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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2018
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or
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|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Delaware
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36-2229304
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $1.00 par value
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The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting Company
þ
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Emerging Growth Company
o
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Page #
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Product Category
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Percentage
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Fastening systems
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24%
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Cutting tools and abrasives
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15%
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Fluid power
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14%
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Specialty chemicals
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12%
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Electrical
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11%
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Aftermarket automotive supplies
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8%
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Safety
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5%
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Welding and metal repair
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2%
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Other
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9%
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100%
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Name
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Age
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Year First Elected to Present Office
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Position
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Michael G. DeCata
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61
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2012
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President and Chief Executive Officer
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Neil E. Jenkins
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69
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2004
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Executive Vice President, Secretary and General Counsel
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Ronald J. Knutson
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55
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2014
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Executive Vice President, Chief Financial Officer, Treasurer and Controller
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Matthew J. Brown
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55
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2017
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Senior Vice President, Sales
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Shane T. McCarthy
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50
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2015
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Senior Vice President, Supply Chain and Business Development
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Location
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Segment
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Function
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Approximate Square Footage
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Own/Lease
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Lease Expiration
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||
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United States
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Chicago, Illinois
(1)
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Lawson
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Headquarters
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86,300
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Lease
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March 2023
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McCook, Illinois
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Lawson
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Packaging/Distribution
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306,800
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Lease
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June 2022
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Reno, Nevada
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Lawson
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Distribution
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105,200
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Lease
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June 2024
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Suwanee, Georgia
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Lawson
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Distribution
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91,200
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Own
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Decatur, Alabama
(2)
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Lawson
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Lease
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88,200
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Own
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Dallas, TX
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Lawson
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Distribution
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5,000
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Lease
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October 2019
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Dayton, OH
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Lawson
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Distribution
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4,500
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Lease
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Monthly
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Canada
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Mississauga, Ontario
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Lawson
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Distribution
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78,000
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Own
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Calgary, Alberta
(3)
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Lawson/Bolt
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Distribution
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43,700
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Lease
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December 2021
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Calgary, Alberta (Foothills)
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Bolt
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Branch
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11,200
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Lease
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April 2024
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Calgary, Alberta (South)
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Bolt
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Branch
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10,300
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Lease
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November 2023
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Calgary, Alberta (North)
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Bolt
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Branch
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6,900
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Lease
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January 2024
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Edmonton, Alberta (North)
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Bolt
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Branch
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6,000
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Lease
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February 2022
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Edmonton, Alberta (South)
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Bolt
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Branch
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5,600
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Lease
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September 2023
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Fort McMurray, Alberta
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Bolt
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Branch
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7,500
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Lease
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March 2019
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Lethbridge, Alberta
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Bolt
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Branch
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3,400
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Own
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Medicine Hat, Alberta
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Bolt
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Branch
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4,900
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Own
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Prince Albert, Saskatchewan
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Bolt
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Branch
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4,300
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Lease
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October 2020
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Red Deer, Alberta
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Bolt
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Branch
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4,100
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Lease
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July 2020
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Regina, Saskatchewan
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Bolt
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Branch
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4,800
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Lease
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December 2019
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Saskatoon, Saskatchewan
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Bolt
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Branch
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10,800
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Lease
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May 2021
|
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Winnipeg, Manitoba
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Bolt
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Branch
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7,500
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Lease
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September 2025
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Port Kells, British Columbia
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Bolt
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Branch
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12,000
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Lease
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August 2023
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(1)
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We have sub-leased approximately 17,100 feet of the Chicago, Illinois headquarters through June 2019 (see Note 4 - Leases).
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(2)
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In connection with the sale of a discontinued business, we have agreed to lease the Decatur facility prior to the sale of the property (See Note 8 - Property, Plant and Equipment).
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(3)
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Lawson and Bolt manage separate distribution operations out of the same physical location.
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2018
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2017
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||||||||||||
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High
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Low
|
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High
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Low
|
||||||||
First Quarter
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$
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28.00
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|
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$
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22.25
|
|
|
$
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28.10
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$
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21.40
|
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Second Quarter
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26.85
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|
21.00
|
|
|
24.00
|
|
|
18.70
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||||
Third Quarter
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36.90
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23.19
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25.65
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19.30
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||||
Fourth Quarter
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34.89
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28.00
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26.44
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22.80
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Period
|
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(a)
Total number of shares (or units) purchased
|
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(b)
Average price paid per share (or unit)
|
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(c)
Total number of shares (or units) purchased as part of publicly announced plans or programs
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(d)
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
|
|||||
October 1 to October 31, 2018
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333
|
|
|
$
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29.44
|
|
|
—
|
|
|
—
|
|
November 1 to November 30, 2018
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
December 1 to December 31, 2018
|
|
16,179
|
|
|
31.60
|
|
|
—
|
|
|
—
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|
|
Three months ended December 31, 2018
|
|
16,512
|
|
|
|
|
—
|
|
|
|
|
(Dollars in thousands, except per share data)
|
||||||||||||||||||
|
2018
(1)
|
|
2017
(2)
|
|
2016
|
|
2015
(3)
|
|
2014
(4)
|
||||||||||
Net sales
|
$
|
349,637
|
|
|
$
|
305,907
|
|
|
$
|
276,573
|
|
|
$
|
275,834
|
|
|
$
|
285,693
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Income (loss) from continuing operations
|
$
|
6,214
|
|
|
$
|
29,688
|
|
|
$
|
(1,629
|
)
|
|
$
|
297
|
|
|
$
|
(6,061
|
)
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,692
|
|
|||||
Net income (loss)
|
$
|
6,214
|
|
|
$
|
29,688
|
|
|
$
|
(1,629
|
)
|
|
$
|
297
|
|
|
$
|
(4,369
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Diluted income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
||||||||||
Continuing operations
|
$
|
0.67
|
|
|
$
|
3.25
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.70
|
)
|
Discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.20
|
|
|||||
Net income (loss)
|
$
|
0.67
|
|
|
$
|
3.25
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Total assets
|
$
|
197,142
|
|
|
$
|
191,111
|
|
|
$
|
135,307
|
|
|
$
|
133,094
|
|
|
$
|
137,840
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Noncurrent liabilities
|
$
|
31,760
|
|
|
$
|
37,644
|
|
|
$
|
34,737
|
|
|
$
|
35,487
|
|
|
$
|
37,257
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Stockholders’ equity
|
$
|
99,173
|
|
|
$
|
93,490
|
|
|
$
|
61,133
|
|
|
$
|
61,264
|
|
|
$
|
61,855
|
|
(1)
|
The 2018 results from continuing operations reflect the inclusion of Bolt for the full year, as well as a $0.5 million increase in the estimated future remediation cost of an environmental matter involving land owned in Decatur, Alabama, that was part of a division that was previously sold.
|
(2)
|
The 2017 results from continuing operations include an income tax benefit of
$19.6 million
primarily as a result of releasing Deferred Tax Asset ("DTA") valuation reserves of
$21.2 million
at December 31, 2017. 2017 also includes a
$5.4 million
gain on the sale of the Fairfield, New Jersey distribution center.
