. Agency Account Agreements. Agency Account Agreements, each duly
executed by a Borrower and the Clearing Bank party thereto.
14. Parent Guaranty. The Parent Guaranty, duly executed and delivered by
the Parent.
15. Pledge Agreement. The Pledge Agreement, duly executed and delivered
by the Parent, together with stock transfer powers, duly executed by the Parent
in blank, and stock certificates representing 100% of the issued and
outstanding capital stock of ProSource.
16. ProSource Pledge Agreement. The ProSource Pledge Agreement, duly
executed and delivered by ProSource, together with stock transfer powers, duly
executed by ProSource in blank, and stock certificates representing 100% of the
issued and outstanding capital stock of each of BroMar and ProSource Canada.
17. BKC Agreements. Certified copies of the BKC Agreements as in effect
on the Effective Date.
18. Valley Agreements, Malone Agreements. Certified copies of the Valley
Agreements and the Malone Agreements as in effect on the Effective Date,
together with such assignments, confirmations, acknowledgements or other
assurances as may be specified by the Administrative Agent as to the continuing
effectiveness of such Agreements after the Effective Date and the consummation
of the transactions contemplated hereby to occur on such Date.
19. NationsBank Assignment. One or more letters from NationsBank, as
"Agent" under the Existing Loan Agreement and as "Lender" under the Existing
PDS Loan Agreement, addressed to the Administrative Agent, ProSource and PDS,
setting forth the amounts required to pay all obligations of ProSource and PDS,
respectively, under such agreements on the Effective Date, and assigning to the
Administrative Agent all of NationsBank's liens, in such capacities, on assets
and properties of ProSource and PDS.
20. Support Agreements. Support Agreements duly executed and delivered by
David R. Parker, Paul A. Garcia de Quevedo, Thomas C. Highland and Daniel
Adzia.
21. Pro Formas. A fair saleable value balance sheet prepared and
certified to by its Financial Officer in form and substance satisfactory to
Administrative Agent setting forth valuations of the Borrowers' assets, the
Projections and the Pro Forma, together with a certificate executed by
ProSource's Financial Officer, in form
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and substance satisfactory to Administrative Agent, certifying to the effect of
the provisions of SECTION 7.1(t), as of the Effective Date, after giving effect
to the transactions contemplated to occur on or before the Effective Date by
the terms of the Division Acquisition Documents, the Merger Documents and the
Loan Documents, together with attachments demonstrating the basis of such
conclusions.
22. Legal Opinion. A signed opinion of Kaye, Scholer, Fierman, Hays &
Handler, LLP, counsel for the Borrowers and the Parent, substantially in the
form of EXHIBIT D, and of such local counsel for the Borrowers as may be
required by the Administrative Agent, opining as to such matters in connection
with the transactions contemplated by this Agreement as the Administrative Agent
or its special counsel may reasonably request.
23. Insurance Certificate. Certificates or binders of insurance relating
to each of the policies of insurance covering any of the Collateral together
with loss payable clauses which comply with the terms of SECTION 9.8.
24. Officer's Certificate. A certificate of the President or a Financial
Officer of ProSource stating that, to the best of his knowledge and based on an
examination sufficient to enable him to make an informed statement,
(A) all of the representations and warranties made or deemed to be
made under this Agreement are true and correct as of the Effective Date,
after giving effect to the Revolving Credit Loan and the Term Loans to be
made at such time and the application of the proceeds thereof, and
(B) no Default or Event of Default exists.
25. Borrowing Base Certificate. A Weekly Borrowing Base Certificate, a
Schedule of Inventory and a Schedule of Receivables, prepared as of March 29,
1995, and a Weekly Borrowing Base Certificate prepared as of the Effective Date
on a pro forma basis.
26. Disbursement Letter. A letter, conforming to the requirements of
SECTION 10.8, from the Borrowers to the Administrative Agent requesting the
Term Loans and the initial Revolving Credit Loan and specifying the method of
disbursement of proceeds thereof.
27. Appraisals. One or more reports of appraisals of all owned Real
Estate and Equipment, prepared by appraisers satisfactory to the Administrative
Agent, establishing values at levels satisfactory to the Administrative Agent
to support the Loans on a fair market value in-place/not in use basis.
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28. Other Loan Documents. Copies of each of the other Loan Documents duly
executed by the parties thereto with evidence satisfactory to the
Administrative Agent and its special counsel of the due authorization, binding
effect and enforceability of each such Loan Document on each such party and
such other documents and instruments as the Administrative Agent or the Lender
through the Administrative Agent may reasonably request.
(f) Parent Subordinated Debt. On the Effective Date, the Administrative
Agent shall have received satisfactory evidence that ProSource has issued and
sold to Onex Ohio Holdings, Inc., a Parent Subordinated Note and received net
cash proceeds of $15,000,000 in respect thereof, and copies, certified as true
and correct, of both Parent Subordinated Notes and each other document
delivered in connection therewith;
(g) Additional Equity. On the Effective Date, the Administrative Agent
shall have received satisfactory evidence that ProSource has received a capital
contribution in exchange for or in respect of its common equity in an amount
not less than $30,000,000, in cash or Cash Equivalents, resulting in a
Consolidated Net Worth (after giving effect to the dividend of the Parent's
promissory note in the principal amount of $7,000,000) of not less than
$48,000,000;
(h) Division Acquisition. On the Effective Date (i) the Administrative
Agent shall have received true and complete executed or conformed copies of the
Division Acquisition Documents and any amendments thereto, including, without
being limited to a copy of the Seller Note as executed and delivered by the
Parent; (ii) the Division Acquisition Documents shall be in full force and
effect and no material term or condition thereof shall have been amended,
modified or waived after the execution thereof (other than solely to extend the
date by which the Division Acquisition is required to occur) except with the
prior written consent of the Administrative Agent; (iii) none of the parties to
any of the Division Acquisition Documents shall have failed to perform any
material obligation or covenant required by such Division Acquisition Document
to be performed or complied with by it on or before the Effective Date; (iv)
all representations and warranties of ProSource and the Sellers contained in
the Division Acquisition Agreement and the other Division Acquisition Documents
shall be true and correct in all material respects with the same effect as
though made on and as of the Effective Date; (v) all requisite approvals by
governmental authorities and regulatory bodies having jurisdiction over the
parties to the Division Acquisition Agreement in respect of the Division
Acquisition shall have been obtained by such parties as the case may be, and no
such approvals shall impose any conditions to the consummation of the Division
Acquisition; (vi) the Division Acquisition shall have been consummated in
accordance with the terms and provisions of the Division Acquisition Agreement
and the other Division Acquisition Documents, without any amendment or waiver
of any material provision thereof; and (vii) the Administrative Agent shall
have received a certificate of ProSource's chief executive officer or other
evidence satisfactory to it that each of the foregoing conditions
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has been satisfied. In addition, all opinion letters delivered in connection
with the Division Acquisition Documents and the transactions contemplated
thereby shall be addressed to the Administrative Agent, for the benefit of the
Lenders, or accompanied by a written authorization from the firm delivering
such opinion letter stating that the Administrative Agent and the Lenders may
rely on such opinion letter as though it were addressed to them;
(i) Merger. On the Effective Date, the Merger shall have been consummated
in accordance with the Merger Documents without any material amendment or
waiver of any term thereof and the Administrative Agent shall have received
certified copies of the Merger Documents as in effect on the Effective Date, in
substantially the forms of such documents delivered to the Administrative Agent
prior to the Agreement Date;
(j) Security Interests. On the Effective Date, the Administrative Agent
shall have received such additional evidence as it may request, that the
Administrative Agent (for the benefit of Lenders) has, as of the Effective
Date, a valid and perfected first priority security interest in or lien on all
of the Collateral, subject only to Permitted Liens; and
(k) Availability. On the Effective Date, the Administrative Agent shall
have received evidence satisfactory to the Administrative Agent, confirmed by a
certificate of a Financial Officer of ProSource, that as of the Effective Date,
Availability, after giving effect to the estimated fees and expenses in
connection with the consummation of the transactions contemplated by this
Agreement to be paid on the Effective Date and the reasonably expected amount
of the Letter of Credit Reserve in effect 60 days after the Effective Date, but
without giving effect to the reserve provided for in CLAUSE (b)(iii)(A) of the
definition "BORROWING BASE," is not less than $45,000,000.
SECTION 6.2. All Loans; Letters of Credit. At the time of making of each
Loan and the issuance of each Letter of Credit:
(a) all of the representations and warranties made or deemed to be made
under this Agreement shall be true and correct in all material respects at such
time both with and without giving effect to the Loan to be made at such time
and the application of the proceeds thereof,
(b) the corporate actions of the Borrowers referred to in SECTION
6.1(e)(3) above shall remain in full force and effect and the incumbency of
officers shall be as stated in the certificates of incumbency delivered
pursuant to SECTION 6.1(e)(4) or as subsequently modified and reflected in a
certificate of incumbency delivered to the Administrative Agent, and
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(c) each request or deemed request for any borrowing hereunder shall be
deemed to be a certification by the Borrowers to the Administrative Agent and
the Lenders as to the matters set forth in SECTIONS 6.2(a) and (b) and the
Administrative Agent may, without waiving either condition, consider the
conditions specified in SECTIONS 6.2(a) and (b) fulfilled and a representation
by the Borrowers to such effect made, if no written notice to the contrary is
received by the Administrative Agent prior to the making of the Loan then to be
made.
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 7.
1. Representations and Warranties. Each Borrower represents and warrants to the
Administrative Agent, the Co-Agents and the Lenders as follows:
(a) Organization; Power; Qualification. Each Borrower and each of its
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, having the power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted and is duly qualified and authorized to
do business in all jurisdictions other than those in which failure so to
qualify or be authorized could not, singly or in the aggregate, have a
Materially Adverse Effect on the Borrower or any of its material Subsidiaries.
Each jurisdiction in which a Borrower or any Subsidiary is qualified to do
business as a foreign corporation is listed on SCHEDULE 7.1(a).
(b) Capitalization. The outstanding capital stock of each Borrower has
been duly and validly issued and is fully paid and nonassessable, and the
number and owners of such shares of capital stock of the Borrowers are set
forth on SCHEDULE 7.1(b). The issuance and sale of each Borrower's capital
stock have been registered or qualified under applicable federal and state
securities laws or are exempt therefrom.
(c) Subordinated Notes. ProSource has the corporate power and authority
to incur the Parent Subordinated Debt and to issue the Parent Subordinated
Notes. The issuance and sale of the Parent Subordinated Notes have been
registered or qualified under applicable federal and state securities laws or
are exempt therefrom. Each Parent Subordinated Note constitutes the legally
valid and binding obligation of ProSource enforceable against ProSource in
accordance with its terms (including those pertaining to subordination).
ProSource has delivered to the Administrative Agent a complete and correct copy
of all documents evidencing or relating to the Parent Subordinated Debt and
each of the representations and warranties made by ProSource therein is true
and correct in all material respects. The subordination provisions of the
Parent Subordinated Notes will be enforceable against the holder thereof by the
holder of any Note which has not effectively waived the benefits thereof. All
of the Secured Obligations constitute senior Debt entitled to the benefits of
subordination created by each Parent Subordinated Note.
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(d) Subsidiaries. SCHEDULE 7.1(d) correctly sets forth the name of each
Subsidiary, its jurisdiction of incorporation, the name of its immediate parent
or parents, and the percentage of its issued and outstanding securities owned
by a Borrower or any other Subsidiary of a Borrower and indicating whether such
Subsidiary is a Consolidated Subsidiary. Except as set forth on SCHEDULE
7.1(d),
(i) no Subsidiary of ProSource has issued any securities convertible
into shares of such Subsidiary's capital stock or any options, warrants or
other rights to acquire any shares or securities convertible into such
shares,
(ii) the outstanding stock and securities of each Subsidiary are owned
by ProSource or a Wholly Owned Subsidiary of ProSource, or by ProSource and
one or more of its Wholly Owned Subsidiaries, free and clear of all Liens,
warrants, options and rights of others of any kind whatsoever, and
(iii) ProSource has no Subsidiaries.
The outstanding capital stock of each Subsidiary has been duly and validly
issued and is fully paid and nonassessable by the issuer and the number and
owners of such shares of such capital stock are set forth on SCHEDULE 7.1(d).
(e) Authorization of Agreement, Notes, Loan Documents and Borrowing. Each
Borrower has the right and power, and has taken all necessary action to
authorize it, to execute, deliver and perform this Agreement and each of the
Loan Documents to which it is a party in accordance with their respective
terms. This Agreement and each of the Loan Documents has been duly executed
and delivered by the duly authorized officers of the Borrowers party thereto
and each is, or each when executed and delivered in accordance with this
Agreement will be, a legal, valid and binding obligation of such Borrower,
enforceable in accordance with its terms.
(f) Compliance of Agreement, Notes, Loan Documents and Borrowing with
Laws, Etc. Except as set forth on SCHEDULE 7.1(f), the execution, delivery and
performance of this Agreement and each of the Loan Documents in accordance with
its terms and the borrowings hereunder do not and will not, by the passage of
time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any Applicable Law
relating to a Borrower or any of its Subsidiaries, the violation of which
may reasonably be expected to have a Materially Adverse Effect on the
Borrowers or any material Subsidiaries,
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(ii) conflict with, result in a breach of or constitute a default
under the articles or certificate of incorporation or by-laws of a Borrower
or any of its Subsidiaries,
(iii) conflict with, result in a breach of or constitute a default
under any provisions of any indenture, agreement or other instrument to
which a Borrower or any of its Subsidiaries is a party or by which a
Borrower, any of its Subsidiaries or any of a Borrower's or such
Subsidiaries' property may be bound (including, without being limited to,
the Division Acquisition Documents or any such indenture, agreement or
other instrument governing or evidencing any Subordinated Debt) or any
Governmental Approvals relating to a Borrower or any of its Subsidiaries,
if the effect thereof, singly or in the aggregate, may reasonably be
expected to have a Materially Adverse Effect on the Borrowers or any
material Subsidiaries, or
(iv) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by a
Borrower, other than the Security Interest.
(g) Business. ProSource and ProSource Canada are engaged principally in
the business of purchasing, warehousing, distributing, transporting and selling
food, paper, dairy, produce, uniforms, soft drink syrups and other products
used in casual dining or quick-service restaurants and providing related
logistics services. BroMar is engaged exclusively in the business of
purchasing certain of such products under contracts with select vendors and
simultaneously reselling such products exclusively to ProSource.
(h) Compliance with Law; Governmental Approvals.
(i) Except as set forth in SCHEDULE 7.1(h), each Borrower and each of
its Subsidiaries
(A) has all Governmental Approvals, including permits relating to
federal, state and local Environmental Laws, ordinances and
regulations, required by any Applicable Law for it to conduct its
business, each of which is in full force and effect, is final and not
subject to review on appeal and is not the subject of any pending or,
to the knowledge of any Borrower, threatened attack by direct or
collateral proceeding, and
(B) is in compliance with each Governmental Approval applicable
to it and in compliance with all other Applicable Laws relating to it,
including, without being limited to, all Environmental Laws and all
occupational health and safety laws applicable to such Borrower, any
of its Subsidiaries or their respective properties,
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except for such Governmental Approvals, the failure to obtain which,
or instances of noncompliance which, could not reasonably be expected,
singly or in the aggregate, to cause a Default or Event of Default or
have a Materially Adverse Effect on a Borrower or any material
Subsidiaries and in respect of which reserves reflecting such
Borrower's or such Subsidiary's reasonably anticipated liability have
been established on the books of such Borrower or such Subsidiary, as
applicable.
(ii) Without limiting the generality of the above, except as set forth
on SCHEDULE 7.1(h) and except with respect to matters which could not
reasonably be expected to have, singly or in the aggregate, a Materially
Adverse Effect on ProSource and its Subsidiaries taken as a whole:
(A) the operations of each Borrower and each of its Subsidiaries
comply in all material respects with all applicable environmental,
health and safety requirements of Applicable Law;
(B) each Borrower and each of its Subsidiaries has obtained all
environmental, health and safety permits necessary for its operation,
and all such permits are in good standing and each Borrower and each
of its Subsidiaries is in compliance in all material respects with all
terms and conditions of such permits;
(C) neither any Borrower nor any of its Subsidiaries nor any of
their respective present or past property or operations are subject to
any order from or agreement with any public authority or private party
respecting (x) any environmental, health or safety requirements of
Applicable Law, (y) any Remedial Action, or (z) any liabilities or
costs arising from the Release or threatened Release of a Contaminant
into the environment;
(D) none of the operations of any Borrower or of any of its
Subsidiaries is subject to any judicial or administrative proceeding
alleging a violation of any environmental, health or safety
requirement of Applicable Law;
(E) none of the present or past operations of any Borrower or any
of its Subsidiaries is the subject of any investigation by any public
authority evaluating whether any Remedial Action is needed to respond
to a Release or threatened Release of a Contaminant into the
environment;
(F) neither any Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Applicable Law indicating past or
present treatment, storage or disposal of a hazardous waste, as that
term is defined under 40 CFR Part 261 or any state equivalent;
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(G) neither any Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Applicable Law reporting a Release
of a Contaminant into the environment;
(H) except in compliance in all material respects with applicable
Environmental Laws, during the course of ProSource's or any
Subsidiary's ownership of or operations on the Real Estate, there has
been no (1) generation, treatment, recycling, storage or disposal of
hazardous waste, as that term is defined under 40 CFR Part 261 or any
state equivalent, (2) use of underground storage tanks or surface
impoundments, (3) use of asbestos-containing materials, or (4) use of
polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical
transformers or other equipment;
(I) neither any Borrower nor any of its Subsidiaries has entered
into any negotiations or agreements with any Person (including,
without limitation, any prior owner of any of the Real Estate or other
property of ProSource or any of its Subsidiaries) relating to any
Remedial Action or environmental activity-related claim;
(J) neither any Borrower nor any of its Subsidiaries has received
any notice or claim to the effect that it is or may be liable to any
Person as a result of the Release or threatened Release of a
Contaminant into the environment;
(K) neither any Borrower nor any of its Subsidiaries has any
material contingent liability in connection with any Release or
threatened Release of any Contaminant into the environment;
(L) no Environmental Lien has attached to any of the Real Estate
or other property of any Borrower or of any of its Subsidiaries;
(M) the presence and condition of all asbestos-containing
material which is on or part of the Real Estate (excluding any raw
materials used in the manufacture of products or products themselves)
do not violate in any material respect any currently applicable
requirement of Applicable Law; and
(N) neither any Borrower nor any of its Subsidiaries
manufactures, distributes or sells, and has never manufactured,
distributed or sold, products which contain asbestos-containing
material.
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(iii) Each Borrower has notified the Administrative Agent and each
Lender of the receipt by it or by any of its Subsidiaries of any notice of
a material violation of any Environmental Laws and occupational health and
safety laws applicable to such Borrower, any of its Subsidiaries or any of
their respective properties.
(i) Title to Properties. Except as set forth in SCHEDULE 7.1(i), each
Borrower and each of its Subsidiaries has valid and legal title to or leasehold
interest in all material personal property, Real Estate and other assets used
in its business, it being acknowledged that BroMar neither owns nor leases any
material tangible personal property, other than computer and office Equipment
used in its business other than Inventory.
(j) Liens. Except as set forth in SCHEDULE 7.1(j), none of the properties
and assets of any Borrower or any Subsidiary is subject to any Lien, except
Permitted Liens. Other than the Financing Statements, no financing statement
under the Uniform Commercial Code of any State or other instrument evidencing a
Lien which names a Borrower or any Subsidiary as debtor has been filed (and has
not been terminated) in any State or other jurisdiction, and neither any
Borrower nor any Subsidiary has signed any such financing statement or other
instrument or any security agreement authorizing any secured party thereunder
to file any such financing statement or instrument, except to perfect those
Liens listed on SCHEDULE 7.1(j). To the best of each Borrower's knowledge, no
financing statement under the Uniform Commercial Code of any State or other
instrument evidencing a Lien which names the Sellers (or either of them) as
debtor and covers any of the Division Assets has been filed (and has not been
terminated) in any State or other jurisdiction.
(k) Debt and Guaranties. SCHEDULE 7.1(k) is a complete and correct
listing of all (i) Debt, and (ii) Guaranties of each Borrower and each
Subsidiary.
(l) Litigation. Except as set forth on SCHEDULE 7.1(l), there are no
actions, suits or proceedings pending (nor, to the knowledge of a Borrower, are
there any actions, suits or proceedings threatened, or any reasonable basis
therefor) against or in any other way relating to or affecting any Borrower or
Subsidiary or any of the Division Assets or any Borrower's or any Subsidiary's
other properties in any court or before any arbitrator of any kind or before or
by any governmental body, except actions, suits or proceedings of the character
normally incident to the kind of business conducted by such Borrower or
Subsidiary which, if adversely determined, could not singly or in the aggregate
reasonably be expected to have a Materially Adverse Effect on ProSource and its
Subsidiaries taken as a whole, and there are no strikes or walkouts in progress
or pending relating to any labor contracts to which a Borrower or any
Subsidiary is a party, relating to any labor contracts being negotiated, or
otherwise, which could singly or in the aggregate reasonably be expected to
have a Materially Adverse Effect on ProSource and its Subsidiaries taken as a
whole.
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(m) Tax Returns and Payments. Except as set forth on SCHEDULE 7.1(m), all
United States federal, state and local as well as foreign national, provincial
and local and other tax returns of each Borrower and each of its Subsidiaries
required by Applicable Law to be filed have been duly filed, and all United
States federal, state and local and foreign national, provincial and local and
other taxes, assessments and other governmental charges or levies upon the
Borrowers and each Subsidiary and the Borrowers' and any Subsidiaries'
property, income, profits and assets which are due and payable have been paid,
except any such nonpayment which is at the time permitted under SECTION 10.6.
The charges, accruals and reserves on the books of the Borrowers and each
Subsidiary in respect of United States federal, state and local and foreign
national, provincial and local taxes for all fiscal years and portions thereof
since the organization of ProSource are in the judgment of ProSource adequate,
and no Borrower knows of any reason to anticipate any additional assessments
for any of such years which, singly or in the aggregate, may reasonably be
expected to have a Materially Adverse Effect the Borrowers.
(n) Burdensome Provisions. Neither any Borrower nor any Subsidiary is a
party to any indenture, agreement, lease or other instrument, or subject to any
charter or corporate restriction, Governmental Approval or Applicable Law
compliance with the terms of which may reasonably to be expected to have a
Materially Adverse Effect on ProSource and its material Subsidiaries taken as a
whole.
(o) Financial Statements.
(i) ProSource has furnished to the Administrative Agent and the
Lenders (A) copies of its audited balance sheet as at December 31, 1994,
and the related statements of income, shareholders' equity and cash flows
for the Fiscal Year then ended and (B) copies of the audited balance sheet
of PDS as at December 31, 1994 and the related statements of income,
shareholders' equity and cash flows for the fiscal year then ended, in each
case reported on without qualification by KPMG Peat Marwick LLP. Such
financial statements are complete and correct and present fairly and in all
material respects in accordance with GAAP, the financial position of
ProSource and PDS, respectively, as at the dates thereof and the results of
operations of ProSource and PDS, respectively, for the periods then ended.
(ii) ProSource has furnished to the Administrative Agent and the
Lenders (A) copies of the Division's audited balance sheets as at July 1,
1994 and July 2, 1993, and the related audited statements of income for the
fiscal years then ended, reported on without qualification by Price
Waterhouse LLP, which financial statements present fairly and in all
material respects in accordance with divisional accounting practices of the
Sellers consistently applied the financial position of the Division as at
their respective dates and the results of operations of the Division for
the fiscal years then ended, and (B) copies of the Division's unaudited
balance sheet as at
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December 30, 1994 and the related statement of income for the six-month
period then ended, which financial statements present fairly and in all
material respects in accordance with divisional accounting practices of the
Sellers consistently applied the financial position of the Division as at
December 30, 1994 and the results of operations of the Division for the
six-month period then ended.
(iii) ProSource has furnished to the Administrative Agent and the
Lenders copies of the Pro Forma. The Pro Forma is complete and correct and
presents fairly, on a pro forma basis, the financial position of the
Borrowers as at the Effective Date, giving effect to the Merger and the
Division Acquisition.
(iv) ProSource has furnished to the Administrative Agent and the
Lenders copies of the Projections. The Projections were prepared by
ProSource in light of the past operations of the business of the Division
(including BroMar), PDS and ProSource and its Subsidiaries and represents,
as of the Effective Date, the good faith, best estimates of ProSource and
its senior management concerning the future course of business of ProSource
and its Subsidiaries.
(v) Except as disclosed or reflected in the financial statements
described in CLAUSE (i), (ii) OR (iii) above and except for liabilities
that are not required under GAAP to be so disclosed or reflected, the
Borrowers do not have as of the Effective Date (and after giving effect to
the Merger and the Division Acquisition), any material liabilities,
contingent or otherwise, and there were no material unrealized or
anticipated losses of the Borrowers.
(p) Adverse Change. Since the dates of (i) the financial statements of
ProSource and PDS delivered pursuant to SECTION 7.1(o)(i), (ii) the financial
statements of the Division and BroMar delivered pursuant to SECTION 7.1(o)(ii)
and (iii) the Pro Forma delivered pursuant to SECTION 7.1(o)(iii), after giving
effect to the Merger and Division Acquisition, no event has occurred or failed
to occur which has had, or may reasonably be expected to have, singly or in the
aggregate, a Materially Adverse Effect on the Borrowers or the Division.
(q) ERISA.
(i) Neither any Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on SCHEDULE 7.1(q).
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(ii) No Benefit Plan has been terminated or partially terminated and
no Multiemployer Plan is insolvent or in reorganization, nor have any
proceedings been instituted to terminate any Benefit Plan or to reorganize
any Multiemployer Plan.
(iii) Neither any Borrower nor any Related Company has incurred any
withdrawal liability, including contingent withdrawal liability, to any
Multiemployer Plan pursuant to Title IV of ERISA.
(iv) Neither any Borrower nor any Related Company has incurred any
liability to the PBGC other than for required insurance premiums which have
been paid when due.
(v) No Reportable Event has occurred with respect to a Benefit Plan.
(vi) No Benefit Plan has an "accumulated funding deficiency" (whether
or not waived) as defined in Section 302(a)(2) of ERISA or in Section 412
of the Internal Revenue Code.
(vii) Each Plan is in substantial compliance with ERISA, and neither
any Borrower nor any Related Company has received any communication from a
government agency asserting that a Plan is not in compliance with ERISA.
(viii) Each Plan which is intended to be a qualified Plan has been
determined by the Internal Revenue Service to be qualified under Section
401(a) of the Internal Revenue Code as currently in effect or will be
submitted to the IRS for such determination prior to the end of the
remedial amendment period under Section 401(b) of the Internal Revenue Code
and the regulations promulgated thereunder and neither any Borrower nor any
Related Company knows or has reason to know why each such Plan should not
continue to be so qualified, and each trust related to such Plan which has
been submitted to the Internal Revenue Service for determination of exempt
status has been determined to be exempt from federal income tax under
Section 501(a) of the Internal Revenue Code or will be submitted to the
Internal Revenue Service for a determination of exempt status.
(ix) Except as provided on SCHEDULE 7.1(q), neither any Borrower nor
any Related Company maintains or contributes to any employer welfare
benefit plan within the meaning of Section 3(l) of ERISA which provides
benefits to employees after termination of employment other than as
required by Section 601 of ERISA.
(x) Schedule B to the most recent annual report filed with the
Internal Revenue Service with respect to each Benefit Plan and furnished to
the Administrative Agent is complete and accurate. Since the date of each
such Schedule
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B, there has been no adverse change in funding status or financial
condition of the Benefit Plan relating to such Schedule B.
(xi) Neither any Borrower nor any Related Company has failed to make a
required installment under Subsection (m) of Section 412 of the Internal
Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment or
other payment.
(xii) Neither any Borrower nor any Related Company is required to
provide security to a Benefit Plan under Section 401(a)(29) of the Internal
Revenue Code due to a Benefit Plan amendment that results in an increase in
current liability for the plan year.
(xiii) Neither any Borrower, nor any Related Company, nor any other
"party-in-interest" or "disqualified person" has engaged in a nonexempt
"prohibited transaction," as such terms are defined in Section 4975 of the
Internal Revenue Code and Section 406 of ERISA, in connection with any Plan
or has taken or failed to take any action which would constitute or result
in a Termination Event.
(xiv) Neither any Borrower nor any Related Company has failed to
comply with the health care continuation coverage requirements of Section
4980B of the Internal Revenue Code in respect of employees and former
employees of such Borrower or such Related Company and their dependents and
beneficiaries which alone or in the aggregate would subject such Borrower
or such Related Company to any material liability.
(xv) Neither any Borrower nor any Related Company has (A) failed to
make a required contribution or payment to a Multiemployer Plan or (B) made
a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from
a Multiemployer Plan nor has a condition occurred which if continued would
result in such a withdrawal. Except as provided on SCHEDULE 7.1(q), to the
best knowledge of each Borrower after due inquiry, neither any Borrower nor
any Related Company shall have any obligation to (x) make contributions to
any Multiemployer Plan on or after the Effective Date, or (y) pay
withdrawal liability to any Multiemployer Plan in an amount in excess of a
"de minimis amount" as such term is defined in Section 4209 of ERISA.
(r) Absence of Defaults. Neither any Borrower nor any of its Subsidiaries
is in default under its articles or certificate of incorporation or by-laws and
no event has occurred, which has not been remedied, cured or waived,
(i) which constitutes a Default or an Event of Default, or
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(ii) which constitutes, or which with the passage of time or giving of
notice or both would constitute, a default or event of default by such
Borrower or Subsidiary under any agreement (other than this Agreement) or
judgment, decree or order to which such Borrower or Subsidiary is a party
or by which such Borrower, any Subsidiary or any Borrower's or Subsidiary's
properties may be bound, the effect of which has had or reasonably could be
expected to have, singly or in the aggregate, a Materially Adverse Effect
on a Borrower or any material Subsidiaries, or which would require a
Borrower or any of its Subsidiaries to make any material payment under any
thereof prior to the scheduled maturity date therefor, except, in the case
only of any such agreement, for alleged defaults which are being contested
in good faith by appropriate proceedings and with respect to which reserves
in respect of such Borrower's or Subsidiary's reasonably anticipated
liability have been established on such books of such Borrower or such
Subsidiary.
(s) Accuracy and Completeness of Information.
(i) All written information, reports and other papers and data
produced by or on behalf of a Borrower (including information, reports and
other papers and data relating to PDS, BroMar or the Division) and
furnished to the Administrative Agent or any Lender were, at the time the
same were so furnished, complete and correct in all material respects, to
the extent necessary to give the recipient a true and accurate knowledge of
the subject matter. No fact is known to any Borrower which has had, or in
the future reasonably could be expected to have (so far as such Borrower
can foresee), a Materially Adverse Effect upon PDS, the Division (including
BroMar), ProSource or any material Subsidiary which has not been set forth
in the financial statements or disclosure delivered prior to the Effective
Date, in each case referred to in SECTION 7.1(o), or in such written
information, reports or other papers or data or otherwise disclosed in
writing to the Administrative Agent and the Lenders prior to the Agreement
Date. No document furnished or written statement made to the
Administrative Agent or any Lender by ProSource in connection with the
negotiation, preparation or execution of this Agreement or any of the Loan
Documents contains or will contain, on the date furnished or made, any
untrue statement of a fact material to the creditworthiness of a Borrower
or omits or will omit to state a material fact necessary in order to make
the statements contained therein not misleading.
(ii) No Borrower has any actual knowledge that any document furnished
or written statement made to the Administrative Agent or any Lender by any
Person other than a Borrower in connection with the negotiation,
preparation or execution of this Agreement or any of the Loan Documents
contained any incorrect statement of a material fact or omitted to state a
material fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading.
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(t) Solvency. In each case after giving effect to the Indebtedness
represented by the Loans to be incurred, the application of the proceeds
thereof, the transactions contemplated by this Agreement, the Division
Acquisition Agreement, the other Division Acquisition Documents and the Merger
Documents, each of ProSource and ProSource and its Consolidated Subsidiaries on
a Consolidated basis is solvent, having assets of a fair salable value which
exceeds the amount required to pay its debts as they become absolute and
matured (including contingent, subordinated, unmatured and unliquidated
liabilities), and each Borrower and each of its Subsidiaries is able to and
anticipates that it will be able to meet its debts as they mature and has
adequate capital to conduct the business in which it is or proposes to be
engaged.
(u) Receivables.
(i) Status.
(A) Each Receivable reflected in the computations included in any
Borrowing Base Certificate meets the criteria enumerated in CLAUSES
(a) through (u) of the definition of Eligible Receivables, except as
disclosed in such Borrowing Base Certificate or as disclosed in a
timely manner in a subsequent Borrowing Base Certificate or otherwise
in writing to the Administrative Agent.
(B) No Borrower has any knowledge of any fact or circumstance not
disclosed to the Lender in a Borrowing Base Certificate or otherwise
in writing which would impair the validity or collectibility of any
Receivable of $50,000 or more or of Receivables which (regardless of
the individual amount thereof) aggregate $250,000 or more.
(ii) Chief Executive Office. The respective chief executive offices
of ProSource, BroMar, ProSource Canada, PDS and, as of the Agreement Date,
of the Sellers in the United States and Canada (if any), and the books and
records relating to the Receivables, the accounts of PDS and the accounts
of the Sellers included in the Division Assets are located at the
respective addresses set forth on SCHEDULE 7.1(u); to the knowledge of the
Borrowers, the Sellers have not maintained their chief executive offices or
books and records relating to any such receivables at any other address at
any time during the five years immediately preceding the Effective Date
except as disclosed on SCHEDULE 7.1(u).
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(v) Inventory.
(i) Schedule of Inventory. All Inventory included in any Schedule of
Inventory, weekly inventory report or Borrowing Base Certificate delivered
to the Lender pursuant to SECTION 9.12 meets the criteria enumerated in
CLAUSES (a) through (h) of the definition of Eligible Inventory, except as
disclosed in such Schedule of Inventory, weekly inventory certificate or
Borrowing Base Certificate or in a subsequent Schedule of Inventory, weekly
inventory certificate or Borrowing Base Certificate, or as otherwise
specifically disclosed in writing to the Administrative Agent.
(ii) Condition. All Inventory meets all standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such goods, their use or sale, and is currently either
usable or salable in the normal course of a Borrower's business, except to
the extent reserved against in the financial statements referred to in
SECTION 7.1(o) or delivered pursuant to ARTICLE 11 or as disclosed on a
Schedule of Inventory delivered to the Administrative Agent pursuant to
SECTION 9.12.
(iii) Location. All Inventory is located on the premises set forth on
SCHEDULE 7.1(v) (or as otherwise permitted pursuant to SECTION 9.9(b)), is
in transit to one of such locations or is in transit to a Borrower's
customers pursuant to a sale thereof in the ordinary course of such
Borrower's business, except as otherwise disclosed in writing to the
Administrative Agent. No Borrower has, in the last year, located such
Inventory at premises other than those set forth on SCHEDULE 7.1(v).
(w) Equipment. All Equipment is in good order and repair in all material
respects, and all Equipment, other than motor vehicles, is located on one of
the premises set forth on SCHEDULE 7.1(w) (or is in transit to one of such
premises) and, to the best of the Borrowers' knowledge, has been so located (or
has been so in transit) at all times during the last year or, if less, during
the period beginning on the date of a Borrower's acquisition thereof.
(x) Real Property. No Borrower owns any Real Estate or leases any Real
Estate other than that described on SCHEDULE 7.1(x).
(y) Corporate and Fictitious Names. Except as otherwise disclosed on
SCHEDULE 7.1(y), during the five-year period preceding the Agreement Date,
neither ProSource nor PDS nor, to the best of ProSource's knowledge, BroMar or
the Sellers, have been known as or used any corporate or fictitious name other
than the corporate name on the Agreement Date of ProSource, PDS, BroMar or the
Sellers.
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(z) Federal Reserve Regulations. Neither any Borrower nor any of its
Subsidiaries is engaged and none will engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" (as each of the quoted terms is
defined or used in Regulations G and U of the Board of Governors of the Federal
Reserve System). No part of the proceeds of any of the Loans will be used for
so purchasing or carrying margin stock or, in any event, for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation G,
T, U or X of such Board of Governors. If requested by the Administrative Agent
or any Lender, the Borrowers will furnish to the Administrative Agent and the
Lenders a statement or statements in conformity with the requirements of said
Regulation G, T, U or X to the foregoing effect.
(aa) Investment Company Act. No Borrower is an "investment company" or a
company "controlled" by an "investment company" (as each of the quoted terms is
defined or used in the Investment Company Act of 1940, as amended).
(bb) Employee Relations. Each Borrower and each of its Subsidiaries has
an adequate work force in place and is not, except as set forth on SCHEDULE
7.1(bb), party to any collective bargaining agreement nor has any labor union
been recognized as the representative of a Borrower's or any Subsidiary's
employees, and no Borrower knows of any pending or overtly threatened strikes,
work stoppage or other labor disputes involving a Borrower's or any
Subsidiary's employees which singly or in the aggregate could reasonably be
expected to have a Materially Adverse Effect on ProSource and its Subsidiaries
taken as a whole.
(cc) Proprietary Rights. SCHEDULE 7.1(cc) sets forth a correct and
complete list of all of the Proprietary Rights. None of the Proprietary Rights
is subject to any licensing agreement or similar arrangement except as set
forth on SCHEDULE 7.1(cc) or as entered into in the sale or distribution of a
Borrower's Inventory in the ordinary course of business. To the best of each
Borrower's knowledge, none of the Proprietary Rights infringes on or conflicts
with any other Person's property, and no other Person's property infringes on
or conflicts with the Proprietary Rights. The Proprietary Rights described on
SCHEDULE 7.1(cc) constitute all of the property of such type necessary to the
current and anticipated future conduct of the Borrowers' business.
(dd) Trade Names. All trade names or styles under which any Borrower
sells Inventory or Equipment or creates Receivables, or to which instruments in
payment of Receivables are made payable, are listed on SCHEDULE 7.1(dd).
(ee) Division Acquisition Documents. ProSource has heretofore furnished
to the Administrative Agent true, complete and correct copies of the Division
Acquisition Agreement (including any schedules, exhibits and annexes thereto)
and each Division Acquisition Document. The Division Acquisition Agreement has
not been amended, supplemented or modified except as previously disclosed in
writing to the Administrative
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Agent and, together with the other Division Acquisition Documents, copies of
which have also been delivered to the Administrative Agent, constitutes the
complete understanding among ProSource, the Parent and the Sellers in respect
of the Division Acquisition and the other matters and transactions covered
thereby. The Division Acquisition Agreement has been duly executed and
delivered by the Parent, ProSource and, to ProSource's knowledge, the Sellers,
and is a valid, legal and binding obligation of the Parent, ProSource and, to
ProSource's knowledge, the Sellers. The representations and warranties of
ProSource and the Parent contained in the Division Acquisition Agreement are
true and correct in all material respects on the Effective Date, and the
Administrative Agent and the Lenders are entitled to rely on such
representations and warranties with the same force and effect as though they
were incorporated in this Agreement and made to the Administrative Agent and
the Lenders directly as of the Effective Date. ProSource knows of no reason to
believe that the representations and warranties of, and information concerning,
the Division contained in the Division Acquisition Agreement were not true and
correct in all material respects on and as of the Effective Date.
(ff) Merger. ProSource has furnished to the Administrative Agent true,
complete and correct copies of the Merger Documents (including any schedules,
exhibits and annexes thereto) as in effect on the Effective Date. The Merger
Documents have not been amended, supplemented or modified and constitute the
complete understanding among the parties thereto in respect of the Merger and
the other matters and transaction covered thereby. To ProSource's knowledge,
each of the Merger Documents has been duly executed and delivered by the
parties thereto and is a legal, valid and binding obligation of each such
party.
(gg) Consummation of Transactions. On or prior to the Effective Date, the
transactions contemplated by the Division Acquisition Documents and the Merger
Documents will have been consummated in accordance with Applicable Law and,
except as previously disclosed in writing to, and approved by, the
Administrative Agent, in the manner provided therein and in accordance with the
terms thereof without any material waivers or amendments thereto, and each of
the conditions to such consummation set forth in the Division Acquisition
Documents and the Merger Documents shall have been fulfilled without any waiver
of any thereof.
(hh) Lockboxes and Deposit Accounts. SCHEDULE 7.1(hh) is a complete and
correct listing of all lockbox, demand deposit and other bank accounts
maintained by any Borrower or any Subsidiary, specifying the depositary, type
and number of each such account.
SECTION 7.2. Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this ARTICLE 7 and all statements
contained in any certificate, financial statement, or other instrument,
delivered by, or on behalf and at the request of, a Borrower pursuant to or in
connection with this Agreement or any of the Loan Documents (including, but not
limited to, any such representation, warranty or statement made in or in
connection with any amendment thereto) shall constitute representations and
warranties
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made under this Agreement. All representations and warranties made under this
Agreement shall be made or deemed to be made at and as of the Agreement Date, at
and as of the Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this Agreement,
any investigation made by or on behalf of the Administrative Agent, any Co-Agent
or any Lender or any borrowing hereunder.
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ARTICLE 8
SECURITY INTEREST
SECTION 8.1.
Security Interest.
(a) To secure the payment, observance and performance of the Secured
Obligations, each Borrower hereby mortgages, pledges and assigns all of the
Collateral to the Administrative Agent, for the benefit of itself as
Administrative Agent, of NationsBank as issuer of the Letters of Credit and of
the Lenders, and grants to the Administrative Agent, for the benefit of itself
as Administrative Agent, of NationsBank as issuer of the Letters of Credit and
the of Lenders, a continuing security interest in, and a continuing Lien upon,
all of the Collateral.
(b) As additional security for all of the Secured Obligations, each
Borrower grants to the Administrative Agent, for the benefit of itself as
Administrative Agent, NationsBank as issuer of the Letters of Credit and of the
Lenders, a security interest in, and assigns to the Administrative Agent, for
the benefit of itself as Administrative Agent, of NationsBank as issuer of the
Letters of Credit and of the Lenders, all of such Borrower's right, title and
interest in and to, any deposits or other sums at any time credited by or due
from any Lender and any Affiliate of any Lenders to such Borrower, or credited
by or due from any participant of any Lender to such Borrower, with the same
rights therein as if the deposits or other sums were credited by or due from
such Lender. Each Borrower hereby authorizes each Lender and each Affiliate of
any Lender and each participant to pay or deliver to the Administrative Agent,
for the account of the Lenders, without any necessity on the Administrative
Agent's or any Lender's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time during the continuation
of any Event of Default or in the event that the Administrative Agent, on
behalf of the Lenders, should make demand for payment hereunder of any amounts
that are then due and payable and without further notice to such Borrower (such
notice being expressly waived), any of the aforesaid deposits (general or
special, time or demand, provisional or final) or other sums for application to
any Secured Obligation, irrespective of whether any demand has been made or
whether such Secured Obligation is mature, and the rights given the
Administrative Agent, the Lenders, the Affiliates of the Lenders and
participants hereunder are cumulative with such Person's other rights and
remedies, including other rights of set-off. The Administrative Agent will
promptly notify a Borrower of its receipt of any such funds for application to
the Secured Obligations, but failure to give such notice will not affect the
validity or enforceability of any receipt or application. The Administrative
Agent may give notice of the above grant of a security interest in and
assignment of the aforesaid deposits and other sums, and authorization, to, and
make any suitable arrangements with, any Lender, any Affiliate of any Lender or
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participant for effectuation thereof, and each Borrower hereby irrevocably
appoints Administrative Agent as its attorney to collect any and all such
deposits or other sums to the extent any such payment is not made to the
Administrative Agent or any Lender by such Lender, Affiliate of a Lender or
participant.
SECTION 8.2. Continued Priority of Security Interest.
(a) The Security Interest granted by each Borrower shall at all times be
valid, perfected and enforceable against such Borrower and all third parties in
accordance with the terms of this Agreement, as security for the Secured
Obligations, and the Collateral shall not at any time be subject to any Liens
that are prior to, on a parity with or junior to the Security Interest, other
than Permitted Liens.
(b) Each Borrower shall, at its sole cost and expense, take all action
that may be necessary or desirable, or that the Administrative Agent may
reasonably request, so as at all times to maintain the validity, perfection,
enforceability and rank of the Security Interest in the Collateral in
conformity with the requirements of SECTION 8.2(a), or to enable the
Administrative Agent and the Lenders to exercise or enforce their rights
hereunder, including, but not limited to:
(i) paying all taxes, assessments and other claims lawfully levied or
assessed on any of the Collateral, (except to the extent that such taxes,
assessments and other claims constitute Permitted Liens),
(ii) obtaining, after the Agreement Date, landlords' and mortgagees'
releases, subordinations or waivers, and using all reasonable efforts to
obtain mechanics' releases, subordinations or waivers,
(iii) delivering to the Administrative Agent, endorsed or accompanied
by such instruments of assignment as the Administrative Agent may specify,
and stamping or marking, in such manner as the Administrative Agent may
specify, any and all chattel paper, instruments, letters and advices of
guaranty and documents evidencing or forming a part of the Collateral, and
(iv) executing and delivering financing statements, pledges,
designations, hypothecations, notices and assignments in each case in form
and substance satisfactory to the Administrative Agent relating to the
creation, validity, perfection, maintenance or continuation of the Security
Interest under the Uniform Commercial Code or other Applicable Law.
(c) The Administrative Agent is hereby authorized to file one or more
financing or continuation statements or amendments thereto without the
signature of or in the
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name of a Borrower for any purpose described in SECTION 8.2(b). The
Administrative Agent will give the relevant Borrower notice of the filing of
any such statements or amendments, which notice shall specify the locations
where such statements or amendments were filed. A carbon, photographic,
xerographic or other reproduction of this Agreement or of any of the Security
Documents or of any financing statement filed in connection with this Agreement
is sufficient as a financing statement, to the extent permitted by law.
(d) Each Borrower shall mark its books and records as directed by the
Administrative Agent and as may be necessary or appropriate to evidence,
protect and perfect the Security Interest and shall cause its financial
statements to reflect the Security Interest.
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ARTICLE 9
COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner provided in SECTION 16.11:
SECTION 9.
1. Collection of Receivables.
(a) Each Borrower (other than ProSource Canada) shall use its best efforts
to cause all monies, checks, notes, drafts and other payments relating to or
constituting proceeds of trade accounts receivable to be forwarded to a Lockbox
for deposit in an Agency Account in accordance with the procedures set out in
the corresponding Agency Account Agreement. Each Borrower will promptly cause
all monies, checks, notes, drafts and other payments relating to or
constituting proceeds of other Receivables, of any other Collateral and of any
trade accounts receivable that are not forwarded to a Lockbox, to be
transferred to or deposited in an Agency Account or, in the case of ProSource
Canada, to an account maintained by it with the Canadian Lender. In particular,
each Borrower (other than ProSource Canada) will:
(i) advise each Account Debtor on trade accounts receivable to address
all remittances with respect to amounts payable on account thereof to a
specified Lockbox,
(ii) advise each other Account Debtor that makes payment to such
Borrower by wire transfer, automated clearinghouse transfer or similar
means to make payment directly to an Agency Account, and
(iii) stamp all invoices relating to trade accounts receivable with a
legend satisfactory to the Administrative Agent indicating that payment is
to be made to such Borrower via a specified Lockbox.
(b) Each Borrower (other than ProSource Canada) and the Administrative
Agent shall cause all collected balances in each Agency Account to be
transmitted daily by wire transfer, depository transfer check or other means in
accordance with the procedures set forth in the corresponding Agency Account
Agreement, to the Administrative Agent at the Administrative Agent's Office:
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(i) for application, on account of the Secured Obligations, as
provided in SECTIONS 2.3(c), 13.2, and 13.3, such credits to be entered as
of the Business Day they are received if they are received prior to 1:30
p.m. and to be conditioned upon final payment in cash or solvent credits of
the items giving rise to them, and
(ii) with respect to the balance, so long as no Material Default or
Event of Default has occurred and is continuing, for transfer by wire
transfer or depository transfer check to a Controlled Disbursement Account.
(c) Any monies, checks, notes, drafts or other payments referred to in
SUBSECTION (a) of this SECTION 9.1 which, notwithstanding the terms of such
subsection, are received by or on behalf of a Borrower (other than ProSource
Canada) will be held in trust for the Administrative Agent and will be
delivered to the Administrative Agent or a Clearing Bank, as promptly as
possible, in the exact form received, together with any necessary endorsements,
for application by the Administrative Agent directly to the Secured Obligations
or, if applicable, for deposit in the Agency Account maintained with a Clearing
Bank and processing in accordance with the terms of the corresponding Agency
Account Agreement.
SECTION 9.2. Verification and Notification. The Administrative Agent shall
have the right at any time and from time to time,
(a) in the name of the Administrative Agent, the Lenders or in the name of
a Borrower, to verify the validity, amount or any other matter relating to any
Receivables by mail, telephone, telegraph or otherwise,
(b) to review, audit and make extracts from all records and files related
to any of the Receivables, and
(c) to notify the Account Debtors or obligors under any Receivables of the
assignment of such Receivables to the Administrative Agent, for the benefit of
the Lenders, and to direct such Account Debtor or obligors to make payment of
all amounts due or to become due thereunder directly to the Administrative
Agent, for the account of the Lenders, and, upon such notification and at the
expense of the Borrowers, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the relevant Borrower might have done; PROVIDED,
HOWEVER, that the Administrative Agent shall take the actions described in this
CLAUSE (c) only if (i) an Event of Default is then in existence, or (ii) with
respect to any such Account Debtor or obligor, if (A) contrary to the relevant
Borrower's direction, such Account Debtor or obligor shall have failed to
deliver payment of the proceeds of any Receivable in accordance with the
requirements of this Agreement and (B) the relevant Borrower shall have failed
to deposit such proceeds in an Agency Account promptly upon receipt thereof.
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SECTION 9.3. Disputes, Returns and Adjustments.
(a) In the event any amounts due and owing under any Receivable for an
amount in excess of $100,000 are in dispute between the Account Debtor and a
Borrower, such Borrower shall provide the Administrative Agent with prompt
written notice thereof.
(b) Each Borrower shall notify the Administrative Agent promptly of all
returns and credits in excess of $100,000 in respect of any Receivable, which
notice shall specify the Receivable affected.
(c) Each Borrower may, in the ordinary course of business and unless an
Event of Default has occurred and is continuing, grant any extension of time
for payment of any Receivable or compromise, compound or settle the same for
less than the full amount thereof, or release wholly or partly any Person
liable for the payment thereof, or allow any credit or discount whatsoever
thereon; PROVIDED that (i) no such action is taken with respect to any
receivable of BroMar on which ProSource is the Account Debtor, (ii) no such
action results in the reduction of more than $100,000 in the amount payable
with respect to any Receivable or of more than $1,000,000 with respect to all
Receivables in any Fiscal Year (in each case, excluding (x) any compromise,
compounding or settlement of Receivables of ProSource identified on SCHEDULE
9.3(c) and (y) the allowance of credits or discounts generally available to
Account Debtors in the ordinary course of the relevant Borrower's business and
appropriate adjustments to the accounts of Account Debtors in the ordinary
course of business), and (iii) the Administrative Agent is promptly notified of
the amount of such adjustments and the Receivable(s) affected thereby.
SECTION 9.4. Invoices.
(a) No Borrower will use any invoices other than invoices in the form
delivered to the Administrative Agent prior to the Agreement Date without
giving the Administrative Agent 30 days' prior notice of the intended use of a
different form of invoice together with a copy of such different form.
(b) Upon the request of the Administrative Agent, each Borrower shall
deliver to the Administrative Agent, at the Borrowers' expense, copies of
customers' invoices or the equivalent, original shipping and delivery receipts
or other proof of delivery, customers' statements, customer address lists, the
original copy of all documents, including, without limitation, repayment
histories and present status reports, relating to Receivables and such other
documents and information relating to the Receivables as the Administrative
Agent shall specify.
