Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DESA INTERNATIONAL, INC.
AND OTHER REGISTRANTS
(See Table of Other Registrants Below)
(Exact name of registrant as specified in its charter)
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DELAWARE 3433 22-2940760
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
2701 INDUSTRIAL DRIVE, BOWLING GREEN, KENTUCKY 42102
(502) 781-9600
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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ROBERT H. ELMAN
DESA INTERNATIONAL, INC.
2701 Industrial Drive
Bowling Green, Kentucky 42102
(502) 781-9600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
MICHAEL A. MATZKA, ESQ.
SULLIVAN & WORCESTER LLP
One Post Office Square
Boston, MA 02109
(617) 338-2800
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, chech the
following box and list the Securities Act registration number of the earlier
registration statement for the same offering.|_|
If this form is a post-effective amendment filed pursuant to Rule
462(b) of the Securities Act, chech the following box and list the Securities
Act registration number of the earlier registration statement for the same
offering. |_|
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CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to be Proposed Maximum Offering Proposed Maximum Amount of
Securities to be Registered Registered Price Per Unit Aggregate Offering Price RegistrationFee
- - - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
97/8% Senior Subordinated Notes Due 2007 $130,000,000 100%(1) $130,000,000(1) $38,350
Guarantees of the 97/8% Senior Subordinated $130,000,000 None(2) None(2) ---
Notes Due 2007
<FN>
(1) Pursuant to Rule 457(f)(2) under the Securities Act of 1933, the registration fee has been based on the book value of the
securities to be received by the Registrant in exchange for the securities to be issued hereunder in the Exchange Offer
described herein.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is payable for the Guarantees.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant will
file a further amendment which specifically states that this Registration
Statement will thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement will become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
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<TABLE>
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TABLE OF OTHER REGISTRANTS
===============================================================================================================================
Standard Address, Including Zip Code, and
Industry IRS Employer Telephone Number, Including Area
Jurisdiction of Classification Identification Code, of the Principal Executive
Name of Corporation Incorporation Code Number Offices
- - - - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DESA Holdings Corporation Delaware 3433 61-1251518 2701 Industrial Drive, Bowling
Green, Kentucky 42102
(502) 781-9600
===============================================================================================================================
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SUBJECT TO COMPLETION, DATED JANUARY __, 1998
OFFER TO EXCHANGE
all outstanding
97/8% SENIOR SUBORDINATED NOTES DUE 2007
($130,000,000 principal amount outstanding)
for
97/8% SENIOR SUBORDINATED NOTES DUE 2007
of
DESA INTERNATIONAL, INC.
---------------
The Exchange Offer will expire at 5:00 p.m., New York City time
on ____________, 1998, unless extended
---------------
DESA International, Inc. a Delaware corporation ("DESA" or the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its 97/8% Senior Notes Due 2007 (the "New Notes"), in
an offering which has been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus constitutes a part, for an equal principal amount of its
outstanding 97/8% Senior Notes Due 2007 (the "Old Notes"), of which an aggregate
of $130,000,000 in principal amount is outstanding as of the date hereof (the
"Exchange Offer"). The New Notes and the Old Notes are sometimes referred to
herein collectively as the "Notes." The form and terms of the New Notes will be
the same as the form and terms of the Old Notes except that the New Notes will
not bear legends restricting the transfer thereof. The New Notes will be
obligations of the Company entitled to the benefits of the Indenture, dated as
of November 26, 1997 (the "Indenture"), by and among the Company, Desa Holdings
Corporation, a Delaware corporation and the parent of the Company ("Holdings"),
and Marine Midland Bank as trustee (the "Trustee"), relating to the Notes. See
"Description of the New Notes." Following the completion of the Exchange Offer,
none of the New Notes will be entitled to any rights under the Registration
Rights Agreement, dated as of November 26, 1997 (the "Registration Rights
Agreement"), by and among the Company, Holdings and the Initial Purchasers named
therein.
See "Risk Factors" beginning on page __ for a discussion of certain factors
that should be considered in evaluating an investment in the New Notes.
---------------
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 ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDIC-
TION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF
WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR
BLUE SKY LAWS OF SUCH JURISDICTION.
The date of this Prospectus is __________,1998.
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The Old Notes were issued in a transaction (the "Prior Offering") pursuant
to which the Company issued an aggregate of $130,000,000 principal amount of the
Old Notes to the Initial Purchasers on November 26, 1997 (the "Closing Date")
pursuant to a Purchase Agreement, dated November 26, 1997 (the "Purchase
Agreement") among the Company and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. The Company, Holdings and the Initial Purchasers also entered into the
Registration Rights Agreement, dated November 26, 1997, pursuant to which the
Company granted certain registration rights for the benefit for the holders of
the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer-Purchase and Effect."
The Old Notes were, and the New Notes will be, issued under the Indenture,
dated as of November 26, 1997 (the "Indenture"), among the Company, Holdings and
Marine Midland Bank, as trustee (the "Trustee"), and the New Notes and the Old
Notes will constitute a single series of debt securities under the Indenture.
The terms of the New Notes are identical in all material respects to the terms
of the Old Notes except that (i) the New Notes will have been registered under
the Securities Act and thus will not bear restrictive legends restricting their
transfer pursuant to the Securities Act and will not be entitled to registration
rights, (ii) holders of New Notes will not be entitled to liquidated damages for
the Company's failure to register the Old Notes or New Notes under the
Registration Rights Agreement, and (iii) holders of New Notes will not be, and
upon the consummation of the Exchange Offer, holders of Old Notes will no longer
be, entitled to certain rights under the Registration Rights Agreement intended
for the holders of unregistered securities. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to Marine Midland
Bank, as registrar of the Old Notes (in such capacity, the "Registrar") under
the Indenture, of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are validly tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer-Termination of
Certain Rights," "-Procedures for Tendering Old Notes" and "Description of
Notes." In the event that the Exchange Offer is consummated, any Old Notes which
remain outstanding after consummation of the Exchange Offer and the New Notes
issued in the Exchange Offer will vote together as a single class for purposes
of determining whether holders of the requisite percentage in outstanding
principal amount of Notes have taken certain actions or exercised certain rights
under the Indenture.
The New Notes will bear interest at a rate of 97/8% per annum. Interest on
the New Notes is payable semiannually, commencing June 15, 1998, on June 15 and
December 15 of each year (each, an "Interest Payment Date") and shall accrue
from November 26, 1997 or from the most recent Interest Payment Date with
respect to the Old Notes to which interest was paid or duly provided for. The
New Notes will mature on December 15, 2007. See "Description of Notes."
The New Notes will not be redeemable at the Company's option prior to
December 15, 2002. Thereafter, the New Notes will be redeemable by the Company
at the redemption prices and subject to the conditions set forth in "Description
of Notes-Optional Redemption." Notwithstanding the foregoing, at any time on or
before December 15, 2000, the Company may, at its option, redeem up to 35% of
the original aggregate principal amount of Notes with the net proceeds from one
or more Public Equity Offerings (as defined) at the redemption price set forth
herein, plus accrued and unpaid interest, if any, through the redemption date;
provided, however, that at least 65% of the original aggregate principal amount
of Notes remain outstanding following such redemption. See "Description of
Notes-Redemption-Optional Redemption." Upon a Change of Control (as defined
herein), the Company (i) will be required to make an offer to repurchase all
outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest thereon and Liquidated Damages, if any, to the date of
repurchase and (ii) prior to December 15, 2002 will have the option to redeem
the Notes, in whole or in part, at a redemption price equal to the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
to the redemption date plus the Applicable Premium (as defined herein). There
can be no assurance that sufficient funds will be available to the Company at
the time of any Change of Control to make any required repurchases of Notes. See
"Risk Factors -- Potential Inability to Fund Change of Control Offer,"
"Description of Notes -- Repurchase at the Option of Holders -- Change of
Control" and "-- Optional Redemption upon Change of Control." Depending upon the
circumstances prevailing at the time of such a Change of Control, there is a
risk that the Company may be unable to satisfy such obligations. See "Risk
Factors-Potential Inability to Fund Change of Control Offer."
The Notes will be general unsecured obligations of the Company, will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture), including all obligations of the Company under
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the New Credit Facility, and will be pari passu in right of payment with any
senior subordinated indebtedness of the Company. The Company conducts certain
operations through its foreign subsidiaries and, accordingly, the Notes will be
effectively subordinated to indebtedness and other liabilities of such foreign
subsidiaries. See "Description of Notes- Ranking." See also "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
The Company's obligations under the Notes will be guaranteed (the
"Guarantees") on a senior subordinated basis by the Company's parent, DESA
Holdings Corporation ("Holdings") and each subsidiary of Holdings that
guarantees any indebtedness of the Company or any other obligor under the Notes
(the "Guarantors"). The Guarantees will be general unsecured obligations of the
Guarantors, will be subordinated in right of payment to all existing and future
Senior Indebtedness of the Guarantors, including all obligations of the
Guarantors under the New Credit Facility and will rank pari passu in right of
payment with any senior subordinated indebtedness of the Guarantors.
Based on existing interpretations of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission") set forth in "no-action"
letters issued to third parties in other transactions, the Company believes that
New Notes issued pursuant to the Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by such holder (other than a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder is not an affiliate of the Company, is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders wishing to accept the
Exchange Offer must represent to the Company, as required by the Registration
Rights Agreement, that such conditions have been met. In addition, if such
holder is not a broker-dealer, it must represent that it is not engaged in, and
does not intend to engage in, a distribution of the New Notes. Each
broker-dealer that receives New Notes as a result of market-making or other
trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The Exchange Offer-Resales of
the New Notes." For a period of 180 days from the Expiration Date, the Company
will make this Prospectus, as amended or supplement available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, each Initial Purchaser has advised the Company that it currently
intends to make a market in the New Notes; however, the Initial Purchasers are
not obligated to do so and any market making activities may be discontinued by
the Initial Purchasers at any time. Therefore, there can be no assurance that an
active market for the New Notes will develop. If such a trading market develops
for the New Notes, future trading prices will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on such factors, the
New Notes may trade at a discount from their face value. See "Risk Factors-Lack
of Public Market."
The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with, or on behalf of, The Depository
Trust Company (the "Depositary") and registered in the name of Cede & Co., as
nominee of the Depositary (such nominee being referred to herein as the "Global
Note Holder"). The use of the Global Old Note to represent certain of the Old
Notes permits the Depositary's participants, and anyone holding a beneficial
interest in an Old Note registered in the name of such a participant, to
transfer interests in the Old Notes electronically in accordance with the
Depositary's established procedures without the need to transfer a physical
certificate. New Notes issued in exchange for the Global Old Note will also be
issued initially as a note in global form (the "Global New Note" and, together
with the Global Old Note, the "Global Notes") and deposited with, or on behalf
of, the Depositary. After the initial issuance of the Global New Note, New Notes
in certificated form will be issued in exchange for a holder's proportionate
interest in the Global New Note only as set forth in the Indenture.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights
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which terminate upon consummation of the Exchange Offer). Following consummation
of the Exchange Offer, the Holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such Holders (other than to certain Holders under certain
limited circumstances) to provide for registration under the Securities Act of
the Old Notes held by them. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a Holder's ability to sell untendered Old Notes
could be adversely affected. See "Risk Factors- Consequences of a Failure to
Exchange."
This Prospectus, together with the Letter of Transmittal is being sent to
all registered Holders of Old Notes as of __________, 1998.
The Company will not receive any proceeds from this Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will bear certain
registration expenses.
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TABLE OF CONTENTS
Page
Available Information.................................................. 5
Prospectus Summary..................................................... 7
Risk Factors........................................................... 23
The Exchange Offer..................................................... 27
Capitalization of the Company.......................................... 34
Pro Forma Condensed Consolidated Financial Data of Holdings............ 35
Selected Financial Data................................................ 42
Management's Discussion and Analysis of 45
Financial Condition and Results of Operations..........................
Business............................................................... 52
Management............................................................. 65
Security Ownership of Certain Beneficial Owners and Management......... 68
Certain Transactions................................................... 69
Description of Notes................................................... 70
Description of New Credit Facility..................................... 99
Description of Holding Preferred Stock................................. 101
Legal Matters.......................................................... 111
Independent Auditors................................................... 111
Index to Financial Statements.......................................... F-1
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Commission under
the Securities Act with respect to the New Notes. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the New Notes offered hereby. This
Prospectus contains summaries of the material terms and provisions of certain
documents and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
Upon the effectiveness of the Registration Statement filed with the
Commission, the Company will be subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith, will be required to file reports and other information
with the Commission. In addition, upon registration of the guarantees of the New
Notes in connection with the Exchange Offer, each Subsidiary Guarantor will also
become subject to the reporting requirements of the Exchange Act, subject to
obtaining exemptive relief from the Commission or no-action advise from the
Commission staff.
The Registration Statement (including the exhibits and schedules thereto)
and the periodic reports and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates.
Such information may also be accessed electronically by means of the
Commission's homepage on the Internet at http://www.sec.gov., which contains
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission.
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the Financial Statements and related notes thereto, appearing
elsewhere in this Prospectus. As used herein, references to "DESA" or the
"Company" are to DESA International, Inc. and its subsidiaries. References to
"fiscal year" are to the Company's fiscal year which ends on the Saturday
closest to February 28 in each year.
The Company
DESA is a leading manufacturer and marketer of zone heating/home comfort
products and specialty tools in the United States. Through its ability to
consistently offer consumers quality products with innovative features at
attractive price points, the Company has developed leading market positions in
(i) vent-free indoor heaters, (ii) vent-free hearth products, (iii) outdoor
heaters, (iv) consumer powder-actuated fastening systems and (v) electric chain
saws. In fiscal 1997, approximately 90% of the Company's sales were generated in
the United States and 10% were generated in international markets. Over 85% of
the domestic sales were in product categories where DESA is the market leader.
The Company has grown rapidly with sales increasing from $83.0 million in fiscal
1992 to $209.1 million in fiscal 1997, representing a compound annual growth
rate ("CAGR") of 20%. The Company's EBITDA increased from $10.6 million, or
12.8% of sales, in fiscal 1992, to $37.8 million, or 18.1% of sales, in fiscal
1997, representing a CAGR of 29%. For the twelve months ended November 29, 1997,
the Company had sales of $228.9 million and pro forma EBITDA of $40.5 million.
The Company sells its products through multiple consumer and commercial
channels of distribution including the leading home centers, mass merchants,
warehouse clubs, hardware cooperatives, specialty heating distributors,
construction and industrial equipment dealers, farm supply outlets and natural
gas utilities under brand names well- recognized by its customers. The Company's
strategy is to aggressively target the fastest growing retailers/distributors in
each channel and service these customers through a multi-brand approach to
capture the largest possible share of a given product market. In addition, the
Company has an established record of success in new product development and
product line extensions. Over the last five years, DESA has introduced over 100
new products and line extensions which generated approximately 56% of the
Company's sales growth over that time period.
Zone Heating Products (80% of Fiscal 1997 Domestic Gross Sales)
The zone heating market is comprised of indoor gas heaters, hearth products
(gas logs, fireplaces and stoves) and outdoor heaters. DESA is a leading
manufacturer of vent-free indoor and outdoor zone heating products in the United
States. DESA's domestic zone heating business has experienced a CAGR of over 27%
with gross revenues increasing from $46.2 million in fiscal 1992 to $155.1
million in fiscal 1997. DESA markets its zone heating products under well-known
brand names such as Reddy(R), Vanguard(R) and Comfort Glow(R). The Company's
zone heating business is organized into two primary product categories:
o Indoor vent-free heating appliances and hearth products (40% of Fiscal 1997
Domestic Gross Sales): Indoor heating appliances include vent-free liquid
propane and natural gas space heaters which provide economical supplemental
heat to a specific area as distinguished from central heating systems which
are used to heat entire buildings. Vent-free hearth products such as gas
logs, fireplaces and stoves are utilized for both decorative and economic
heating. Vent-free products utilize a more efficient burner system which
avoids the need for outside venting, whereas vented products require a
discharging of emissions outside of the building.
o Outdoor heating appliances (40% of Fiscal 1997 Domestic Gross Sales):
Outdoor heating products consist of portable units which generate heat by
either using a fan to discharge heated air to a specific area (forced air
heaters) or emitting heat throughout the surrounding area without the
assistance of a fan (convection heaters). Forced air heaters are fueled by
either kerosene, propane or natural gas, while convection heaters are
fueled only with propane or natural gas. Outdoor heaters are used in both
residential and commercial applications. Residential applications
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include heating otherwise unheated garages and workshops. Commercial
applications include heating factories, warehouses, construction sites and
agricultural areas.
Specialty Tools (20% of Fiscal 1997 Domestic Gross Sales)
DESA's domestic specialty tools business has experienced a CAGR of 11% with
gross revenues increasing from $23.0 million in fiscal 1992 to $38.8 million in
fiscal 1997. Specialty tools products include powder actuated fastening systems
(tools and accessories) used to fasten wood to concrete or steel, stapling/rivet
tools and electrical products such as chain saws and portable generators. These
products are marketed under well-known brand names such as Remington(R),
Master(R) and Powerfast(R).
Competitive Strengths
Leading Market Positions in High Growth Segments. DESA is the domestic
market leader in outdoor heating appliances (70% market share), vent-free indoor
gas heating (59% market share), vent-free hearth products (31% market share),
powder actuated fastening systems (86% share of the consumer market, which
constitutes 26% of the total domestic market) and electric chain saws (36%
market share). By leveraging its strong market positions and customer
relationships in established product lines, DESA has increased sales by
introducing related products or line extensions of existing products such as
vent-free gas logs (introduced in fiscal 1993), vent-free fireplaces (introduced
in fiscal 1995) and fireboxes (introduced in fiscal 1997).
DESA's targeted market segments in the zone heating market have exhibited
strong historical growth. Vent-free indoor gas heater and hearth products, the
most rapidly growing segments in the $1.1 billion zone heating market, have
grown at a CAGR of approximately 44% over the last four years driven primarily
by the increasing consumer trend towards heating with natural gas and liquid
propane. The outdoor heater market has achieved a CAGR of 22% over the same
period.
Strong Relationships with a Diversified Distribution and Customer Base.
DESA has organized its sales and marketing organizations by channels of
distribution. The Company has built strong, long-term relationships with some of
the most rapidly growing retailers, including Home Depot, Lowe's, Sears,
Wal-Mart, W.W. Grainger, Ace Hardware and TruServ. The Company's products are
designed to appeal to a variety of end-users, ranging from do-it-yourself
("DIY") consumers to professional home builders. By building strong
relationships with the leading retailers and distributors within each of the
Company's channels, DESA is well-positioned to participate in the continued
growth of these key customers.
Broad Portfolio of Products with Well-Recognized Brand Names. DESA provides a
broad offering of quality products under numerous brand names which are
well-recognized by its customers. The Company's key brands include Reddy(R),
Remington(R), Vanguard(R) and Comfort Glow(R) for zone heating products and
Remington(R) for powder actuated fastening systems and electric chain saws. The
Company also manufactures products on a private label basis for W.W. Grainger,
Sears, John Deere and Homelite. DESA leverages its brand equity with its DIY
consumers, professionals and specialty dealers by continually providing its
customers new product offerings and product line extensions under its
established brand names.
Proven New Product Development Process. DESA has a proven ability to
consistently offer consumers products with innovative features at attractive
price points. The quality and breadth of DESA's customer relationships provide
the Company with valuable market data that serves as the foundation for the
Company's new product development and product line extension process. For
example, the Company's line of hearth products was initially introduced as the
result of shifting consumer preferences away from (i) wood-burning hearth
products to gas technology and (ii) vented gas products to vent-free units. Over
the last five years, new product introductions and product line extensions have
accounted for approximately 56% of the Company's sales growth.
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Effective Cost Reduction Program and Strong Cash Flow. A core component of
the Company's strong financial performance over the last five years has been a
focused program to enhance margins through cost reduction. The Company has
exceeded its annual cost reduction goal of 3% of cost of sales in each of the
last three years. This cost reduction program has contributed to an increase in
gross profit margin from 33.6% in fiscal 1992 to 37.4% in fiscal 1997.
The Company has been able to achieve its sales growth while efficiently
managing working capital and maintaining low capital expenditures generating
$128.4 million in free cash flow (EBITDA less capital expenditures) for the last
five years.
Strong Management Team. DESA was founded in 1969 by a group including
Robert H. Elman, DESA's current Chairman and CEO. The top three executives of
the Company have worked together as a team for the last 13 years. These
individuals have served as the catalyst for instilling a spirit of "continuous
improvements" and achievement as a cultural standard within the Company. Senior
management is well-complemented by a broad team of experienced managers who have
been with DESA since 1985.
Business Strategy
DESA's objective is to continue to leverage its competitive strengths to
increase revenues and EBITDA. In addition, the Company believes there are
significant additional opportunities to enhance its overall market and
competitive position as follows:
Continue Aggressive Growth through DESA's Primary Channels and Customers.
DESA's distribution strategy is twofold: (i) establish breadth across
distribution channels; and (ii) achieve depth within each channel by fostering
and enhancing relationships with some of the most rapidly growing retailers in
such channel (such as Home Depot and Lowe's in the home center channel and
Wal-Mart and Sears in the mass merchant channel). While DESA has managed to gain
access to multiple channels of distribution, significant opportunities remain to
sell the Company's full product line through each of these customers.
Penetrate New Distribution Channels. Although DESA currently sells its
products through a broad distribution network, the Company believes there are
opportunities to increase the penetration in some of the Company's newer
channels such as plumbing supply stores, building supply chains and fireplace
specialty stores. These newer channels represent attractive markets across the
United States.
Capitalize on Favorable Trends for Vent-Free Gas Products. Recent housing
construction data reveals that over two-thirds of new homes today use gas as the
primary heating source compared to one-third of new homes ten years ago. The
American Gas Association estimates that approximately 60 million homes currently
use gas and the number of homes utilizing gas will grow to 80 million by the
year 2010. This growing preference for gas represents a significant growth
opportunity for DESA as all of its indoor heating products are fueled by natural
or propane gas. Additionally, by focusing on vent-free gas products, which have
lower installation costs and provide increased fuel efficiency compared to
vented products, the Company is well-positioned to benefit from the fastest
growing segments of the zone heating market.
Increase Penetration of International Markets. Similar to the trend in the
United States, the global DIY markets are experiencing attractive growth rates.
Five of the ten largest home improvement retailers in the world are based
outside of the United States. However, international sales comprised only 10% of
DESA's total sales in fiscal 1997.
Make Selected Acquisitions. The Company intends to seek selective
acquisitions where it can expand its existing product portfolio, utilize its
diversified distribution channels and achieve operational synergies. Over the
last five years, only 9% of the Company's sales growth has come through
acquisitions. Management believes that the markets in which it operates are
highly fragmented and there are numerous manufacturers of complementary products
which would make attractive acquisition candidates.
8
<PAGE>
The Recapitalization
Holdings, its shareholders (the "Existing Shareholders") and J.W. Childs
Equity Partners, L.P. ("Childs") have entered into a Recapitalization Agreement
dated as of October 8, 1997 (the "Recapitalization Agreement") which provides
for the recapitalization of Holdings. Pursuant to the Recapitalization
Agreement, Holdings purchased from the Existing Shareholders all outstanding
shares of Holdings' capital stock, other than shares having an implied value of
$8.6 million which will continue to be held by certain Existing Shareholders,
including management, and which represent 10.4% of the outstanding shares of
Holdings' Common Stock immediately following the transaction.
Financing requirements for the Recapitalization, including $8.6 million in
non-cash sources and the retirement of existing debt of the Company and the
payment of fees and expenses, were $365.5 million (including $27.3 million in
seasonal borrowings) and were satisfied through the purchase by Childs and
certain other investors, including UBS Capital LLC (the "Equity Investors"), of
an aggregate $91.4 million in Holdings' equity securities together with an
aggregate $265.6 million in borrowings as follows: (i) the purchase by Childs,
and the other Equity Investors of shares of Holdings' Common Stock (representing
89.6% of the outstanding shares) for $73.8 million (the "Holdings Common Equity
Contribution"); (ii) the purchase by Childs and the other Equity Investors of
$17.6 million in liquidation value of cumulative exchangeable redeemable
preferred stock issued by Holdings (the "Holdings Preferred Stock"); (iii)
$130.0 million from the proceeds of the Offering; (iv) $100.0 million of
borrowings under a senior secured term loan facility among the Company,
Holdings, the several lenders from time to time parties thereto (collectively,
the "Banks"), and NationsBank, N.A., as administrative agent ("NationsBank"),
and Union Bank of Switzerland, New York Branch, as co-agent (the "Term Loan
Facility"); and (v) $35.5 million of borrowings under a $75.0 million senior
secured revolving credit facility among the Company, Holdings, the Banks, and
NationsBank (the "Revolving Credit Facility" and, together with the Term Loan
Facility and certain other facilities, the "New Credit Facility"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of the Notes,"
"Description of New Credit Facility" and "Description of Holdings Preferred
Stock."
The purchase of shares from the Existing Shareholders, the retirement of
existing debt of the Company, the issuance and sale by Holdings of the Holdings
Common Equity Contribution and of the Holdings Preferred Stock, the borrowing by
the Company of funds under the New Credit Facility, the Offering and the payment
of related fees and expenses are referred to herein collectively as the
"Recapitalization." It is intended that the Recapitalization be treated as a
recapitalization transaction for accounting purposes.
9
<PAGE>
Sources and Uses of Funds
The following table sets forth the sources and uses of funds in connection
with the Recapitalization:
(dollars in
thousands)
Sources of Funds:
Cash Sources:
New Credit Facility:
Revolving Credit Facility(1) $ 35,500
Term Loan Facility 100,000
Issuance of Notes 130,000
Equity investment:
Issuance of Holdings Preferred Stock(2) 17,600
Issuance of Holdings Common Stock 73,815
Non-Cash Sources:
Holdings Common Stock retained by Existing Stockholders 8,585
--------
$365,500
========
Uses of Funds:
Recapitalization consideration $165,022
Repayment of existing debt 186,714
Fees and expenses 13,163
Working capital 601
--------
$365,500
========
--------
(1) The Revolving Credit Facility will provide for borrowing of up to $75.0
million. Giving effect to the Recapitalization, average outstanding
borrowings under the Revolving Credit Facility would have been $10.7
million during the twelve months ended November 29, 1997. This amount
excludes letters of credit which will be issued to replace outstanding
letters of credit established to facilitate merchandise purchases, which
had an aggregate outstanding balance of $0.9 million as of November 29,
1997.
(2) Holdings may issue junior subordinated notes (the "Exchange Notes") in
exchange for the outstanding Holdings Preferred Stock under certain
circumstances. The Exchange Notes have substantially the same terms as the
Holdings Preferred Stock. See "Description of Holdings Preferred Stock" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- After the
Recapitalization."