|
(3)
|
The 2015 results from continuing operations include an expense of
$0.9 million
related to an increase in the estimated future remediation cost of an environmental matter involving land owned in Decatur, Alabama, that was part of a division that was previously sold.
|
(4)
|
The 2014 results from continuing operations include a
$3.0 million
impairment charge related to the Reno, Nevada, distribution center and a charge of
$0.3 million
related to the initial estimate of remediation of the environmental matter at the Decatur, Alabama, facility.
|
•
|
Acquisitions -
On October 1
st
, we acquired Screw Products, Inc., a regional MRO distributor with a presence in the Dallas, TX and Dayton, OH areas. We also completed the integration of Bolt Supply House, Ltd into our operations, including the opening of a new branch.
|
•
|
Lean Six Sigma
- Over the past four years we have had over 100 employees complete Lean Six Sigma training, which is a systematic data driven approach to analyzing and improving business processes.
|
•
|
Improved Operational Performance
- We continued to improve the fundamentals of our business, measured as improved customer service levels to our customers.
|
|
Year Ended December 31,
|
|
Year-to-Year
|
|||||||||||||||||
|
2018
|
|
2017
|
|
Change
|
|||||||||||||||
(Dollars in thousands)
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
% of Net Sales
|
|
Amount
|
|
%
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net sales
|
$
|
349,637
|
|
|
100.0
|
%
|
|
$
|
305,907
|
|
|
100.0
|
%
|
|
$
|
43,730
|
|
|
14.3
|
%
|
Cost of goods sold
|
160,097
|
|
|
45.8
|
|
|
122,889
|
|
|
40.2
|
|
|
37,208
|
|
|
30.3
|
|
|||
Gross profit
|
189,540
|
|
|
54.2
|
|
|
183,018
|
|
|
59.8
|
|
|
6,522
|
|
|
3.6
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Selling expenses
|
87,642
|
|
|
25.1
|
|
|
98,025
|
|
|
32.0
|
|
|
(10,383
|
)
|
|
(10.6
|
)
|
|||
General and administrative expenses
|
92,688
|
|
|
26.5
|
|
|
80,479
|
|
|
26.4
|
|
|
12,209
|
|
|
15.2
|
|
|||
Total SG&A
|
180,330
|
|
|
51.6
|
|
|
178,504
|
|
|
58.4
|
|
|
1,826
|
|
|
1.0
|
|
|||
Gain on sale of property
|
—
|
|
|
—
|
|
|
(5,422
|
)
|
|
(1.8
|
)
|
|
5,422
|
|
|
(100.0
|
)
|
|||
Total operating expenses
|
180,330
|
|
|
51.6
|
|
|
173,082
|
|
|
56.6
|
|
|
7,248
|
|
|
4.2
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Operating income
|
9,210
|
|
|
2.6
|
|
|
9,936
|
|
|
3.2
|
|
|
(726
|
)
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Interest expense
|
(1,009
|
)
|
|
(0.2
|
)
|
|
(622
|
)
|
|
(0.2
|
)
|
|
(387
|
)
|
|
|
||||
Other (expense) income, net
|
(1,338
|
)
|
|
(0.4
|
)
|
|
780
|
|
|
0.3
|
|
|
(2,118
|
)
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes
|
6,863
|
|
|
2.0
|
|
|
10,094
|
|
|
3.3
|
|
|
(3,231
|
)
|
|
|
|
|||
Income tax (benefit) expense
|
649
|
|
|
0.2
|
|
|
(19,594
|
)
|
|
(6.4
|
)
|
|
20,243
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income
|
$
|
6,214
|
|
|
1.8
|
%
|
|
$
|
29,688
|
|
|
9.7
|
%
|
|
$
|
(23,474
|
)
|
|
|
|
|
Year Ended December 31,
|
|
Increase (Decrease)
|
|||||||||||
(Dollars in thousands)
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
|
|
|
|
|
|
|
|||||||
Net sales
|
|
|
|
|
|
|
|
|||||||
Lawson
|
$
|
313,095
|
|
|
$
|
297,953
|
|
|
$
|
15,142
|
|
|
5.1
|
%
|
Bolt
(1)
|
36,542
|
|
|
7,954
|
|
|
28,588
|
|
|
359.4
|
%
|
|||
Consolidated
|
$
|
349,637
|
|
|
$
|
305,907
|
|
|
$
|
43,730
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|||||||
Gross profit
|
|
|
|
|
|
|
|
|||||||
Lawson
|
$
|
175,517
|
|
|
$
|
179,578
|
|
|
$
|
(4,061
|
)
|
|
(2.3
|
)%
|
Bolt
(1)
|
14,023
|
|
|
3,440
|
|
|
10,583
|
|
|
307.6
|
%
|
|||
Consolidated
|
$
|
189,540
|
|
|
$
|
183,018
|
|
|
$
|
6,522
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|||||||
Gross profit margin
|
|
|
|
|
|
|
|
|||||||
Lawson
|
56.1
|
%
|
|
60.3
|
%
|
|
|
|
|
|||||
Bolt
(1)
|
38.4
|
%
|
|
43.2
|
%
|
|
|
|
|
|||||
Consolidated
|
54.2
|
%
|
|
59.8
|
%
|
|
|
|
|
|
Year Ended December 31,
|
Increase (Decrease)
|
||||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
|
|
|
|
|
|
|
|||||||
Selling expenses
|
|
|
|
|
|
|
|
|||||||
Lawson
|
$
|
84,536
|
|
|
$
|
97,376
|
|
|
$
|
(12,840
|
)
|
|
(13.2
|
)%
|
Bolt
|
3,106
|
|
|
649
|
|
|
2,457
|
|
|
378.6
|
%
|
|||
Consolidated
|
$
|
87,642
|
|
|
$
|
98,025
|
|
|
$
|
(10,383
|
)
|
|
(10.6
|
)%
|
|
|
|
|
|
|
|
|
|||||||
General and administrative expenses
|
|
|
|
|
|
|
|
|||||||
Lawson
|
$
|
84,103
|
|
|
$
|
78,460
|
|
|
$
|
5,643
|
|
|
7.2
|
%
|
Bolt
|
8,585
|
|
|
2,019
|
|
|
6,566
|
|
|
325.2
|
%
|
|||
Consolidated
|
$
|
92,688
|
|
|
$
|
80,479
|
|
|
$
|
12,209
|
|
|
15.2
|
%
|
Quarterly Financial Covenants
|
|
Requirement
|
|
Actual
|
EBITDA to fixed charges ratio
|
|
1.10 : 1.00
|
|
3.46 : 1.00
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years ended December 31, 2018 and 2017
|
|
|
|
|
|
December 31,
|
||||||
|
2018
|
|
2017
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
11,883
|
|
|
$
|
4,416
|
|
Restricted cash
|
800
|
|
|
800
|
|
||
Accounts receivable, less allowance for doubtful accounts of $549 and $476, respectively
|
37,682
|
|
|
38,575
|
|
||
Inventories, net
|
52,887
|
|
|
50,928
|
|
||
Miscellaneous receivables and prepaid expenses
|
3,653
|
|
|
3,728
|
|
||
Total current assets
|
106,905
|
|
|
98,447
|
|
||
|
|
|
|
||||
Property, plant and equipment, less accumulated depreciation and amortization
|
23,548
|
|
|
27,333
|
|
||
Deferred income taxes
|
20,592
|
|
|
21,692
|
|
||
Goodwill
|
20,079
|
|
|
19,614
|
|
||
Cash value of life insurance
|
12,599
|
|
|
11,964
|
|
||
Intangible assets, net
|
13,112
|
|
|