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SECTION 9.5. Delivery of Instruments. In the event any Receivable is at
any time evidenced by a promissory note, trade acceptance or any other
instrument for the payment of money, the relevant Borrower will immediately
thereafter deliver such instrument to the Administrative Agent, appropriately
endorsed to the Administrative Agent.
SECTION 9.6. Sales of Inventory. All sales of Inventory will be made in
compliance with the requirements of Applicable Law, other than instances of
noncompliance that, singly or in the aggregate, could not reasonably be expected
to impair the enforceability or collectibility of the Receivable arising from
such sale or otherwise to have a Materially Adverse Effect on a Borrower or
material Subsidiary.
SECTION 9.7. Ownership and Defense of Title.
(a) Except for Permitted Liens, a Borrower shall at all times be the sole
owner or lessee of each and every item of Collateral and shall not create any
lien on, or sell, lease, exchange, assign, transfer, pledge, hypothecate, grant
a security interest or security title in or otherwise dispose of, any of the
Collateral or any interest therein, except for sales of Inventory in the
ordinary course of business, for cash or on open account or on terms of payment
ordinarily extended to its customers, and except for dispositions that are
otherwise expressly permitted under this Agreement. The inclusion of
"proceeds" of the Collateral under the Security Interest shall not be deemed a
consent by the Administrative Agent or the Lenders to any other sale or other
disposition of any part or all of the Collateral.
(b) Each Borrower shall defend its title or leasehold interest in and to,
and the Security Interest in, the Collateral against the claims and demands of
all Persons.
SECTION 9.8. Insurance.
(a) The Borrowers shall at all times maintain insurance on the Inventory
and Equipment against loss or damage by fire, theft (excluding theft by
employees), burglary, pilferage, loss in transit and such other hazards as the
Administrative Agent shall reasonably specify, in amounts not to exceed those
obtainable at commercially reasonable rates, under policies issued by insurers
acceptable to the Administrative Agent in the exercise of its reasonable
judgment. All premiums on such insurance shall be paid by the Borrowers and
copies of the policies delivered to the Administrative Agent. The Borrowers
will not use or permit the Inventory or Equipment to be used in violation of
Applicable Law or in any manner which might render inapplicable any insurance
coverage.
(b) All insurance policies required under SECTION 9.8(a) shall name the
Administrative Agent as an additional insured and shall contain lender's loss
payable endorsements in the form submitted to the Borrowers by the
Administrative Agent, or
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otherwise in form and substance satisfactory to the Required Lenders, naming
the Administrative Agent as loss payee, as its interests may appear, and
providing that
(i) all proceeds thereunder shall be payable to the Administrative
Agent, for the benefit of the Lenders,
(ii) no such insurance shall be affected by any act or neglect of the
insurer or owner of the property described in such policy, and
(iii) such policy and loss payable clauses may be canceled, amended or
terminated only upon at least ten days' prior written notice given to the
Administrative Agent.
(c) Any proceeds of insurance referred to in this SECTION 9.8 which are
paid to the Administrative Agent shall be, at the option of the Required
Lenders in their sole discretion, either (i) applied to replace the damaged or
destroyed property, or (ii) applied to the payment or prepayment of the Secured
Obligations, provided that in the event that the proceeds from any single
casualty do not exceed $1,000,000, then, upon the Borrowers' written request to
the Administrative Agent, provided that no Event of Default shall have occurred
and be continuing, such proceeds shall be disbursed by the Administrative Agent
to the relevant Borrower pursuant to such procedures as the Administrative
Agent shall reasonably establish for application to the replacement of the
damaged or destroyed property.
SECTION 9.9. Location of Offices and Collateral.
(a) No Borrower will change the location of its chief executive office or
the place where it keeps its books and records relating to the Collateral or
change its name, its identity or corporate structure without giving the
Administrative Agent 45 days' prior written notice thereof.
(b) All Inventory, other than Inventory in transit to any such location,
will at all times be kept by a Borrower at the locations set forth in SCHEDULE
7.1(v) or at any location within the continental United States or the Province
of Ontario of which a Borrower has given the Administrative Agent notice at
least 10 days prior to the first use of such location and as to which all
actions required pursuant to SECTION 8.2(b) shall have been taken, and shall
not, without the prior written consent of the Lender, be removed therefrom
except pursuant to sales of Inventory permitted under SECTION 9.7(a).
(c) If any Inventory is in the possession or control of a Borrower's
agents or processors, such Borrower shall notify such agents or processors of
the Security Interest (and shall promptly provide copies of any such notice to
the Administrative Agent and the Lenders) and, upon the occurrence of an Event
of Default, shall instruct them (and cause them to
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acknowledge such instruction) to hold all such Inventory for the account of the
account of the Lenders, subject to the instructions of the Administrative
Agent.
SECTION 9.10. Records Relating to Collateral.
(a) Each Borrower will at all times
(i) keep complete and accurate records of Inventory on a basis
consistent with past practices of ProSource so as to permit comparison of
Inventory records relating to different time periods, itemizing and
describing the kind, type and quantity of Inventory and the Borrower's cost
therefor and a current price list for such Inventory, and
(ii) keep complete and accurate records of all other Collateral.
(b) Each Borrower will prepare a physical listing of all Inventory,
wherever located, at least annually.
SECTION 9.11. Inspection. The Administrative Agent and each Lender (by any
of their officers, employees or agents) shall have the right, to the extent that
the exercise of such right shall be within the control of a Borrower, at any
time or times to
(a) visit the properties of the Borrower and its Subsidiaries, inspect the
Collateral and the other assets of each Borrower and its Subsidiaries and
inspect and make extracts from the books and records of each Borrower and its
Subsidiaries, including but not limited to management letters prepared by
independent accountants, all during customary business hours at such premises,
provided that the Lenders (other than the Administrative Agent) shall to the
extent reasonably practicable coordinate their visits and inspections through
the Administrative Agent so that all Lenders shall conduct such visits and
inspections substantially simultaneously;
(b) discuss each Borrower's and its Subsidiaries' businesses, assets,
liabilities, financial condition, results of operations and business prospects,
insofar as the same are reasonably related to the rights of the Administrative
Agent or the Lenders hereunder or under any of the Loan Documents, with each
Borrower's and its Subsidiaries' (i) principal officers, (ii) independent
accountants (provided that prior written notice thereof shall have been given to
the relevant Borrower), and (iii) any other Person (except that any such
discussion with any third parties shall be conducted only in accordance with the
Administrative Agent's or such Lender's standard operating procedures relating
to the maintenance of the confidentiality of confidential information of
borrowers), provided that the Lenders (other than the Administrative Agent)
shall to the extent reasonably practicable coordinate such
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discussions through the Administrative Agent so that all Lenders shall conduct
such discussions substantially simultaneously;
(c) verify the amount, quantity, value and condition of, or any other
matter relating to, any of the Collateral (other than Receivables) and in this
connection to review, audit and make extracts from all records and files
related to any of the Collateral, PROVIDED that the Lenders (other than the
Administrative Agent) shall to the extent reasonably practicable coordinate
such reviews, etc., through the Administrative Agent so that all Lenders shall
conduct such reviews, etc., substantially simultaneously.
As of the Agreement Date, the Administrative Agent intends to engage SCC to
conduct the regular quarterly "field examinations" contemplated by SECTION
16.2(d).
Each Borrower will deliver to the Administrative Agent, for the benefit of the
Lenders, any instrument necessary for it to obtain records from any service
bureau maintaining records on behalf of the Borrower.
SECTION 9.12. Information and Reports.
(a) Receivables Reports. The Borrowers shall deliver to the
Administrative Agent not later than the 20th day of each calendar month a
Schedule of Receivables which
(i) shall be as of the last Business Day of the immediately preceding
Fiscal Month,
(ii) shall be reconciled to the daily sales and collections reports
delivered during such preceding Fiscal Month, and
(iii) shall set forth a detailed aged trial balance of all its then
existing Receivables, specifying the names, addresses and balance due for
each Account Debtor obligated on a Receivable so listed.
(b) Inventory Reports. The Borrowers shall deliver to the Administrative
Agent (i) each Business Day a report of the total cost of Inventory on such day
and (ii) not later than the 20th day of each calendar month a Schedule of
Inventory as of the last Business Day of the immediately preceding Fiscal
Month, listing each Borrower's cost of Inventory, itemized by location,
including a supplement to SCHEDULE 7.1(v) as necessary to give notice of new,
intended Inventory locations or to satisfy the requirements of SECTION 11.7 in
respect of additional Inventory locations of which notice has previously been
given, in each case pursuant to SECTION 9.9(b).
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(c) Borrowing Base Certificate. The Borrowers shall deliver to the
Administrative Agent not later than (i) Wednesday of each week as of the
preceding Saturday, a Weekly Borrowing Base Certificate and (ii) the 20th day
of each calendar month a Monthly Borrowing Base Certificate prepared as of the
close of business on the last Business Day of the immediate preceding Fiscal
Month.
(d) Notice of Diminution of Value. Each Borrower shall give prompt notice
to the Administrative Agent of any matter or event which has resulted in, or
may result in, the diminution in excess of $200,000 in the value of any of its
Collateral, except for any such diminution in the value of any Receivables or
Inventory in the ordinary course of business which has been appropriately
reserved against, as reflected in financial statements previously delivered to
the Administrative Agent and the Lenders pursuant to ARTICLE 11 and except for
diminutions in the value of any Real Estate caused by general market conditions
that are not in a Borrower's control.
(e) Additional Information. The Administrative Agent may in its
discretion from time to time request that any Borrower deliver the schedules,
reports and certificates described in SECTIONS 9.12(a), (b) and (c) more often
and on different schedules than specified in such Sections and, in particular,
the Administrative Agent may request that the Borrowers deliver daily, as of
the preceding Business Day, a certificate in the form of a Weekly Borrowing
Base Certificate, and the Borrowers will comply with such requests. Each
Borrower will also furnish to the Administrative Agent and each Lender such
other information with respect to the Collateral as the Administrative Agent or
any Lender may from time to time reasonably request.
SECTION 9.13. Power of Attorney. Each Borrower hereby appoints the
Administrative Agent as its attorney, with power
(a) to endorse the name of such Borrower on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that
may come into the Administrative Agent's or any Lender's possession, and
(b) to sign the name of such Borrower on any invoice or bill of lading
relating to any Receivable, Inventory or other Collateral that may come into
the Administrative Agent's or any Lender's possession in connection with the
Administrative Agent's collection of Receivables pursuant to SECTION 9.1, on
any drafts against customers related to letters of credit, on schedules and
assignments of Receivables furnished to the Administrative Agent or any Lender
by such Borrower, on notices of assignment, financing statements and other
public records relating to the perfection or priority of the Security Interest,
verifications of account and, subject to the provisions of SECTION 9.2(c), on
notices to or from customers.
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SECTION 9.14. Additional Real Estate and Leases.
(a) Promptly upon a Borrower's acquisition of any interest (including a
leasehold interest) in any Real Estate, such Borrower shall deliver to the
Administrative Agent, for the benefit of itself as Administrative Agent and the
Lenders, an executed Mortgage substantially in the same form as the Mortgages
executed and delivered in connection with the occurrence of the Effective Date,
subject to requirements of local law, or otherwise in form and substance
satisfactory to the Administrative Agent, conveying to the Administrative
Agent, for the benefit of itself and the Lenders, a first priority Lien on such
Real Estate, subject only to such prior Liens as the Administrative Agent shall
consent to in writing. If requested by the Administrative Agent, such Borrower
shall also deliver to the Administrative Agent at the Borrowers' expense a
mortgagee title insurance policy in favor of the Administrative Agent and the
Lenders insuring such Mortgage to create and convey such Lien, subject only to
such exceptions consented to by the Administrative Agent and shall deliver to
the Administrative Agent the other items set forth in SECTIONS 6.1(e)(7), (8),
(9) and (10) with respect to such Real Estate, all in form and substance
satisfactory to the Administrative Agent.
(b) Promptly upon a Borrower's entry into any lease of Real Estate (other
than a lease conveying an interest in Real Estate, which shall be subject to
the provisions of CLAUSE (a) above), such Borrower shall collaterally assign to
the Administrative Agent such Borrower's interest in such lease, in form and
substance satisfactory to the Administrative Agent. Each Borrower shall also
deliver to the Administrative Agent an executed landlord's waiver and consent
with respect to such lease in form and substance satisfactory to the
Administrative Agent.
SECTION 9.15. Assignment of Claims Act. Upon the request of the
Administrative Agent, each Borrower shall execute any documents or instruments
and shall take such steps or actions reasonably required by the Administrative
Agent so that all monies due or to become due under any contract with the United
States of America, the District of Columbia or any state, county, municipality
or other domestic or foreign governmental entity, or any department, agency or
instrumentality thereof, will be assigned to the Administrative Agent and notice
given thereof in accordance with the requirements of the Assignment of Claims
Act of 1940, as amended, or any other laws, rules or regulations relating to the
assignment of any such contract and monies due to or to become due.
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ARTICLE 10
AFFIRMATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner provided for in SECTION 16.11, each Borrower
will, and as to SECTIONS 10.1 through 10.9 will cause each of its Subsidiaries
to:
SECTION 10.
1. Preservation of Corporate Existence and Similar Matters. Preserve and
maintain its corporate existence, rights, franchises, licenses and privileges in
the jurisdiction of its incorporation and qualify and remain qualified as a
foreign corporation and authorized to do business in all jurisdictions in which
the failure so to qualify or be authorized could have, singly or in the
aggregate, a Materially Adverse Effect on such Borrower.
Section 10.2. Compliance with Applicable Law. Comply with all Applicable
Law relating to such Borrower or Subsidiary, except for instances of
noncompliance that, singly or in the aggregate, could not reasonably be expected
to have a Materially Adverse Effect on a Borrower or any material Subsidiary and
except for instances of noncompliance that are being contested in good faith by
appropriate proceedings and for which reserves in respect of a Borrower's or
such Subsidiary's reasonably anticipated liability therefor have been
appropriately established.
Section 10.3. Maintenance of Property. In addition to, and not in
derogation of, the requirements of SECTION 9.7 and of the Security Documents,
(a) protect and preserve all properties material to its business,
including copyrights, patents, trade names and trademarks, and maintain in good
repair, working order and condition in all material respects, with reasonable
allowance for wear and tear, all tangible properties, and
(b) from time to time make or cause to be made all needed and appropriate
repairs, renewals, replacements and additions to such properties necessary for
the conduct of its business, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
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SECTION 10.4. Conduct of Business. At all times carry on its business in
an efficient manner and engage, in the case of ProSource, only in the business
of purchasing, warehousing, distributing, transporting and selling food, paper,
dairy, produce, uniforms, soft drink syrups and other products used in casual
dining or quick-service restaurants and providing related logistics services,
and, in the case of BroMar, only in the business of purchasing such products
exclusively for simultaneous re-sale to ProSource.
SECTION 10.5. Insurance. Maintain, in addition to the coverage required by
SECTION 9.8 and the Security Documents, insurance with responsible insurance
companies against such risks and in such amounts as is customarily maintained by
similar businesses or as may be required by Applicable Law, and from time to
time deliver to the Administrative Agent or any Lender upon its reasonable
request a detailed list of the insurance then in effect, stating the names of
the insurance companies, the amounts and rates of the insurance, the dates of
the expiration thereof and the properties and risks covered thereby.
SECTION 10.6. Payment of Taxes and Claims. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or upon any properties belonging to it, except
that real property AD VALOREM taxes shall be deemed to have been so paid or
discharged if the same are paid before they become delinquent, and
(b) all lawful claims of materialmen, mechanics, carriers, warehousemen
and landlords for labor, materials, supplies and rentals which, if unpaid,
might become a Lien on any properties of a Borrower;
EXCEPT that this SECTION 10.6 shall not require the payment or discharge of any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which reserves in respect of the
reasonably anticipated liability therefor have been appropriately established.
SECTION 10.7. Accounting Methods and Financial Records. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP.
SECTION 10.8. Use of Proceeds.
(a) Use the proceeds of
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(i) the initial Revolving Credit Loan and the Term Loans to pay
amounts indicated on SCHEDULE 10.8 to the Persons indicated thereon, and
(ii) all subsequent Loans only for working capital and general
business purposes, and
(b) not use any part of such proceeds to purchase or, to carry or reduce
or retire or refinance any credit incurred to purchase or carry, any margin
stock (within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System) or, in any event, for any purpose which would involve a
violation of such Regulation G or U or of Regulation T or X of such Board of
Governors, or for any purpose prohibited by law or by the terms and conditions
of this Agreement.
SECTION 10.9. Hazardous Waste and Substances; Environmental Requirements.
(a) In addition to, and not in derogation of, the requirements of SECTION
10.2 and of the Security Documents, comply with all Environmental Laws and all
Applicable Laws relating to occupational health and safety (except for
instances of noncompliance that, singly or in the aggregate, could not
reasonably be expected to have a Materially Adverse Effect on a Borrower or any
material Subsidiaries and except for instances of noncompliance that are being
contested in good faith by appropriate proceedings if reserves in respect of
such Borrower's or such Subsidiary's reasonably anticipated liability therefor
have been appropriately established), promptly notify the Administrative Agent
of its receipt of any notice of a violation of any such Environmental Laws or
Applicable Law and indemnify and hold the Administrative Agent and the Lenders
harmless from all loss, cost, damage, liability, claim and expense incurred by
or imposed upon the Administrative Agent or any Lender on account of a
Borrower's failure to perform its obligations under this SECTION 10.9.
(b) Whenever a Borrower gives notice to the Administrative Agent pursuant
to this SECTION 10.9 with respect to a matter that reasonably could be expected
to result in liability to any Borrower in excess of $50,000 in the aggregate,
the Borrowers shall, at the Administrative Agent's request and the Borrowers'
expense (i) cause an independent environmental engineer acceptable to the
Administrative Agent to conduct an assessment, including tests where necessary,
of the site where the noncompliance or alleged noncompliance with Environmental
Laws has occurred and prepare and deliver to the Administrative Agent a report
setting forth the results of such assessments or tests, a proposed plan to
bring the relevant Borrower into compliance with such Environmental Laws, if
necessary, and an estimate of the costs thereof, and (ii) provide to the
Administrative Agent a supplemental report of such engineer whenever the scope
of the noncompliance, or the response thereto or the estimated costs thereof,
shall materially adversely change.
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SECTION 10.10. Interest Rate Protection Agreement. On or before the
sixtieth day following the Effective Date, enter into an Interest Rate
Protection Agreement, in form and substance acceptable to the Co-Agents in their
reasonable judgment, with respect to not less than 50% of the average principal
amount of Loans outstanding during such 60-day period for a term of not less
than three years from the effective date of such Interest Rate Protection
Agreement.
SECTION 10.11. Distribution Agreements. Deliver to each Lender and the
Administrative Agent
(a) promptly upon its receipt thereof, copies of all notices that it
receives of ProSource's default in the performance of any of its agreements or
other obligations under any of the Distribution Agreements (included in the BKC
Agreements);
(b) promptly upon its obtaining knowledge thereof, written notice of the
occurrence of any other default in the performance of any of its material
agreements or other material obligations under any of the Distribution
Agreements or of BKC's default in the performance of any of its material
agreements or other material obligations under any of the Distribution
Agreements; and
(c) prompt notice of the termination of any of the Distribution
Agreements.
SECTION 10.12. Use of Resources. Cause the management, assets, systems, and
other resources of ProSource, generally, to be devoted to the conduct of the
business of ProSource and its material Subsidiaries and to their customers.
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ARTICLE 11
INFORMATION
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner set forth in SECTION 16.11, the Borrowers will
furnish to the Administrative Agent and to each Lender at its offices then
designated for notices pursuant to SECTION 16.1, the statements, reports,
certificates, and other information provided for in this ARTICLE 11. All
written information, reports, statements and other papers and data furnished to
the Administrative Agent or any Lender by or at the request of a Borrower,
whether pursuant to this ARTICLE 11 or any other provision of this Agreement or
of any other Loan Document, shall be, at the time the same is so furnished,
complete and correct in all material respects to the extent necessary to give
the Administrative Agent and the Lenders true and accurate knowledge of the
subject matter. Specifically, the Borrowers will so furnish:
SECTION 11.
1. Financial Statements.
(a) Statement of Net Assets Sold. As soon as the same is delivered to
ProSource, a copy of the Statement of Net Assets Sold provided pursuant to the
Division Acquisition Agreement and a copy of the final auditors' report with
respect thereto promptly upon delivery thereof.
(b) Audited Year-End Statements. As soon as available, but in any event
within 90 days after the end of each Fiscal Year, copies of the consolidating
(for the Borrowers and any material Consolidated Subsidiaries) and Consolidated
balance sheets of ProSource and its Consolidated Subsidiaries as at the end of
such Fiscal Year and the related statements of income, shareholders' equity and
cash flows for such Fiscal Year, in each case setting forth in comparative form
comparable figures for the previous Fiscal Year, reported on, as to such
Consolidated statements (but not as to such consolidating statements), without
qualification as to the scope of the audit or the status of any Borrower as a
"going concern", by KPMG Peat Marwick LLP or other independent certified public
accountants of nationally recognized standing.
(c) Financial Statements. As soon as available after the end of each
Fiscal Month, but in any event within 30 days after the end of each Fiscal
Month, copies of the unaudited consolidating (for the Borrowers and any
material Consolidated Subsidiaries) and Consolidated balance sheets of
ProSource and its Consolidated Subsidiaries as at the end of such Fiscal Month
and the related unaudited consolidating and consolidated statements of income
and cash flow for ProSource and its Consolidated Subsidiaries for such Fiscal
Month
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and for the portion of the Fiscal Year through such Fiscal Month, certified by
a Financial Officer of ProSource as presenting fairly the financial condition
and results of operations of the Borrowers (subject to normal year-end audit
adjustments). Each balance sheet delivered pursuant to this SUBSECTION (c),
shall itemize the amounts as of the date of such balance sheet included in
total liabilities for New Subordinated Debt, the Parent Subordinated Debt and
the Seller Note.
(d) Annual Budgets. As soon as available, but in any event prior to 30
days prior to the first day of each Fiscal Year, copies of the Borrowers'
monthly operating budget for such Fiscal Year, in reasonable detail.
All of the financial statements to be delivered pursuant to SUBSECTIONS (a), (b)
and (c) above shall be complete and correct in all material respects and shall
be prepared in accordance with GAAP (except, with respect to interim financial
statements, for the omission of notes and for the effect of normal year-end
audit adjustments) applied consistently throughout the periods reflected
therein.
SECTION 11.2. Accountants' Certificate. Together with the financial
statements referred to in SECTION 11.1(b), the Borrowers shall deliver a
certificate of such accountants addressed to the Administrative Agent
(a) stating that in making the examination necessary for the certification
of such financial statements, nothing has come to their attention to lead them
to believe that any Default or Event of Default exists and, in particular, they
have no knowledge of any Default or Event of Default or, if such is not the
case, specifying such Default or Event of Default and its nature, and
(b) having attached the calculations, prepared by the Borrowers and
reviewed by such accountants, required to establish whether or not the
Borrowers are in compliance with the covenants contained in SECTIONS 12.1,
12.2, 12.5, 12.10 AND 12.11, as at the date of such financial statements.
SECTION 11.3. Officer's Certificate. At the time that the Borrowers
furnish the financial statements pursuant to SECTION 11.1(c) for any Fiscal
Month that is the last period of a Fiscal Quarter, the Borrowers shall also
furnish to the Administrative Agent and to each Lender, a certificate of the
President or a Financial Officer of ProSource (each, a COMPLIANCE CERTIFICATE)
(a) setting forth as at the end of such Fiscal Quarter the calculations
required to establish whether or not the Borrowers were in compliance with the
requirements of SECTIONS 12.1, 12.2, 12.5, 12.10 AND 12.11,
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(b) stating that the information on the schedules to this Agreement is
complete and accurate as of the date of such certificate or, if such is not the
case, attaching to such certificate updated schedules,
(c) stating that, based on a reasonably diligent examination, to the best
of such Person's knowledge, no Default or Event of Default exists, or, if such
is not the case, specifying such Default or Event of Default and its nature,
when it occurred, whether it is continuing and the steps being taken by the
Borrowers with respect to such Default or Event of Default, and
(d) describing in reasonable detail each transaction between a Borrower
and the Parent during such Fiscal Quarter if the value of the cash, property
and other consideration to be paid by the Borrowers in connection with such
transaction exceeded or will exceed in the aggregate $10,000 or if such
transaction is a part of a series of transactions that involve the Borrowers'
payment of cash, delivery of property or payment of other consideration that in
the aggregate has exceeded or will exceed in value $100,000 in any Fiscal Year.
SECTION 11.4. Copies of Other Reports.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to a Borrower or its Board of Directors by its independent public
accountants, including, without limitation, any management report.
(b) As soon as practicable, copies of all financial statements and reports
that a Borrower shall send to its shareholders generally and of all
registration statements and all regular or periodic reports which a Borrower
shall file with the Securities and Exchange Commission or any successor
commission.
(c) Promptly following its monthly distribution to management, copies of
the ProSource "Management Book" and of other internal business segment or
profit-center financial statements prepared by a Borrower.
(d) From time to time and as soon as reasonably practicable following each
request, such forecasts, data, certificates, reports, statements, opinions of
counsel (not involving privileged matters), documents or further information
regarding the business, assets, liabilities, financial condition, results of
operations or business prospects of a Borrower or any Subsidiary as the
Administrative Agent or any Lender may reasonably request and that a Borrower
has or (except in the case of legal opinions relating to the perfection or
priority of the Security Interest) without unreasonable expense can obtain;
PROVIDED, HOWEVER, that the Lenders shall, to the extent reasonably
practicable, coordinate examinations of the Borrowers' records by their
respective internal examiners. The rights of the Administrative Agent and the
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Lenders under this SECTION 11.4 are in addition to and not in derogation of
their rights under any other provision of this Agreement or of any other Loan
Document.
(e) If requested by the Administrative Agent or any Lender, the Borrowers
will furnish to the Administrative Agent and the Lenders statements in
conformity with the requirements of Federal Reserve Form G-3 or U-1 referred to
in Regulation G and U, respectively, of the Board of Governors of the Federal
Reserve System.
SECTION 11.5. Notice of Litigation and Other Matters. Prompt notice of:
(a) the commencement, to the extent a Borrower is aware of the same, of
all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating to or affecting the Borrower,
any of its Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties, assets or businesses, which might, singly or in the aggregate,
result in the occurrence of a Default or an Event of Default, or have a
Materially Adverse Effect on a Borrower.
(b) any amendment of the articles of incorporation or by-laws of a
Borrower or Subsidiary,
(c) any change in the business, assets, liabilities, financial condition,
results of operations or business prospects of a Borrower or any Subsidiary
which has had or may reasonably be expected to have, singly or in the
aggregate, a Materially Adverse Effect on a Borrower or any material Subsidiary
and any change in the executive officers of a Borrower, and
(d) any Default or Event of Default or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default by a Borrower or any Subsidiary under any material
agreement (other than this Agreement) to which such Borrower or any Subsidiary
is a party or by which such Borrower, any Subsidiary or any of such Borrower's
or Subsidiary's properties may be bound, including, without limitation, the
agreements assigned under the Distribution Agreement Assignment included in the
BKC Agreements.
SECTION 11.6. ERISA. As soon as possible and in any event within 30 days
after a Borrower knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has occurred or
will occur, or
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(b) the aggregate present value of the Unfunded Vested Accrued Benefits
under all Benefit Plans is equal to an amount in excess of $500,000, or
(c) a Borrower or any Subsidiary is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan required
by reason of such Borrower's or Subsidiary's complete or partial withdrawal (as
described in Section 4203 or 4205 of ERISA) from such Multiemployer Plan,
a certificate of the President or a Financial Officer of ProSource setting forth
the details of such event and the action which is proposed to be taken with
respect thereto, together with any notice or filing which may be required by the
PBGC or other agency of the United States government with respect to such event.
SECTION 11.7. Revisions or Updates to Schedules. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect, as part of the
officer's certificate required pursuant to SECTION 11.3(a)(ii) such revisions or
updates to such Schedule(s) as may be necessary or appropriate to update or
correct such Schedule(s), PROVIDED that no such revisions or updates to any
Schedule(s) shall be deemed to have amended, modified or superseded such
Schedule(s) as originally attached hereto, or to have cured any breach of
warranty or representation resulting from the inaccuracy or incompleteness of
any such Schedule(s), unless and until the Required Lenders in their sole and
absolute discretion, shall have accepted in writing such revisions or updates to
such Schedule(s), PROVIDED FURTHER, HOWEVER, that the Required Lenders shall
approve any amendment to SCHEDULE 7.1(hh) to the extent it reflects additional
accounts approved by the Administrative Agent and as to which all actions
required pursuant to SECTION 8.2(b) shall have been taken.
SECTION 11.8. Restricted Distribution Certificate. Not less than five
Business Days prior to making any Restricted Distribution permitted pursuant to
SECTION 12.6(b) OR 12.6(c), and as a condition precedent to making such payment,
a certificate (which may be furnished to the Administrative Agent only) of the
President or a Financial Officer of ProSource stating:
(a) that each Borrower is in compliance with all of the terms and
conditions of this Agreement and the other Loan Documents to which it is a
party,
(b) that no Default or Event of Default is in existence as of the date of
the certificate or will be in existence as of the date of such payment, both
with and without giving effect to the making of such payment, and
(c) the amount of such payment.
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SECTION 11.9. Onex Management Fee Payments. Not less than five Business
Days prior to any payment of any management fees to Onex permitted by SECTION
12.6(a), and as a condition precedent to making such payment, a certificate
(which may be furnished to the Administrative Agent only) of the President or a
Financial Officer of ProSource stating:
(a) that no Material Default or Event of Default is in existence as of the
date of the certificate or will be in existence as of the date of such payment,
and that no Default or Event of Default will be created by or result from the
making of such payment, and
(b) the amount of such fee to be paid.
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ARTICLE 12
NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been paid in full, unless the Required Lenders shall
otherwise consent in the manner set forth in SECTION 16.11, the Borrowers will
not directly or indirectly and, in the case of SECTIONS 12.2 through 12.16,
will not permit any Subsidiary to:
SECTION 12.
1. Financial Ratios. Permit:
(a) Consolidated Minimum Net Worth. Consolidated Net Worth (i) on and as
of the Effective Date to be less than $48,000,000, (ii) at any time during
Fiscal Year 1995 to be less than the greater of $43,000,000 or actual
Consolidated Net Worth as of the Effective Date minus $5,000,000, or (iii) at
any time during any Fiscal Year indicated below to be less than the actual
Consolidated Net Worth as of the last day of the preceding Fiscal Year minus
the amount shown opposite such Fiscal Year:
<TABLE>
<CAPTION>
Permitted
Fiscal Year Decrease
----------- ------------
<S> <C>
1996 $5,000,000
1997 and thereafter $4,000,000
</TABLE>
PROVIDED, that as of the last day of Fiscal Year 1997 and of each succeeding
Fiscal Year, Consolidated Net Worth shall be at least $1.00 greater than
Consolidated Net Worth as of the last day of the immediately preceding Fiscal
Year.
(b) Minimum Debt Service Coverage Ratio. The Debt Service Coverage Ratio,
as of the last day of Fiscal Year 1995 for the Fiscal Year ending on such last
day or for any period of four consecutive Fiscal Quarters ending after December
31, 1995, for such period, to be less than 1.2 to 1.
(c) Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio,
as of the last day of Fiscal Year 1995 for the Fiscal Year ending on such day,
to be less than 0.60 to 1 or as of the last day of any period of four
consecutive Fiscal Quarters ending during a period described below, to be less
than the ratio shown opposite such period:
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<TABLE>
<CAPTION>
Period Ratio
------ ---------
<S> <C>
Fiscal Year 1996 (excluding
the last day thereof) 0.60 to 1
Last day of Fiscal Year 1996
to (but not including) last day
of Fiscal Year 1997 0.70 to 1
From and after the last day
of Fiscal Year 1997 1.00 to 1
</TABLE>
SECTION 12.2. Debt. Create, assume, or otherwise become or remain
obligated in respect of, or permit or suffer to exist or to be created, assumed
or incurred or to be outstanding any Debt, except that this SECTION 12.2 shall
not apply to:
(a) Debt of the Borrowers represented by the Loans and the Notes,
including, without being limited to, Letter of Credit of Obligations,
(b) Debt reflected on SCHEDULE 7.1(k), excluding any such Indebtedness
that is to be paid in full on the Effective Date,
(c) Permitted Purchase Money Debt,
(d) the New Subordinated Debt,
(e) the Parent Subordinated Debt,
(f) Guaranties permitted hereunder,
(g) Debt of ProSource Canada to the Canadian Lender, which is unsecured
other than by the Canadian Backup L/C,
(h) Debt of ProSource Investments, Inc. owing to ProSource in connection
with a Year-End Sale of Accounts, and
(i) for avoidance of doubt, unsecured, subordinated Indebtedness owing by
ProSource to Onex in respect of accrued management fees permitted pursuant to
SECTION 12.6.
SECTION 12.3. Guaranties. Become or remain liable with respect to any
Guaranty of any obligation of any other Person, provided that ProSource shall be
permitted to Guaranty up to $5,000,000 in principal indebtedness outstanding at
any time incurred by the
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shareholders of the Parent (other than Onex) to NationsBank of Florida, N.A.,
the proceeds of which are contributed to the capital of Parent and contributed
by Parent to the capital of ProSource.
SECTION 12.4. Investments. Acquire, after the Agreement Date, any Business
Unit or Investment or, after such date, maintain any Investment other than
Permitted Investments, PROVIDED that (a) ProSource may maintain its Investment
in its Subsidiaries, (b) the Borrowers may make loans and advances to their
employees in an aggregate principal amount outstanding at any time not to exceed
$100,000 and (c) ProSource may hold each promissory note issued by ProSource
Investments, Inc. in connection with a Year-End Sale of Accounts.
SECTION 12.5. Capital Expenditures. Make or incur any Capital Expenditures
in the aggregate in excess of the amount set forth below for the Fiscal Year set
forth opposite such amount:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -----------
<S> <C>
1995 $15,100,000
1996 $16,900,000
1997 $21,100,000
1998 $17,100,000
1999 and thereafter $14,000,000
</TABLE>
PROVIDED, HOWEVER, that to the extent that the Borrowers make or incur Capital
Expenditures in any Fiscal Year in an amount less than the amount permitted
above for such Fiscal Year, the Borrowers may make or incur all or any portion
of such unutilized amount (the CARRYOVER AMOUNT) in any subsequent Fiscal Year
but only if after giving effect to the expenditure of the Carryover Amount or
portion thereof, Availability is not less than $25,000,000.
SECTION 12.6. Restricted Payments and Distributions, Etc. Declare or make
any Restricted Payment or Restricted Distribution, except as follows:
(a) ProSource may pay or accrue a liability for the payment of management
fees to Onex in the amount of $792,796 in each Fiscal Year and may increase
such amount in each Fiscal Year after Fiscal Year 1995 based on the Consumer
Price Index - All Urban Consumers - National Average (published by the United
States Department of Labor Statistics); PROVIDED, HOWEVER, that ProSource may
not pay or otherwise satisfy such management fees in excess of $375,000 (the
EXCESS FEES) during any Fiscal Year if
(i) a Material Default or an Event of Default shall have occurred and
be continuing on the date of the proposed payment or satisfaction of any
Excess Fees or
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a Default or Event of Default shall occur as a result of the payment of any
Excess Fees,
(ii) average daily Availability shall have been less than $10,000,000
during the 45-day period ending on the date of the proposed payment or
satisfaction of any Excess Fees or after giving effect to any such proposed
payment or satisfaction, Availability shall be less than $10,000,000, or
(iii) the Borrowers shall have failed to deliver the certificate
required by SECTION 11.9;
(b) ProSource may make Restricted Distributions to the Parent to enable
the Parent to make regularly scheduled payments of principal and interest on
the Seller Note required to be made in cash, in accordance with the terms
thereof, provided that
(i) no Material Default or Event of Default shall have occurred and be
continuing on the date of the scheduled payment under the Seller Note or a
Default or Event of Default shall occur as a result of such payment,
(ii) average daily Availability shall not have been less than
$10,000,000 during the 45-day period ending on the date of such payment or
after giving effect to such payment, and
(iii) the Borrowers shall have delivered the certificate required by
Section 11.8;
(c) ProSource may make Restricted Distributions to the Parent to enable
the Parent to redeem shares of its capital stock from members of the Borrower's
management whose employment with a Borrower has terminated pursuant to the
provisions of the Shareholders Agreement, provided that
(i) the aggregate amount of such Restricted Distributions made during
any Fiscal Year MINUS the amount of additional cash equity contributions
received by ProSource during such Fiscal Year from the issuance of capital
stock in the Parent to a new member of the Borrowers' management shall not
exceed $500,000,
(ii) no Material Default or Event of Default shall have occurred and
be continuing on the date of such payment or shall occur as a result of
such payment,
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(iii) average daily Availability shall not have been less than
$25,000,000 during the 45-day period ending on the date of such the payment
and after giving effect to such payment, Availability shall not be less
than $25,000,000, and
(iv) the Borrowers shall have delivered the certificate required by
SECTION 11.8;
(d) the Borrowers may make Restricted Distributions to the Parent in any
Fiscal Year in an amount not greater than the lesser of (i) the consolidated tax
liability of Parent for a prior tax year that is attributable to the taxable
income of the Borrowers, as reasonably determined by the Borrowers, or (ii) the
total consolidated tax liability of Parent for such prior tax year;
(e) the Borrowers may make Restricted Payments from cash proceeds received
by ProSource from issuance and sale of New Subordinated Debt for application to
the repayment of principal of Parent Subordinated Debt, in a total amount equal
to 25% of the cash proceeds of such issuance received by ProSource, up to a
maximum of $15,000,000; and
(f) loans and advances to employees of the Borrowers that are Permitted
Investments may be made despite the possibility of characterizing such loans or
advances also as Restricted Distributions.
SECTION 12.7. Merger, Consolidation and Sale of Assets. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person other than
sales of Inventory in the ordinary course of business and consistent with past
practices of the Borrowers or the Division and sales of Receivables as part of a
Year-End Sale of Accounts.
SECTION 12.8. Transactions with Affiliates. Other than the Restricted
Distributions and the Restricted Payments permitted by SECTION 12.6, the
incurrence of the Parent Subordinated Debt, the consummation of any Year-End
Sale of Accounts, and transactions between ProSource and BroMar consistent with
past practices of the Division and in the ordinary course of such Borrowers'
respective businesses, effect any transaction with Onex, any other Affiliate of
a Borrower or any Affiliate of Onex on a basis less favorable to the Borrowers
than would be the case if such transaction had been effected with a Person not
an Affiliate of a Borrower or Onex. The Borrowers shall deliver written notice
to the Administrative Agent not less than 10 days prior to effecting any
transaction with Onex, any other Affiliate of a Borrower or any Affiliate of
Onex if the value of the cash, property and other consideration to be paid by
the Borrowers (or any of them) in connection with such transaction will exceed
in the aggregate $10,000 or if such transaction is a part of a series of
transactions that involve the Borrowers' (or any Borrower's) payment of cash,
delivery of property or payment of other consideration that in the aggregate
will exceed in value $100,000
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in any Fiscal Year; PROVIDED, HOWEVER, that the Borrowers shall not be required
to deliver such notice in connection with any such transaction with the Parent
if the Borrowers comply with the requirements of SECTION 11.3(a)(iv) for such
transaction; and PROVIDED, FURTHER, that the Borrowers shall not be required to
deliver such notice in connection with the Restricted Distributions and the
Restricted Payments permitted by SECTION 12.6 or the incurrence of the Parent
Subordinated Debt.
SECTION 12.9. Liens. Create, assume or permit or suffer to exist or to be
created or assumed any Lien on any of the Collateral or its other assets, other
than Permitted Liens.
SECTION 12.10. Capitalized Lease Obligations and Purchase Money Debt.
Permit the aggregate amount of Capitalized Lease Obligations and Permitted
Purchase Money Debt to exceed at any time $5,000,000.
SECTION 12.11. Real Estate Leases. Enter into any real property lease,
including a lease relating to the Real Estate occupied by a Borrower on the
Effective Date, without the prior written consent of the Administrative Agent,
which consent shall not be unreasonably withheld or delayed.
SECTION 12.12. Plans. Permit any condition to exist in connection with any
Plan which might constitute grounds for the PBGC to institute proceedings to
have such Plan terminated or a trustee appointed to administer such Plan, and
any other condition, event or transaction with respect to any Plan which could
result in the incurrence by a Borrower of any material liability, fine or
penalty.
SECTION 12.13. Sales and Leasebacks. Enter into any arrangement with any
Person providing for a Borrower's leasing from such Person any real or personal
property which has been or is to be sold or transferred, directly or indirectly,
by a Borrower to such Person.
SECTION 12.14. Amendments to Other Agreements. Enter into or consent to
any material amendment, modification or supplement to the Exclusive Distributor
Agreement (included in the BKC Agreements), PROVIDED that the consent of the
Required Lenders shall not be unreasonably withheld or delayed, or enter into or
consent to any material amendment, modification or supplement to any other
Distribution Agreement (included in the BKC Agreements) if the effect thereof
could reasonably be expected to have a Materially Adverse Effect on the
Borrowers, or enter into or consent to any amendment to either Parent
Subordinated Note or, after execution and delivery thereof, any document or
instrument governing or evidencing New Subordinated Debt.
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SECTION 12.15. Additional Intangible Assets. After the Effective Date,
enter into or complete any transaction (excluding the Division Acquisition) that
would result in the creation of, or otherwise create, any asset or any addition
to any existing asset that would in either case, in accordance with GAAP, be
classified as an intangible asset, other than deferred taxes and such intangible
assets as are reflected in the financial statements of the Borrowers and the
Division referred to in Section 7.1(o).
SECTION 12.16. Limitation on Acquisition Reserves. The acquisition
reserves created as a result of the Division Acquisition, excluding costs and
expenses related to the consummation of the transactions contemplated by the
Division Acquisition Agreement and this Agreement and paid within 60 days after
the Effective Date, shall not exceed $8,000,000.
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ARTICLE 13
DEFAULT
SECTION 13.
1. Events of Default. Each of the following shall constitute an Event of
Default, whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
nongovernmental body:
(a) Default in Payment. The Borrowers shall default in any payment of
principal of or interest on any Loan or any Note when and as due (whether at
maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrowers shall default in the payment, as
and when due, of principal of or interest on, any other Secured Obligation, and
such default shall continue for a period of ten days after written notice
thereof has been given to the Borrowers by the Administrative Agent.
(c) Misrepresentation. Any representation or warranty made or deemed to
be made by a Borrower under this Agreement or any Loan Document, or any
amendment hereto or thereto, shall at any time prove to have been incorrect or
misleading in any material respect when made.
(d) Default in Performance. The Borrowers shall default in the
performance or observance of any term, covenant, condition or agreement to be
performed by any Borrower, contained in
(i) ARTICLES 8, 9, 11 or 12, or SECTION 10.1 (insofar as it requires
the preservation of the corporate existence of each Borrower), or 10.8, and
the Administrative Agent shall have delivered to the Borrowers written
notice of such default, or
(ii) this Agreement (other than as specifically provided for otherwise
in this SECTION 13.1) and such default shall continue for a period of 30
days after written notice thereof has been given to the Borrowers by the
Administrative Agent.
(e) Indebtedness Cross-Default.
(i) A Borrower or any Subsidiary shall fail to pay when due and
payable (subject to any applicable grace or cure periods) the Parent
Subordinated Debt,
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the New Subordinated Debt, if any, or any other Debt (other than the Loans)
in an amount in excess of $500,000, provided that a Borrower's failure to
make a payment of the principal of or interest on the Parent Subordinated
Debt on account of the operation of the subordination provisions thereof
shall not be an Event of Default, or
(ii) the maturity of any such Debt shall have (A) been accelerated in
accordance with the provisions of any indenture, contract or instrument
providing for the creation of or concerning such Indebtedness, or (B) been
required to be prepaid prior to the stated maturity thereof, or
(iii) any event shall have occurred and be continuing which would
permit any holder or holders of such Debt, any trustee or agent acting on
behalf of such holder or holders or any other Person so to accelerate such
maturity, and the Borrowers shall have failed to cure such default prior to
the expiration of any applicable cure or grace period.
(f) Other Cross-Defaults. A Borrower or any Subsidiary shall default in
the payment when due, or in the performance or observance, of any obligation or
condition of any agreement, contract or lease (other than this Agreement, the
Security Documents or any such agreement, contract or lease relating to Debt)
if the existence of any such defaults, singly or in the aggregate, could in the
reasonable judgment of the Administrative Agent have a Materially Adverse
Effect on the Borrowers or any material Subsidiary; PROVIDED, HOWEVER, that for
the purposes of this provision where such a default could result only in a
monetary loss, a Material Adverse Effect shall not be deemed to have occurred
unless the aggregate of such losses would exceed $500,000.
(g) Voluntary Bankruptcy Proceeding. The Parent, a Borrower or any
Subsidiary shall
(i) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect),
(ii) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or composition for adjustment of debts,
(iii) consent to or fail to contest in a timely and appropriate manner
any petition filed against it in an involuntary case under such bankruptcy
laws or other laws,
(iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver,
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custodian, trustee, or liquidator of itself or of a substantial part of its
property, domestic or foreign,
(v) admit in writing its inability to pay its debts as they become
due,
(vi) make a general assignment for the benefit of creditors, or
(vii) take any corporate action for the purpose of authorizing any of
the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding shall
be commenced against the Parent, a Borrower or any Subsidiary in any court of
competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of a Borrower, any Subsidiary or of all or any substantial part of
the assets, domestic or foreign, of a Borrower or Subsidiary,
and such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or an order granting the relief requested in
such case or proceeding against a Borrower or any Subsidiary (including, but not
limited to, an order for relief under such federal bankruptcy laws) shall be
entered.
(i) Failure of Agreements. A Borrower shall challenge the validity and
binding effect of any provision of any Loan Document after delivery thereof
hereunder or shall state its intention to make such a challenge in writing, or
any Loan Document, after delivery thereof hereunder, shall for any reason
(except to the extent permitted by the terms thereof) cease to create a valid
and perfected first priority Lien (except for Permitted Liens) on, or security
interest in, any of the Collateral purported to be covered thereby.
(j) Judgment. A final, unappealable judgment or order for the payment of
money in an amount that exceeds the uncontested insurance available therefor by
$750,000 or more shall be entered against a Borrower or any Subsidiary by any
court and such judgment or order shall continue undischarged or unstayed for 10
days.
(k) Attachment. A warrant or writ of attachment or execution or similar
process which exceeds $50,000 in value shall be issued against any property of
a Borrower or
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any Subsidiary and such warrant or process shall continue undischarged or
unstayed for 10 days.
(l) Loan Documents. Any event of default under any Loan Document shall
occur or a Borrower shall default in the performance or observance of any term,
covenant, condition or agreement contained in, or the payment of any other sum
covenanted to be paid by a Borrower under, any Loan Document and the existence
of such defaults, singly or in the aggregate, could in the reasonable judgment
of the Administrative Agent have a Materially Adverse Effect on a Borrower, any
material Subsidiary or the Parent; PROVIDED, HOWEVER that no event of default
under any Loan Document shall be deemed to have occurred until any notice
required under such Loan Document has been given and any grace period granted
under such Loan Document has expired.
(m) ERISA.
(i) Any Termination Event with respect to a Benefit Plan shall occur
that results in an Unfunded Vested Accrued Benefit in excess of $500,000,
or
(ii) any Benefit Plan shall incur an "accumulated funding deficiency"
(as defined in Section 412 of the Internal Revenue Code or Section
302(a)(2) of ERISA) for which a waiver has not been obtained in accordance
with the applicable provisions of the Internal Revenue Code and ERISA, or
(iii) a Borrower is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan resulting from the
Borrower's complete or partial withdrawal (as described in Section 4203 or
4205 of ERISA) from such Multiemployer Plan.
(n) Change in Control. ProSource shall cease to own, beneficially and of
record, 100% of the outstanding capital stock of BroMar or ProSource Canada;
the Parent shall cease to own, beneficially and of record, 100% of the
outstanding capital stock of ProSource; or Onex shall cease to own,
beneficially and of record, at least 51% of the outstanding voting capital
stock of the Parent either directly or indirectly, through one or more Wholly
Owned Subsidiaries or, in any case, such ownership shall cease to vest in the
owner control of the issuer of such capital stock.
(o) BKC Default; Repudiation. BKC shall default with respect to any
material obligation under or shall repudiate any material provision of, the
Distribution Agreements (included in the BKC Agreements), the effect of which
has or reasonably could be expected to have in the reasonable judgment of the
Required Lenders a Materially Adverse Effect on ProSource.
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SECTION 13.2. Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in SECTION 13.1(g) or (h), (i) the
principal of and the interest on the Loans and any Note at the time
outstanding, and all other amounts owed to the Administrative Agent or the
Lenders under this Agreement or any of the Loan Documents and all other Secured
Obligations, shall thereupon become due and payable without presentment,
demand, protest, or other notice of any kind, all of which are expressly
waived, anything in this Agreement or any of the Loan Documents to the contrary
notwithstanding, and (ii) the Revolving Credit Facility and the right of the
Borrowers to request borrowings under this Agreement shall immediately
terminate.
(b) Other Remedies. If any Event of Default shall have occurred, and
during the continuance of any such Event of Default, the Administrative Agent
may, and at the direction of the Required Lenders in their sole and absolute
discretion shall, do any of the following:
(i) declare the principal of and interest on the Loans and any Note at
the time outstanding, and all other amounts owed to the Administrative
Agent or the Lenders under this Agreement or any of the Loan Documents and
all other Secured Obligations, to be forthwith due and payable, whereupon
the same shall immediately become due and payable without presentment,
demand, protest or other notice of any kind, all of which are expressly
waived, anything in this Agreement or the Loan Documents to the contrary
notwithstanding;
(ii) terminate the Revolving Credit Facility and any other right of
the Borrowers to request borrowings hereunder;
(iii) notify, or request the relevant Borrower to notify, in writing
or otherwise, any Account Debtor or obligor with respect to any one or more
of the Receivables to make payment to the Administrative Agent or any agent
or designee of the Administrative Agent, at such address as may be
specified by the Administrative Agent and if, notwithstanding the giving of
any notice, any Account Debtor or other such obligor shall make payments to
a Borrower, such Borrower shall hold all such payments it receives in trust
for the Administrative Agent, for the account of the Lenders, without
commingling the same with other funds or property of, or held by, a
Borrower, and shall deliver the same to the Administrative Agent or any
such agent or designee of the Administrative Agent immediately upon receipt
by such Borrower in the identical form received, together with any
necessary endorsements;
(iv) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms which
the Administrative
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Agent considers advisable and in all such cases only the net amounts
received by the Administrative Agent, for the account of the Lenders, in
payment of such amounts, after deductions of costs and attorneys' fees,
shall constitute Collateral and no Borrower shall have any further right to
make any such settlements or adjustments or to accept any returns of
merchandise;
(v) enter upon any premises in which Inventory or Equipment may be
located and, without resistance or interference by any Borrower, take
physical possession of any or all thereof and maintain such possession on
such premises or move the same or any part thereof to such other place or
places as the Administrative Agent shall choose, without being liable to
any Borrower on account of any loss, damage or depreciation that may occur
as a result thereof, so long as the Administrative Agent shall act
reasonably and in good faith;
(vi) require each Borrower to and each Borrower shall, without charge
to the Administrative Agent or any Lender, assemble the Inventory and
Equipment and maintain or deliver it into the possession of the
Administrative Agent or any agent or representative of the Administrative
Agent at such place or places as the Administrative Agent may designate and
as are reasonably convenient to both the Administrative Agent and the
Borrowers;
(vii) at the expense of the Borrowers, cause any of the Inventory and
Equipment to be placed in a public or field warehouse, and the
Administrative Agent shall not be liable to any Borrower on account of any
loss, damage or depreciation that may occur as a result thereof, so long as
the Administrative Agent shall act reasonably and in good faith;
(viii) without notice, demand or other process, and without payment of
any rent or any other charge, enter any premises of any Borrower and,
without breach of the peace, until the Administrative Agent completes the
enforcement of its rights in the Collateral, take possession of such
premises or place custodians in exclusive control thereof, remain on such
premises and use the same and any of such Borrower's Equipment, for the
purpose of (A) completing any work in process, preparing any Inventory for
disposition and disposing thereof, and (B) collecting any Receivable, and
the Administrative Agent is hereby granted a license or sublicense and all
other rights as may be necessary, appropriate or desirable to use the
Proprietary Rights in connection with the foregoing, and the rights of such
Borrower under all licenses, sublicenses and franchise agreements shall
inure to the Administrative Agent (PROVIDED, HOWEVER, that any use of any
federally registered trademarks as to any goods shall be subject to the
control as to the quality of such goods of the owner of such trademarks and
the goodwill of the business symbolized thereby, and PROVIDED, FURTHER,
that such grant of license, sublicense and other rights in the Proprietary
Rights
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is not prohibited by any contractual restrictions other than such as may
have been entered into for the purpose of evading this provision);
(ix) exercise any and all of its rights under any and all of the
Security Documents;
(x) apply any Collateral consisting of cash to the payment of the
Secured Obligations in any order in which the Administrative Agent may
elect or use such cash in connection with the exercise of any of its other
rights hereunder or under any of the Security Documents;
(xi) establish or cause to be established one or more Lockboxes or
other arrangement for the deposit of proceeds of Receivables, and, in such
case, each Borrower shall cause to be forwarded to the Administrative Agent
at the Administrative Agent's Office, on a daily basis, copies of all
checks and other items of payment and deposit slips related thereto
deposited in such Lockboxes, together with collection reports in form and
substance satisfactory to the Administrative Agent; and
(xii) exercise all of the rights and remedies of a secured party under
the Uniform Commercial Code and under any other Applicable Law, including,
without limitation, the right, without notice except as specified below and
with or without taking the possession thereof, to sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any
location chosen by the Administrative Agent, for cash, on credit or for
future delivery, and at such price or prices and upon such other terms as
the Administrative Agent may deem commercially reasonable. Each Borrower
agrees that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrowers of the time and place of any public
sale or the time after which any private sale is to be made shall
constitute reasonable notification, but notice given in any other
reasonable manner or at any other reasonable time shall constitute
reasonable notification. The Administrative Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been
given. The Administrative Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned.