10
<PAGE>
The Equity Investors
Childs
J.W. Childs Equity Partners, L.P., is a $463 million institutional equity
fund managed by J.W. Childs Associates, L.P. ("JWCA"), a Boston-based private
investment firm. Childs acquires equity positions primarily in established small
and middle-market growth companies through friendly, management-led acquisitions
and recapitalizations. Childs' investment strategy is to leverage on the
operating and financial experience of its partners and to invest, along with
management, in growing companies with a history of profitable operations. In
addition to four partners with financial backgrounds, JWCA has three "operating"
partners who have each had prior experience as the chief executive officer of a
successful leveraged buyout. Childs invests in a wide variety of industries, but
places particular focus on those in which the partners with operation
backgrounds have had direct managerial experience: branded and non-branded
consumer products, specialty retailing, energy and light manufacturing.
UBS Capital
UBS Capital LLC ("UBS Capital") is a merchant banking affiliate of the
Union Bank of Switzerland. Headquartered in New York, New York, UBS Capital
engages in a wide range of private equity transactions including management
buyouts, growth equity investments and recapitalizations. UBS Capital and its
merchant banking affiliates have investments in over 40 portfolio companies and
manage a proprietary capital allocation from the Union Bank of Switzerland of
over $1.2 billion. UBS Capital and its affiliates have invested in a wide
variety of industries, including branded consumer products, specialty paper,
industrial products, sporting goods, telecommunications, retailing and software.
11
<PAGE>
THE PRIOR OFFERING
The outstanding $130.0 million principal amount of Old Notes were sold by
the Company to the Initial Purchasers on the Closing Date pursuant to the
Purchase Agreement among the Company and the Initial Purchasers. The Initial
Purchasers subsequently resold the Old Notes in reliance on Rule 144A under the
Securities Act. The Company, the Subsidiary Guarantors and the Initial
Purchasers also entered into the Registration Rights Agreement pursuant to which
the Company granted certain registration rights for the benefit of the holders
of the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer--Purpose and Effect."
THE EXCHANGE OFFER
The Exchange Offer The Company is offering upon the terms and subject
to the conditions set forth herein and in the
accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange $1,000 in principal
amount of its 97/8% Senior Notes due 2007 (the
"New Notes," with the Old Notes and the New Notes
collectively referred to herein as the "Notes")
for each $1,000 in principal amount of the
outstanding Old Notes (the"Exchange Offer"). As of
the date of this Prospectus, $130.0 million in
aggregate principal amount of the Old Notes is
outstanding. See "The Exchange Offer--Terms of the
Exchange Offer."
Expiration Date 5:00 p.m., New York City time, on ___________,
1998 as the same may be extended. See "The
Exchange Offer--Expiration Date; Extensions;
Amendments."
Conditions of The Exchange Offer is not conditioned upon any
the Exchange Offer minimum principal amount of Old Notes being
tendered for exchange. The only condition to the
Exchange Offer is the declaration by the
Commission of the effectiveness of the
Registration Statement of which this Prospectus
constitutes a part. See "The Exchange
Offer--Conditions of the Exchange Offer."
Termination of Pursuant to the Registration Rights Agreement and
Certain Rights the Old Notes, holders of Old Notes (i) have
rights to receive Liquidated Damages and (ii) have
certain rights intended for the holders of
unregistered securities. "Liquidated Damages"
means damages of $0.05 per week per $1,000
principal amount of Old Notes (up to a maximum of
$0.30 per week per $1,000 principal amount) during
the period in which a Registration Default is
continuing pursuant to the terms of the
Registration Rights Agreement. Holders of New
Notes will not be and, upon consummation of the
Exchange Offer, holders of Old Notes will no
longer be, entitled to (i) the right to receive
the Liquidated Damages or (ii) certain other
rights under the Registration Rights Agreement
intended for holders of unregistered securities.
See "The Exchange Offer--Termination of Certain
Rights" and "--Procedures for Tendering Old
Notes."
Accrued Interest The New Notes will bear interest at a rate equal
to 97/8% per annum. Interest shall accrue from
_____________ or from the most recent Interest
Payment Date with respect to the Old Notes to
which interest was paid or duly provided for. See
"Description of Notes--Principal, Maturity and
Interest."
12
<PAGE>
Procedures for Unless a tender of Old Notes is effected pursuant
Tendering Old Notes to the procedures for book-entry transfer as
provided herein, each holder desiring to accept
the Exchange Offer must complete and sign the
Letter of Transmittal, have the signature thereon
guaranteed if required by the Letter of
Transmittal, and mail or deliver the Letter of
Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery and any other
required documents (such as evidence of authority
to act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined) at
the address set forth on the back cover page of
this Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Beneficial Owner
(as defined) of the Old Notes whose Old Notes are
registered in the name of a nominee, such as a
broker, dealer, commercial bank or trust company
and who wishes to tender Old Notes in the Exchange
Offer, should instruct such entity or person to
promptly tender on such Beneficial Owner's behalf.
See "The Exchange Offer--Procedures for Tendering
Old Notes."
Guaranteed Holders of Old Notes who wish to tender their Old
Delivery Procedures Notes and (i) whose Old Notes are not immediately
available or (ii) who cannot deliver their Old
Notes or any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date (or complete the procedure
for book-entry transfer on a timely basis), may
tender their Old Notes according to the guaranteed
delivery procedures set forth in the Letter of
Transmittal. See "The Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of Old Upon effectiveness of the Registration Statement
Notes and Delivery of which this Prospectus constitutes a part and
of New Notes consummation of the Exchange Offer, the Company
will accept any and all Old Notes that are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly after
acceptance of the Old Notes. See "The Exchange
Offer--Acceptance of Old Notes for Exchange;
Delivery of New Notes."
Withdrawal Rights Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer--Withdrawal Rights."
TheExchange Agent Marine Midland Bank is the exchange agent (in such
capacity, the "Exchange Agent"). The address and
telephone number of the Exchange Agent are set
forth in "The Exchange Offer--The Exchange Agent;
Assistance."
Fees and Expenses All expenses incident to the Company's
consummation of the Exchange Offer and compliance
with the Registration Rights Agreement will be
borne by the Company. The Company will also pay
certain transfer taxes applicable to the Exchange
Offer. See "The Exchange Offer--Fees and
Expenses."
13
<PAGE>
Resales of Based on existing interpretations by the staff of
the New Notes the Commission set forth in no-action letters
issued to third parties, the Company believes that
New Notes issued pursuant to the Exchange Offer to
a holder in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a
holder (other than (i) a broker-dealer who
purchased the Old Notes directly from the Company
for resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) a person that is
an affiliate of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such holder is acquiring the New
Notes in the ordinary course of business and is
not participating, and has no arrangement or
understanding with any person to participate, in a
distribution of the New Notes. Each broker-dealer
that receives New Notes in exchange for Old Notes,
where such Old Notes were acquired by such broker
as a result of market-making or other trading
activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such
New Notes. See "The Exchange Offer--Resales of the
New Notes" and "Plan of Distribution."
Effect of Not Old Notes that are not tendered or that are not
Tendering Old Notes properly tendered will, following the expiration
for Exchange of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof.
The Company will have no further obligations to
provide for the registration under the Securities
Act of such Old Notes and such Old Notes will,
following the expiration of the Exchange Offer,
bear interest at the same rate as the New Notes.
Certain Federal The Company believes that the exchange pursuant to
Income Tax the Exchange Offer will not be a taxable event for
Consequences federal income tax purposes. See "Certain Federal
Income Tax Consequences of the Exchange Offer."
14
<PAGE>
Description of New Notes
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of the New Notes will not
be entitled to Liquidated Damages and (iii) holders of the New Notes will not
be, and upon consummation of the Exchange Offer, holders of the Old Notes will
no longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of unregistered securities, except in limited
circumstances. See "Exchange Offer--Termination of Certain Rights." The Exchange
Offer shall be deemed consummated upon the occurrence of the delivery by the
Company to the Registrar under the Indenture of the New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
are tendered by holders thereof pursuant to the Exchange Offer. See "The
Exchange Offer--Termination of Certain Rights" and "Procedures for Tendering Old
Note;" and "Description of Notes."
Securities Offered $130.0 million in aggregate principal amount of
97/8% Senior Subordinated Notes due 2007 (the
"Notes").
Maturity December 15, 2007
Interest The Notes will bear interest at the rate of 97/8%
per annum, payable semiannually on June 15 and
December 15, commencing June 15, 1998.
Optional Redemption The Notes may be redeemed at the option of the
Company, in whole or in part, on or after December
15, 2002 at a premium declining to par in 2005,
plus accrued and unpaid interest and Liquidated
Damages, if any, through the redemption date.
On or before December 15, 2000, the Company may,
at its option, redeem up to 35% of the original
aggregate principal amount of Notes with the net
proceeds from one or more Public Equity Offerings
(as defined) at the redemption price set forth
herein, plus accrued and unpaid interest, if any,
through the redemption date; provided, however,
that at least 65% of the original aggregate
principal amount of Notes remain outstanding
following such redemption.
Change of Control Upon a Change of Control (as defined herein), the
Company (i) will be required to make an offer to
repurchase all outstanding Notes at 101% of the
principal amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages, if any,
to the date of repurchase and (ii) prior to
December 15, 2002 will have the option to redeem
the Notes, in whole or in part, at a redemption
price equal to the principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date plus the
Applicable Premium (as defined herein). There can
be no assurance that sufficient funds will be
available to the Company at the time of any Change
of Control to make any required repurchases of
Notes. See "Risk Factors-- Potential Inability to
Fund Change of Control Offer," "Description of
Notes-- Repurchase at the Option of Holders--
Change of Control" and "--Optional Redemption upon
Change of Control."
15
<PAGE>
Ranking The Notes will be general unsecured obligations of
the Company, will be subordinated in right of
payment to all existing and future Senior
Indebtedness (as defined in the Indenture),
including all obligations of the Company under the
New Credit Facility, and will be pari passu in
right of payment with any senior subordinated
indebtedness of the Company. The Company conducts
certain operations through its foreign
subsidiaries and, accordingly, the Notes will be
effectively subordinated to indebtedness and other
liabilities of such foreign subsidiaries. At
October 4, 1997, on a pro forma basis after giving
effect to the Recapitalization, the aggregate
principal amount of Senior Indebtedness of the
Company would have been approximately $135.9
million, all of which would have been Indebtedness
secured by substantially all of the assets of
Holdings and the Company pursuant to the New
Credit Facility, and the Company's foreign
subsidiaries would have had aggregate liabilities
of $3.2 million.
Guarantees The Company's obligations under the Notes will be
guaranteed (the "Guarantees") on a senior
subordinated basis by Holdings and each subsidiary
of Holdings that guarantees any indebtedness of
the Company or any other obligor under the Notes
(the "Guarantors"). The Guarantees will be general
unsecured obligations of the Guarantors, will be
subordinated in right of payment to all existing
and future Senior Indebtedness of the Guarantors,
including all obligations of the Guarantors under
the New Credit Facility and will rank pari passu
in right of payment with any senior subordinated
indebtedness of the Guarantors. On the date the
Notes are issued, none of the Company's
subsidiaries will guarantee the Notes.
Covenants The indenture pursuant to which the Notes will be
issued (the "Indenture") contains certain
covenants that, among other things, limit the
ability of the Company, Holdings and their
subsidiaries to incur additional Indebtedness and
issue preferred stock, pay dividends or make other
distributions, create certain liens, enter into
certain transactions with affiliates, sell assets
of the Company, Holdings or their subsidiaries,
issue or sell Equity Interests of the Company's or
Holdings' subsidiaries or enter into certain
mergers and consolidations. In addition, under
certain circumstances, the Company and Holdings
will be required to offer to purchase Notes at a
price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any,
to the date of purchase, with the proceeds of
certain Asset Sales (as defined). See "Description
of Notes."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
16
<PAGE>
Summary Unaudited Pro Forma Consolidated Financial Data of Holdings
The following sets forth summary unaudited pro forma consolidated financial data
of Holdings derived from the unaudited pro forma financial data contained
elsewhere herein. Certain management assumptions and adjustments relating to the
Recapitalization are set forth in the notes accompanying such unaudited pro
forma financial data. The following unaudited pro forma consolidated Statement
of Operating Data for the year ended March 1, 1997 gives effect to the
Recapitalization as if it had occurred on March 3, 1996. The following unaudited
pro forma consolidated Statement of Operating Data for the thirty-nine weeks
ended November 29, 1997 gives effect to the Recapitalization as if it had
occurred on March 2, 1997. The following unaudited pro forma consolidated
Balance Sheet Data gives effect to the Recapitalization as if it had occurred on
November 29, 1997. This pro forma information is not necessarily indicative of
the results that would have occurred had the Recapitalization been completed on
the dates indicated or the Company's actual or future results or financial
position. Holdings is a holding company which does not carry on operations and
the sole asset of which is 100% of the capital stock of the Company. The summary
pro forma consolidated financial data should be read in conjunction with the
information contained in the financial statements and notes thereto, "Pro Forma
Condensed Consolidated Financial Data," "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Pro Forma
----------------------------------
Fiscal Year Thirty-nine
Ended Weeks Ended
March 1, 1997 November 29, 1997
------------- -----------------
(in thousands, except ratios)
<S> <C> <C>
Statement of Operating Data:
Net sales (1) $ 209,105 $ 193,404
Cost of sales 130,890 123,243
--------- ---------
Gross profit 78,215 70,161
Selling and administrative expenses (2) 41,706 34,777
--------- ---------
Operating profit (3) $ 36,509 $ 35,384
========= =========
Other Data:
EBITDA (4) $ 38,729 $ 36,749
EBITDA margin 18.5% 19.0%
Capital expenditures $ 2,770 $ 3,690
Depreciation 2,432 2,363
Amortization 2,144 1,569
Cash interest expense (5) 21,323 17,069
Ratio of EBITDA to cash interest expense 1.8x 2.2x
Ratio of EBITDA less capital expenditures to cash
interest expenses 1.7x 1.9x
Ratio of earnings to fixed charges (6) 1.6x 1.9x
Balance Sheet Data at November 29, 1997:
Working capital $ 34,758
Total assets 157,780
Long-term debt 240,500
Stockholders' equity (deficit) (145,255)
17
<PAGE>
- - - - ----------
<FN>
(1) Net sales constitute gross sales net of accruals for returns and allowances
and cash discounts.
(2) Excludes certain non-recurring charges of $9,451 attributable to the
Recapitalization. See the notes to "Unaudited Pro Forma Condensed Consolidated
Statement of Income Data."
(3) Operating profit is before amortization of intangibles and deferred finance
charges, management fees and miscellaneous expenses. Miscellaneous expenses
were $212 for the fiscal year ended March 1, 1997, $298 for the thirty-nine
weeks ended November 29, 1997.
(4) EBITDA is defined as income before income taxes plus interest expense and
depreciation, as well as amortization of intangibles and deferred charges and
management fees of $240 per annum and related expenses which are included in
other expenses. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness and because
management believes that EBITDA is a relevant measure of the Company's ability
to generate cash without regard to the Company's capital structure or working
capital needs. However, EBITDA should not be considered as an alternative to
net income as a measure of a company's operating results or to cash flows from
operating activities as a measure of liquidity. EBITDA as presented may not be
comparable to similarly titled measures used by other companies, depending
upon the non-cash charges included. When evaluating EBITDA, investors should
also consider other factors which may influence operating and investing
activities, such as changes in operating assets and liabilities and purchases
of property and equipment.
(5) Pro forma cash interest expense includes interest expense on the Notes,
borrowings under the Term Loan Facility and average borrowings under the
Revolving Credit Facility for the applicable period and excludes amortization
of debt issuance costs. See note 2 to "Unaudited Pro Forma Condensed
Consolidated Statement of Income Data."
(6) For purposes of computing this ratio, earnings consist of income before income
taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing cost and 33% of the rent expense from
operating leases which the Company believes is a reasonable approximation of
the interest factor included in the rent.
</FN>
</TABLE>
18
<PAGE>
Summary Financial Data
Set forth below are selected historical financial data and other historical
operating data of Holdings. The summary historical Statements of Operating Data
and Balance Sheet Data below for each of the years in the three year period
ended March 1, 1997 and as of March 2, 1996 and March 1, 1997 have been derived
from the audited consolidated financial statements of Holdings which have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this Offering Memorandum. The summary historical Statement of Operating Data
below for the year ended February 26, 1994 represents the unaudited pro forma
results of combining the consolidated income statement data of Holdings from its
date of incorporation, December 1, 1993, through February 26, 1994 with the
income statement data of the Company from February 28, 1993 through November 30,
1993, which statements for the three and nine month periods, not presented
separately herein, have also been audited by Ernst & Young LLP. The summary
historical Balance Sheet Data at February 26, 1994 has been derived from the
audited consolidated balance sheet of Holdings which has also been audited by
Ernst & Young LLP, but which is not included elsewhere herein. The summary
historical Statement of Operating Data and Balance Sheet Data at and for the
year ended February 27, 1993 have been derived from the audited consolidated
financial statements of the Company which have also been audited by Ernst &
Young LLP, but which are not included elsewhere herein. The summary historical
Statement of Operating Data for the thirty-nine weeks ended November 30, 1996
and November 29, 1997 and the summary historical Balance Sheet Data at November
29, 1997 have been derived from Holdings' unaudited consolidated financial
statements for those periods included elsewhere in the Prospectus and, in each
case, include, in the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
for the unaudited interim periods. Results of operations for the thirty-nine
weeks ended November 29, 1997 are not necessarily indicative of the results that
may be expected for the entire year. The information presented below is
qualified in its entirety by, and should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
Thirty-Nine
Fiscal Year Weeks Ended
----------- -----------
November 30, November 29,
1993 1994 1995 1996(1) 1997 1996 1997
---- ---- ---- ------- ---- ---- ----
(in thousands, except ratios) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operating Data:
Net sales(2) $ 98,712 $ 122,777 $ 172,501 $ 186,324 $ 209,105 $ 173,587 $ 193,404
Cost of sales 66,902 80,444 107,484 116,217 130,890 108,587 123,243
--------- --------- --------- --------- --------- --------- ---------
Gross profit 31,810 42,333 65,017 70,107 78,215 65,000 70,161
Selling and administrative expenses 21,742 26,008 33,851 35,503 42,656 32,083 35,477
--------- --------- --------- --------- --------- --------- ---------
Operating profit(3) 10,068 16,325 31,166 34,604 35,559 32,917 34,684
Interest expense 4,186 4,349 5,777 7,073 14,509 11,105 11,321
Other expenses 578 875 2,124 2,325 2,601 1,830 2,082
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes 5,304 11,101 23,265 25,206 18,449 19,982 21,281
Income taxes 2,154 4,702 10,064 10,703 7,733 8,378 8,769
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item 3,150 6,399 13,201 14,503 10,716 11,604 12,512
Extraordinary item -- 4,387 -- 2,638 -- -- 7,797
--------- --------- --------- --------- --------- --------- ---------
Net income $ 3,150 $ 2,012 $ 13,201 $ 11,865 $ 10,716 $ 11,604 $ 4,715
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges(4) 2.1x 2.9x 4.4x 4.0x 2.2x 2.1x 2.7x
Other Data:
EBITDA (5) $ 11,790 $ 18,198 $ 33,270 $ 36,853 $ 37,779 $ 35,019 $ 36,749
EBITDA margin 11.9% 14.8% 19.3% 19.8% 18.1% 20.2% 19.0%
Capital expenditures $ 1,655 $ 1,420 $ 1,499 $ 2,122 $ 2,770 $ 1,662 $ 3,690
Depreciation 1,927 1,938 2,148 2,332 2,432 2,127 2,363
Amortization 335 1,620(6) 1,966 1,963 2,104 1,571 1,569
Balance Sheet Data (at period end):
Cash and cash equivalents $ 462 $ 1,597 $ 16,170 $ 145 $ 5,058 $ 393 $ 201
Working capital (deficit) 5,563 6,680 9,738 (1,194) (8,566) 35,680 34,758
Total assets 27,867 84,055 107,259 85,545 91,984 137,105 157,780
Long-term debt 27,956 62,000 49,700 149,709 130,600 163,194 240,500
Stockholders' equity (deficit) (13,210) 2,279 16,194 (95,402) (84,754) (83,577) (145,255)
19
<PAGE>
- - - - ----------
<FN>
(1) 53-week fiscal year. Holdings was party to a recapitalization in January 1996 which impacted interest expense,
stockholders' equity and long-term debt.
(2) Net sales constitute gross sales net of accruals for returns and allowances and cash discounts.
(3) Operating profit is before amortization of intangibles and deferred charges and certain management fees and miscellaneous
expenses. Management fees and related expenses amounted to $38, $25, $114, $279 and $285 for fiscal 1993, 1994, 1995, 1996
and 1997, respectively, and $234 and $215 for the thirty-nine weeks ended November 30, 1996 and November 29, 1997,
respectively. Miscellaneous (income)/expenses amounted to $205, $65, $44, $83 and $212 for fiscal 1993, 1994, 1995, 1996
and 1997, respectively, and $25 and $298 for the thirty-nine weeks ended November 30, 1996 and November 29, 1997,
respectively.
(4) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense and amortization of deferred financing cost and 33% of the rent expense from operating leases
which the Company believes is a reasonable approximation of the interest factor included in the rent.
(5) EBITDA is defined as income before taxes plus interest expense and depreciation, amortization of intangibles and deferred
charges and management fees and related expenses which are included in other expenses on the Statement of Operating Data.
EBITDA is presented because it is a widely accepted financial indicator of a company's ability to service indebtedness and
because management believes that EBITDA is a relevant measure of the Company's ability to generate cash without regard to
the Company's capital structure or working capital needs. However, EBITDA should not be considered as an alternative to net
income as a measure of a company's operating results or to cash flows from operating activities as a measure of liquidity.
EBITDA as presented may not be comparable to similarly titled measures used by other companies, depending upon the non-cash
charges included. When evaluating EBITDA, investors should also consider other factors which may influence operating and
investing activities, such as changes in operating assets and liabilities and purchases of property and equipment.
(6) Includes amortization of $835 included in extraordinary item.
</FN>
</TABLE>
20
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of the Notes should consider the specific factors set forth below.
Significant Leverage and Debt Service
The Company and its subsidiaries have significant outstanding indebtedness
and are significantly leveraged. As of November 29, 1997, the Company had
outstanding consolidated indebtedness of $262.9 million (excluding letters of
credit in the aggregate amount of $0.9 million). See "Capitalization." In
addition, subject to the limitations set forth in the Indenture, the Company and
its subsidiaries may incur additional indebtedness (including Senior
Indebtedness), including up to $41.2 million under the New Credit Facility. In
addition, the Indenture permits Holdings, under certain circumstances, to
exchange all outstanding Holdings Preferred Stock for Exchange Notes in an
aggregate principal amount equal to the aggregate liquidation preference of the
Holdings Preferred Stock so exchanged. The Exchange Notes will require Holdings
to make semi-annual interest payments thereon at a rate of 12% per annum.
Subject to compliance with the debt agreements of Holdings and the Company, such
payments must be made in cash. The Indenture restricts, but does not prohibit,
Holdings from making such cash interest payments. Under the Exchange Notes,
Holdings may defer the payment of interest payable on or before November 30,
2002, with any such deferred interest bearing interest at 12% per annum,
compounded semi-annually. Holdings will be required to make a catch-up payment
immediately prior to the first interest payment date after the fifth anniversary
of the date of issuance to the extent the aggregate amount of such deferred
interest exceeds an amount equal to one year's interest on the originally issued
Exchange Notes. The Indenture restricts the ability of Holdings to make such
catch-up payment. See "Description of the Notes -- Certain Covenants --
Restricted Payments" and "Description of Holdings Preferred Stock -- Exchange
Notes".
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including (i) the Company's
vulnerability to adverse general economic and industry conditions, (ii) the
Company's ability to obtain additional financing for future capital
expenditures, general corporate or other purposes and (iii) the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal and interest on indebtedness, thereby reducing the funds available for
operations and future business opportunities.
The Company's ability to make scheduled payments on the principal of, or
interest or Liquidated Damages (if any) on, or to refinance, its indebtedness
will depend on its future operating performance and cash flow, which are subject
to prevailing economic conditions, prevailing interest rate levels, and
financial, competitive, business and other factors, many of which are beyond its
control, as well as the availability of borrowings under the New Credit Facility
or successor facilities. However, based upon the current and anticipated level
of operations, the Company believes that its cash flow from operations, together
with amounts available under the New Credit Facility and its other sources of
liquidity, will be adequate to meet its anticipated cash requirements for the
foreseeable future for working capital, capital expenditures, interest payments
and principal payments. There can be no assurance, however, that the Company's
business will continue to generate cash flow at or above current levels. If the
Company is unable to generate sufficient cash flow from operations in the future
to service its indebtedness, it may be required to refinance all or a portion of
its existing indebtedness, including the Notes, or to obtain additional
financing. There can be no assurance that any such refinancing would be possible
or that any additional financing could be obtained. The inability to obtain
additional financing could have a material adverse effect on the Company.
Finally, in order to pay the principal balance of the Notes due at maturity, the
Company may have to obtain alternative financing.
Subordination of Notes
The Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including borrowings under the New Credit Facility. In addition,
the Company conducts certain operations through its foreign subsidiaries, and
accordingly, the Notes will be effectively subordinated to indebtedness and
other liabilities of its foreign subsidiaries. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on
21
<PAGE>
any or all of the Notes then outstanding. In addition, under certain
circumstances the Company will not be able to make payment of its obligations
under the Notes in the event of a default under certain Senior Indebtedness. The
aggregate principal amount of Senior Indebtedness of the Company, as of November
29, 1997, would have been $132.9 million on a pro forma basis after giving
effect to the Recapitalization. Additional Senior Indebtedness may be incurred
by the Company from time to time, subject to certain restrictions. See
"Description of Notes -- Subordination."
Future Acquisitions
The Company expects to pursue strategic acquisitions. The Company has
entered into an agreement to acquire the Heath-Zenith business of Heath Holding
Corp. See "Business--Recent Developments." No assurance may be given that such
acquisition will ultimately be consummated. Except for the proposed acquisition
of the Heath-Zenith business, the Company has no present understandings,
commitments or agreements with respect to any such acquisitions, the Company
continually evaluates potential acquisition opportunities. The Company is unable
to predict whether any of these opportunities will result in acquisitions.
Acquisitions by the Company could result in the incurrence of additional
indebtedness, which could materially adversely affect the Company's business,
financial condition and results of operations. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies, services and products of the acquired companies and the diversion
of management's attention from other business concerns. In the event that any
such acquisition were to occur, there can be no assurance that the Company's
business, financial condition and results of operations would not be materially
adversely affected. See "Business -- Business Strategy."