11,813
|
|
||
Other assets
|
307
|
|
|
248
|
|
||
Total assets
|
$
|
197,142
|
|
|
$
|
191,111
|
|
|
|
|
|
||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Revolving lines of credit
|
$
|
10,823
|
|
|
$
|
14,543
|
|
Accounts payable
|
15,207
|
|
|
12,394
|
|
||
Accrued expenses and other liabilities
|
40,179
|
|
|
33,040
|
|
||
Total current liabilities
|
66,209
|
|
|
59,977
|
|
||
|
|
|
|
||||
Security bonus plan
|
12,413
|
|
|
12,981
|
|
||
Financing lease obligation
|
5,213
|
|
|
6,420
|
|
||
Deferred compensation
|
5,304
|
|
|
5,476
|
|
||
Deferred rent liability
|
1,963
|
|
|
3,512
|
|
||
Deferred tax liability
|
2,761
|
|
|
3,559
|
|
||
Other liabilities
|
4,106
|
|
|
5,696
|
|
||
Total liabilities
|
97,969
|
|
|
97,621
|
|
||
|
|
|
|
||||
Commitments and contingencies – Note 15
|
|
|
|
||||
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, $1 par value:
|
|
|
|
||||
Authorized - 500,000 shares, issued and outstanding - None
|
—
|
|
|
—
|
|
||
Common stock, $1 par value:
|
|
|
|
||||
Authorized - 35,000,000 shares
Issued – 9,005,716 and 8,921,302 shares, respectively Outstanding – 8,955,930 and 8,888,028 shares, respectively |
9,006
|
|
|
8,921
|
|
||
Capital in excess of par value
|
15,623
|
|
|
13,005
|
|
||
Retained earnings
|
77,338
|
|
|
71,453
|
|
||
Treasury stock – 49,786 and 33,274 shares held, respectively
|
(1,234
|
)
|
|
(711
|
)
|
||
Accumulated other comprehensive (loss) income
|
(1,560
|
)
|
|
822
|
|
||
Total stockholders’ equity
|
99,173
|
|
|
93,490
|
|
||
Total liabilities and stockholders’ equity
|
$
|
197,142
|
|
|
$
|
191,111
|
|
|
Year Ended December 31,
|
||||||
|
2018
|
|
2017
|
||||
Product revenue
|
$
|
310,204
|
|
|
$
|
305,907
|
|
Service revenue
|
39,433
|
|
|
—
|
|
||
Total revenue
|
349,637
|
|
|
305,907
|
|
||
|
|
|
|
||||
Product cost of goods sold
|
145,493
|
|
|
122,889
|
|
||
Service cost
|
14,604
|
|
|
—
|
|
||
Gross profit
|
189,540
|
|
|
183,018
|
|
||
|
|
|
|
||||
Operating expenses:
|
|
|
|
||||
Selling expenses
|
87,642
|
|
|
98,025
|
|
||
General and administrative expenses
|
92,688
|
|
|
80,479
|
|
||
Total SG&A
|
180,330
|
|
|
178,504
|
|
||
Gain on sale of property
|
—
|
|
|
(5,422
|
)
|
||
Operating expenses
|
180,330
|
|
|
173,082
|
|
||
|
|
|
|
||||
Operating income
|
9,210
|
|
|
9,936
|
|
||
|
|
|
|
||||
Interest expense
|
(1,009
|
)
|
|
(622
|
)
|
||
Other income (expenses), net
|
(1,338
|
)
|
|
780
|
|
||
|
|
|
|
||||
Income before income taxes
|
6,863
|
|
|
10,094
|
|
||
Income tax (benefit) expense
|
649
|
|
|
(19,594
|
)
|
||
|
|
|
|
||||
Net income
|
$
|
6,214
|
|
|
$
|
29,688
|
|
|
|
|
|
||||
Basic income per share of common stock
|
$
|
0.70
|
|
|
$
|
3.35
|
|
|
|
|
|
||||
Diluted income per share of common stock
|
$
|
0.67
|
|
|
$
|
3.25
|
|
|
|
|
|
||||
Weighted average shares outstanding:
|
|
|
|
||||
Basic weighted average shares outstanding
|
8,909
|
|
|
8,864
|
|
||
Effect of dilutive securities outstanding
|
364
|
|
|
267
|
|
||
Diluted weighted average shares outstanding
|
9,273
|
|
|
9,131
|
|
||
|
|
|
|
||||
Comprehensive income
|
|
|
|
||||
Net income
|
$
|
6,214
|
|
|
$
|
29,688
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
||||
Adjustment for foreign currency translation
|
(2,382
|
)
|
|
861
|
|
||
Comprehensive income
|
$
|
3,832
|
|
|
$
|
30,549
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Outstanding Shares
|
|
$1 Par Value
|
|
Capital in Excess of Par Value
|
|
Retained Earnings
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total Stockholders' Equity
|
|||||||||||||
Balance at January 1, 2017
|
8,832,623
|
|
|
$
|
8,865
|
|
|
$
|
11,055
|
|
|
$
|
41,943
|
|
|
$
|
(691
|
)
|
|
$
|
(39
|
)
|
|
$
|
61,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in accounting principle
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
(178
|
)
|
|
—
|
|
|
—
|
|
|
(178
|
)
|
||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
29,688
|
|
|
—
|
|
|
—
|
|
|
29,688
|
|
||||||
Adjustment for foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
861
|
|
|
861
|
|
||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,006
|
|
||||||
Shares issued
|
56,373
|
|
|
56
|
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Share repurchase under stock award program
|
(968
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
||||||
Balance at December 31, 2017
|
8,888,028
|
|
|
8,921
|
|
|
13,005
|
|
|
71,453
|
|
|
(711
|
)
|
|
822
|
|
|
93,490
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in accounting principle
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(329
|
)
|
|
—
|
|
|
—
|
|
|
(329
|
)
|
||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
6,214
|
|
|
—
|
|
|
—
|
|
|
6,214
|
|
||||||
Adjustment for foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,382
|
)
|
|
(2,382
|
)
|
||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,703
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,703
|
|
||||||
Shares issued
|
84,414
|
|
|
85
|
|
|
(85
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Share repurchase under stock award program
|
(16,512
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(523
|
)
|
|
—
|
|
|
(523
|
)
|
||||||
Balance at December 31, 2018
|
8,955,930
|
|
|
$
|
9,006
|
|
|
$
|
15,623
|
|
|
$
|
77,338
|
|
|
$
|
(1,234
|
)
|
|
$
|
(1,560
|
)
|
|
$
|
99,173
|
|
(1)
|
The Company adopted the provisions of ASU 2016-09, Compensation - Stock Compensation - Improvements to Employee Share-Based Payment Accounting, on January 1, 2017 using the modified retrospective approach. See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies for further details.