(c) Additional Louisiana Remedies. Certain of the Collateral described
in this Agreement is located in the State of Louisiana or may be subject to the
laws of the State of Louisiana (provided, however, the parties by this section
in no way intend to derogate from the choice of law contained in SECTION 16.19
below). With respect to such Collateral, the following subsections (d) through
(j) shall apply.
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(d) Confession of Judgment; Executory and Other Process. Each Borrower
confesses judgment in favor of the Administrative Agent, for the benefit of
itself as Administrative Agent and the Lenders, for the full amount of the
Secured Obligations. Each Borrower agrees that, upon the occurrence and during
the continuance of an Event of Default, the Administrative Agent may, without
making further demand and without further notice or putting in default (which
are hereby expressly waived), cause the Collateral, or any portion of it, to be
seized and sold with or without appraisal (at Administrative Agent's option) by
executory process issued by any competent court or enforce this Agreement in
any other manner provided by law. The Administrative Agent may exercise the
rights and remedies set forth in this paragraph in addition to (and whether or
not) it also exercises its rights under any other provision of this Agreement
or any other agreements between and among the Borrowers (or any of them), the
Administrative Agent and the Lenders with respect to the Secured Obligations.
If any proceedings (by executory process or otherwise) are commenced, all
declarations of fact made by authentic act by a person declaring that he or she
has personal knowledge of the facts shall constitute authentic evidence of the
facts for all purposes.
(e) No Court Hearing. The Borrower recognizes that the Administrative
Agent shall have the right to cause the Collateral to be seized and sold by
executory process without any prior court hearing at which such Borrower could
appear and make objection. Each Borrower specifically waives any right that it
may have to a court hearing prior to the seizure and sale of the Collateral.
(f) Waivers. Each Borrower expressly waives: (i) the benefit of
appraisement, as provided in articles 2332, 2336, 2723 and 2724 of the
Louisiana Code of Civil Procedure, and all other laws conferring the same; (ii)
the demand and three days' delay provided by articles 2331, 2639, 2721 and 2722
of the Louisiana Code of Civil Procedure and all other laws conferring the
same; (iii) the notice of seizure as provided in articles 2293 and 2721 of the
Louisiana Code of Civil Procedure. Each Borrower expressly agrees to the
immediate seizure of the Collateral in the event of suit to enforce this
Agreement. The Administrative Agent shall not be obligated to take advantage
of the waiver of appraisal or any other waiver set forth herein but may at its
option cause the Collateral to be appraised upon foreclosure in accordance with
law and observe the statutory provisions referred to in this paragraph.
(g) Keeper. Each Borrower and the Administrative Agent designate the
Administrative Agent or any agent or nominee of the Administrative Agent as
keeper of the Collateral and also authorize the Administrative Agent to name
another keeper of the Collateral or any portion thereof at the time of seizure
in any action for the recognition or enforcement of this Agreement, but the
Administrative Agent shall not be required to seek the appointment of a keeper.
This agreement is made pursuant to La. R.S. 9:Section 5136 et seq., the
provisions of which shall govern the powers and duties of the keeper. The
keeper shall be paid as compensation for its services an amount equal to $500
per day. All sums paid by the
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Administrative Agent as keeper's fees and related costs and expenses, with
interest thereon at the default rate specified above in SECTION 5.1(b), shall
be Secured Obligations secured by this Agreement.
(h) Search. If it becomes necessary for the Administrative Agent to
search for all or any of the Collateral at the time of foreclosure, the
Administrative Agent may do so and the Borrowers shall reimburse the
Administrative Agent on demand for the expenses incurred by the Administrative
Agent in doing so with interest at the default rate specified above in SECTION
5.1(b), and this amount shall be Secured Obligations secured by this Agreement.
(i) Waiver of Exemptions. Each Borrower waives in favor of the
Administrative Agent all homestead exemptions and other exemptions from seizure
to which it may be entitled.
(j) Power of Attorney. The grant of authority contained in this SECTION
13.2(c) is intended by each Borrower to be an irrevocable power of attorney,
coupled with an interest, as permitted by Louisiana law, including, but not
limited to, the provisions of La. R.S. 9:Section 5388.
SECTION 13.3. Application of Proceeds. All proceeds from each sale of, or
other realization upon, all or any part of the Collateral during the continuance
of an Event of Default shall be applied or paid over as follows:
(a) First: to the payment of all reasonable costs and expenses incurred
in connection with such sale or other realization, including reasonable
attorneys' fees,
(b) Second: to the ratable payment of the Secured Obligations held by the
Lenders (in any capacity hereunder) (with the Borrowers remaining liable for
any deficiency) strictly in proportion to the amount of Secured Obligations
held by each of them as the Administrative Agent may elect,
(c) Third: the balance (if any) of such proceeds shall be paid to the
appropriate Borrower, subject to any duty imposed by law, or otherwise to
whomsoever shall be entitled thereto.
THE BORROWERS SHALL REMAIN LIABLE, JOINTLY AND SEVERALLY, AND WILL PAY, ON
DEMAND, ANY DEFICIENCY REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER
WITH INTEREST THEREON AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE
HEREUNDER ON SUCH SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF
THE SECURED OBLIGATIONS.
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SECTION 13.4. Power of Attorney. In addition to the authorizations granted
to the Administrative Agent under SECTION 9.13 or under any other provision of
this Agreement or of any other Loan Document, during the continuance of an Event
of Default, each Borrower hereby irrevocably designates, makes, constitutes and
appoints the Administrative Agent (and all Persons designated by the
Administrative Agent from time to time) as such Borrower's true and lawful
attorney, and agent in fact, and the Administrative Agent, or any agent of the
Administrative Agent, may, without notice to any Borrower, and at such time or
times as the Administrative Agent or any such agent in its sole discretion may
determine, in the name of a Borrower, the Administrative Agent or the Lenders,
(i) demand payment of the Receivables,
(ii) enforce payment of the Receivables by legal proceedings or
otherwise,
(iii) exercise all of the relevant Borrower's rights and remedies with
respect to the collection of Receivables,
(iv) settle, adjust, compromise, extend or renew any or all of the
Receivables,
(v) settle adjust or compromise any legal proceedings brought to
collect the Receivables,
(vi) discharge and release the Receivables or any of them,
(vii) prepare, file and sign the name of the relevant Borrower on any
proof of claim in bankruptcy or any similar document against any Account
Debtor,
(viii) prepare, file and sign the name of the relevant Borrower on any
notice of Lien, assignment or satisfaction of Lien, or similar document in
connection with any of the Collateral,
(ix) endorse the name of the relevant Borrower upon any chattel paper,
document, instrument, notice, freight bill, bill of lading or similar
document or agreement relating to the Receivables, the Inventory or any
other Collateral,
(x) use the stationery of any Borrower and sign the name of the
relevant Borrower to verifications of the Receivables and on any notice to
the Account Debtors,
(xi) open the Borrowers' mail,
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(xii) notify the post office authorities to change the address for
delivery of the Borrowers' mail to an address designated by the
Administrative Agent, and
(xiii) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Receivables, Inventory or other Collateral to which any Borrower may have
access.
SECTION 13.5. Miscellaneous Provisions Concerning Remedies.
(a) Rights Cumulative. The rights and remedies of the Administrative
Agent and the Lenders under this Agreement, the Notes and each of the Loan
Documents shall be cumulative and not exclusive of any rights or remedies which
it or they would otherwise have. In exercising such rights and remedies the
Administrative Agent and the Lenders may be selective and no failure or delay
by the Administrative Agent or any Lender in exercising any right shall operate
as a waiver of it, nor shall any single or partial exercise of any power or
right preclude its other or further exercise or the exercise of any other power
or right.
(b) Waiver of Marshalling. Each Borrower hereby waives any right to
require any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this ARTICLE 13 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Administrative Agent, any Lender or any agent or
designee of the Administrative Agent or any Lender to make any demand, or to
make any inquiry as to the nature or sufficiency of any payment received by it,
or to present or file any claim or notice or take any action, with respect to
any Receivable or any other Collateral or the monies due or to become due
thereunder or in connection therewith, or to take any steps necessary to
preserve any rights against prior parties, and the Administrative Agent, the
Lenders and their agents or designees shall have no liability to any Borrower
for actions taken pursuant to this ARTICLE 13, any other provision of this
Agreement or any of the Loan Documents so long as the Administrative Agent or
such Lender shall act reasonably and in good faith.
(d) Appointment of Receiver. In any action under this ARTICLE 13, the
Administrative Agent shall be entitled during the continuance of an Event of
Default to the appointment of a receiver, without notice of any kind
whatsoever, to take possession of all or any portion of the Collateral and to
exercise such power as the court shall confer upon such receiver.
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ARTICLE 14
ASSIGNMENTS
SECTION 14.
1. Successors and Assigns; Participations.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrowers, the Lenders, the Administrative Agent, all future holders of the
Notes, and their respective successors and assigns, except that no Borrower may
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Each Lender may assign to one or more Eligible Assignees all or a
portion of its interests, rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Loans
at the time owing to it and the Notes held by it); PROVIDED, HOWEVER, that (i)
each such assignment shall be of a constant, and not a varying, percentage of
all the assigning Lender's rights and obligations under this Agreement, (ii)
the amount of the Commitment of the assigning Lender that is subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall in
no event be less than the Minimum Commitment, (iii) in the case of a partial
assignment, the amount of the Commitment that is retained by the assigning
Lender (determined as of the date the Assignment and Acceptance with respect to
such assignment is delivered to the Administrative Agent) shall in no event be
less than the Minimum Commitment, (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register (as hereinafter defined) an Assignment and
Acceptance, together with any Note or Notes subject to such assignment and such
assignee's pro rata share of the Administrative Agent's syndication expenses,
(v) such assignment shall not, without the consent of ProSource, require the
Borrowers to file a registration statement with the Securities and Exchange
Commission or apply to or qualify the Loans or the Notes under the blue sky
laws of any state, and (vi) the representation contained in SECTION 14.2 hereof
shall be true with respect to any such proposed assignee. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, (x) the assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder, and (y) the Lender
assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement.
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(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such
Lender assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement
or any other instrument or document furnished pursuant hereto; (ii) such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower or the performance or
observance by any Borrower of any of its obligations under this Agreement or
any other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in SECTION 7.1(o) and such other documents
and information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance; (iv) such assignee
will, independently and without reliance upon the Administrative Agent, such
Lender assignor or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Administrative Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(d) The Administrative Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Lenders and the Commitment Percentage of, and principal amount
of the Loans owing to, each Lender from time to time (the REGISTER). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrowers, the Administrative Agent and the Lenders may treat each
person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrowers or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Eligible Assignee together with any Note or Notes
subject to such assignment and the written consent to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in the form of EXHIBIT E, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register,
(iii) give prompt notice thereof to the Lenders and the Borrowers, and (iv)
promptly deliver a
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copy of such Acceptance and Assignment to the Borrowers. Within five Business
Days after receipt of notice, the Borrowers shall execute and deliver to the
Administrative Agent in exchange for the surrendered Note or Notes a new Note
or Notes to the order of such Eligible Assignee in amounts equal to the
Commitment Percentage assumed by such Eligible Assignee pursuant to such
Assignment and Acceptance and a new Note or Notes to the order of the assigning
Lender in an amount equal to the Commitment, if any, retained by it hereunder.
Such new Note or Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note or Notes, shall be dated
the effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of the assigned Notes delivered to the assignor Lender.
Each surrendered Note or Notes shall be canceled and returned to the Borrowers.
(f) Each Lender may, after 120 days after the Effective Date, sell
participations to one or more banks or other entities in all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its commitments hereunder and the Loans owing to it and the
Notes held by it); PROVIDED, HOWEVER, that (i) each such participation shall be
in an amount not less than the Minimum Commitment, (ii) such Lender's
obligations under this Agreement (including, without limitation, its
commitments hereunder) shall remain unchanged, (iii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iv) such Lender shall remain the holder of the Notes held by it
for all purposes of this Agreement, (v) the Borrowers, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement; PROVIDED, that such Lender may agree with any participant that such
Lender will not, without such participant's consent, agree to or approve any
waivers or amendments which would reduce the principal of or the interest rate
on any Loans, extend the term or increase the amount of the commitments of such
participant, reduce the amount of any fees to which such participant is
entitled, extend any scheduled payment date for principal or release material
Collateral securing the Loans (other than Collateral disposed of pursuant to
SECTION 9.7 hereof or otherwise in accordance with the terms of this Agreement
or the Security Documents), and (vi) any such disposition shall not, without
the consent of ProSource, require any Borrowers to file a registration
statement with the Securities and Exchange Commission to apply to qualify the
Loans or the Notes under the blue sky law of any state. The Lender selling a
participation to any bank or other entity shall give prompt notice thereof to
the Administrative Agent and the Borrowers.
(g) Any Lender may, in connection with any assignment, proposed
assignment, participation or proposed participation pursuant to this SECTION
14.1, disclose to the assignee, participant, proposed assignee or proposed
participant, any information relating to any Borrower furnished to such Lender
by or on behalf of a Borrower; PROVIDED, that, prior to any such disclosure,
each such assignee, proposed assignee, participant or proposed participant
shall agree with the Borrowers or such Lender (and in the case of an agreement
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with only such Lender, the Borrowers shall be recognized as third party
beneficiaries thereof) to preserve the confidentiality of any confidential
information relating to any Borrower received from such Lender.
SECTION 14.2. Representation of Lenders. Each Lender hereby represents
that it will make each Loan hereunder as a commercial loan for its own account
in the ordinary course of its business; PROVIDED, HOWEVER, that subject to
SECTION 13.1 hereof, the disposition of the Notes or other evidence of the
Secured Obligations held by any Lender shall at all times be within its
exclusive control.
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ARTICLE 15
ADMINISTRATIVE AGENT
SECTION 15.
1. Appointment of Administrative Agent. Each of the Lenders hereby
irrevocably designates and appoints NationsBank of Georgia, N.A. as the
Administrative Agent of such Lender under this Agreement and the other Loan
Documents, and each such Lender irrevocably authorizes Administrative Agent, as
the Administrative Agent for such Lender to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and such other Loan
Documents, including, without limitation, to make determinations as to the
eligibility of Inventory and Receivables and to lower the advance ratios
contained in the definition "BORROWING BASE", together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement or such other Loan Documents, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein and therein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or the other Loan
Documents or otherwise exist against the Administrative Agent.
SECTION 15.2. Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
SECTION 15.3. Exculpatory Provisions. Neither the Administrative Agent nor
any of its trustees, officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (i) liable to any Lender (or any Lender's participants)
for any action lawfully taken or omitted to be taken by it or such Person under
or in connection with this Agreement or the other Loan Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any Lender (or any Lender's participants) for any
recitals, statements, representations or warranties made by a Borrower or any
officer thereof contained in this Agreement or the other Loan Documents or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Documents or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or for any failure of any Borrower to perform its obligations
hereunder or thereunder. The Administrative Agent shall not be under any
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obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of any Borrower.
SECTION 15.4. Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Borrowers), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with SECTION 14.1. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this Agreement
and the other Loan Documents unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement and the Notes in
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Notes.
SECTION 15.5. Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender or a Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall promptly give notice thereof to the Lenders. The Administrative
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; PROVIDED, that, unless and
until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) continue making
Revolving Credit Loans to the Borrowers on behalf of the Lenders in reliance on
the provisions of SECTION 5.16 and take such other action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
SECTION 15.6. Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
any Borrower, shall be deemed to constitute any
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representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of each Borrower and made its
own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of each Borrower. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder or by the other Loan Documents and
reports of field examinations or other similar analysis which the Administrative
Agent agrees to provide, on request, to any Lender, the Administrative Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, financial
and other condition or creditworthiness of any Borrower which may come into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
SECTION 15.7. Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrowers to do so),
ratably according to their respective Commitment Percentages, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Notes) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
the other Loan Documents, or any documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or thereby or any action
taken or omitted by the Administrative Agent under or in connection with any of
the foregoing; PROVIDED, that, no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Administrative Agent's gross negligence or willful misconduct or resulting
solely from transactions or occurrences that occur at a time after such Lender
has assigned all of its interests, rights and obligations under this Agreement
pursuant to SECTION 14.1 or, in the case of a Lender to which an assignment is
made hereunder pursuant to SECTION 14.1, at a time before such assignment. The
agreements in this subsection shall survive the payment of the Notes, the
Secured Obligations and all other amounts payable hereunder and the termination
of this Agreement.
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SECTION 15.8. NationsBank in Its Individual Capacity. NationsBank (and any
Lender that is a successor Administrative Agent) and its Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the Borrowers, the Parent and their respective Subsidiaries as if it were not
the Administrative Agent hereunder. With respect to its Commitment, the Loans
made or renewed by it and any Note issued to it as a Lender and any Letter of
Credit issued by it, NationsBank (or such successor) shall have and may exercise
the same rights and powers under this Agreement and the other Loan Documents and
is subject to the same obligations and liabilities as and to the extent set
forth herein and in the other Loan Documents for any other Lender. The terms
"LENDERS" or "REQUIRED LENDERS" or any other term shall, unless the context
clearly otherwise indicates, include NationsBank (or such successor) in its
capacity as a Lender or one of the Required Lenders.
SECTION 15.9. Resignation and Removal of Administrative Agent. The
Administrative Agent may resign as Administrative Agent upon ten days' notice to
the Lenders for any reason, and the Administrative Agent may be removed at the
unanimous election of all of the Lenders (other than the Lender that is also the
Administrative Agent) for any reason. If the Administrative Agent shall resign
or be removed as Administrative Agent under this Agreement, then the Required
Lenders shall appoint from among the Lenders (other than the Lender who shall
have resigned or shall have been removed) a successor agent for the Lenders
which successor agent shall be approved by ProSource (which approval shall not
be unreasonably withheld) unless ProSource is at the relevant time a debtor in a
case under the United States federal Bankruptcy Code, whereupon such successor
agent shall succeed to the rights, powers and duties of the Administrative
Agent, and the term "ADMINISTRATIVE AGENT" shall mean such successor agent
effective upon its appointment, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Notes. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative Agent,
the provisions of SECTION 15.7 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement.
SECTION 15.10. Notices from Administrative Agent to Lenders. The
Administrative Agent shall, promptly upon receipt thereof, forward to each
Lender copies of any written notices, reports or other information supplied to
it by a Borrower (but which the Borrowers are not required to supply directly to
the Lenders).
SECTION 15.11. Co-Agents. For avoidance of doubt, it is expressly
acknowledged and agreed by the Administrative Agent and each Lender for the
benefit of the Co-Agents that, other than the rights explicitly reserved to the
Co-Agents under this Agreement, no Co-Agent, in such capacity, has any
obligations hereunder nor shall any Co-Agent, in such capacity, be responsible
or accountable to any other party hereto for any action or failure to act
hereunder, other than in connection with such explicitly reserved rights and
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then only for claims, damages, losses (other than consequential losses) and
other liabilities arising out such Co-Agent's own gross negligence or willful
misconduct.
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ARTICLE 16
MISCELLANEOUS
SECTION 16.
1. Notices.
(a) Method of Communication. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and other communications
hereunder and thereunder shall be in writing or by telephone, subsequently
confirmed in writing. Notices in writing shall be delivered personally or sent
by certified or registered mail, postage pre-paid, or by overnight courier,
telex or facsimile transmission and shall be deemed received when actually
received by the addressee or, if sooner, in the case of personal delivery, when
delivered, in the case of mailing, when receipted for, in the case of overnight
delivery, on the next Business Day after delivery to the courier, and in the
case of telex and facsimile transmission, upon transmittal if during regular
business hours at the destination or at the open of the next Business Day,
provided that in the case of notices to the Administrative Agent, notice shall
be deemed to have been given only when such notice is actually received by the
Administrative Agent. A telephonic notice to the Administrative Agent, as
understood by the Administrative Agent, will be deemed to be the controlling
and proper notice in the event of a discrepancy with or failure to receive a
confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address of which such party notifies all
the other parties in writing:
<TABLE>
<S> <C>
If to any Borrower: [c/o] ProSource Services Corporation
550 Biltmore Way
Coral Gables, Florida 33134
Attn: David R. Parker
Facsimile No.: (305) 529-2573
with copies to: Onex Corporation
161 Bay Street
Suite 2500
Toronto, Ontario, Canada M5J 2S1
Attn: Gerald W. Schwartz
Facsimile No.: (416) 362-5765
</TABLE>
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<PAGE> 165
<TABLE>
<S> <C>
Kaye, Scholer, Fierman, Hays &
Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Facsimile No.: (212) 836-7152
If to the Administrative NationsBank of Georgia, N.A.
Agent: Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: John W. Getz
Facsimile No.: 404-607-6439
If to a Lender: At the address of such Lender
set forth on the signature
pages hereof.
</TABLE>
(c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at 600 Peachtree Street, Atlanta, Georgia 30308,
or any subsequent office which shall have been specified for such purpose by
written notice to the Borrowers, as the office to which payments due are to be
made and at which Loans will be disbursed.
SECTION 16.2. Expenses. The Borrowers agree to pay or reimburse on demand
all reasonable costs and expenses incurred by the Administrative Agent or any
Lender, including, without limitation, the reasonable fees and disbursements of
counsel, in connection with
(a) the negotiation, preparation, execution, delivery, administration,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including,
without limitation
(i) the reasonable out-of-pocket costs and expenses incurred in
connection with the administration and interpretation of this Agreement and
the other Loan Documents;
(ii) the reasonable costs and expenses of appraisals of the
Collateral;
(iii) the reasonable costs and expenses of lien and title searches and
title insurance;
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(iv) the reasonable costs and expenses of environmental reports with
respect to the Real Estate;
(v) taxes, fees and other charges for recording the Mortgages, filing
the Financing Statements and continuations and the reasonable costs and
expenses of taking other actions to perfect, protect, and continue the
Security Interests;
PROVIDED, HOWEVER, that the Borrowers shall not be required to pay the expenses
of any Person which becomes a Lender after the date hereof incurred in
connection with such Person's so becoming a Lender;
(b) the preparation, execution and delivery of any waiver, amendment,
supplement or consent by the Administrative Agent and the Lenders relating to
this Agreement or any of the Loan Documents;
(c) sums paid or incurred to pay any amount or take any action required of
a Borrower under the Loan Documents that a Borrower fails to pay or take;
(d) reasonable costs of inspections and verifications of the Collateral,
including, without limitation, standard per diem fees charged by the
Administrative Agent or the Lenders, travel, lodging, and meals for inspections
of the Collateral and the Borrowers' operations and books and records by the
Administrative Agent's and/or the Lenders' agents up to four times per year and
whenever an Event of Default exists;
(e) reasonable costs and expenses of forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining each
Controlled Disbursement Account, Agency Account and Lockbox;
(f) reasonable costs and expenses of preserving and protecting the
Collateral;
(g) consulting, after the occurrence of a Default, with one or more
Persons, including appraisers, accountants and lawyers, concerning the value of
any Collateral for the Secured Obligations or related to the nature, scope or
value of any right or remedy of the Administrative Agent or any Lender
hereunder or under any of the Loan Documents, including any review of factual
matters in connection therewith, which expenses shall include the reasonable
fees and disbursements of such Persons;
(h) reasonable costs and expenses paid or incurred to obtain payment of
the Secured Obligations, enforce the Security Interest, sell or otherwise
realize upon the Collateral, and otherwise enforce the provisions of the Loan
Documents, or to prosecute or defend any claim in any way arising out of,
related to or connected with, this Agreement or
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any of the Loan Documents, which expenses shall include the reasonable fees and
disbursements of counsel and of experts and other consultants retained by the
Administrative Agent or any Lender.
The foregoing shall not be construed to limit any other provisions of the
Loan Documents regarding costs and expenses to be paid by a Borrower. Each
Borrower hereby authorizes the Administrative Agent and the Lenders to debit
the Loan Accounts (by increasing the principal amount of the Revolving Credit
Loan) in the amount of any such costs and expenses owed by a Borrower when due.
The Lenders shall to the extent reasonably practicable coordinate their
activities in the administration of the Loan Documents through the
Administrative Agent to avoid unnecessary duplication of costs and expenses
that a Borrower is required to pay or reimburse under this SECTION 16.2,
PROVIDED that neither the Lenders nor the Administrative Agent shall be under
any obligation to coordinate such activities during the continuation of an
Event of Default.
SECTION 16.3. Stamp and Other Taxes. The Borrowers will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Administrative Agent and the Lenders against any and all
liabilities with respect to or resulting from any delay in the payment or
omission to pay any such taxes, fees or charges, which may be payable or
determined to be payable in connection with the execution, delivery, performance
or enforcement of this Agreement and any of the Loan Documents or the perfection
of any rights or security interest thereunder, including, without limitation,
the Security Interest.
SECTION 16.4. Setoff. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, during the
continuance of any Event of Default, each Lender, any participant with such
Lender in the Loans and each Affiliate of NationsBank are hereby authorized by
each Borrower at any time or from time to time, without notice to any Borrower
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and to apply any and all deposits (general or special,
including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured) and any other indebtedness at any time
held or owing by any Lender or any Affiliate of NationsBank or any participant
to or for the credit or the account of any Borrower against and on account of
the Secured Obligations irrespective or whether or not
(a) Administrative Agent or such Lender shall have made any demand under
this Agreement or any of the Loan Documents, or
(b) the Administrative Agent or such Lender shall have declared any or all
of the Secured Obligations to be due and payable as permitted by SECTION 13.2
and although such Secured Obligations shall be contingent or unmatured.
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SECTION 16.5. LITIGATION. EACH BORROWER, THE ADMINISTRATIVE AGENT AND
EACH LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED BY OR AGAINST A BORROWER, THE ADMINISTRATIVE AGENT AND
SUCH LENDER ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR ANY ASSIGNMENT
THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN A BORROWER
AND THE ADMINISTRATIVE AGENT OR ANY LENDER OF ANY KIND OR NATURE. EACH
BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER HEREBY AGREES THAT THE
FEDERAL COURT OF THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE
ADMINISTRATIVE AGENT OR ANY LENDER, ANY COURT IN WHICH THE ADMINISTRATIVE AGENT
OR SUCH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE
NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
ANY BORROWER AND THE ADMINISTRATIVE AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING
THEREFROM. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS, HEREBY
WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
A BORROWER AT THE ADDRESS OF SUCH BORROWER SET FORTH IN SECTION 16.1. SHOULD
SUCH BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS
SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL BE DEEMED
IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR
PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE NONEXCLUSIVE
CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
SECTION 16.6. WAIVER OF RIGHTS. EACH BORROWER HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES ALL RIGHTS WHICH SUCH BORROWER HAS UNDER
CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR UNDER ANY SIMILAR
PROVISION OF APPLICABLE LAW TO NOTICE AND TO A JUDICIAL HEARING PRIOR TO THE
ISSUANCE OF A WRIT OF POSSESSION ENTITLING THE ADMINISTRATIVE AGENT OR ANY
LENDER, OR THE SUCCESSORS AND ASSIGNS OF THE ADMINISTRATIVE AGENT OR SUCH LENDER
TO POSSESSION OF THE COLLATERAL UPON EVENT OF DEFAULT. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING AND WITHOUT LIMITING ANY OTHER RIGHT WHICH THE
ADMINISTRATIVE AGENT OR THE LENDERS MAY HAVE, EACH BORROWER CONSENTS THAT IF THE
ADMINISTRATIVE AGENT OR ANY LENDER FILES A PETITION FOR AN IMMEDIATE WRIT OF
POSSESSION IN COMPLIANCE WITH SECTIONS 44-14-261 AND 44-14-262 OF THE OFFICIAL
CODE OF GEORGIA OR UNDER ANY SIMILAR PROVISION OF APPLICABLE LAW, AND THIS
WAIVER OR A COPY HEREOF IS ALLEGED IN SUCH PETITION AND ATTACHED THERETO, THE
COURT BEFORE WHICH SUCH PETITION IS FILED MAY DISPENSE WITH ALL RIGHTS AND
PROCEDURES HEREIN WAIVED AND MAY ISSUE FORTHWITH AN IMMEDIATE WRIT OF POSSESSION
IN ACCORDANCE WITH CHAPTER 14 OF TITLE 44 OF THE OFFICIAL CODE OF GEORGIA OR IN
ACCORDANCE WITH ANY SIMILAR PROVISION OF APPLICABLE LAW,
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WITHOUT THE NECESSITY OF AN ACCOMPANYING BOND AS OTHERWISE REQUIRED BY SECTION
44-14-263 OF THE OFFICIAL CODE OF GEORGIA OR BY ANY SIMILAR PROVISION UNDER
APPLICABLE LAW. EACH BORROWER HEREBY ACKNOWLEDGES THAT IT HAS READ AND FULLY
UNDERSTANDS THE TERMS OF THIS WAIVER AND THE EFFECT HEREOF.
SECTION 16.7. Consent to Advertising and Publicity. With the prior written
consent of ProSource, which consent shall not be unreasonably withheld, the
Administrative Agent, on behalf of the Lenders, may issue and disseminate to the
public information describing the credit accommodation entered into pursuant to
this Agreement, including the name and address of each Borrower, the amount,
interest rate, maturity, collateral and a general description of the Borrowers'
businesses.
SECTION 16.8. Reversal of Payments. The Administrative Agent and each
Lender shall have the continuing and exclusive right to apply, reverse and
re-apply any and all payments to any portion of the Secured Obligations in a
manner consistent with the terms of this Agreement. To the extent a Borrower
makes a payment or payments to the Administrative Agent, for the account of the
Lenders, or any Lender receives any payment or proceeds of the Collateral for a
Borrower's benefit, which payment(s) or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Secured Obligations or part
thereof intended to be satisfied shall be revived and continued in full force
and effect, as if such payment or proceeds had not been received by the
Administrative Agent or such Lender.
SECTION 16.9. Injunctive Relief. Each Borrower recognizes that, in the
event it fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to the Administrative Agent and the Lenders; therefore, each Borrower
agrees that if any Event of Default shall have occurred and be continuing, the
Administrative Agent and the Lenders, if the Administrative Agent or any Lender
so requests, shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damages.
SECTION 16.10. Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrowers to determine whether it is in compliance with any covenant contained
herein, shall, unless this Agreement otherwise provides or unless Required
Lenders shall otherwise consent in writing, be performed in accordance with
GAAP.
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SECTION 16.11. Amendments.
(a) Except as set forth in SUBSECTION (b) below, any term, covenant,
agreement or condition of this Agreement or any of the Loan Documents may be
amended or waived, and any departure therefrom may be consented to by the
Required Lenders, if, but only if, such amendment, waiver or consent is in
writing signed by the Required Lenders and, in the case of an amendment (other
than an amendment described in SECTION 16.11(d)), by the Borrowers, PROVIDED
that no such amendment, unless consented to by the Administrative Agent, shall
alter or affect the rights or responsibilities of the Administrative Agent, and
in any such event, the failure to observe, perform or discharge any such term,
covenant, agreement or condition (whether such amendment is executed or such
waiver or consent is given before or after such failure) shall not be construed
as a breach of such term, covenant, agreement or condition or as a Default or
an Event of Default. Unless otherwise specified in such waiver or consent, a
waiver or consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given. In the event that any
such waiver or amendment is requested by the Borrowers, the Administrative
Agent and the Lenders may require and charge a fee in connection therewith and
consideration thereof in such amount as shall be determined by the
Administrative Agent and the Required Lenders in their discretion.
(b) Without the prior unanimous written consent of the Lenders,
(i) no amendment, consent or waiver shall (A) affect the amount or
extend the time of the obligation of any Lender to make Loans or (B) extend
the originally scheduled time or times of payment of the principal of any
Loan or (C) alter the time or times of payment of interest on any Loan or
of any fees payable for the account of the Lenders or (D) alter the amount
of the principal of any Loan or the rate of interest thereon or (E) alter
the amount of any commitment fee or other fee payable hereunder for the
account of the Lenders or (F) permit any subordination of the principal of
or interest on any Loan or (G) permit the subordination of the Security
Interests in any Collateral,
(ii) no Collateral having an aggregate value greater than $250,000
shall be released by the Administrative Agent in any 12-month period other
than as specifically permitted in this Agreement or the Security Documents
nor shall any Collateral be released at a time when the Administrative
Agent is entitled to exercise remedies hereunder upon default, nor shall
any Borrower or the Parent be released from its liability for the Secured
Obligations,
(iii) except to the extent expressly provided in SECTIONS 5.16, 15.1
and 16.11(c), the definition "BORROWING BASE" shall not be amended,
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(iv) none of the provisions of this SECTION 16.11, the definitions
"LENDERS" or "REQUIRED LENDERS", or the provisions of ARTICLE 13 shall be
amended, and
(v) neither the Administrative Agent nor any Lender shall consent to
any amendment to or waiver of the amortization, deferral or subordination
provisions of either Parent Subordinated Note, the documents governing the
New Subordinated Debt after the execution and delivery thereof, or any
other instrument or agreement evidencing or relating to obligations of the
Borrowers (or any of them) that are expressly subordinate to any of the
Secured Obligations if such amendment or waiver would be adverse to the
Lenders in their capacities as Lenders hereunder;
PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, the
Required Lenders shall have the right to waive any Default or Event of Default
and the consequences hereunder of such Default or Event of Default provided only
that such Default or Event of Default does not arise under SECTION 13.1(g) OR
(h) or out of a breach of or failure to perform or observe any term, covenant or
condition of this Agreement or any other Loan Document (other than the
provisions of ARTICLE 13 of this Agreement) the amendment of which requires the
unanimous consent of the Lenders. The Required Lenders shall have the right,
with respect to any Default or Event of Default that may be waived by them, to
enter into an agreement with the Borrowers or the Parent providing for the
forbearance from the exercise of any remedies provided hereunder or under the
other Loan Documents without thereby waiving any such Default or Event of
Default.
(c) The Co-Agents shall have the right to reduce (or eliminate) the amount
of the reserve specified in clause (b)(iii)(A) of the definition "BORROWING
BASE" for a single period of up to 30 consecutive days during each six-month
period during the term hereof. The Co-Agents shall notify the Administrative
Agent promptly of any such reduction and the Administrative Agent shall
promptly notify the Lenders thereof. Except in accordance with the provisions
of this SUBSECTION (c), the consent of the Required Lenders shall be required
to reduce or eliminate such reserve.
(d) The making of Loans hereunder by the Lenders during the existence of a
Default or Event of Default shall not be deemed to constitute a waiver of such
Default or Event of Default.
(e) Notwithstanding any provision of this Agreement or the other Loan
Documents to the contrary, no consent, written or otherwise, of any Borrower
shall be necessary or required in connection with any amendment to ARTICLE 15
or Section 5.17, and any amendment to such provisions may be effected solely by
and among the Administrative Agent and the Lenders, provided that no such
amendment shall impose any obligation on a Borrower.
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SECTION 16.12. Binding Effect. All the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no Borrower may assign or
transfer any of its rights under this Agreement.
SECTION 16.13. Performance of Borrower's Duties.
(a) Each Borrower's obligations under this Agreement and each of the Loan
Documents shall be performed by the Borrowers at their sole cost and expense.
(b) If a Borrower shall fail to do any act or thing which it has
covenanted to do under this Agreement or any of the Loan Documents, the
Administrative Agent, on behalf of the Lenders, may (but shall not be obligated
to) do the same or cause it to be done either in the name of the Administrative
Agent or the Lenders or in the name and on behalf of the Borrowers, and each
Borrower hereby irrevocably authorizes the Administrative Agent so to act. The
Administrative Agent shall endeavor to give notice to the Borrowers prior to
taking any such action or causing any such action to be taken, but neither the
Administrative Agent nor any Lender shall have any liability to any Person for
the failure to give such notice.
SECTION 16.14. Indemnification. The Borrowers agree, jointly and
severally, to reimburse the Administrative Agent and the Lenders for all
reasonable costs and expenses, including reasonable counsel fees and
disbursements, incurred, and to indemnify and hold the Administrative Agent and
the Lenders and their respective directors, officers, employees and agents
(each, an "Indemnified Person") harmless from and against all losses suffered
by, any Indemnified Person in connection with
(a) the exercise by the Administrative Agent or any Lender of any right or
remedy granted to it under this Agreement or any of the Loan Documents,
(b) any claim, and the prosecution or defense thereof, arising out of or
in any way connected with this Agreement or any of the Loan Documents, and
(c) the collection or enforcement of the Secured Obligations or any of
them,
other than such costs, expenses and liabilities arising out of such Indemnified
Person's gross negligence or willful misconduct.
SECTION 16.15. All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Administrative Agent and the Lenders and
any Persons designated by the Administrative Agent or the Lenders pursuant to
any provisions of this Agreement or any of the Loan Documents shall be deemed
coupled with an interest and shall be irrevocable so long as any of the Secured
Obligations remain unpaid or unsatisfied.
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SECTION 16.16. Survival. Notwithstanding any termination of this
Agreement,
(a) until all Secured Obligations have been irrevocably paid in full or
otherwise satisfied, the Administrative Agent shall retain the Security
Interest and shall retain all rights under this Agreement and each of the
Security Documents with respect to the Collateral as fully as though this
Agreement had not been terminated,
(b) the indemnities to which the Administrative Agent and the Lenders and
their respective directors, officers, employees and agents, are entitled under
the provisions of this ARTICLE 16 and any other provision of this Agreement and
the Loan Documents shall continue in full force and effect and shall protect
the Administrative Agent and the Lenders and such other Persons against events
arising after such termination as well as before, and
(c) in connection with the termination of this Agreement and the release
and termination of the Security Interests, the Administrative Agent, on behalf
of itself as agent and the Lenders, may require such assurances and indemnities
as it shall reasonably deem necessary or appropriate to protect the
Administrative Agent and the Lenders against loss on account of such release
and termination, including, without limitation, with respect to credits
previously applied to the Secured Obligations that may subsequently be reversed
or revoked.
SECTION 16.17. Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 16.18. Severability of Provisions. Any provision of this Agreement
or any Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 16.19. Governing Law. This Agreement, the Notes and the Security
Documents (except to the extent otherwise expressly set forth therein) shall be
deemed to have been made in the State of Georgia and the validity, construction,
interpretation and enforcement hereof and thereof and the rights of the parties
hereto and thereto shall be determined under, governed by and construed in
accordance with the internal laws of the State of Georgia, without regard to
principles of conflicts of law, except that the waiver contained in the first
sentence of SECTION 13.5 shall be construed in accordance with and governed by
the internal laws of the jurisdiction in which any such action or proceeding is
commenced.
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SECTION 16.20. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
SECTION 16.21. Reproduction of Documents. This Agreement, each of the Loan
Documents and all documents relating thereto, including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b)
documents received by the Administrative Agent or any Lender, and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Administrative Agent or any Lender, may be reproduced by the
Administrative Agent or such Lender by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and such Person may
destroy any original document so produced. Each party hereto stipulates that,
to the extent permitted by Applicable Law, any such reproduction shall be as
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original shall be in existence and whether or not
such reproduction was made by the Administrative Agent or such Lender in the
regular course of business), and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 16.22. Term of Agreement. This Agreement shall remain in effect
from the Agreement Date through the Termination Date and thereafter until all
Secured Obligations shall have been irrevocably paid and satisfied in full. No
termination of this Agreement shall affect the rights and obligations of the
parties hereto arising prior to such termination.
SECTION 16.23. Increased Capital. If any Lender shall have determined that
the adoption of any applicable law, rule, regulation, guideline, directive or
request (whether or not having force of law) regarding capital requirements for
banks or bank holding companies, or any change therein or in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Lender with any of the foregoing imposes or increases a
requirement by such Lender to allocate capital resources to such Lender's
Commitment to make Loans hereunder which has or would have the effect of
reducing the return on such Lender's capital to a level below that which such
Lender could have achieved (taking into consideration such Lender's then
existing policies with respect to capital adequacy and assuming full utilization
of such Lender's capital) but for such adoption, change or compliance by any
amount deemed by such Lender to be material: (i) such Lender shall promptly
after its determination of such occurrence give notice thereof to the Borrowers;
and (ii) the Borrowers shall pay to such Lender as an additional fee from time
to time on demand such amount as such Lender certifies to be the amount that
will compensate it for such
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reduction. A certificate of such Lender claiming compensation under this
SECTION 16.23 shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to it hereunder and
the method by which such amounts were determined. In determining such amount,
such Lender may use any reasonable averaging and attribution methods.
SECTION 16.24. Pro-Rata Participation.
(a) Each Lender agrees that if, as a result of the exercise of a right of
setoff, banker's lien or counterclaim or other similar right or the receipt of
a secured claim it receives any payment in respect of the Secured Obligations,
it shall promptly notify the Administrative Agent thereof (and the
Administrative Agent shall promptly notify the other Lenders). If, as a result
of such payment, such Lender receives a greater percentage of the Secured
Obligations owed to it under this Agreement than the percentage received by any
other Lender, such Lender shall purchase a participation (which it shall be
deemed to have purchased simultaneously upon the receipt of such payment) in
the Secured Obligations then held by such other Lenders so that all such
recoveries of principal and interest with respect to all Secured Obligations
owed to each Lender shall be pro rata on the basis of its respective amount of
the Secured Obligations owed to all Lenders, PROVIDED that if all or part of
such proportionately greater payment received by such purchasing Lender is
thereafter recovered by or on behalf of any Borrower from such Lender, such
purchase shall be rescinded and the purchase price paid for such participation
shall be returned to such Lender to the extent of such recovery, but without
interest.
(b) Each Lender which receives such a secured claim shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this SECTION 16.24 to
share in the benefits of any recovery on such secured claim.
(c) Each Borrower expressly consents to the foregoing arrangements and
agrees that any holder of a participation in any Secured Obligation so
purchased or otherwise acquired of which a Borrower has received notice may
exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by the Borrowers to such holder as fully as
if such holder were a holder of such Secured Obligation in the amount of the
participation held by such holder.
SECTION 16.25. Superseded Agreements. On the Effective Date, upon the
making of the Term Loans and the initial Revolving Credit Loans by the Lenders
to the Borrowers, the Existing Loan Agreement, the Existing PDS Loan Agreement
and the related agreements, instruments and other documents listed on SCHEDULE
1.1I - SUPERSEDED AGREEMENTS will, without further action, be superseded by this
Agreement, the Notes, the
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Security Documents and the other Loan Documents, subject only to the provisions
of any such superseded agreements that expressly survive termination thereof.
SECTION 16.26. Interest Computation (Canada). It is expressly stated that
whenever interest is payable pursuant to this Agreement or any Note at a rate
based upon a 360-day year (for the purposes of this SECTION 16.26, the "First
Rate"), the yearly rate or percentage of interest for purposes of the Interest
Act (Canada) to which the First Rate is equivalent, is the First Rate multiplied
by a fraction, the numerator of which is the actual number of days in the
relevant year and the denominator of which is 360.
167
<PAGE> 177
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
BORROWERS:
PROSOURCE SERVICES CORPORATION
[Corporate Seal]
Attest: By: /s/ John E. Foley
______________________________
John E. Foley
By: /s/ Paul A. Garcia de Quevedo Senior Vice President
________________________________
Paul A. Garcia de Quevedo
Assistant Secretary
BROMAR SERVICES, INC.
[Corporate Seal]
Attest: By: /s/ John E. Foley
______________________________
John E. Foley
By: /s/ Paul A. Garcia de Quevedo Senior Vice President
________________________________
Paul A. Garcia de Quevedo
Secretary
PROSOURCE DISTRIBUTION SERVICES
[Corporate Seal] LIMITED
Attest: By: /s/ John E. Foley
______________________________
John E. Foley
By: /s/ Paul A. Garcia de Quevedo Senior Vice President
________________________________
Paul A. Garcia de Quevedo
Secretary
(Signatures continued on next page)
168
<PAGE> 178
ADMINISTRATIVE AGENT:
NATIONSBANK OF GEORGIA, N.A.,
By: /s/ John W. Getz
______________________________
John W. Getz
Senior Vice President
CO-AGENTS AND LENDERS:
NATIONSBANK OF GEORGIA, N.A.,
as a Lender and Co-Agent
By: /s/ John W. Getz
______________________________
John W. Getz
Senior Vice President
Address: 600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Business Credit
Facsimile No.: (404) 607-6437
169
<PAGE> 179
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender and Co-Agent
By: /s/ William C. Purinton
______________________________
William C. Purinton
Vice President
Address: 115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Attn: Stephen P. Caren
Facsimile No.: (404) 393-4166
170
<PAGE> 180
SHAWMUT CAPITAL CORPORATION
as a Lender and Co-Agent
By: /s/ J. Cameron Terry
______________________________
Name: J. Cameron Terry
Title: Vice President
Address: 300 Galleria Parkway
Suite 800
Atlanta, Georgia 30339
Attn: Elizabeth Waller
Facsimile No.: (404) 859-2483
171
<PAGE> 181
THE BANK OF NOVA SCOTIA, as a Lender
and as the Canadian Lender
By: /s/ Frank F. Sandler
______________________________
Frank F. Sandler
Relationship Manager
Address: 600 Peachtree Street
Suite 2700
Atlanta, Georgia 30308
Attn: Frank F. Sandler
Facsimile No.: (404) 888-8998
By: /s/ Stephen Hart
______________________________
Stephen Hart
Vice President
Address: 44 King Street West
Toronto
Ontario M5H 1H1
Canada
Attn: Stephen Hart
Facsimile No.: (416) 866-3770
172
<PAGE> 182
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Michael Lapresi
______________________________
Michael Lapresi
Vice President
Address: 900 Ashwood Parkway
Atlanta, Georgia 30338
Attn: Robert Bernier
Facsimile No.: (404) 551-7899
173
<PAGE> 183
HELLER FINANCIAL, INC.,
as a Lender
By: /s/ Marc Adelson
______________________________
Name: Marc Adelson
Title: SVP
Address: 900 Circle 75 Parkway
Suite 900
Atlanta, Georgia 30339
Attn: Janet Battel
Facsimile No.: (404) 980-6313
174
<PAGE> 184
SANWA BUSINESS CREDIT CORPORATION
as a Lender
By: /s/ Peter L. Skavla
------------------------------
Name: Peter L. Skavla
Title: Vice President
Address: 500 Glenpointe Centre
4th Floor
Teaneck, NJ 07666-6802
Attn: Peter Skavla
Facsimile No.: (201) 836-4744
175
<PAGE> 185
NATIONAL CITY COMMERCIAL FINANCE,
INC., as a Lender
By: /s/ Joseph L. White
------------------------------
Name: Joseph L. White
Title: Vice President
Address: 1900 E. 9th Street
Cleveland, OH 44114
MO-2109
Attn: Joseph L. White
Facsimile No.: (216) 575-9396
176
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 1
dated as of December 29, 1995
to
LOAN AND SECURITY AGREEMENT
dated as of March 31, 1995
THIS AMENDMENT NO. 1 dated as of December 29, 1995 is made between
PROSOURCE SERVICES CORPORATION, a Delaware corporation (PROSOURCE), BROMAR
SERVICES, INC., a Delaware corporation (BROMAR), and PROSOURCE DISTRIBUTION
SERVICES LIMITED, a Canadian corporation (PROSOURCE CANADA and together with
ProSource and BroMar, the BORROWERS), the financial institutions party from
time to time to the Loan Agreement referred to below (the LENDERS), NATIONSBANK
OF GEORGIA, N.A., a national banking association (NATIONSBANK), THE FIRST
NATIONAL BANK OF BOSTON, a national banking association (BANK OF BOSTON),
SHAWMUT CAPITAL CORPORATION, a Delaware corporation (SCC), as co-agents (each
in that capacity a CO-AGENT and collectively the CO-AGENTS) and NATIONSBANK OF
GEORGIA, N.A., as administrative agent for the Lenders (in that capacity,
together with any successors in that capacity, the ADMINISTRATIVE AGENT).
Preliminary Statements
The Borrowers, the Lenders, the Co-Agents and the Administrative Agent are
parties to a Loan and Security Agreement dated as of March 31, 1995 (as
heretofore amended, the LOAN AGREEMENT; terms defined therein and not otherwise
defined herein being used herein as therein defined).
The Borrowers have requested certain modifications to the arrangements
evidenced by the Agency Account Agreement to which The First National Bank of
Chicago is a party, an increase in the amount of the Letter of Credit Facility
and certain other modifications, and the Lenders and the Administrative Agent
have agreed to such requests, upon and subject to all the terms, conditions and
provisions of this Amendment.
NOW, THEREFORE, in consideration of the Loan Agreement, the Loans made by
the Lenders and outstanding thereunder, the mutual promises hereinafter set
forth and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Amendment to Loan Agreement. The Loan Agreement is hereby
amended, subject to the provisions of Section 2 hereof, by
<PAGE> 2
(a) amending Section 1.1 Definitions thereof by
(i) amending the definition "Interest Period" by deleting therefrom the
phrase "one, two, three or six months" and substituting therefor the phrase
"one, two, three, six, nine or twelve months";
(ii) amending the definition "Letter of Credit Facility" by deleting the
figure "$20,000,000" appearing therein and substituting therefor the figure
"$25,000,000"; and
(iii) amending subsection (n) of the definition "Eligible Receivables" by
adding at the end thereof the following additional clause:
PROVIDED, that Receivables outstanding under contracts between ProSource
and Army & Air Force Exchange Services ("AAFES") up to an amount equal to
$5,000,000 at any time under all such contracts in the aggregate, shall not
be deemed ineligible by reason of this subparagraph herein so long as AAFES
shall have acknowledged and agreed, in writing with form and substance
satisfactory to the Administrative Agent, appropriate payment instructions
for all invoices from ProSource and that it will not accept any change in
such payment instructions without the prior written consent of the
Administrative Agent.