Dependence on Brand Names
In fiscal 1997, the majority of the Company's net sales are sales of
products bearing the Company's principal proprietary names of Reddy(R),
Remington(R), Vanguard(R), Comfort Glow(R), Master(R), and Powerfast(R).
Accordingly, the Company's future success may depend in part upon the goodwill
associated with the Company's principal brand names. Most of the Company's brand
names are registered in the United States and certain foreign countries. The
Company owns the rights to all of the registrations with the exception of
Remington, (used in connection with approximately 15% of sales), which is used
pursuant to a perpetual, royalty-free license.
No assurance can be given that the Company will be able to develop or
acquire licenses to use other popular trademarks in the future. Further, there
can be no assurance that the steps taken by the Company or any licensor to
protect the proprietary rights in such brand names will be adequate to prevent
the misappropriation thereof in the United States or abroad. In addition, the
laws of some foreign countries do not protect proprietary rights in brand names
to the same extent as do the laws of the United States.
Risk of Loss of Material Customers
In fiscal year 1997, sales to Home Depot and Lowe's accounted for 13% and
11% of the Company's net sales, respectively. For the nine months ended November
29, 1997, sales to Home Depot and Lowe's accounted for 16% and 14% of the
Company's net sales, respectively. In fiscal year 1997, sales to the Company's
top ten customers accounted for 49% of the Company's total sales.
Consistent with industry practices, the Company does not operate under
long-term written supply contracts with any of its customers. The business,
financial condition, and results of operations of the Company could be
materially adversely affected by loss of Home Depot or Lowe's as continuing
major customers of the Company.
Seasonality of Business
The Company's business is subject to seasonal fluctuation. In fiscal 1997,
sales and operating income during the second and third quarters of the year
averaged approximately 71% and 90% respectively, of the annual totals. The
Company's needs for working capital and the corresponding debt levels tend to
peak in the second and third fiscal quarters. The amount of the Company's sales
generated during the second and third fiscal quarters generally depends
22
<PAGE>
upon a number of factors, including the level of retail sales for heating
products during the fall and winter, weather conditions affecting the level of
sales of heating products, general economic conditions and other factors beyond
the Company's control.
Dependence on Key Personnel
The Company's business is managed by a number of key personnel, the loss of
which could have a material adverse effect on the Company. In addition, as the
Company's business develops and expands, the Company believes that its future
success will depend greatly on its continued ability to attract and retain
highly skilled and qualified personnel. Currently the Company has entered into
employment agreements with Robert H. Elman (Chairman, Chief Executive Officer
and Director), Terry G. Scariot (President, Director) and John M. Kelly
(Executive Vice President), and will enter into amended employment agreements
with them upon consummation of the Recapitalization. See "Management --
Employment Agreements with Executive Officers." However, there can be no
assurance that key personnel will continue to be employed by the Company after
the expiration of such amended employment agreements or that the Company will be
able to attract and retain qualified personnel in the future. Failure by the
Company to retain or attract such personnel could have a material adverse effect
on the Company.
Control by Investors
Following the Recapitalization, the Company will be controlled by Childs,
which will beneficially own shares representing 67.5% of the common equity in
Holdings. Accordingly, Childs and affiliates will have the power to elect the
Holdings' board of directors (which will, in turn, elect the Company's board of
directors), appoint new management and cause the approval of any action
requiring the approval of the holders of the Company's Common Stock, including
adopting amendments to the Company's Articles of Incorporation and approving
mergers or sales of substantially all of the Company's assets. The directors
caused to be elected by Childs will have the authority to make decisions
affecting the capital structure of the Company, including the issuance of
additional indebtedness and the declaration of dividends.
Restrictive Covenants
The New Credit Facility and the Indenture will contain restrictive
covenants, which limit the discretion of the management of the Company with
respect to certain business matters. These covenants will place certain
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to pay dividends
or make other restricted payments, to make investments, loans and guarantees and
to sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The New Credit Facility will also contain a
number of financial covenants that will require the Company to meet certain
financial ratios and tests and provide that a "change of control" will
constitute an event of default. See "Description of Notes -- Certain Covenants"
and "Description of New Credit Facility." A failure to comply with the
obligations contained in the New Credit Facility or the Indenture, if not cured
or waived, could permit acceleration of the related indebtedness and
acceleration of indebtedness under other instruments that contain
cross-acceleration or cross-default provisions. In the case of an event of
default under the New Credit Facility, the lenders under the New Credit Facility
would be entitled to exercise the remedies available to a secured lender under
applicable law. If the Company were obligated to repay all or a significant
portion of its indebtedness, there can be no assurance that the Company would
have sufficient cash to do so or that the Company could successfully refinance
such indebtedness. Other indebtedness of the Company that may be incurred in the
future may contain financial or other covenants more restrictive than those
applicable to the New Credit Facility or the Notes.
Potential Inability to Fund Change of Control Offer
Upon a Change in Control (as defined in the Indenture), each holder will
have the right to require the Company to repurchase all or any part of such
holder's Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of repurchase. See
"Description of Notes -- Repurchase at the Option of Holders -- Change of
Control." However, there can be no assurance that sufficient funds will be
available to the Company at the time of the Change of Control to make any
required repurchases of Notes tendered.
23
<PAGE>
Moreover, restrictions in the New Credit Facility may prohibit the Company from
making such required purchases; therefore, any such repurchases would constitute
an event of default under the New Credit Facility absent a waiver.
Notwithstanding these provisions, the Company could enter into certain
transactions, including certain recapitalizations, that would not constitute a
Change of Control but would increase the amount of debt outstanding at such
time.
Fraudulent Conveyance and Preference Considerations
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent conveyance law, if, among other things, the
Company or any of the Guarantors, at the time it incurred the indebtedness
evidenced by the Notes or its Guarantees, as the case may be, (i)(a) was or is
insolvent or rendered insolvent by reason of such occurrence or (b) was or is
engaged in a business or transaction of which the assets remaining with the
Company or such Guarantor were unreasonably small or constitute unreasonably
small capital or (c) intended or intends to incur, or believed, believes or
should have believed that it would incur, debts beyond its ability to repay such
debts as they mature and (ii) the Company or such Guarantor received or receives
less than the reasonably equivalent value or fair consideration for the
incurrence of such indebtedness, the Notes and the Guarantees could be
invalidated or subordinated to all other debts of the Company or such
Guarantors, as the case may be. The Notes or Guarantees could also be
invalidated or subordinated if it were found that the Company or the Guarantor
party thereto, as the case may be, incurred indebtedness in connection with the
Notes or its Guarantees with the intent of hindering, delaying or defrauding
current or future creditors of the Company or such Guarantor, as the case may
be. In addition, the payment of interest and principal by the Company pursuant
to a Guarantee could be voided and required to be returned to the person making
such payment, or to a fund for the benefit of the creditors of the Company, as
the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the sum of all of its assets at a fair valuation or if the present
fair saleable value of its assets were less than the amount that would be
required to pay its probable liability on its existing debt, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against the
Company or any Guarantor with respect to the Notes or a Guarantees,
respectively, or after the issuance of a Guarantees, or if the Company or such
Guarantor anticipated becoming insolvent at the time of such payment or
issuance, all or a portion of such payment or such Guarantees could be avoided
as a preferential transfer, and the receipt of any such payment could be
required to return such payment.
To the extent any Guarantees were voided as a fraudulent conveyance or held
unenforceable for any other reason, holders of Notes would cease to have any
claim in respect of such Guarantor and would be creditors solely of the Company
and any Guarantor whose Guarantees was not avoided or held unenforceable. In
such event, the claims of holders of Notes against the issuer of an invalid
Guarantees would be subject to the prior payment of all liabilities and
preferred stock claims of such Guarantor. There can be no assurance that, after
providing for all prior claims and preferred stock interests, if any, there
would be sufficient assets to satisfy the claims of holders of Notes relating to
any voided portions of any Guarantees. The Company currently has no significant
subsidiaries.
On the basis of its historical financial information, recent operating
history and projected financial data, the Company believes that, after giving
effect to the indebtedness incurred in connection with the Recapitalization, it
will not be insolvent, will not have unreasonably small assets or capital for
the businesses in which it is engaged and will not incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations.
24
<PAGE>
THE EXCHANGE OFFER
General
In connection with the sale of the Old Notes, the Company, Holdings and the
Initial Purchasers entered into the Registration Rights Agreement, which
requires the Company to file with the Commission a registration statement under
the Securities Act with respect to an issue of senior subordinated notes of the
Company with terms identical to the Old Notes (except with respect to
restrictions on transfer) and to use their best efforts to cause such
registration statement to become effective under the Securities Act by no later
than Marach 26, 1998 and, upon the effectiveness of such registration statement,
to offer to the holders of the Old Notes the opportunity, for a period of 30
business days (or longer if required by applicable law) from the date the notice
of the Exchange Offer is mailed to holders of the Old Notes, to exchange their
Old Notes for a like principal amount of New Notes. The Exchange Offer is being
made pursuant to the Registration Rights Agreement to satisfy the Company's
obligations thereunder.
Under existing interpretations of the staff of the Commission enunciated in
no-action letters issued to third parties, the New Notes would, in general, be
freely transferable after the Exchange Offer without further registration under
the Securities Act by holders thereof (other than (i) a broker-dealer who
acquires such New Notes directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangements with any person to participate in the distribution of such New
Notes. Eligible holders wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes.
Terms of the Exchange Offer
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to make certain representations, including
that (i) it is neither an affiliate of the Company nor a broker-dealer tendering
Old Notes acquired directly from the Company for its own account, (ii) any New
Notes to be received by it were acquired in the ordinary course of its business
and (iii) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in connection with
any resales of New Notes, any broker-dealer (a "Participating Broker-Dealer")
who acquired Old Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the New
Notes. The Commission has taken the position, in no-action letters issued to
third parties, that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the New Notes (other than a resale of an
unsold allotment from the original sales of Old Notes) with the prospectus
contained in the Registration Statement. Under the Registration Rights
Agreement, the Company and the Guarantors are required to allow Participating
Broker-Dealers (and other persons, if any, subject to similar prospectus
delivery requirements) to use the prospectus contained in the Registration
Statement in connection with the resale of such New Notes, provided, however,
they shall not be required to amend or supplement such prospectus for a period
exceeding 180 days after the consummation of the Exchange Offer.
If (a) the Company and the Guarantors fail to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company and the
Guarantors fail to Consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company and the Guarantors will pay Liquidated Damages to each Holder
of Transfer Restricted Securities, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per
25
<PAGE>
week per $1,000 principal amount of Notes constituting Transfer Restricted
Securities held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount constituting
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Notes
constituting Transfer Restricted Securities. Liquidated Damages accrued as of
any interest payment date will be payable on such date. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. The Company will issue $1,000 in principal amount of New Notes (and
integral multiples in excess thereof) in exchange for an equal principal amount
of outstanding Old Notes tendered and accepted in the Exchange Offer. Holders
may tender some or all of their Old Notes pursuant to the Exchange Offer in any
denomination of $1,000 or in integral multiples in excess thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except that the New Notes will not bear legends restricting the
transfer thereof. The New Notes will evidence the same debt as the Old Notes.
The New Notes will be issued under and entitled to the benefits of the
Indenture.
As of the date of this Prospectus, $130,000,000 million aggregate principal
amount of the Old Notes are outstanding and CEDE & Co., the nominee of DTC, is
the only registered holder thereof. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be eligible for trading in the
PORTAL Market, the National Association of Securities Dealers' screen based,
automated market trading of securities eligible for resale under Rule 144A, and
to be issued and transferable in book-entry form through the facilities of DTC.
The New Notes will also be issuable and transferable in book-entry form through
DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of __________, 1998 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "Exchange Agent." The Exchange Agent will act as agent for
the tendering holders of Old Notes for the purpose of receiving New Notes from
the Company and delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
26
<PAGE>
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"Fees and Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder. Old Notes that are not tendered for exchange in the Exchange Offer
will remain outstanding and continue to accrue interest, but will not be
entitled to any rights or benefits under the Registration Rights Agreement.
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
___________, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "Termination" shall have occurred and shall not have been waived by
the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner ,deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
Interest on the New Notes
The New Notes will bear interest from the last Interest Payment Date on
which interest was paid on the Old Notes, or if interest has not yet been paid
on the Old Notes, from October 24, 1997. Such interest will be paid with the
first interest payment on the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the New Notes.
The New Notes will bear interest at a rate of 97/8% per annum. Interest on
the New Notes will be payable semi-annually, in arrears on each Interest Payment
Date following the consummation of the Exchange Offer. Untendered Old Notes that
are not exchanged for New Notes pursuant to the Exchange Offer will bear
interest at a rate of 97/8% per annum after the Expiration Date.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes (unless the book-entry transfer procedures
27
<PAGE>
described below are used) and any other required documents, to the Exchange
Agent for receipt prior to 5:00 p.m., New York City time, on the Expiration
Date.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make bookentry delivery of the Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account in accordance
with DTC's procedure for such transfer Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received or confirmed by the Exchange Agent at its addresses set forth in
this Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date.
DELIVERY OP DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Old Notes should
be sent to the Company.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Notes are held of record by DTC who desires to deliver such
Old Notes by book-entry Transfer at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") that is a participant
in a recognized medallion signature guarantee program unless the Old Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
submit evidence satisfactory to the Company of their authority to so act with
the Letter of Transmittal.
28
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or if such holder cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of the Old Notes, the certificate number or
numbers of such Old Notes and the principal amount of Old Notes tendered,
stating that the tender is being made thereby, and guaranteeing that, within
three business days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing the Old Notes
(unless the book-entry transfer procedures are to be used) to be tendered in
proper form for transfer and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of Old Notes delivered electronically)
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
29
<PAGE>
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Trustee with respect to the Old Notes to register the transfer of
such Old Notes into the name of the Depositor withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no New Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Any Old Notes that have been tendered but which are not accepted for exchange
will be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "Procedures for Tendering" at any time prior to
the Expiration Date.
Termination
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
exchange Offer or (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission in a manner, which, in the Company's judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period.
Exchange Agent
The Marine Midland Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail: By Hand or Overnight Delivery:
By Facsimile for Eligible Institutions:
(212) ___________.
30
<PAGE>
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or by telephone.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of Transmittal
and related documents to the beneficial owners of the Old Notes and in handling
or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes not tendered or accepted for exchange are to
be delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Notes tendered, or if tendered Old
Notes are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of the exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company upon the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company over the
term of the New Notes under generally accepted accounting principles.
31
<PAGE>
CAPITALIZATION OF THE COMPANY
The following table sets forth, as of November 29, 1997, the consolidated
capitalization of the Company. This table should be read in conjunction with
"Description of the Notes," "Description of New Credit Facility," "Description
of Holdings Preferred Stock" and the Consolidated Financial Statements and the
notes thereto appearing elsewhere in this Offering Memorandum.
(dollars in
thousands)
New Credit Facility Revolving Credit Facility(1) $ 32,855
Term Loan Facility 100,000
Senior Subordinated Notes 130,000
---------
Total Long-Term Debt 262,855
Stockholders' equity (deficit)(2) (23,872)
---------
Total Capitalization $ 238,983
=========
- - - - ----------
(1) The Revolving Credit Facility will provide for borrowing of up to $75.0
million. Giving effect to the Recapitalization, average outstanding
borrowings under the Revolving Credit Facility would have been $10.7
million during the twelve months ended November 29, 1997. This amount
excludes letters of credit which will be issued to replace outstanding
letters of credit established to facilitate merchandise purchase, which had
an aggregate outstanding balance of $0.9 million as of November 29, 1997.
(2) The following are the components to reconcile the Company's Stockholders'
Equity to Pro Forma Holdings' Stockholders' Equity:
November 29, 1997
-----------------
DESA DESA Holdings
International DESA Holdings Consolidated
------------- ------------- ------------
(dollars in thousands)
Historical Stockholders' Equity $ (23,872) $(121,383) $(145,255)
32
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA OF HOLDINGS
The following Unaudited Pro Forma Condensed Consolidated Financial Data are
based on the historical audited consolidated financial statements of Holdings
included elsewhere in this Prospectus, adjusted to give effect to the pro forma
adjustments described in the notes thereto. The Unaudited Pro Forma Condensed
Consolidated Statement of Income Data of Holdings for the year ended March 1,
1997 gives effect to the Recapitalization and the proposed acquisition of the
Heath/Zenith business as if they had occurred on March 3, 1996. The Unaudited
Pro Forma Condensed Consolidated Statement of Income Data for the thirty-nine
weeks ended November 29, 1997 gives effect to the Recapitalization and the
proposed Heath/Zenith acquisition as if they had occurred on March 2, 1997. The
Unaudited Pro Forma Statements of Income Data exclude non- recurring transaction
fees of $9.5 million associated with the Recapitalization. The Unaudited Pro
Forma Condensed Consolidated Balance Sheet Data of Holdings reflects the pro
forma adjustments related to the proposed Heath/Zenith acquisition as though it
had occurred on November 29, 1997. The historical information utilized for
Heath/Zenith is based upon its financial statements for the twelve months ended
December 31, 1996 and the nine months ended October 5, 1997.
The pro forma adjustments are based upon available data and certain
assumptions that Holdings believes are reasonable. The Unaudited Pro Forma
Condensed Consolidated Financial Data are not necessarily indicative of
Holdings' financial position or results of operations that might have occurred
had the Recapitalizationor the Heath/Zenith acquisition been completed as of the
dates indicated above and do not purport to represent what Holdings'
consolidated financial position or results of operations might be for any future
period or date. The Unaudited Pro Forma Condensed Consolidated Financial Data
should be read in conjunction with the Consolidated Financial Statements of
Holdings and the information contained in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Offering Memorandum.
The Recapitalization was accounted for as a recapitalization.
33
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
Year Ended March 1, 1997
(in thousands)
Pro Forma
Pro Forma Adjustments for
DESA Adjustments for Heath/Zenith Heath/Zenith
Historical Recapitalization Pro Forma Historical Acquisition Pro Forma
---------- ---------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 209,105 $ $ 209,105 $ 44,415 $ $ 253,520
Cost of sales 130,890 130,890 34,758 (209)(9) 165,439
--------- --------- --------- --------- ---------
Gross profit 78,215 78,215 9,657 209 88,081
Selling and administrative expenses 42,656 (950)(1) 41,706 7,837 (984)(8)(9) 48,531
(28)(10)
--------- --------- --------- --------- --------- ---------
Operating profit 35,559 950 36,509 1,820 1,221 39,550
Interest expense 14,509 6,814 21,323 559 1,970(6) 23,852
Other expenses 2,601 (45)(3) 2,596 (150) 826(7) 3,272
40 (4)
--------- --------- --------- --------- --------- ---------
Income before income taxes 18,449 (5,859) 12,590 1,411 (1,575) 12,426
Income taxes 7,733 (2,461)(5) 5,272 494 (563)(5) 5,203
--------- --------- --------- --------- --------- ---------
Income before extraordinary item. $ 10,716 $ (3,398) $ 7,318 $ 917 $ (1,012) $ 7,223
========= ========= ========= ========= ========= =========
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income Data
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
Thirty-nine Weeks Ended November 29, 1997
(in thousands)
Pro Forma
Pro Forma Adjustments for
DESA Adjustments for Heath/Zenith Heath/Zenith
Historical Recapitalization Pro Forma Historical Acquisition Pro Forma
---------- ---------------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $193,404 $ $193,404 $ 41,151 $ $234,555
Cost of sales 123,243 123,243 31,409 (152)(9) 154,500
-------- --------- -------- -------- ---------
Gross profit 70,161 70,161 9,742 152 80,055
Selling and administrative expenses 35,477 (700)(1) 34,777 6,256 (714)(8)(9) 40,298
(21)(10)
-------- --------- --------- -------- -------- ---------
Operating profit 34,684 700 35,384 3,486 887 39,757
Interest expense 11,321 5,748 (2) 17,069 587 1,363 (6) 19,019
Other expenses 2,082 (35)(3) 2,077 (106) 619 (7) 2,590
30 (4)
-------- --------- --------- -------- -------- ---------
Income before income taxes 21,281 (5,043) 16,238 3,005 (1,095) 18,148
Income taxes 8,769 (1,981)(5) 6,788 901 (99)(5) 7,590
-------- --------- --------- -------- -------- ---------
Income before extraordinary item $ 12,512 $ (3,062) $ 9,450 $ 2,104 $ (996) $ 10,558
======== ========= ========= ======== ======== =========
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income Data
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME DATA
(In thousands)
Thirty-nine Weeks
Fiscal Year Ended Ended
March 1, 1997 November 29, 1997
------------- -----------------
<S> <C> <C>
Pro Forma Adjustments:
(1) To eliminate historical payments made under existing management bonus plan
and to reflect payments under the management bonus plan to be adopted in
connection with the Recapitalization, as follows:
Management incentive compensation plan that will be
adopted by the Company $ 500 $ 500
Less: Existing management incentive compensation plan (1,450) (1,200)
-------- --------
Pro forma adjustment $ (950) $ (700)
======== ========
(2) The pro forma adjustment to interest expense for the Recapitalization
reflects the following:
Interest expense related to new debt:
New Revolving Credit Facility $ 43 $ 926
New Term Loans 8,074 6,226
New Senior Subordinated Notes 12,838 9,627
Commitment Fee: Line of Credit 181 180
Other interest and bank charges 187 110
-------- --------
Subtotal 21,323 17,069
Less: Interest expense relating to Existing Credit Facility (14,509) (11,321)
-------- --------
Pro forma adjustment $ 6,814 $ 5,748
======== ========
(3) To eliminate historical management fees and related expenses and to
reflect management fees to be paid subsequent to the
Recapitalization, as follows:
Management fee subsequent to the Recapitalization $ 240 $ 180
Less: Historical management fee (285) (215)
-------- --------
Pro forma adjustment $ (45) $ (35)
======== ========
(4) To eliminate amortization of historical deferred financing costs and to
reflect amortization of deferred financing costs to be incurred in
connection with the Recapitalization:
Amortization of deferred financing costs to be incurred in connection
with the Recapitalization $ 1,016 $ 762
Less: Amortization of historical deferred financing costs (976) (732)
-------- --------
Pro forma adjustment $ 40 $ 30
======== ========
36
<PAGE>
Thirty-nine Weeks
Fiscal Year Ended Ended
March 1, 1997 November 29, 1997
------------- -----------------
<S> <C> <C>
(5) To record the income tax benefit related to pro forma adjustments; computed
using an effective tax rate of 42%.