|
(2)
|
The Company adopted the ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09) on January 1, 2018 using the modified retrospective approach. See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies for further details.
|
|
Year Ended December 31,
|
||||||
|
2018
|
|
2017
|
||||
Operating activities
|
|
|
|
||||
Net income
|
$
|
6,214
|
|
|
$
|
29,688
|
|
|
|
|
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
6,855
|
|
|
6,770
|
|
||
Stock-based compensation
|
7,508
|
|
|
3,106
|
|
||
Deferred income taxes
|
545
|
|
|
(21,229
|
)
|
||
Gain on disposal of property and equipment
|
—
|
|
|
(5,422
|
)
|
||
|
|
|
|
||||
Changes in operating assets and liabilities, net of effect of acquired businesses:
|
|
|
|
||||
Accounts receivable
|
(193
|
)
|
|
(5,275
|
)
|
||
Inventories
|
(2,915
|
)
|
|
(1,713
|
)
|
||
Prepaid expenses and other assets
|
(1,501
|
)
|
|
(1,226
|
)
|
||
Accounts payable and other liabilities
|
2,851
|
|
|
1,980
|
|
||
Other
|
935
|
|
|
525
|
|
||
Net cash provided by operating activities
|
20,299
|
|
|
7,204
|
|
||
|
|
|
|
||||
Investing activities
|
|
|
|
||||
Purchases of property, plant and equipment
|
(2,524
|
)
|
|
(1,256
|
)
|
||
Business acquisitions, net of acquired cash
|
(5,307
|
)
|
|
(32,286
|
)
|
||
Proceeds from sale of property
|
—
|
|
|
6,177
|
|
||
Net cash used in investing activities
|
(7,831
|
)
|
|
(27,365
|
)
|
||
|
|
|
|
||||
Financing activities
|
|
|
|
||||
Net proceeds from (payments on) revolving line of credit
|
(3,720
|
)
|
|
13,595
|
|
||
Principal on capital leases payments
|
(185
|
)
|
|
(134
|
)
|
||
Proceeds from stock option exercises
|
14
|
|
|
20
|
|
||
Repurchase treasury shares
|
(523
|
)
|
|
(20
|
)
|
||
Business acquisition payment
|
(76
|
)
|
|
(80
|
)
|
||
Net cash (used in) provided by financing activities
|
(4,490
|
)
|
|
13,381
|
|
||
|
|
|
|
||||
Effect of exchange rate changes on cash and cash equivalents
|
(511
|
)
|
|
775
|
|
||
|
|
|
|
||||
Increase (decrease) in cash and cash equivalents and restricted cash
|
7,467
|
|
|
(6,005
|
)
|
||
Cash, cash equivalents and restricted cash at beginning of year
|
5,216
|
|
|
11,221
|
|
||
Cash, cash equivalents and restricted cash at end of year
|
$
|
12,683
|
|
|
$
|
5,216
|
|
|
|
|
|
||||
Cash and cash equivalents
|
$
|
11,883
|
|
|
$
|
4,416
|
|
Restricted cash
|
800
|
|
|
800
|
|
||
Total cash, cash equivalents and restricted cash
|
$
|
12,683
|
|
|
$
|
5,216
|
|
|
Year Ended December 31, 2018
|
||||||||||
(Dollars in thousands)
|
As Reported
|
|
Service Revenues and Costs Adjustments
|
|
Pro-Forma as if Previous Accounting Guidance Was in Effect (Unaudited)
|
||||||
|
|
|
|
|
|
||||||
Product revenue
|
$
|
310,204
|
|
|
$
|
39,383
|
|
|
$
|
349,587
|
|
Service revenue
|
39,433
|
|
|
(39,433
|
)
|
|
—
|
|
|||
Total revenue
|
349,637
|
|
|
(50
|
)
|
|
349,587
|
|
|||
|
|
|
|
|
|
||||||
Product cost of goods sold
|
145,493
|
|
|
—
|
|
|
145,493
|
|
|||
Service costs
|
14,604
|
|
|
(14,604
|
)
|
|
—
|
|
|||
Total cost of goods sold
|
160,097
|
|
|
(14,604
|
)
|
|
145,493
|
|
|||
|
|
|
|
|
|
||||||
Gross profit
|
189,540
|
|
|
14,554
|
|
|
204,094
|
|
|||
Gross profit percentage
|
54.2
|
%
|
|
|
|
58.4
|
%
|
||||
|
|
|
|
|
|
||||||
Selling expenses
|
87,642
|
|
|
14,498
|
|
|
102,140
|
|
|||
General and administrative expenses
|
92,688
|
|
|
—
|
|
|
92,688
|
|
|||
Operating expenses
|
180,330
|
|
|
14,498
|
|
|
194,828
|
|
|
Unaudited
|
||||||
|
Year Ending December 31,
|
||||||
(Dollars in thousands)
|
2018
|
|
2017
|
||||
|
|
|
|
||||
United States
|
$
|
279,917
|
|
|
$
|
266,994
|
|
Canada
|
69,720
|
|
|
38,913
|
|
||
Consolidated total
|
$
|
349,637
|
|
|
$
|
305,907
|
|
|
Unaudited
|
||||
|
Year Ending December 31,
|
||||
|
2018
|
|
2017
|
||
|
|
|
|
||
Fastening Systems
|
24
|
%
|
|
21
|
%
|
Cutting Tools and Abrasives
|
15
|
%
|
|
14
|
%
|
Fluid Power
|
14
|
%
|
|
15
|
%
|
Specialty Chemicals
|
12
|
%
|
|
14
|
%
|
Electrical
|
11
|
%
|
|
11
|
%
|
Aftermarket Automotive Supplies
|
8
|
%
|
|
9
|
%
|
Safety
|
5
|
%
|
|
4
|
%
|
Welding and Metal Repair
|
2
|
%
|
|
2
|
%
|
Other
|
9
|
%
|
|
10
|
%
|
Consolidated Total
|
100
|
%
|
|
100
|
%
|
|
(Dollars in thousands)
|
||||||
|
December 31,
|
||||||
|
2018
|
|
2017
|
||||
Inventories, gross
|
$
|
58,215
|
|
|
$
|
56,492
|
|
Reserve for obsolete and excess inventory
|
(5,328
|
)
|
|
(5,564
|
)
|
||
Inventories, net
|
$
|
52,887
|
|
|
$
|
50,928
|
|
|
(Dollars in thousands)
|
||||||
|
December 31,
|
||||||
|
2018
|
|
2017
|
||||
Land
|
$
|
2,565
|
|
|
$
|
2,752
|
|
Buildings and improvements
|
16,858
|
|
|
16,973
|
|
||
Machinery and equipment
|
23,955
|
|
|
23,277
|
|
||
Capitalized software
|
21,738
|
|
|
21,947
|
|
||
McCook facility
|
12,961
|
|
|
12,961
|
|
||
Furniture and fixtures
|
5,884
|
|
|
5,634
|
|
||
Capital leases
|
684
|
|
|
806
|
|
||
Vehicles
|
190
|
|
|
214
|
|
||
Construction in progress
|
391
|
|
|
375
|
|
||
|
85,226
|
|
|
84,939
|
|
||
Accumulated depreciation and amortization
|
(61,678
|
)
|
|
(57,606
|
)
|
||
|
$
|
23,548
|
|
|
$
|
27,333
|
|
|
(Dollars in thousands)
|
||||||
|
December 31,
|
||||||
|
2018
|
|
2017
|
||||
Beginning balance
|
$
|
19,614
|
|
|
$
|
5,520
|
|
Acquisition
|
2,086
|
|
|
14,176
|
|
||
Impact of foreign exchange
|
(1,452
|
)
|
|
(9
|
)
|
||
Adjustment to prior year allocation
(1)
|
(169
|
)
|
|
(73
|
)
|
||
Ending balance
|
$
|
20,079
|
|
|
$
|
19,614
|
|
(1)
|
The reduction of
$0.2 million
in 2018 resulted from an adjustment to the goodwill created by the Bolt acquisition. The reduction of
$0.1 million
in 2017 resulted from a non-cash adjustment to the estimated purchase price allocation to inventory originally recorded in 2016.