(b) amending Section 1.2 Other Referential Provisions and Rules of
Construction by amending subsection (j) thereof in its entirety to read as
follows:
(j) The terms "accounts", "chattel paper", "documents", "equipment",
"instruments", "general intangibles", "inventory", "proceeds", "cash
proceeds" and "non-cash proceeds" as and when used (without being
capitalized) in the Loan Documents, shall have the respective meanings
given such terms in the Uniform Commercial Code.
(c) amending Section 5.8 Duration of Interest Periods, etc., by amending
subsection (d) thereof in its entirety to read as follows:
(d) In no event shall there be (i) more than nine Eurodollar Rate
Loans outstanding hereunder at any time or (ii) Eurodollar Rate Loans to
which Interest Periods longer than six months are applicable outstanding in
an aggregate principal amount greater than $100,000,000. For the purpose
of this SUBSECTION (d), each Eurodollar Rate Revolving Credit Loan and each
Eurodollar Rate Term Loan having a distinct Interest Period shall be deemed
to be a separate Loan hereunder.
-2-
<PAGE> 3
(d) amending Section 9.1 Collection of Receivables by (i) inserting in
subsection (b) thereof between the word "shall" and the phrase "cause all
collected balances" appearing therein, the phrase ", subject to the provisions
of SECTION 9.1(c),", (ii) redesignating subsection (c) thereof as subsection (d)
and (iii) inserting therein a new subsection (c) to read as follows:
(c) Pursuant to any Agency Account Agreement, the Administrative Agent
may permit the Borrowers (or any of them) to initiate withdrawals from the
Agency Account subject to such Agency Account Agreement, PROVIDED that such
Agency Account Agreement shall also specifically provide that any
withdrawal or withdrawal right on the part of the Borrowers (or any of
them) is expressly subject to the prior written consent of the
Administrative Agent and that, once given, any such consent may be revoked
on not more than five days' written notice from the Administrative Agent to
the Clearing Bank party to such Agency Account Agreement.
(e) Amending Section 11-1(d) Annual Budgets by deleting therefrom the
phrase "30 days' prior" and substituting therefor the phrase "30 days after";
(f) amending Section 16.11 Amendments by amending subsection (b)(ii)
thereof in its entirety to read as follows:
(ii) (x) no Collateral having an aggregate value greater than $250,000
shall be released by the Administrative Agent in any 12-month period other
than as specifically permitted in this Agreement (including, without being
limited to, pursuant to SECTION 9.1(c)) or the Security Documents, nor
shall any Collateral be released at a time when the Administrative Agent is
entitled to exercise remedies hereunder upon default, nor shall any
Borrower or the Parent be released from its liability for the Secured
Obligations, PROVIDED that, in respect of property leased by a Borrower
from a third party lessor (other than a Borrower or Affiliate of a
Borrower), confirmation by the Administrative Agent to the lessor of such
property or to any Person claiming an interest in such property through
such lessor that, except to the extent of the interest of the lessee
therein, the Administrative Agent, for itself and the Lenders, claims no
interest in such property under lease, shall not be deemed to be a
"release" of Collateral,
Section 2. Effectiveness of Amendment. This Amendment shall become
effective as of March 31, 1995 upon receipt by the Administrative Agent of at
least ten copies of this Amendment duly executed and delivered by each Borrower,
the Co-Agents and each Lender.
Section 3. Effect of Amendment. From and after the effectiveness of this
Amendment, all references in the Loan Agreement and in any other Loan Document
to "this
-3-
<PAGE> 4
Agreement," "the Loan Agreement," "hereunder," "hereof" and words of like
import referring to the Loan Agreement, shall mean and be references to the
Loan Agreement as amended by this Amendment. Except as expressly amended
hereby, the Loan Agreement and all terms, conditions and provisions thereof
remain in full force and effect and are hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Agent under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
Section 4. Counterpart Execution; Governing Law.
(a) Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same agreement.
(b) Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWERS:
PROSOURCE SERVICES CORPORATION
[Corporate Seal]
Attest: By: /s/ William F. Evans
------------------------------
William F. Evans
By: /s/ Paul A. Garcia de Quevedo Executive Vice President
--------------------------------
Paul A. Garcia de Quevedo
Secretary
BROMAR SERVICES, INC.
[Corporate Seal]
Attest: By: /s/ William F. Evans
------------------------------
William F. Evans
By: /s/ Paul A. Garcia de Quevedo Executive Vice President
--------------------------------
Paul A. Garcia de Quevedo
Secretary
PROSOURCE DISTRIBUTION SERVICES
[Corporate Seal] LIMITED
Attest: By: /s/ William F. Evans
------------------------------
William F. Evans
By: /s/ Paul A. Garcia de Quevedo Executive Vice President
--------------------------------
Paul A. Garcia de Quevedo
Secretary
(Signatures continued on following three pages)
-5-
<PAGE> 6
ADMINISTRATIVE AGENT:
NATIONSBANK OF GEORGIA, N.A.,
By: /s/ John W. Getz
------------------------------
John W. Getz
Senior Vice President
CO-AGENTS AND LENDERS:
NATIONSBANK OF GEORGIA, N.A.,
as a Lender and Co-Agent
By: /s/ John W. Getz
------------------------------
John W. Getz
Senior Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender and Co-Agent
By: /s/ William C. Purinton
------------------------------
William C. Purinton
Vice President
SHAWMUT CAPITAL CORPORATION
as a Lender and Co-Agent
By: /s/ Elizabeth L. Waller
------------------------------
Name: Elizabeth L. Waller
Title: Vice President
-6-
<PAGE> 7
THE BANK OF NOVA SCOTIA,
as a Lender
By: /s/ Frank F. Sandler
------------------------------
Frank F. Sandler
Relationship Manager
By: /s/ Stephen Hart
------------------------------
Stephen Hart
Vice President
BANKAMERICA BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Charles A. Burtch
------------------------------
Charles A. Burtch
Executive Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Michael Lapresi
------------------------------
Michael Lapresi
Vice President
HELLER FINANCIAL, INC.,
as a Lender
By: /s/ Dennis Baelis
------------------------------
Name: Dennis Baelis
Title: VP
SANWA BUSINESS CREDIT CORPORATION
as a Lender
By: /s/ Peter L. Skavla
------------------------------
Name: Peter L. Skavla
Title: Vice President
-7-
<PAGE> 8
NATIONAL CITY COMMERCIAL FINANCE,
INC., as a Lender
By: /s/ Lee K. Mosby
------------------------------
Name: Lee K. Mosby
Title: Vice President
-8-
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 2 AND WAIVER
dated as of March 28, 1996
to
LOAN AND SECURITY AGREEMENT
dated as of March 31, 1995
THIS AMENDMENT NO. 2 dated as of March 28, 1996 is made between PROSOURCE
SERVICES CORPORATION, a Delaware corporation (PROSOURCE), BROMAR SERVICES,
INC., a Delaware corporation (BROMAR), and PROSOURCE DISTRIBUTION SERVICES
LIMITED, a Canadian corporation (PROSOURCE CANADA and together with ProSource
and BroMar, the BORROWERS), the financial institutions party from time to time
to the Loan Agreement referred to below (the LENDERS), NATIONSBANK, N.A.
(SOUTH) (successor by merger to NationsBank of Georgia, N.A.), a national
banking association (NATIONSBANK), THE FIRST NATIONAL BANK OF BOSTON, a
national banking association (BANK OF BOSTON), FLEET CAPITAL CORPORATION
(successor by merger to Shawmut Capital Corporation), a Delaware corporation
(FLEET), as co-agents (each in that capacity a CO-AGENT and collectively the
CO-AGENTS) and NATIONSBANK, N.A. (SOUTH), as administrative agent for the
Lenders (in that capacity, together with any successors in that capacity, the
ADMINISTRATIVE AGENT).
Preliminary Statements
The Borrowers, the Lenders, the Co-Agents and the Administrative Agent are
parties to a Loan and Security Agreement dated as of March 31, 1995, as amended
by Amendment No. 1 dated as of December 29, 1995 (as so amended and as
otherwise heretofore amended, the LOAN AGREEMENT; terms defined therein and not
otherwise defined herein being used herein as therein defined).
The Borrowers have requested certain modifications to the provisions of
the Loan Agreement and the Lenders and the Administrative Agent have agreed to
such requests, upon and subject to all the terms, conditions and provisions of
this Amendment.
NOW, THEREFORE, in consideration of the Loan Agreement, the Loans made by
the Lenders and outstanding thereunder, the mutual promises hereinafter set
forth and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Amendments to Loan Agreement. The Loan Agreement is hereby
amended, subject to the provisions of Section 3 hereof, by
<PAGE> 2
(a) amending Section 1.1 Definitions thereof by
(i) amending subsection (n) of the definition "Eligible Receivables" by
amending the proviso at the end thereof in its entirety to read as follows:
PROVIDED, that Receivables outstanding under contracts between
ProSource and Army & Air Force Exchange Services ("AAFES") up to an
amount equal to $5,000,000 at any time under all such contracts in the
aggregate, shall not be deemed ineligible by reason of this
subparagraph.
(ii) adding thereto in proper alphabetical order the following new
definition:
ACQUISITION RESERVE means the reserve for restructuring and other
charges (excluding costs and expenses related to the consummation of the
transactions contemplated by the Division Acquisition Agreement and this
Agreement and paid within 60 days after the Effective Date) established by
the Borrowers in connection with the Division Acquisition and in accordance
with GAAP.
(b) amending Section 9.5 Delivery of Instruments by (i) inserting after
the phrase "the relevant Borrower will" appearing therein, the phrase ", at the
request of the Administrative Agent," and (ii) adding after the final period at
the end thereof a new sentence to read as follows:
The Borrower will provide to the Administrative Agent and the Lenders a
listing, in reasonable detail, of all such Receivables and the related
instruments at any time and from time to time outstanding, as reasonably
requested by the Administrative Agent.
(c) amending Section 11.1 Financial Statements thereof by
(i) amending Section 11.1(c) in its entirety to read as follows:
(c) Financial Statements. As soon as available after the end of each
Fiscal Month, but in any event within 30 days after the end of each Fiscal
Month, copies of the unaudited balance sheet of ProSource as of the end of
such Fiscal Month and the related unaudited statements of income and cash
flow for ProSource for such Fiscal Month and for the portion of the Fiscal
Year through such Fiscal Month, including, in comparative form, (i) actual
financial results of ProSource for the corresponding periods (both
month-only and year-to-date) of the immediately preceding Fiscal Year and
(ii) budgeted financial performance of ProSource (both month-only and
year-to-date) based on ProSource's annual budget for the applicable
periods, in each case including computations of
-2-
<PAGE> 3
EBITDA for the applicable periods, certified by a Financial Officer of
ProSource as presenting fairly the financial condition and results of
operations of ProSource (subject to normal year-end audit adjustments).
Each balance sheet delivered pursuant to this SUBSECTION (c), shall itemize
the amounts included in "Total Liabilities" or such balance sheet for New
Subordinated Debt, the Parent Subordinated Debt and the Seller Note.
(ii) adding at the end of the final grammatical paragraph thereof the
following sentence:
Each balance sheet of ProSource and each Consolidated balance sheet
delivered pursuant to SUBSECTIONS (c) or (d) above shall reflect the
Acquisition Reserve as a separate line item.
(d) amending Section 11.2 Accountants' Certificate by deleting therefrom
the reference in subsection (b) thereof to "SECTIONS 12.1, 12.2, 12.5, 12.10
AND 12.11" and substituting therefor a reference to "SECTIONS 12.1, 12.2, 12.5,
12.10, 12.11 and 12.16";
(e) amending Section 11.3 Officer's Certificate by amending subsection (a)
thereof in its entirety to read as follows:
(a) setting forth as at the end of such Fiscal Quarter a reasonably
detailed schedule of charges to the Acquisition Reserve recorded during
such Fiscal Quarter and the calculations required to establish whether or
not the Borrowers were in compliance with the requirements of SECTIONS
12.1, 12.2, 12.5, 12.10, 12.11 and 12.16;
(f) adding to Article 11 a new Section 11.10 to read in its entirety as
follows:
SECTION 11.10 Guarantor Financial Statements. As soon as available,
but in any event within 90 days after the end of each Fiscal Year, copies
of the consolidated balance sheets of the Parent and its consolidated
Subsidiaries (including, without being limited to, the Borrowers) as at the
end of such Fiscal Year and the related statements of income, shareholders'
equity and cash flows for such Fiscal Year, in each case setting forth in
comparative form comparable figures for the previous Fiscal Year, reported
on, without qualification as to the scope of the audit or the status of the
Parent or any material Subsidiary of the Parent (including, without being
limited to, any Borrower) as a "going concern," by KPMG Peat Marwick LLP or
other independent certified public accountants of nationally recognized
standing.
(g) amending Section 12.1 Financial Ratios by amending subsection (c)
thereof in its entirety to read as follows:
-3-
<PAGE> 4
(c) Minimum Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the last day of Fiscal Year 1995 (for the Fiscal Year ending
on such date) to be less than 0.60 to 1, or as of the last day of any
period of four consecutive Fiscal Quarters ending during a period described
below, to be less than the ratio shown opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------------------------------- -----
<S> <C>
Fiscal Year 1996 (excluding
the last day thereof) 0.60 to 1
Last day of Fiscal Year
1996 to (but not including)
last day of Fiscal Year 1997 0.70 to 1
Last day of Fiscal Year 1997 to
(but not including) last day of
Fiscal Year 1998 0.90 to 1
From and after the last day
of Fiscal year 1998 1.00 to 1
</TABLE>
(h) amending Section 12.16 Limitations on Acquisition Reserves in its
entirety to read as follows:
SECTION 12.16 Limitation on Acquisition Reserve. The Acquisition
Reserve shall not exceed $20,000,000 as of the Effective Date, nor
$16,000,000 as of December 31, 1995 or any date thereafter, nor shall the
Acquisition Reserve reflect charges against it made during Fiscal Year 1996
of more than $10,000,000.
Section 2. Confirmation and Waiver. The Lenders hereby (a) confirm the
reduction from 3.00% to 2.75% in the Eurodollar Rate Margin, effective February
1, 1996, agreed to by the Lenders on the basis of the unaudited financial
statements of the Borrowers (notwithstanding the provisions of the definition
EURODOLLAR RATE MARGIN set forth in Section 1.1 of the Loan Agreement) and (b)
waive, subject to the provisions of Section 3, compliance by the Borrowers with
the provisions of Section 12.16 of the Loan Agreement to the extent of any
noncompliance that would not have occurred had said Section 12.16 as amended by
this Amendment been in effect at all times from and after the Effective Date.
Section 3. Effectiveness of Amendment. Section 1 of this Amendment shall
become effective as of its date upon receipt by (a) the Administrative Agent of
at least ten copies of this Amendment duly executed and delivered by each
Borrower, the Co-Agents and
-4-
<PAGE> 5
each Lender, (b) the Administrative Agent of a certificate of the President of
ProSource or of the Financial Officer as to the continuing accuracy of the
Schedules to the Loan Agreement, having attached thereto any revised Schedules
necessary to permit such certification and (c) the Administrative Agent of a
confirmation duly executed and delivered by the Guarantor of its Unconditional
Guaranty and the Pledge Agreement in the form attached to this Amendment.
Section 4. Effect of Amendment. From and after the effectiveness of this
Amendment, all references in the Loan Agreement and in any other Loan Document
to "this Agreement," "the Loan Agreement," "hereunder," "hereof" and words of
like import referring to the Loan Agreement, shall mean and be references to the
Loan Agreement as amended by this Amendment. Except as expressly amended
hereby, the Loan Agreement and all terms, conditions and provisions thereof
remain in full force and effect and are hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or the Agent under any of the Loan Documents, nor constitute a waiver
of any provision of any of the Loan Documents.
Section 5. Counterpart Execution; Governing Law.
(a) Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same agreement.
(b) Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWERS:
PROSOURCE SERVICES CORPORATION
[Corporate Seal]
By: /s/ William F. Evans
Attest: --------------------------
William F. Evans
By: /s/ Paul A. Garcia de Quevedo Executive Vice President
------------------------------
Paul A. Garcia de Quevedo
Secretary
BROMAR SERVICES, INC.
[Corporate Seal]
By: /s/ William F. Evans
Attest: ------------------------------
William F. Evans
By: /s/ Paul A. Garcia de Quevedo Executive Vice President
-------------------------------
Paul A. Garcia de Quevedo
Secretary
PROSOURCE DISTRIBUTION SERVICES
[Corporate Seal] LIMITED
By: /s/ William F. Evans
Attest: -----------------------------
William F. Evans
By: /s/ Paul A. Garcia de Quevedo Executive Vice President
-------------------------------
Paul A. Garcia de Quevedo
Secretary
(Signatures continued on following three pages)
-6-
<PAGE> 7
ADMINISTRATIVE AGENT:
NATIONSBANK, N.A. (SOUTH)
By: /s/ Jeffrey L. Guldner
------------------------------
Jeffrey L. Guldner
Vice President
CO-AGENTS AND LENDERS:
NATIONSBANK, N.A. (SOUTH),
as a Lender and Co-Agent
By: /s/ Jeffrey L. Guldner
------------------------------
Jeffrey L. Guldner
Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender and Co-Agent
By: /s/ William C. Purinton
------------------------------
William C. Purinton
Vice President
FLEET CAPITAL CORPORATION
as a Lender and Co-Agent
By: /s/ Elizabeth L. Waller
--------------------------------
Name: Elizabeth L. Waller
Title: Vice President
-7-
<PAGE> 8
THE BANK OF NOVA SCOTIA,
as a Lender
By: /s/ Frank F. Sandler
______________________________
Name: Frank F. Sandler
Title: Relationship Manager
By:______________________________
Name:
Title:
BANKAMERICA BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Margaret E. Lambka
______________________________
Name: Margaret E. Lambka
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Robert Bernier
______________________________
Name: Robert Bernier
Title: Vice President
HELLER FINANCIAL, INC.,
as a Lender
By: /s/ Salvadore A. Salzill
______________________________
Name: Salvadore A. Salzill
Title: AVP
SANWA BUSINESS CREDIT CORPORATION
as a Lender
By: /s/ Peter L. Skavla
______________________________
Name: Peter L. Skavla
Title: Vice President
-8-
<PAGE> 9
NATIONAL CITY COMMERCIAL FINANCE,
INC., as a Lender
By: /s/ Lee K. Mosley
______________________________
Name: Lee K. Mosley
Title: Vice President - Operations
-9-
<PAGE> 10
CONSENT, RELEASE AND CONFIRMATION OF GUARANTOR
The undersigned Guarantor as defined in the Loan and Security Agreement
dated as of March 31, 1995 by and among ProSource Services Corporation, BroMar
Services, Inc. and ProSource Distribution Services Limited as the Borrowers,
the financial institutions party thereto as the Lenders, NationsBank, N.A.
(South) (successor by merger to NationsBank of Georgia, N.A. ("NationsBank")),
The First National Bank of Boston and Fleet Capital Corporation as the
Co-Agents, and NationsBank as the Administrative Agent for the Lenders, as
amended to date (the "Loan Agreement"; terms defined therein, unless otherwise
defined herein, being used herein as therein defined), hereby acknowledges
receipt of the foregoing Amendment No. 2 and Waiver and Amendment No. 1 dated
as of December 29, 1995 to the Loan Agreement and confirms for the benefit of
the Administrative Agent and the Lenders, that the Unconditional Guaranty dated
as of March 31, 1995, as amended, executed and delivered by the undersigned
continues in full force and effect as a guaranty in accordance with its terms
and continues to be secured by any collateral therefor and that the undersigned
hereby waives and releases any and all claims it may have against the
Administrative Agent or any Lender or any of their respective shareholders,
directors, employees or agents arising out of any event or circumstance
existing on or prior to the date hereof and arising under the Loan Agreement,
the Unconditional Guaranty or any related document or in connection with the
transactions contemplated thereby.
PROSOURCE, INC.
[Corporate Seal]
By: /s/ David R. Parker
Attest: -----------------------
David R. Parker
By: /s/ Paul A. Garcia de Quevedo Chairman
------------------------------
Paul A. Garcia de Quevedo
Secretary
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Exhibit 10.11
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, is made as of the 31st day of March, 1995, by
ProSource, Inc., a Delaware corporation (the "Pledgor"), in favor of
NATIONSBANK OF GEORGIA, N.A. ("NationsBank"), a national banking association
with its principal office located in Atlanta, Georgia (the "Administrative
Agent"), in its capacity as agent for the financial institutions (the
"Lenders") party from time to time to the Loan and Security Agreement of even
date herewith (the same as it may be amended, modified, supplemented, extended
or refinanced from time to time, being the "Loan Agreement"), by and between
ProSource Services Corporation, a Delaware corporation, BroMar Services, Inc.,
a Delaware corporation, ProSource Distribution Services Limited, a Canadian
corporation (the "Borrowers"), NationsBank, The First National Bank of Boston
and Shawmut Capital Corporation (the "Co-Agents"), the Lenders and the
Administrative Agent.
Preliminary Statement
Pursuant to the Loan Agreement, the Lenders have made or have agreed to
make certain financial accommodations to the Borrowers in the form of revolving
credit loans under a $210,000,000 revolving credit facility, term loans under
two $15,000,000 term loan facilities and in the form of the issuance of
letters of credit from time to time for the Borrowers' account, on the terms
and conditions and as more particularly set forth in the Loan Agreement. All
capitalized terms used herein that are not defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
Pursuant to the terms of that certain Unconditional Guaranty of even date
herewith (hereinafter, together with all amendments, modifications and
supplements thereto and replacements thereof, referred to as the "Guaranty"),
the Pledgor has guaranteed all of the obligations of the Borrowers to the
Lenders under the Loan Agreement and all of the other Secured Obligations, as
more particularly set forth therein.
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The Pledgor is the sole shareholder, directly or indirectly, of each of
the Borrowers and, as such, benefits from the financial accommodations of the
Lenders to the Borrowers. The Lenders and the Administrative Agent have
required as a condition to entering into the Loan Agreement and extending the
credit described therein that the Pledgor enter into this Pledge Agreement.
Statement of Agreement
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Loans to the Borrowers under the Loan Agreement, the
Pledgor hereby agrees as follows:
Section 1. Definitions. For the purposes of this Agreement:
"Agreement" means this Agreement, as the same may be amended, modified or
supplemented from time to time.
"Borrower" means each of ProSource Services Corporation, a Delaware
corporation, BroMar Services, Inc., a Delaware corporation, ProSource
Distribution Services Limited, a Canadian corporation and their successors and
assigns, and "Borrowers" means all of the foregoing.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency then administering the Securities Act.
"Default" means any of the events listed in SECTION 11 of this Agreement
that with the giving of notice or the passage of time or both would constitute
an Event of Default.
"Event of Default" means any of the events listed in SECTION 11 of this
Agreement.
"Guaranty" means the Unconditional Guaranty, dated of even date herewith,
from the Pledgor to the Administrative Agent, for the benefit of itself as
Administrative Agent and the
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Lenders, as the same may be amended, modified, supplemented restated or
replaced from time to time.
"Loan Agreement" means the Loan and Security Agreement dated of even date
herewith among the Borrowers, NationsBank, The First National Bank of Boston
and Shawmut Capital Corporation (the "Co-Agents"), the Lenders and the
Administrative Agent, as the same may be amended, modified, supplemented,
restated, renewed, refinanced or extended from time to time.
"Pledged Collateral" means and includes
(a) the Pledged Shares and the certificates representing the Pledged
Shares and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Shares;
(b) all additional shares of stock of any issuer of the Pledged Shares
from time to time acquired by the Pledgor in any manner and the certificates
representing such additional shares and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such shares; and
(c) all proceeds of the foregoing.
"Pledged Shares" means and include all of the issued and outstanding
shares of capital stock of ProSource now owned or hereafter acquired by the
Pledgor.
"Pledgor" means ProSource, Inc., a Delaware corporation, and its
successors and assigns.
"Secured Obligations" means and includes
(a) all obligations of the Pledgor under the Guaranty;
(b) all of the Guaranteed Obligations (as defined in the Guaranty); and
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(c) all obligations included in the definition of "Secured Obligations,"
as such term is defined in the Loan Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same may from time to time be in effect.
"Securities Laws" means the Securities Act, the Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the rules and regulations
of the Commission thereunder, together with any and all applicable state blue
sky laws, all as the same may from time to time be in effect.
Section 2. Pledge. To secure the payment, observance and performance of the
Secured Obligations, the Pledgor hereby mortgages, pledges and assigns to the
Administrative Agent, for the benefit of itself as Administrative Agent and the
Lenders, and grants to the Administrative Agent, for the benefit of itself as
Administrative Agent and the Lenders, a continuing security interest in the
Pledged Collateral.
Section 3. Delivery of Pledged Collateral. All certificates representing or
evidencing the Pledged Collateral shall be delivered to and held by or on
behalf of the Administrative Agent, for the benefit of the Lenders, pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Administrative Agent. The
Administrative Agent shall have the right, at any time in its discretion and
without notice to the Pledgor, to request the Borrowers or any transfer agent
to note the pledge of the Pledged Collateral (described in clause (a) of the
definition thereof) on the stock transfer records of ProSource. During the
continuation of an Event of Default, the Administrative Agent shall have the
right at any time to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations. The Pledgor acknowledges that all certificates or
instruments deposited by the Pledgor or transferred to or registered in the
name of the Administrative Agent in accordance
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with this SECTION 3 are deposited, transferred or registered to secure the
payment of the Secured Obligations.
Section 4. Representations and Warranties. The Pledgor represents and warrants
as follows:
(a) The execution, delivery and performance of this Pledge Agreement in
accordance with its terms and the grant of the security interest hereunder are
within the Pledgor's corporate power and have been duly authorized by all
necessary corporate action on the part of the Pledgor. This Agreement has been
duly executed and delivered by an authorized officer of the Pledgor and is a
legal, valid and binding obligation of the Pledgor enforceable against the
Pledgor in accordance with its terms.
(b) The execution, delivery and performance of this Agreement in
accordance with its terms and the grant of the security interest hereunder do
not and will not, by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any Applicable Law
relating to the Pledgor, the violation of which reasonably could be
expected to have a Materially Adverse Effect on the Pledgor,
(ii) conflict with, result in a breach of or constitute a default
under the Pledgor's certificate of incorporation or bylaws,
(iii) conflict with, result in a breach of or constitute a default
under any indenture, agreement or other instrument to which the Pledgor is
a party or by which it or any of its properties may be bound or any
Governmental Approval, if the effect thereof, singly or in the aggregate,
reasonably could be expected to have a Materially Adverse Effect on the
Pledgor, or
(iv) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Pledgor, other than the security interest granted hereunder in favor
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of the Administrative Agent, for the benefit of itself as Administrative
Agent and the Lenders.
(c) There is no pending or threatened action or proceeding affecting the
Pledgor before any court, governmental agency or arbitrator, which may have a
Materially Adverse Effect on the Pledgor.
(d) No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
the Pledgor, or (ii) for the exercise by the Administrative Agent of the voting
or other rights provided for in this Agreement or the remedies in respect of
the Pledged Collateral pursuant to this Agreement, other than the filing of
financing statements for the purpose of giving public notice of the security
interest granted hereby.
(e) The Pledged Shares are not subject to any restriction prohibiting or
limiting, in any material respect, the transfer thereof either by the Pledgor
in connection herewith or by the Administrative Agent in connection with the
exercise of its remedies hereunder, including, without limitation, any
restriction under Rule 144 promulgated under the Securities Act.
(f) The Pledged Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(g) As of the date hereof, the authorized capital of ProSource is 1,010
shares of common stock, $0.01 par value per share. Of the authorized shares of
stock of ProSource, 1,010 shares are issued and outstanding as of the date
hereof. All of such issued and outstanding shares of capital stock of
ProSource are registered in the name of the Pledgor and owned by the Pledgor
and constitute Pledged Shares.
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(h) The Pledgor is the legal and beneficial owner of the Pledged
Collateral free and clear of any lien, security interest, option or other
charge or encumbrance, except for the security interest created by this
Agreement.
(i) The pledge of the Pledged Shares pursuant to this Pledge Agreement
creates a valid and perfected security interest in the Pledged Collateral,
securing the payment of the Secured Obligations, and all filings or other
actions necessary to perfect and protect such security interest have been
taken.
(j) None of the Pledged Collateral is evidenced by any instrument not
delivered to the Administrative Agent in accordance with the terms hereof.
(k) The principal place of business and chief executive office of the
Pledgor is located at 550 Biltmore Way, Coral Gables, Dade County, Florida
33134.
Section 5. Further Assurances. The Pledgor agrees that at any time, and
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Administrative Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Administrative Agent to exercise
and enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
Section 6. Voting Rights; Dividends; Etc. (a) So long as no Event of
Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement
or the Loan Agreement; PROVIDED, HOWEVER, that the Pledgor shall not
exercise or shall refrain from exercising any such right if, in the
Administrative Agent's judgment, such action would
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have a materially adverse effect on the Administrative Agent's or any
Lender's rights in the Pledged Collateral.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends paid in respect of the Pledged Collateral; PROVIDED, HOWEVER,
that any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or
total liquidation or dissolution of ProSource or in connection with a
reduction of capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Pledged
Collateral,
shall be Pledged Collateral and shall be forthwith delivered to the
Administrative Agent to hold, for the benefit of itself as Administrative
Agent and the Lenders, as Pledged Collateral and shall, if received by the
Pledgor, be received in trust for the benefit of the Administrative Agent,
be segregated from the other property or funds of the Pledgor and be
forthwith delivered to the Administrative Agent, for the benefit of itself
as Administrative Agent and the Lenders, as Pledged Collateral in the same
form as so received (with any necessary indorsement).
(iii) The Administrative Agent shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights which it is
entitled to exercise pursuant to CLAUSE (i) above and to receive the
dividends or interest payments which it is
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authorized to receive and retain pursuant to CLAUSE (ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) upon the Administrative Agent's election evidenced by a written
notice to the Pledgor, all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to SECTION 6(a)(i) and to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to SECTION 6(a)(ii) shall cease, and all such rights shall
thereupon become vested in the Administrative Agent, for the benefit of
itself as Administrative Agent and the Lenders, who shall thereupon have
the sole right to exercise such voting and other consensual rights and to
receive and hold as Pledged Collateral such dividends and interest
payments; and
(ii) all dividends and interest payments which are received by the
Pledgor contrary to the provisions of CLAUSE (i) of this SECTION 6(b) shall
be received in trust for the benefit of the Administrative Agent, for the
benefit of itself as Administrative Agent and the Lenders, shall be
segregated from other funds of the Pledgor and shall be forthwith paid over
to the Administrative Agent, for the benefit of itself as Administrative
Agent and the Lenders, as Pledged Collateral in the same form as so
received (with any necessary indorsement).
Section 7. Transfers and Other Liens.
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose of,
or grant any option with respect to, any of the Pledged Collateral, or (ii)
create or permit to exist any lien, security interest, or other charge or
encumbrance upon or with respect to any of the Pledged Collateral, except for
the security interest granted to the Administrative Agent under this Agreement.
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(b) The Pledgor agrees that it (i) will cause the issuer of the Pledged
Shares (to the extent that the Pledgor has the power to so cause) not to issue
any stock or other securities in addition to or in substitution for the Pledged
Shares issued by such issuer, except to the Pledgor, and (ii) will pledge
hereunder, immediately upon the Pledgor's acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of each
issuer of the Pledged Shares.
Section 8. Administrative Agent Appointed Attorney-in-Fact. The Pledgor
hereby appoints the Administrative Agent, for the benefit of itself as
Administrative Agent and the Lenders, as the Pledgor's attorney-in-fact, with
full authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Administrative Agent's discretion
to take any action and to execute any instrument which the Administrative Agent
may deem necessary or advisable to accomplish the purposes of this Pledge
Agreement, including, without limitation, subject to the provisions of SECTION
6, to receive, indorse and collect all instruments made payable to the Pledgor
representing any dividend, interest payment or other distribution that
constitutes Pledged Collateral or that is payable to the Administrative Agent
pursuant to the terms hereof and to give full discharge for the same.
Section 9. Administrative Agent May Perform. If the Pledgor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Administrative Agent incurred in connection therewith shall be payable by
the Pledgor under SECTION 14.
Section 10. Reasonable Care. The Administrative Agent and the Lenders
shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in the Administrative Agent's possession
if the Pledged Collateral is accorded treatment substantially equal to that
which the Administrative Agent accords its own property of the same type, or if
the Administrative Agent appoints an agent to hold the Pledged Collateral on its
behalf or on behalf of the Lenders and such agent agrees to be bound by a
similar standard of care, it being understood that neither the Administrative
Agent, any
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Lender nor any such agent shall have any responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Pledged Collateral, whether or not the
Administrative Agent, any Lender or any such agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
Section 11. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) the occurrence of any "Event of Default" under the Loan Agreement;
(b) the failure of the Pledgor to perform any of its agreements or
obligations as specified in this Pledge Agreement; or
(c) if, at any time, any representation, warranty, certificate, schedule
or report made or delivered by the Pledgor to the Administrative Agent and the
Lenders hereunder shall prove to have been false or misleading in any material
respect as of the time made or furnished.
Section 12. Remedies upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may, and at the direction of the Required
Lenders in their sole and absolute discretion shall, exercise in respect of the
Pledged Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party upon default under the Uniform Commercial Code, and the Administrative
Agent may also, and at the direction of the Required Lenders in their sole and
absolute discretion shall, upon notice specified below, sell the Pledged
Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Administrative Agent's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms
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as the Administrative Agent may deem commercially reasonable. The Pledgor
agrees that, to the extent notice of sale shall be required by law, at least
five days' notice to the Pledgor of the time and place of any public sale or
the time after which any private sale may be made shall constitute reasonable
notification. The Administrative Agent shall not be obligated to make any sale
of Pledged Collateral regardless of notice of sale having been given. The
Administrative Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. The Administrative Agent shall have the right to bid for and
purchase any of the Pledged Collateral at any such public sale and shall not be
deemed thereby to have retained the Pledged Collateral in satisfaction of the
Secured Obligations.
(b) Any cash held by the Administrative Agent as Pledged Collateral and
all cash proceeds received by the Administrative Agent in respect of any sale
of, or other realization upon all or any part of the Pledged Collateral may, in
the discretion of the Administrative Agent, be held by the Administrative Agent
as collateral for, and/or then or at any time thereafter applied (after payment
of any amounts payable to the Administrative Agent pursuant to SECTION 14) in
whole or in part by the Administrative Agent against, all or any part of the
Secured Obligations in such order as the Administrative Agent shall elect. Any
surplus of such cash proceeds held by the Administrative Agent and remaining
after payment in full of all the Secured Obligations shall be paid over to the
Pledgor or to whomsoever may be lawfully entitled to receive such surplus. THE
PLEDGOR SHALL REMAIN LIABLE FOR ANY DEFICIENCY.
(c) The Pledgor acknowledges that compliance with the Securities Laws may
very strictly limit the course of the Administrative Agent's conduct in the
disposition of all or any part of the Pledged Collateral in accordance with
this SECTION 12, and may also limit the extent to which or the manner in which
any subsequent transferee of any Pledged Collateral may dispose of the same.
Pledgor acknowledges and agrees that the Administrative Agent shall be entitled
to place all or any part of the Pledged Collateral for private placement by an
investment banking firm, that any such investment banking firm may purchase
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all or any part of the Pledged Collateral for its own account and that the
Administrative Agent shall be entitled to place all or any part of the Pledged
Collateral privately with a purchaser or purchasers who will represent and
agree that they are purchasing the Pledged Collateral for their own account for
investment and not with a view to the distribution or sale thereof in violation
of the Securities Laws, notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Administrative Agent sells.
Section 13. Annual Report, Proxy Statements, Etc. The Pledgor shall
deliver to the Administrative Agent, promptly upon receipt thereof, copies of
all annual reports, proxy statements and other reports and notices to
shareholders that the Pledgor receives from ProSource.
Section 14. Expenses. The Pledgor will upon demand pay to the
Administrative Agent and each Lender the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Administrative Agent or such Lender may incur in
connection with (a) the administration of this Pledge Agreement, (b) the custody
or preservation of, or the sale of, collection from, or other realization upon,
any of the Pledged Collateral, (c) the exercise or enforcement of any of the
rights of the Administrative Agent or any Lender hereunder, or (d) the failure
by the Pledgor to perform or observe any of the provisions hereof. The Lenders
shall to the extent reasonably practicable coordinate their activities in the
administration of this Pledge Agreement through the Administrative Agent to
avoid unnecessary duplication of costs and expenses that the Pledgor is required
to pay under this SECTION 14, provided that neither the Lenders nor the
Administrative Agent shall be under any obligation to coordinate such activities
during the continuation of an Event of Default.
Section 15. Security Interest Absolute. All rights of the Administrative
Agent and security interests hereunder, and all obligations of the Pledgor
hereunder, shall be absolute and unconditional irrespective of:
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(a) any lack of validity or enforceability of the Loan Agreement or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Loan Agreement or the Notes
or any extension of the maturity date of any of the Notes;
(c) any exchange, release or nonperfection of any other collateral for all
or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of the Secured
Obligations or this Pledge Agreement or otherwise.
Section 16. Release of Security Interests. Upon the payment and performance
in full of the Secured Obligations and the termination of each of the Lenders'
Commitments under the Loan Agreement, the Administrative Agent shall release its
security interests hereunder in the Pledged Collateral, and the Pledgor shall be
entitled to the return, upon its request and at its expense, of such of the
Pledged Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof and the Administrative Agent shall, at the Pledgor's request
and expense, execute and deliver such other releases, confirmations and
acknowledgements as may reasonably be requested to evidence such release.
Section 17. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the
Administrative Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
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Section 18. Litigation. EACH OF THE PLEDGOR AND THE ADMINISTRATIVE AGENT
FOR ITSELF AND EACH OF THE LENDERS HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR
NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE
PLEDGOR, THE ADMINISTRATIVE AGENT OR ANY LENDER ARISING OUT OF THIS AGREEMENT OR
BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE PLEDGOR AND THE
ADMINISTRATIVE AGENT OR ANY LENDER OF ANY KIND OR NATURE. THE PLEDGOR AND THE
ADMINISTRATIVE AGENT FOR ITSELF AND THE LENDERS HEREBY AGREE THAT THE FEDERAL
COURT OF THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE
ADMINISTRATIVE AGENT OR ANY LENDER, ANY COURT IN WHICH THE ADMINISTRATIVE AGENT
OR SUCH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE
NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
THE PLEDGOR AND THE ADMINISTRATIVE AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING
THEREFROM. THE PLEDGOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS, HEREBY
WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR
OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
THE PLEDGOR AT THE ADDRESS OF THE PLEDGOR SET FORTH IN SECTION 19. THE
NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
Section 19. Notices. All notices and other communications provided for
hereunder shall be in writing and given in accordance with the provisions of
Section 15 of the Guaranty and such provisions are hereby incorporated herein by
this reference as if fully set forth herein.
Section 20. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Pledged Collateral and shall (a) remain in
full force and effect until the release thereof as provided in SECTION 16, (b)
be binding upon the Pledgor, its successors and assigns, and
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(c) inure to the benefit of the Administrative Agent and the Lenders and their
respective successors and assigns, provided that any assignment of the
Administrative Agent's or any Lender's rights hereunder that is made other than
during the continuance of an Event of Default shall be made only in connection
with an assignment of all or a portion of the Loans and the Commitments that is
permitted under the Loan Agreement.
Section 21. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
laws of a jurisdiction other than the State of Georgia. Unless otherwise
defined herein or in the Loan Agreement, terms defined in Article 9 of the
Uniform Commercial Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Pledgor and the Administrative Agent have caused
this Agreement to be duly executed and delivered under seal by their respective
officers thereunto duly authorized as of the date first above written.
PLEDGOR:
PROSOURCE, INC.
[CORPORATE SEAL]
By: /s/ D.R. Parker
-------------------------
Name: David R. Parker
------------------------
Title: Chairman
-----------------------
Attest:
By: /s/ Paul A. Garcia de Quevedo
-----------------------------
Name: Paul A. Garcia de Quevedo
---------------------------
Title: Assistant Secretary
--------------------------
ADMINISTRATIVE AGENT:
NATIONSBANK OF GEORGIA, N.A.
By: /s/ John W. Getz
-------------------------
Name: John W. Getz
------------------------
Title: Senior Vice President
-----------------------
17
<PAGE> 1
Exhibit 10.12
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, is made as of the 31st day of March, 1995, by
ProSource Services Corporation, a Delaware corporation (the "Pledgor"), in
favor of NATIONSBANK OF GEORGIA, N.A. ("NationsBank"), a national banking
association with its principal office located in Atlanta, Georgia (the
"Administrative Agent"), in its capacity as agent for the financial
institutions (the "Lenders") party from time to time to the Loan and Security
Agreement of even date herewith (the same as it may be amended, modified,
supplemented, extended or refinanced from time to time, being the "Loan
Agreement"), by and between the Pledgor, BroMar Services, Inc., a Delaware
corporation ("BroMar"), ProSource Distribution Services Limited, a Canadian
corporation ("Prosource Canada") (the Pledgor, BroMar and ProSource Canada
being referred to herein collectively as the "Borrowers"), NationsBank, The
First National Bank of Boston and Shawmut Capital Corporation (the
"Co-Agents"), the Lenders and the Administrative Agent.
Preliminary Statement
Pursuant to the Loan Agreement, the Lenders have made or have agreed to
make certain financial accommodations to the Borrowers in the form of revolving
credit loans under a $210,000,000 revolving credit facility, term loans under
two $15,000,000 term loan facilities and in the form of the issuance of
letters of credit from time to time for the Borrowers' account, on the terms
and conditions and as more particularly set forth in the Loan Agreement. All
capitalized terms used herein that are not defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
In addition to being a Borrower under the Loan Agreement, the Pledgor is
the sole shareholder of each of BroMar and Prosource Canada and, as such,
benefits from the financial accommodations of the Lenders to BroMar and
ProSource Canada. The Lenders and the Administrative Agent have required as a
condition to entering into the Loan Agreement and extending the
<PAGE> 2
credit described therein that the Pledgor enter into this Pledge Agreement.
Statement of Agreement
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Loans to the Borrowers under the Loan Agreement, the
Pledgor hereby agrees as follows:
Section 1. Definitions. For the purposes of this Agreement:
"Agreement" means this Agreement, as the same may be amended, modified or
supplemented from time to time.
"Borrower" means each of ProSource Services Corporation, a Delaware
corporation, BroMar Services, Inc., a Delaware corporation, ProSource
Distribution Services Limited, a Canadian corporation, and their successors and
assigns, and "Borrowers" means all of the foregoing.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency then administering the Securities Act.
"Default" means any of the events listed in SECTION 11 of this Agreement
that with the giving of notice or the passage of time or both would constitute
an Event of Default.
"Event of Default" means any of the events listed in SECTION 11 of this
Agreement.
"Loan Agreement" means the Loan and Security Agreement dated of even date
herewith among the Borrowers, NationsBank, The First National Bank of Boston
and Shawmut Capital Corporation (the "Co-Agents"), the Lenders and the
Administrative Agent, as the same may be amended, modified, supplemented,
restated, renewed, refinanced or extended from time to time.
"Pledged Collateral" means and includes
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<PAGE> 3
(a) the Pledged Shares and the certificates representing the Pledged
Shares and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the Pledged Shares;
(b) all additional shares of stock of any issuer of the Pledged Shares
from time to time acquired by the Pledgor in any manner and the certificates
representing such additional shares and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such shares; and
(c) all proceeds of the foregoing.
"Pledged Shares" means and include all of the issued and outstanding
shares of capital stock of BroMar and ProSource Canada now owned or hereafter
acquired by the Pledgor.
"Pledgor" means ProSource Services Corporation, a Delaware corporation,
and its successors and assigns.
"Secured Obligations" means and includes all obligations included in the
definition of "Secured Obligations," as such term is defined in the Loan
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same may from time to time be in effect.
"Securities Laws" means the Securities Act, the Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the rules and regulations
of the Commission thereunder, together with any and all applicable state blue
sky laws, all as the same may from time to time be in effect.
Section 2. Pledge. To secure the payment, observance and performance of
the Secured Obligations, the Pledgor hereby mortgages, pledges and assigns to
the Administrative Agent, for the benefit of itself as Administrative Agent and
the Lenders,
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<PAGE> 4
and grants to the Administrative Agent, for the benefit of itself as
Administrative Agent and the Lenders, a continuing security interest in the
Pledged Collateral.
Section 3. Delivery of Pledged Collateral. All certificates representing
or evidencing the Pledged Collateral shall be delivered to and held by or on
behalf of the Administrative Agent, for the benefit of the Lenders, pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Administrative Agent. The
Administrative Agent shall have the right, at any time in its discretion and
without notice to the Pledgor, to request the Borrowers or any transfer agent to
note the pledge of the Pledged Collateral on the stock transfer records of
BroMar and/or Prosource Canada. During the continuation of an Event of Default,
the Administrative Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations. The Pledgor
acknowledges that all certificates or instruments deposited by the Pledgor or
transferred to or registered in the name of the Administrative Agent in
accordance with this SECTION 3 are deposited, transferred or registered to
secure the payment of the Secured Obligations.
Section 4. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The execution, delivery and performance of this Pledge Agreement in
accordance with its terms and the grant of the security interest hereunder are
within the Pledgor's corporate power and have been duly authorized by all
necessary corporate action on the part of the Pledgor. This Agreement has been
duly executed and delivered by an authorized officer of the Pledgor and is a
legal, valid and binding obligation of the Pledgor enforceable against the
Pledgor in accordance with its terms.
(b) The execution, delivery and performance of this Agreement in
accordance with its terms and the grant of the
4
<PAGE> 5
security interest hereunder do not and will not, by the passage of time, the
giving of notice or otherwise,
(i) require any Governmental Approval or violate any Applicable Law
relating to the Pledgor, the violation of which reasonably could be
expected to have a Materially Adverse Effect on the Pledgor,
(ii) conflict with, result in a breach of or constitute a default
under the Pledgor's certificate of incorporation or bylaws,
(iii) conflict with, result in a breach of or constitute a default
under any indenture, agreement or other instrument to which the Pledgor is
a party or by which it or any of its properties may be bound or any
Governmental Approval, if the effect thereof, singly or in the aggregate,
reasonably could be expected to have a Materially Adverse Effect on the
Pledgor, or
(iv) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Pledgor, other than the security interest granted hereunder in favor of the
Administrative Agent, for the benefit of itself as Administrative Agent and
the Lenders.
(c) There is no pending or threatened action or proceeding affecting the
Pledgor before any court, governmental agency or arbitrator, which may have a
Materially Adverse Effect on the Pledgor.
(d) No authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
the Pledgor, or (ii) for the exercise by the Administrative Agent of the voting
or other rights provided for in this Agreement or the remedies in respect of
the Pledged Collateral pursuant to this Agreement, other than the filing of
financing statements for the purpose of
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<PAGE> 6
giving public notice of the security interest granted hereby.
(e) The Pledged Shares are not subject to any restriction prohibiting or
limiting, in any material respect, the transfer thereof either by the Pledgor
in connection herewith or by the Administrative Agent in connection with the
exercise of its remedies hereunder, including, without limitation, any
restriction under Rule 144 promulgated under the Securities Act.
(f) The Pledged Shares have been duly authorized and validly issued and
are fully paid and non-assessable.
(g) As of the date hereof, the authorized capital of BroMar is 2,000
shares of common stock, no par value per share and the authorized capital stock
of ProSource Canada is an unlimited number of common shares, without par value.
Of the authorized shares of stock of BroMar, 1,000 shares are issued and
outstanding as of the date hereof and of the authorized shares of stock of
ProSource Canada, one share is issued and outstanding as of the date hereof.
All of such issued and outstanding shares of capital stock of BroMar and
ProSource Canada are registered in the name of the Pledgor and owned by the
Pledgor and constitute Pledged Shares.
(h) The Pledgor is the legal and beneficial owner of the Pledged
Collateral free and clear of any lien, security interest, option or other
charge or encumbrance, except for the security interest created by this
Agreement.
(i) The pledge of the Pledged Shares pursuant to this Pledge Agreement
creates a valid and perfected security interest in the Pledged Collateral,
securing the payment of the Secured Obligations, and all filings or other
actions necessary to perfect and protect such security interest have been
taken.
(j) None of the Pledged Collateral is evidenced by any instrument not
delivered to the Administrative Agent in accordance with the terms hereof.
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<PAGE> 7
(k) The principal place of business and chief executive office of the
Pledgor is located at 550 Biltmore Way, Coral Gables, Dade County, Florida
33134.
Section 5. Further Assurances. The Pledgor agrees that at any time, and
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Administrative Agent may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Administrative Agent to exercise
and enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
Section 6. Voting Rights; Dividends; Etc. (a) So long as no Event of
Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this Agreement
or the Loan Agreement; PROVIDED, HOWEVER, that the Pledgor shall not
exercise or shall refrain from exercising any such right if, in the
Administrative Agent's judgment, such action would have a materially
adverse effect on the Administrative Agent's or any Lender's rights in the
Pledged Collateral.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends paid in respect of the Pledged Collateral; PROVIDED, HOWEVER,
that any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or
total liquidation or dissolution of ProSource or in connection with a
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<PAGE> 8
reduction of capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Pledged
Collateral,
shall be Pledged Collateral and shall be forthwith delivered to the
Administrative Agent to hold, for the benefit of itself as Administrative
Agent and the Lenders, as Pledged Collateral and shall, if received by the
Pledgor, be received in trust for the benefit of the Administrative Agent,
be segregated from the other property or funds of the Pledgor and be
forthwith delivered to the Administrative Agent, for the benefit of itself
as Administrative Agent and the Lenders, as Pledged Collateral in the same
form as so received (with any necessary indorsement).
(iii) The Administrative Agent shall execute and deliver (or cause to
be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights which it is
entitled to exercise pursuant to CLAUSE (i) above and to receive the
dividends or interest payments which it is authorized to receive and retain
pursuant to CLAUSE (ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) upon the Administrative Agent's election evidenced by a written
notice to the Pledgor, all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to SECTION 6(a)(i) and to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to SECTION 6(a)(ii) shall cease, and all such rights shall
thereupon become vested in the Administrative Agent, for the benefit of
itself as Administrative Agent and the Lenders, who shall thereupon have
the sole right to exercise such voting and other
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<PAGE> 9
consensual rights and to receive and hold as Pledged Collateral such
dividends and interest payments; and
(ii) all dividends and interest payments which are received by the
Pledgor contrary to the provisions of CLAUSE (i) of this SECTION 6(b) shall
be received in trust for the benefit of the Administrative Agent, for the
benefit of itself as Administrative Agent and the Lenders, shall be
segregated from other funds of the Pledgor and shall be forthwith paid over
to the Administrative Agent, for the benefit of itself as Administrative
Agent and the Lenders, as Pledged Collateral in the same form as so
received (with any necessary indorsement).
Section 7. Transfers and Other Liens.
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose of,
or grant any option with respect to, any of the Pledged Collateral, or (ii)
create or permit to exist any lien, security interest, or other charge or
encumbrance upon or with respect to any of the Pledged Collateral, except for
the security interest granted to the Administrative Agent under this Agreement.
(b) The Pledgor agrees that it (i) will cause the issuers of the Pledged
Shares (to the extent that the Pledgor has the power to so cause) not to issue
any stock or other securities in addition to or in substitution for the Pledged
Shares issued by such issuers, except to the Pledgor, and (ii) will pledge
hereunder, immediately upon the Pledgor's acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of each
issuer of the Pledged Shares.