(6) The pro forma adjustment to interest expense for the Heath/Zenith
acquisition reflects the following:
Interest expense related to new debt:
Working capital advance $ 726 $ 561
Acquisition advance 1,653 1,276
Note payable 150 113
-------- --------
Subtotal 2,529 1,950
Less: Interest expense relating to Existing Credit Facility (559) (587)
-------- --------
Pro forma adjustment $ 1,970 $ 1,363
======== ========
(7) To eliminate amortization of historical goodwill and to reflect amortization
of goodwill to be incurred in connection with the Heath/Zenith acquisition:
Amortization of goodwill to be incurred in connection with the acquisition $ 677 $ 508
Less: Amortization of historical goodwill 149 111
-------- --------
Pro forma adjustment $ 826 $ 619
======== ========
(8) To eliminate historical management fees and related expenses and to
reflect management fees to be paid subsequent to the
Heath/Zenith acquisition, as follows:
Management fee subsequent to the acquisition $ -- $ --
Less: Historical management fee (217) (169)
-------- --------
Pro forma adjustment $ (217) $ (169)
======== ========
(9) To reflect synergies related to the Heath/Zenith acquisition, as follows:
Cost of Sales $ (209) $ (152)
Selling, general & administrative (767) (546)
-------- --------
Pro forma adjustment $ (976) $ (697)
======== ========
(10) To eliminate depreceiation recorded in Selling, General & Administrative
expenses that is related to the real estate which is not being acquired in
the Heath/Zenth acquisition: $ (28) $ (21)
-------- --------
Pro forma adjustment $ (28) $ (21)
======== ========
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(in thousands)
As of November 29, 1997
-----------------------
DESA Heath/Zenith Pro Forma
Historical Historical(A) Adjustments Pro Forma
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 201 $ 131 $ $ 332
Accounts receivable (net)
Trade 65,586 8,268 73,854
Other -- 1,079 1,079
Inventories 27,133 10,539 37,672
Other current assets 2,331 1,721 4,052
--------- --------- --------- ---------
Total current assets 95,251 21,738 -- 116,989
Fixed assets (net) 11,409 1,040 (713)(4) 11,736
Goodwill(B) 39,999 (1,651) 29,746 (5) 67,094
Other assets 11,121 1,561 12,682
--------- --------- --------- ---------
Total assets $ 157,780 $ 22,688 $ 28,033 $ 208,501
========= ========= ========= =========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable $ 25,114 $ 4,580 $ (1,273)(1) $ 28,421
Accrued liabilities 10,319 6,121 16,440
Note payable -- 7,160 (7,160)(2) 2,000
2,000 (3)
Income taxes payable 2,705 -- (210)(3) 2,495
Current portion of long-term debt 22,355 221 (221)(2) 22,555
200 (3)
--------- --------- -------- ---------
Total current liabilities 60,493 18,082 (6,664) 71,911
Long-term debt 240,500 313 (313)(2) 269,500
29,000 (3)
Deferred tax liabilities 1,663 -- 1,663
Other liabilities 379 -- 379
--------- --------- -------- ---------
Total liabilities $ 303,035 18,395 22,023 343,453
Commitments
Redeemable preferred stock 17,600 -- 17,600
Stockholders' equity (deficit) (162,855) 4,293 6,400 (3) (152,552)
(390)(3)
--------- --------- -------- ---------
(deficit) $ 157,780 $ 22,688 $ 28,033 $ 208,501
========= ========= ========= =========
<FN>
(A) Heath/Zenith based upon October 5, 1997 financial statements
(B) Heath/Zenith historical goodwill is negative goodwill
</FN>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
<S> <C>
Pro Forma Adjustments:
(1) To eliminate payable to affiliate $ (1,273)
=========
(2) To reflect payment of debt, as follows:
Note payable $ (7,160)
Bank debt (534)
Pro forma adjustment $ (7,694)
(3) To reflect the sources and uses of cash and cash equivalents
used to finance the Heath/Zenith acquisition, as follows:
Sources:
New Credit Facility-Revolving Credit Facility $ 9,200
New Credit Facility-Acquisition Facility 20,000
Sale of Common Stock 6,400
Note payable 2,000
--------
$ 37,600
========
Uses:
Purchase of Heath/Zenith $ 37,000
Financing costs 600
--------
$ 37,600
========
(4) To eliminate real estate not being acquired as part of the Heath/Zenith
acquisition $ (713)
========
(5) To reflect goodwill associated with the Heath/Zenith acquisition $ 28,746
========
</TABLE>
39
<PAGE>
SELECTED FINANCIAL DATA
Set forth below are selected historical financial data and other historical
operating data of Holdings. The summary historical Statements of Operating Data
and Balance Sheet Data below for each of the years in the three year period
ended March 1, 1995 and as of March 2, 1996 and March 1, 1997 have been derived
from the audited consolidated financial statements of Holdings which have been
audited by Ernst & Young LLP, independent auditors, and are included elsewhere
in this Prospectus. The summary historical Statement of Operating Data below for
the year ended February 26, 1994 represents the unaudited pro forma results of
combining the consolidated income statement data of Holdings from its date of
incorporation, December 1, 1993, through February 26, 1994 with the income
statement data of the Company from February 28, 1993 through November 30, 1993,
which statements for the three and nine month periods, not presented separately
herein, have also been audited by Ernst & Young LLP. The summary historical
Balance Sheet Data at February 26, 1994 has been derived from the audited
consolidated balance sheet of Holdings which has also been audited by Ernst &
Young LLP, but which is not included elsewhere herein. The summary historical
Statement of Operating Data and Balance Sheet Data at and for the year ended
February 27, 1993 have been derived from the audited consolidated financial
statements of the Company which have also been audited by Ernst & Young LLP, but
which are not included elsewhere herein. The summary historical Statement of
Operating Data for the thirty-nine weeks ended November 30, 1996 and November
29, 1997 and the summary historical Balance Sheet Data at November 29, 1997 have
been derived from Holdings' unaudited consolidated financial statements for
those periods included elsewhere in the Offering Memorandum and, in each case,
include, in the opinion of management, all adjustments consisting of normal
recurring adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. Results of operations for the thirty-nine weeks ended
November 29, 1997 are not necessarily indicative of the results that may be
expected for the entire year. The information presented below is qualified in
its entirety by, and should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Thirty-one
Fiscal Year Weeks Ended
----------- -----------
November 30, November 29,
1993 1994 1995 1996(1) 1997 1996 1997
---- ---- ---- ------- ---- ---- ----
(in thousands, except ratios) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operating Data:
Net sales(2) $ 98,712 $ 122,777 $ 172,501 $ 186,324 $ 209,105 $ 173,587 $ 193,404
Cost of sales 66,902 80,444 107,484 116,217 130,890 108,587 123,243
--------- --------- --------- --------- --------- --------- ---------
Gross profit 31,810 42,333 65,017 70,107 78,215 65,000 70,161
Selling and administrative expenses 21,742 26,008 33,851 35,503 42,656 32,083 35,477
--------- --------- --------- --------- --------- --------- ---------
Operating profit(3) 10,068 16,325 31,166 34,604 35,559 32,917 34,684
Interest expense 4,186 4,349 5,777 7,073 14,509 11,105 11,321
Other expenses 578 875 2,124 2,325 2,601 1,830 2,082
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes 5,304 11,101 23,265 25,206 18,449 19,982 21,281
Income taxes 2,154 4,702 10,064 10,703 7,733 8,378 8,769
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item 3,150 6,399 13,201 14,503 10,716 11,604 12,512
Extraordinary item -- 4,387 -- 2,638 -- -- 7,797
--------- --------- --------- --------- --------- --------- ---------
Net income $ 3,150 $ 2,012 $ 13,201 $ 11,865 $ 10,716 $ 11,604 $ 4,715
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges(4) 2.1x 2.9x 4.4x 4.0x 2.2x 2.1x 2.7x
Other Data:
EBITDA (5) $ 11,790 $ 18,198 $ 33,270 $ 36,853 $ 37,779 $ 35,019 $ 36,749
EBITDA margin 11.9% 14.8% 19.3% 19.8% 18.1% 20.2% 19.0%
Capital expenditures $ 1,655 $ 1,420 $ 1,499 $ 2,122 $ 2,770 $ 1,662 $ 3,690
Depreciation 1,927 1,938 2,148 2,332 2,432 2,127 2,363
Amortization 335 1,620(6) 1,966 1,963 2,104 1,571 1,569
Balance Sheet Data (at period end):
Cash and cash equivalents $ 462 $ 1,597 $ 16,170 $ 145 $ 5,058 $ 393 $ 201
Working capital (deficit) 5,563 6,680 9,738 (1,194) (8,566) 35,680 34,758
Total assets 27,867 84,055 107,259 85,545 91,984 137,105 157,780
Long-term debt 27,956 62,000 49,700 149,709 130,600 163,194 240,500
Stockholders' equity (deficit) (13,210) 2,279 16,194 (95,402) (84,754) (83,577) (145,255)
- - - - ----------
<FN>
(1) 53-week fiscal year. Holdings was party to a recapitalization in January 1996 which impacted interest expense,
stockholders' equity and long term debt.
40
<PAGE>
(2) Net sales constitute gross sales net of an accrual for returns and allowances and cash discounts.
(3) Operating income is before amortization of intangibles and deferred charges and certain management fees and miscellaneous
expenses. Management fees and related expenses amounted to $38, $25, $114, $279 and $285 for the fiscal years 1993, 1994,
1995, 1996 and 1997, respectively, and $234 and $215 for the thirty-nine weeks ended November 30, 1996 and November 29,
1997, respectively. Miscellaneous (income)/expenses amounted to $205, $65, $44, $83 and $212 for fiscal 1993, 1994, 1995,
1996 and 1997, respectively, and $25 and $298 for the thirty-nine weeks ended November 30, 1996 and November 29, 1997,
respectively.
(4) For purposes of computing this ratio, earnings consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing cost and 33% of rent expense from operating leases which
the Company believes is a reasonable approximation of the interest factor included in the rent.
(5) EBITDA is defined as income before taxes plus interest expense and depreciation as well as amortization of intangibles and
deferred charges and management fees and related expenses which are included in other expenses on the Statement of
Operating Data. EBITDA is presented because it is a widely accepted financial indicator of a leveraged company's ability to
service and/or incur indebtedness and because management believes that EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure or working capital needs. However, EBITDA should
not be considered as an alternative to net income as a measure of a company's operating results or to cash flows from
operating activities as a measure of liquidity. EBITDA as presented may not be comparable to similarly titled measures used
by other companies, depending upon the non- cash charges included. When evaluating EBITDA, investors should also consider
other factors which may influence operating and investing activities, such as changes in operating assets and liabilities
and purchases of property and equipment.
(6) Includes amortization of $835 included in extraordinary item.
(7) The Company's business is subject to a pattern of seasonal fluctuation. As such, the Company's needs for working capital
tend to peak in the second and third fiscal quarters.
</FN>
</TABLE>
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following discussion should be read in conjunction with "Selected
Financial Data" and the audited Consolidated Financial Statements of Holdings
and the notes thereto included elsewhere in this Offering Memorandum.
The Company is organized into two primary product categories: (a) Zone
Heating Products (80% of domestic fiscal 1997 gross sales), which includes
indoor room heaters, hearth products and outdoor heaters, and (b) Specialty
Tools (20% of domestic fiscal 1997 gross sales), which includes powder actuated
fastening systems (tools and accessories) and electrical products. The Company
records sales upon shipment of products to its customers. Net sales constitute
gross sales net of an accrual for returns and allowances and cash discounts.
The Company has experienced strong historical growth, with net sales and
EBITDA increasing at CAGRs of 20% and 29%, respectively, from fiscal 1992 to
fiscal 1997. The Company's growth has been driven by strong performance across
all product categories from both new product introductions and internally
generated growth. The Company has made only three small acquisitions from fiscal
1992 to fiscal 1997. Since fiscal 1992, new product introductions have generated
approximately 56% of the Company's sales growth. The Company focuses on its new
product development efforts on products that (i) are complementary to its
current product offerings or that utilize the Company's established
technologies, and (ii) can be sold through the Company's well-established
distribution channels. The Company's strategy is to introduce its new hearth
products in the specialty heating channel (i.e., liquid propane distributors and
natural gas utilities) and then expand the distribution to the consumer channel
(i.e., home centers and mass merchandisers). As part of this strategy, the
Company began selling its line of vent-free fireplace products, introduced to
the specialty heating channel in fiscal 1995, to Lowe's in fiscal 1997 and to
Home Depot in fiscal 1998.
Zone heating product revenues have been driven by factors such as (i) the
effectiveness of zone heating products for area heating, (ii) the increased
availability of these products as a result of the growth in home improvement
retailers, (iii) the cost efficiency of natural gas and propane as heating
fuels, (iv) favorable regulatory trends and (v) seasonal weather conditions.
Specialty tools revenues have been driven by demand of DIY consumers and
commercial contractors.
In fiscal 1997, approximately $19.6 million or 9.4% of DESA's net sales
were generated outside the U.S. DESA adapts its domestic product line to
accommodate local requirements, government regulations and user preferences in
each international market.
Principally due to sales of zone heating products, DESA's business is
seasonal, as depicted by the following table which sets forth certain operating
results of DESA for each of the four consecutive fiscal quarters in the periods
ending March 1, 1997 and March 2, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Fiscal 1997
Total Net Sales $ 24,267 $ 60,021 $ 89,299 $ 35,518 $209,105
Operating Profit 926 12,844 19,150 2,639 35,559
Fiscal 1996
Total Net Sales $ 25,986 $ 67,986 $ 66,092 $ 26,260 $186,324
Operating Profit 3,838 15,452 14,037 1,277 34,604
</TABLE>
Approximately 70% of annual sales occur in the second and third fiscal
quarters (June-November) as the Company's zone heating customers place early
booking orders for shipment in anticipation of the winter selling season.
Approximately 60% of the Company's annual sales volume are booked in the
five-month period of March through July.
42
<PAGE>
DESA has not historically been capital intensive. The Company has focused
on investing in programs which either reduce operating costs or facilitate new
product development. The Company has a long-standing cost reduction program and
has exceeded its annual cost reduction goal of 3% of cost of sales in each of
the last three fiscal years. Historically, the Company's cost reduction efforts
have been focused on indoor vent-free heaters and outdoor heaters. In fiscal
1998, the Company's cost reduction efforts are focused on some of its newer
products, such as vent-free hearth products.
<TABLE>
<CAPTION>
Historical Capital Expenditures
(dollars in thousands)
Fiscal Year
-----------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Replacement Expenditures, Cost Reduction Programs, New
Products and Capacity $1,331 $1,132 $1,420 $1,499 $2,122 $2,770
Acquisitions/Buildings/Other 754(1) 523(2) 0 664(3) 0 0
Total Capital Expenditures $2,085 $1,655 $1,420 $2,163 $2,122 $2,770
====== ====== ====== ====== ====== ======
- - - - ----------
<FN>
(1) Acquisition of a vented heater product line and an electric generator product line
(2) Bowling Green, Kentucky office building expansion to replace leased offices
(3) Acquisition of an outdoor heater product line
</FN>
</TABLE>
Results of Operations
The following table sets forth certain income statement information for
Holdings for the fiscal years ended February 25, 1995, March 2, 1996 and March
1, 1997 and the thirty-nine week periods ended November 30, 1996 and November
29, 1997:
<TABLE>
<CAPTION>
Fiscal Year Ended Thirty-nine Weeks Ended
----------------------------------------------------------- -----------------------------------------------
Percentage Percentage Percentage Percentage Percentage
of of of November 30, of November 29, of
1995 Net Sales 1996 Net Sales 1997 Net Sales 1996 Net Sales 1997 Net Sales
---- --------- ---- --------- ---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $172,501 100.0% $186,324 100.0% $209,105 100.0% $173,587 100.0% $193,404 100.0%
Cost of sales 107,484 62.3% 116,217 62.4% 130,890 62.6% 108,587 62.6% 123,243 63.7%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit 65,017 37.7% 70,107 37.6% 78,215 37.4% 65,000 37.4% 70,161 36.3%
Selling and
administrative
expenses 33,851 19.6% 35,503 19.1% 42,656 20.4% 32,083 18.5% 35,477 18.3%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating profit 31,166 18.1% 34,604 18.5% 35,559 17.0% 32,917 19.0% 34,684 17.9%
Other expenses 2,124 1.2% 2,325 1.2% 2,601 1.2% 1,830 1.1% 2,082 1.1%
Interest expense 5,777 3.3% 7,073 3.8% 14,509 6.9% 11,105 6.4% 11,321 5.9%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before
provision for
taxes 23,265 13.6% 25,206 13.5% 18,449 8.9% 19,982 11.5% 21,281 11.0%
Provision for
income taxes 10,064 5.8% 10,703 5.7% 7,733 3.7% 8,378 4.8% 8,769 4.6%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before
extraordinary
item 13,201 7.8% 14,503 7.8% 10,716 5.2% 11,604 6.7% 12,512 6.4%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Extraordinary item -- 0.0% 2,638 1.4% -- 0.0% -- 0.0% 7,797 4.0%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income $ 13,201 7.8% $ 11,865 6.4% $ 10,716 5.2% $ 11,604 6.7% $ 4,715 2.4%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
43
<PAGE>
Thirty-nine Weeks Ended November 29, 1997 Compared to Thirty-nine Weeks Ended
November 30, 1996
Net Sales. Total net sales increased 11.2% from $173.6 million for the
thirty-nine weeks ended November 30, 1996 to $193.4 million for the thirty-nine
weeks ended November 29, 1997. Indoor heating and hearth product sales increased
36.7% from $67.6 million to $92.4 million due to increased acceptance of hearth
products in both the Company's consumer channel (e.g., Home Depot and Lowe's)
and its traditional specialty gas channel (i.e., liquid propane distributors)
and the growth of DESA's existing customers. Outdoor heating products sales
declined 12.1% from $64.3 million to $56.5 million due to the impact of the mild
1996/1997 winter weather which left certain of the Company's customers with
higher than anticipated inventory levels. Specialty tools product sales
increased 9.8% to $32.4 million due to DESA's expansion within the consumer
channel.
Cost of Sales. Cost of sales increased 13.4% from $108.6 million for the
thirty-nine weeks ended November 30, 1996 to $123.2 million for the thirty-nine
weeks ended November 29, 1997. The increase was primarily associated with the
increase in net sales over the same period. Gross profit margin decreased from
37.4% to 36.3%. The decrease in gross profit margin resulted primarily from the
decrease in sales of outdoor heating products, which have higher gross profit
margins than hearth products and specialty tools. In addition, gross profit was
adversely impacted as a result of inefficiencies relating to the expansion of
hearth products capacity at the Shelbyville plant (new paint system, fabrication
equipment/tooling and workforce training).
Selling and Administrative Expenses. Selling and administrative expenses
increased 10.6% from $32.1 million for the thirty-nine weeks ended November 30,
1996 to $35.5 million for the thirty-nine weeks ended November 29, 1997. The
increase was due primarily to the increase in net sales over the same period.
However, these costs declined as a percentage of sales from 18.5% to 18.3% due
to increased operating leverage as a result of the increase in sales during the
period.
Operating Profit. Due to the factors described above, operating profit
increased 5.5%, from $32.9 million for the thirty-nine weeks ended November 30,
1996 to $34.7 million for the thirty-nine weeks ended November 29, 1997.
Interest Expense. Interest expense increased modestly from $11.1 million for
the thirty-nine weeks ended November 30, 1996 to $11.3 million for the
thirty-nine weeks ended November 29, 1997, as higher current working capital
requirements were largely offset by the debt reductions due to increased fiscal
year 1997 cash flow.
Income Tax. Income taxes increased 6.5% from $8.4 million for the thirty-nine
weeks ended November 30, 1996 to $8.9 million for the thirty-nine weeks ended
November 29, 1997. The overall effective income tax rate was 42% for both
periods.
Net Income. Net income before extraordinary item increased 6.9% from $11.6
million for the thirty-nine weeks ended November 30, 1996 to $12.4 million for
the thirty-nine weeks ended November 29, 1997 due to the factors described
above.
Extraordinary Item. The extraordinary item of $7.8 million in the thirty-nine
weeks ended November 29, 1997 reflects the costs of the Recapitalization.
Year Ended March 1, 1997 (52 weeks) Compared to the Year Ended March 2, 1996 (53
weeks)
Net sales. Net sales increased 12.2% from $186.3 million for the year ended
March 2, 1996 to $209.1 million for the year ended March 1, 1997. Indoor heating
product sales increased 10.1% from $69.3 million to $76.3 million driven by
higher hearth product sales due primarily to increased penetration of the
consumer channel. Outdoor heating product sales increased 18.2% from $75.2
million to $88.9 million due to an increase in promotion, expansion in the
hardware/home center channel and higher sales resulting from the colder
1996/1997 winter weather in Europe. Specialty tool sales increased 5.0% from
$41.8 million to $43.9 million due primarily to continued growth in the consumer
channel
44
<PAGE>
of powder actuated tools and related accessories and the expansion of one of the
Company's chain saw models to a major customer which replaced a competitive
product.
Cost of Sales. Cost of sales increased 12.7% from $116.2 million in fiscal
year 1996 to $130.9 million in fiscal year 1997. The increase was primarily due
to sales growth of 12.2% for the same period. As a percentage of sales, gross
profit margin decreased slightly from 37.6% to 37.4%. Gross margins were
negatively affected by a shift in product mix which was partially offset by cost
reductions and margin improvements realized as a result of increased production
volume resulting from sales growth.
Selling and Administrative Expenses. Selling and administrative expenses
increased 20.3% from $35.5 million in fiscal year 1996 to $42.7 million in
fiscal year 1997 due primarily to the sales growth of 12.2% for the same period.
Selling and administrative expenses increased as a percentage of sales from
19.1% in fiscal 1996 to 20.4% in fiscal 1997 due to a consumer advertising
program, key account volume rebate program, warranty expense and executive
recruiting expenses.
Operating Profit. Operating profit increased 2.9% from $34.6 million in
fiscal 1996 to $35.6 million in fiscal 1997 due to the factors mentioned above.
Interest Expense. Interest expense increased 104.2% from $7.1 million in
fiscal year 1996 to $14.5 million in fiscal year 1997. The higher interest
expense relates to the increased borrowings associated with the recapitalization
of Holdings in January 1996.
Income Taxes. Income taxes (exclusive of extraordinary item) decreased by
28.0% from $10.7 million in fiscal 1996 to $7.7 million in fiscal year 1997. The
overall effective income tax rate is 42% for both periods.
Net Income. Net income decreased 10.1% from $11.9 million in fiscal year 1996
to $10.7 million in fiscal year 1997. This reduction reflected the higher
interest expense incurred during fiscal 1997. Fiscal 1996 performance was
adversely affected by the write-off of unamortized balance of deferred financing
costs of existing debt in connection with the recapitalization of Holdings in
January 1996.
Year Ended March 2, 1996 (53 weeks) Compared to the Year Ended February 25, 1995
(52 weeks)
Net sales. Net sales increased 8.0% from $172.5 million for the year ended
February 25, 1995, to $186.3 million for the year ended March 2, 1996. Indoor
heating product sales increased by 2.4% from $67.7 million to $69.3 million due
to sales increases in mini-hearth and vent-free fireplace products partially
offset by lower gas log sales resulting from higher than anticipated customer
inventories of gas logs at the beginning of fiscal 1996 in the specialty gas
channel of distribution. Outdoor heating product sales increased 14.0% from
$66.0 million to $75.2 million due to increased promotion and expansion in the
hardware/home center channel. Specialty tool sales increased 7.5% from $38.9
million to $41.8 million due primarily to continued growth in sales of powder
actuated tools and related accessories.
Cost of Sales. Cost of sales increased 8.1% from $107.5 million in fiscal
1995 to $116.2 million in fiscal 1996 due to sales growth of 8.0% for the same
period. Gross profit margin of 37.6% was comparable to prior year's gross profit
margin of 37.7%.
Selling and Administrative Expenses. Selling and administrative expenses
increased 4.7% from $33.9 million in fiscal 1995 to $35.5 million in fiscal year
1996. However, these costs decreased as a percentage of sales from 19.6% in
fiscal year 1995 to 19.1% in fiscal 1996 resulting from a reduction in sales
commissions and increased operating leverage due to the increase in sales during
the period.
Operating Profit. Due to the factors discussed above, operating profit
increased 10.9% from $31.2 million in fiscal 1995 to $34.6 million in fiscal
1996.
45
<PAGE>
Interest Expense. Interest expense increased 22.4% from $5.8 million in
fiscal 1995 to $7.1 million in fiscal 1996 due to higher debt levels resulting
from higher working capital requirements and the recapitalization of Holdings in
January 1996.
Income Taxes. Income taxes increased 5.9% from $10.1 million in fiscal 1995
to $10.7 million in fiscal 1996 as the overall tax rate decreased from 43% in
fiscal 1995 to 42% in fiscal 1996 due to adoption of LIFO inventory accounting
which favorably affected income taxes.
Net Income. Net income declined 9.8% from $13.2 million in fiscal 1995 to
$11.9 million in fiscal 1996.
Liquidity and Capital Resources
Historical
The Company's primary cash needs have been for working capital, capital
expenditures and debt service requirements. The Company's sources of liquidity
have been cash flows from operations and borrowings under its revolving credit
facilities. The Company's business is subject to a pattern of seasonal
fluctuation. The Company's needs for working capital and the corresponding debt
levels tend to peak in the second and third fiscal quarters. The amount of sales
generated during the second and third fiscal quarters generally depends upon a
number of factors, including the level of retail sales for heating products
during the fall and winter, weather conditions affecting the level of sales of
heating products, general economic conditions, and other factors beyond the
Company's control.
Cash used in operating activities for the thirty-nine weeks ended November
29, 1997 was $33.6 million compared to $13.3 million for the thirty-nine weeks
ended November 30, 1996, an increase of $20.3 million. Inventories as of
November 29, 1997 were $8 million higher than the amount at November 30, 1996,
to support higher sales and production activities. Net cash provided by
operating activities was $18.4 million, $19.4 million and $18.3 million for
fiscal years 1997, 1996 and 1995, respectively.
Net cash used in investing activities increased from $1.6 million for the
thirty-nine weeks ended November 30, 1996 to $3.5 million for the thirty-nine
weeks ended November 29, 1997 due to capital expenditures for a new powder paint
system and fabrication equipment at the Company's Shelbyville, Tennessee plant
to support growth of hearth products. Net cash used in investing activities was
$2.9 million, $2.1 million and $2.2 million in fiscal 1997, 1996 and 1995,
respectively, consisting primarily of capital expenditures for new products,
capacity increases and cost reduction programs. Fiscal 1995 also included a $0.9
million acquisition of an outdoor heater products line. Net cash provided by
financing activities increased 114% from $15.2 million in the thirty-nine weeks
ended November 30, 1996 to $32.6 million in the thirty-nine weeks ended November
29, 1997 due to an increase in the use of the Company's revolving credit
facility to fund operations, primarily for the increase in inventories. Net cash
used in financing activities totaled $10.6 million, $18.0 million and $1.7
million in fiscal years 1997, 1996 and 1995.
The Existing Credit Facility provided for commitments in an aggregate amount
of up to $220.0 million. Borrowings outstanding under the Existing Credit
Facility were $135.5 million on November 29, 1997. Outstanding letters of credit
and foreign currency contracts established to facilitate merchandise purchases
were $0.9 million and $1.8 million, respectively, on November 29, 1997.
After the Recapitalization
Following the Recapitalization, the Company's primary sources of liquidity
will be cash flow from operations and borrowings under the Revolving Credit
Facility. The Company's primary uses of cash will be debt service requirements,
working capital and capital expenditures.
Concurrently with the Recapitalization, the Company issued the Old Notes for
$130.0 million in gross proceeds, and expects to enter into the Term Loan
Facility and the Revolving Credit Facility. The Term Loan Facility is comprised
of two tranches, each in the aggregate principal amount of $50.0 million. The
Revolving Credit Facility will provide
46
<PAGE>
revolving loans in an aggregate amount of up to $75.0 million. Upon closing of
the Recapitalization, the Company borrowed the full amount available under the
Term Loan Facility and $35.5 million under the Revolving Credit Facility.
Borrowings under the Revolving Credit Facility were used partially to refinance
seasonal borrowings outstanding under the Existing Credit Facility. The amount
remaining available under the Revolving Credit Facility is available to fund the
working capital requirements of the Company. Proceeds to the Company from the
issuance of the Old Notes and from initial borrowings under the New Credit
Facility, less the repayment of the Existing Credit Facility and other
indebtedness, and transaction expenses, were remitted to Holdings to partially
finance the Recapitalization and the fees and expenses of Holdings incurred in
connection therewith. To provide additional financing to fund the
Recapitalization, Holdings raised (i) $73.8 million through the sale to Childs
and the other Equity Investors of Holdings Common Stock (representing 89.6% of
the outstanding shares upon completion of the Recapitalization), and (ii) $17.6
million through the issuance to Childs and the other Equity Investors of the
Holdings Preferred Stock.
The proceeds of the Old Notes, the Holdings Preferred Stock, the Holdings
Common Stock and the initial borrowings under the New Credit Facility were used
to finance the purchase of all previously outstanding shares of Holdings'
capital stock (other than shares of Holdings Common Stock having an implied
value of $8.6 million which continue to be held by certain Existing Shareholders
and which represent 10.4% of the shares of Holdings Common Stock immediately
following the transaction), to refinance outstanding indebtedness of the Company
and to pay fees and expenses incurred in connection with the Recapitalization.
Borrowings under the New Credit Facility bear interest at a rate per annum
equal (at the Company's option) to a margin over either a base rate or LIBOR.
The Revolving Credit Facility will mature six years after the closing date. The
two tranches of the Term Loan Facility will be amortized over a six-year and a
seven-year period, respectively. The Company's obligations under the New Credit
Facility are guaranteed by Holdings and each of the Company's direct and
indirect domestic subsidiaries. The New Credit Facility and the guarantees
thereof are secured by substantially all assets of Holdings (including the
capital stock of the Company) and its direct and indirect domestic subsidiaries
and a pledge of the capital stock of all the Company's direct and indirect
subsidiaries, subject to certain limitations with respect to foreign
subsidiaries. The New Credit Facility contains customary covenants and events of
default, including substantial restrictions on the Company's ability to make
dividends or distributions to Holdings. See "Description of New Credit
Facility." Based on the Company's capital and loan structure upon completion of
the Recapitalization, the Company's average monthly revolver balance will be
approximately $15 million, with peak borrowings of approximately $40.0 to $45.0
million from August through October. In addition, the Company will have
approximately $3.0 to $4.0 million of letters of credit outstanding under the
Revolving Credit Facility.