|
|
(Dollars in thousands)
|
|
(Dollars in thousands)
|
||||||||||||||||||||
|
December 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
||||||||||||
Trade names
|
$
|
8,090
|
|
|
$
|
(1,447
|
)
|
|
$
|
6,643
|
|
|
$
|
8,182
|
|
|
$
|
(957
|
)
|
|
$
|
7,225
|
|
Customer relationships
|
7,114
|
|
|
(645
|
)
|
|
6,469
|
|
|
4,911
|
|
|
(323
|
)
|
|
4,588
|
|
||||||
|
$
|
15,204
|
|
|
$
|
(2,092
|
)
|
|
$
|
13,112
|
|
|
$
|
13,093
|
|
|
$
|
(1,280
|
)
|
|
$
|
11,813
|
|
|
(Dollars in thousands)
|
||||||
|
Year Ended December 31,
|
||||||
|
2018
|
|
2017
|
||||
United States
|
$
|
6,839
|
|
|
$
|
10,159
|
|
Canada
|
24
|
|
|
(65
|
)
|
||
|
$
|
6,863
|
|
|
$
|
10,094
|
|
|
Year Ended December 31,
|
||||
|
2018
|
|
2017
|
||
Statutory Federal rate
|
21.0
|
%
|
|
35.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
||
Change in valuation allowance - reversal
|
—
|
|
|
(210.5
|
)
|
Change in valuation allowance - federal tax rate change
|
—
|
|
|
(126.4
|
)
|
Change in valuation allowance - current period activity
|
3.7
|
|
|
(65.7
|
)
|
Federal tax rate change
|
—
|
|
|
126.4
|
|
Foreign income inclusion
|
(13.9
|
)
|
|
29.2
|
|
Change in uncertain tax positions
|
(1.4
|
)
|
|
7.7
|
|
State and local taxes, net
|
4.7
|
|
|
4.7
|
|
Stock compensation
|
(4.5
|
)
|
|
(1.9
|
)
|
Meals & entertainment
|
2.4
|
|
|
1.4
|
|
Alternative Minimum Tax
|
1.4
|
|
|
3.6
|
|
Provision to return differences
|
(9.3
|
)
|
|
(0.7
|
)
|
Foreign Currency Loss
|
2.5
|
|
|
—
|
|
Other items, net
|
2.9
|
|
|
3.1
|
|
Provision for income taxes
|
9.5
|
%
|
|
(194.1
|
)%
|
|
(Dollars in thousands)
|
||||||
|
December 31,
|
||||||
|
2018
|
|
2017
|
||||
|
|
|
|
||||
Accrued compensation
|
$
|
10,740
|
|
|
$
|
9,044
|
|
Accrued stock-based compensation (stock performance rights)
|
13,458
|
|
|
8,712
|
|
||
Accrued and withheld taxes, other than income taxes
|
1,674
|
|
|
1,136
|
|
||
Environmental remediation accrual
|
1,376
|
|
|
968
|
|
||
Financing lease obligation
|
1,207
|
|
|
1,123
|
|
||
Accrued profit sharing
|
899
|
|
|
894
|
|
||
Deferred revenue
|
693
|
|
|
—
|
|
||
Accrued health benefits
|
614
|
|
|
657
|
|
||
Accrued severance
|
304
|
|
|
483
|
|
||
Other
|
9,214
|
|
|
10,023
|
|
||
|
$
|
40,179
|
|
|
$
|
33,040
|
|
a)
|
85%
of the face amount of the Company’s eligible accounts receivable, generally less than
60
days past due, and
|
b)
|
the lesser of
60%
of the lower of cost or market value of the Company’s eligible inventory, generally inventory expected to be sold within
18
months, or
$20.0 million
.
|
Quarterly Financial Covenants
|
|
Requirement
|
|
Actual
|
EBITDA to fixed charges ratio
|
|
1.10 : 1.00
|
|
3.46 : 1.00
|
|
(Dollars in thousands)
|
||||||
|
Year Ended December 31,
|
||||||
|
2018
|
|
2017
|
||||
Beginning balance
|
$
|
483
|
|
|
$
|
1,710
|
|
Charged to earnings
|
848
|
|
|
738
|
|
||
Cash paid
|
(972
|
)
|
|
(1,965
|
)
|
||
Ending balance
|
$
|
359
|
|
|
$
|
483
|
|
Expected volatility
|
36.7% to 42.7%
|
Risk-free rate of return
|
2.5% to 2.6%
|
Expected term (in years)
|
0.1 to 4.5
|
Expected annual dividend
|
$0
|
|
Number of SPRs
|
|
Weighted Average Exercise Price
|
|||
Outstanding on December 31, 2017
|
961,554
|
|
|
$
|
19.76
|
|
Granted
|
44,737
|
|
|
24.70
|
|
|
Exercised
|
(13,270
|
)
|
|
22.16
|
|
|
Cancelled
|
(34,500
|
)
|
|
25.52
|
|
|
Outstanding on December 31, 2018
|
958,521
|
|
|
19.75
|
|
|
|
|
|
|
|||
Exercisable on December 31, 2018
|
848,503
|
|
|
$
|
19.11
|
|
|
Restricted Stock Awards
|
|
Outstanding on December 31, 2017
|
104,920
|
|
Granted
|
82,722
|
|
Canceled
|
(31,776
|
)
|
Exchanged for shares
|
(36,610
|
)
|
Outstanding on December 31, 2018
|
119,256
|
|
|
Number of Market Stock Units
|
|
Maximum Shares Potentially Issuable
|
||
Outstanding on December 31, 2017
|
221,936
|
|
|
332,904
|
|
Granted
|
32,194
|
|
|
48,292
|
|
Exchanged for stock
(1)
|
(60,995
|
)
|
|
(46,799
|
)
|
Maximum vs. earned
(2)
|
—
|
|
|
(54,855
|
)
|
Outstanding on December 31, 2018
|
193,135
|
|
|
279,542
|
|
(2)
|
Difference between 150% of common stock that was potentially realizable for MSUs when originally granted and the actual amount of common stock that was earned on the vesting date.