Section 8. Administrative Agent Appointed Attorney-in-Fact. The Pledgor
hereby appoints the Administrative Agent, for the benefit of itself as
Administrative Agent and the Lenders, as the Pledgor's attorney-in-fact, with
full authority in the place and stead of the Pledgor and in the name of the
Pledgor or otherwise, from time to time in the Administrative Agent's discretion
to take any action and to execute any instrument which the Administrative Agent
may deem necessary or advisable to accomplish the purposes of this Pledge
Agreement, including,
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<PAGE> 10
without limitation, subject to the provisions of SECTION 6, to receive, indorse
and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution that constitutes Pledged
Collateral or that is payable to the Administrative Agent pursuant to the terms
hereof and to give full discharge for the same.
Section 9. Administrative Agent May Perform. If the Pledgor fails to
perform any agreement contained herein, the Administrative Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Administrative Agent incurred in connection therewith shall be payable by
the Pledgor under SECTION 14.
Section 10. Reasonable Care. The Administrative Agent and the Lenders
shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in the Administrative Agent's possession
if the Pledged Collateral is accorded treatment substantially equal to that
which the Administrative Agent accords its own property of the same type, or if
the Administrative Agent appoints an agent to hold the Pledged Collateral on its
behalf or on behalf of the Lenders and such agent agrees to be bound by a
similar standard of care, it being understood that neither the Administrative
Agent, any Lender nor any such agent shall have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether
or not the Administrative Agent, any Lender or any such agent has or is deemed
to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.
Section 11. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) the occurrence of any "Event of Default" under the Loan Agreement;
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<PAGE> 11
(b) the failure of the Pledgor to perform any of its agreements or
obligations as specified in this Pledge Agreement; or
(c) if, at any time, any representation, warranty, certificate, schedule
or report made or delivered by the Pledgor to the Administrative Agent and the
Lenders hereunder shall prove to have been false or misleading in any material
respect as of the time made or furnished.
Section 12. Remedies upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Administrative Agent may, and at the direction of the Required
Lenders in their sole and absolute discretion shall, exercise in respect of the
Pledged Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a secured
party upon default under the Uniform Commercial Code, and the Administrative
Agent may also, and at the direction of the Required Lenders in their sole and
absolute discretion shall, upon notice specified below, sell the Pledged
Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Administrative Agent's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Administrative Agent may deem
commercially reasonable. The Pledgor agrees that, to the extent notice of sale
shall be required by law, at least five days' notice to the Pledgor of the time
and place of any public sale or the time after which any private sale may be
made shall constitute reasonable notification. The Administrative Agent shall
not be obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Administrative Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Administrative Agent shall have the
right to bid for and purchase any of the Pledged Collateral at any such public
sale and shall not be deemed thereby to have retained the Pledged Collateral in
satisfaction of the Secured Obligations.
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(b) Any cash held by the Administrative Agent as Pledged Collateral and
all cash proceeds received by the Administrative Agent in respect of any sale
of, or other realization upon all or any part of the Pledged Collateral may, in
the discretion of the Administrative Agent, be held by the Administrative Agent
as collateral for, and/or then or at any time thereafter applied (after payment
of any amounts payable to the Administrative Agent pursuant to SECTION 14) in
whole or in part by the Administrative Agent against, all or any part of the
Secured Obligations in such order as the Administrative Agent shall elect. Any
surplus of such cash proceeds held by the Administrative Agent and remaining
after payment in full of all the Secured Obligations shall be paid over to the
Pledgor or to whomsoever may be lawfully entitled to receive such surplus. THE
PLEDGOR SHALL REMAIN LIABLE FOR ANY DEFICIENCY.
(c) The Pledgor acknowledges that compliance with the Securities Laws may
very strictly limit the course of the Administrative Agent's conduct in the
disposition of all or any part of the Pledged Collateral in accordance with
this SECTION 12, and may also limit the extent to which or the manner in which
any subsequent transferee of any Pledged Collateral may dispose of the same.
Pledgor acknowledges and agrees that the Administrative Agent shall be entitled
to place all or any part of the Pledged Collateral for private placement by an
investment banking firm, that any such investment banking firm may purchase all
or any part of the Pledged Collateral for its own account and that the
Administrative Agent shall be entitled to place all or any part of the Pledged
Collateral privately with a purchaser or purchasers who will represent and
agree that they are purchasing the Pledged Collateral for their own account for
investment and not with a view to the distribution or sale thereof in violation
of the Securities Laws, notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which the Administrative Agent sells.
Section 13. Annual Report, Proxy Statements, Etc. The Pledgor shall
deliver to the Administrative Agent, promptly upon receipt thereof, copies of
all annual reports, proxy statements and other reports and notices to
shareholders that the Pledgor receives from ProSource.
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Section 14. Expenses. The Pledgor will upon demand pay to the
Administrative Agent and each Lender the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Administrative Agent or such Lender may incur in
connection with (a) the administration of this Pledge Agreement, (b) the custody
or preservation of, or the sale of, collection from, or other realization upon,
any of the Pledged Collateral, (c) the exercise or enforcement of any of the
rights of the Administrative Agent or any Lender hereunder, or (d) the failure
by the Pledgor to perform or observe any of the provisions hereof. The Lenders
shall to the extent reasonably practicable coordinate their activities in the
administration of this Pledge Agreement through the Administrative Agent to
avoid unnecessary duplication of costs and expenses that the Pledgor is required
to pay under this SECTION 14, provided that neither the Lenders nor the
Administrative Agent shall be under any obligation to coordinate such activities
during the continuation of an Event of Default.
Section 15. Security Interest Absolute. All rights of the Administrative
Agent and security interests hereunder, and all obligations of the Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from the Loan Agreement or the Notes
or any extension of the maturity date of any of the Notes;
(c) any exchange, release or nonperfection of any other collateral for all
or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the
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<PAGE> 14
Pledgor in respect of the Secured Obligations or this Pledge Agreement or
otherwise.
Section 16. Release of Security Interests. Upon the payment and performance
in full of the Secured Obligations and the termination of each of the Lenders'
Commitments under the Loan Agreement, the Administrative Agent shall release its
security interests hereunder in the Pledged Collateral, and the Pledgor shall be
entitled to the return, upon its request and at its expense, of such of the
Pledged Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof and the Administrative Agent shall, at the Pledgor's request
and expense, execute and deliver such other releases, confirmations and
acknowledgements as may reasonably be requested to evidence such release.
Section 17. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the
Administrative Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
Section 18. Litigation. EACH OF THE PLEDGOR AND THE ADMINISTRATIVE AGENT
FOR ITSELF AND EACH OF THE LENDERS HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR
NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST THE
PLEDGOR, THE ADMINISTRATIVE AGENT OR ANY LENDER ARISING OUT OF THIS AGREEMENT OR
BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE PLEDGOR AND THE
ADMINISTRATIVE AGENT OR ANY LENDER OF ANY KIND OR NATURE. THE PLEDGOR AND THE
ADMINISTRATIVE AGENT FOR ITSELF AND THE LENDERS HEREBY AGREE THAT THE FEDERAL
COURT OF THE NORTHERN DISTRICT OF GEORGIA OR, AT THE OPTION OF THE
ADMINISTRATIVE AGENT OR ANY LENDER, ANY COURT IN WHICH THE ADMINISTRATIVE AGENT
OR SUCH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE
NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
THE PLEDGOR AND THE ADMINISTRATIVE AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR TO ANY
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MATTER ARISING THEREFROM. THE PLEDGOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH
COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE OF SUCH SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE PLEDGOR AT THE ADDRESS OF THE PLEDGOR SET FORTH IN
SECTION 19. THE NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL
NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY
APPROPRIATE JURISDICTION.
Section 19. Notices. All notices and other communications provided for
hereunder shall be in writing and given in accordance with the provisions of
Section 16.1 of the Loan Agreement and such provisions are hereby incorporated
herein by this reference as if fully set forth herein.
Section 20. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Pledged Collateral and shall (a) remain in
full force and effect until the release thereof as provided in SECTION 16, (b)
be binding upon the Pledgor, its successors and assigns, and (c) inure to the
benefit of the Administrative Agent and the Lenders and their respective
successors and assigns, provided that any assignment of the Administrative
Agent's or any Lender's rights hereunder that is made other than during the
continuance of an Event of Default shall be made only in connection with an
assignment of all or a portion of the Loans and the Commitments that is
permitted under the Loan Agreement.
Section 21. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
laws of a jurisdiction other than the State of Georgia. Unless otherwise
defined herein or in the Loan Agreement, terms defined in Article 9 of the
Uniform Commercial Code are used herein as therein defined.
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IN WITNESS WHEREOF, the Pledgor and the Administrative Agent have caused
this Agreement to be duly executed and delivered under seal by their respective
officers thereunto duly authorized as of the date first above written.
PLEDGOR:
PROSOURCE SERVICES CORPORATION
[CORPORATE SEAL]
By: /s/ D.R. Parker
--------------------------
Name:
------------------------
Title:
-----------------------
Attest:
By: /s/ Paul A. Garcia de Quevedo
-----------------------------
Name:
---------------------------
Title:
--------------------------
ADMINISTRATIVE AGENT:
NATIONSBANK OF GEORGIA, N.A.
By: /s/ John W. Getz
--------------------------
Name:
------------------------
Title:
-----------------------
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EXHIBIT 10.13
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT is dated as of March 31, 1995 and made
by PROSOURCE SERVICES CORPORATION, a Delaware corporation ("ProSource"), and
ONEX CORPORATION, a corporation organized under the laws of Ontario, Canada
("Onex"), in favor of NATIONSBANK OF GEORGIA, N.A., as agent (the
"Administrative Agent") under the Loan and Security Agreement dated as of March
31, 1995 (the "Loan Agreement"; capitalized terms used herein, unless otherwise
defined, being used herein as therein defined), among ProSource, BroMar
Services, Inc., a Delaware corporation ("BroMar"), ProSource Distribution
Services Limited, a Canadian corporation ("ProSource Canada" and together with
ProSource and BroMar, the "Borrowers"), NationsBank of Georgia, N.A.
("NationsBank"), The First National Bank of Boston and Shawmut Capital
Corporation as the Co-Agents, the financial institutions parties thereto from
time to time (the "Lenders"), and the Administrative Agent.
WHEREAS, ProSource is or will be obligated to pay Onex management
fees in the amount of $792,796 per year, which amount may be increased for each
year after 1995 based on the Consumer Price Index - All Urban Consumers -
National Average (published by the United States Department of Labor
Statistics); and
WHEREAS, pursuant to the terms and subject to the conditions of the
Loan Agreement the Lenders will make loans and other extensions of credit to the
Borrowers; and
WHEREAS, the Lenders are unwilling to enter into the Loan Agreement
and to make loans, extensions of credit and other financial accommodations to
the Borrowers thereunder unless ProSource and Onex shall have joined in this
Agreement;
NOW, THEREFORE, for and in consideration of TEN DOLLARS ($10.00) and
other valuable consideration and the mutual covenants herein contained and to
induce the Lenders to provide financial accommodations to the Borrowers,
ProSource and Onex warrant to and covenant with the Administrative Agent and the
Lenders as follows:
SECTION 1. Definitions. In addition to such other terms as
are elsewhere defined herein, as used in this Agreement the following terms
shall have the following meanings:
"Senior Creditor" means each of the Administrative
Agent and the Lenders and each other holder, from time to
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time, of any portion of the Senior Debt, including, without
limitation, each creditor that extends credit to the Borrowers (or
any of them) for the purpose of refinancing or repaying the Secured
Obligations, in whole or in part.
"Senior Debt" means the Secured Obligations under the
Loan Agreement, whether now owed or hereafter arising, and any other
Indebtedness incurred in connection with the refinancing or
repayment of the Secured Obligations, in whole or in part, provided
that in the event of a refinancing of the Secured Obligations in
part, then the obligations incurred in connection with such
refinancing shall be Senior Debt only if the Administrative Agent
shall consent thereto by written notice to the holders of such
obligations, ProSource and Onex.
"Subordinated Obligations" means ProSource's cumulative
obligation to pay the Management Fees to the extent that such
obligation exceeds $375,000 in any Fiscal Year and all other loans,
advances, liabilities, debit balances, obligations, covenants and
duties at any time or times owed by ProSource to Onex, whether
direct or indirect, absolute or contingent, secured or unsecured,
due or to become due, now existing or hereafter arising.
SECTION 2. Agreement to Subordinate. Each of Onex and ProSource
agrees that the Subordinated Obligations are and shall be subordinate, to the
extent and in the manner hereinafter set forth, in right of payment to the prior
payment in full of all Senior Debt. For the purposes of this Agreement, the
Senior Debt shall not be deemed to have been paid in full until the Loan
Agreement shall have been terminated and the Senior Creditors shall have
received irrevocable payment of the Senior Debt in immediately available funds
or in another manner satisfactory to the Senior Creditors.
SECTION 3. No Payment on or Collateral for the Subordinated
Obligations. Onex agrees not to ask, demand, sue for, take or receive from any
Borrower, directly or indirectly, in cash or other property or by set-off or in
any other manner payment of or collateral for the payment of all or any of the
Subordinated Obligations unless and until the Senior Debt shall have been paid
in full and, without the prior written consent of the Senior Creditor, will not
exercise any remedies available to it, whether by agreement, at law or equity or
otherwise, in respect of the nonpayment of the Subordinated Obligations.
Notwithstanding the foregoing,
(a) Onex may receive and ProSource may make payments on
the Subordinated Obligations to the extent that such payments are
permitted pursuant to Section 12.6(a) of the Loan Agreement (or any
comparable provision set forth in any
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agreement evidencing the refinancing of the Secured Obligations in
whole); and
(b) Onex may, at such time as the Senior Debt shall have
been accelerated, take such action, except as set forth in SECTION 5
hereof, as may be available by agreement, at law or equity or
otherwise to enforce the Subordinated Obligations, subject, however,
at all times, to the limitations set forth in this Agreement.
SECTION 4. In Furtherance of Subordination. Onex agrees as
follows:
(a) Upon any distribution of all or any of the assets of
ProSource to its creditors upon the dissolution, winding up,
liquidation, arrangement or reorganization of ProSource, whether in
any bankruptcy, insolvency, arrangement, reorganization or
receivership proceedings or upon an assignment for the benefit of
creditors or any other marshalling of the assets and liabilities of
ProSource or otherwise, any payment or distribution of any kind
(whether in cash, property or securities) which otherwise would be
payable or deliverable upon or with respect to the Subordinated
Obligations shall be paid or delivered directly to the
Administrative Agent (or any successor agent) for application (in
the case of cash) to or as collateral (in the case of non-cash
property or securities) for the payment or prepayment of the Senior
Debt until the Senior Debt shall have been paid in full.
(b) If any proceeding referred to in SUBSECTION (A)
above is commenced by or against ProSource,
(i) the Administrative Agent is hereby irrevocably
authorized and empowered (in its own name or in the name
of Onex or otherwise), but shall have no obligation, to
demand, sue for, collect and receive every payment or
distribution referred to in SUBSECTION (a) above and
give acquittance therefor and to file claims and proofs
of claim and take such other action (including, without
limitation, voting the Subordinated Obligations or
enforcing any security interest or other lien securing
payment of the Subordinated Obligations) as it may deem
necessary or advisable for the exercise or enforcement
of any of its rights or interests hereunder; and
(ii) Onex shall duly and promptly take such action
as the Administrative Agent may request (A) to collect
the Subordinated Obligations for the account of the
Administrative Agent and to file appropriate claims or
proofs of claim in respect of the Subordinated
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Obligations, (B) to execute and deliver to the
Administrative Agent such powers of attorney,
assignments or other instruments as it may request in
order to enable it to enforce any and all claims with
respect to, and any security interests and other liens
securing payment of, the Subordinated Obligations, and
(C) to collect and receive any and all payments or
distributions which may be payable or deliverable upon
or with respect to the Subordinated Obligations.
(c) All payments or distributions upon or with respect
to the Subordinated Obligations which are received by Onex contrary
to the provisions of this Agreement shall be received in trust for
the benefit of the Administrative Agent, shall be segregated from
other funds and property held by Onex and shall be forthwith paid
over to the Administrative Agent in the same form as so received
(with any necessary indorsement) to be applied (in the case of cash)
to or held as collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Senior Debt in
accordance with the terms of the Loan Agreement.
(d) The Administrative Agent is hereby authorized to
demand specific performance of this Agreement, whether or not
ProSource shall have complied with any of the provisions hereof
applicable to it, at any time when Onex shall have failed to comply
with any of the provisions of this Agreement applicable to it. Onex
hereby irrevocably waives any defense based on the adequacy of a
remedy at law which might be asserted as a bar to such remedy of
specific performance.
SECTION 5. No Commencement of Any Proceeding. Onex agrees that, so
long as any of the Senior Debt shall remain unpaid, it will not commence, or
join with any creditor other than the Senior Creditors in commencing, any
proceeding referred to in SECTION 4(a).
SECTION 6. Rights of Subrogation. Onex agrees that no payment or
distribution to the Administrative Agent or any Senior Creditor pursuant to the
provisions of this Agreement shall entitle Onex to exercise any rights of
subrogation in respect thereof until the Senior Debt shall have been paid in
full.
SECTION 7. Subordination Legend; Further Assurances. Onex
and ProSource will cause each instrument evidencing the Subordinated
Obligations to be endorsed with the following legend:
"The indebtedness evidenced by this instrument is
subordinated to the prior payment in full of the Senior Debt
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(as defined in the Subordination Agreement hereinafter referred to)
pursuant to, and to the extent provided in, the Subordination
Agreement dated as of March 31, 1995 by the maker hereof and payee
named herein in favor of NationsBank of Georgia, N.A., as
Administrative Agent."
Each of Onex and ProSource will further mark its books of account in such a
manner as shall be effective to give proper notice of the effect of this
Agreement. Each of Onex and ProSource will, at its expense and at any time and
from time to time, promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Administrative Agent may request in order to protect any right or
interest granted or purported to be granted hereby or to enable the
Administrative Agent to exercise and enforce its rights and remedies hereunder.
SECTION 8. No Change in or Disposition of Subordinated
Obligations. Onex and ProSource each agrees that it will not:
(a) Cancel or otherwise discharge any of the
Subordinated Obligations that have accrued (except upon payment in
full thereof paid to the Administrative Agent as contemplated by
SECTION 4(c)) or subordinate any of the Subordinated Obligations to
any indebtedness of ProSource other than the Senior Debt;
(b) Sell, assign, pledge, encumber or otherwise dispose
of any of the Subordinated Obligations unless such sale, assignment,
pledge, encumbrance or disposition is made expressly subject to this
Agreement; or
(c) Permit the terms of any of the Subordinated
Obligations to be changed in such a manner as to have an adverse
effect upon the rights or interests of the Administrative Agent or
the Senior Creditors hereunder.
SECTION 9. No Security. Each of Onex and ProSource agrees that it
will not take or make any payment of (other than as expressly permitted hereby),
or accept or grant a security interest in any of the assets of ProSource as
security for, any of the Subordinated Obligations or take any other action in
contravention of the provisions of this Agreement, nor will ProSource cause or
permit any of its Subsidiaries to do any of the foregoing.
SECTION 10. Obligations Hereunder Not Affected. All rights and
interests of the Administrative Agent and the Senior Creditors hereunder, and
all agreements and obligations of Onex and ProSource under this Agreement, shall
remain in full force and effect irrespective of:
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(i) any lack of validity or enforceability of the Loan
Agreement, the Notes or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Senior Debt, or any other
amendment or waiver of or any consent to departure from the Notes or
the Loan Agreement;
(iii) any exchange, release or non-perfection of any Collateral,
or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Senior Debt; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, ProSource (or any other
Borrower) in respect of the Senior Debt or Onex in respect of this
Agreement other than as expressly provided herein.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Senior Debt is rescinded or must
otherwise be returned by the Administrative Agent or any Senior Creditor upon
the insolvency, bankruptcy or reorganization of ProSource or otherwise, all as
though such payment had not been made.
SECTION 11. Waiver. Onex and ProSource each hereby waives
promptness, diligence, notice of acceptance and any other notice with respect to
any of the Senior Debt and this Agreement and any requirement that the
Administrative Agent or any Senior Creditor protect, secure, perfect or insure
any security interest or lien or any property subject thereto or exhaust any
right or take any action against ProSource or any other person or entity or any
collateral.
SECTION 12. Representations and Warranties. ProSource hereby
represents and warrants that true and complete copies of all agreements relating
to the Subordinated Obligations have been furnished to the Administrative Agent.
SECTION 13. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Onex or ProSource therefrom
shall in any event be effective unless the same shall be in writing and signed
by the Administrative Agent and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 14. Expenses. Onex and ProSource jointly and severally agree
to pay, upon demand, to the Administrative Agent the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel,
which the
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Administrative Agent or any Senior Creditor may incur in connection with the
exercise or enforcement of any of its rights or interests hereunder.
SECTION 15. Addresses for Notices. All notices and the
communications hereunder and thereunder shall be in writing or by telephone,
subsequently confirmed in writing. Notices in writing shall be delivered
personally or sent by certified or registered mail, postage pre-paid, or by
overnight courier, telex or facsimile transmission and shall be deemed received
in the case of personal delivery, when delivered, in the case of mailing, when
receipted for, in the case of overnight delivery, on the next Business Day after
the Business Day of delivery to the courier, and in the case of telex and
facsimile transmission, upon transmittal, provided that in the case of notices
to the Administrative Agent, notice shall be deemed to have been given only when
such notice is actually received by the Administrative Agent. A telephonic
notice to the Administrative Agent, as understood by the Administrative Agent,
will be deemed to be the controlling and proper notice in the event of a
discrepancy with or failure to receive a confirming written notice.
Notices to any party shall be sent to it at the following addresses,
or any other address of which all the other parties are notified in writing
If to ProSource: ProSource Services Corporation
550 Biltmore Way - 10th Floor
Coral Gables, Florida 33134
Attn: David R. Parker
Facsimile No.: (305) 529-2573
with a copy to: Kaye, Scholer, Fierman, Hays &
Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg,
Esq.
Facsimile No.: (212) 836-7152
If to Onex: Onex Corporation
161 Bay Street
49th Floor, Commerce Court West
Toronto, Ontario, Canada M5J 2S1
Attn: Anthony R. Melman
Facsimile No.: (416) 362-5765
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with a copy to: Kaye, Scholer, Fierman, Hays &
Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg,
Esq.
Facsimile No.: (212) 836-7152
If to the
Administrative Agent: NationsBank of Georgia, N.A.
Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: John W. Getz
Facsimile No.: 404-607-6439
If to a Senior Creditor: At the address of such Senior
Creditor set forth on the signature
pages of the Loan Agreement or in
the Register.
SECTION 16. No Waiver; Remedies. No failure on the part of the
Administrative Agent or any Senior Creditor to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
SECTION 17. Continuing Agreement; Transfer of Notes. This Agreement
is a continuing agreement and shall (a) remain in full force and effect until
the Senior Debt shall have been paid in full and the commitments of the Senior
Creditors under the Loan Agreement shall have terminated, (b) be binding upon
Onex, ProSource and their respective successors and assigns, and (c) inure to
the benefit of and be enforceable by the Administrative Agent and the Senior
Creditors and their respective successors, transferees and assigns. Without
limiting the generality of the foregoing CLAUSE (c), any Senior Creditor may
assign or otherwise transfer the Notes held by it to any other person or entity
in accordance with the Loan Agreement, which person or entity shall thereupon
become vested with all the rights in respect thereof granted to such Senior
Creditor herein or otherwise.
SECTION 18. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
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IN WITNESS WHEREOF, Onex and ProSource each has caused
this Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.
PROSOURCE SERVICES CORPORATION
[CORPORATE SEAL]
By: /s/ D.R. Parker
---------------------------
Name: D.R. Parker
Title: Chairman
Attest:
By: /s/ Paul A. Garcia de Quevedo
-----------------------------
Name: _______________________
Title: ______________________
ONEX CORPORATION
[CORPORATE SEAL]
By: /s/ Anthony Melman
---------------------------
Name: Anthony Melman
Title: Vice President
Attest:
By: /s/ Mark L. Hilson
---------------------------
Name: Mark L. Hilson
Title: Vice President
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Exhibit 10.14
UNCONDITIONAL GUARANTY
THIS UNCONDITIONAL GUARANTY (the "Guaranty") is made as of the 31st day of
March, 1995, by PROSOURCE, INC., a Delaware corporation (the "Guarantor"), in
favor of NATIONSBANK OF GEORGIA, N.A. ("NationsBank"), a national banking
association with its principal office located in Atlanta, Georgia (the
"Administrative Agent"), in its capacity as agent for the financial
institutions (the "Lenders") party from time to time to the Loan and Security
Agreement of even date herewith (the same as it may be amended, modified,
supplemented, extended or refinanced from time to time, being the "Loan
Agreement"), by and between ProSource Services Corporation, a Delaware
corporation, BroMar Services, Inc., a Delaware corporation, ProSource
Distribution Services Limited, an Ontario corporation (the "Borrowers"),
NationsBank, The First National Bank of Boston and Shawmut Capital Corporation
(the "Co-Agents"), the Lenders and the Administrative Agent, and in favor of
the Lenders.
PRELIMINARY STATEMENT
Pursuant to the Loan Agreement, the Lenders have made or have agreed to
make certain financial accommodations to the Borrowers in the form of revolving
credit loans under a $210,000,000 revolving credit facility, term loans under
two $15,000,000 term loan facilities and in the form of the issuance of letters
of credit from time to time for the Borrowers' account, on the terms and
conditions and as more particularly set forth in the Loan Agreement. The
Guarantor is the sole shareholder, directly or indirectly of each Borrower and,
as such, benefits from the financial accommodations of the Lenders to the
Borrowers. The Lenders and the Administrative Agent have required as a
condition to entering into the Loan Agreement and extending the credit and
financial accommodations described therein that the Guarantor enter into this
Guaranty. All capitalized terms used herein that are not defined herein shall
have the meanings ascribed to them in the Loan Agreement.
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STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises, the Lenders'
extension of the credit and financial accommodations described above, and in
order to induce the Lenders to extend such credit and make such financial
accommodations, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantor agrees in favor of
the Administrative Agent, for the benefit of itself as Administrative Agent and
the Lenders, as follows:
Section 1. Guaranty.
(a) In consideration of the execution and delivery by the Lenders and the
Administrative Agent of the Loan Agreement and the making of the Revolving
Credit Loans and Term Loans to the Borrowers by the Lenders thereunder, and the
issuance from time to time thereunder of Letters of Credit for the account of
one or more Borrowers, the Guarantor, as primary obligor and not as surety
merely, hereby guarantees absolutely and unconditionally to the Administrative
Agent and the Lenders the due and punctual payment, when and as due (whether
upon demand, at maturity, by reason of acceleration or otherwise), of the
following (collectively the "Guaranteed Obligations"):
(i) the principal of and interest and premium, if any, on the Loans;
and
(ii) the other Secured Obligations.
(b) The Guarantor agrees to pay all reasonable expenses (including, but
not limited to, reasonable legal fees and disbursements) which may be incurred
by the Administrative Agent or the Lenders in enforcing their rights under this
Guaranty.
(c) This Guaranty shall be a continuing guaranty of any and all notes
given as evidence of or in extension or renewal of any Guaranteed Obligation.
The Guarantor understands, agrees and confirms that this is a guaranty of
payment when due and not of collection only and that demand for payment may be
made
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hereunder on any number of occasions and no single demand shall exhaust the
rights of the Administrative Agent or the Lenders hereunder.
Section 2. Payment by Guarantor. If the Borrowers shall fail to pay, when
due and payable, any Guaranteed Obligation, the Guarantor shall immediately make
such payment to the Administrative Agent on demand. If any Guaranteed Obligation
would be subject to acceleration, but such acceleration is enjoined or stayed,
the Guarantor will, to the extent permitted by law, purchase such portion of the
Guaranteed Obligations as shall equal the outstanding principal amount thereof,
plus such accrued interest and other amounts as would have been payable had such
Guaranteed Obligation been paid or prepaid at the time of such purchase. All
payments by the Guarantor under this Guaranty shall be made without any setoff,
counterclaim or deduction whatsoever, and in the same currency and funds as are
required to be paid by the Borrowers.
Section 3. Representations and Warranties. The Guarantor represents and
warrants to the Administrative Agent and the Lenders as follows:
(a) Organization; Authority. The Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
execute, deliver and perform this Guaranty. The execution, delivery and
performance of this Guaranty have been duly authorized by all necessary
corporate action on the part of the Guarantor.
(b) Enforceability of Guaranty. This Guaranty has been duly executed and
delivered by a duly authorized officer of the Guarantor and is a legal, valid
and binding obligation of the Guarantor enforceable in accordance with its
terms.
(c) Compliance of Guaranty With Laws, Etc. The execution, delivery and
performance of this Guaranty in accordance with its terms and the guaranty of
the Guaranteed Obligations hereunder do not and will not, by the passage of
time, the giving of notice or otherwise,
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(i) require any Governmental Approval or violate any Applicable Law
relating to the Guarantor, the violation of which reasonably could be
expected to have a Materially Adverse Effect on the Guarantor,
(ii) conflict with, result in a breach of or constitute a default
under the Guarantor's certificate of incorporation or bylaws,
(iii) conflict with, result in a breach of or constitute a default
under any indenture, agreement or other instrument to which the Guarantor
is a party or by which it or any of its properties may be bound or any
Governmental Approval, if the effect thereof, singly or in the aggregate,
reasonably could be expected to have a Materially Adverse Effect on the
Guarantor, or
(iv) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Guarantor other than the security interests granted under the Pledge
Agreement.
(d) Ownership of Borrowers. The Guarantor is the owner of, and has good,
marketable and legal title to, all of the issued and outstanding shares of the
capital stock of ProSource, which in turn has good, marketable and legal title
to, all of the issued and outstanding shares of each of the other Borrowers and
the Guarantor accordingly has an economic interest in the transactions
contemplated by the Loan Agreement and hereby confirms to the Administrative
Agent and the Lenders the benefits to it by reason of such transactions.
Section 4. Waiver. The Guarantor, to the fullest extent permitted by
Applicable Law, waives without any requirement of notice to or further assent by
the Guarantor
(a) diligence, presentment, demand, protest and notice of any kind
whatsoever,
(b) any requirement that the Administrative Agent or any Lender exhaust
any right or take any action against the
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Borrowers, other person or any of the collateral for the Guaranteed
Obligations,
(c) the benefit of all principles or provisions of Applicable Law which
are or might be in conflict with the terms of this Guaranty, including, without
limitation, Section 10-7-24 of the Official Code of Georgia Annotated,
(d) notice of acceptance hereof,
(e) notice of a default or event of default under the Loan Agreement or
the other Loan Documents,
(f) notice of any and all favorable and unfavorable information, financial
or otherwise, about any Borrower or any other Person, heretofore, now or
hereafter learned or acquired by the Administrative Agent or any Lender,
(g) all other notice to which the Guarantor or any Borrower might
otherwise be entitled,
(h) all defenses, set-offs and counterclaims (other than compulsory
counterclaims) of any kind whatsoever (but not the right to bring an
independent action),
(i) notice of the existence or creation of any Guaranteed Obligation,
(j) notice of any alteration, amendment, increase, extension or exchange
of any of the Guaranteed Obligations,
(k) notice of any amendments, modifications or supplements to the Loan
Agreement, the Notes or to any other Loan Document,
(l) all diligence in collection or protection of or realization upon the
collateral or any of the Guaranteed Obligations, and
(m) the right to require the Administrative Agent or any Lender to proceed
against any Borrower.
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Section 5. Consent. The Guarantor, to the fullest extent permitted by
Applicable Law, consents without the requirement of any notice to or further
assent by the Guarantor that
(a) the time of payment of any Guaranteed Obligation may be extended,
(b) any provision of the Loan Agreement or any other Loan Document may be
amended, waived or modified,
(c) any Borrower or other guarantor or obligor in respect of the
Guaranteed Obligations may be released from its obligations or other obligors
or guarantors substituted therefor or added,
(d) any property now or hereafter securing the Guaranteed Obligations may
be released, exchanged, substituted, compromised or subordinated in whole or in
part or any security may be added, and
(e) the Administrative Agent or any Lender may proceed against such
Guarantor without proceeding against the Borrowers, or any of them,
and the Guarantor will remain bound under this Guaranty notwithstanding such
changes, extensions, exchanges, substitutions, releases, compromises,
subordinations, amendments, waivers or modifications or any other circumstances,
whether or not referred to above, which might otherwise constitute a legal or
equitable discharge of a guaranty.
Section 6. Absolute Obligation. To the extent permitted by Applicable Law,
the obligations of the Guarantor hereunder are irrespective of and shall not be
dependent upon or affected by
(a) the validity, legality, regularity or enforceability of the Loan
Agreement or any other Loan Document or any of the obligations in respect
thereof or any collateral therefor or guaranty thereof,
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(b) the existence, value or condition of any of the assets of any Borrower
or any collateral for the Guaranteed Obligations,
(c) the validity, perfection or priority of any Lien on the collateral for
the Guaranteed Obligations,
(d) any action or failure to take action by the Administrative Agent or
any Lender under, or with respect to, any of the Loan Documents,
(e) any right of offset with respect to obligations under the Loan
Documents at any time or from time to time held by the Administrative Agent or
any Lender and without regard to any defense, setoff or counterclaim which may
at any time be available to or be asserted by the Guarantor or the Borrowers
against the Administrative Agent or any Lender,
(f) any other dealings among the Administrative Agent, any Lender, the
Guarantor or any Borrower,
(g) any present or future law or order of any government or agency thereof
purporting to reduce, amend or otherwise affect any obligations of the
Borrowers, or
(h) any other circumstances whatsoever (with or without notice to or
knowledge of the Guarantor or any Borrower) that constitutes, or might be
construed to constitute, an equitable or legal discharge of the Guarantor or
the Borrowers (or any of them) for any Guaranteed Obligations or other
obligations of the Borrowers (or any of them) under any Loan Documents, in
bankruptcy or in any other instance.
Section 7. Recovery of Payments. In the event that any or all of the
Guaranteed Obligations are or were paid by the Borrowers or are or were paid or
reduced by application of the proceeds of any collateral for the Guaranteed
Obligations, and all or any part of such payment is recovered from the
Administrative Agent or any Lender under any applicable bankruptcy or insolvency
law or otherwise, the liability of the Guarantor under this Guaranty shall
continue or be reinstated, as
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the case may be, and remain in full force and effect to the extent permitted by
law.
Section 8. Waiver of Claims. The Guarantor will not exercise any rights
that it may acquire by way of subrogation under this Guaranty, by any payment
made hereunder or otherwise, until all Guaranteed Obligations have been paid in
full. If any amount shall be paid to the Guarantor contrary to the foregoing
provisions, on account of such subrogation rights at any time when all of the
Guaranteed Obligations shall not have been paid in full, such amount shall be
held in trust for the benefit of the Administrative Agent and the Lenders and
shall forthwith be paid to the Administrative Agent to be applied upon the
Guaranteed Obligations, whether matured or unmatured, in accordance with the
terms of the Loan Documents.
Section 9. Binding Nature of Certain Adjudications. Upon written notice of
the institution by the Administrative Agent or any Lender of any action or
proceeding, legal or otherwise, for the adjudication of any controversy with any
Borrower, the Guarantor will be conclusively bound by the adjudication in any
such action or proceedings and by a judgment, award or decree entered therein to
the extent that the same determines liability or responsibility for an amount
measured or that could be measured in money. The Guarantor waives the right to
assert in any action or proceeding brought by the Administrative Agent or any
Lender, upon any Loan Document, any offsets or counterclaims which the Guarantor
may have with respect thereto (other than the defense of payment).
Section 10. Validity and Enforceability of Guaranty. The Guarantor will
take all actions reasonably requested by the Administrative Agent or any Lender
required so that the guaranty contained herein will at all times be a binding
obligation of the Guarantor enforceable in accordance with its terms.
Section 11. Litigation. EACH OF THE GUARANTOR AND, BY ITS ACCEPTANCE
HEREOF, THE ADMINISTRATIVE AGENT FOR ITSELF AND THE LENDERS HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR
AGAINST THE GUARANTOR, THE ADMINISTRATIVE AGENT OR ANY LENDER ARISING OUT
8
<PAGE> 9
OF THIS GUARANTY OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN
THE GUARANTOR AND THE ADMINISTRATIVE AGENT OR ANY LENDER OF ANY KIND OR NATURE.
THE GUARANTOR AND, BY ITS ACCEPTANCE HEREOF, THE ADMINISTRATIVE AGENT FOR
ITSELF AND THE LENDERS HEREBY AGREE THAT THE FEDERAL COURT OF THE NORTHERN
DISTRICT OF GEORGIA OR, AT THE OPTION OF THE ADMINISTRATIVE AGENT OR ANY
LENDER, ANY COURT IN WHICH THE ADMINISTRATIVE AGENT OR SUCH LENDER SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE GUARANTOR
AND THE ADMINISTRATIVE AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR INDIRECTLY
TO THIS GUARANTY OR THE LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. THE
GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE
OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND
AGREEING THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE GUARANTOR AT THE
ADDRESS OF THE GUARANTOR SET FORTH IN SECTION 15. THE NONEXCLUSIVE CHOICE OF
FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT
OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
GUARANTY TO ENFORCE SAME IN ANY APPROPRIATE JURISDICTION.
Section 12. Titles and Captions. Titles and captions of Sections and
subsections in this Guaranty are for convenience only, and neither limit nor
amplify the provisions of this Guaranty.
Section 13. Severability of Provisions. Any provision of this Guaranty
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 14. Governing Law. This Guaranty shall be construed in accordance
with and governed by the laws of the State of Georgia, except that the
provisions of SECTION 11 shall
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<PAGE> 10
be construed in accordance with the internal laws of the forum state.
Section 15. Notices. All notices and the communications hereunder shall be
in writing or by telephone, subsequently confirmed in writing. Notices in
writing shall be delivered personally or sent by certified or registered mail,
postage pre-paid, or by overnight courier, telex or facsimile transmission and
shall be deemed received when actually received or, if earlier, in the case of
personal delivery, when delivered, in the case of mailing, when receipted for,
in the case of overnight delivery, on the next Business Day after the day of
delivery to (and acceptance for delivery to be initiated on such day by) the
courier, and in the case of telex and facsimile transmission, upon transmittal
during business hours in the place of receipt or if after business hours, at the
opening of business on the next Business Day, provided that in the case of
notices to the Administrative Agent, notice shall be deemed to have been given
only when such notice is actually received by the Administrative Agent. A
telephonic notice to the Administrative Agent, as understood by the
Administrative Agent, will be deemed to be the controlling and proper notice in
the event of a discrepancy with or failure to receive a confirming written
notice.
Notices to any party shall be sent to it at the following addresses, or
any other address of which all the other parties are notified in writing
If to the Guarantor: ProSource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attn: David R. Parker
Facsimile No.: (305) 529-2573
with a copy to: Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Facsimile No.: (212) 836-7152
10
<PAGE> 11
If to the
Administrative Agent: NationsBank of Georgia, N.A.
Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: John W. Getz
Facsimile No.: 404-607-6437
If to a Lender: At the address of such Lender set
forth on the signature pages of the
Loan Agreement or in the Register,
as the case may be.
Section 16. Miscellaneous.
(a) This Guaranty and the other agreements contemplated by this Guaranty
supersede all prior negotiations, agreements and understandings, and constitute
the entire agreement between the parties with respect to the subject matter
thereof.
(b) All the provisions of this Guaranty shall be binding upon the
Guarantor and its successors and assigns, and the Administrative Agent and the
Lenders may assign or transfer any of their respective rights under this
Guaranty, provided that any such assignment or transfer shall be made only in
connection with an assignment of all or a portion of the Loans and the
Commitments that is permitted under the Loan Agreement.
(c) Any term, covenant, agreement or condition of this Guaranty may be
amended or waived, and any departure therefrom may be consented to, if, but
only if, such amendment, waiver or consent is in writing and is signed by an
authorized officer of the Administrative Agent and, in the case of any
amendment, also by the Guarantor. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
instance and for the specific purpose for which given and no waiver of any
condition, or of the breach of any term, provision, warranty, representation,
agreement or covenant contained in this Guaranty, whether by conduct or
otherwise, in any one or more instances shall be deemed or construed as a
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<PAGE> 12
further or continuing waiver of any such condition or breach or a waiver of any
other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant contained in this Guaranty.
(d) The failure of the Administrative Agent or any Lender at any time or
times to require performance of any provisions of this Guaranty shall in no
manner affect the right to enforce the same.
(e) Whenever the context so requires, the singular number shall include
the plural and the plural shall include the singular, and the gender of any
pronoun shall include the other genders.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the day
and year first above mentioned.
PROSOURCE, INC.
[CORPORATE SEAL]
By: /s/ D.R. Parker
--------------------------
Name:
------------------------
Title:
-----------------------
Attest:
By: /s/ Paul A. Garcia de Quevedo
-----------------------------
Name:
---------------------------
Title:
--------------------------
12
<PAGE> 1
Exhibit 10.15
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES OR "BLUE SKY" LAWS (COLLECTIVELY, "SECURITIES LAWS") AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER THE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION APPLIES TO SUCH
TRANSFER OR DISPOSITION.
PROSOURCE, INC.
Subordinated Note
Due March 31,2002
New York, New York
U.S. $10,000,000 March 31, 1995
FOR VALUE RECEIVED, the undersigned, ProSource, Inc., a Delaware
corporation (the "Company"), hereby promises to pay to The Martin-Brower Company
("MB"), or registered assigns (in either case, the "Holder"), (i) the principal
sum of U.S. $10,000,000 on March 31, 2002 (the "Maturity Date"), and (ii)
interest at the Applicable Interest Rate on the unpaid principal of this Note
(including any capitalized interest and any amount added to the principal of
this Note pursuant to Section 1 that remains unpaid), payable on March 31 and
September 30 of each year, commencing September 30, 1996 (each an "Interest
Payment Date"), except as provided in Section 1. Interest shall be calculated on
the basis of a 365 or 366 day year, as appropriate, and the actual number of
days elapsed. Payments of principal and interest are to be made by bank wire
transfer, in immediately available funds, to an account specified by the Holder
by notice to the Company not less than five business days prior to the date such
payment is due, or, if the Holder so specifies by notice to the Company not less
than five business days prior to the date such payment is due or (if the Holder
has failed to specify an account to which a bank wire transfer is to be made),
by federal funds check payable to the order of the Holder, in lawful money of
the United States of America. Any payment of principal or payment of interest
that is due on a date that is not a business day shall be paid on the next
succeeding business day.
1. DEFERRAL OF INTEREST. The interest otherwise payable on September 30,
1996, March 31, 1997, September 30, 1997 and March 31, 1998 shall not be payable
in cash, but shall be accrued and added to the unpaid principal balance of this
Note and shall not he deemed due until the principal balance is otherwise
payable in accordance with the terms of this Note.
2. PREPAYMENTS. (a) Subject to the provisions of Section 3, the Company
shall have the right at any time or from time to time to repay this Note,
together with accrued interest on the amount prepaid, in whole or in part,
without premium or penalty.
(b) Subject to the provisions of Section 3, if the Company at any
time prepays or retires any principal amount of the Company's Indebtedness
for Money Borrowed which is owed to an Affiliate of the Company, the
Company shall prepay a portion of the unpaid principal balance of this
Note in an amount equal to 66.6% of the principal amount so prepaid or
retired. However, no prepayment hereunder shall be required by reason of
(i) the prepayment or retirement of the 12%
<PAGE> 2
Convertible Note of the Company dated March 31, 1995 (the "Onex Ohio Note
") in the original principal amount of $3,500,000 payable to the order of
Onex Ohio Holdings, Inc to the extent that the proceeds utilized to fund
such prepayment or retirement result from an equity issuance by the
Company after the date of this Note or (ii) conversion of the Onex Ohio
Note to equity of the Company.
3. SUBORDINATION. The Company agrees, and the Holder by accepting this
Note agrees, as follows:
(a) The indebtedness evidenced by this Note is subordinated in right
of payment, to the extent and in the manner provided in this Section 3, to
the prior indefeasible payment in full of all Senior Indebtedness, and the
subordination and the provisions of this Section 3 are for the benefit of
the Administrative Agent and the Senior Creditors.
(b) The Company shall not make, and shall not allow any of its
Subsidiaries to make, directly or indirectly, in cash or other property or
in any other manner (including, without limitation, from or by way of
collateral but excluding by way of accrual and addition of interest to
principal hereunder in accordance with the provisions of Section 1), and
the Holder shall not ask, demand, sue for, take or receive from the
Company or any such Subsidiary, directly or indirectly, any payment of or
pledge or grant of a security interest in any property as collateral
security for the payment of any principal, interest or other amounts owing
under this Note or take any action to enforce the obligations of the
Company under this Note; provided, however, that subject to the provisions
of Section 3(c), (i) regularly scheduled (unaccelerated) payments of
principal and interest shall be made when and as due and payable hereunder
and (ii) subject to the provisions of Section 3(h) hereof the Holder shall
be entitled to ask, demand and sue for the payment of any principal,
interest or other amounts owing under this Note, in each case unless,
(i) at the time such payment otherwise is required to be made
hereunder, there exists and is continuing any Material Default or
Event of Default under the Bank Loan Agreement. or
(ii) any Default or Event of Default under the Bank Loan
Agreement would occur upon or by reason of such payment, or
(iii) if there is no Bank Loan Agreement in effect, there
exists any default in the payment, including payment upon
acceleration, of all or any installments of principal or interest on
Senior Indebtedness or any other default under any instruments
evidencing or governing the term of any Senior Indebtedness (or if
such a default on Senior Indebtedness would occur upon or by reason
of such payment),
provided, in each case that unless on or prior to the date that such
payment otherwise is required to be made hereunder, the Holder shall
have received a copy of a written notice (a "Payment Blockage
Notice") from the Administrative Agent (or if there is no
2
<PAGE> 3
Administrative Agent, any Senior Creditor) to the Company that there
exists a Material Default or Event of Default under the Bank Loan
Agreement (or if there is no Bank Loan Agreement in effect, any
default referred to in clause (iii) above), the Company may make and
the Holder may accept and retain such payment subject only to the
obligation to repay the amount so paid if the Holder subsequently is
notified that a Default or Event of Default (or default referred to
in clause (iii) above) occurred upon or by reason of such payment.
In the event that the Holder shall have received a Payment Blockage
Notice on or prior to the date that such payment otherwise is
required to be made hereunder, the Company shall not be entitled to
make and the Holder shall not be entitled to accept such payment or
any other payment hereunder for a period of 365 days after receipt
by the Holder of such Payment Blockage Notice (a "Payment Blockage
Period"), provided, that neither the continued existence of the
event or occurrence giving rise to such Payment Blockage Notice nor
the delivery of an additional Payment Blockage Notice with respect
thereto or any other event or occurrence that existed at the time of
the giving of such Payment Blockage Notice shall prevent the making
or acceptance of such payment beyond 365 days from the first such
Payment Blockage Notice.
(c) Upon any payment or distribution of assets of the Company or any
Subsidiary in the event of any dissolution or winding up or total or
partial liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other
proceedings, any payment or distribution of any kind whether in cash,
securities, or other property which shall be payable or deliverable upon
or with respect to any indebtedness evidenced by this Note shall be paid
or delivered directly to the Administrative Agent for the ratable benefit
of the Senior Creditors, or if there is no Administrative Agent, then
ratably to the Senior Creditors, until all of the Senior Indebtedness has
been indefeasibly paid in full. Before any payment in respect of this Note
may be made by the Company upon any such dissolution or winding up or
liquidation or reorganization, any payment or distribution of assets of
the Company to which the Holder would be entitled, except for the
provisions of this subsection (c), shall be made by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the Holder if received
by it, directly to the Administrative Agent for the ratable benefit of the
Senior Creditors, or if there is no Administrative Agent, then ratably to
the Senior Creditors to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
(d) If any proceeding referred to in subsection (c) above is
commenced by or against the Company,
(i) the Holder shall duly and promptly take such action as the
Administrative Agent, or if there is no Administrative Agent, any
Senior Creditor, may request (at the expense of the requesting
party) (A) to collect the obligations evidenced by this Note for the
account of the Administrative Agent and the Senior Creditors and to
file appropriate claims or proofs of claim in respect of such
obligations and this
3
<PAGE> 4
Note, (B) to execute and deliver to the Administrative Agent, or if
there is no Administrative Agent, any Senior Creditor, such powers
of attorney, assignments or other instruments as it may request in
order to enable it to enforce any and all claims with respect to the
obligations evidenced by this Note, and (C) to collect and receive
any and all payments or distributions which may be payable or
deliverable upon or with respect to other obligations evidenced by
this Note; and
(ii) the Administrative Agent, or if there is no
Administrative Agent, any Senior Creditor, is hereby irrevocably
authorized and empowered (in its own name or in the name of the
Holder or otherwise), but shall have no obligation, if, after demand
the Holder refuses to do so, to demand, sue for, collect and receive
every payment or distribution referred to in subsection (c) above
and give acquittance therefor and to file claims and proofs of claim
and take such other action (including, without limitation, voting
this Note and the obligations evidenced hereby) as it may deem
necessary or advisable for the exercise or enforcement of any of its
rights or interests hereunder.
(e) If, notwithstanding the foregoing provisions of this Section 3
prohibiting payments or distributions, the Holder receives any payment in
violation of paragraphs (b) or (c) of this Section 3, then and in such
event those payments or distributions shall be held in trust for the
benefit of and shall be promptly paid over or delivered to, the
Administrative Agent for the ratable benefit of the Senior Creditors, or
if there is no Administrative Agent, then ratably to the Senior Creditors
for application to the payment of all Senior Indebtedness remaining unpaid
to the extent necessary to pay in full the principal of, interest on, or
fees, costs or expenses relative to, or any other amounts due in respect
of, any of the Senior Indebtedness after giving effect to any concurrent
payment or distribution to the Senior Creditors.
(f) The Administrative Agent, or if there is no Administrative
Agent, any Senior Creditor, is hereby authorized to demand specific
performance of the provisions of this Section 3, whether or not the
Company shall have complied with any of the provisions hereof applicable
to it, at any time when the Holder shall have failed to comply with any of
the provisions of this Section 3 applicable to it. The Holder hereby
irrevocably waives any defense based on the adequacy of a remedy at law
which might be asserted as a bar to such remedy of specific performance.
(g) The Holder agrees that it will not at any time commence, or join
with any creditor other than any Senior Creditor in commencing, any
proceeding referred to in paragraph (c) of this Section 3 unless at such
time it is permitted to accelerate the obligations under this Note
pursuant to paragraph (h) of this Section 3 and has accelerated such
obligations.
(h) Anything herein or in any other agreement between the Company
and the Holder or applicable law to the contrary notwithstanding, in no
event shall the Holder have any right to accelerate The obligations under
this Note (i) prior to October 1, 1998, unless (A) all
4
<PAGE> 5
of the Senior Indebtedness shall have been accelerated or (B) a
bankruptcy, reorganization or insolvency proceeding shall have been
commenced by or against the Company, provided that if the Holder shall
accelerate the obligations hereunder upon the commencement of any such
proceeding and such proceeding thereafter shall be dismissed, then such
acceleration shall be rescinded and (ii) on or after October 1, 1998
during any Payment Blockage Period, unless (A) all of the Senior
Indebtedness shall have been accelerated or (B) a bankruptcy,
reorganization or insolvency proceeding shall have been commenced by or
against the Company, provided that if the Holder shall accelerate the
obligations hereunder upon the commencement of any such proceeding and
such proceeding thereafter shall be dismissed, then such acceleration
shall be rescinded; provided, however, that notwithstanding any other
terms or provisions of this Note, but nevertheless subject to the
provisions of this Section 3, the Holder shall be entitled to ask, demand
and sue for the payment of the obligations hereunder if the Holder has the
right (pursuant to this Section 3(h)) to accelerate the obligations
hereunder and has accelerated such obligations.