The Holdings Preferred Stock bears cumulative dividends at the rate of 12%
per annum (payable semi-annually). Dividends will compound to the extent not
paid. Subject to restrictions imposed by the Indenture, the New Credit Facility
and other documents relating to Holdings' or the Company's indebtedness,
Holdings may exchange the Holdings Preferred Stock for Exchange Notes having
substantially the same terms as the Holdings Preferred Stock. The Indenture
permits Holdings, under certain circumstances, to exchange all outstanding
Holdings Preferred Stock for Exchange Notes in an aggregate principal amount
equal to the aggregate liquidation preference of the Holdings Preferred Stock so
exchanged. The Exchange Notes will require Holdings to make semi-annual interest
payments thereon at a rate of 12% per annum. Subject to compliance with the debt
agreements of Holdings and the Company, such payments must be in cash. The
Indenture restricts, but does not prohibit, the Company from making such cash
interest payments. Under the Exchange Notes, Holdings may defer the payment of
interest payable on or before November 30, 2001, with any such deferred interest
bearing interest at 12% per annum, compounded semi-annually. Holdings will be
required to make a catch-up payment immediately prior to the first interest
payment date after the fifth anniversary of the date of issuance to the extent
the aggregate amount of such deferred interest exceeds an amount equal to one
year's interest on the originally issued Exchange Notes. The Indenture
restricts, but does not prohibit, the ability of Holdings to make such catch-up
payment. See "Description of the Notes -- Certain Covenants -- Restricted
Payments" and "Description of Holdings Preferred Stock -- Exchange Notes". See
"Description of Holdings Preferred Stock."
The Company expects that capital expenditures, during fiscal 1998 will be
approximately $5.3 million, including $1.7 million for a new paint system and
fabrication equipment at the Company's Shelbyville, Tennessee plant to support
growth of hearth products and $1.3 million to expand the engineering lab and
offices at the Company's main facilities
47
<PAGE>
in Bowling Green, Kentucky. Capital expenditures are expected to be funded from
internally generated cash flows and by borrowings under the New Credit Facility.
Management believes that cash flow from operations and availability under the
Revolving Credit Facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to refinance indebtedness
and to remain in compliance with all of the financial covenants under its debt
agreements depends on its future operating performance and cash flow, which in
turn, are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond its control. See "Risk Factors."
48
<PAGE>
BUSINESS
DESA is a leading manufacturer and marketer of zone heating/home comfort
products and specialty tools in the United States. Through its ability to
consistently offer consumers quality products with innovative features at
attractive price points, the Company has developed leading market positions in
(i) vent-free indoor heaters, (ii) vent-free hearth products, (iii) outdoor
heaters, (iv) consumer powder-actuated fastening systems and (v) electric chain
saws. In fiscal 1997, approximately 90% of the Company's sales were generated in
the United States and 10% were generated in international markets. Over 85% of
the domestic sales were in product categories where DESA is the market leader.
The Company has grown rapidly with sales increasing from $83.0 million in fiscal
1992 to $209.1 million in fiscal 1997, representing a CAGR of 20%. The Company's
EBITDA increased from $10.6 million, or 12.8% of sales, in fiscal 1992, to $37.8
million, or 18.1% of sales, in fiscal 1997, representing a CAGR of 29%. For the
twelve months ended October 4, 1997, the Company had sales of $222.1 million and
pro forma EBITDA of $39.8 million.
The Company sells its products through multiple consumer and commercial
channels of distribution including the leading home centers, mass merchants,
warehouse clubs, hardware cooperatives, specialty heating distributors,
construction and industrial equipment dealers, farm supply outlets and natural
gas utilities under brand names well recognized by its customers. The Company's
strategy is to aggressively target the fastest growing retailers/distributors in
each channel and service these customers through a multi-brand approach to
capture the largest possible share of a given product market. In addition, the
Company has an established record of success in new product development and
product line extensions. Over the last five years, DESA has introduced over 100
new products and line extensions which generated approximately 56% of the
Company's sales growth over that time period.
Zone Heating Products (80% of Fiscal 1997 Domestic Gross Sales)
The zone heating market is comprised of indoor gas heaters, hearth products
(gas logs, fireplaces and stoves) and outdoor heaters. DESA is a leading
manufacturer of vent-free indoor and outdoor zone heating products in the United
States. DESA's domestic zone heating business has experienced a CAGR of over 27%
with gross revenues increasing from $46.2 million in fiscal 1992 to $155.1
million in fiscal 1997. DESA markets its zone heating products under well-known
brand names such as Reddy(R), Vanguard(R) and Comfort Glow(R). The Company's
zone heating business is organized into two primary product categories:
o Indoor vent-free heating appliances and hearth products (40% of Fiscal 1997
Domestic Gross Sales): Indoor heating appliances include vent-free liquid
propane and natural gas space heaters which provide economical supplemental
heat to a specific area as distinguished from central heating systems which
are used to heat entire buildings. Vent-free hearth products such as gas
logs, fireplaces and stoves are utilized for both decorative and economic
heating. Vent-free products utilize a more efficient burner system which
avoids the need for outside venting, whereas vented products require a
discharging of emissions outside of the building.
o Outdoor heating appliances (40% of Fiscal 1997 Domestic Gross Sales):
Outdoor heating products consist of portable units which generate heat by
either using a fan to discharge heated air to a specific area (forced air
heaters) or emitting heat throughout the surrounding area without the
assistance of a fan (convection heaters). Forced air heaters are fueled by
kerosene, propane or natural gas, while convection heaters are fueled only
with propane or natural gas. Outdoor heaters are used in both residential
and commercial applications. Residential applications include heating
otherwise unheated garages and workshops. Commercial applications include
heating factories, warehouses, construction sites and agricultural areas.
Specialty Tools (20% of Fiscal 1997 Domestic Gross Sales)
DESA's domestic specialty tools business has experienced a CAGR of 11% with
gross revenues increasing from $23.0 million in fiscal 1992 to $38.8 million in
fiscal 1997. Specialty tools products include powder actuated fastening systems
(tools and accessories) used to fasten wood to concrete or steel, stapling/rivet
tools and electrical products such
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<PAGE>
as chain saws and portable generators. These products are marketed under
well-known brand names such as Remington(R), Master(R) and Powerfast(R).
Competitive Strengths
Leading Market Positions in High Growth Segments. DESA is the domestic
market leader in outdoor heating appliances (70% market share), vent-free indoor
gas heating (59% market share), vent-free hearth products (31% market share),
powder actuated fastening systems (86% share of the consumer market, which
constitutes 26% of the total domestic market) and electric chain saws (36%
market share). By leveraging its strong market positions and customer
relationships in established product lines, DESA has increased sales by
introducing related products or line extensions of existing products such as
vent-free gas logs (introduced in fiscal 1993), vent-free fireplaces (introduced
in fiscal 1995) and fireboxes (introduced in fiscal 1997).
DESA's targeted market segments in the zone heating market have exhibited
strong historical growth. Vent-free indoor gas heater and hearth products, the
most rapidly growing segments in the $1.1 billion zone heating market, have
grown at a CAGR of approximately 44% over the last four years driven primarily
by the increasing consumer trend towards heating with natural gas and liquid
propane. The outdoor heater market has achieved a CAGR of 22% over the same
period.
Strong Relationships with a Diversified Distribution and Customer Base.
DESA has organized its sales and marketing organizations by channels of
distribution. The Company has built strong, long-term relationships with some of
the most rapidly growing retailers, including Home Depot, Lowe's, Sears,
Wal-Mart, W.W. Grainger, Ace Hardware and TruServ. The Company's products are
designed to appeal to a variety of end-users, ranging from DIY consumers to
professional home builders. By building strong relationships with the leading
retailers and distributors within each of the Company's channels, DESA is
well-positioned to participate in the continued growth of these key customers.
Broad Portfolio of Products with Well-Recognized Brand Names. DESA provides
a broad offering of quality products under numerous brand names which are
well-recognized by its customers. The Company's key brands include: Reddy(R),
Remington(R), Vanguard(R) and Comfort Glow(R) for zone heating products and
Remington(R) for powder actuated fastening systems and electric chain saws. The
Company also manufactures products on a private label basis for W.W. Grainger,
Sears, John Deere and Homelite. DESA leverages its brand equity with its DIY
consumers, professionals and specialty dealers by continually providing its
customers new product offerings and product line extensions under its
established brand names.
Proven New Product Development Process. DESA has a proven ability to
consistently offer consumers products with innovative features at attractive
price points. The quality and breadth of DESA's customer relationships provide
the Company with valuable market data that serves as the foundation for the
Company's new product development and product line extension process. For
example, the Company's line of hearth products was initially introduced as the
result of shifting consumer preferences away from (i) wood-burning hearth
products to gas technology and (ii) vented gas products to vent-free units. Over
the last five years, new product introductions and product line extensions have
accounted for approximately 56% of the Company's sales growth.
Effective Cost Reduction Program and Strong Cash Flow. A core component of
the Company's strong financial performance over the last five years has been a
focused program to enhance margins through cost reduction. The Company has
exceeded its annual cost reduction goal of 3% of cost of sales in each of the
last three years. This cost reduction program has contributed to an increase in
gross profit margin from 33.6% in fiscal 1992 to 37.4% in fiscal 1997.
The Company has been able to achieve its sales growth with efficient use of
working capital and low capital expenditures generating $128.4 million in free
cash flow (EBITDA less capital expenditures) for the last five years.
Strong Management Team. DESA was founded in 1969 by a group including
Robert H. Elman, DESA's current Chairman and CEO. The top three executives of
the Company have worked together as a team for the last 13 years.
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<PAGE>
These individuals have served as the catalyst for instilling a spirit of
"continuous improvements" and achievement as a cultural standard within the
Company. Senior management is well-complemented by a broad team of experienced
managers who have been with DESA since 1985.
Business Strategy
DESA's objective is to continue to leverage its competitive strengths to
increase revenues and EBITDA. In addition, the Company believes there are
significant additional opportunities to enhance its overall market and
competitive position as follows:
Continue Aggressive Growth through DESA's Primary Channels and Customers.
DESA's distribution strategy is twofold: (i) establish breadth across
distribution channels; and (ii) achieve depth within each channel by fostering
and enhancing relationships with some of the most rapidly growing retailers in
such channel (such as Home Depot and Lowe's in the home center channel and
Wal-Mart and Sears in the mass merchant channel). While DESA has managed to gain
access to multiple channels of distribution, significant opportunities remain to
sell the Company's full product line through each of these customers.
Penetrate New Distribution Channels. Although DESA currently sells its
products through a broad distribution network, the Company believes there are
opportunities to increase the penetration in some of the Company's newer
channels such as plumbing supply stores, building supply chains and fireplace
specialty stores. These newer channels represent attractive markets across the
United States.
Capitalize on Favorable Trends for Vent-Free Gas Products. Recent housing
construction data reveals that over two-thirds of new homes today use gas as the
primary heating source compared to one-third of new homes ten years ago. The
American Gas Association estimates that approximately 60 million homes currently
use gas and the number of homes utilizing gas will grow to 80 million by the
year 2010. This growing preference for gas represents a significant growth
opportunity for DESA as all of its indoor heating products are fueled by natural
or propane gas. Additionally, by focusing on vent-free gas products, which have
lower installation costs and provide increased fuel efficiency compared to
vented products, the Company is well positioned to benefit from the fastest
growing segments of the zone heating market.
Increase Penetration of International Markets. Similar to the trend in the
United States, the global DIY markets are experiencing attractive growth rates.
Five of the ten largest home improvement retailers in the world are based
outside of the United States. However, international sales comprised only 10% of
DESA's total sales in fiscal 1997.
Make Selected Acquisitions. The Company intends to seek selective
acquisitions where it can expand its existing product portfolio, utilize its
diversified distribution channels and achieve operational synergies. Over the
last five years, only 9% of the Company's sales growth has come through
acquisitions. Management believes that the markets in which it operates are
highly fragmented and there are numerous manufacturers of complementary products
which would make attractive acquisition candidates.
Products and Markets
DESA is the leader in a number of markets where its quality manufacturing
and innovative product design have resulted in a strong competitive position.
The Company's products are sold for both consumer and commercial use utilizing
multiple distribution channels and a variety of brand names. The Company
currently serves markets for zone heating products and specialty tools.
Approximately 90% of the Company's 1997 sales were domestic and 10% of sales
were international.
Zone Heating Market
Market Overview. The zone heating market includes a broad range of products
that are used to heat limited areas as distinguished from central heating
systems which are used to heat entire buildings. The zone heating market is
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<PAGE>
currently estimated to be approximately $1.1 billion in size, with hearth
products (i.e., vented gas hearth, vent-free gas hearth, wood fireplaces, wood
stoves/inserts, pellet stoves/inserts) accounting for $628 million or over 55%
of the total market; indoor gas heaters comprising $145 million; outdoor heaters
accounting for $110 million and accessories comprising $250 million.
Calendar Year 1996 Zone Heating Products Market
Market Size = $1.1 Billion
[PIE CHART SHOWING THE FOLLOWING SEGMENTS:
Gas Heaters $145.0
Gas Hearth $430.8
Non-Gas Hearth $196.7
Outdoor Heaters (a) $110.0
Accessories (b) $250.0]
- - - - ----------
Source: Hearth Products Association and GAMA Statistical Release.
(a) Does not include electrical products and installed units.
(b) Midpoint management estimate of $200 to $300 million includes vent pipes,
connectors, glass fireplace doors, screens, mantles and decorative trim.
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<TABLE>
<CAPTION>
Zone Heating Market Size and Growth
Calendar Year DESA's
------------- % of CAGR Market
1992 1996 Market '92-'96 Share
---- ---- ------ ------- -----
($ in Millions)
<S> <C> <C> <C> <C> <C>
Indoor Heaters and Hearth Products
Vent-Free Gas Heaters $ 35.3 $ 71.9 6.4% 19.5% 59%
Vented Gas Heaters 61.8 73.1 6.4 4.3 NM
-------- ------- ----- -----
Total Gas Heaters 97.1 145.0 12.8 10.5
Vent-Free Gas Hearth 9.0 116.1 10.3 89.5 31%
Vented Gas Hearth 137.4 314.7 27.8 23.0 NA
-------- ------- ----- -----
Total Gas Hearth 146.4 430.8 38.1 31.0
Wood Fireplaces 67.3 83.0 7.3 5.4 NA
Wood Stoves/Inserts 91.0 74.9 6.6 (4.7) NA
-------- ------- ----- -----
Pellet Stoves/Inserts 36.8 38.8 3.4 1.3 NA
Total Non-gas Hearth 195.1 196.7 17.3 0.2
Total Indoor Heaters and Hearth
Products 438.6 772.5 68.2 15.2
Outdoor Heaters $ 50.0 110.0 9.7 21.8 70%(b)
Accessories NA 250.0(a) 22.1 NA NM
-------- ------- -----
Total Zone Heating Market NA $ 1,132.5 100.0% NA
- - - - ----------
<FN>
Source: Hearth Products Association and GAMA Statistical Release
(a) Midpoint of management's estimate of $200 to $300 million. Includes vent pipes, connectors, glass
fireplace doors, screens, mantels and decorative trim.
(b) Management estimate.
</FN>
</TABLE>
Market Outlook. DESA's strong market position in the vent-free segment
provides a solid foundation for further growth of the Company's business and
expansion into other categories (e.g. vented gas hearth) as a result of the
following factors:
Benefits of low-cost zone heating. Over the past decade, zone heating
products have become increasingly popular because: (i) propane and natural gas
are 50% to 70% cheaper on a BTU basis than electricity, (ii) consumers have
become aware of the cost advantage of zone heating versus central heating and
(iii) fireplaces are being used as both heating sources and decorative
furnishing.
This growing preference for gas represents a growth opportunity for DESA as
all of its indoor heating products are fueled by natural or propane gas. The
market is still under-penetrated with only 4 million vent-free indoor heating
units having been sold over the last 10 years in North America compared to over
60 million homes using gas in 1996. Gas hearth shipments have been growing at a
rate in excess of 30% per year for the past five years. Over 27 million homes
have been plumbed for gas and have a fireplace, providing an opportunity for gas
log sales. In addition, 36 million homes are plumbed for gas but do not have a
fireplace, representing a significant opportunity for the installation of
vent-free fireplaces and logs.
Increased home center/hardware channel participation. Consumer awareness of
gas logs and gas fireplaces is currently only 67% and 20%, respectively.
Awareness of zone heating and hearth products is expected to increase as these
products gain wider distribution in home centers and hardware stores. The
potential for home improvement sales, through retrofitting or adding a new
fireplace, represents a meaningful market opportunity for hearth products. DESA,
with its strong home center and hardware co-op channel relationships and
portfolio of zone heating products, is well-positioned to capitalize on this
trend.
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Favorable Regulatory Development. A positive development for vent-free
indoor heating products (heaters, gas logs, fireplaces, stoves) involves the
easing of state restrictions regarding the sale and use of these products. As of
last year, 42 of the 50 states in the United States permitted the sale and use
of vent-free indoor heating products. In the past year, California and New York
enacted legislation to allow the sale and use of vent-free indoor heating
products, subject to rules and guidelines being established by agencies in each
state. These two large population states along with the six remaining states
(including Massachusetts) represent approximately one-third of the homes that
use natural gas in the United States. DESA's Vice President -- Sales and Vice
President -- Engineering, who represent the industry trade association (Gas
Appliance Manufacturer's Association, GAMA-Vent-Free Alliance), are actively
working with state agencies in California and New York which could provide for
sale of vent-free products as early as 1998.
Indoor Heating Products (Domestic)
DESA's indoor zone heating products consist primarily of two product
categories: (i) vent-free natural gas and propane-fueled residential space
heaters; and (ii) a line of hearth products, including vent-free gas fireplaces
and logs. Indoor heating products comprised 40% of the Company's fiscal 1997
gross sales. Sales of these products have increased at a CAGR of 30% from fiscal
1992 to fiscal 1997.
Indoor Vent-Free Heaters
The Company's space heaters are generally wall-mounted and provide heat to
the surrounding area. Residential space heaters come in either vented or
vent-free versions. Vented heaters require a discharging of emissions outside of
the dwelling, while vent-free heaters utilize a more efficient burner system
which avoids the need for outside venting. Vent-free heaters are generally
smaller and more physically attractive than their vented counterparts. DESA has
been the market leader in vent-free gas heaters since 1983. Historically, DESA
has focused on vent-free models. Only 2.9% of the Company's indoor heating sales
in fiscal 1997 are vented units.
The Company offers seven sizes and forty-six models of vent-free gas
heaters ranging in output from 5,000 to 30,000 BTU/hour for use with natural gas
or liquified propane. Key applications of these products include use in family
rooms, dens, kitchens and commercial offices. DESA's indoor vent-free heaters
are sold at retail prices, ranging from $149 to $349, which are significantly
lower than vented gas heaters.
Heaters are classified into two different types: infrared and blue flame.
Infrared models employ ceramic plaque burners which glow red-orange while in use
and they produce radiant heat that warms people or objects in the room. Blue
flame models have a stainless steel burner hidden behind a darkened glass front.
When burning, a line of blue flame is visible across the width of the heater.
These models produce convection heat that warms the air and distributes the heat
throughout the room. Both infrared and blue flame models are available with
either manual or thermostatic control and with piezo ignition.
The Company has developed patented technology for its line of thermostatic
infrared models, known as Infra-Stat, which provides superior features versus
competitors' offerings. DESA's heaters incorporate a proprietary feature of two
separate controls to regulate both the heat output and the thermostatic
operation. Enhanced blue-flame models are available for heavy-duty garage and
workshop applications. Optional accessories such as floor bases and fan
accessories are also available.
Vent-Free Hearth Products
In 1993, DESA pioneered the introduction of vent-free gas technology to
hearth products with the introduction of a heat efficient vent-free decorative
gas log. Vent-free gas logs have provided DESA with a new product growth
opportunity. Vent-free represents an advancement in decorative gas log
technology and, more importantly, has allowed the Company to establish a
presence in the fast-growing hearth products market.
Vent-free gas logs, which retail for $200 to $300, are aesthetically
attractive and an economical source of heat since none of the heat generated is
lost through an open vent. Historically, decorative gas logs have required
venting (i.e., an
54
<PAGE>
open chimney damper) and were used primarily by individuals who enjoyed the
ambiance of a fireplace but wanted to avoid the trouble and inconvenience
associated with burning wood. DESA's vent-free logs utilize an efficient burner
system similar to vent-free heaters, and are thus less expensive to install and
operate than their vented counterparts.
In 1994, DESA combined the technology of blue flame heaters and gas logs to
create an aesthetically pleasing Mini- Hearth gas heater which retails for $499.
The Mini-Hearth utilizes a blue flame heater cabinet and burner to which a
decorative fibrous ceramic log has been added. A wooden mantle is placed around
the heater to create a fireplace effect. While the Mini-Hearth was designed to
be used as a zone heater rather than as a replacement for a formal fireplace,
the improved appearance has generated sales to customers who might not have
otherwise purchased a gas zone heater.
In 1995, DESA introduced a vent-free free-standing gas fireplace with logs
and a full sized mantle which is marketed as a traditional fireplace at a retail
price of approximately $1,000. DESA's vent-free fireplace does not require
venting and may be placed against any wall without structural renovations.
Traditional fireplace boxes must be mounted into an outside wall to facilitate
venting, requiring significant structural modifications to an existing home.
Furthermore, vent-free fireplace installation costs are highly attractive
relative to wood fireplaces (masonry and manufactured), which cost an average of
two to three times the cost of a vent-free fireplace, including installation.
The Company's vent-free gas logs are offered in three sizes and thirty-six
models while vent-free gas fireplaces are offered in ten models and mini-hearth
products in six models.
Outdoor Heating Products (Domestic)
Outdoor heating products represent approximately 40% of the Company's
fiscal 1997 gross sales. Sales of these products have increased at a CAGR of 25%
from fiscal 1992 to fiscal 1997.
DESA's line of outdoor heating products consists of portable units which
generate heat by either using a fan to discharge heated air to a specific area
(forced air heaters) or emitting heat throughout the surrounding area without
the assistance of a fan (convection heaters). Forced air heaters are fueled by
either kerosene, propane or natural gas, while convection heaters are fueled
only with propane or natural gas. Outdoor heaters are used in both residential
and commercial applications. Residential applications include heating otherwise
unheated garages and workshops. Commercial applications include heating
factories, warehouses, construction sites and agricultural areas.
Annual sales increased from $25.4 million to $77.4 million from 1992
through 1997, reflecting the introduction of new outdoor heater products and
expanded sales of these products through the home center and mass merchant
channels. The Company also acquired an outdoor oil heater product line in April
1994, which added approximately $3.5 million in net sales in fiscal 1997. DESA
sells kerosene heaters in eight sizes with retail prices ranging from $139 to
approximately $2,000.
Specialty Tools (Domestic)
DESA's specialty tools category consists of (i) specialty fastening systems
(i.e., powder actuated tools and staple guns) and (ii) electrical products
(i.e., chain saws and electric generators) which are sold to both DIY and
commercial customers. The specialty tool category represents 20% of the
Company's gross sales which have grown at an 11% CAGR from fiscal 1992 to fiscal
1997.
Specialty Fastening Systems Products
Powder actuated tools utilize a powder load to drive nails for fastening
wood to concrete or steel. The charge is activated using either a trigger on the
tool or by striking the tool with a hammer. The energy discharged propels a
piston inside the tool which in turn drives the nail. DESA sells two powder
actuated tools targeted at the DIY market and six tools targeted at the
commercial market. The two consumer models retail for $19 to $79 and the six
commercial models retail for $129 to $199. Sales of powder loads and nail
accessories account for over 50% of this product category's revenues.
55
<PAGE>
Market Overview. The total domestic powder actuated tool market in which
DESA competes is approximately $80 million, consisting of $60 million in the
commercial market and $20 million in the DIY market. In fiscal 1997, DESA had a
market share of 86% in the DIY segment. The staple gun and related accessories
market size is approximately $110 million of which DESA has a modest market
share.
Electrical Products
DESA assembles and markets a line of electric chain saws and electric
generators. Electric chain saws are used primarily by homeowners for light-duty
pruning and trimming. The Company offers models retailing from $39 to $69. DESA
also maintains a modest presence in the portable electric generator market.
Nearly 75% of the Company's generator sales are made to W.W. Grainger who offers
this product line to end-users through its equipment catalog and industrial
supply outlets.
Market Overview. The domestic electric chain saw market is approximately
$20 million in size, and DESA is the market leader with a 36% share. In the
important home center segment of the market, DESA maintains a 52% share. The
electric chain saw market is mature and industry volume has been reasonably
stable over the past five years.
International
In fiscal 1997, $19.6 million or 9.4% of DESA's net sales were generated in
international markets such as Canada, Europe and the Far East. This segment has
grown at a CAGR of 9.4% from fiscal 1992 through fiscal 1997. Although the
global markets have not traditionally been an area of DESA's focus, the Company
believes that the international category represents a significant opportunity
for increased sales in the future. International markets have the potential to
far surpass the home improvement market in the United States.
DESA's strategy for the international markets has been to export customized
versions of its products to accommodate local electrical requirements,
government regulation and user preferences for its exported products. DESA
utilizes local distributors in each country to sell its products, typically
relying on more than one distributor in each country.
In 1990, DESA increased its presence in the foreign markets with the
purchase of Jennen B.V., its Dutch distributor of outdoor forced air heaters.
Located in Rotterdam, it was subsequently renamed as DESA Europe B.V. and
currently serves as the Company's European headquarters.
Sales, Marketing and Distribution
Sales. DESA has organized its domestic sales force by channels of
distribution and product categories in order to optimize the effectiveness of
its selling efforts. DESA management believes that such a structure enhances the
Company's relationships with key channel participants by: (i) enabling the sales
force to develop specific customer insights regarding specialized needs and (ii)
creating a sense of partnership through customized attention and focus.
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<PAGE>
<TABLE>
<CAPTION>
Approximate Number
DESA Sales Channel of of Sales
Organization Distribution Products Marketed Representatives
------------ ------------ ----------------- ---------------
<S> <C> <C> <C>
General Consumer Mass Merchants Indoor Heating 120
Hardware Co-ops Hearth Products
Home Centers Outdoor Heating
Warehouse Stores
Catalog Showrooms
Agricultural Supply
Specialty Heating Utilities Indoor Heating 40-50
Propane Marketers Hearth Products
Specialty Distributors
Appliance Distributors
Construction Equipment Distributors Outdoor Heating 40-50
Equipment Renters Generators
Specialty Tools Mass Merchants Specialty Fastening Systems 100
Hardware Co-ops Electrical Products
Home Centers
Warehouse Stores
Catalog Showrooms
Agricultural Supply
</TABLE>
The sales representative organizations report to DESA's regional managers
who, in turn, report to that channel's Sales Director who report to the
Executive Vice President -- Sales & Marketing.