|
|
Number of Stock Options
|
|
Weighted average exercise price
|
||
Outstanding on December 31, 2017
|
84,476
|
|
|
26.98
|
|
Exercised
|
(1,005
|
)
|
|
14.04
|
|
Outstanding on December 31, 2018
|
83,471
|
|
|
27.14
|
|
|
(Dollars in thousands)
|
||||||||||||||
Description
|
Balance at Beginning of Period
|
|
Charged to Costs and Expenses
|
|
Deductions
|
|
Balance at End of Period
|
||||||||
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
||||||||
Year ended December 31, 2018
|
$
|
476
|
|
|
$
|
695
|
|
|
$
|
(622
|
)
|
|
$
|
549
|
|
Year ended December 31, 2017
|
$
|
454
|
|
|
$
|
499
|
|
|
$
|
(477
|
)
|
|
$
|
476
|
|
|
|
|
|
|
|
|
|
||||||||
Valuation allowance for deferred tax assets:
|
|
|
|
|
|
|
|
||||||||
Year ended December 31, 2018
|
$
|
2,556
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
2,569
|
|
Year ended December 31, 2017
|
$
|
35,416
|
|
|
$
|
(32,860
|
)
|
|
$
|
—
|
|
|
$
|
2,556
|
|
(1)
|
Uncollected receivables written off, net of recoveries and translation adjustments.
|
Plan category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(1)
|
|
Weighted-average exercise price of outstanding options, warrants and rights
(1) (2)
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
|
Equity compensation plans approved by security holders
|
482,269
|
|
$27.14
|
|
95,862
|
Equity compensation plans not approved by security holders
|
—
|
|
—
|
|
—
|
Total
|
482,269
|
|
$27.14
|
|
95,862
|
(1)
|
Includes potential common stock issuance of
119,256
from restricted stock awards,
279,542
from market stock units and
83,471
from stock options.
|
(2)
|
Weighted-average exercise price of
83,471
stock options.
|
Exhibit
Number
|
|
Description of Exhibit
|
2.
1
|
|
|
3.1
|
|
Certificate of Incorporation of the Company, as amended, incorporated herein by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
|
|
|
|
10.1*
|
|
Amended and Restated Executive Deferral Plan, incorporated herein by reference from Exhibit 10(c)(7) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
|
||
|
||
|
|
|
|
||
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
LAWSON PRODUCTS, INC
|
||
|
|
|
By:
|
/s/ Michael G. DeCata
|
|
|
|
|
|
Michael G. DeCata
|
|
|
President, Chief Executive Officer and Director
|
|
|
(principal executive officer)
|
|
|
|
|
|
Date:
|
March 4, 2019
|
By:
|
/s/ Ronald J. Knutson
|
|
|
|
|
|
Ronald J. Knutson
|
|
|
Executive Vice President, Chief Financial Officer, Treasurer and Controller
|
|
|
(principal financial and accounting officer)
|
|
|
|
|
|
Date:
|
March 4, 2019
|
Signature
|
|
Title
|
/s/ Andrew B. Albert
|
|
Director
|
Andrew B. Albert
|
|
|
/s/ I. Steven Edelson
|
|
Director
|
I. Steven Edelson
|
|
|
/s/ Lee S. Hillman
|
|
Director
|
Lee S. Hillman
|
|
|
/s/ J. Bryan King
|
|
Director
|
J. Bryan King
|
|
|
/s/ Thomas S. Postek
|
|
Director
|
Thomas S. Postek
|
|
|
/s/ Wilma J. Smelcer
|
|
Director
|
Wilma J. Smelcer
|
|
|
Name
|
|
Jurisdiction of Incorporation
|
|
|
|
Lawson Products, Inc.
|
|
Illinois
|
Lawson Products Canada Inc.
|
|
British Columbia, Canada
|
The Bolt Supply House Ltd.
|
|
Alberta, Canada
|
Lender:
|
BMO Bank of Montreal
|
(the "Bank")
|
|
|
|
Margin:
|
The availability of funds under the following utilizations is subject to a maximum, on a forward margin basis of 75% of the Bank's valuation of assigned / hypothecated accounts receivable after deducting accounts receivable 61 days or more past due, accounts in dispute, inter company accounts, and the value of any prior ranking claim plus 50% of the Bank's valuation of assigned / hypothecated inventory which is free and clear, excluding work in process, consignment inventory or inventory subject to any prior charge or claim
|
Term:
|
|
Letters of credit are restricted to terms of one year or less and are to contain a 30 day cancellation clause in each instance
Commissions payable quarterly in advance at 0.1% per month (1.2% per annum) of part thereof subject to a mirk $50 charge.
|
Pricing;
|
Financial Covenants:
|
The following financial covenants are to be tested in conjunction with the annual review based on the company financials provided. A breach fee of $200 per day per occurrence applies if in breach until the covenant is again in compliance per Bank established terms and conditions and may be requested in writing from BMO for client to inject funds to remedy.
|
|
|
|
1.
|
Working capital ratio is defined as current assets divided by current liabilities (as defined by Generally Accepted Accounting Principles) to be a minimum of 1.35:1. (PRESENTLY) Measured on the basis of
Annual
financial statements. Intangible assets as determined by the Bank are to be excluded (i.e. Future Income Taxes, Due from Shareholders/Directors/Affiliated or Related Companies, etc.).
Met fiscal 2016 - 1.98:1
|
2.
|
Maximum ratio of Debt/Tangible Net Worth not to exceed 2.5:1. Total debt is defined by Generally Accepted Accounting Principles, excluding all debt formally subrogated to the Bank and Future Income Taxes. Tangible Net Worth is defined to include Share Capital, Retained Earnings and formally subrogated debt to the Bank and to exclude intangibles such as Leasehold improvements, Goodwill,- Shareholder Loan Receivables, Advances to and/or investments in affiliated companies, and any other intangibles at the Bank's discretion. To be
tested annually
based on audited year-end statements.
Met fiscal 2016: Ratio was 0.81:1
|
·
|
Debt Service Coverage:
shall be determined by dividing Cash Flow Available for Debt Service, by Scheduled Debt Service Requirements
|
·
|
Cash Flow Available for Debt Service:
means the sum of the Borrower's net after tax income, plus depreciation/amortization expense, plus non-cash items, plus interest expenses, plus any after tax management bonus which is returned to the company in the form of subrogated shareholders' loans all of which shall be determined in accordance with GAAP.
|
·
|
Scheduled Debt Service Requirements:
means the aggregate of total interest expenses, capital lease payments and scheduled amortization or repayments of principal.
|
Annual Review:
|
1)Bank of Montreal documentation for current account authorities.
2)Overdraft lending agreement to support $5,500,000 in conjunction with Facility #1, subject (a)
3)General Security Agreement in 1
51
position over The Bolt Supply House Ltd. with a General Assignment of Booked Debts covering Alberta, British Columbia, Saskatchewan, and Manitoba with notice for registration under Section 427.
4)Assignment of Fire Insurance including standard mortgage clause showing Bank of Montreal as first loss payable
The credit facilities are subject to periodic and at least annual review. The next credit review shall be due
August 31, 2017
based on our reporting requirements. An annual review fee of $1,500 will be charged annually in concurrence with the review.