(i) No present or future holder of Senior Indebtedness shall be
prejudiced in its right to enforce subordination of this Note by any act
or failure to act on the part of the Company. Nothing contained in this
Section 3 is intended to or shall impair, as between the Company and its
Subsidiaries, their respective creditors (other than the Senior Creditors)
and the Holder, the obligation of the Company, which is absolute and
unconditional, to pay to the Holder the principal of and interest on this
Note, as and when the same become due and payable, or to affect the
relative rights against the Company of the Holder and other creditors of
the Company and its Subsidiaries (other than the holders of Senior
Indebtedness). Upon any distribution of assets of the Company or any
Subsidiary referred to in this Section 3, the Holder shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction
in which such dissolution, winding up, liquidation or reorganization
proceedings are pending, or a certificate of the liquidating trustee or
agent or other Person making such distribution, delivered to the Holder,
for the purpose of ascertaining the Persons entitled to receive payment
from the Holder pursuant to subsection (e) of this Section 3, the amount
thereof or payable thereon, the amount or amounts paid or distributed
thereon and all the other facts pertinent thereto or to this Section 3.
(j) The provisions of this Section 3 shall continue to be effective
or be reinstated, as the case may be, if at any time any payment in
respect of any Senior Indebtedness is rescinded or must otherwise be
returned by the holder thereof upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, all as though such payment had
not been made.
(k) In the event that cash, securities or other property otherwise
payable or deliverable to the Holder of this Note shall have been applied
to the payment of Senior Indebtedness in full, then the Holder of this
Note shall be subrogated, from and after such time as the Senior
Indebtedness shall have been paid in full and the commitments of the
Senior Creditors under the Bank Loan Agreement shall have terminated, to
any rights of any holder of Senior Indebtedness to receive any further
payments or distributions of assets of the Company applicable to the
Senior Indebtedness until this Note shall be paid in full. For
5
<PAGE> 6
purposes of such subrogation, no payments or distributions to the holder
of Senior Indebtedness of any cash, property or securities to which the
Holder of this Note would be entitled except for the provisions of this
Section 3 shall, as between the Company and its creditors other than the
Senior Creditors on the one hand and the Holder of this Note on the other
hand, be deemed to have been made as a payment by the Company to the
holders of or on account of Senior Indebtedness.
(l) The Holder shall not
(i) cancel or otherwise discharge any of the obligations
evidenced by this Note (except upon payment in full thereof paid to
the Administrative Agent as contemplated by paragraph (e) of this
Section 3) or subordinate any of the obligations evidenced by this
Note to any indebtedness of the Company or its Subsidiaries other
than the Senior Indebtedness;
(ii) sell, assign, pledge, encumber or otherwise dispose of
any of the obligations evidenced hereby unless such sale,
assignment, pledge, encumbrance or disposition is made expressly
subject to the terms of this Section 3; or
(iii) permit the terms of this Note or of any other agreement
evidencing or relating to the obligations evidenced hereby to be
changed in such a manner as to have an adverse effect upon the
rights or interests of the Administrative Agent or any Senior
Creditor hereunder.
(m) All rights and interests of the Administrative Agent and the
Senior Creditors, and all agreements and obligations of the Holder and the
Company, under this Section 3 shall remain in full force and effect
irrespective of:
(i) any change in the time, manner or place of payment of, or
in any other terms of, all or any of the Senior Indebtedness, or any
other amendment or waiver or any consent to departure from the Bank
Loan Agreement or any other agreement or instrument evidencing or
relating to the Senior Indebtedness (the "Senior Indebtedness
Documents"); or
(ii) any exchange, release or non-perfection of any collateral
for the Senior indebtedness, or any release or amendment or waiver
of or consent to departure from any guaranty, for all or any of the
Senior Indebtedness.
(n) The provisions of this Section 3 evidence a continuing agreement
and shall (i) remain in full force and effect until the Senior
Indebtedness shall have been paid in full and the commitments of the
Senior Creditors under the Bank Loan Agreement shall have terminated (and
shall be reinstated and remain in full force and effect for the benefit of
any subsequent Senior Creditors), (ii) be binding upon the Holder, the
Company and their respective successors and assigns, and (iii) inure to
the benefit of and be enforceable by the
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<PAGE> 7
Administrative Agent and the Senior Creditors and their respective
successors, transferees and assigns. Without limiting the generality of
clause (iii) of this Section 3(n), any Senior Creditor may assign or
otherwise transfer its interest in the Senior Indebtedness and the
instruments governing or evidencing such Senior Indebtedness to any other
Person in accordance with the Bank Loan Agreement, which Person shall
thereupon be vested with all the rights in respect thereof granted to such
Senior Creditor herein or otherwise.
(o) The Holder shall deliver written notice to the Administrative
Agent promptly upon the occurrence of an Event of Default under this Note
or the occurrence of any event that with the giving of notice or the
expiration of time or both would constitute an Event of Default under this
Note.
4. AFFILIATE SUBORDINATED INDEBTEDNESS. The Company shall not incur any
Indebtedness for Money Borrowed to an Affiliate of the Company ("Affiliate
Subordinated Indebtedness") unless the instruments evidencing or governing such
indebtedness provide that (i) no payments of principal of or interest on such
Affiliate Subordinated Indebtedness shall be made during the continuance of an
Event of Default under this Note and (ii) such Affiliate Subordinated
Indebtedness shall be subordinate in right of payment to the prior payment of
this Note in the event of any dissolution or winding up or liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other similar proceedings. However, this
Section 4 shall not prohibit or otherwise restrict the (i) prepayment or
retirement of the Onex Ohio Note to the extent that the proceeds utilized to
fluid such prepayment or retirement result from an equity issuance by the
Company after the date of this Note or (ii) conversion of the Onex Ohio Note to
equity of the Company.
5. EVENTS OF DEFAULT; ACCELERATION.
(a) Any of the following events constitutes an "Event of Default
under this Note":
(i) the Company defaults in the payment of any portion of the
principal of this Note when such principal shall become due and
payable, and such default continues uncured for a period of five
business days after the Holder gives the Company notice of such
default; or
(ii) the Company defaults in the payment of any interest on
this Note when such interest shall become due and payable, and such
default continues uncured for a period of five business days after
the Holder gives the Company notice of such default; or
(iii) the Company defaults in the due observance or
performance of any other term, covenant, agreement or warranty of
the Company in this Note, and such default continues uncured for a
period of 30 days after the Holder gives the Company notice
specifying such default or breach and requesting that such default
or breach be remedied and stating that such notice is a notice of
default hereunder; or
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<PAGE> 8
(iv) Senior Indebtedness or other Indebtedness for Money
Borrowed of the Company having an aggregate principal amount of at
least $10,000,000 shall have become due and payable prior to its
stated maturity by reason of a default or event of default
thereunder; or
(v) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(1) commences a voluntary case in bankruptcy or any
other action or proceeding for any other similar relief under
any Bankruptcy Law,
(2) consents by answer or otherwise to the commencement
against it of an involuntary case of bankruptcy,
(3) seeks or consents to the appointment of a receiver,
trustee, assignee, liquidator, custodian or similar official
(collectively, a "Custodian") of it or for all or
substantially all of its assets,
(4) makes a general assignment for the benefit of its
creditors, or
(5) generally is unable to pay its debts as its debts
become due; or
(vi) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(1) is for relief against the Company in an involuntary
case of bankruptcy against the Company,
(2) appoints a Custodian of the Company for all or
substantially all of its assets, or
(3) orders the liquidation of the Company,
and the order remains unstayed and in effect for 30 days, or any
dismissal, stay, rescission or termination thereof ceases to remain
in effect.
(b) Subject to the provisions of Section 3, if any Event of Default
under this Note shall occur and be continuing, the Holder shall have the
right, by notice to the Company, to declare the entire principal amount
then outstanding on this Note and accrued interest thereon immediately due
and payable, whereupon all such amounts shall become immediately due and
payable, all without diligence, presentment, demand of payment, protest or
further notice of any kind, all of which are hereby expressly waived by
the Company, provided, however, that so long as any Senior Indebtedness is
outstanding, such declaration shall not become effective until the earlier
of (a) five business days after delivery of a notice to the Administrative
Agent (or, if there is no Administrative Agent, the Senior Creditors) that
the Holder has declared the principal of and interest on this Note to be
due and
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<PAGE> 9
payable immediately and (b) the acceleration of any Senior Indebtedness.
If the Company shall default in the payment of principal of, or interest
on, this Note, it will pay the Holder such amounts, to the extent lawful,
as shall be sufficient to pay costs and expenses of collection or of
otherwise enforcing the Holder's rights incurred in connection with the
exercise of any remedy whether provided herein or available under any
applicable law, including reasonable counsel fees and expenses.
The preceding paragraph is subject to the condition that if at any
time after the principal of this Note has been declared due and payable
and before any judgment with respect thereto has been entered, all arrears
of interest have been paid and every other Event of Default under this
Note has been made good or cured, then the Holder of this Note shall, by
written instrument filed with the Company, rescind and annul such
declaration and its consequences; but no such rescission shall extend to
or affect any subsequent default or Event of Default under this Note or
impair any right thereon. Upon any such rescission, any enforcement action
commenced pursuant to the preceding paragraph shall be terminated.
6. COVENANTS. Until payment in full of the principal of this Note and all
interest accrued hereunder:
(a) The Company will deliver to the Holder, within 120 days after
the end of the Company's fiscal year, a copy of the consolidated balance
sheet of the Company and its Consolidated Subsidiaries as at the end of
such fiscal year, and a consolidated statement of income and of changes in
the financial position of the Company and its Subsidiaries for such fiscal
year, prepared in accordance with generally accepted accounting principles
and accompanied by a reponed of KPMG Peat Marwick LLP or other independent
certified public accountants of nationally recognized standing.
(b) The Company will maintain its corporate existence, rights,
franchises, licenses and privileges in the jurisdiction of its
incorporation and qualify and remain qualified as a foreign corporation
authorized to do business in all jurisdictions in which it is required to
do so, except in all such cases where the failure to do so would not have
a Material Adverse Effect.
(c) The Company shall pay or discharge when due all taxes,
assessments, fees and governmental charges or levies imposed upon it or
upon its income or profits or upon any, properties belonging to it, except
that real property ad valorem taxes shall be deemed to have been paid or
discharged if the same are paid before they become delinquent except in
all such cases where the failure to do so would not have a Material
Adverse Effect.
(d) The Company shall not sell, lease or transfer or otherwise
dispose of all or substantially all of its assets to any Person.
(e) The Company shall not declare any dividends payable in cash or
property (other than capital stock of the Company), other than dividends
determined by the Board of
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<PAGE> 10
Directors of the Company in good faith to be comparable to dividends paid
by comparable companies.
(f) The Company will not, and will not permit any of its
Subsidiaries to, enter into or be a party to any transaction or
arrangement with any Affiliate of the Company, except upon terms
determined by the Board of Directors of the Company in good faith to be no
less favorable to the Company than would be obtained in a comparable
arm's-length transaction with a Person other than an Affiliate of the
Company. The foregoing shall not apply to the payment of management or
similar fee to Onex or any of its Subsidiaries in the amount of $792,796
in each calendar year, which may be increased by the Company in each year
after 1995 based on the Consumer Price Index - All Urban Consumers -
National Average (published by the United States Department of Labor
Statistics).
(g) The Company will not claim the benefit of any stay, extension or
usury law as a defense to its obligations to make payments pursuant to
this Note.
(h) The Company will not enter into any new agreement, or any
agreement to amend or otherwise modify any of its existing agreements,
that prohibits the Company from making scheduled payments under this Note
in accordance with the terms hereof in the absence of a default under such
other agreement.
7. TRANSFER OF THE NOTE. This Note may be transferred only in accordance
with this Section 7. If the Holder desires to transfer this Note to a Qualified
Purchaser pursuant to a bona fide written offer (an "Offer") to purchase this
Note for cash, the Holder shall give Onex written notice thereof ("Notice"),
attaching a copy of such Offer. If a Notice is given, Onex shall have the option
exercisable by notice to the Holder within 30 days after the date of such Notice
is given, to purchase or designate a Person to purchase this Note at the same
price and on the same terms as the Offer. If Onex does not exercise such option
within such 30-day period, the Holder shall have the right at any time within 30
days after the expiration of the 30-day option period provided for in this
Section 7, to sell this Note to the proposed transferee for the price and on the
terms set forth in the Offer. if this Note shall remain unsold at the end of
such 30-day period, this Note may not thereafter be transferred unless the
Holder again complies with this Section 7.
8. DEFINITIONS. For purposes of this Note:
"Administrative Agent" means NationsBank of Georgia, N.A. or any
successor agent appointed pursuant to the Bank Loan Agreement or if there
is no agent under the Bank Loan Agreement or if there is no Bank Loan
Agreement in effect, any other agent for the Senior Creditors.
"Affiliate" means, with respect to a Person, any Person (other than
a Subsidiary of such First Person) that, directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, such First Person. The term "control" means
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<PAGE> 11
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities or partnership or other voting interest, by
contract or otherwise.
"Applicable Interest Rate" means: (i) for the period commencing on
April 1, 1995 and ending on March 31, 1996, 0% per annum; (ii) for the
period commencing on April 1, 1996 and ending on March 31, 1998, 4% per
annum; (iii) for the period commencing on April 1, 1998 and ending on
March 31, 1999, 7% per annum; (iv) for the period commencing on April 1,
1999 and ending on March 31, 2000, 10% per annum; and (v) for the period
commencing on April 1, 2000, 13% per annum.
"Bank Loan Agreement" means the Loan and Security Agreement dated as
of March 31, 1995, by and between ProSource Services Corporation, certain
of its Subsidiaries, the Lenders and the Co-Agents, and the Administrative
Agent, as agent for the Lenders, as the same shall be amended,
supplemented, restated or extended from time to time, including any such
amendment, supplement, restatement or extension resulting in an increase
in the amount of the credit facilities provided for thereunder.
"Bankruptcy Law" shall mean Title 11 of the United States Code or
any similar Federal, state, Canadian or provincial law for the relief of
debtors.
"Co-Agents" means NationsBank of Georgia, N.A., The First National
Bank of Boston and Shawmut Capital Corporation.
"Default" shall have the meaning ascribed thereto in the Bank Loan
Agreement.
"Division" means the business operated as the "National Accounts
Division" of MB and Martin-Brower of Canada, Ltd.
"Event of Default" shall have the meaning ascribed thereto in the
Bank Loan Agreement, except that an "Event of Default under this Note" has
the meaning specified in Section 5(a).
"Guaranty" (including, with correlative meaning, "Guaranteed") as
applied to any Indebtedness for Money Borrowed of another Person shall
mean
(a) a guaranty (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such Indebtedness for
Money Borrowed of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is
to assure the payment (or payment of damages in the event of nonpayment)
of any part or all of such Indebtedness for Money Borrowed of such other
Person by requiring
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<PAGE> 12
(i) the purchase of securities or obligations of such other
Person,
(ii) the purchase, sale or lease (as lessee or lessor) of
property or the purchase or sale of services primarily for the
purpose of enabling such other Person to make any payment (or
payment of damages in the event of nonperformance) of or on account
of any part or all of such Indebtedness for Money Borrowed, or to
assure the owner of such Indebtedness for Money Borrowed against
loss,
(iii) the supplying of fluids to or in any other manner
investing in such other Person for the purpose of enabling such
other Person to make any payment (or payment of damages in the event
of nonpayment) of or on account of any part or all of such
Indebtedness for Money Borrowed, or
(iv) repayment of amounts drawn under letters of credit issued
as security for Indebtedness for Money Borrowed of such other
Person.
"Indebtedness for Money Borrowed" of any Person means, without
duplication, (i) all indebtedness of such Person for money borrowed, (ii)
all indebtedness of such Person constituting obligations evidenced by
bonds, debentures, notes or similar instruments, (iii) all Indebtedness
for Money Borrowed of other Persons which such Person has Guaranteed to
the extent of the amount of the Guaranty, and (iv) in The case of the
Company, all obligations under the Bank Loan Agreement.
"Lender" means each of the financial institutions party from time to
time to the Bank Loan Agreement and its successors and assigns.
"Material Default" means any Default other than a Non-Material
Default.
"Material Adverse Effect" means a material adverse effect upon the
Company's business, assets, liabilities, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries,
taken as a whole.
"Non-Material Default" means a Default the existence of which the
Agent has actual notice of and as to which the Agent and the Required
Lenders under the Bank Loan Agreement have elected not to take any action
required to be taken under the Bank Loan Agreement as a precondition for
such Default to become an Event of Default.
"Onex" means Onex Corporation, a corporation organized under the
laws of Ontario, Canada.
"Onex Ohio Note" shall have the meaning ascribed thereto in Section
2(b).
"Person" means an individual, corporation, partnership, association,
trust or unincorporated organization, or a government or any agency or
political subdivision thereof
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<PAGE> 13
"Qualified Purchaser" means any Person not engaged in (and which
does not have a Subsidiary engaged in) the food distribution business or
the fast food or casual dining restaurant business.
"Reimbursement Obligations" means the Reimbursement Obligations as
defined in the Bank Loan Agreement.
"Senior Creditor" means each of the Lenders and each other holder,
from time to time, of any portion of the Senior Indebtedness, including,
without limitation, each creditor that extends credit to the Company for
the purpose of refinancing or repaying the Senior Indebtedness, in whole
or in part.
"Senior Indebtedness" shall consist of any obligation pursuant to
the Bank Loan Agreement to pay principal, premium (if any), interest,
reimbursements (including the Reimbursement Obligations) or indemnity
amounts and fees, costs or expenses (including interest that would accrue
on or after the filing of any petition in bankruptcy or for the
reorganization relating to the Company but for the filing of such
petition) or, following the irrevocable payment in full of all Secured
Obligations (as defined in the Bank Loan Agreement) and termination of the
Revolving Credit Facility (as defined in the Bank Loan Agreement), any
Indebtedness for Money Borrowed from any bank or institutional lender if
the agreement providing for such indebtedness provides that it is senior
in right of payment to the indebtedness evidenced by this Note.
"Subsidiary" means a Person of which an aggregate of 50% or more of
the stock of any class or classes or 50% or more of other ownership
interests is owned of record or beneficially by such other Person, or by
more or one Subsidiaries of such other Person, or by such other Person and
one or more Subsidiaries of such Person.
9. NOTICES. All notices hereunder shall be in writing and delivered
personally or sent by telecopier or by registered or certified mail (return
receipt requested) to the Holder or the Company at the following addresses (or
such other addresses as shall be specified by like notice):
(a) If to Holder, to:
The Martin-Brower Corporation
1020 West 31st Street
Downers Grove, Illinois 60515-5508
Attention: President
Phone: (708) 663-4355
Facsimile: (708) 663-4237
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<PAGE> 14
with copies to:
Dalgety plc
100 George Street
London WIH 5RH
United Kingdom
Attention: Commercial Director
Facsimile: 44/71/493-0892
and
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60603-4067
Attention: C. E. Hussey II
Facsimile: (312) 984-2097
and, so long as any Senior Indebtedness under the Bank Loan
Agreement shall remain outstanding, to
NationsBank of Georgia, N.A.
Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attention: John W. Getz
Facsimile: (404) 607-6439
(b) If to the Company, to:
ProSource, Inc.
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attention: President
Facsimile: (305) 529-2573
with copies to:
Onex Corporation
Canada Trust Tower
161 Bay Street -49th Floor
Toronto, Ontario, Canada M5J 2S1
Attention: Gerald W. Schwartz
Facsimile: (416)362-5765
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<PAGE> 15
and
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Phone: (212) 836-8201
Facsimile: (212) 836-7149
and, so long as any Senior Indebtedness under the Bank Loan
Agreement shall remain outstanding, to
NationsBank of Georgia, N.A.
Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attention: John W. Getz
Facsimile: (404) 607-6439
(c) if to the Administrative Agent to:
NationsBank of Georgia, N.A.
Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attention: John W. Getz
Facsimile: (404) 607-6439
All notices shall be deemed given when received by the addressees.
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<PAGE> 16
10. CHOICE OF LAW. This Note shall be construed and enforced in accordance
with the laws of the State of New York, without reference to the choice of law
principles thereof.
WITNESS WHEREOF, the Company has caused this Note to be signed on its
behalf, in its corporate name, by its duly authorized officer, as an instrument
under seal, as of the day and year first above written.
PROSOURCE, INC.
By:/s/ D.R. PARKER
------------------------
Chairman
Attest:
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<PAGE> 1
EXHIBIT 10.16
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES OR "BLUE SKY" LAWS (COLLECTIVELY, "SECURITIES LAWS") AND
MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED
UNDER THE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION APPLIES TO SUCH
TRANSFER OR DISPOSITION.
PROSOURCE SERVICES CORPORATION
12% Subordinated Note
Due April 1, 2005
New York, New York
U.S. $15,000,000 March 31, 1995
FOR VALUE RECEIVED, the undersigned, PROSOURCE SERVICES CORPORATION, a
Delaware corporation (the "Company"), hereby promises to pay to ONEX OHIO
HOLDINGS, INC., a Delaware corporation, or registered assigns (in either case,
the "Holder"), (i) the principal sum of U.S. $15,000,000, payable on April 1,
2005 (the "Maturity Date"), and (ii) interest at a rate of 12% per year,
compounded annually, on the unpaid principal of this Note and shall be payable
annually on March 31st of each year or, if that day is not a Business Day, the
suceeding Business Day, beginning on April 1, 1996 and (iii) in the case of (i)
and (ii), interest at a rate of 12% per year, compounded annually, on overdue
principal and, to the extent legally enforceable, overdue interest. Payments of
principal and interest are to be made by federal funds check payable to the
order of the Holder or, if Holder so specifies by notice to the Company not less
five business days prior to the date such payment is due, by bank wire transfer,
in immediately available funds, to the account so specified, in lawful money of
the United States of America. Any payment of principal or payment of interest
that is due on a date that is not a business day shall be paid on the next
succeeding business day.
1. PREPAYMENTS. Subject to the provisions of Section 2 hereof, the Company
shall have the right at any time or from time to time to prepay this Note, in
whole or in part, without premium or penalty at any time.
2. SUBORDINATION, (a) The Company agrees, and the Holder by accepting this
Notes agrees, as follows:
(a) The indebtedness evidenced by this Note is subordinated in right
of payment, to the extent and in the manner provided in this Section 2, to
the prior indefeasible payment in full of all Senior Indebtedness, and the
subordination and the provisions of this Section 2 are for the benefit of
the holders of Senior Indebtedness.
<PAGE> 2
(b) The Company shall not, and shall not allow any of its Affiliates
controlled directly or indirectly by the Company to make, directly or
indirectly, in cash or other property or in any other manner (including,
without limitation, from or by way of collateral), and the Holder shall
not ask, demand, sue for, take or receive from the Company or any
Affiliate, directly or indirectly, any payment of, or pledge or grant of a
security interest in any property as collateral security for the payment
of, any principal, interest or other amounts owing under this Note or take
any action to enforce the obligations of the Company under this Note
unless such action is solely to obtain specific performance of a
nonmonetary obligation under this Note that does not involve or result in
monetary damages or any other remedies that are inconsistent with the
provisions of this Section 2, provided, however, that subject to the
provisions of subsection (c) below, payments of principal, interest and
other amounts owing under this Note may be made, and, subject to the
provisions of Section 2(h) hereof, the Holder shall be entitled on and at
any time after the Maturity Date to ask, demand and sue for the payment of
any principal, interest or other amounts owing under this Note, unless
(i) at such time there exists and is continuing any Material
Default or Event of Default under the Bank Loan Agreement; or
(ii) any Default or Event of Default under the Bank Loan
Agreement would occur upon or by reason of such payment;
provided, however, that unless on or prior to the date that such payment
otherwise is required to be made hereunder the Holder shall have received
a copy of the written notice from the Administrative Agent or one or more
Senior Creditors to the Company that there exists a Material Default or
Event of Default under the Bank Loan Agreement or that a Default or Event
of Default thereunder would occur by reason of such payment, the Company
may make and the Holder may accept and retain such payment subject only to
the obligation to repay the amount so paid if the Holder subsequently is
notified by the Administrative Agent that a Default or Event of Default
under the Bank Loan Agreement did exist at the time of payment (to the
extent that such notification is made within 30 days after the
Administrative Agent (or if there is no Administrative Agent, the Senior
Creditors) obtained actual notice of such Default or Event of Default) or
a Default or Event of Default thereunder occurred on or by reason of such
payment.
(c) Upon any payment or distribution of assets of the Company or any
subsidiary in the event of any dissolution or winding up or total or
partial liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other
proceedings, any payment or distribution of any kind whether in cash,
securities, or other property which shall be payable or deliverable upon
or with respect to any indebtedness evidenced by this Note shall be paid
or delivered
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<PAGE> 3
directly to the Administrative Agent for the ratable benefit of the Senior
Creditors, until all of the Senior Indebtedness has been indefeasibly paid
in full. Before any payment in respect of this Note may be made by the
Company upon any such dissolution or winding up or liquidation or
reorganization, any payment or distribution of assets of the Company to
which the Holder would be entitled, except for the provisions of this
paragraph (c), shall be made by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment
or distribution, or by the Holder if received by it, directly to the
holders of the Senior Indebtedness or their representatives to the extent
necessary to pay all such Senior Indebtedness in full after giving effect
to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
(d) If any proceeding referred to in subsection (c) above is
commenced by or against the Company,
(i) the Holder shall duly and promptly take such action as the
holders of the Senior Indebtedness may request (A) to collect the
obligations evidenced by this Note for the account of the holders of
the Senior Indebtedness and to file appropriate claims and proofs of
claim in respect of such obligations and this Note, (B) to execute
and deliver to the holders of the Senior Indebtedness such powers of
attorney, assignments or other instruments as it may request in
order to enable it to enforce any and all claims with respect to the
obligations evidenced by this Note, and (C) to collect and receive
any and all payments or distributions which may be payable or
deliverable upon or with respect to the obligations evidenced by
this Note; and
(ii) the holders of the Senior Indebtedness are hereby
irrevocably authorized and empowered (in their own name or in the
name of the Holder or otherwise), but shall have no obligation, if,
after demand the Holder refuses to do so, to demand, sue for,
collect and receive every payment or distribution referred to in
subsection (c) above and give acquittance therefor and to file
proofs of claims and take such other action (including, without
limitation, voting this Note and the obligations evidenced hereby)
as it may deem necessary or advisable for the exercise or
enforcement of any of their rights or interests hereunder.
(e) If, notwithstanding the foregoing provisions of this Section 2
prohibiting payments or distributions, the Holder receives any payment in
violation of paragraphs (b) or (c) of this Section 2, then and in such
event those payments or distributions shall be held in trust for the
benefit of, and shall be promptly paid over or delivered to, the holders
of Senior Indebtedness for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay in full the
principal of, interest on, or fees, costs or expenses relative to, or any
other amounts due in respect of, any of the Senior
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<PAGE> 4
Indebtedness after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness.
(f) The holders of the Senior Indebtedness are hereby authorized to
demand specific performance of the provisions of this Section 2, whether
or not the Company shall have complied with any of the provisions hereof
applicable to it, at any time when the Holder shall have failed to comply
with any other provisions of this Section 2 applicable to it. The Holder
hereby irrevocably waives any defense based on the adequacy of a remedy at
law which might be asserted as a bar to such remedy of specific
performance.
(g) The Holder, solely in its capacity as a creditor of the Company,
agrees that, so long as any of the Senior Indebtedness shall remain
unpaid, the Holder, will not commence, or join with any creditor other
than the holders of the Senior Indebtedness in commencing, any proceeding,
any proceeding referred to in paragraph (c) of this Section 2.
(h) Anything herein or in any other agreement between the Company
and the Holder or applicable law to the contrary notwithstanding, in no
event shall the Holder have any right to accelerate the obligations
hereunder prior to the Maturity Date unless (i) any of the Senior
Indebtedness shall have been accelerated or (ii) a bankruptcy,
reorganization or insolvency proceeding shall have been commenced by or
against the Company, provided that if the Holder shall accelerate the
obligations hereunder upon the commencement of any such proceeding and
such proceeding thereafter shall be dismissed, then such acceleration
shall be rescinded; provided, however that notwithstanding any other terms
or provisions of this Note, but nevertheless subject to the provisions of
this Section 2, the Holder shall be entitled to ask, demand and sue for
the payment of the obligations hereunder if the Holder has the right
(pursuant to this Section 2(h)) to accelerate the obligations hereunder
and has accelerated such obligations.
(i) No present or future holder of Senior Indebtedness shall be
prejudiced in its right to enforce subordination of this Note by any act
or failure to act on the part of the Company. Nothing contained in this
Section 2 is intended to or shall impair, as between the Company and its
subsidiaries, their respective creditors (other than the holders of Senior
Indebtedness) and the Holder, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder the principal of and
interest on this Note, as and when the same become due and payable, or to
affect the relative rights against the Company of the Holder and other
creditors of the Company and its subsidiaries (other than the holders of
Senior Indebtedness). Upon any distribution of assets of the Company or
any subsidiary referred to in this Section 2, the Holder shall be entitled
to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a
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<PAGE> 5
certificate of the liquidating trustee or agent or other person making
such distribution, delivered to the Holder, for the purpose of
ascertaining the persons entitled to receive payment from the Holder
pursuant to subsection (e) of this Section 2, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section.
(j) The provisions of this Section 2 shall continue to be effective
or be reinstated, as the case may be, if at any time any payment in
respect of any Senior Indebtedness is rescinded or must otherwise be
returned by the holder thereof upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, all as though such payment had
not been made.
(k) In the event that cash, securities or other property otherwise
payable or deliverable to the Holder of this Note shall have been applied
to the payment of Senior Indebtedness in full, then the Holder of this
Note shall be subrogated, from and after such time as the Senior
Indebtedness shall have been paid in full and all commitments of the
Senior Creditors under the Bank Loan Agreement shall have terminated, to
any rights of any holders of Senior Indebtedness to receive any further
payments or distributions of assets of the Company applicable to the
Senior Indebtedness until this Note shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holder of
this Note would be entitled except for the provisions of this Section 2
shall, as between the Company and its creditors other than the holders of
Senior Indebtedness on the one hand and the Holder of this Note on the
other hand, be deemed to have been made as a payment by the Company to or
on account of Senior Indebtedness.
(l) The Holder shall not
(i) cancel or otherwise discharge any of the obligations
evidenced by this Note (except upon payment in full thereof paid to
the holders of the Senior Indebtedness as contemplated by paragraph
(e) of this Section 2) or subordinate any of the obligations
evidenced by this Note to any indebtedness of the Company other than
the Senior Indebtedness;
(ii) sell, assign, pledge, encumber or otherwise dispose of
any of the obligations evidenced hereby unless such sale,
assignment, pledge, encumbrance or disposition is made expressly
subject to the terms of this Section 2; or
(iii) permit the terms of this Note or of any other agreement
evidencing or relating to the obligations evidenced hereby to be
changed in such a manner as to
5
<PAGE> 6
have an adverse effect upon the rights or interests of the holders
of the Senior Indebtedness hereunder.
(m) All rights and interests of the holders of the Senior
Indebtedness, and all agreements and obligations of the Holder and the
Company, under this Section 2 shall remain in full force and effect
irrespective of:
(i) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Senior Indebtedness, or any
other amendment or waiver of or any consent to departure from the
Bank Loan Agreement or any other agreement or instrument evidencing
or relating to the Senior Indebtedness; or
(ii) any exchange, release or non-perfection of any collateral
for the Senior Indebtedness, or any release or amendment or waiver
of or consent to departure from any guaranty, for any of the Senior
Indebtedness.
(n) The provisions of this Section 2 evidence a continuing agreement
and shall (i) remain in full force and effect until the Senior
Indebtedness shall have been paid in full and the commitments of the
Senior Creditors under the Bank Loan Agreement shalt have terminated, (ii)
be binding upon the Holder, the Company and their respective successors
and assigns, and (iii) inure to the benefit of and be enforceable by the
holders of the Senior Indebtedness and their respective successors,
transferees and assigns. Without limiting the generality of clause (iii)
of this paragraph (n), any Senior Creditor may assign or otherwise
transfer its interest in the Senior Indebtedness and the documents
evidencing the Senior Indebtedness to any other person or entity in
accordance with the Bank Loan Agreement, which person or entity shall
thereupon become vested with all the rights in respect thereof granted to
such Senior Creditor herein or otherwise.
(o) The Holder shall deliver written notice to the holders of the
Senior Indebtedness promptly upon the occurrence of an Event of Default
hereunder or the occurrence of any event that with the giving of notice or
the expiration of time or both would constitute an Event of Default
hereunder.
3. EVENTS OF DEFAULT; ACCELERATION.
(a) Any of the following events constitutes an "Event of Default":
(i) the Company defaults in the payment of any portion of the
principal of this Note when such principal shall become due and
payable, and such default continues uncured for a period of five
business days after the Holder gives the Company notice of such
default; or
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<PAGE> 7
(ii) the Company defaults in the payment of any interest on
this Note when such interest shall become due and payable, and such
default continues uncured for a period of five business days after
the Holder gives the Company notice of such default; or
(iii) the Company defaults in the due observance or
performance of any other term, covenant, agreement or warranty of
the Company in this Note, and such default continues uncured for a
period of five business days after the Holder gives the Company
notice specifying such default or breach and requesting that such
default or breach be remedied and stating that such notice is a
notice of default hereunder; or
(iv) Senior Indebtedness having an aggregate principal amount
of at least $5,000,000 shall have become due and payable prior to
its stated maturity by reason of a default or event of default
thereunder; or
(v) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(1) commences a voluntary case in bankruptcy or any
other action or proceeding for any other similar relief under
any Bankruptcy Law,
(2) consents by answer or otherwise to the commencement
against it of an involuntary case of bankruptcy,
(3) seeks or consents to the appointment of a receiver,
trustee, assignee, liquidator, custodian or similar official
(collectively, a "Custodian") of it or for all or
substantially all of its assets,
(4) makes a general assignment for the benefit of its
creditors, or
(5) generally is unable to pay its debts as its debts
become due;
(vi) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(1) is for relief against the Company in an involuntary
case of bankruptcy against the Company,
(2) appoints a Custodian of the Company for all or
substantially all of its assets, or
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<PAGE> 8
(3) orders the liquidation of the Company,
and the order remains unstayed and in effect for 30 days, or any
dismissal, stay, rescission or termination thereof ceases to remain
in effect.
(b) Subject to the provisions of Section 2, if any Event of Default
shall occur and be continuing, the Holder shall have the right, by notice
to the Company, to declare the entire principal amount then outstanding on
this Note and accrued interest thereon immediately due and payable,
whereupon all such amounts shall become immediately due and payable, all
without diligence, presentment, demand of payment, protest or further
notice of any kind, all of which are hereby expressly waived by the
Company, provided, however, that so long as any Senior Indebtedness is
outstanding, such declaration shall not become effective until the earlier
of (a) five business days after delivery of a notice to the holders of the
Senior Indebtedness that the Holder has declared the principal of and
interest on this Note to be due and payable immediately and (b) the
acceleration of any Senior Indebtedness. If the Company shall default in
the payment of principal of, or interest on, this Note, it will pay the
Holder such amounts, to the extent lawful, as shall be sufficient to pay
costs and expenses of collection or of otherwise enforcing the Holder's
rights incurred in connection with the exercise of any remedy whether
provided herein or available under any applicable law, including
reasonable counsel fees and expenses.
The preceding paragraph is subject to the condition that if at any
time after the principal of this Note has been declared due and payable
and before any judgment with respect thereto has been entered, all arrears
of interest have been paid and every other Event of Default has been made
good or cured, then the Holder of this Note may, by written instrument
filed with the Company, rescind and annul such declaration and its
consequences; but no such rescission shall extend to or affect any
subsequent default or Event of Default or impair any right thereon. Upon
any such rescission, any enforcement action commenced pursuant to the
preceding paragraph shall be terminated.
4. DEFINITIONS. For purposes of this Note:
"Administrative Agent" means NationsBank of Georgia, N.A., or any
successor agent appointed pursuant to the Bank Loan Agreement, or if there
is no Administrative Agent under the Bank Loan Agreement or if there is no
Bank Loan Agreement in effect, any other agent for the Senior Creditors.
"Bank Loan Agreement" shall mean the Loan and Security Agreement
dated as of March 31, 1995, by and between ProSource Services Corporation,
BroMar Services, Inc., ProSource Distribution Services Limited, the Senior
Creditors and
8
<PAGE> 9
the Administrative Agent, as administrative agent for the Senior
Creditors, as the same shall be amended, supplemented, restated, extended
or refinanced from time to time, including any such amendment, supplement,
restatement, extension or refinancing resulting in an increase in the
amount of the credit facilities provided for thereunder.
"Bankruptcy Law" shall mean Title 11 of the United States Code or
any similar Federal, state, Canadian or provincial law for the relief of
debtors.
"Business Day" shall mean any day other than Saturday, Sunday or
other day on which the banks in New York, New York are authorized or
required to be closed.
"holders of Senior Indebtedness" shall mean the Administrative
Agent, in its capacity as administrative agent for itself and the Senior
Creditors (or if there is no Administrative Agent, the Senior Creditors),
so long as any Senior Indebtedness remains outstanding under or in
connection with the Bank Loan Agreement or any commitment to make loans
and advances under the Bank Loan Agreement remains outstanding.
"Material Default" means any Default under the Bank Loan Agreement
other than a Non-Material Default thereunder.
"Non-Material Default" means a Default thereunder the existence of
which the Administrative Agent has actual notice of and as to which the
Required Lenders (as defined in the Bank Loan Agreement) have elected not
to take any action required to be taken thereunder as a precondition for
such Default to become an Event of Default thereunder.
"Reimbursement Obligations" means the Reimbursement Obligations as
defined in the Bank Loan Agreement.
"Senior Creditor" means each of the Lenders under and as defined in
the Bank Loan Agreement and each other holder, from time to time, of any
portion of the Senior Indebtedness arising under or in connection with the
Bank Loan Agreement, including, without limitation, each creditor that
extends credit to the Company for the purpose of refinancing or repaying
such Senior Indebtedness, in whole or in part.
"Senior Indebtedness" shall consist of so long as any Senior
Indebtedness remains outstanding under or in connection with the Bank Loan
Agreement or any
9
<PAGE> 10
commitment to make loans and advances under the Bank Loan Agreement
remains outstanding, any obligation pursuant to the Bank Loan Agreement to
pay principal, premium (if any), interest, reimbursements (including the
Reimbursement Obligations) or indemnity amounts and fees, costs or
expenses (including interest that would accrue on or after the filing of
any petition in bankruptcy (whether or not allowed) or for the
reorganization relating to the Company but for the filing of such
petition).
5. NOTICES. All notices hereunder shall be in writing and delivered
personally or sent by telecopier or by registered or certified mail (return
receipt requested) by the party sending such notice to each of the other parties
listed below at the following addresses (or such other addresses as shall be
specified by like notice):
Onex Ohio Holdings, Inc.
421 Leader Street
Marion, Ohio 43302
Attention: Donald F. West
Phone: (614) 382-5701
Telecopy: (614) 383-2615
ProSource Services Corporation
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attention: Thomas C. Highland
Phone: (305) 529-2501
Telecopy: (305) 529-2573
Onex Corporation
Canada Trust Tower
161 Bay Street - Suite 2500
Toronto, Ontario, Canada M5J 2S1
Attention: Mr. Anthony R. Melman
Phone: (416) 362-7711
Telecopy: (416) 362-5765
10
<PAGE> 11
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Phone: (212) 836-8201
Telecopy: (212) 836-7149
and, so long as any Senior Indebtedness remains outstanding under or
in connection with the Bank Loan Agreement or any commitment to make
loans and advances under the Bank Loan Agreement remains
outstanding, with copies to:
NationsBank of Georgia, N.A.
Business Credit Division
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: John W. Getz
Telecopy: 404-607-6437
All notices shall be deemed given when received by the addressees.
6. CHOICE OF LAW. This Note shall be construed and enforced in accordance
with the laws of the State of New York, without reference to the choice of law
principles thereof.
IN WITNESS WHEREOF, the Company has caused this Note to be signed on its
behalf, in its corporate name, by its duly authorized officer, as an instrument
under seal, as of the day and year first above written.
PROSOURCE SERVICES CORPORATION
By: /s/D.R. Parker
--------------------------------
Name: D.R. Parker
Title: Chairman
11
<PAGE> 1
EXHIBIT 10.17
FORM OF DISTRIBUTION AGREEMENT
THIS AGREEMENT, dated as of June 30, 1992, by and between BURGER KING
CORPORATION, a Florida corporation ("BKC") and BKDA CORPORATION, a Delaware
corporation ("Distributor").
WHEREAS, Distributor wishes to be designated by BKC as an approved
non-exclusive distributor ("Approved Distributor") to the Burger King system of
company and franchised restaurants (the "Burger King System") with respect to
all of the paper goods, restaurant supplies, food products, premium and
promotional items and other items, described in the Approved Products and
Approved Suppliers List (those paper goods, restaurant supplies and food
products, premium and promotional items and other items shall be referred to
herein as "Product" and collectively shall be referred to herein as
"Products"), some of which will be packaged under the Burger King private label
and all of which shall be produced by suppliers approved by BKC ("Approved
Suppliers"); and
WHEREAS, BKC is willing to designate Distributor as an Approved
Distributor of the Products, subject to compliance by Distributor with the
terms and conditions of this Distribution Agreement, as it may be amended from
time to time throughout the term hereof (this Distribution Agreement, together
with all amendments and exhibits hereto shall be collectively referred to
herein as the "Agreement");
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, BKC and Distributor hereby agree
as follows:
1. Subject to compliance by Distributor throughout the term of the
Agreement with all of the provisions hereof, BKC hereby designates Distributor
as an Approved Distributor of the Products to the Burger King system (the
"Approval"), for the term specified in Paragraph 15 hereof. The Approval
relates only to Distributor's distribution facility located at
, City of , State of (the "Facility"),
at which the Products purchased from Approved Suppliers will be handled and
stored and from which the Products will be delivered to restaurants within the
Burger King System. The Facility shall include at the location described in
this paragraph all handling, storage, shipping and distribution activities for
all Products. The Approval does not authorize Distributor to handle or store
Products at or distribute Products from any distribution facility other than
the Facility.
<PAGE> 2
Distributor may not employ a "satellite" storage location or redistribution
location to handle or store the Products without the prior written consent of a
Senior Vice President of BKC and then may only do so if such location is
operated in strict accordance with the terms and conditions of this Agreement,
including but not limited to inspection by BKC, insurance and other
requirements. Upon the issuance of any such consent, Distributor shall be
responsible for ensuring that management at such location is aware of the terms
and conditions of this Agreement. In the event that such approval is granted by
BKC, in its reasonable discretion, any breach of the terms and conditions of
this Agreement with respect to such location shall be deemed a breach of this
Agreement and BKC shall be entitled to terminate the Approval both as it
relates to the satellite location and to the Facility.
2. a) To maintain quality control of the Products, to assure that the
Products are distributed and sold only to restaurants within the
Burger King System, to protect BKC trademarks and to assure an
efficient and reliable supply and distribution system to serve
BKC and its franchisees, Distributor shall purchase the Products
only from Approved Suppliers and Distributor shall be authorized
to sell or otherwise transfer the Products only to restaurants
within the Burger King System and to any other BKC Approved
Distributor for resale from any BKC approved facility to
restaurants within the Burger King System. Any other sale,
transfer or delivery of any of the Products is hereby
prohibited. Products as used in the preceding two sentences
shall mean only those Products which bear the Burger King
private label, trademarks and/or service marks or which are
otherwise required to be distributed only within the Burger King
System.
b) Distributor will not sell either any unapproved Product or any
approved Product obtained from someone other than an Approved
Supplier or Approved Distributor to restaurants within the
Burger King System. Any breach of this provision shall
constitute a material breach of this Agreement.
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c) Distributor acknowledges that it has received the current
Approved Products and Approved Suppliers List and
acknowledges that BKC may, in its discretion, amend this
List from time to time, such amendments to be effective upon
notice to Distributor. BKC shall inform Distributor of the
identity of Approved Suppliers by issuing from time to time
the then current Approved Products and Approved Suppliers
List or similar document. Distributor hereby acknowledges
that it shall have no role in the process of approving and/or
disapproving any of the Approved Suppliers.
d) BKC or its designee shall be authorized to act as the agent
of Distributor ("Purchasing Agent") and to negotiate with
Approved Suppliers the prices to be paid by Approved
Distributors, including Distributor, to the Approved
Supplier for any and all Products, the precise Products
which are subject to this provision and the circumstances
and/or limitations associated with such negotiations to be
determined by the Purchasing Agent from time to time in
its/their reasonable discretion. The Purchasing Agent may
require that Distributor provide reasonable purchase
commitments for such Products to such Approved Suppliers
under terms and conditions reasonably established by the
Purchasing Agent, such terms and conditions to be equally
available to all similarly situated Approved Distributors.
BKC shall have the right to designate a third party
Purchasing Agent to conduct such negotiations and to require
such commitments by Distributor and, upon such designation,
such third party Purchasing Agent shall also have the right,
under this Agreement, to require Distributor's compliance
with this paragraph and other applicable paragraphs of this
Agreement and to require the payment of such reasonable sums
from Distributor to the third party Purchasing Agent as the
third party deems appropriate in compensation for the
services provided by it. The Purchasing Agent, in all
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circumstances, will use reasonable efforts to negotiate
delivered prices to Approved Distributors on an equitable
basis. As to those Products which the Purchasing Agent has
not made or elects, at any time or from time to time, not
to make subject to this provision, Distributor shall
negotiate with Suppliers and purchase such Products on terms
and conditions of its choosing.
e) Nothing contained in this Paragraph 2 or this Agreement
shall constitute or be deemed to constitute the
establishment of the price charged by Distributor to its
"Customer", as defined in Paragraph 4 herein.
3. As a condition to its retention of the Approval, Distributor, at all
times during the term of the Agreement, shall satisfy and comply diligently
with all requirements established by BKC relating to receiving, inspecting,
handling, storing, shipping and delivering the Products, as such requirements
may reasonably be amended from time to time by BKC, including but not limited
to the Distributor Requirements previously furnished to Distributor, as they
may be reasonably modified or amended by BKC from time to time, in its sole
discretion, and all other written communications from BKC (together the
"Requirements").
4. Distributor acknowledges that it shall stand ready to serve the
Burger King System as a "full-line" distributor of all the Products which
Distributor's restaurant customers order regularly and/or request be made
available for purchase, including but not limited to, all food products, paper
goods, restaurant supplies, premium and promotional items and other items which
may be required. Exhibit "A" hereof designates the geographic territory (the
"Territory") in which Distributor has elected to serve from the Facility as a
"full-line" distributor to the Burger King System during the term of the
Approval. Distributor shall use its best efforts to serve, and shall stand
ready to accept from, any operator of a restaurant within the Burger King
System ("Customer"), whose restaurant or restaurants are located within the
Territory, orders to purchase any of the Products at prices, in quantities, and
on terms to be established between Distributor and the Customer. Upon direction
by the Purchasing Agent, Distributor shall make available to its Customers
itemized or summary information regarding the "laid in" (or delivered to the
Facility) price
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<PAGE> 5
paid by the Distributor plus the distribution charge ("mark up") attributable
to individual Products. Such availability may, in the Purchasing Agent's
discretion, be limited or conditioned upon the Customer's prior agreement to
those confidentiality requirements or restrictions which the Purchasing Agent
in consultation with Distributor deems reasonably appropriate. Distributor
shall not refuse to provide service to any Customer whose restaurant or
restaurants are located within the Territory merely because of the physical
distance between the Facility and such restaurant or restaurants.
Notwithstanding the foregoing, Distributor shall not be prohibited from
offering to serve, nor shall it be restricted from accepting any request to
serve, from the Facility, any Customer, regardless of whether or not the
location of such Customer's restaurant or restaurants is within the Territory.
5. During an emergency shortage of any Product, as announced by an
officer of BKC, Distributor shall stand ready to allocate sales of such Product
then in short supply among the customers requesting to purchase it, based upon
the relative percentages of Distributor's total sales of such Product to each
of such Customers during the immediately preceding twelve (12) month period. In
anticipation of (a) a possible shortage to and within the Burger King System of
any Product, or (b) the introduction of a menu item (or a phase out thereof)
within the Burger King System, BKC, in any of such events, may request from
Distributor, and Distributor shall promptly furnish BKC with, a forecast of its
anticipated volume of purchases from Approved Suppliers of any of the Products
affected thereby.
6. This Agreement does not constitute a commitment on the part of BKC,
any third party Purchasing Agent or any of its franchisees to purchase any of
the Products from Distributor. The purpose of this Agreement is to set forth
the general terms under which Distributor will be authorized to distribute the
Products to the Burger King System.
7. Distributor hereby acknowledges BKC's need to protect the Burger
King System by maintaining the confidentiality of critical information that may
be disclosed by BKC to Distributor. Accordingly, all information communicated
by BKC (and/or its designee under Paragraph 2 herein) to Distributor is
considered to be confidential, including but not limited to communications
relating to marketing and restaurant data, new product introductions, and the
like, where such information is either identified to the Distributor as
"confidential" or is reasonably identifiable by the Distributor as such
("Confidential
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<PAGE> 6
Information"). Distributor shall retain the Confidential Information in the
strictest confidence, unless and until such Confidential Information becomes
part of the public domain. Further, the Confidential Information shall not be
disclosed by Distributor to any person except to: (a) those of its Customers
who are authorized by BKC to receive the Confidential Information; (b) its
employees who have a need to know to perform services pursuant to the
Agreement; (c) any external accountants or attorneys whose identities are
disclosed to BKC in writing and (d) as may be required by order of a court or
other duly constituted governmental authority with jurisdiction.
8. The Products shall be received, inspected, handled, stored,
shipped and delivered by Distributor in strict compliance with the
Requirements. Any deviation or modification whatsoever by Distributor from the
Requirements shall be prohibited (unless prior written approval thereof has
been obtained from BKC) and shall constitute a cause for termination of the
Agreement and/or the Approval, in accordance with Paragraph 18 hereof.
9. For a period of at least two (2) years from the date of sale to
any Customer, Distributor agrees to keep true, accurate and complete records of
the purchase, receipt, storage, shipping and resale of the Products and, upon
request by BKC, to make these records available to BKC or its designee. BKC, or
its designee, shall have the right, during normal business hours and without
advance notice, to inspect and/or to obtain information with respect to (a) the
Facility and all of the Distributor's equipment relating to receiving,
inspecting, handling, storing, shipping and delivering the Products and all
components thereof; (b) all of the Products, prior to shipment thereof to any
Customer; and (c) any other matter which is covered by the Requirements. BKC
and/or its designee shall also have the right, upon request, to inspect and/or
to promptly obtain from Distributor copies of all information and documentation
from Distributor with respect to Distributor's sales to individual Burger King
franchisee Customers for the purpose of determining the compliance of such
Customer with the requirements of the Burger King Restaurant Franchise
Agreement and for any other reasonable purpose.
10. Distributor shall promptly submit to the Products Testing
Laboratory of BKC or any other entity designated by BKC, in accordance with a
testing schedule established from time to time or upon request by BKC, samples
of any of the Products handled by Distributor.
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<PAGE> 7
11. Distributor agrees to defend, indemnify and hold harmless BKC, its
officers, its directors, its employees, its agents, its parents, its
subsidiaries, its affiliates and its franchisees, of and from all claims,
demands, losses, damages, liabilities, reasonable costs and expenses, including
reasonable attorney's fees, resulting from, or alleged to have resulted from,
injury, illness, damage and/or death caused, in whole or in part, by (i)
contact with, use and/or consumption of any of the Products sold or delivered
by Distributor to any Customer or, (ii) with respect to the sale of any
Product, any breach by Distributor of any representation, warranty or covenant
of this Agreement, or (iii) any other acts or omissions of Distributor in
connection with the purchase, receipt, storage, shipping, delivery and resale
of any Product, unless (and then only to the extent) such injury, illness,
damage and/or death is caused by BKC, its parents, its subsidiaries, its
affiliates, Approved Suppliers or its franchisees, employees or agents. BKC
agrees to advise Distributor in the event BKC receives notice that a claim has
been or may be filed with respect to a matter covered by this indemnity and
Distributor shall be given the opportunity to assume the defense thereof. If
Distributor fails to assume such defense, BKC and/or the indemnitees identified
above (herein collectively the "Indemnitees"), or any one of them, may defend
and settle the action in the manner deemed appropriate, and Distributor shall
pay to such Indemnitee(s) all reasonable costs and expenses, including
reasonable attorneys' fees incurred by the Indemnitees in effecting such
defense, in addition to any sum which the Indemnitees may pay by reason of any
settlement or judgment against the Indemnitees. The right of all or any
Indemnitee to indemnity hereunder shall exist notwithstanding that joint or
several liability may be imposed upon it/them by statute, ordinance, regulation
or judicial decision.