Marketing. The Company's marketing staff utilizes a variety of traditional
and innovative programs to increase consumer awareness and augment sales. DESA
uses limited national advertising and relies instead on local customer
advertising through newspapers and circular flyers. DESA has also created a
broad national network of independent, factory-trained service centers to
provide local support to customers and end-users.
Distribution. The Company's significant customers include all of the major
home center accounts. The Company's consumer channels, which include home
centers, mass merchants, warehouse clubs and hardware co-ops, are the most
important channel for DESA's products and were responsible for 62% of its fiscal
1997 domestic sales. Other channels, including specialty heating, farm,
construction and industrial, contributed 38% of domestic sales in fiscal 1997.
Key customers include Home Depot and Lowe's, two of the major home centers
in the country; Ace and TruServ, leaders in the hardware co-op market; Sears and
Wal-Mart/Sam's, major mass merchandisers, and W.W. Grainger, a major industrial
supply company. Consistent with industry practices, the Company does not operate
under a long-term written supply contract with any of its customers. See "Risk
Factors -- Risk of Loss of Material Customers."
Competition
Each of the industries in which the Company manufactures and sells products
is highly competitive. Although competitive factors vary by product line,
competition in all product lines is based primarily on product quality, product
innovation, customer service and price. The Company also believes that a
manufacturer's relationship with its distributors and principal customers is a
key factor in the industries in which the Company competes.
The Company competes with a number of manufacturers in the heating products
industry. Within this industry, there are several manufacturers of gas heaters
and numerous producers of gas logs, pre-engineered fireplaces and solid fuel
57
<PAGE>
heaters. The Company also competes with a number of manufacturers in the
specialty tool industry. The Company believes that it is a market leader in the
outdoor heating appliance, vent-free indoor gas heating and hearth and DIY
powder actuated fastener and electric chain saw markets and believes that its
experience, well-recognized brand names, comprehensive product offerings and
strong customer relationships give it a competitive advantage with respect to
these products.
The Company's competitors offer a number of products which directly compete
with or can be utilized as substitutes for the products manufactured by the
Company. No assurance can be given that the future sales of such competitive
products will not adversely affect the market for the Company's products. In
addition, certain of the Company's competitors, particularly in the specialty
tool industry, are larger and better capitalized than the Company.
Management Information Systems
DESA maintains an advanced MIS utilizing customized software for its
manufacturing and engineering design. The Company also has established Customer
Electronic Data Interchange for order entry by major accounts. These systems
provide "real-time" information in regards to work-in-process inventory and
provides detailed labor reporting to enable the Company to identify potential
labor cost savings. For product development and engineering, employees utilize a
state-of-the-art three dimensional CAD/CAM system.
Manufacturing
Indoor and Outdoor Heating Products. DESA's manufacturing processes include
metal fabrication, painting, assembly and product testing. In general, DESA
cuts, forms and coats the product housing, assembles the various components such
as motors, fans, electrical parts and burners, packages the final product and
ships it to customers. Punch presses, welding, powder coated painting and
assembly systems are mechanized with state-of-the-art equipment utilizing
robotics to permit high volume output with minimum labor content.
Specialty Fastening Systems. DESA manufactures and packages the nails
(pins) for sale with its powder actuated tool product line. Powder actuated
tools are sourced from a manufacturing joint venture with Continental/Midland,
Inc. and loads are purchased from a third party. Powerfast(R) stapling products
are sourced from Asian manufacturers.
Electrical Tools. DESA assembles electric chain saws from components made
to its specifications by third-party suppliers. Electric generators are
assembled on a chassis by connecting gasoline engines purchased from Honda and
Briggs & Stratton with an alternator purchased from a European supplier.
Trademarks, Patents and Licenses
The success of the Company's various businesses depends in part on the
Company's ability to exploit certain proprietary designs, trademarks and brand
names on an exclusive basis in reliance upon the protections afforded by
applicable copyright, patent and trademark laws and regulations. The loss of
certain of the Company's rights to such designs, trademarks and brand names or
the inability of the Company to protect effectively or enforce such rights could
adversely affect the Company. See "Risk Factors -- Dependence On Brand Names."
Backlog and Warranty
The Company's backlog consists of cancelable orders and is dependent upon
trends in consumer demand throughout the year. Customer order patterns vary from
year to year, largely because of annual differences in consumer end-product
demand, marketing strategies, overall economic and weather conditions. Orders
for the Company's products are generally subject to cancellation until shipment.
As a result, comparison of backlog as of any date in a given year with the
backlog at the same date in a prior year is not necessarily indicative of sales
trends. Moreover, the Company does not believe that backlog is necessarily
indicative of the Company's future results of operations or prospects.
58
<PAGE>
The Company's warranty policy is to accept returns of products with defects
in materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer good will. During fiscal 1997, warranty
costs amounted to approximately 1.4% of sales.
Environmental Liability
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fees and sanctions for
violations and, in many cases could require the Company to remediate a site to
meet applicable legal requirements. A Phase I environmental audit of the
Company's manufacturing facilities was completed on August 9, 1997 and did not
identify any material matters. The Company believes, although there can be no
assurance, that liabilities relating to environmental matters will not have a
material adverse effect on its future financial position or results of
operations.
Employees
DESA's zone heating products operation is seasonal. As a result, the number
of workers employed by the Company at any particular point in time varies. The
work force is accustomed to seasonal layoffs of two to four months. In 1997,
total employment averaged 772 with a low of 404 employees in March and a peak of
997 employees in October.
The hourly labor force in Bowling Green is represented by the Sheet Metal
Workers International Association (AFL- CIO) under a three-year contract
expiring in June 1998. The Manchester and Shelbyville, Tennessee facilities are
non-union plants.
The hourly labor force in Bowling Green is covered by a defined benefit
pension plan. All other employees are covered by a defined contribution plan
(401K). All workers are covered by self-insured medical plans.
Legal Proceedings
DESA is a party to various litigation in the normal course of its business
activities, none of which is expected to have a material adverse effect on the
Company. Although the Company has not experienced significant products liability
to date, the Company carries occurrence-based product liability insurance
coverage with a $101 million limit, $250,000 self insured retention ("SIR") and
an aggregate annual capped SIR exposure to DESA of $1 million.
Properties
The Company's Bowling Green, Kentucky facility serves as the corporate
headquarters as well as the manufacturing site for DESA's zone heating products,
both indoor and outdoor. The Company also leases warehouse space in Bowling
Green as needed. The facility in Shelbyville, Tennessee is the manufacturing
headquarters for the production of hearth products and outdoor heaters. The
manufacturing facility in Manchester, Tennessee produces the specialty tools
sold by DESA. In addition to these manufacturing facilities, the Company leases
sales offices and warehouse locations in Toronto, Canada and Rotterdam, Holland.
59
<PAGE>
<TABLE>
<CAPTION>
Location Square Footage Ownership Function
-------- -------------- --------- --------
<S> <C> <C> <C>
Bowling Green, Kentucky 225,000 Owned Corporate Headquarters
28 acres Manufacturing, Engineering, Distribution
Shelbyville, Tennessee 70,000 Leased Manufacturing
7 acres
Manchester, Tennessee 57,400 Leased Manufacturing, Distribution
11 acres
Toronto, Canada 9,400 Leased Sales offices, Distribution
Rotterdam, Holland 5,200 Leased Sales offices, Distribution
</TABLE>
Management believes its facilities are in good condition and that the
facilities are adequate for its operating needs for the foreseeable future
without significant modifications or capital investment.
Recent Developments
As of January 12, 1998, the Company entered into an agreement for the
acquisition of the Heath/Zenith business of Heath Holding Corp. However, no
assurances can be given that the acquisition will be ultimately consummated.
Heath/Zenith, headquartered in Benton Harbor, Michigan is the leading North
American manufacturer and marketer of residential motion sensor "security"
lighting products sold primarily to DIY retail home centers. Heath/Zenith is
also a leading manufacturer and marketer of residential motion sensor
"decorative" lighting products and wireless home control devices, including
wireless doorbells and light switches. Since its inception in 1987, Heath/Zenith
has consistently expanded its market positions and today commands either the
number one or number two market position in each of its primary product
categories.
Demand for Heath/Zenith's products has increased in recent years due to
consumers' heightened interest in products that provide effective home security
and innovative, reliable convenience features. Heath/Zenith has also benefited
from the rapid growth and consolidation in its primary DIY retail home centers
distribution channel. Due to its products and capabilities, Heath/Zenith has
been selected as the core supplier to the leading participants in the DIY retail
industry including, Home Depot. In addition, Heath/Zenith has secured core
supplier status with many of the nation's top mass merchandisers, warehouse
clubs, and hardware buying groups.
Similar to Desa, Heath/Zenith has achieved leading market positions and
strong operating performance as a result of (i) the strength of the
Heath/Zenith's relationships with its rapidly-expanding customer base, (ii)
innovative product design and development, (iii) broad and differentiated
product lines supported by strong brand names, (iv) consistent new product
introductions, (v) implementing effective sales and marketing programs designed
to increase customer awareness and expand distribution channels, and (iv)
achieving low-cost manufacturing and distribution expertise.
In the Motion Sensor Security and Decorative Lighting segments,
Heath/Zenith competes against Intelectron Incorporated, a privately held company
headquartered in Hayward, California, and Regent Lighting Corporation, a
privately held company headquartered in Burlington, North Carolina. Within the
Wireless Doorbell segment, Heath- Zenith competes against Dimango Products, Co.,
based in Brighton, Michigan, and Trine Products, Co., a privately held company
based in Bronx, New York.
On a pro forma basis, Heath/Zenith will account for approximately 17.5% and
7.3% of sales and EBITDA, respectively, of the combined company. Heath/Zenith's
business is comprised of three primary segments: Motion Sensor Security
Lighting, Motion Sensor Decorative Lighting, and Wireless Doorbells.
Motion Sensor Security Lighting
Within its motion sensor security lighting product line, which accounted
for 61% of 1996 revenues, Heath/Zenith offers 58 stock keeping units ("SKUs")
representing a variety of security lighting products which appeal to various
segments of the DIY market. The Heath/Zenith's standard motion sensor security
lighting products retail from $9.95
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<PAGE>
for promotional items up to $34.95 for a full-feature security light. The
Heath/Zenith's primary focus is to de-emphasize promotional products and to
emphasize its high quality, high margin products that are made with metal
fixtures and hoods, and which contain such value-added features as Pulse Count,
Dual BriteTM, and 270(degree) activation capability.
Market Overview. The $200 million North American residential outdoor
security lighting industry market is segmented into three categories: (i) motion
sensor security lighting, (ii) photocell (darkness activated) security lighting,
and (iii) standard (switch activated) security lighting. The motion sensor
security lighting segment has been the primary growth segment in the industry,
growing at a compounded annual growth rate of almost 6% over the last five
years. Since the introduction of motion sensor security lighting, the product
has established itself as an easy to install, reliable, low-cost security
product. As a result, motion sensor products have steadily captured market share
from standard and photocell lighting as those traditional products are less
effective crime deterrents and more expensive and less convenient to operate.
Motion Sensor Decorative Lighting
With 38 SKUs, motion sensor decorative lighting products represent
approximately 15% of the Heath/Zenith's 1996 total revenue. The Heath/Zenith's
motion sensor decorative lighting products, which sell for retail prices ranging
from $24.95 to $79.95, were introduced in 1992 as part of management's strategy
to move consumer to higher price point products. Included in this product line
are coach lanterns, cast aluminum lanterns, brass lanterns and post lanterns.
Market Overview. The $400 million North American residential outdoor
decorative lighting industry is driven primarily by the home improvement and
remodeling industry. As a result, the overall retail outdoor decorative lighting
industry has benefited from the expansion in the home improvement industry and
DIY retail channel. Historically, the decorative lighting market was dominated
by standard (switch activated) lighting products. However, as customers become
more aware of the benefits of motion sensor lighting products such as energy
efficiency, crime deterrence, and convenience, they are requiring motion sensor
capabilities in all of their outdoor lighting products.
Wireless Doorbells
Wireless doorbell products, introduced in 1991, represent approximately 15%
of 1996 total revenue. This product line, which retails for between $9.95 and
$49.95, represents the Heath/Zenith's successful entry into a new market by
leveraging a high-quality product with the Heath/Zenith brand name. The
Heath/Zenith's wireless doorbell products are positioned to take advantage of an
underserved market with relatively few solutions. Wireless doorbells present the
most viable and cost effective solution to the problem. Heath/Zenith has become
the market leader in the wireless doorbell industry by offering a diverse line
of products and, most importantly, by differentiating its product with a
proprietary sound chip.
Market Overview. Approximately 17% of Heath/Zenith's 1996 revenues were
generated by sales in the wireless controls systems industry, primarily in the
wireless doorbell segment. The wireless control systems industry is a diverse
industry that includes products ranging from home automation systems to garage
door openers to wireless doorbells. Heath/Zenith currently competes primarily in
the wireless doorbell segment of the residential wireless control systems
industry.
Customers
Heath/Zenith targets the rapidly-expanding DIY home center retail market
and, to a lesser extent, mass merchandisers, warehouse clubs, and cooperative.
In 1996, sales to home improvement retailers and hardware cooperatives accounted
for 90% of revenues and sales to mass merchandisers, warehouse clubs and other
retailers accounted for 10% of sales.
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<PAGE>
Manufacturing and Assembly
Heath/Zenith designs and manufactures its products through its Hong Kong
based subsidiary, Heath Ltd., which provides purchasing, engineering, contract
manufacturing, administration and assembly. Heath/Zenith uses three
subcontractors in China who assemble products according to predetermined
specifications and ship assembled products to Heath Ltd. Heath/Zenith owns all
the tooling utilized in the production of its products. Finished products are
shipped to a public warehouse in Reno, Nevada and distributed throughout North
America directly to customers.
Employees
Heath/Zenith has approximately 78 employees, 42 at its Benton Harbor
headquarters and 36 at Heath Ltd.
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MANAGEMENT
Directors and Officers
The following table sets forth the name, age and position of each of the
Company's directors who will continue in office following the Recapitalization,
directors designate, executive officers and other significant employees. All of
the Company's officers are elected annually and serve at the discretion of the
Board of Directors.
Name Age Positions
---- --- ---------
Robert H Elman 59 Chairman, Chief Executive Officer, Director
John W Childs 55 Director
Raymond B Rudy 65 Director
Adam L Suttin 30 Director
Michael Greene 35 Director
Terry G Scariot 49 President, Director
John M Kelly 48 Executive Vice President
Edward G Patrick 51 Vice President of Finance, Treasurer
Scott M Nehm 48 Vice President, Controller
Robert H. Elman joined DESA Industries, at its inception, in 1969 as Vice
President and member of the Board of the Directors and as President of its Power
Products Division. He planned and directed the division's growth from sales of
$11 million in 1969 to $35 million in 1975, with operating income increasing
significantly during the same period. Mr. Elman remained with AMCA International
when it acquired DESA Industries in 1975 and became Senior Group Vice President
responsible for the Consumer, Automotive Products, Aerospace, and Food Packaging
Divisions until March 1985. Since March 1985, when Mr. Elman and his fellow
managers formed DESA International and participated in the leveraged buyout of
AMCA's Consumer Products Division, Mr. Elman has been Chairman and Chief
Executive Officer of the Company. Prior to DESA, he worked with ITT and Singer
in various management positions in the United States and Europe. Mr. Elman
serves as the non-employee Chairman of the Board of Directors of Hedstrom
Holdings, Inc. He received his Bachelor's Degree in Mechanical Engineering from
Rensselaer Polytechnic Institute and his MBA from Harvard Business School.
John W. Childs has been President of JWCA since July 1995. Prior to that
time, he was an executive at Thomas H. Lee Company from May 1987, most recently
holding the position of Senior Managing Director. Prior to that, Mr. Childs was
with the Prudential Insurance Company of America where he held various executive
positions in the investment area ultimately serving as Senior Managing Director
in charge of the Capital Markets Group. He is a director of Big V Supermarkets,
Inc., Central Tractor Farm & Country, Inc., Chevys Holdings, Inc., Cinnabon,
Inc., The Edison Project, Inc., Personal Care Group, Inc., and Select Beverages,
Inc.
Raymond B. Rudy has been a Managing Director of JWCA since July 1995. Prior
to that time, he was Deputy Chairman and Director of Snapple Beverage
Corporation from 1992 until the company was sold in 1994. From 1987 to 1989, Mr.
Rudy was President of Best Foods Subsidiaries of CPC International. From 1984 to
1986, Mr. Rudy was Chairman, President and CEO of Arnold Foods Company, Inc. He
is chairman of Empire Kosher Poultry, Inc. and Personal Care Group, Inc.
Adam L. Suttin has been a Vice President of JWCA since July 1995. Prior to
that time, he was an executive at Thomas H. Lee Company from August 1989, most
recently holding the position of Associate. He is a director of Central Tractor
Farm & Country, Inc., Empire Kosher Poultry, Inc., and Personal Care Group, Inc.
Michael Greene is a Managing Director of UBS Capital, which is the private
equity subsidiary of the Union Bank of Switzerland. Mr. Greene has worked in
Union Bank of Switzerland's private equity and leveraged finance business
63
<PAGE>
since he joined Union Bank of Switzerland in 1990. Mr. Greene serves on the
board of directors of CBP Resources, Inc. and Metrocall, Inc.
Terry G. Scariot joined AMCA's Consumer and Automotive Products Division as
Vice President -- Finance in early 1984 and became Chief Financial Officer of
DESA International in March 1985. He was appointed President of DESA
International in March 1996 and joined the Board of Directors in December 1996.
Prior to joining AMCA International, Mr. Scariot held positions of increasing
responsibility in financial and manufacturing management at Monsanto Industrial
Chemicals Company, Rockwell International's Automotive Products Group, and Gulf
and Western's Bonney Forge Division. In October 1979, Mr. Scariot served as a
member of the Board of Directors and Chief Financial Officer for The Massillon
Steel Casting Company. Mr. Scariot received his Bachelor of Science degree in
finance and MBA from the University of Missouri.
John M. Kelly joined DESA Industries in Canada in 1972. After successful
management assignments in sales, manufacturing services, and administration, he
was appointed General Sales Manager in 1976 and General Manager in 1977. In
1983, Mr. Kelly was promoted to Vice President -- North American Sales for
AMCA's Consumer Products Division. In 1984, his responsibilities were expanded
to include the entire marketing function. He became DESA's senior sales and
marketing Executive Vice President in North America in March 1985. Mr. Kelly
assumed the role of Executive Vice President in March 1996, responsible for
worldwide sales and marketing and engineering. He majored in Economics at the
University of Toronto.
Edward G. Patrick has been associated with DESA International, Inc. and its
predecessor company since January 1985, joining the company as Director of
Credit and Accounts Receivable. In May of 1991, he was appointed Treasurer and
in January 1995 appointed Vice President of Finance. Prior to joining DESA, Mr.
Patrick held financial positions with Benchmark Tool Company, a Subsidiary of
Shopsmith Inc. (1981-1985), McGraw Edison Company (1975-1981), and General
Motors Corp. (1972-1975). Mr. Patrick received his Bachelor's Degree from
Northeast Missouri State University.
Scott M. Nehm has been with DESA and the predecessor operation since 1982.
In January 1995, he was appointed Vice President, Controller. Prior to DESA, Mr.
Nehm has held positions of increasing responsibility in financial management at
Modine Manufacturing Company (1971-1973), Koehring Company (1974-1979), and
Allied Products Inc. (1980-1981). Mr. Nehm has a CPA Certificate, BBA and MBA
degrees from the University of Wisconsin in Accounting, Finance and Marketing.
Executive Compensation
The following table sets forth compensation earned for all services
rendered to the Company during fiscal 1995, fiscal 1996 and fiscal 1997, as
applicable, by the Company's chief executive officer and the four most highly
compensated executive officers other than the Company's chief executive officer
(collectively, the "Named Executives").
64
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Number of
---------------------------------------- Securities All Other
Name and Principal Fiscal Salary(1) Bonus Underlying Compensation
Position at March 1, 1997 Year ($) ($)(1) Options(2) ($)
- - - - -------------------------------------- ------ -------------------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Robert H Elman............................... 1997 565,385 820,000 -- 112,233
Chairman, Chief 1996 516,162 535,000 -- 100,255
Executive Officer 1995 385,546 512,000 -- 108,091
Terry G Scariot.............................. 1997 249,400 120,000 -- 16,203
President 1996 195,769 102,000 -- 28,829
1995 146,461 96,000 -- 24,373
John M Kelly................................. 1997 249,400 120,000 -- 29,203
Executive Vice 1996 195,769 102,000 -- 33,039
President 1995 146,461 96,000 -- 27,000
Edward G Patrick............................. 1997 74,822 17,500 4,000 8,111
Vice President of 1996 68,631 15,000 -- 5,697
Finance, Treasurer 1995 65,086 12,000 -- 1,277
Scott M Nehm................................. 1997 74,822 17,500 4,000 10,766
Vice President 1996 71,383 15,000 -- 8,044
Controller 1995 67,987 12,000 -- 2,066
- - - - ----------
<FN>
(1) Annual bonuses are indicated for the year in which they were earned and accrued. Annual bonuses for any year are
generally paid in the following fiscal year.
(2) All of the options are to be redeemed in connection with the Recapitalization.
</FN>
</TABLE>
Employment Arrangements with Executive Officers
Mr. Elman is currently employed as Chairman and Chief Executive Officer
pursuant to an employment agreement which carries a three-year term. Under this
agreement, Mr. Elman currently receives a salary of $650,000. Mr. Scariot is
currently employed as President pursuant to an employment agreement which
carries a three-year term. Under this agreement, Mr. Scariot currently receives
a salary of $292,000. Mr. Kelly is currently employed as Executive Vice
President pursuant to an employment agreement which carries a three-year term.
Under this agreement, Mr. Kelly currently receives a salary of $292,000.
Pursuant to these employment agreements, the salary of each of Messrs. Elman,
Scariot and Kelly will be subject to annual increases at the discretion of the
Board of Directors of the Company. Messrs. Elman, Scariot and Kelly will be
eligible to participate in an executive bonus plan which will be instituted for
fiscal 1999, 2000, 2001, 2002 and 2003. Messrs. Elman, Scariot and Kelly will
also participate in an option plan which will allow management to earn up to
12.5% of the fully diluted equity of Holdings upon achievement of pre-determined
performance targets. In the event of a Change of Control of the Company after
which the employment of Messrs. Elman, Scariot and Kelly with the Company is not
continued, Messrs. Elman, Scariot and Kelly will be entitled to Change of
Control benefits unless the equity investment of each of Messrs. Elman, Scariot
and Kelly in Holdings of each shall have tripled in value.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of Holdings by each person known to the Company to
be the beneficial owner of more than five percent of the common stock of
Holdings, each director of the Company, each Named Executive and all directors
and executive officers of the Company as a group. Except as otherwise indicated,
the beneficial owners of the voting stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares. The business address for each executive officer of the Company is
in care of the Company.
Shares
Beneficially
Name and Address Owned Percent
---------------- ----- -------
J.W. Childs Equity Partners, L.P.(1)
One Federal Street
Boston, Massachusetts 8,813,024 67.5%
UBS Capital LLC(1)
299 Park Avenue
New York, New York 2,410,569 18.8
Robert H. Elman(2) 348,916 2.7
John W. Childs(1)(3)
One Federal Street
Boston, Massachusetts 9,160,151 70.1
Raymond B. Rudy(1)(3)
One Federal Street
Boston, Massachusetts 8,835,916 67.7
Adam L. Suttin(1)(3)
One Federal Street
Boston, Massachusetts 8,844,623 67.7
Michael Greene(4)
299 Park Avenue
New York, New York 2,410,569 18.8
Terry G. Scariot 92,452 *
John M. Kelly 92,452 *
Edward G. Patrick 26,965 *
Scott M. Nehm 26,965 *
All Directors and executive officers as a group (9
persons)(1)(2)(3)(4) 12,175,377 92.5
- - - - ----------
* Less than 1.0%
(1) Includes 363,968 shares beneficially owned by Childs and 99,264 shares
beneficially owned by UBS Capital pursuant to warrants to be issued in
connection with their respective purchases of Holdings Preferred Stock.
(2) Includes 164,011 shares owned by Mr. Elman's family.
(3) Includes shares beneficially owned by Childs, as to which Messrs. Childs,
Rudy and Suttin may be deemed also to be beneficial owners.
(4) Includes shares beneficially owned by UBS Capital, as to which Mr. Greene
may also be deemed to be a beneficial owner.
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<PAGE>
CERTAIN TRANSACTIONS
At the closing of the Recapitalization, it is contemplated that the Company
and Holdings will enter into a management agreement with JWCA providing for
payment by the Company to JWCA of (i) a $2.55 million advisory and financing fee
in consideration of JWCA's services regarding the planning, structuring and
negotiation of the Recapitalization and related financing and (ii) an annual
management fee of $240,000 in consideration of JWCA's ongoing provision of
certain consulting and management advisory services. Payments under this
management agreement may be made only to the extent permitted by the New Credit
Facility and the Indenture. The management agreement is expected to be for a
five-year term, automatically renewable for successive extension terms of one
year, unless JWCA or Holdings shall give notice of termination. In addition, UBS
Capital will be entitled to receive a $0.7 million advisory and financing fee in
consideration of UBS Capital's services regarding the planning, structuring and
negotiation of the Recapitalization and related financing.
Pursuant to the Recapitalization Agreement, concurrently with the closing
of the Recapitalization, Holdings, the Equity Investors and the Existing
Stockholders (the "Stockholders") will enter into a Stockholders Agreement (the
"Stockholders Agreement"). Subject to certain exceptions, the Stockholders
Agreement will restrict the right of the Stockholders to transfer any Holdings
Common Stock or Warrants or other vested rights to acquire Holdings Common Stock
(collectively, the "Subject Securities") without the consent of the holders of a
majority of the Subject Securities at the time held by Childs and its affiliates
and associates (the "JWC Holders"). Holdings and the JWC Holders will have
certain rights of first refusal with respect to Subject Securities. In addition,
the Stockholder Agreement will provide for certain so-called "tag-along",
"drag-along" and "piggyback registration" rights. In addition, the Stockholder
Agreement will provide each Stockholder with certain preemptive rights. The
Stockholder Agreement will also obligate Holdings and the Stockholders to take
all necessary actions to include certain nominees of the JWC Holders (who could
constitute all or a majority of the board of directors) on Holdings' board of
directors and to ensure that certain representatives of the other Stockholders
may attend meetings. The Stockholders Agreement will also restrict Holdings'
right to enter into agreements with JWC Holders without the consent of the other
Stockholders.