The Borrower will be responsible, in addition to those fees outlined above, for the following:
I) All legal costs including those of the Bank's solicitor, accounting and other professional fees, registry searches and registration fees for searching, preparing, execution and registration of all loan and security documentation.
2) All reasonable out of pocket expenses incurred by the Bank in connection with the establishment, administration and enforcement of the facility and the obtaining of applicable security.
|
||
Legal Fees &
Related Costs:
|
|
|
|
|
|
|
Cash
M
anagement:
|
Various cash management banking services are available to enhance convenience, reduce operating costs, and earn interest on surplus funds. We would be pleased to outline these options for you at your convenience.
|
D. ACCEPTANCE
:
Accepted this
30
day of
March
,2017.
|
|
|
|
|
THE BOLT SUPPLY HOUSE LTD.
|
|
BANK OF MONTREAL
|
/s/ Doug Drury
|
|
/s/ Matt Vandenbergh
|
Per: Vice-President, Finance
|
|
Matt Vandenbergh, Relationship Manager
|
|
|
/s/ Jen Kirnbauer
|
Per:
|
|
Jen Kirnbauer, Commercial Account Advisor
|
Advance:
Advances:
Bankers' Acceptances
|
SCHEDULE A
DEFINITIONS
Each use of the Facilities is an "Advance" and all such usages outstanding at any time are "Advances".
Borrowing by the Borrower and any reference relating to the amount of Advances shall mean the sum of the principal amount of all outstanding Advances
An instrument denominated in Canadian dollars, drawn by the Borrower and accepted by BMO in accordance with this Commitment Letter, and includes a "depository note" within the meaning of the Depository Bills and Notes Act (Canada) and a bill of exchange within the meaning of the Bills of Exchange Act (Canada). A stamping fee will be charged by BMO on each Advance evidenced by a Bankers' Acceptance.
|
Government of Canada Bond Rate
LIBOR Rate
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Benchmark bond yields published by the Bank of Canada based on mid-market closing yields of selected Government of Canada bond issues that mature approximately in the indicated terms.
With respect to any 30, 60, 90, 180 or 360-day period, the annual rate of interest at which BMO, in accordance with its normal practice, would be prepared to offer deposits of U.S. dollars to leading banks in the London Interbank Market for delivery on the first day of the applicable period, with a maturity comparable to the applicable period, at approximately 11:00 a.m., (London, England time) two Business Days prior to the commencement of such period, where for the purpose of this definition "Business Days" do not include days which are not regular business days in London or in New York.
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Mortgaged Property
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Means the real property described in the Mortgage, all appurtenances thereto and all estates and interests therein, and includes all buildings, plant, machinery, crops, erections and improvements, fixed or otherwise, present or future, built, grown, placed or put thereon including all fences, heating equipment, plumbing equipment, antennae, radiators, mirrors, air-conditioning equipment, ventilating equipment, fire alarm and protective systems, lighting and lighting fixtures, hay racks, barn fixtures, milking machine equipment, water tanks, pumps and windmills, water bowls and pipes, feed boxes, litter carriers and tracks, mobile homes affixed to the real property, furnaces, boilers, oil burners, stokers, water heating equipment, cooking and refrigeration equipment, window blinds, floor coverings, storm windows, storm doors, window screens, door screens, shutters and awnings, all apparatus and equipment appurtenant thereto, and all other fixtures and accessions of any kind or nature.
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Net Operating Income:
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For any fiscal year of the Borrower means the gross annual revenue actually received by the Borrower during such fiscal year from tenants pursuant to Leases, less the Borrower's operating expenses and management fees actually paid, and structural reserves, market vacancy allowance and had debt allowance taken or allowed for, in each case related to the Mortgaged Property during such fiscal year, each in an amount satisfactory to BMO based on reasonable industry standards but with no deduction for depreciation, amortization or interest expense.
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Prime Rate:
Tangible Net Worth:
US Base Rate
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On any day, the annual rate of interest established by BMO and in effect on such day as the reference rate used to determine the rate of interest charged on Canadian dollar
loans to commercial customers in Canada, and designated by BMO as its "Prime Rate".
The book value of the shareholder's equity in the corporation plus loans made by the shareholders to the corporation that are assigned, postponed and subordinated in favour of BMO, less any goodwill, amounts due from officers and non-arm's-length entities, long term investments, leasehold improvements, future income tax, patents, or other such assets as are properly classified as "intangible", all as determined by BMO.
On any day, the floating annual rate of interest established by BMO and in effect on such day as the reference rate used to determine the rate of interest charged on U.S. dollar loans to commercial customers in Canada, and designated by BMO as its "US Base Rate".
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Assignment:
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This Commitment Letter shall be binding upon and enure to the benefit of the parties and their respective successors and permitted assigns. The Borrower shall not assign any of its rights or obligations hereunder without the prior written consent of BMO. BMO may assign all or part of its rights or obligations under this Commitment Letter or in respect of any Facility or any Security to any person.
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Confidentiality:
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The Borrower and each Guarantor agrees that, without the prior written consent of BMO, it shall not provide this Commitment Letter to, nor discuss the terms and structure of this offering with, any party other than its employees, lawyers and financial advisors (but not commercial lenders). The Borrower and each Guarantor consents to the release of information provided to BMO in connection with this Commitment Letter and the Facilities to BMO Financial Group business groups, affiliates and subsidiaries for the purpose of assisting BMO in supporting the Borrower with its strategic plans.
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Conflicts:
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All terms and conditions of BMO's usual and customary security documents and supporting documents shall be deemed to be incorporated in and form part of this commitment. In the event of any conflict or inconsistency between this Commitment Letter and the terms of any security or supporting document given in connection with this Commitment Letter, any Facility or the Security, the terms of the security or supporting documents shall prevail.
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Entire Agreement; Waivers
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This Commitment Letter supersedes and replaces all prior discussions, and letters and agreements (if any) describing the
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Severability; Amendments:
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terms and conditions of the facilities contained in this Commitment Letter. This Commitment Letter does not, however, serve to operate as a novation. To the extent necessary, BMO reserves all of its rights in respect of any security that has previously been granted to secure the obligations with respect to the Facilities. The failure of BMO to require performance by the Borrower or any Guarantor of any provision of this Commitment Letter shall in no way affect the right thereafter to enforce such provision; nor shall the waiver by BMO of any breach of any covenant, condition or proviso of this Commitment Letter be taken or held to be a waiver of any further breach of the same covenant, condition or proviso. If any provision of this Commitment Letter is determined to be invalid or unenforceable in whole or in part, such invalidity or unenforceability shall attach only to such provision and the remainder of this Commitment Letter shall continue in full force and effect. No change or modification of this Commitment Letter is binding upon the parties unless it is in writing and signed by all parties.