12. Distributor agrees to maintain, with an insurer with a rating of at
least "A 10" in Best's Insurance Guide, during the entire term of the
Agreement, comprehensive liability insurance, including product liability
coverage, in minimum amounts of $1,000,000 per occurrence for damage, injury
and/or death to persons and $500,000 per occurrence for damage and/or injury to
property. Distributor shall promptly provide BKC with certificates of
insurance evidencing such coverage and each certificate shall indicate that
the coverage represented thereby shall not be cancelled or modified until at
least thirty (30) days' prior written notice has been given to BKC.
13. In the event it is deemed necessary by either BKC or any of the
Approved Suppliers to recall from Approved
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<PAGE> 8
Distributors and/or from the Burger King System any quantity of any of the
Products, either as a result of failure of such Products to satisfy the
proprietary manufacturing specifications issued to Approved Suppliers by BKC
(the "Specifications"), or for any other reason bearing on quality and/or
safety of such Products, Distributor shall comply diligently with all Product
recall procedures then in effect, as established from time to time by BKC and
applicable law. Distributor shall not be required to bear the costs associated
with the recall of any Product unless such recall is the result of the
negligence or intentional tortious acts of Distributor. In such event,
Distributor agrees to bear all costs and expenses incurred by it and/or BKC
and/or any of the Approved Suppliers in complying with such recall procedures,
if (and then only to the extent) such recall is caused by the negligence or
intentional tortious acts of Distributor. In the event Distributor fails or
refuses to comply with the recall of such Products hereunder upon request by
BKC, BKC shall be authorized to take such action as it deems necessary to
recall such Products from the Burger King System and Distributor shall
reimburse BKC and any Customers for costs and expenses incurred in such recall
procedure to the extent such recall is the result of the negligence or
intentional tortious acts of Distributor; any such action taken by BKC shall
not relieve Distributor of its other obligations hereunder.
14. Notwithstanding anything herein to the contrary, Distributor
acknowledges that the manufacture, storage, shipment and/or distribution by any
Approved Supplier of any new or modified menu product of BKC, which such
Approved Supplier may subsequently be authorized by BKC and/or its designee to
produce, shall be controlled by BKC, in its sole discretion, during the
research, market testing and roll-out stages of development of such product.
Distributor shall be authorized to purchase from Approved Suppliers such new or
modified menu products only after such products have been approved by BKC for
use within the Burger King System.
15. The Agreement and the Approval shall commence on July 1, 1992 shall
continue until their expiration on June 30, 1999 unless terminated earlier
according to their terms. Further, the Agreement and the Approval shall
immediately expire if, at any time and for any reason, Distributor has become
inactive by failing to make a material volume of sales to Customers over any
consecutive six (6) month period. BKC may, from time to time for the purpose
of determining that Distributor has remained an active distributor to the
Burger King System, require that
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<PAGE> 9
Distributor provide evidence of sales to Burger King restaurants.
16. Distributor hereby accepts the appointment as an Approved
Distributor with the understanding that no assurance or commitment has been
given by BKC or anyone else that such appointment shall be renewed, extended or
continued, prior to, at or subsequent to the expiration or termination of the
Agreement. Distributor further understands that no BKC employee below the rank
of Chief Executive Officer is authorized to extend, renew or continue the
Agreement and that the Chief Executive Officer is only authorized to do so
through a written agreement signed by both parties, and that, absent such
written agreement, any action whatsoever taken by Distributor in real or
claimed reliance upon the expectation that the Agreement will be extended,
renewed or continued beyond the expiration or termination hereof will be taken
at Distributor's peril.
17. Distributor shall not use, without the prior written consent of a
Senior Vice President or higher officer of BKC, any trademarks or service marks
of BKC in any manner whatsoever. Under no circumstances shall the use of any
such marks or name of BKC be permitted for use as a part of Distributor's trade
name.
18. If Distributor fails or refuses to comply with any of its
obligations hereunder, BKC, in its sole discretion, may terminate the Agreement
and/or the Approval upon thirty (30) days' prior written notice to Distributor;
provided, however, that the Approval as to any Product or Products may be
suspended in accordance with the then current BKC procedures if, in the
judgment of BKC, either the Facility or the failure by the Distributor to
comply with the Requirements as they apply to the Facility, the Product or the
Products, presents or is likely to present in the immediate future an imminent
danger to the consumer, to restaurant employees, to any third party or to the
Burger King System or is in violation of the requirements of applicable
government health, safety or sanitation standards. If any applicable law or
regulation requires a greater period for prior notice of termination, the prior
notice required by such law or regulation shall be substituted for the notice
requirements herein. The failure of BKC to terminate the Agreement and/or the
Approval upon the occurrence of one or more of these events of default by
Distributor in its performance of any obligations hereunder shall not
constitute a waiver or otherwise affect the right of BKC to terminate the
Agreement and/or the Approval as a result of a continuing or subsequent failure
or refusal by Distributor to comply with any of such obligations.
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<PAGE> 10
Furthermore, failure by BKC to exercise any of its rights or remedies hereunder
or to insist on strict compliance by Distributor with any of the terms hereof
shall not constitute a waiver of any of the terms or conditions hereof with
respect to any other or subsequent breach nor shall it constitute a waiver by
BKC of its right at any time thereafter to require strict compliance with the
terms hereof. The rights or remedies granted to BKC herein are in addition to
any other rights or remedies which may be granted by law.
19. Upon termination or expiration of the Agreement and/or the Approval,
(a) Distributor's designation as an Approved Distributor shall terminate and be
of no further force and effect; (b) Distributor shall not thereafter identify
itself as an Approved Distributor to the Burger King System or use the
Requirements or any of BKC's trade secrets, the Confidential Information and/or
other proprietary information; (c) Distributor shall cease to use, in any
manner whatsoever, any of the trademarks and/or service marks of BKC; (d)
Distributor shall return to BKC (or at the option of BKC, shall destroy) all
copies of the Requirements; and (e) Distributor shall cease to sell, distribute
and/or otherwise transfer all of the Products in Distributor's inventory which
either bear the Burger King private label, trademarks and/or service marks or
which are otherwise required to be distributed only within the Burger King
System. With respect to (e) herein, Distributor may arrange with the
appropriate Approved Supplier or any Approved Distributor to repurchase from
Distributor any of such Products in Distributor's inventory and, upon the date
of termination or expiration of the Agreement and/or the Approval, BKC may
offer to purchase (but shall not be required to do so) all or any portion of
Distributor's inventory of the Products at prices, in quantities, and on terms
mutually acceptable to BKC and Distributor. The termination of the Agreement
and/or the Approval shall not operate as a termination of any other agreement or
approval existing between BKC and Distributor with respect to another approved
distribution facility.
20. Prior to disposing of (or permitting a carrier or anyone else to
dispose of) any Products which either bear the Burger King private label,
trademarks and/or service marks or which are otherwise required to be
distributed only within the Burger King System, and which have been damaged or
are otherwise unfit for distribution to the Burger King System, Distributor
shall remove from the packaging of all units of such Products (or shall be
responsible for such removal to be accomplished by a carrier having custody of
such Products) all Burger King "logos" and
-10-
<PAGE> 11
any and all other identifying marks thereon which are required to be removed.
In addition, Distributor shall utilize the procedures for disposition of such
damaged Products, as set forth by BKC from time to time. Distributor shall not
repack any Product or Products nor may it sell or otherwise transfer to a
Burger King Restaurant any Product that is damaged or otherwise rendered unfit
for distribution. Nothing contained in this paragraph shall permit the disposal
or other disposition of "premium" or "promotional" items except pursuant to the
direction of BKC or BKC's designated supplier.
21. Distributor warrants that all Products to be distributed by it
within the Burger King System shall be received, inspected, handled, stored,
shipped, delivered and sold by Distributor in strict compliance with all
applicable (a) federal and state laws, (b) rules and regulations of all
governmental and quasi-governmental agencies having jurisdiction, and (c)
municipal ordinances. Upon its receipt of any citation issued by any
governmental or other regulatory authority (or of process or citation issued by
any court of law or equity) which might result in an interruption in service to
any Customer, Distributor shall promptly send written notice thereof to BKC and
to all Customers who may be affected thereby. Neither party shall be liable for
any failure to perform arising from causes or events beyond the reasonable
control and without the fault or negligence of the party.
22. All notices required hereunder shall be in writing and shall be
deemed given when delivered or deposited, registered or certified mail, postage
prepaid, return receipt requested, in the United States mail addressed, if to
BKC, to Burger King Corporation, Post Office Box 520783, Miami, Florida 33152,
Attention: Senior Vice President, Quality and Cost, and if to Distributor, to
the address set forth on the signature page of this Agreement.
23. Distributor acknowledges that it is an independent contractor and
neither BKC nor Distributor is or shall be construed as an agent, partner,
joint venturer or employee of the other. Distributor shall have no authority to
bind or otherwise obligate BKC in any manner and Distributor shall not
represent to anyone that it has a right to do so.
24. In the event Distributor should (a) relocate the Facility, or (b)
sell or otherwise transfer a major portion of Distributor's assets other than
in the ordinary course of business, or (c) experience a significant change
-11-
<PAGE> 12
in its management, or (d) experience a change or transfer in the ownership of
Distributor, as constituted at the date hereof (involving more than twenty-five
percent (25%) of the capital stock thereof, if Distributor is a corporation, or
if Distributor is a partnership, involving a discontinuance by a majority of
the general partners of the partnership to act as such partner or partners for
whatever reason, other than his (their) temporary disability), the Agreement
and the Approval shall terminate, unless prior to any such event, Distributor
has notified BKC of such anticipated event and has obtained the written consent
of a Senior Vice President of BKC to maintain the Agreement and the Approval in
full force and effect. Such consent shall not be unreasonably withheld by BKC.
25. While Distributor agrees to maintain adequate service levels to its
Customers, Distributor acknowledges that day to day decisions regarding the
maintenance of Product inventory shall be entirely within the Distributor's
discretion and control. BKC shall have no liability or other responsibility
whatsoever for loss or damage incurred by Distributor with respect thereto,
including but not limited to loss or damage which may result from changes in
the BKC Specifications, changes in BKC marketing or sales plans, the
introduction or deletion of menu, premium and/or promotional items, the
termination of the Agreement and/or the Approval or the termination of any
other agreement between BKC and the Distributor pursuant to its terms.
26. BKC does not warrant in any respect, whether express or implied,
the financial condition of any Approved Supplier, any Approved Distributor, any
Burger King franchisee or any other person or thing.
27. As a condition to the grant of the Approval, Distributor agrees
that BKC shall not, under any circumstances, be liable to Distributor for any
consequential or indirect damages, including without limitation, any claim for
lost profits or anticipated profits.
28. Distributor, on behalf of itself and its principal officers,
warrants and represents that they presently do not own any interest, whether
direct or indirect, in any Burger King franchise, in any Burger King
restaurant, or in any corporation or partnership operating a Burger King
restaurant or in any entity leasing real estate for the operation of a Burger
King restaurant except as set forth on Exhibit B. Distributor further warrants
and represents, on behalf of itself and its principal officers, that they do
not claim any right to become a Burger King franchisee, to own an interest in
any Burger King restaurant
-12-
<PAGE> 13
or in a corporation operating a Burger King restaurant except as set forth on
Exhibit C. Distributor warrants and represents that during the term of this
Agreement it will not hereafter acquire, whether directly or indirectly, any
interest in any Burger King restaurant, in any Burger King franchise, or in any
corporation or partnership operating a Burger King franchise or in any entity
leasing real estate for the operation of a Burger King restaurant other than
that which it claims on Exhibits B and C. Nothing contained herein shall limit
the right of Distributor to take a security interest in the realty and
personalty relating to a Burger King Restaurant for the purpose of protecting
or securing lines of credit or existing indebtedness. Distributor recognizes
that the Burger King Restaurant Franchise Agreement may not be pledged,
mortgaged, hypothecated, given as security for an obligation or in any manner
encumbered and Distributor agrees that it will not seek to acquire any such
interest in the Franchise Agreement. Distributor is also authorized to and does
warrant and represent that during the term of this Agreement, no principal
officer, director or partner of Distributor will acquire, whether directly or
indirectly, an interest in any Burger King restaurant, in any Burger King
franchise, in any corporation operating a Burger King franchise or in any
corporation leasing real estate for the operation of a Burger King restaurant;
provided, however, that nothing contained herein shall be deemed to diminish
any claim of right as set forth in Exhibit C.
29. Distributor will not accept or otherwise receive from an Approved
Supplier, whether directly or indirectly (such as through a broker), any
rebate, fee, concession, transfer, payment or similar device which is not
disclosed to its Customers. With respect to those Products as to which,
pursuant to Paragraph 2, negotiations have been conducted by the Purchasing
Agent with an Approved Supplier in relation to Distributor, Distributor further
agrees that it will not vary from the established and agreed upon conditions of
purchase including but not limited to the receipt of any rebate, fee,
concession, transfer or payment which is not a part of the established and
agreed upon conditions of purchase unless the Approved Supplier also makes the
same variance available to all similarly situated Approved Distributors.
30. Distributor shall not pay any gratuities, commissions, fees or
grant any rebates to any employee, officer or director of BKC for his or her
personal or private benefit, nor favor any officer, director or employee of BKC
with gifts, travel or entertainment of any substantial cost or value, nor enter
into any business arrangements
-13-
<PAGE> 14
with employees, officers or directors of BKC which benefit them personally or
privately. If BKC employs third party inspection or testing firms or designates
a third party Purchasing Agent, pursuant to Paragraph 2 of this Agreement,
Distributor agrees that such restrictions shall also apply to the directors,
officers and employees of such firms or designee as if they were directors,
officers and employees of BKC.
31. In the event that BKC elects, in its sole discretion, to disclose
to Distributor the amount of any sums owed by Customers to BKC, Distributor
will receive and accept such information with the knowledge and understanding
that BKC does not warrant its accuracy in any respect and shall have no
liability whatsoever to Distributor in connection with any such disclosure
and/or in connection with any failure or refusal to make such disclosure.
Nothing contained in this Agreement shall require BKC to make such disclosure
nor shall it restrict or limit the circumstances under which BKC may make such
disclosure, it being the intention of the parties that BKC shall have complete
discretion as to whether, when, how and under what circumstances it may elect
to disclose such information.
32. In the event that BKC or another entity sells to Distributor and
Distributor purchases a "premium" or "promotional" item, as those terms are
generally used and their meaning is generally understood within the Burger King
System, Distributor shall follow all directions from BKC or BKC's designated
agent of the premium or promotional item with respect to the distribution and
sale of such items. With respect to premium or promotional items which contain
or embody the trademark, service mark or other intellectual property of a third
party and which are made available to the Burger King System pursuant to a
license agreement or similar agreement with such third party, Distributor
acknowledges and covenants that any purchase by Distributor of such premiums or
promotional items is subject to Distributor's strict compliance with the terms,
conditions and limitations of such license or similar agreement.
33. Distributor shall not enter into any contract or agreement with any
Customer under terms and conditions which are inconsistent with this Agreement.
Without limiting the foregoing, Distributor agrees that any such contract or
agreement shall be terminated immediately in the event that this Agreement or
the Approval expire or are terminated pursuant to their terms.
34. BKC may, in its discretion, require that Distributor provide to BKC
periodic information, in a form
-14-
<PAGE> 15
reasonably acceptable to BKC, as to the amounts of money owed to Distributor by
one or more or all of the Customers served by Distributor. BKC may, in its
discretion, require that such information be certified by an officer of
Distributor as correct and accurate to the best of his/her knowledge and
establish other reasonable requirements associated therewith.
35. BKC may, in its discretion, require that Distributor provide to BKC
periodic information, in a form reasonably acceptable to BKC and on a regular
basis, as to the volumes of any Product or all Products sold by Distributor to
Customers.
36. This is a bilateral agreement containing rights and obligations on
the part of both parties during the term of this Agreement. Distributor may
unilaterally terminate this Agreement only upon ninety (90) days' advance
written notice to BKC, such notice to be measured from the date of receipt by
BKC. Within fifteen (15) days after such receipt, BKC may, upon written notice
to Distributor request and require that Distributor continue to serve the
Burger King system under this Agreement for a sixty (60) day period additional
to the ninety (90) days' notice (i.e., a total of one hundred and fifty (150)
days from BKC's receipt of the notice). Except as provided above, Distributor
has no right to unilaterally decide to discontinue or unreasonably restrict
(such as through the refusal or willful inability to maintain adequate
quantities of inventory) service to the Burger King System. The parties
recognize that any unilateral discontinuance or unreasonable refusal to service
the Burger King System is likely to cause serious disruption and damage to BKC,
the Customers and the Burger King System as a whole and shall constitute a
material breach of this Agreement. In such event, BKC shall be entitled to
terminate this Agreement and to pursue any remedy provided in law or equity,
including injunctive relief and the right to recover any damages suffered by
reason of such breach. Nothing contained herein shall act to bar or restrict
the right of BKC and Distributor to mutually agree to terminate this Agreement
prior to the end of its term.
37. Any provision hereof, including without limitation the
indemnification obligations under Paragraph 11, which imposes upon Distributor
an obligation after termination or expiration of the Agreement shall survive
termination or expiration hereof and be binding upon Distributor.
38. The Agreement shall become valid when executed and accepted by BKC.
The parties agree that it
-15-
<PAGE> 16
shall be deemed made and entered into in the State of Florida and shall be
governed and construed in accordance with the laws of the State of Florida.
The parties acknowledge and agree that the U.S. District Court for the Southern
District of Florida, or if such court lacks jurisdiction, the 11th Judicial
Circuit in and for Dade County, Florida, shall be the venue and exclusive
proper forum in which to adjudicate any case or controversy arising either,
directly or indirectly, under or in connection with this Agreement and the
parties further agree that, in the event of litigation arising out of or in
connection with this Agreement in these courts, they will not contest or
challenge the jurisdiction or venue of these courts. The provisions of the
Agreement are severable and the Agreement shall be interpreted and enforced as
if all completely invalid or unenforceable provisions were not contained in the
Agreement, and partially valid and enforceable provisions shall be enforced to
the extent that they are valid and enforceable.
39. Neither the Agreement nor any of its provisions may be waived,
modified or amended except by an instrument in writing signed by the parties
hereto.
40. The Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto; provided, however, the Agreement shall not be
assigned by either BKC
-16-
<PAGE> 17
or Distributor, without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, BKC and Distributor have executed the Agreement as
of the date first above written.
WITNESSES: BURGER KING CORPORATION (BKC)
- ------------------------- By:
---------------------------------
- ------------------------- Attest:
-----------------------------
WITNESSES:
BKDA CORPORATION (Distributor)
- -------------------------
By:
- ------------------------- ---------------------------------
Attest:
-----------------------------
Notices to Distributor should
be addressed as follows:
Address: 17777 Old Cutler Road,
Miami, Florida 33157
Attention: David Parker
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<PAGE> 18
EXHIBIT A
[MAP]
<PAGE> 19
EXHIBIT B
None
EXHIBIT C
None
<PAGE> 1
EXHIBIT 10.18
FORM OF AMENDMENT AGREEMENT
This Amendment Agreement is dated as of June 30, 1992 by and between
Burger King Corporation, a Florida corporation ("BKC"), and BKDA Corporation, a
Delaware corporation ("Distributor").
WHEREAS, BKC and Distributor are parties to the Distribution Agreement
dated the date hereof (the "Distributor Agreement") by which Distributor was
approved as a distributor of paper goods, restaurant supplies and food products
to the Burger King(R) system.
WHEREAS, BKC and Distributor recognize that the display on
Distributor's trailers of BKC owned or licensed trademarks, service marks and
associated graphics may provide substantial benefits to each party in that such
display may, from BKC's standpoint, provide greater exposure of the Burger
King(R) name in the form of "billboard-type" advertising, thus benefiting the
Burger King(R) system and, from Distributor's standpoint, such display may
generate goodwill from its Burger King(R) restaurant customers thus providing
substantial potential benefit to Distributor.
WHEREAS, Distributor has, pursuant to Paragraph 17 of the Distributor
Agreement, requested that BKC consent to the display on Distributor's trailers
of certain trademarks and service marks and associated graphics of BKC and,
because of the "billboard-type" advertising advantages
<PAGE> 2
associated therewith, BKC is willing to favorably consider this request.
WHEREAS, Distributor and BKC now wish to amend the Distributor
Agreement to provide the terms and conditions under which Distributor will be
permitted to display certain BKC trademarks, service marks and associated
graphics strictly for advertising purposes.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally
bound, BKC and Distributor hereby agree as follows:
1. Subject to strict compliance by Distributor with the terms and
conditions of this Amendment Agreement, BKC hereby consents to the use by
Distributor of the following trademarks, service marks and associated graphics:
Burger King(R) Bun Halves logo
2. (a) BKC hereby agrees and consents that Distributor may, for these
advertising purposes, place and display the Trademarks upon its trailers, or
the trailer portion of its trucks, in any of the locations designated by the
"Trademark Size and Location Standards" attached hereto as Exhibit A and made a
part hereof. The foregoing notwithstanding, the Trademarks may only appear a
maximum of three (3) times on each trailer and shall be in strict compliance
with the "Trademark Size and Location Standards"
-2-
<PAGE> 3
and "Authorized Trademark Standards" attached hereto as Exhibit B and made a
part hereof (collectively the "Standards").
(b) Distributor shall cause the following to be printed legibly
on all trailers bearing the Trademarks:
BURGER KING BUN HALVES LOGO is a (R) used with permission from
Burger King Corporation.
(c) BKC hereby agrees and consents that Distributor may also,
for these advertising purposes, place and display certain associated
graphics ("Graphics") upon its trailer or the trailer portion of its
trucks. The Graphics shall be only those which are contained in the BKC
listing of currently approved Graphics, which shall be available from
BKC to Distributor upon request. BKC reserves the right, in its sole
discretion, to add or delete individual Graphics and to designate the
manner in which particular individual Graphics may be used for these
advertising purposes, including but not limited to the geographic
distribution and/or the number of identical Graphics which an individual
distributor may display.
(d) For these advertising purposes, the Trademarks and Graphics
shall be applied to the trailer or the trailer portion of the truck in
that manner and using that material or standards which BKC may, in its
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<PAGE> 4
sole discretion, designate. In the event that BKC elects to require that the
Trademark and/or Graphics may only be obtained from or installed by one or more
approved suppliers, Distributor agrees that it will not utilize an unapproved
supplier/installer.
(e) Because these displays will, in effect, constitute mobile
advertising billboards, the Trademarks and Graphics shall, at all times,
project an "as new" appearance. In the event the Trademarks and/or Graphics
become deteriorated so as to negatively reflect on the Burger King image and
its associated advertising, as determined by BKC in its sole discretion,
Distributor agrees that it will promptly remove or replace such at Distributor's
expense.
(f) Distributor recognizes that BKC will, in its sole discretion
without cause or reason and without liability to Distributor, determine when
and if the Trademarks and/or Standards and/or the Graphics equally applicable to
all Burger King(R) approved distributors must be changed, altered or revised in
order to meet corporate advertising goals and, at such time, BKC can and will
require that Distributor either change, alter or revise the Trademarks and/or
Graphics as they appear upon its vehicles or, in the alternative, remove the
Trademarks and/or Graphics from said vehicles. Distributor agrees that it will
not deviate from the
-4-
<PAGE> 5
Standards without first submitting a written description of the proposed
deviation to the Senior Vice President, System Supply Management, BKC
and receiving the prior written consent to such deviation.
Distributor agrees that no other identification, trademarks, or
other advertisements including but not limited to Distributor's
corporate name, will appear on the trailer in conjunction with the
Burger King(R) Trademarks and any associated Graphics. Distributor
further agrees that it will prominently place its corporate name on the
tractor portion of the truck. Distributor shall take all additional
steps which are necessary and proper to advise the general public that
it is an independent contractor and is not an agent, partner, joint
venturer or employee of BKC and will further act in accordance with all
applicable governmental regulations.
(g) Distributor shall not place any other graphics, signage or
indicia on any trailer bearing the Trademarks without the prior written
consent of BKC.
3. Distributor agrees that vehicles upon which the Trademarks and
any Graphics are placed will not be used to pick up products from suppliers or
other parties where those products relate to end users other than the Burger
King system or to deliver products to any location other than Burger King(R)
Restaurants.
-5-
<PAGE> 6
4. Distributor agrees that it will make no usage whatsoever of the
Trademarks or any Graphics other than for the advertising purposes identified
in paragraph 2 above or otherwise in the Distributor Agreement.
5. This consent by BKC shall be for a period dating from the date set
forth on the first page through a period coterminous with the Distributor
Agreement. In the event of default by Distributor of the terms and conditions
contained in this Amendment Agreement or in the Distributor Agreement, BKC may
withdraw this consent immediately upon delivery to Distributor of notice of
such withdrawal. Upon withdrawal of this consent, Distributor shall take all
steps necessary to promptly remove the Trademarks and/or Graphics from its
truck.
6. The parties agree that Paragraph 12 of the Distributor Agreement
shall be and is hereby amended to read as follows:
"12. Distributor agrees to maintain, during the entire term of the
Agreement, commercial general liability coverage, including products
liability and contractual liability, in the minimum amount of $5,000,000
combined single limit per occurrence and also to maintain, during the
entire term of the Agreement, auto liability insurance in the minimum
amount of $5,000,000 combined single limit per occurrence. Distributor
shall promptly provide BKC with certificates of insurance evidencing
such coverage and naming BKC, its parent and subsidiaries as additional
insureds. Each certificate shall indicate that the coverage represented
thereby shall not be cancelled nor modified until at least ten (10) days
prior written notice has been given to BKC."
-6-
<PAGE> 7
7. Distributor and BKC acknowledge that each is an independent
contractor and neither is an agent, partner, joint venturer nor employee of the
other. The parties intend only that this agreement create mutual benefits
arising from the greater exposure to the public of BKC Trademarks and Graphics
and potential associated goodwill to the Distributor from its customers. The
parties specifically disclaim any and all intention to directly or indirectly
create a franchise relationship or any type of similarly defined relationship.
Distributor is not a franchisee of BKC. Distributor shall have no authority to
bind or otherwise obligate BKC in any manner nor shall Distributor represent to
anyone that it has a right to do so.
8. Distributor agrees that a breach of this Amendment Agreement shall
constitute a breach of the Distributor Agreement by which BKC may, pursuant to
the terms of Paragraph 18 of the Distributor Agreement, terminate both the
Amendment Agreement and the Distributor Agreement.
9. This Amendment Agreement shall become valid when executed and
accepted by BKC in Miami, Florida. BKC and Distributor agree that it shall be
deemed made and entered into in the State of Florida and shall be governed and
construed under and in accordance with the laws of the State of Florida. BKC and
Distributor acknowledge and agree
-7-
<PAGE> 8
that the U.S. District for the Southern District of Florida, or if such court
lacks jurisdiction, the 11th Judicial Circuit in and for Dade County, Florida,
shall be the venue and exclusive proper forum in which to adjudicate any case
or controversy arising either, directly or indirectly, under or in connection
with this Amendment Agreement and/or the Distributor Agreement and BKC and
Distributor further agree that, in the event of litigation arising out of or in
connection with these agreements in these courts, they will not contest or
challenge the jurisdiction or venue of these courts.
-8-
<PAGE> 9
IN WITNESS WHEREOF, BKC and Distributor have executed this Amendment
Agreement on the date first above written.
WITNESSES: BURGER KING CORPORATION
By:
- ------------------------------ ------------------------------
Vice President
Attest:
- ------------------------------ --------------------------
Assistant Secretary
(Corporate Seal)
WITNESSES: BKDA CORPORATION
- ------------------------------ ------------------------------
(Name)
By:
- ------------------------------ ------------------------------
Its:
-----------------------------
Attest:
--------------------------
Its:
-----------------------------
(Corporate Seal)
-9-
<PAGE> 10
EXHIBIT A
[Picture of Trucks with Burger King Logo]
<PAGE> 11
EXHIBIT A
[Picture of Truck with Burger King Logo]
<PAGE> 12
EXHIBIT A
[Picture of Truck with Burger King Skateboard Graphic]
<PAGE> 13
EXHIBIT A
[Picture of Truck with Hamburger Pictorial]
<PAGE> 14
EXHIBIT A
[Picture of Truck with Burger King Logo]
<PAGE> 15
EXHIBIT B
[Picture of Burger King Bun Halves Logo]
4. TRADEMARK GUIDELINES
Primary Company Logotype
The Bun Halves Logo is the primary logotype for Burger King Corporation. The
bold graphic forms provide the most highly visible and recognized identity for
the Company.
Authorized Graphic Design
The authorized Bun Halves Logo must consist of the stylized buns and typeface
as shown.
Authorized Colors
BURGER KING must appear in PMS #185 (red). The bun halves must appear in PMS
#123 (orange). *Where color is not available, black or reversed in white is
permissible.
Legal Definition and Usage
In addition to its functions as trademark and service mark the Bun Halves
Logo acts as an endorsement by Burger King Corporation of every product,
service, communication or other representation of the Company.
Trademark -- Use with [Registered Mark] on packaging for and advertising in
connection with hamburger sandwiches and soft drinks of all varieties.
Service Mark -- Use with [Registered Mark] for every phase of restaurant
service-for example, signage, menus, advertising, cups, wrappers, etc.
Other -- The logo may not be used on specialty items (such as pens, jewelry,
clothing and sporting articles) unless such use has prior written approval by
the Law Department. When so used on goods for which it is not registered,
it should have "TM" affixed.
* Exception: In order to facilitate restaurant service, condiment packages are
color coded. Catsup packets, PMS #185 (red). Mustard packets, in PMS #123
(orange). Relish packets, in PMS #347 (green). Salt packets, in PMS #123
(orange). Additionally, the packages of ICI BRR GRR frozen dessert carry the
Bun Halves Logo, and each is color coded according to its flavor.
<PAGE> 1
EXHIBIT 10.19
ADDENDUM TO FORMS OF
DISTRIBUTION AGREEMENT AND
AMENDMENT AGREEMENT
Amendments To Distribution Agreements
and Amendment Agreements as
Set Forth in the Exclusive Distributor Agreement,
dated June 30, 1992, as amended as of December 7, 1994,
between Burger King Corporation ("BKC") and BKDA Corporation (the "Company")
1. The provision of Section 2(d) of each of the Distribution
Agreements that permits the Purchasing Agent "to require the
payment of such reasonable sums from Distributor to the third
party Purchasing Agent as the third party deems appropriate in
compensation for the services provided by it" is amended as to
only require Distributor to collect from its customers which are
Burger King restaurants amounts that such customers may be
required to pay to the Purchasing Agent and remit such amounts to
the Purchasing Agent.
2. The limitation of liability in Section 27 of each of the
Distribution Agreements is amended to apply solely to breaches of
such Distribution Agreements and not to any other agreement
between BKC and Distributor.
3. Notwithstanding the terms and provisions of the Distribution
Agreements, BKC's right to terminate any Distribution Agreement
(or the Approval granted thereby) as a result of one or more
breaches or events giving rise to a right of termination pursuant
to the Distribution Agreements and BKC's right to terminate any
Amendment Agreement as a result of one or more breaches or events
giving rise to a right of termination pursuant to the Amendment
Agreements shall be subject to the provisions contained in
Section 16 of the Exclusive Distributor Agreement (see attached
Schedule I).
BKC also agrees not to terminate any Distribution Agreement
pursuant to Section 24 thereof unless the act or event giving
rise to such right also gives rise to a right to terminate the
Exclusive Distributor Agreement other than pursuant to a
provision thereof which bases termination upon termination of the
Distribution Agreements. BKC agrees that the requirements of the
Distribution Agreements will be applied on a basis no less
favorable to Distributor than they are applied to any other BKC
approved distributor.
4. The Company may, upon the approval of BKC, which shall not be
unreasonably withheld, close, replace or consolidate, a Service
Center, provided that the same or better service is provided at
the same or less cost.
5. Section 21 of each of the Distribution Agreements is amended to
reflect the agreement that such section is satisfied if the
Company continues to hold the approvals, permits and
<PAGE> 2
licenses that constitute in the Company's reasonable business
judgment all material permits required to operate the Business
(defined as the division, Burger King Distribution Services,
owned and operated by BKC prior to the sale of certain of its
assets and liabilities to the Company).
6. BKC represents and warrants and covenants that the scope and
terms of the license granted to the Company to use the trademark
"Burger King Bun Halves Logo" and associated graphics pursuant to
the Amendment Agreements is, and will be, no less favorable to
the Company than, and subject to no greater restrictions than,
the scope and terms of the license to use such property that is
granted to any other BKC approved distributor.
2
<PAGE> 3
SCHEDULE I
Section 16. If the Company repeatedly fails or
refuses to comply with any one or more of its obligations hereunder, resulting
in a material default which is incapable of being cured or which is capable of
being cured and is not cured promptly after notice of such default to the
Company (a "Breach"), BKC must give notice thereof to the Company, describing
the Breach, and must in that notice specify a date, not less than thirty (30)
days after the giving of the notice, on which this Agreement shall terminate
unless the Breach has by that date been substantially cured. If the Breach has
been substantially cured by the date so specified this Agreement shall not
terminate, but the occurrence of the Breach may be considered in determining
whether any subsequent failure or refusal to comply with the Company's
obligations constitutes a Breach; provided, however, that BKC may suspend its
approval (each, a "Suspension") of the Company to supply any Product (defined as
all items of Burger King approved food, paper, dairy, produce, uniforms, syrup
and other products) or Products from a Service Center (defined as a particular
distribution facility or warehouse operated by Burger King Distribution
Services) in accordance with the terms of the Distribution Agreements if, but
only so long as, in the judgment of BKC, either the Service Center or the
failure by the Company to comply with the performance standards or requirements
under the Distribution Agreements as they apply to the Service Center, the
Product or the Products, presents or is likely to present in the immediate
future an imminent danger to the consumer, to restaurant employees, to any third
party or to the Burger King System or is in violation of the requirements of
applicable government health, safety or sanitation standards. If any applicable
law or regulation requires a greater period for prior notice of termination, the
prior notice required by such law or regulation shall be substituted for the
notice requirements herein. The failure of BKC to terminate the Agreement upon
the occurrence of one or more Breaches by the Company in its performance of any
obligations hereunder shall not constitute a waiver or otherwise affect the
right of BKC to terminate the Agreement for any subsequent Breach. Furthermore,
failure by BKC to exercise any of its rights or remedies hereunder or to insist
on strict compliance by the Company with any of the terms hereof shall not
constitute a waiver of any of the terms or conditions hereof with respect to any
other or subsequent Breach nor shall it constitute a waiver by BKC of its right
at any time thereafter to require compliance with the terms hereof as provided
herein. The rights or remedies granted to BKC herein are in addition to any
other rights or remedies which may be granted by law.
In addition to the above, a Breach hereunder shall
be deemed to exist if any of the following events shall occur and be continuing:
(i) if a proceeding is instituted (and not dismissed within 60 days) by or
against either party under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law to be adjudicated a bankrupt or
insolvent; (ii) the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or similar official of all or a
substantial part of the assets of either party; (iii) the assignment for the
benefit of creditors of either party; (iv) if either party shall admit in
writing its inability to pay its debts as they become due; (v) the Annual
Statement (defined as a statement, prepared by the Company and submitted to BKC
on or before the 31st day of January of each year during the term of this
Agreement, certified by the chief financial officer of the Company as
3
<PAGE> 4
being correct and in compliance with the terms of this Agreement) is fraudulent;
or (vi) the Company shall no longer be a BKC approved distributor by reason of
the termination or expiration of the Distribution Agreements pursuant to the
terms thereof and hereof.
4
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of April 1, 1995, between ProSource
Services Corporation, a Delaware corporation (the "Company) and Daniel Adzia
(the "Employee").
The Company wishes to employ the Employee for the period, and upon the
terms and conditions, provided in this Agreement.
The Employee is willing to serve in the employ of the Company for such
period upon the terms and conditions hereinafter provided.
In consideration of the mutual promises and agreements set forth below,
the Company and the Employee agree as follows:
1. EFFECTIVENESS AND EMPLOYMENT. The Company shall employ the Employee
and the Employee shall be employed by the Company as of the date of this
Agreement (the "Commencement Date").
2. TERM. The term of this Agreement and the employment of the Employee
hereunder shall commence as of the Commencement Date, shall continue to the
third anniversary of such date, and automatically shall be extended for an
unlimited number of successive one-year periods unless (a) the Company or the
Employee gives notice to the other of its or his election not to extend the
employment of the Employee at least six months prior to the end of the initial
three-year term or the then current one-year extension period, as applicable, or
(b) the employment of the Executive is terminated as provided in Section 5.
3. POSITIONS AND DUTIES; PLACE OF PERFORMANCE.
(a) POSITIONS AND DUTIES. The Employee shall be employed as
President of the National Accounts Division of the Company and shall have the
duties, responsibilities and authority as may from time to time be assigned to
him by the Company's Board Of Directors (the "Board") that are consistent with
and normally associated with such position and, without additional compensation,
shall serve as a member of the Board and a member of the board of directors of
ProSource, Inc. ("PSI") and shall hold such offices at PSI as PSI's board of
directors determines. The Employee shall devote substantially all of his
business time, effort, and energies exclusively to the business of the Company
and PSI, and shall not serve as an active principal or a director or officer of
any other company or entity without the prior written consent of the Board,
except that the Employee may serve, without such consent, as a director or
officer of any company on the board of
<PAGE> 2
2
which he is currently serving and of any trade association, civic, educational
or charitable organization unless the Board determines that such service
interferes with the performance of Employee's duties hereunder.
(b) PLACE OF PERFORMANCE. The Employee shall be based in the
Chicago, Illinois or Miami, Florida metropolitan areas, or at such other
location as the Board and the Employee may agree, except for required travel on
the Company's business.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the employment term, the Company shall
pay the Employee a base salary at the annual rate of $300,000 per year (the
"Base Salary"), payable in accordance with the Company's normal payroll
practices for senior executives. The Board shall review the Base Salary
annually; Employee shall be entitled to such increases in his Base Salary as may
be determined from time to time by the Board or pursuant to its delegation. If
the Base Salary is increased, the new salary shall thereafter constitute the
"Base Salary" for purposes of this Agreement.
(b) BONUSES. In addition to Base Salary, the Employee may
receive a cash bonus. The bonus shall be determined in accordance with any
applicable executive management bonus or incentive compensation plan in effect
at the date of determination or, if no such plan is in effect, by the Board or
the appropriate committee thereof, in its sole discretion.
(c) OTHER BENEFIT PLANS AND FRINGE BENEFITS. The Employee
shall be eligible to (i) participate in PSI's Management Option Plan (1995),
(ii) participate in all employee benefit plans maintained by the Company for its
senior management executives during the employment term, (iii) receive all
fringe benefits for which his status and level of employment qualify him in
accordance with the Company's usual plans, policies, and arrangements, and (iv)
be reimbursed for up to $6,000 for actual expenses incurred for, among other
things, financial consulting and tax planning and preparation services and legal
advice.
(d) VACATION. Employee shall be entitled to four weeks of paid
vacation annually. Employee shall determine, in his reasonable discretion, the
timing of such vacation.
(e) AUTOMOBILE. During the term of his employment, the Company
shall pay to Employee an automobile allowance of $1,100 per month. Employee
shall be responsible for all costs of acquiring, maintaining and operating the
automobile used by him, including, but not limited to, the costs of insurance
on, maintenance of, and fuel for, the automobile, without any reimbursement by
the Company.
<PAGE> 3
3
(f) INITIATION FEES/CLUB DUES. The Employee shall receive
$7,000 each year for club memberships, including country clubs, luncheon clubs,
health clubs, and airline travel clubs.
5. TERMINATION.
(a) COMPENSATION AND BENEFITS. Except as otherwise provided in
this Section or Section 7, upon termination of the Employee's employment
hereunder, his right to compensation hereunder shall cease except that the
Employee shall be entitled to receive his Base Salary and benefits up to the
Date of Termination (as defined in Section 5(e)) or for the period required by
law, except that any bonus payable pursuant to Section 4(b) shall be prorated to
the Date of Termination.
(b) DEATH AND DISABILITY. The Employee's employment hereunder
shall terminate upon his death and may be terminated by the Company due to
Employee's Disability. For purposes of this Agreement, "Disability" shall mean
the determination by the Board that the Employee is physically or mentally
incapacitated and has been unable for a period of six consecutive months, or for
shorter periods aggregating six months in any period of 12 consecutive months,
to perform the duties for which he was responsible immediately before the onset
of his incapacity. To assist the Board in making such a determination, the
Employee shall, as reasonably requested by the Board, (i) make himself available
for medical examinations, without cost to the Employee, by a physician chosen by
the Board and approved by the Employee, whose approval shall not unreasonably be
withheld, and (ii) grant the Board and any such physician access to all relevant
medical information concerning him, arrange to furnish copies of medical records
to such physician, and use his best efforts to cause his own physicians to be
available to discuss his health with such physician. The determination of the
physician chosen in accordance with the preceding sentence shall be final and
binding on the Company and the Employee.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Employee's
employment hereunder may be terminated by the Company for Cause. For purposes of
this Agreement, the term "Cause" shall mean (i) the Employee's conviction of a
crime involving actual dishonesty against the Company or any of its affiliates,
(ii) gross negligence or gross misconduct by the Employee against the Company or
another employee, or in carrying out his duties and responsibilities, or (iii) a
breach of the provisions of Section 6(a) or (b) hereof that is harmful to the
Company or any of its affiliates. In any case described in this Section 5(c),
the Board shall give the Employee written notice, in accordance with Section
5(e), that the Company intends to terminate his employment for Cause (the
"Preliminary Cause Notice"). The Preliminary Cause Notice shall specify the
particular act or acts or failure to act that is or are the basis for the
decision to so terminate the Employee's employment for Cause. The Board shall
give the Employee an opportunity to meet with the Board to defend such act or
acts or failure to act within 30 calendar days of Employee's receipt of such
notice and to correct such act or
<PAGE> 4
4
failure to act within 30 business days following such meeting. If the Employee
fails to correct such act or failure to act within the 30 business days
following the meeting, the Employee's employment by the Company shall be
terminated under this Section 5(c) for Cause as of the Date of Termination.
(d) COMPENSATION UPON TERMINATION WITHOUT CAUSE OR FOR
DISABILITY. If the Company terminates the Employee's employment hereunder for
disability in accordance with Section 5(b) or without Cause:
(A) In addition to the amounts paid to the Employee
pursuant to Section 5(a), in lieu of any further salary payments to the
Employee for any period subsequent to the Date of Termination, the
Company shall, subject to Section 7, pay to the Employee, during the
Severance Period (as defined in Paragraph (E) below), an amount equal
to the product of
(x) the Severance Fraction (as defined in Paragraph (E)
below) and
(y) the sum of (1) of Employee's annual Base Salary in
effect as of the Date of Termination plus (2) an
amount equal to the pro rata portion (based upon the
portion of the year prior to the Date of Termination)
of the actual incentive payment that Employee would
have received under the management incentive plan for
the year in which the Date of Termination occurs but
for Employee's termination.
The amount described in clause (1) of this Paragraph (A) shall be paid
in substantially equal monthly payments during the Severance Period,
except that the Company may determine, in its sole discretion, to pay
such amount (or any portion remaining during such period if periodic
payments have commenced) in a single lump sum in cash or, if so
requested by the Employee, in two lump sums. The amount described in
clause (2) of this Paragraph (A) shall be paid at the same time as
payments are or would have been made under the incentive plan in effect
on the Date of Termination.
(B) During the Severance Period, the Company shall
continue to provide the Employee (and his eligible dependents, if any)
with (1) group health and life insurance benefits and long-term
disability insurance coverage (or the economic equivalent thereof) at
the level in effect on the Date of Termination, (2) the perquisite
allowance referred to in Section 4(c)(iv), and (3) the benefits
referred to in Sections 4(e) and 4(f); provided that if the Employee is
employed by another employer within the Severance Period such benefits
and insurance coverage shall cease except for insurance coverage for
conditions existing on the date of employment by an employer other than
the Company, and further provided that, at the expiration of the
extended period of insurance coverage provided under this
<PAGE> 5
5
clause (i)(B), the Employee (and his eligible dependents, if any) shall
be entitled to the full period of coverage provided him under Section
4980B of the Internal Revenue Code of 1986, as amended unless other
employment has been obtained.
(C) The Company shall reimburse Employee for actual costs
incurred in seeking reemployment, including costs of outplacement,
services up to a maximum of $25,000.
(D) Unless Employee has in fact vested under any retirement
plan then in effect, Employee shall be deemed to have been employed by
the Company for the minimum number of years required to vest under such
plans.
(E) The Severance Period shall be the period commencing on the
Date of Termination and ending on the later of (i) the date on which
this Agreement and the employment of the Employee would have expired
pursuant to Section 2 but for its termination pursuant to this Section
5 or (ii) the date that is 18 months after the Date of Termination. The
Severance Fraction is the quotient obtained by dividing the number of
whole months in the Severance Period by 12.
(e) NOTICE OF TERMINATION; DATE OF TERMINATION. Any
termination of the Employee's employment pursuant to this Section 5, other than
by reason of his death, shall be communicated by the terminating party by a
written notice of termination (the "Notice of Termination"). The Notice of
Termination shall (i) indicate the specific termination provision in this
Agreement upon which the termination is based, (ii) unless such termination is
without cause pursuant to Section 5(d), set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated, and (iii) specify the Date of
Termination. For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Employee's employment is terminated by his death, the date of his
death, and (ii) in all other cases, the later of the date of actual receipt of
the Notice of Termination and the date specified in such notice. The Date of
Termination shall not occur prior to the completion of the cure period described
in Section 5(c) if termination is for Cause.
6. COVENANTS.
(a) CONFIDENTIALITY. The Employee acknowledges that he has
acquired and will acquire confidential information respecting the business of
the Company. Accordingly, the Employee agrees that he will not willfully
disclose, at any time (during the term of his employment or thereafter), any
such confidential information to any unauthorized third party without the
consent of the Company as authorized by the Board. For this purpose, information
shall be considered confidential only if such information is proprietary to the
Company and has not been made publicly available prior to its disclosure by the
Employee.
<PAGE> 6
6
(b) COMPETITIVE ACTIVITY. (i) The Employee shall not, without
the written consent of the Board, during the employment term and for eighteen
months following the date on which his employment hereunder terminates (or until
the end of the Severance Period, whichever is longer), directly, individually or
as an employee, agent, partner, shareholder, consultant or in any other
capacity, participate in, engage in or have a financial interest or management
position or other interest in any business operation or any enterprise that is
in direct competition with the Company or any of its subsidiaries. The ownership
of an interest constituting not more than 1% of the outstanding debt or equity
in a corporation the shares of which are traded on a recognized stock exchange
or trade in the over-the-counter market, even though that corporation may be a
competitor of the Company or any of its subsidiaries, shall not be deemed
financial participation in a competitor.
(ii) The Employee shall not, without the written consent of
the Board, during the employment term and for eighteen months following the date
on which his employment hereunder terminates (or until the end of the Severance
Period, whichever is longer), directly or indirectly, either for his own benefit
or for the benefit of any other person, solicit to take away, or take away any
customers doing business with the Company on the date on which his employment
hereunder terminates, or who were being solicited to become customers as of the
date on which his employment hereunder terminates, or recruit, induce, or
encourage any employee of the Company or any affiliate of the Company to
terminate such employee's employment with the Company or such affiliate, except
that nothing herein shall prohibit the Employee from giving a reference or a
recommendation to any third party with respect to any such employee.
(c) REMEDY FOR BREACH AND MODIFICATION. The Employee
acknowledges that the provisions of this Section 6 are reasonable and necessary
for the protection of the Company and that the Company will be irrevocably
damaged if such provisions are not specifically enforced. Accordingly, the
Employee agrees that, in addition to any other relief or remedies available to
the Company, the Company shall be entitled to seek and obtain an appropriate
injunction or other equitable remedy from a court with proper jurisdiction for
the purposes of restraining the Employee from any actual or threatened breach of
such provisions, and no bond or security will be required in connection
therewith. If any provision of this Section 6 is deemed invalid or
unenforceable, such provision shall be deemed modified and limited to the extent
necessary to make it valid and enforceable.
7. SECTION 280G PAYMENTS. If the aggregate present value of the
Employee's payments under this Agreement, and any plan, program, or arrangement
maintained by the Company constitutes an "excess parachute payment" (within the
meaning of Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "Code")) and the excise tax on such payment would cause the net parachute
payments (after taking into account federal, state and local income and excise
taxes) to which the Employee otherwise would be entitled to be less than what
the Employee would have netted (after taking into
<PAGE> 7
7
account federal, state and local income taxes) had the present value of his
total parachute payments equaled $1.00 less than three times his "base amount"
(within the meaning of Code Section 280(G)(b)(3)(A)), the Employee's total
"parachute payments" (within the meaning of Code Section 280G(b)(2)(A)) shall be
reduced (by the minimum possible amount) so that their aggregate present value
equals $1.00 less than three times such base amount. For purposes of this
calculation, it shall be assumed that the Employee's tax rate will be the
maximum marginal federal, state and local income tax rate on earned income, with
such maximum federal rate to be computed with regard to Code Section 1(g), if
applicable. If the Employee and the Company are unable to agree as to the amount
of the reduction described above, if any, the Employee shall select a law firm
or accounting firm from among those regularly consulted (during the twelve-month
period immediately prior to the change in control that resulted in the
characterization of the payments as parachute payments) by the Company regarding
federal income tax or employee benefit matters and such law firm or accounting
firm shall determine the amount of such reduction and such determination shall
be final and binding upon the Employee and the Company.
8. INDEMNIFICATION. The Company shall indemnify, defend, and hold the
Employee harmless, to the maximum extent permitted by law, from any and all
claims, litigation, or suits arising out of the activities of the Employee
reasonably taken in the performance of his duties hereunder, including all
reasonable expenses and professional fees that may relate thereto. The Company
shall obtain a directors and officers liability insurance policy covering the
Employee in a sufficient amount to provide such indemnification if such coverage
is available on commercially reasonable terms and shall maintain such policy
during the Employment Term (and for so long thereafter as is practicable in the
circumstances taking into account the availability of such insurance).
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in that State.
(b) NOTICE. Any notice, consent, request or other
communication made or given in connection with this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or mailed by
registered or certified mail, return receipt requested, to those listed below at
their following respective addresses or at such other address as each may
specify by notice to the others:
To the Employee, to his attention at:
1020 West 31st Street
Downers Grove, Illinois 60515-5508
Telecopier: (708)
<PAGE> 8
8
To the Company:
ProSource Services Corporation
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attention: Chairman of the Board
Telecopier: (305) 529-2573
With copies to:
Onex Corporation
Canada Trust Tower
161 Bay Street - Suite 4900
Toronto, Ontario M5J 2S1 Canada
Attention: Mr. Anthony R. Melman
Telecopier: (416) 362-5765
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Telecopier: (212) 836-7149
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement shall
supersede any and all existing agreements between the Employee and the Company
or any of its affiliates relating to the terms of the Employee's employment
during the term of this Agreement. It may not be amended except by a written
agreement signed by both parties.
(d) WAIVER. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(e) ASSIGNMENT. Except as otherwise provided in this Section
9(e), this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, representatives, successors and
assigns. This Agreement shall not be assignable by the Employee and shall be
assignable by the Company only to any corporation or other entity resulting from
the reorganization, merger, or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged, or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reor-
<PAGE> 9
9
ganization, merger, consolidation, sale, exchange, or transfer (the provisions
of this sentence also being applicable to any successive such transaction).