Holdings and its subsidiaries expect to enter into a tax sharing agreement
providing (among other things) that each of the subsidiaries will reimburse
Holdings for its share of income taxes determined as if such subsidiary had
filed its tax returns separately from Holdings.
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<PAGE>
DESCRIPTION OF NOTES
General
The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company, Holdings (as guarantor) and Marine Midland Bank, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. A copy of the proposed form of Indenture and Registration Rights
Agreement is available as set forth under "Available Information". The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions."
The Notes will be general unsecured obligations of the Company, will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including the New Credit Facility, and will rank pari passu in
right of payment with any existing and future senior subordinated indebtedness
of the Company. The Company's payment obligations under the Notes will be fully
and unconditionally guaranteed (the "Holdings Guarantee") on a senior
subordinated basis by Holdings. In addition, all borrowings under the New Credit
Facility will be secured by a Lien on substantially all of the assets of the
Company, Holdings and their domestic Subsidiaries.
In addition, the Company conducts certain operations through its foreign
subsidiaries and the Notes will be effectively subordinated to all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of such foreign subsidiaries. Any right of the Company to receive
assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, in which case the claims of the
Company would still be subordinate to any security in the assets of such
Subsidiary and any indebtedness of such Subsidiary senior to that held by the
Company. As of the date of the Indenture, all of the Company's Subsidiaries will
be Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The Notes will be limited in aggregate principal amount to $130.0 million
and will mature on December 15, 2007. The Indenture provides for the issuance of
up to $75.0 million aggregate principal amount of additional Notes having
identical terms and conditions to the Notes offered hereby (the "Additional
Notes"), subject to compliance with the covenants contained in the Indenture.
Any Additional Notes will be part of the same issue as the Notes offered hereby
and will vote on all matters with the Notes offered hereby. For purposes of this
"Description of Notes," references to the Notes do not include Additional Notes.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest and Liquidated
Damages, if any, on the Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or, at
the option of the Company, payment of interest and Liquidated Damages, if any,
may be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments with respect to Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York will be the office of the Trustee maintained for such purpose. The Notes
will be issued in denominations of $1,000 and integral multiples thereof.
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<PAGE>
Subordination
The payment of all Obligations on the Notes will be subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full in cash
of all Senior Indebtedness, whether outstanding on the date of the Indenture or
thereafter incurred.
Upon any distribution to creditors of the Company or Holdings in a
liquidation or dissolution of the Company or Holdings, as the case may be, or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or Holdings or their respective property, an assignment
for the benefit of creditors or any marshalling of the Company's or Holdings'
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before the Holders
of Notes will be entitled to receive any payment with respect to the Notes or
the Holdings Guarantee, and until all Obligations with respect to Senior
Indebtedness are paid in full, any distribution to which the Holders of Notes
would be entitled shall be made to the holders of Senior Indebtedness (except
that Holders of Notes may receive securities that are subordinated at least to
the same extent as the Notes to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness and payments made from the trust described
under "-- Legal Defeasance and Covenant Defeasance"). Senior Indebtedness shall
not be deemed to have been paid in full until the termination of all commitments
or other Obligations under the New Credit Facility, and the payment in full in
cash thereof.
The Company and Holdings also may not make any payment or distribution upon
or in respect of the Notes or the Holdings Guarantee (except in such
subordinated securities or from the trust described under "-- Legal Defeasance
and Covenant Defeasance") if (i) a default in the payment of any Obligation on
Designated Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (ii) any other default occurs and is continuing with respect
to Designated Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company, Holdings, the agent under the New Credit Facility or the holders of any
other Designated Senior Indebtedness. Payments on the Notes or the Holdings
Guarantee may and shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default is
cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated. No new period of payment blockage pursuant to
a Payment Blockage Notice may be commenced unless and until (i) 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage Notice
and (ii) all scheduled payments of principal, premium, if any, and interest on
the Notes that have come due have been paid in full in cash. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company or Holdings who are holders of Senior Indebtedness. At
November 29, 1997, the aggregate principal amount of Senior Indebtedness of the
Company was approximately $135.5 million. The Indenture will limit, subject to
certain financial tests, the amount of additional Indebtedness, including Senior
Indebtedness, that the Company, Holdings and their respective subsidiaries can
incur. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
Holdings Guarantee
The payment of principal of, premium, if any, and interest and Liquidated
Damages, if any, on the Notes will be fully and unconditionally guaranteed on an
unsecured basis by Holdings. The Holdings Guarantee will be subordinated to the
amounts for which Holdings will be liable under the guarantees issued from time
to time with respect to Senior Indebtedness to the same extent as the Notes are
subordinated to such Senior Indebtedness. The obligation of Holdings
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under the Holdings Guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law. See, however, "Risk Factors --
Fraudulent Conveyance and Preference Considerations."
The Indenture will provide that Holdings may not consolidate with or merge
with or into (whether or not Holdings is the surviving Person), another
corporation, Person or entity whether or not affiliated with Holdings unless (i)
subject to the provisions of the following paragraph, the Person formed by or
surviving any such consolidation or merger (if other than Holdings) assumes all
the obligations of Holdings pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) Holdings, or any Person formed by or surviving
any such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction), equal to or greater than the
Consolidated Net Worth of Holdings immediately preceding the transaction; and
(iv) Holdings would be permitted, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Optional Redemption
The Notes will not be redeemable at the Company's option prior to December
15, 2002. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on December 15 of the years indicated below:
Year Percentage
2002................................................ 104.9375%
2003................................................ 103.2917%
2004................................................ 101.6458%
2005 and thereafter................................. 100.0000%
Notwithstanding the foregoing, at any time on or before December 15, 2000,
the Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of Notes (including any Additional Notes) at
a redemption price of 109.875% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon to the redemption date, with the
net cash proceeds of one or more Public Equity Offerings; provided that at least
65% of the aggregate principal amount of Notes (including any Additional Notes)
remain outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such Public Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Optional Redemption Upon Change Of Control
Upon the occurrence of a Change of Control prior to December 15, 2002, the
Notes will be redeemable, in whole or in part, at the option of the Company,
upon not less than 30 nor more than 60 days prior notice to each Holder of Notes
to be redeemed, at a redemption price equal to the sum of (i) the then
outstanding principal amount thereof plus
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(ii) accrued and unpaid interest thereon and Liquidated Damages, if any, to the
redemption date plus (iii) the Applicable Premium. The following definitions are
used to determine the Applicable Premium:
"Applicable Premium" will be defined, with respect to a Note, as the
greater of (i) 4.9375% of the then outstanding principal amount of such Note or
(ii) the excess of (A) the present value of the remaining required interest and
principal payments due on such Note (exclusive of accrued and unpaid interest
and Liquidated Damages, if any), computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the then outstanding principal
amount of such Note.
"Treasury Rate" will be defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) which has become publicly available at least two Business Days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Average Life to Stated Maturity of the Notes;
provided, however, that if the Average Life to Stated Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Average Life to Stated Maturity of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of repurchase (the
"Change of Control Payment"). Within fifteen days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 75 days following a Change of Control, the Company will either repay all
outstanding Senior Indebtedness or obtain the requisite consents, if any, under
all agreements governing outstanding
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Senior Indebtedness to permit the repurchase of Notes required by this covenant.
The Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will take precedence over
other provisions of the Indenture which may be applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility currently prohibits the Company from purchasing any
Notes, and also provides that certain events constituting a change of control
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the New Credit Facility. In such circumstances, the subordination provisions in
the Indenture would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture, applicable to a Change of Control Offer made by the Company
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture will provide that the Company and Holdings will not, and will
not permit any of their respective Restricted Subsidiaries to, consummate an
Asset Sale unless (i) the Company, Holdings or the Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of the
assets or Equity Interests issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Company, Holdings or
such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided
that the amount of (x) any liabilities (as shown on the Company's, Holdings' or
such Restricted Subsidiary's most recent balance sheet) of the Company, Holdings
or any Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes, the Holdings Guarantee or any
Subsidiary Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company, Holdings
or such Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company, Holdings or any such Restricted Subsidiary
from such transferee that are immediately converted by the Company, Holdings or
such Restricted Subsidiary into cash (to the extent of the cash received), shall
be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or Holdings, as the case may be, may apply such Net Proceeds, at its
option, (a) to permanently reduce outstanding Senior Indebtedness (and
correspondingly reduce commitments thereunder) or (b) to acquire a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in the same or a similar
line of business as the Company was engaged in on the date of the Indenture.
Pending the final application of any such Net Proceeds,
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the Company or Holdings, as the case may be, may temporarily reduce revolving
credit Indebtedness or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company and Holdings will be required to make
an offer to all Holders of Notes and Additional Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes and Additional Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes and Additional Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company or Holdings, as the case may be, may
use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes and Additional Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and Additional Notes to be purchased on a pro rata basis. Upon completion
of such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture will provide that the Company and Holdings will not, and will
not permit any of the Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on account
of the Company's, Holdings' or any of the Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving the Company or Holdings) or to the direct or
indirect holders of the Company's, Holdings' or any Restricted Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
Holdings); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company or Holdings) any Equity Interests of the Company,
Holdings, any Restricted Subsidiary of the Company or Holdings, or any Affiliate
of the Company or Holdings (other than any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company); (iii) make
any payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes (other than Notes),
except a payment of interest or principal of Indebtedness (other than interest
payments on any Exchange Notes or Qualified Subordinated Indebtedness) at Stated
Maturity or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company (in the case of a Restricted Payment by the Company or any
of its Restricted Subsidiaries) or Holdings (in all other cases) would, at the
time of such Restricted Payment and after giving pro forma effect thereto as if
such Restricted Payment had been made at the beginning of the applicable
four-quarter period, have a Fixed Charge Coverage Ratio of at least 2.0 to 1
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(c) in the case of a Restricted Payment of the Company or a Restricted
Subsidiary of the Company, such Restricted Payment, together with the aggregate
of all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clause (ii) of the second succeeding paragraph), is less than the
sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by the Company from the issue or
sale since the date
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of the Indenture of Equity Interests of the Company (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or convertible debt securities that
have been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold for
cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment
plus (iv) the amount resulting from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (in each case, such amount to be valued as provided
in the second succeeding paragraph) not to exceed the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary and which was treated as a Restricted Payment under the Indenture;
and
(d) in the case of a Restricted Payment by Holdings or a Restricted
Subsidiary of Holdings (other than the Company or a Restricted Subsidiary of the
Company), such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Holdings, the Company and their Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less than the sum
of (i) 50% of the Consolidated Net Income of Holdings for the period (taken as
one accounting period) from the beginning of the first fiscal quarter commencing
after the date of the Indenture to the end of Holdings' most recently ended
fiscal quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by Holdings from the issue or sale since the date of the
Indenture of Equity Interests of Holdings (other than Disqualified Stock) or of
Disqualified Stock or debt securities of Holdings that have been converted into
such Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of Holdings and other than
Disqualified Stock or convertible debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment plus (iv) the amount
resulting from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (in each case, such amount to be valued as provided in the second
succeeding paragraph) not to exceed the amount of Investments previously made by
Holdings in such Unrestricted Subsidiary and which was treated as a Restricted
Payment under the Indenture.
The foregoing provisions will not prohibit: (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of other
Equity Interests of the Company (other than any Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c)(ii) of paragraph (c) above; (iii) the redemption,
repurchase, retirement, defeasance or other acquisition of any subordinated
Indebtedness or Equity Interests of Holdings in exchange for, or out of the net
cash proceeds of, the substantially concurrent sale (other than to the Company
or a Restricted Subsidiary of Holdings) of other Equity Interests of Holdings
(other than any Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (d)(ii) of
paragraph (d) above; (iv) the defeasance, redemption, repurchase or other
acquisition of subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (v) the making of any
Restricted Payment by Holdings utilizing the proceeds of a Restricted Payment
made by the Company to Holdings in accordance with the Indenture; (vi) the
payment of any dividend by a Restricted Subsidiary of the Company or Holdings
(other than the Company) to the holders of its common Equity Interests on a pro
rata basis; (vii) so long as no Default or Event of Default shall have occurred
and is continuing, the repurchase, redemption or other retirement for value of
any Equity Interests of the Company, Holdings or a Restricted Subsidiary, or
dividends or other distributions by the Company to Holdings the proceeds of
which are utilized by Holdings to repurchase, redeem or otherwise acquire or
retire for value any Equity Interests of Holdings, in each case, held by any
member of the management, employees or consultants of the Company, a Restricted
Subsidiary or Holdings pursuant to any management, employee or consultant equity
subscription agreement or stock option agreement; provided
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that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed the sum of (x) $500,000 in any
twelve-month period and (y) the aggregate cash proceeds received by the Company
or Holdings from any reissuance of Equity Interests by Holdings or the Company
to members of management of the Company or Holdings (provided that the cash
proceeds referred to in this clause (y) shall be excluded from clause (c)(ii) of
paragraph (c) above); (viii) dividends or other payments to Holdings sufficient
to enable Holdings to pay (x) accounting, legal, corporate reporting and
administrative expenses of Holdings incurred in the ordinary course of business,
(y) required fees and expenses, and any adjustments to the purchase price under
the Stock Purchase Agreement, in each case in connection with the
Recapitalization, and (z) the registration fees and expenses under applicable
laws and regulations of its debt or equity securities; and (ix) payments to
Holdings pursuant to the Tax Sharing Agreement. In addition, the Indenture will
provide that the Company may make a distribution to Holdings to consummate the
Recapitalization.
The Board of Directors of the Company or Holdings, as the case may be, may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by the Company, Holdings and the
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greater of (x) the
net book value of such Investments at the time of such designation and (y) the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company, Holdings or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors of the Company or Holdings, as the case may be, whose resolution
with respect thereto shall be delivered to the Trustee, such determination to be
based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if such fair market value exceeds
$5.0 million. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture, which calculations may be based upon Holdings' latest available
financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company and Holdings will not, and will
not permit any of their respective Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt), will not issue any
Disqualified Stock and will not permit any of their respective Subsidiaries to
issue any shares of preferred stock; provided, however, that (i) the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio of the Company for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 1.75 to 1, if such incurrence or issuance is on or prior to December 15,
1999, or 2.0 to 1, if such incurrence or issuance is after December 15, 1999, in
each case, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period and (ii) Holdings may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock if the Fixed
Charge Coverage Ratio of Holdings for Holdings' most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 1.75 to 1, if such
incurrence or issuance is on or prior to December 15, 1999, or 2.0 to 1, if such
incurrence or issuance is after December 15, 1999, in each case, determined on a
pro forma basis (including a pro forma application of the net proceeds
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therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"), each of
which shall be given independent effect:
(i) the incurrence by the Company, Holdings and their respective
Subsidiaries of Indebtedness (including letters of credit), or guarantees of
such Indebtedness, pursuant to the term loan portion of the New Credit Facility;
provided that, after giving pro forma effect to any such incurrence and the
application of the proceeds therefrom, the aggregate principal amount of all
Indebtedness of the Company, Holdings and their Subsidiaries outstanding under
the term loan portion of the New Credit Facility does not exceed $100.0 million
less the aggregate amount of all Net Proceeds of Asset Sales applied to
permanently repay any such Indebtedness pursuant to the covenant described above
under the caption "Repurchase at the Option of Holders -- Asset Sales;"
(ii) the incurrence by the Company, Holdings and their respective
Subsidiaries of Indebtedness (including letters of credit), or guarantees of
such Indebtedness, pursuant to the revolving loan portion of the New Credit
Facility (with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company, Holdings and their
Subsidiaries thereunder); provided that, after giving pro forma effect to any
such incurrence and the application of the proceeds therefrom, the aggregate
principal amount of all Indebtedness (including letters of credit) of the
Company, Holdings and their Subsidiaries outstanding under the revolving loan
portion of the New Credit Facility does not exceed the greater of (x) $75.0
million less the aggregate amount of all Net Proceeds of Asset Sales applied to
permanently repay any such Indebtedness pursuant to the covenant described above
under the caption "Repurchase at the Option of Holders -- Asset Sales" or (y)
the amount of the Borrowing Base as of any date of incurrence;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes (other than any Additional Notes), the incurrence by Holdings of the
Holdings Guarantee or the incurrence by any Restricted Subsidiary of Subsidiary
Guarantees;
(iv) the incurrence by the Company, Holdings or any of their Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company, Holdings or
such Subsidiary, in an aggregate principal amount not to exceed $5.0 million at
any time outstanding;
(v) the incurrence by any corporation that becomes a Subsidiary of the
Company after the Issue Date of Acquired Debt, which Indebtedness is existing at
the time such corporation becomes a Subsidiary; provided, however, that (A)
either (x) the principal amount (or accreted value, as applicable) of such
Acquired Debt, together with any other outstanding Indebtedness incurred
pursuant to this clause (iv), does not exceed $5.0 million since the Issue Date
or (y) immediately after giving effect to such corporation becoming a
Subsidiary, Holdings could incur at least $1.00 of additional Indebtedness
(other than Permitted Debt) in accordance with the Indenture, (B) such
Indebtedness is without recourse to the Company, Holdings or to any of their
respective Subsidiaries or to any of their respective properties or assets other
than Person becoming a Subsidiary or its properties and assets and (C) such
Indebtedness was not incurred as a result of or in connection with or in
contemplation of such entity becoming a Subsidiary;
(vi) the incurrence by the Company, Holdings or any of their Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
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(vii) the incurrence of intercompany Indebtedness between or among the
Company, Holdings and any of their respective Wholly Owned Restricted
Subsidiaries; provided, however, that (i) if the Company or Holdings is the
obligor on such Indebtedness, such Indebtedness is expressly subordinate to the
prior payment in full in cash of all Obligations with respect to the Notes and
(ii)(A) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than the Company, Holdings or
a Wholly Owned Restricted Subsidiary and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company, Holdings or a
Wholly Owned Restricted Subsidiary shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by the Company, Holdings or such Subsidiary,
as the case may be;
(viii) Indebtedness of an Unrestricted Subsidiary owed to and held by the
Company, Holdings or a Restricted Subsidiary, provided that the Company,
Holdings or such Restricted Subsidiary is permitted to make an investment in
such Unrestricted Subsidiary under the Indenture at the time such Indebtedness
is incurred in an amount equal to the principal amount of such Indebtedness;
(ix) the incurrence by the Company or Holdings of Hedging Obligations that
are incurred for the purpose of fixing or hedging currency risk or interest rate
risk with respect to any floating rate Indebtedness that is permitted by the
terms of this Indenture to be outstanding;
(x) the incurrence by Unrestricted Subsidiaries of Non-Recourse Debt,
provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt
of an Unrestricted Subsidiary, such event shall be deemed to constitute an
incurrence of Indebtedness by a Restricted Subsidiary;
(xi) Indebtedness incurred in respect of performance, surety and similar
bonds provided by the Company, Holdings and the Restricted Subsidiaries in the
ordinary course of business, and refinancings thereof;
(xii) Indebtedness for letters of credit relating to workers' compensation
claims and self-insurance or similar requirements in the ordinary course of
business;
(xiii) Indebtedness arising from guarantees of Indebtedness of the Company,
Holdings or any Subsidiary or other agreements of the Company, Holdings or a
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Subsidiary, other than guarantees of
Indebtedness incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition,
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received by the
Company, Holdings and their Subsidiaries in connection with such disposition;
(xiv) the issuance by Holdings, on the Issue Date, of shares of Holdings
Preferred Stock, with an aggregate liquidation value of up to $17.6 million and
the issuance of additional shares of Holdings Preferred Stock as dividends on
outstanding shares of Holdings Preferred Stock subsequent to the Issue Date in
accordance with the terms of the Holdings Preferred Stock;
(xv) the incurrence of Exchange Notes issued (a) in exchange for all, but
not less than all, of the outstanding Holdings Preferred Stock in accordance
with the terms of the Holdings Preferred Stock as in effect on the Issue Date,
if immediately prior to giving effect to the incurrence of such Exchange Notes,
the Fixed Charge Coverage Ratio of
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Holdings would have been at least 2.0 to 1 pursuant to the Fixed Charge Ratio
test set forth in clause (ii) of the proviso of the first paragraph of this
covenant; provided that in calculating such Fixed Charge Coverage Ratio of
Holdings, no effect shall be given to clause (ii) of the definition of
"Consolidated Net Income" set forth under "-- Certain Definitions" below) and
(b) as interest on Exchange Notes in accordance with the terms thereof;
(xvi) the incurrence by Holdings of Qualified Subordinated Indebtedness in
an aggregate principal amount not to exceed $5.0 million at any time
outstanding; and
(xvii) the incurrence by the Company, Holdings or any of their Subsidiaries
of additional Indebtedness (in addition to Indebtedness permitted by any other
clause of this paragraph) in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding not to exceed $20.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Liens
The Indenture will provide that the Company and Holdings will not, and will
not permit any of their respective Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company and Holdings will not, and will
not permit any Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company, Holdings or any of the
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company, Holdings or any of the Restricted
Subsidiaries, (ii) make loans or advances to the Company, Holdings or any of the
Restricted Subsidiaries or (iii) transfer any of its properties or assets to the
Company, Holdings or any of the Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) applicable law,
(b) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company, Holdings or any of the Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (c) by
reason of customary non-assignment provisions in leases, licenses, encumbrances,
contracts or similar assets entered into or acquired in the ordinary course of
business and consistent with past practices, (d) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, (e)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company, Holdings or
any Restricted Subsidiary not otherwise prohibited by the Indenture, (f) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary, (g)
Indebtedness of the Company and its Restricted Subsidiaries containing
restrictions on dividends, distributions and other payments to Holdings and its
Restricted Subsidiaries (other than the Company and its Restricted
Subsidiaries), (h) the New Credit Facility, provided that such restrictions are
no more restrictive than those contained
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in the New Credit Facility as in effect on the Issue Date or such Permitted
Refinancing Indebtedness is no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) either (a) the Company is the surviving
corporation or (b) the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture, pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) except in the case of a
merger of the Company with or into a Wholly Owned Restricted Subsidiary, the
Company or the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock;" and (v) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and such supplemental indenture
complies with the Indenture and that all conditions precedent provided for in
the Indenture relating to such transaction have been complied with.
Transactions with Affiliates
The Indenture will provide that the Company and Holdings will not, and will
not permit any Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of their respective properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company, Holdings or the relevant Restricted Subsidiary,
as the case may be, than those that would have been obtained in a comparable
transaction by the Company, Holdings or such Restricted Subsidiary, as the case
may be, with an unrelated Person and (ii) the Company or Holdings delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1,000,000, a resolution of the Board of Directors approving such Affiliate
Transaction and an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (t) any employment
agreement entered into by the Company, Holdings or any of their Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company, Holdings or such Subsidiary, (u) transactions between or among (A) the
Company and/or its Restricted Subsidiaries and (B) Holdings and its Restricted
Subsidiaries (other than the Company and its Restricted Subsidiaries), (v)
Restricted Payments (other than Restricted Investments) that are permitted by
the provisions of the Indenture described above under the caption "-- Restricted
Payments," (w) investment banking and management fees in an aggregate amount no
greater than $240,000 in the aggregate in any calendar year (plus reimbursement
of expenses) to be paid by the Company and/or Holdings to the Principals or any
Related Party, (x) an aggregate cash fee of $3.25 million payable by the Company
and/or Holdings to the Principals or any Related Party or UBS Capital LLC
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on or about the Issue Date and (y) any loans made to the Company under the New
Credit Facility by any Affiliate of the Union Bank of Switzerland and fees and
reimbursement of expenses in respect thereof and (z) discounts and commissions
payable to UBS Securities LLC in the Offering of the Notes, in each case, shall
not be deemed Affiliate Transactions.
Sale and Leaseback Transactions
The Indenture will provide that the Company and Holdings will not, and will
not permit any Restricted Subsidiaries to, enter into any sale and leaseback
transaction (other than, (x) among the Company and Wholly Owned Restricted
Subsidiaries of the Company or (y) among Wholly Owned Restricted Subsidiaries of
the Company); provided that the Company or Holdings may enter into a sale and
leaseback transaction if (i) the Company or Holdings, as the case may be, could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the covenant
described above under the caption "-- Incurrence of Additional Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "-- Liens," (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal to
the fair market value (as determined in good faith by the Board of Directors of
the Company or Holdings, as applicable, and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company or Holdings, as
the case may be, applies the proceeds of such transaction in compliance with,
the covenant described above under the caption "-- Asset Sales."
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any such Wholly
Owned Restricted Subsidiary to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "-- Asset Sales," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company.
The Indenture will provide that Holdings (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of Holdings to, transfer, convey, sell,
lease or otherwise dispose of any Capital Stock of any such Wholly Owned
Restricted Subsidiary to any Person (other than Holdings or a Wholly Owned
Restricted Subsidiary of Holdings), unless (a) such transfer, conveyance, sale,
lease or other disposition is of all the Capital Stock of such Wholly Owned
Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with the
covenant described above under the caption "-- Asset Sales," and (ii) will not
permit any Wholly Owned Restricted Subsidiary of Holdings to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to Holdings
or a Wholly Owned Restricted Subsidiary of Holdings.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture will provide that the Company and Holdings will not permit
any Restricted Subsidiary to guarantee the payment of any Indebtedness of the
Company, Holdings or any other Restricted Subsidiary, (in each case, the
"Guaranteed Debt"), unless (i) if such Restricted Subsidiary is not a Guarantor,
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the Notes by such Restricted Subsidiary, (ii) if the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to the Guaranteed Debt substantially to the same extent as the Notes or
the Subsidiary Guarantee are subordinated to the Guaranteed Debt
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under the Indenture, (iii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the Notes or the Subsidiary Guarantee (if
any) of such Restricted Subsidiary, any such guarantee of such Restricted
Subsidiary with respect to the Guaranteed Debt shall be subordinated in right of
payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to the
Notes substantially to the same extent as the Guaranteed Debt is subordinated to
the Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary,
(iv) such Restricted Subsidiary subordinates rights of reimbursement, indemnity
or subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee to its obligation under its Subsidiary Guarantee, and (v)
such Restricted Subsidiary shall deliver to the Trustee an opinion of counsel to
the effect that (A) such Subsidiary Guarantee has been duly authorized, executed
and delivered, and (B) such Subsidiary Guarantee constitutes a valid, binding
and enforceable obligation of such Restricted Subsidiary, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitation, all laws relating to fraudulent transfers) and
except insofar as enforcement thereof is subject to general principles of
equity.
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and Subsidiary Guarantee and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Note Guarantee; provided that
the Net Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of the Indenture. See "Repurchase at Option of
Holders -- Asset Sales." The Indenture will also provide that in the event that
a Guarantor is designated by the Company to be an Unrestricted Subsidiary in
accordance with the terms of the Indenture, such Guarantor will be released and
of any obligations under its Subsidiary Guarantee. See "Certain Covenants --
Restricted Payments."