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Evidence of Debt:
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The Borrower acknowledges that the actual recording of the amount of any advance or repayment under the Facilities, and interest, fees and other amounts due in connection with the Facilities, in the accounts of the Borrower maintained by BMO, shall constitute prima facie evidence of the Borrower's indebtedness and liability from time to time under this Commitment Letter; provided that the obligation of the Borrower to pay or repay any indebtedness and liability in accordance with this Commitment Letter shall not be affected by the failure of BMO to make such recording
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Expenses:
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All costs and expenses incurred by BMO in establishing, documenting and operating the Facilities (including, but not limited to, legal, appraisal and consulting fees and costs) and in connection with the enforcement of the loan doCumentation are for the account of the Borrower and the Borrower agrees to pay the same in full whether or not this transaction is completed as contemplated herein.
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Holdbacks:
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In the event the Borrower fails to satisfy any condition hereunder which is required to be met prior to receiving any Advance under a Facility, BMO may, at its option and in its sole discretion, provide such Advance to the Borrower subject to a holdback of funds to address
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Increased Costs, Taxes, Risks,
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The Borrower will reimburse any costs BMO incurs in performing its obligations under the Facilities resulting from any
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etc.
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change in law, including any reserve or special deposit requirement or any tax or capital requirement or any change in the compliance of BMO therewith, that has the effect of increasing the cost of funding to BMO or reducing the effective return on its capital. All loan repayments shall be made free and clear of any present and future taxes, withholdings or any other deductions. Upon the occurrence of any event which is deemed, in 13MO's sole discretion, to increase risk to BMO in respect of any Facility, BMO may review the pricing of any Facility.
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Indemnification:
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The Borrower and each Guarantor jointly and severally agree to indemnify BMO from and against any and all losses, claims, damages and liabilities arising from activities under or contemplated under this Commitment Letter, any Facility or the Security other than those arising solely as a result of I3MO's gross negligence or wilful misconduct.
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Joint and Several:
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Where more than one person is liable as Borrower or Guarantor for any obligation under or in connection with this Commitment Letter, then the liability of each such person for such obligation is joint and several with each other such person.
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Language:
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It is the express wish of the parties that this agreement and any related documents be drawn up and executed in English. Les parties conviennent que la prosente convention et tous les documents s'y rattachant soient rediges et signs en anglais.
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Review:
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BMO retains the right to review the Facilities at any time and at least annually.
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-
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Signed Commitment Letter
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-
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Evidence of corporate (or other) status and authority
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-
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Completion of all facility documentation and account agreements and authorities, as applicable
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-
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Compliance with all representations and warranties contained herein
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-
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Compliance with all cotenants (financial and non-financial) contained herein No Event of Default (defined herein) shall have occurred and be continuing Compliance with all laws (including environmental)
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-
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Payment of all fees and expenses
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-
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Receipt of all necessary material governmental, regulatory and other third party approvals (including environmental approvals and certificates)
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-
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Satisfactory due diligence (including, without limitation, anti-money laundering, proceeds of crime and "know your customer" requirements and procedures, environmental and insurance due diligence)
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-
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Nothing shall have occurred since the date of the latest financial statements provided to BMO (Dated: Feb 29 2016 ) or after the date of
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-
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Repayment of all existing indebtedness (excluding permitted indebtedness)
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-
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Satisfactory review by BMO (or, at BMO's option and the Borrower's expense, an insurance consultant) of insurance policies issued to the Borrower(s) and/or the Guarantor(s) and compliance with any changes required to satisfy BMO's insurance requirements
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-
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Disclosure of all material contingent obligations
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-
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Confirmation that no shares of the Borrower held by the principal shareholders have been pledged as security for any financial or other indebtedness
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-
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Corporate taxes of the Borrower [and personal taxes of the principal shareholder] are to be confirmed current and up-to-date
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-
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Satisfactory evidence that all other taxes payable by the Borrower [and Guarantor] (including, without limitation, GST, HST, sales tax, and withholdings) have been paid to date
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-
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All Canadian bank accounts of the Borrower [and corporate Guarantors] are to be maintained with BMO Any other document or action which BMO may reasonably require
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-
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Payment of all indebtedness due in connection with this Commitment Letter or any Facility
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-
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Maintenance of corporate existence and status
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-
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Payment of all taxes (including, without limitation, corporate, GST, FIST, sales tax and withholdings)
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-
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Compliance with all laws, regulations and applicable permits or approvals (including health, safety and employment standards, labour codes and environmental laws)
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-
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Compliance with all material agreements
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-
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Maintenance of property and assets in good working condition
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-
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Use of proceeds to be consistent with the approved purpose
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-
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Notices of default, material litigation, and regulatory proceedings to be provided to BMO on a timely basis - Access by BMO to books and records; BMO to have right to inspect property to which its security applies
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-
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No assumption of additional indebtedness or guarantee obligations by Borrower without prior written consent of BMO
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-
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No liens or encumbrances on any assets except with the prior written consent of BMO
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-
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No change of control or ownership of the Borrower or any Guarantor without the prior written consent of BMO
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-
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No disposition of property or assets (except in the ordinary course of business) without the prior written consent of BMO
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-
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No material judgments or material legal action initiated against the Borrower and/or any Guarantor(s) - No material acquisitions, hostile takeovers, mergers or amalgamations without BMO's prior written approval
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-
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No financial assistance, investments, employee loans or affiliate transactions, except for those held at the date of this Commitment Letter and in amounts approved by BMO, and subject to ongoing compliance with the other covenants contained in this Commitment Letter
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-
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No sale and leaseback transactions
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-
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Borrower will not, without BMO's prior written consent, request or accept any prepayments of rent pursuant to any lease in connection with the Mortgaged Property except for the last month's rent
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-
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Borrower will not charge any rent to any tenant of any part of the Mortgaged Property in excess of the amount of rent then permitted by applicable law
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-
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It has the corporate status, power and authority to enter into this Commitment Letter and any agreement executed in connection with a Facility or any Security to which it is a party, and to performs its obligations hereunder and thereunder
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-
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All factual information that has been provided to BMO for purposes of or in connection with this Commitment Letter or any
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-
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Since December 31 2014, no event, development or circumstance has occurred that has had or could reasonably be expected
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-
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There is no material litigation pending against it or, to its knowledge, threatened against or affecting it
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-
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It has timely filed or caused to be filed all required tax returns and reports and has paid or caused to be paid all required taxes
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-
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It has good and marketable title to its properties and assets
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-
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It has ownership of and/or sufficient rights in any material intellectual property
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-
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It maintains insurance policies and coverage that provides sufficient insurance coverage in at least such amounts and against at least such risks as are usually insured against in the same general area by persons in the same or a similar business
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-
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It is not in default nor has any event or circumstance occurred which, but for the passage of time or the giving of notice, or
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-
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Failure to pay any interest, principal, fees or other amounts due in connection with this Commitment Letter or any of the Facilities
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-
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Breach by the Borrower or any Guarantor of any covenant or agreement under or in connection with this Commitment Letter or any of the Facilities
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-
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Inaccurate or false representations or warranties made by the Borrower or any Guarantor under or in connection with this Commitment Letter
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-
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The Commitment Letter or any document executed in connection therewith or in connection with a Facility or the Security is repudiated by the Borrower or any Guarantor or is no longer in force and effect
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-
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A material adverse change occurs in the financial condition, business, property or prospects of the Borrower or any Guarantor, as determined by HMO
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-
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Change of ownership or control occurs without BMO's prior consent
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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