(F) HEADINGS. Section headings are used herein for convenience
of reference only and shall not affect the meaning of any provision of this
Agreement.
(G) RULES OF CONSTRUCTION. Whenever the context so requires,
the use of the masculine gender shall be deemed to include the feminine and vice
versa, and the use of the singular shall be deemed to include the plural and
vice versa.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PROSOURCE SERVICES CORPORATION
By /s/ David R. Parker
--------------------------
David R. Parker,
Chairman of the Board
DANIEL ADZIA
/s/ Daniel Adzia
--------------------------
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated July 1, 1992, between BKDA
Corporation, a Delaware corporation (the "Company") and Paul Garcia de Quevedo
(the "Employee").
RECITALS
The Company wishes to employ the Employee for the period, and
upon the terms and conditions, provided in this Agreement.
The Employee is willing to serve in the employ of the Company
for such period upon the terms and conditions hereinafter provided.
In consideration of the mutual promises and agreements set
forth below, the Company and the Employee agree as follows:
1. EFFECTIVENESS AND EMPLOYMENT. The Company shall employ the
Employee and the Employee shall be employed by the Company as of the date of
this Agreement (the "Commencement Date").
2. TERM. The term of this Agreement and the employment of the
Employee hereunder shall commence as of the Commencement Date, shall continue to
the third anniversary of such date, and automatically shall be extended for an
unlimited number of successive one-year periods unless terminated (a) by the
Company or the Employee on the third anniversary or on any subsequent
anniversary of the Commencement Date upon the giving of written notice of such
party's intention to
<PAGE> 2
terminate at least six months prior to the Date of Termination, as defined in
Section 5(e), or (b) as provided in Section 5.
3. POSITIONS AND DUTIES; PLACE OF PERFORMANCE.
(a) POSITIONS AND DUTIES. The Employee shall be
employed as Chief Financial Officer of the Company and shall have the duties,
responsibilities and authority as may from time to time be assigned to him by
the Company's Board Of Directors (the "Board") that are consistent with and
normally associated with such position and, without additional compensation,
shall hold such offices at Onex Distribution, Inc. ("ODI") as ODI's board of
directors determines. The Employee shall devote substantially all of his
business time, effort, and energies exclusively to the business of the Company
and ODI, and shall not serve as an active principal or a director or officer of
any other company or entity without the prior written consent of the Board,
except that the Employee may serve, without such consent, as a director or
officer of any company on the board of which he is currently serving and of any
trade association, civic, educational or charitable organization unless the
Board determines that such service interferes with the performance of Employee's
duties hereunder.
(b) PLACE OF PERFORMANCE. The Employee shall be based
at Miami, Florida, except for required travel on the Company's business.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the employment term, the
Company shall pay the Employee a base salary at the annual rate of $130,000 per
year (the "Base Salary"), payable in accordance with the Company's normal
payroll practices for senior
2
<PAGE> 3
executives. The Board shall review the Base Salary annually; Employee shall be
entitled to such increases in his Base Salary as may be determined from time to
time by the Board or pursuant to its delegation. If the Base Salary is
increased, the new salary shall thereafter constitute the "Base Salary" for
purposes of this Agreement.
(b) BONUSES. In addition to Base Salary, the Employee
may receive a cash bonus. The bonus shall be determined in accordance with any
applicable executive management bonus or incentive compensation plan in effect
at the date of determination or, if no such plan is in effect, by the Board or
the appropriate committee thereof, in its sole discretion.
(c) OTHER BENEFIT PLANS AND FRINGE BENEFITS. The
Employee shall be eligible to (i) participate in ODI's Management Option Plan
(1992), (ii) participate in all employee benefit plans maintained by the Company
for its senior management executives during the employment term, (iii) receive
all fringe benefits for which his status and level of employment qualify him in
accordance with the Company's usual plans, policies, and arrangements, and (iv)
be reimbursed for up to $3,000 for actual expenses incurred for, among other
things, financial consulting and tax planning and preparation services and legal
advice.
(d) VACATION. Employee shall be entitled to four
weeks of paid vacation annually. Employee shall determine, in his reasonable
discretion, the timing of such vacation.
(e) AUTOMOBILE. During the term of his employment,
the Company shall pay to Employee on a monthly basis an amount equal to the
monthly
3
<PAGE> 4
lease payment, including sales taxes, for an automobile of his choice, the
"acquisition cost" of which does not exceed $30,000, exclusive of taxes, and for
a comparable replacement automobile on the third anniversary of the Commencement
Date and at the end of each three-year interval thereafter. The Company shall
pay the costs of insurance on, maintenance of, and fuel for, the automobile.
(f) INITIATION FEES/CLUB DUES. The Employee shall
receive $3,500 each year for club memberships, including country clubs, luncheon
clubs, health clubs, and airline travel clubs.
5. TERMINATION.
(a) COMPENSATION AND BENEFITS. Except as otherwise
provided in this Section or Section 7, upon termination of the Employee's
employment hereunder, his right to compensation hereunder shall cease except
that the Employee shall be entitled to receive his Base Salary and benefits up
to the Date of Termination (as defined in Section 5(e)) or for the period
required by law, except that any bonus payable pursuant to Section 4(b) shall be
prorated to the Date of Termination.
(b) DEATH AND DISABILITY. The Employee's employment
hereunder shall terminate upon his death and may be terminated by the Company
due to Employee's Disability. For purposes of this Agreement, "Disability" shall
mean the determination by the Board that the Employee is physically or mentally
incapacitated and has been unable for a period of six consecutive months, or for
shorter periods aggregating six months in any period of 12 consecutive months,
to perform the duties for which he was responsible immediately before the onset
of his incapacity. To assist
4
<PAGE> 5
the Board in making such a determination, the Employee shall, as reasonably
requested by the Board, (i) make himself available for medical examinations,
without cost to the Employee, by a physician chosen by the Board and approved by
the Employee, whose approval shall not unreasonably be withheld, and (ii) grant
the Board and any such physician access to all relevant medical information
concerning him, arrange to furnish copies of medical records to such physician,
and use his best efforts to cause his own physicians to be available to discuss
his health with such physician. The determination of the physician chosen in
accordance with the preceding sentence shall be final and binding on the Company
and the Employee.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The
Employee's employment hereunder may be terminated by the Company for Cause. For
purposes of this Agreement, the term "Cause" shall mean (i) the Employee's
conviction of a crime involving actual dishonesty against the Company or any of
its affiliates, (ii) gross negligence or gross misconduct by the Employee
against the Company or another employee, or in carrying out his duties and
responsibilities, or (iii) a breach of the provisions of Section 6(a) or (b)
hereof that is harmful to the Company or any of its affiliates. In any case
described in this Section 5(c), the Board shall give the Employee written
notice, in accordance with Section 5(e), that the Company intends to terminate
his employment for Cause (the "Preliminary Cause Notice"). The Preliminary Cause
Notice shall specify the particular act or acts or failure to act that is or are
the basis for the decision to so terminate the Employee's employment for Cause.
The Board shall give the Employee an opportunity to meet with the Board to
defend such act or acts or
5
<PAGE> 6
failure to act within 30 calendar days of Employee's receipt of such notice and
to correct such act or failure to act within 30 business days following such
meeting. If the Employee fails to correct such act or failure to act within the
30 business days following the meeting, the Employee's employment by the Company
shall be terminated under this Section 5(c) for Cause as of the Date of
Termination.
(d) COMPENSATION UPON TERMINATION WITHOUT CAUSE OR
FOR DISABILITY.
(i) If the Company terminates the Employee's
employment hereunder for disability in accordance with Section 5(b) or
without Cause:
(A) In addition to the amounts paid to the Employee
pursuant to Section 5(a), in lieu of any further salary payments to the
Employee for any period subsequent to the Date of Termination, the
Company shall pay to the Employee, during the one-year period
commencing on the Date of Termination, an amount equal to (1) the
Employee's annual Base Salary in effect as of the Date of Termination
plus (2) a cash bonus in an amount equal to the pro rata portion of the
actual incentive payment that Employee would have received under the
management incentive plan for the year in which the Date of Termination
occurs but for Employee's termination. Except as provided in Section 7,
the amount described in clause (1) of this Paragraph (A) shall be paid
in substantially equal monthly payments during the 12-month period
following the Date of Termination, except that the Company may
determine, in its sole discretion, to pay such amount (or any portion
remaining during such period if periodic payments have
6
<PAGE> 7
commenced) in a single lump sum in cash or, if so requested by the
Employee, in two lump sums. The amount described in clause (2) of this
Paragraph (A) shall be paid at the same time as payments are or would
have been made under the incentive plan in effect on the Date of
Termination.
(B) For the one-year period following the Date of
Termination, the Company shall continue to provide the Employee (and
his eligible dependents, if any) with (1) group health and life
insurance benefits and long-term disability insurance coverage (or the
economic equivalent thereof) at the level in effect on the Date of
Termination, (2) the perquisite allowance referred to in Section
4(c)(iv), and (3) the benefits referred to in Sections 4(e) and 4(f);
provided that if the Employee is employed by another employer within
such one-year period such benefits and insurance coverage shall cease
except for insurance coverage for conditions existing on the date of
employment by an employer other than the Company, and further provided
that, at the expiration of the extended period of insurance coverage
provided under this clause (i)(B), the Employee (and his eligible
dependents, if any) shall be entitled to the full period of coverage
provided him under Section 4980B of the Internal Revenue Code of 1986,
as amended unless other employment has been obtained.
(C) The Company shall reimburse Employee for actual
costs incurred in seeking reemployment, including costs of outplacement
services up to a maximum of $12,500.
7
<PAGE> 8
(e) NOTICE OF TERMINATION; DATE OF TERMINATION. Any
termination of the Employee's employment, other than by reason of his death,
shall be communicated by the terminating party by a written notice of termina-
tion (the "Notice of Termination"). The Notice of Termination shall (i) indicate
the specific termination provision in this Agreement upon which the termination
is based, (ii) set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated, and (iii) specify the Date of Termination. For
purposes of this Agreement, "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death, and
(ii) in all other cases, the later of the date of actual receipt of the Notice
of Termination and the date specified in such notice. The Date of Termination
shall not occur prior to the completion of the cure period described in Section
5(c) if termination is for Cause.
6. COVENANTS.
(a) CONFIDENTIALITY. The Employee acknowledges that
he has acquired and will acquire confidential information respecting the
business of the Company. Accordingly, the Employee agrees that he will not
willfully disclose, at any time (during the Employment Term or thereafter), any
such confidential information to any unauthorized third party without the
consent of the Company as authorized by the Board. For this purpose, information
shall be considered confidential only if such information is proprietary to the
Company and has not been made publicly available prior to its disclosure by the
Employee. There shall be no breach of this Section 6(a) if
8
<PAGE> 9
the disclosure does not have an adverse effect on the Company's business or
operations, or otherwise harm or damage the Company.
(b) COMPETITIVE ACTIVITY. (i) If Employee's
employment hereunder is terminated, Employee shall not, without the written
consent of the Board, during the twelve-month period following the Date of
Termination, directly, individually or as an employee, agent, partner,
shareholder, consultant or in any other capacity, participate in, engage in or
have a financial interest or management position or other interest in any
business operation or any enterprise that is in direct competition with the
Company. The ownership of an interest constituting not more than 1% of the
outstanding debt or equity in a corporation the shares of which are traded on a
recognized stock exchange or trade in the over-the-counter market, even though
that corporation may be a competitor of the Company or any of its subsidiaries,
shall not be deemed financial participation in a competitor.
(ii) The Employee shall not, without the written consent of
the Board, during the employment term and through the first anniversary of his
Date of Termination, directly or indirectly, either for his own benefit or for
the benefit of any other person, solicit to take away, or take away any
customers doing business with the Company on the Date of Termination or who were
being solicited to become customers as of the Date of Termination or recruit,
induce, or encourage any employee of the Company or any affiliate of the Company
to terminate such employee's employment with the Company or such affiliate,
except that nothing herein shall prohibit the Employee from
9
<PAGE> 10
giving a reference or a recommendation to any third party with respect to any
such employee.
(c) REMEDY FOR BREACH AND MODIFICATION. The Employee
acknowledges that the provisions of this Section 6 are reasonable and necessary
for the protection of the Company and that the Company will be irrevocably
damaged if such provisions are not specifically enforced. Accordingly, the
Employee agrees that, in addition to any other relief or remedies available to
the Company, the Company shall be entitled to seek and obtain an appropriate
injunction or other equitable remedy from a court with proper jurisdiction for
the purposes of restraining the Employee from any actual or threatened breach of
such provisions, and no bond or security will be required in connection
therewith. If any provision of this Section 6 is deemed invalid or
unenforceable, such provision shall be deemed modified and limited to the extent
necessary to make it valid and enforceable.
7. SECTION 280G PAYMENTS. If the aggregate present value of
the Employee's payments under this Agreement, and any plan, program, or
arrangement maintained by the Company constitutes an "excess parachute payment"
(within the meaning of Section 280G(b)(1) of the Internal Revenue Code of 1986,
as amended (the "Code")) and the excise tax on such payment would cause the net
parachute payments (after taking into account federal, state and local income
and excise taxes) to which the Employee otherwise would be entitled to be less
than what the Employee would have netted (after taking into account federal,
state and local income taxes) had the present value of his total parachute
payments equaled $1.00 less than three times his
10
<PAGE> 11
"base amount" (within the meaning of Code Section 280(G)(b)(3)(A)), the
Employee's total "parachute payments" (within the meaning of Code Section
280G(b)(2)(A)) shall be reduced (by the minimum possible amount) so that their
aggregate present value equals $1.00 less than three times such base amount. For
purposes of this calculation, it shall be assumed that the Employee's tax rate
will be the maximum marginal federal, state and local income tax rate on earned
income, with such maximum federal rate to be computed with regard to Code
Section 1(g), if applicable. If the Employee and the Company are unable to agree
as to the amount of the reduction described above, if any, the Employee shall
select a law firm or accounting firm from among those regularly consulted
(during the twelve-month period immediately prior to the change in control that
resulted in the characterization of the payments as parachute payments) by the
Company regarding federal income tax or employee benefit matters and such law
firm or accounting firm shall determine the amount of such reduction and such
determination shall be final and binding upon the Employee and the Company.
8. INDEMNIFICATION. The Company shall indemnify, defend, and
hold the Employee harmless, to the maximum extent permitted by law, from any and
all claims, litigation, or suits arising out of the activities of the Employee
reasonably taken in the performance of his duties hereunder, including all
reasonable expenses and professional fees that may relate thereto. The Company
shall obtain a directors and officers liability insurance policy covering the
Employee in a sufficient amount to provide such indemnification if such coverage
is available on commercially reasonable terms and shall maintain such policy
during the Employment Term (and for so long thereafter
11
<PAGE> 12
as is practicable in the circumstances taking into account the availability of
such insurance).
12
<PAGE> 13
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Florida applicable
to agreements made and to be performed in that State.
(b) NOTICE. Any notice, consent, request or other
communication made or given in connection with this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or mailed by
registered or certified mail, return receipt requested, to those listed below at
their following respective addresses or at such other address as each may
specify by notice to the others:
To the Employee, to his attention at:
17777 Old Cutler Road
Miami, Florida 33157
Telephone: (305) 378-7871
Telecopy: (305) 378-7866
To the Company:
BKDA Corporation
17777 Old Cutler Road
Miami, Florida 33157
Attention: President
Telephone: (305) 378-7181
Telecopy: (305) 378-7866
13
<PAGE> 14
With copies to:
Anthony R. Melman
Vice President
Onex Corporation
Canada Trust Tower
161 Bay Street - Suite 4900
Toronto, Ontario
M5J 2S1
Canada
Telephone: (416) 362-7911
(416) 362-7711
Telecopy: (416) 362-5765
(416) 362-0237
Joel I. Greenberg, Esq.
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Telephone: (212) 836-8201
Telecopy: (212) 836-8959
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement shall
supersede any and all existing agreements between the Employee and the Company
or any of its affiliates relating to the terms of the Employee's employment
during the Employment Term. It may not be amended except by a written agreement
signed by both parties.
(d) WAIVER. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver thereof or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
14
<PAGE> 15
(e) ASSIGNMENT. Except as otherwise provided in this
Section 9(e), this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, representatives, successors and
assigns. This Agreement shall not be assignable by the Employee and shall be
assignable by the Company only to any corporation or other entity resulting from
the reorganization, merger, or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged, or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange, or transfer
(the provisions of this sentence also being applicable to any successive such
transaction).
(f) HEADINGS. Section headings are used herein for
convenience of reference only and shall not affect the meaning of any provision
of this Agreement.
(g) RULES OF CONSTRUCTION. Whenever the context so
requires, the use of the masculine gender shall be deemed to include the
feminine and vice versa, and the use of the singular shall be deemed to include
the plural and vice versa.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
By and on behalf of
BKDA CORPORATION
By: Thomas C. Highland, President
By /s/ Thomas C. Highland
__________________________
PAUL GARCIA de QUEVEDO
/s/ Paul Garcia de Quevedo
______________________________
16
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of July 1, 1995, between ProSource
Services Corporation, a Delaware corporation (the "Company) and Dennis
Andruskiewicz (the "Employee").
The Company wishes to employ the Employee for the period, and upon the
terms and conditions, provided in this Agreement.
The Employee is willing to serve in the employ of the Company for such
period upon the terms and conditions hereinafter provided.
In consideration of the mutual promises and agreements set forth below,
the Company and the Employee agree as follows:
1. EFFECTIVENESS AND EMPLOYMENT. The Company shall employ the Employee
and the Employee shall be employed by the Company as of the date of this
Agreement (the "Commencement Date").
2. TERM. The term of this Agreement and the employment of the Employee
hereunder shall commence as of the Commencement Date, shall continue to the
first anniversary of such date, and automatically shall be extended for an
unlimited number of successive one-year periods unless (a) the Company or the
Employee gives notice to the other of its or his election not to extend the
employment of the Employee at least six months prior to the end of the initial
one-year term or the then current one-year extension period, as applicable, or
(b) the employment of the Executive is terminated as provided in Section 5.
3. POSITIONS AND DUTIES; PLACE OF PERFORMANCE.
(a) POSITIONS AND DUTIES. The Employee shall be employed as
Vice President -- Operations of the National Accounts Division of the Company
and shall have the duties, responsibilities and authority as may from time to
time be assigned to him by the Company's Board Of Directors (the "Board"), the
Chairman of the Board of the Company or the President of the National Accounts
Division that are consistent with and normally associated with such position.
The Employee shall devote substantially all of his business time, effort, and
energies exclusively to the business of the Company, and shall not serve as an
active principal or a director or officer of any other company or entity without
the prior written consent of the Board, except that the Employee may serve,
without such consent, as a director or officer of any company on the board of
which he is currently
<PAGE> 2
2
serving and of any trade association, civic, educational or charitable
organization unless the Board determines that such service interferes with the
performance of Employee's duties hereunder.
(b) PLACE OF PERFORMANCE. The Employee shall be based in the
Chicago, Illinois or Miami, Florida metropolitan areas, or at such other
location as the Board and the Employee may agree, except for required travel on
the Company's business.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the employment term, the Company shall
pay the Employee a base salary at the annual rate of $__0,000 per year (the
"Base Salary"), payable in accordance with the Company's normal payroll
practices for senior executives. The Board shall review the Base Salary
annually; Employee shall be entitled to such increases in his Base Salary as may
be determined from time to time by the Board or pursuant to its delegation. If
the Base Salary is increased, the new salary shall thereafter constitute the
"Base Salary" for purposes of this Agreement.
(b) BONUSES. In addition to Base Salary, the Employee may
receive a cash bonus. The bonus shall be determined in accordance with any
applicable executive management bonus or incentive compensation plan in effect
at the date of determination or, if no such plan is in effect, by the Board or
the appropriate committee thereof, in its sole discretion.
(c) OTHER BENEFIT PLANS AND FRINGE BENEFITS. The Employee
shall be eligible to (i) participate in ProSource Inc.'s Management Option Plan
(1995), (ii) participate in all employee benefit plans maintained by the Company
for its senior management executives during the employment term, and (iii)
receive all fringe benefits for which his status and level of employment qualify
him in accordance with the Company's usual plans, policies, and arrangements.
(d) VACATION. Employee shall be entitled to four weeks of paid
vacation annually. Employee shall determine, in his reasonable discretion, the
timing of such vacation.
(e) AUTOMOBILE. During the term of his employment, the Company
shall pay to Employee an automobile allowance of $850 per month. Employee shall
be responsible for all costs of acquiring, maintaining and operating the
automobile used by him, including, but not limited to, the costs of insurance
on, maintenance of, and fuel for, the automobile, without any reimbursement by
the Company.
<PAGE> 3
3
(f) INITIATION FEES/CLUB DUES. The Employee shall receive
$3,000 each year for club memberships, including country clubs, luncheon clubs,
health clubs, and airline travel clubs.
5. TERMINATION.
(a) COMPENSATION AND BENEFITS. Except as otherwise provided in
this Section or Section 7, upon termination of the Employee's employment
hereunder, his right to compensation hereunder shall cease except that the
Employee shall be entitled to receive his Base Salary and benefits up to the
Date of Termination (as defined in Section 5(e)) or for the period required by
law, except that any bonus payable pursuant to Section 4(b) shall be prorated to
the Date of Termination.
(b) DEATH AND DISABILITY. The Employee's employment hereunder
shall terminate upon his death and may be terminated by the Company due to
Employee's Disability. For purposes of this Agreement, "Disability" shall mean
the determination by the Board that the Employee is physically or mentally
incapacitated and has been unable for a period of six consecutive months, or for
shorter periods aggregating six months in any period of 12 consecutive months,
to perform the duties for which he was responsible immediately before the onset
of his incapacity. To assist the Board in making such a determination, the
Employee shall, as reasonably requested by the Board, (i) make himself available
for medical examinations, without cost to the Employee, by a physician chosen by
the Board and approved by the Employee, whose approval shall not unreasonably be
withheld, and (ii) grant the Board and any such physician access to all relevant
medical information concerning him, arrange to furnish copies of medical records
to such physician, and use his best efforts to cause his own physicians to be
available to discuss his health with such physician. The determination of the
physician chosen in accordance with the preceding sentence shall be final and
binding on the Company and the Employee.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Employee's
employment hereunder may be terminated by the Company for Cause. For purposes of
this Agreement, the term "Cause" shall mean (i) the Employee's conviction of a
crime involving actual dishonesty against the Company or any of its affiliates,
(ii) gross negligence or gross misconduct by the Employee against the Company or
another employee, or in carrying out his duties and responsibilities, or (iii) a
breach of the provisions of Section 6(a) or (b) hereof that is harmful to the
Company or any of its affiliates. In any case described in this Section 5(c),
the Board shall give the Employee written notice, in accordance with Section
5(e), that the Company intends to terminate his employment for Cause (the
"Preliminary Cause Notice"). The Preliminary Cause Notice shall specify the
particular act or acts or failure to act that is or are the basis for the
decision to so terminate the Employee's employment for Cause. The Board shall
give the Employee an opportunity to meet with the Board to defend such act or
acts or failure to act within 30 calendar days of Employee's receipt of such
notice and to correct such act or
<PAGE> 4
4
failure to act within 30 business days following such meeting. If the Employee
fails to correct such act or failure to act within the 30 business days
following the meeting, the Employee's employment by the Company shall be
terminated under this Section 5(c) for Cause as of the Date of Termination.
(d) COMPENSATION UPON TERMINATION WITHOUT CAUSE OR FOR
DISABILITY. If the Company terminates the Employee's employment hereunder for
disability in accordance with Section 5(b) or without Cause:
(A) In addition to the amounts paid to the Employee
pursuant to Section 5(a), in lieu of any further salary payments to the
Employee for any period subsequent to the Date of Termination, the
Company shall, subject to Section 7, pay to the Employee, during the
Severance Period (as defined in Paragraph (E) below), an amount equal
to the sum of (1) the Employee's annual Base Salary in effect as of the
Date of Termination plus (2) an amount equal to the pro rata portion
(based upon the portion of the year prior to the Date of Termination)
of the actual incentive payment that Employee would have received under
the management incentive plan for the year in which the Date of
Termination occurs but for Employee's termination.
The amount described in clause (1) of this Paragraph (A) shall be paid
in substantially equal monthly payments during the Severance Period,
except that the Company may determine, in its sole discretion, to pay
such amount (or any portion remaining during such period if periodic
payments have commenced) in a single lump sum in cash or, if so
requested by the Employee, in two lump sums. The amount described in
clause (2) of this Paragraph (A) shall be paid at the same time as
payments are or would have been made under the incentive plan in effect
on the Date of Termination.
(B) During the Severance Period, the Company shall
continue to provide the Employee (and his eligible dependents, if any)
with (1) group health and life insurance benefits and long-term
disability insurance coverage (or the economic equivalent thereof) at
the level in effect on the Date of Termination, and (2) the benefits
referred to in Sections 4(e) and 4(f); provided that if the Employee is
employed by another employer within the Severance Period such benefits
and insurance coverage shall cease except for insurance coverage for
conditions existing on the date of employment by an employer other than
the Company, and further provided that, at the expiration of the
extended period of insurance coverage provided under this clause
(i)(B), the Employee (and his eligible dependents, if any) shall be
entitled to the full period of coverage provided him under Section
4980B of the Internal Revenue Code of 1986, as amended unless other
employment has been obtained.
<PAGE> 5
5
(C) The Company shall reimburse Employee for actual costs
incurred in seeking reemployment, including costs of outplacement,
services up to a maximum of $12,500.
(D) Unless Employee has in fact vested under any retirement
plan then in effect, Employee shall be deemed to have been employed by
the Company for the minimum number of years required to vest under such
plans.
(E) The Severance Period shall be the period commencing on the
Date of Termination and ending on the date that is 12 months after the
Date of Termination.
(e) NOTICE OF TERMINATION; DATE OF TERMINATION. Any
termination of the Employee's employment pursuant to this Section 5, other than
by reason of his death, shall be communicated by the terminating party by a
written notice of termination (the "Notice of Termination"). The Notice of
Termination shall (i) indicate the specific termination provision in this
Agreement upon which the termination is based, (ii) unless such termination is
without cause pursuant to Section 5(d), set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated, and (iii) specify the Date of
Termination. For purposes of this Agreement, "Date of Termination" shall mean
(i) if the Employee's employment is terminated by his death, the date of his
death, and (ii) in all other cases, the later of the date of actual receipt of
the Notice of Termination and the date specified in such notice. The Date of
Termination shall not occur prior to the completion of the cure period described
in Section 5(c) if termination is for Cause.
6. COVENANTS.
(a) CONFIDENTIALITY. The Employee acknowledges that he has
acquired and will acquire confidential information respecting the business of
the Company. Accordingly, the Employee agrees that he will not willfully
disclose, at any time (during the term of his employment or thereafter), any
such confidential information to any unauthorized third party without the
consent of the Company as authorized by the Board. For this purpose, information
shall be considered confidential only if such information is proprietary to the
Company and has not been made publicly available prior to its disclosure by the
Employee.
(b) COMPETITIVE ACTIVITY. (i) The Employee shall not, without
the written consent of the Board, during the employment term and for twelve
months following the date on which his employment hereunder terminates,
directly, individually or as an employee, agent, partner, shareholder,
consultant or in any other capacity, participate in, engage in or have a
financial interest or management position or other interest in any business
operation or any enterprise that is in direct competition with the Company or
any of its subsidiaries. The ownership of an interest constituting not more than
1% of the outstanding debt or equity in a corporation the shares of which are
traded on a recognized
<PAGE> 6
6
stock exchange or trade in the over-the-counter market, even though that
corporation may be a competitor of the Company or any of its subsidiaries, shall
not be deemed financial participation in a competitor.
(ii) The Employee shall not, without the written consent of
the Board, during the employment term and for twelve months following the date
on which his employment hereunder terminates, directly or indirectly, either for
his own benefit or for the benefit of any other person, solicit to take away, or
take away any customers doing business with the Company on the date on which his
employment hereunder terminates, or who were being solicited to become customers
as of the date on which his employment hereunder terminates, or recruit, induce,
or encourage any employee of the Company or any affiliate of the Company to
terminate such employee's employment with the Company or such affiliate, except
that nothing herein shall prohibit the Employee from giving a reference or a
recommendation to any third party with respect to any such employee.
(c) REMEDY FOR BREACH AND MODIFICATION. The Employee
acknowledges that the provisions of this Section 6 are reasonable and necessary
for the protection of the Company and that the Company will be irrevocably
damaged if such provisions are not specifically enforced. Accordingly, the
Employee agrees that, in addition to any other relief or remedies available to
the Company, the Company shall be entitled to seek and obtain an appropriate
injunction or other equitable remedy from a court with proper jurisdiction for
the purposes of restraining the Employee from any actual or threatened breach of
such provisions, and no bond or security will be required in connection
therewith. If any provision of this Section 6 is deemed invalid or
unenforceable, such provision shall be deemed modified and limited to the extent
necessary to make it valid and enforceable.
7. SECTION 280G PAYMENTS. If the aggregate present value of the
Employee's payments under this Agreement, and any plan, program, or arrangement
maintained by the Company constitutes an "excess parachute payment" (within the
meaning of Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "Code")) and the excise tax on such payment would cause the net parachute
payments (after taking into account federal, state and local income and excise
taxes) to which the Employee otherwise would be entitled to be less than what
the Employee would have netted (after taking into account federal, state and
local income taxes) had the present value of his total parachute payments
equaled $1.00 less than three times his "base amount" (within the meaning of
Code Section 280(G)(b)(3)(A)), the Employee's total "parachute payments" (within
the meaning of Code Section 280G(b)(2)(A)) shall be reduced (by the minimum
possible amount) so that their aggregate present value equals $1.00 less than
three times such base amount. For purposes of this calculation, it shall be
assumed that the Employee's tax rate will be the maximum marginal federal, state
and local income tax rate on earned income, with such maximum federal rate to be
computed with regard to Code Section 1(g), if applicable. If the Employee and
the Company are unable to agree as to the amount of the reduction described
above, if any, the Employee shall select a law firm or accounting
<PAGE> 7
7
firm from among those regularly consulted (during the twelve-month period
immediately prior to the change in control that resulted in the characterization
of the payments as parachute payments) by the Company regarding federal income
tax or employee benefit matters and such law firm or accounting firm shall
determine the amount of such reduction and such determination shall be final and
binding upon the Employee and the Company.
8. INDEMNIFICATION. The Company shall indemnify, defend, and hold the
Employee harmless, to the maximum extent permitted by law, from any and all
claims, litigation, or suits arising out of the activities of the Employee
reasonably taken in the performance of his duties hereunder, including all
reasonable expenses and professional fees that may relate thereto. The Company
shall obtain a directors and officers liability insurance policy covering the
Employee in a sufficient amount to provide such indemnification if such coverage
is available on commercially reasonable terms and shall maintain such policy
during the Employment Term (and for so long thereafter as is practicable in the
circumstances taking into account the availability of such insurance).
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in that State.
(b) NOTICE. Any notice, consent, request or other
communication made or given in connection with this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or mailed by
registered or certified mail, return receipt requested, to those listed below at
their following respective addresses or at such other address as each may
specify by notice to the others:
To the Employee, to his attention at:
1020 West 31st Street
Downers Grove, Illinois 60515-5508
Telecopier: (708)
<PAGE> 8
8
To the Company:
ProSource Services Corporation
550 Biltmore Way, 10th Floor
Coral Gables, Florida 33134
Attention: Chairman of the Board
Telecopier: (305) 529-2573
With copies to:
Onex Corporation
Canada Trust Tower
161 Bay Street - Suite 4900
Toronto, Ontario M5J 2S1 Canada
Attention: Mr. Anthony R. Melman
Telecopier: (416) 362-5765
Kaye, Scholer, Fierman, Hays & Handler
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Telecopier: (212) 836-7149
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement shall
supersede any and all existing agreements between the Employee and the Company
or any of its affiliates relating to the terms of the Employee's employment
during the term of this Agreement. It may not be amended except by a written
agreement signed by both parties.
(d) WAIVER. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver thereof or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(e) ASSIGNMENT. Except as otherwise provided in this Section
9(e), this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, representatives, successors and
assigns. This Agreement shall not be assignable by the Employee and shall be
assignable by the Company only to any corporation or other entity resulting from
the reorganization, merger, or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged, or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reor-
<PAGE> 9
9
ganization, merger, consolidation, sale, exchange, or transfer (the provisions
of this sentence also being applicable to any successive such transaction).
(f) HEADINGS. Section headings are used herein for convenience
of reference only and shall not affect the meaning of any provision of this
Agreement.
(g) RULES OF CONSTRUCTION. Whenever the context so requires,
the use of the masculine gender shall be deemed to include the feminine and vice
versa, and the use of the singular shall be deemed to include the plural and
vice versa.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PROSOURCE SERVICES CORPORATION
By /s/ David R. Parker
__________________________
David R. Parker,
Chairman of the Board
DENNIS ANDRUSKIEWICZ
/s/ Dennis Andruskiewicz
______________________________
<PAGE> 1
Exhibit 10.25
EMPLOYMENT AGREEMENT
Employment Agreement dated April 1, 1994, between ProSource Distribution
Services, a Delaware corporation (the "Company") and John E. Foley (the
"Employee").
RECITALS
The Company wishes to employ the Employee for the period, and upon the
terms and conditions, provided in this Agreement.
The Employee is willing to serve in the employ of the Company for such
period upon the terms and conditions hereinafter provided.
In consideration of the mutual promises and agreements set forth below,
the Company and the Employee agree as follows:
1. EFFECTIVENESS AND EMPLOYMENT. The Company shall employ the Employee and
the Employee shall be employed by the Company as of the date of this Agreement
(the "Commencement Date").
2. TERM. The term of this Agreement and the employment of the Employee
hereunder shall commence as of the Commencement Date, shall continue to the
third anniversary of such date, and automatically shall be extended for an
unlimited number of successive one-year periods unless terminated (a) by the
Company or the Employee on the third anniversary or on any subsequent
anniversary of the Commencement Date upon the giving of written notice of such
party's intention to terminate at least six months prior to the Date of
Termination, as defined in Section 5(e), or (b) as provided in Section 5.
1
<PAGE> 2
3. POSITIONS AND DUTIES; PLACE OF PERFORMANCE.
(a) POSITIONS AND DUTIES. The Employee shall be employed as Chief
Financial Officer, Senior Vice President of Finance and Systems of the Company
and shall have the duties, responsibilities and authority as may from time to
time be assigned to him by the Company's Board of Directors (the "Board") that
are consistent with and normally associated with such position and, without
additional compensation, shall hold such offices at Onex Distribution, Inc,
("ODI") as ODI's board of directors determines. The Employee shall devote
substantially all of his business time, effort, and energies exclusively to the
business of the Company and ODI, and shall not serve as an active principal or a
director or officer of any other company or entity without the prior written
consent of the Board, except that the Employee may serve, without such consent,
as a director or officer of any company on the board of which he is currently
serving and of any trade association, civic, educational or charitable
organization unless the Board determines that such service interferes with the
performance of Employee's duties hereunder.
(b) PLACE OF PERFORMANCE. The Employee shall be based at Miami,
Florida, except for required travel on the Company's business.
4. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the employment term, the Company shall pay the
Employee a base salary at the annual rate of $165,000 per year (the "Base
Salary"), payable in accordance with the Company's normal payroll practices for
senior executives. The Board shall review the Base Salary annually; Employee
shall be entitled to such increases in his Base Salary as may be determined from
time to time by the Board or pursuant to its delegation. If the Base Salary is
increased, the new salary shall thereafter constitute the "Base Salary" for
purposes of this Agreement. All such increases will be based upon Company Plan
performance and
2
<PAGE> 3
personal objectives as dictated by the President and CEO and Board of Directors
of the Company. In addition, ProSource will conduct a senior executive
compensation analysis to evaluate all senior management compensation. If such
analysis supports a salary adjustment, the Company shall, by July, 1996, take
the necessary action to make an adjustment with a target of $200,000 annually,
if all supportive criteria is achieved.
(b) BONUSES. In addition to Base Salary, the Employee may receive a
cash bonus. The bonus shall be determined in accordance with any applicable
executive management bonus or incentive compensation plan in effect at the date
of determination or, if no such plan is in effect, by the Board or the
appropriate committee thereof, in its sole discretion.
(c) OTHER BENEFIT PLANS AND FRINGE BENEFITS. The Employee shall be
eligible to (i) participate in ODI's Management Option Plan (1992), (ii)
participate in all employee benefit plans maintained by the Company for its
senior management executives during the employment term, (iii) receive all
fringe benefits for which his status and level of employment qualify him in
accordance with the Company's usual plans, policies, and arrangements, and (iv)
be reimbursed for up to $3,000 for actual expenses incurred for, among other
things, financial consulting and tax planning and preparation services and legal
advice.
(d) VACATION. Employee shall be entitled to three weeks of paid
vacation annually. Employee shall determine, in his reasonable discretion, the
timing of such vacation.
(e) AUTOMOBILE. During the term of his employment, the Company shall
pay to Employee on a monthly basis an amount of $850.00 for automobile
allowance. This allowance will cover the costs of insurance on, maintenance of,
lease
3
<PAGE> 4
of, if you desire to lease, and fuel for the automobile. Such allowance amount
will be reviewed annually.
(f) INITIATION FEES/CLUB DUES. The Employee shall receive $3,500
each year for club memberships, including country clubs, luncheon clubs, health
clubs, and airline clubs.
5. TERMINATION.
(a) COMPENSATION AND BENEFITS. Except as otherwise provided in this
Section or Section 7, upon termination of the Employee's employment hereunder,
his right to compensation hereunder shall cease except that the Employee shall
be entitled to receive his Base Salary and benefits up to the Date of
Termination (as defined in Section 5(e) or for the period required by law,
except that any bonus payable pursuant to Section 4(b) shall be prorated to the
Date of Termination.
(b) DEATH AND DISABILITY. The Employee's employment hereunder shall
terminate upon his death and may be terminated by the Company due to Employee's
Disability. For purposes of this Agreement, "Disability" shall mean the
determination by the Board that the Employee is physically or mentally
incapacitated and has been unable for a period of six consecutive months, or for
shorter periods aggregating six months in any period of 12 consecutive months,
to perform the duties for which he was responsible immediately before the onset
of his incapacity. To assist the Board in making such a determination, the
Employee shall, as reasonably requested by the Board, (i) make himself available
for medical examinations, without cost to the Employee, by a physical chosen by
the Board and approved by the Employee, whose approval shall not unreasonably be
withheld, and (ii) grant the Board and any such physician access to all relevant
medical information concerning him, arrange to furnish copies of medical records
to such physician, and use his best efforts to cause his own physicians to be
available to discuss his health with such physician. The
4
<PAGE> 5
determination of the physician chosen in accordance with the preceding sentence
shall be final and binding on the Company and the Employee.
(c) TERMINATION BY THE COMPANY FOR CAUSE. The Employee's employment
hereunder may be terminated by the Company for Cause. For purposes of this
Agreement, the term "Cause" shall mean (i) the Employee's conviction of a crime
involving actual dishonesty against the Company or any of its affiliates, (ii)
gross negligence or gross misconduct by the Employee against the Company or
another employee, or in carrying out his duties and responsibilities, or (iii) a
breach of the provisions of Section 6(a) or (b) hereof that is harmful to the
Company or any of its affiliates. In any case described in this Section 5(c),
the Board shall give the Employee written notice, in accordance with Section
5(e), that the Company intends to terminate his employment for Cause (the
"Preliminary Cause Notice"). The Preliminary Cause Notice shall specify the
particular act or acts or failure to act that is or are the basis for the
decision to so terminate the Employee's employment for Cause. The Board shall
give the Employee an opportunity to meet with the Board to defend such act or
acts or failure to act within 30 calendar days of Employee's receipt of such
notice and to correct such act or failure to act within 30 business days
following such meeting. If the Employee fails to correct such act or failure to
act within the 30 business days following the meeting, the Employee's employment
by the Company shall be terminated under this Section 5(c) for Cause as of the
Date of Termination.
(d) COMPENSATION UPON TERMINATION WITHOUT CAUSE OR FOR DISABILITY.
(i) If the Company terminates the Employee's employment
hereunder for disability in accordance with Section 5(b) or without Cause:
(A) In addition to the amounts paid to the Employee pursuant
to Section 5(a), in lieu of any further salary payments to the Employee for any
period
5
<PAGE> 6
subsequent to the Date of Termination, the Company shall pay to the Employee,
during the one-year period commencing on the Date of Termination, an amount
equal to (1) the Employee's annual Base Salary in effect as of the Date of
Termination plus (2) a cash bonus in an amount equal to the pro rata portion of
the actual incentive payment that Employee would have received under the
management incentive plan for the year in which the Date of Termination occurs
but for Employee's termination. Except as provided in Section 7, the amount
described in clause (1) of this Paragraph (A) shall be paid in substantially
equal monthly payments during the 12-month period following the Date of
Termination, except that the Company may determine, in its sole discretion, to
pay such amount (or any portion remaining during such period if periodic
payments have commenced) in a single lump sum in cash or, if so requested by the
Employee, in two lump sums. The amount described in clause (2) of this Paragraph
(A) shall be paid at the same time as payments are or would have been made under
the incentive plan in effect on the Date of Termination.
(B) For the one-year period following the Date of Termination,
the Company shall continue to provide the Employee (and his eligible dependents,
if any) with (1) group health and life insurance benefits and long-term
disability insurance coverage (or the economic equivalent thereof) at the level
in effect on the Date of Termination, (2) the perquisite allowance referred to
in Section 4(c)(iv), and (3) the benefits referred to in Sections 4(e) and 4(f);
provided that if the Employee is employed by another employer within such
one-year period such benefits and insurance coverage shall cease except for
insurance coverage for conditions existing on the date of employment by an
employer other than the Company, and further provided that, at the expiration of
the extended period of insurance coverage provided under this clause (i)(B), the
Employee (and his eligible dependents, if any) shall be entitled to the full
period of coverage provided him under Section 4980B of the
6
<PAGE> 7
Internal Revenue Code of 1986, as amended unless other employment has been
obtained.
(C) The Company shall reimburse Employee for actual costs
incurred in seeking reemployment, including costs of outplacement services up to
a maximum of $12,500.
(e) NOTICE OF TERMINATION; DATE OF TERMINATION. Any termination of
the Employee's employment, other than by reason of his death, shall be
communicated by the terminating party by a written notice of termination (the
"Notice of Termination"). The Notice of Termination shall (i) indicate the
specific termination provision in this Agreement upon which the termination is
based, (ii) set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee's employment under the
provision so indicated, and (iii) specify the Date of Termination. For purposes
of this Agreement, "Date of Termination" shall mean (i) if the Employee's
employment is terminated by his death, the date of his death, and (ii) in all
other cases, the later of the date of actual receipt of the Notice of
Termination and the date specified in such notice. The Date of Termination shall
not occur prior to the completion of the cure period described in Section 5(c)
if termination is for Cause.
6. COVENANTS.
(a) CONFIDENTIALITY. The Employee acknowledges that he has acquired
and will acquire confidential information respecting the business of the
Company. Accordingly, the Employee agrees that he will not willfully disclose,
at any time (during the Employment Term or thereafter), any such confidential
information to any unauthorized third party without the consent of the Company
as authorized by the Board. For this purpose, information shall be considered
confidential only if such information is proprietary to the Company and has not
been made publicly available
7
<PAGE> 8
prior to its disclosure by the Employee. There shall be no breach of this
Section 6(a) if the disclosure does not have an adverse effect on the Company's
business or operations, or otherwise harm or damage the Company.
(b) COMPETITIVE ACTIVITY. (i) If Employee's employment hereunder is
terminated, Employee shall not, without the written consent of the Board, during
the twelve-month period following the Date of Termination, directly,
individually or as an employee, agent, partner, shareholder, consultant or in
any other capacity, participate in, engage in or have a financial interest or
management position or other interest in any business operation or any
enterprise that is in direct competition with the Company. The ownership of an
interest constituting not more than 1% of the outstanding debt or equity in a
corporation the shares of which are traded on a recognized stock exchange or
trade in the over-the-counter market, even though that corporation maybe a
competitor of the Company or any of its subsidiaries, shall not be deemed
financial participation in a competitor.
(ii) The Employee shall not, without the written consent of
the Board, during the employment term and through the first anniversary of his
Date of Termination, directly or indirectly, either for his own benefit or for
the benefit of any other person, solicit to take away, or take away any
customers doing business with the Company on the Date of Termination or who were
being solicited to become customers as of the Date of Termination or recruit,
induce, or encourage any employee of the Company or any affiliate of the Company
to terminate such employee's employment with the Company or such affiliate,
except that nothing herein shall prohibit the Employee from giving a reference
or a recommendation to any third party with respect to any such employee.
8
<PAGE> 9
(c) REMEDY FOR BREACH AND MODIFICATION. The Employee acknowledges
that the provisions of this Section 6 are reasonable and necessary for the
protection of the Company and that the Company will be irrevocably damaged if
such provisions are not specifically enforced. Accordingly, the Employee agrees
that, in addition to any other relief or remedies available to the Company, the
Company shall be entitled to seek and obtain an appropriate injunction or other
equitable remedy from a court with proper jurisdiction for the purposes of
restraining the Employee from any actual or threatened breach of such
provisions, and no bond or security will be required in connection therewith. If
any provision of this Section 6 is deemed invalid or unenforceable, such
provision shall be deemed modified and limited to the extent necessary to make
it valid and enforceable.
7. SECTION 280G PAYMENTS. If the aggregate present value of the Employee's
payments under this Agreement, and any plan, program, or arrangement maintained
by the Company constitutes an "excess parachute payment" (within the meaning of
Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code")) and the excise tax on such payment would cause the net parachute
payments (after taking into account federal, state and local income and excise
taxes) to which the Employee otherwise would be entitled to be less than what
the Employee would have netted (after taking into account federal, state and
local income taxes) had the present value of his total parachute payments
equaled $1.00 less than three times his "base amount" (within the meaning of
Code Section 280(G)(b)(3)(A)), the Employee's total "parachute payments" (within
the meaning of Code Section 280G(b)(2)(A)) shall be reduced (by the minimum
possible amount) so that their aggregate present value equals $1.00 less than
three times such base amount. For purposes of this calculation, it shall be
assumed that the Employee's tax rate will be the maximum marginal federal, state
and local income tax rate on earned income, with
9
<PAGE> 10
such maximum federal rate to be computed with regard to Code Section 1(g), if
applicable. If the Employee and the Company are unable to agree as to the amount
of the reduction described above, if any, the Employee shall select a law firm
or accounting firm from among those regularly consulted (during the twelve-month
period immediately prior to the change in control that resulted in the
characterization of the payments as parachute payments) by the Company regarding
federal income tax or employee benefit matters and such law firm or accounting
firm shall determine the amount of such reduction and such determination shall
be final and binding upon the Employee and the Company.
8. INDEMNIFICATION. The Company shall indemnify, defend, and hold the
Employee harmless, to the maximum extent permitted by law, from any and all
claims, litigation, or suits arising out of the activities of the Employee
reasonably taken in the performance of his duties hereunder, including all
reasonable expenses and professional fees that may relate thereto. The Company
shall obtain a directors and officers liability insurance policy covering the
Employee in a sufficient amount to provide such indemnification if such coverage
is available on commercially reasonable terms and shall maintain such policy
during the Employment Term (and for so long thereafter as in practicable in the
circumstances taking into account the availability of such insurance).
9. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida applicable to agreements
made and to be performed in that State.
(b) NOTICE. Any notice, consent, request or other communication made
or given in connection with this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by registered or
certified
10
<PAGE> 11
mail, return receipt requested, to those listed below at their following
respective addressees or at such other address as each may specify by notices to
the others:
ProSource Distribution Services
550 Biltmore Way, 10th Floor
Coral Gables, FL 33134
(c) ENTIRE AGREEMENT; AMENDMENT. This Agreement shall supersede any
and all existing agreements between the Employee and the Company or any of its
affiliates relating to the terms of the Employee's employment during the
Employment Term. It may not be amended except by a written agreement signed by
both parties.
(d) WAIVER. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
(e) ASSIGNMENT. Except as otherwise provided in this Section 9(e),
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, representatives, successors and assigns. This
Agreement shall not be assignable by the Employee and shall be assignable by the
Company only to any corporation or other entity resulting from the
reorganization, merger, or consolidation of the Company with any other
corporation or entity or any corporation or entity to or with which the
Company's business or substantially all of its business or assets may be sold,
exchanged, or transferred, and it must be so assigned by the Company to, and
accepted as binding upon it by, such other corporation or entity in connection
with any such reorganization, merger, consolidation, sale, exchange, or transfer
(the provisions of this sentence also being applicable to any successive such
transaction).
11
<PAGE> 12
(f) HEADINGS. Section headings are used herein for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.
(g) RULES OF CONSTRUCTION. Whenever the context so requires, the use
of the masculine gender shall be deemed to include the feminine and vice versa,
and the use of the singular shall be deemed to include the plural and vice
versa.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
By and on behalf of
ProSource Distribution Services
By: David R. Parker, Chairman
By /s/David R. Parker
---------------------------------
By: Thomas C. Highland, President &
Chief Executive Officer
By /s/Thomas C. Highland
--------------------------------
By: John E. Foley
By /s/John E. Foley
--------------------------------
13
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company
<TABLE>
<CAPTION>
State or Other Name(s) Under
Jurisdiction Which Subsidiary
Subsidiary of Incorporation Does Business
- ---------- ---------------- ----------------
<S> <C> <C>
ProSource Services Corporation Delaware ProSource Distribution Services
ProSource Distribution Services Limited Canada None
BroMar Services, Inc. Delaware None
</TABLE>
<PAGE> 1
EXHIBIT 23.1
(KPMG Letterhead)
The Board of Directors and Stockholders
ProSource, Inc.:
The audits referred to in our report dated February 1, 1996, included the
related financial statement schedules as of December 30, 1995, and for each of
the years in the three-year period ended December 30, 1995, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Miami, Florida
September 6, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 9, 1994,
relating to the combined financial statements of the National Accounts
Division of The Martin-Brower Company, which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
September 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PROSOURCE, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-30-1996 DEC-30-1995
<PERIOD-END> JUN-29-1996 DEC-30-1995
<CASH> 2,750,000 2,325,000
<SECURITIES> 0 0
<RECEIVABLES> 218,986,000 230,089,000
<ALLOWANCES> 2,459,000 2,585,000
<INVENTORY> 149,218,000 140,432,000
<CURRENT-ASSETS> 394,151,000 387,880,000
<PP&E> 65,325,000 73,016,000
<DEPRECIATION> 23,953,000 20,509,000
<TOTAL-ASSETS> 502,004,000 489,173,000
<CURRENT-LIABILITIES> 280,606,000 271,964,000
<BONDS> 171,927,000 161,720,000
0 0
0 0
<COMMON> 1,000 1,000
<OTHER-SE> 32,711,000 49,420,000
<TOTAL-LIABILITY-AND-EQUITY> 502,004,000 489,173,000
<SALES> 2,014,074,000 3,461,837,000
<TOTAL-REVENUES> 2,014,074,000 3,461,837,000
<CGS> 1,859,000,000 3,193,270,000
<TOTAL-COSTS> 1,859,000,000 3,193,270,000
<OTHER-EXPENSES> 176,357,000 255,927,000
<LOSS-PROVISION> 960,000 1,845,000
<INTEREST-EXPENSE> 8,152,000 14,678,000
<INCOME-PRETAX> (28,569,000) (699,000)
<INCOME-TAX> 10,612,000 (85,000)
<INCOME-CONTINUING> (17,957,000) (784,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (722,000)
<CHANGES> 0 0
<NET-INCOME> (17,957,000) (1,556,000)
<EPS-PRIMARY> (339.34) (35.10)
<EPS-DILUTED> 0 0
</TABLE>