No Senior Subordinated Debt
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness and senior
in any respect in right of payment to the Notes and (ii) no Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Indebtedness of such Guarantor, and senior in any respect in right of payment to
such Guarantor's guarantees of the Notes.
Payments for Consent
The Indenture will provide that neither the Company, nor Holdings nor any
of their respective Subsidiaries will, directly or indirectly, pay or cause to
be paid any consideration, whether by way of interest, fee or otherwise, to any
Holder of any Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company and Holdings will furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with
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the Commission on Forms 10-Q and 10-K if Holdings were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of Holdings and its consolidated Subsidiaries (showing in reasonable
detail, either on the face of the financial statements or in the footnotes
thereto and in Management's Discussion and Analysis of Financial Condition and
Results of Operations, the financial condition and results of operations of the
Company and the Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries), but excluding
exhibits, and, with respect to the annual information only, a report thereon by
the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if Holdings
were required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, Holdings will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company and Holdings have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in the payment when due
of principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company or
Holdings to comply with the provisions described under the captions "Repurchase
at the Option of the Holders -- Change of Control" or "-- Asset Sales" "Certain
Covenants -- Restricted Payments" or "-- Incurrence of Indebtedness and Issuance
of Preferred Stock;" (iv) failure by the Company or Holdings for 60 days after
notice from the Trustee or holders of at least 25% in aggregate principal amount
of the outstanding Notes to comply with any of its other agreements in the
Indenture, the Notes or any Guarantee; (v) default under any mortgage, indenture
or instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company, Holdings or any
of the Restricted Subsidiaries (or the payment of which is guaranteed by the
Company, Holdings or any of the Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on the final maturity date of such Indebtedness (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company,
Holdings or any of the Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) except as permitted by the Indenture or
any Guarantee that is given by a Guarantor, any Guarantee of a Significant
Restricted Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect; and (viii) certain events of bankruptcy or insolvency with respect to
the Company, Holdings or any of their Significant Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, however, that
such declaration will not become effective until the earlier to occur of (i) the
acceleration of the maturity of any Indebtedness under the New Credit Facility
or (ii) five business days following notice of such declaration to the agent
under the New Credit Facility. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, with
respect to the Company, Holdings, any Significant Restricted Subsidiary, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in aggregate principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
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In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable, to the extent permitted by law,
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to December 15, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or Holdings, as such, shall have any liability for
any obligations of the Company, Holdings or any Subsidiary under the Notes, the
Indenture, the Guarantees or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages,
if any, on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result
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of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which the Company, Holdings or any of their Subsidiaries
is a party or by which the Company, Holdings or any of their Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture,
the Guarantees or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the Indenture, the Guarantees or the
Notes may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Notes (including consents obtained in connection
with a tender offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a nonconsenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption "--
Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture, except in
accordance with the terms of the Indenture or (ix) make
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any change in the foregoing amendment and waiver provisions. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Notes then outstanding if such amendment would
adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Notes or any Guarantee to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or any
Guarantor's obligations to Holders of Notes in the case of a merger or
consolidation, to provide for the issuance of a Subsidiary Guarantee by a
Subsidiary of the Company or Holdings, to provide for the issuance of Additional
Notes in accordance with the limitations set forth in the Indenture on the Issue
Date, to make any change that would provide any additional rights or benefits to
the Holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Desa International,
Inc., 2701 Industrial Drive, P.O. Box 90004, Bowling Green, Kentucky, 42102,
Attention: Ed Patrick.
Book-Entry, Delivery and Form
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
the Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
Notes that were (i) originally issued to or transferred to "institutional
accredited investors" who are not "qualified institutional buyers" (as such
terms are defined under "Notice to Investors" elsewhere herein) (the "Non-Global
Purchasers") or (ii) issued as described below under "Certificated Securities,"
will be issued in the form of registered definitive certificates (the
"Certificated Securities"). Upon the transfer to a qualified institutional buyer
of Certificated Securities initially issued to a Non-Global Purchaser, such
Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
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settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Note and (ii) ownership of the Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes (including principal, premium, if any, interest and Liquidated Damages,
if any). The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indenture, then, upon surrender by
the Global Note Holder of its Global Note, Notes in such form will be issued to
each person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
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Same-Day Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made in immediately available funds. With
respect to Certificated Securities, however, the Company will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by
mailing a check to each Holder's registered address. Secondary trading in
long-term notes and debentures of corporate issuers is generally settled in
clearing-house or nextday funds. In contrast, the Notes represented by the
Global Note are expected to be eligible to trade in the PORTAL Market and to
trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or other current assets in the ordinary
course of business or obsolete equipment (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of (x)
the Company and its Restricted Subsidiaries taken as a whole or (y) Holdings and
its Restricted Subsidiaries as a whole, will be governed by the provisions of
the Indenture described above under the caption "Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under the
caption "Certain Covenants -- Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company, Holdings or any of their respective Subsidiaries of Equity Interests of
any of the Company's or Holdings' Subsidiaries, in the case of either clause (i)
or (ii), whether in a single transaction or a series of related transactions
that have a fair market value (as determined in good faith by the Board of
Directors of the Company) in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary of the Company or by a Subsidiary to the Company or to a Wholly Owned
Restricted Subsidiary of the Company, (ii) a transfer of assets by Holdings to a
Wholly Owned Restricted Subsidiary of Holdings or by a Subsidiary (other than
the Company or a Subsidiary of the Company) to Holdings or to a Wholly Owned
Restricted Subsidiary of Holdings, (iii) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned Restricted Subsidiary of the Company, (iv) an issuance of Equity
Interests by a Wholly Owned Restricted Subsidiary of Holdings (other than the
Company or any of its Subsidiaries) to Holdings or to another Wholly Owned
Restricted Subsidiary of Holdings, and (v) a Restricted Payment that is
permitted by the covenant described above under the caption "Certain Covenants
- - - - -- Restricted Payments" will not be deemed to be Asset Sales.
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"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life to Stated Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one- twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Borrowing Base" means, as of any date, an amount equal to the sum of 85%
of accounts receivable of the Company, Holdings and the Restricted Subsidiaries
as of such date that are not more than 90 days past due, plus 65% of the book
value of all inventory owned by the Company, Holdings and the Restricted
Subsidiaries as of such date, in each case calculated on a consolidated basis
and in accordance with GAAP. To the extent that information is not available as
to the amount of accounts receivable or inventory as of a specific date, the
Company and Holdings may utilize the most recent available information for
purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the New Credit Facility or with
any domestic commercial bank having capital and surplus in excess of $500.0
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper of a domestic issuer having a rating of at least A-1
by Standard and Poor's Ratings Services or P-1 by Moody's Investors Service,
Inc. maturing within twelve months after the date of acquisition and (vi) any
mutual fund which invests solely in investments of the types described in
clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of either (x) Holdings and its Restricted
Subsidiaries taken as a whole or (y) the Company and its Restricted Subsidiaries
taken as a whole, in each case, to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or their Related
Parties, (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company or Holdings, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) (a) prior to the
initial underwritten public offering by the Company or Holdings of its Common
Stock pursuant to an effective registration statement under the Securities Act
(the "IPO") the result of which is that either (A) the Principals and their
Related Parties become the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that for purposes of
calculating the beneficial ownership of any person, such person shall be deemed
to have "beneficial ownership" of all securities that such person has the right
to acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition) of less than 40%
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of the Voting Stock of the Company or Holdings (measured by voting power rather
than number of shares) or (B) any person (as defined above), other than the
Principals and their Related Parties, becomes the beneficial owner (as defined
above), directly or indirectly, of 40% or more of the Voting Stock of the
Company or Holdings and such person is or becomes, directly or indirectly, the
beneficial owner of a greater percentage of the voting power of the Voting Stock
of the Company or Holdings, calculated on a fully diluted basis, than the
percentage beneficially owned by the Principals and their Related Parties, or
(b) after the IPO, any person (as defined above), other than the Principals and
their Related Parties, becomes the beneficial owner (as defined above), directly
or indirectly, of 35% or more of the Voting Stock of the Company or Holdings and
such person is or becomes, directly or indirectly, the beneficial owner of a
greater percentage of the voting power of the Voting Stock of the Company or
Holdings, calculated on a fully diluted basis, than the percentage beneficially
owned by the Principals and their Related Parties, (iv) the first day on which a
majority of the members of the Board of Directors of the Company or Holdings are
not Continuing Directors, (v) the first day on which Holdings ceases to own 100%
of the outstanding Equity Interests of the Company, or (vi) the Company or
Holdings consolidates with, or merges with or into, any Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company or Holdings, in any such event pursuant to a
transaction in which any of the outstanding Voting Stock of the Company or
Holdings is converted into or exchanged for cash, securities or other property,
other than any such transaction where the Voting Stock of the Company or
Holdings outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance). For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring Voting
Stock of the Company or Holdings will be deemed to be a transfer of such portion
of such Voting Stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"Consolidated Cash Flow" means, with respect to the Company or Holdings for
any period, the Consolidated Net Income of such Person for such period plus,
without duplication, (i) an amount equal to any extraordinary loss plus any net
loss realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, noncash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company or Holdings, as the case may be,
by such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to the Company or Holdings
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary
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or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that Restricted Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to the Company, Holdings or one of their Subsidiaries.
"Consolidated Net Worth" means, with respect to the Company or Holdings as
of any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Subsidiaries as of such date, plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company or Holdings who (i) was a member of
such Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (i) so long as any Senior
Indebtedness under the New Credit Facility is outstanding, such Senior
Indebtedness and (ii) thereafter, any other Senior Indebtedness permitted under
the Indenture the principal amount of which is $50 million or more and that has
been designated by the Company as "Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, at the option of the holder thereof) or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption "--
Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Notes" means the 12% Junior Subordinated Notes due December 31,
2009 of Holdings, issuable pursuant to the terms of the Holdings Preferred Stock
as in effect on the Issue Date.
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"Existing Indebtedness" means Indebtedness of the Company, Holdings and
their Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to the Company or Holdings for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations but excluding amortization of debt issuance costs), (ii) the
consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, (iii) any interest expense on
Indebtedness of another Person that is guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon), and (iv) the product of (a) all cash dividend payments on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests (other
than Disqualified Stock) of the Company or Holdings, as the case may be, times
(b) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax rate
of such Person and its Restricted Subsidiaries, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to the Company or Holdings
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company,
Holdings or any of the Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company, Holdings or any
of the Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantee" means a guarantee of the Notes (including the Holdings
Guarantee and each Subsidiary Guarantee).
"Guarantor" means (i) Holdings, (ii) each Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
(iii) their respective successors and assigns.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies purchased or received by the Company in
the ordinary course of business.
"Holdings" means Desa Holdings Corporation, a Delaware corporation and
parent of the Company.
"Holdings Preferred Stock" means Holdings' Series C 12% Senior Redeemable
Exchangeable Pay-In-Kind Preferred Stock, par value $.01 per share, as in effect
on the Issue Date.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company, Holdings or any of their respective Subsidiaries sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company or Holdings such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Company or Holdings, the Company and/or Holdings, as the case may be, shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "-- Restricted
Payments."
"Issue Date" means the first date of issuance of Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
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"Net Proceeds" means the aggregate cash proceeds received by the Company,
Holdings or any of the Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under the New Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain credit facility, dated as of the
Issue Date, by and among the Company, Holdings and NationsBank, N.A., as
administrative agent, issuing bank and swing line bank and the other parties
party thereto, together with all "Loan Documents" as defined therein and all
other documents, instruments and agreements executed in connection therewith
(including, without limitation, any guarantees, security documents and Hedging
Obligations), and in each case as amended, supplemented or modified from time to
time, including any renewal, refunding, replacement, restructuring or
refinancing of all or a portion thereof from time to time whether by the same or
any other agent, lender or other party thereto.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company,
nor Holdings nor any of the Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; and (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company, Holdings or any of the Restricted Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and (iii) as to which the lenders have
been notified in writing that they will not have any recourse to the stock or
assets of the Company, Holdings or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment by
Holdings or any of its Subsidiaries (other than the Company or a Subsidiary of
the Company) in Holdings or in a Wholly Owned Restricted Subsidiary of Holdings;
(c) any Investment in Cash Equivalents; (d) any Investment by the Company or any
of its Restricted Subsidiaries in a Person, if as a result of such Investment
(i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys all or substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (e)
any Investment by Holdings or any of its Restricted Subsidiaries in a Person, if
as a result of such Investment (i) such Person becomes a Wholly Owned Restricted
Subsidiary of Holdings or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys all or substantially all of
its assets to, or is liquidated into, Holdings or a Wholly Owned Restricted
Subsidiary of Holdings; (f) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"Repurchase at the Option of Holders -- Asset Sales;" (g) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company or Holdings; and (h) other Investments in any
Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (h)
that are at the time outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility; (ii) Liens on assets of Subsidiaries of the Company in favor of
the Company; (iii) Liens on assets of Subsidiaries of Holdings (other than the
Company or any of its Subsidiaries) in favor of Holdings; (iv) Liens on property
of a Person existing at the time such Person is merged into or consolidated with
the Company, Holdings or any of their respective Restricted Subsidiaries;
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provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or Holdings or such
Restricted Subsidiary, as the case may be; (v) Liens on property existing at the
time of acquisition thereof by the Company, Holdings or any of their respective
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory or regulatory obligations, leases, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness; (vii) Liens existing on the
date of the Indenture; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) statutory
and common law Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen or other similar Liens arising in the ordinary
course of business with respect to amounts not yet more than ninety days overdue
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (x) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security; (xi) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company,
Holdings or any of the Restricted Subsidiaries; (xii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company, Holdings or its Restricted Subsidiaries relating to
such property or assets; (xiii) any interest or title of a lessor in the
property subject to any Capitalized Lease or operating lease; (xiv) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xv) Liens in favor of the Company, Holdings or any Restricted
Subsidiary; (xvi) Liens arising from the rendering of a final judgment or order
against the Company, Holdings or any Restricted Subsidiary that does not give
rise to an Event of Default; (xvii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xviii) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case securing Hedging Obligations; (xix) Liens arising out
of conditional sale, title retention, consignment or similar arrangements for
the sale of goods entered into by the Company, Holdings or any of the Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company, Holdings and the Restricted Subsidiaries prior to the
Issue Date; (xx) Liens incurred in the ordinary course of business of the
Company, Holdings or any of their respective Subsidiaries with respect to
obligations that do not exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company, Holdings or such Subsidiary; (xxi) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; and (xxii) Liens on assets of the Company securing Obligations
under any Senior Indebtedness of the Company and Liens on assets of a Guarantor
securing Obligations under any Senior Indebtedness of such Guarantor.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company,
Holdings or any of their respective Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund Existing Indebtedness or other Indebtedness of the Company, Holdings or
any of the Restricted Subsidiaries incurred in accordance with the Indenture
(other than Indebtedness incurred in accordance with clauses (i), (ii), (iv),
(vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi) and (xvii) of
the second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock;") provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or
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refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date at or later than the final
maturity date of, and is subordinated in right of payment to, the Notes on terms
at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iv) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is Indebtedness of the
Company or its Restricted Subsidiaries, such Indebtedness is incurred by the
Company, Holdings or the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
and (v) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is Indebtedness of Holdings or its Restricted Subsidiaries
(other than the Company and its Restricted Subsidiaries), such Indebtedness is
incurred by Holdings or the Restricted Subsidiary who is the obligor of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means (i) J.W. Childs Equity Partners, L.P., (ii) each
Affiliate of J.W. Childs Equity Partners, L.P. as of the Issue Date, and (iii)
each officer or employee (including their respective immediate family members)
of J.W. Childs Associates, L.P. as of the Issue Date.
"Public Equity Offering" means an underwritten public offering of common
stock (other than Disqualified Stock) of the Company or Holdings, pursuant to an
effective registration statement filed with the Commission in accordance with
the Securities Act; provided, however, that, in the case of a Public Equity
Offering by Holdings, Holdings contributes to the capital of the Company net
cash proceeds thereof in an amount sufficient to redeem the Notes called for
redemption in accordance with the terms of the Indenture.
"Qualified Subordinated Indebtedness" means Indebtedness of Holdings which
(i) does not require payments (other than payments made with additional
Qualified Subordinated Indebtedness) in respect of principal, premium, interest
or otherwise (pursuant to mandatory redemption, sinking fund obligation or
otherwise) prior to the date that is 91 days after the date on which the Notes
mature, (ii) does not directly or indirectly provide for any restrictive
covenants or events of default other than the covenants and events of default
which are substantially the same as those provided for in the Exchange Notes (as
in effect on the Issue Date) and (iii) is subordinated in right of payment to
the Notes at least to the same extent as the Holdings Preferred Stock is
subordinated to the Notes on the Issue Date (including with respect to the
standstill provisions provided therein).
"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Indebtedness" means (i) all "Obligations" in respect of and as
defined in the New Credit Facility (including, without limitation, interest that
accrues after the filing of a petition initiating any action or proceeding under
Bankruptcy Law or any other bankruptcy, insolvency or similar law or statute
protecting creditors in effect in any jurisdiction, whether or not such interest
accrues after the filing of such petition for purposes of Bankruptcy Law or such
other law or statute or is an allowed claim in any such action or proceeding),
whether existing on the date hereof or hereafter incurred, and (ii) any other
Indebtedness permitted to be incurred by the Company or any Guarantor under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company or any Guarantor, (x)
any Indebtedness of the Company or any Guarantor to any of their respective
Subsidiaries or other Affiliates, except to the extent any such Indebtedness is
pledged as security under the New Credit Facility, (y) any trade payables or (z)
any Indebtedness that is incurred in violation of the Indenture.
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"Significant Restricted Subsidiary" means a Restricted Subsidiary, that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stock Purchase Agreement" means that Stock Purchase Agreement, dated
October 8, 1997, among J.W. Childs Equity Partners, L.P., Holdings, and the
stockholders of Holdings named therein, as in effect on the Issue Date.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) or (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means each guarantee of the Notes issued by a
Subsidiary of Holdings or the Company pursuant to the Indenture.
"Tax Sharing Agreement" means the tax sharing agreement among Holdings, the
Company and any one or more of Holdings' subsidiaries, as amended from time to
time, so long as the method of calculating the amount of the Company's payments,
if any, to be made thereunder is not less favorable to the Company than as
provided in such agreement as in effect on the Issue Date (except to the extent
required to reflect changes in applicable federal or state tax laws), as
determined in good faith by the Board of Directors of the Company.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors of the Company or Holdings, as the case may be, as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent
that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b)
is not party to any agreement, contract, arrangement or understanding with the
Company, Holdings or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company, Holdings or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company or
Holdings (as determined in good faith by the Board of Directors of the Company
or Holdings, as the case may be); (c) is a Person with respect to which neither
the Company, nor Holdings nor any of the Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company, Holdings or any of the Restricted Subsidiaries. Any
such designation by such Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company and
Holdings shall be in default of such covenant). The Board of Directors of the
Company or Holdings may at any time designate any Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro
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forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
"Voting Stock" means, with respect to any Person, the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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DESCRIPTION OF NEW CREDIT FACILITY
General
Concurrently with the consummation of the Recapitalization, the Company
entered into the New Credit Facility with the lenders from time to time party
thereto, NationsBank, as Administrative Agent, Union Bank of Switzerland, New
York Branch, as Documentation Agent, NationsBank Montgomery Securities, Inc.
("NMSI"), as Syndication Agent for the lenders referred to therein, and NMSI and
UBS Securities LLC, as Co-Arrangers, providing for borrowings in an aggregate
principal amount of up to $195 million. The New Credit Facility is comprised of
a six-year term facility (the "New Term Loan A") in the principal amount of $50
million, a seven-year term facility (the "New Term Loan B") in the principal
amount of $50 million, a revolving credit facility (the "Revolving Credit
Facility") in the principal amount of $75.0 million, and a 6-year acquisition
facility (the "Acquisition Facility") in the principal amount of $20 million.
Indebtedness under the New Credit Facility is guaranteed by Holdings and each
existing and hereafter acquired domestic subsidiary of the Company. This
information relating to the New Credit Facility is qualified in its entirety by
reference to the complete text of the documents entered into or to be entered
into in connection therewith. The following is a description of the general
terms of the New Credit Facility.
Security
Indebtedness under the New Credit Facility is secured by (i) substantially
all of the assets of Holdings, the Company and their domestic subsidiaries, (ii)
100% of the outstanding capital stock of each of the Company and the domestic
subsidiaries of Holdings and the Company and (iii) 65% of the outstanding
capital stock of any foreign subsidiary of the Company or Holdings.
Interest
Amounts outstanding under the New Term Loan A and the New Revolving Credit
Facility bear interest at a rate equal to LIBOR plus 225 basis points. Amounts
outstanding under the New Term Loan B and the Acquisition Facility bear interest
at a rate equal to LIBOR plus 262.5 basis points.
Borrowing Base
Pursuant to the terms of the New Credit Facility, advances under the
Revolving Credit Facility are limited to a borrowing base comprised of specified
percentages of eligible accounts receivable and eligible inventory. The Company
will be required to reduce outstanding borrowings under the Revolving Credit
Facility to a maximum of $15.0 million for a period of at least thirty (30) days
during each year.
Maturity
Loans made pursuant to the Revolving Credit Facility may be borrowed,
repaid and reborrowed from time to time until the sixth anniversary of the
Closing Date or the earlier repayment in full of the New Term Loan A, subject to
the satisfaction of certain conditions on the date of any such borrowing.
Fees
The Company is required to pay to the Banks in the aggregate a commitment
fee equal to 50 basis points per annum, payable in arrears on a quarterly basis,
on the committed undrawn amount of the New Credit Facility. The Agent and the
Banks shall receive such other fees as have been separately agreed upon with the
Agent, including, without limitation, in respect of letters of credit issued
under the letter of credit subfacility.
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Letters of Credit Subfacility
The New Credit Facility includes a subfacility for the issuance of letters
of credit up to a maximum aggregate amount at any one time outstanding not to
exceed $10.0 million. If any letter of credit is outstanding after the
termination of the New Credit Facility, the Company would be required to post a
standby letter of credit or deposit cash collateral in an amount sufficient to
reimburse the Banks for amounts drawn under any such outstanding letter of
credit.
Covenants
The New Credit Facility contains a number of financial, affirmative and
negative covenants that regulate the operations of Holdings and its
subsidiaries, including the Company. Financial covenants require Holdings to
maintain: (i) a minimum fixed charge coverage ratio, (ii) a minimum interest
coverage ratio; and (iii) a maximum leverage ratio. Negative covenants restrict,
among other things, the incurrence of debt, the existence of liens, transactions
with affiliates, loans, advances and investments, payment of dividends and other
distributions to shareholders, dispositions of assets, mergers, consolidations
and dissolutions, contingent liabilities and changes in business.
Events of Default; Remedies
The New Credit Agreement contains customary events of default under the New
Credit Facility, including (i) the non-payment of principal, interest or other
amounts, (ii) violation of covenants, (iii) inaccuracy of representations and
warranties, (iv) cross-defaults to certain other indebtedness and material
agreements (including the Notes), (iv) certain events of bankruptcy and
insolvency, (v) ERISA, (vi) actual or asserted invalidity of any loan documents
or security interests, (vii) changes in control of the ownership of the Company,
(viii) bankruptcy and (ix) Holdings engaging in any business or activity other
than holding 100% of the stock of the Company. If any such event of default
occurs, the Administrative Agent will be entitled, on behalf of the Banks, to
take all actions permitted to be taken by a secured creditor under the Uniform
Commercial Code and to accelerate the amounts due under the New Credit Facility
and may require all such amounts outstanding thereunder to be immediately paid
in full.
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DESCRIPTION OF HOLDINGS PREFERRED STOCK
The following statements are brief summaries of certain provisions relating
to the shares of the Holdings Preferred Stock. The following statements are
qualified in their entirety by the provisions of Holdings' Certificate of
Incorporation and the Restated Certificate of Designation relating to the
Holdings Preferred Stock (the "Certificate of Designation") filed with the
secretary of state of Delaware, which includes the resolutions of the Board of
Directors of Holdings creating the Holdings Preferred Stock.
Dividend Rights
Holders of Holdings Preferred Stock are entitled to receive, but only when
and as declared by the Board of Directors of Holdings out of funds legally
available therefor, cumulative dividends at the annual rate of $120.00 per
share, payable semiannually on the last day of June 30 and December 31 in each
year, commencing June 30, 1998 (a "Dividend Reference Date"). Dividends are
cumulative, accrue on a daily basis, are calculated from the date of issue of
the Holdings Preferred Stock and are payable to holders of record on such record
dates as are fixed by the Board of Directors of Holdings. Dividends payable for
any period less than a full semiannual period will be computed on the basis of a
365-day year and the actual number of days elapsed.
Dividends are payable in cash, except if any dividend payable on any
Dividend Reference Date occurring before December 31, 2009 is not declared and
paid in full in cash on such Dividend Reference Date, the amount payable as a
dividend on such Dividend Reference Date that is not paid in cash shall, subject
to the terms of any Parity Securities or Senior Securities (each defined below),
be declared and paid in additional shares of Holdings Preferred Stock, with such
additional shares of Holdings Preferred Stock being valued at $1,000 per share
for such purpose.
For purposes of the Certificate of Designation:
"Equity Interests" means capital stock and all warrants, options or other
rights to acquire capital stock (but excluding any debt security that is
convertible into, or exchangeable for, capital stock).
"Junior Security" means any shares of the voting common and the non-voting
common stock of Holdings and any other class or series of stock of Holdings
which, by the terms of Holdings' Certificate of Incorporation or of the
instrument by which its Board of Directors, acting pursuant to authority granted
in Holdings' Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be junior to the Holdings Preferred
Stock in respect of the right to receive dividends or to participate in any
distribution of assets (including but not limited to any distribution of assets
in connection with the liquidation of Holdings) other than by way of dividends.
"Parity Security" means any shares of any class or series of stock of
Holdings which, by the terms of Holdings' Certificate of Incorporation or of the
instrument by which its Board of Directors, acting pursuant to authority granted
in Holdings' certificate of incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be on a parity with the Holdings
Preferred Stock in respect of the right to receive dividends and to participate
in any distribution of assets (including but not limited to any distribution of
assets in connection with the liquidation of Holdings) other than by way of
dividends.
"Senior Security" means shares of any class or series of stock of Holdings
which, by the terms of Holdings' certificate of incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in Holdings' certificate of incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be senior to the Holdings Preferred
Stock in respect of the right to receive dividends or to participate in any
distribution of assets (including but not limited to any distribution of assets
in connection with the liquidation of Holdings) other than by way of dividends.
No dividend (payable other than in shares of Junior Securities) whatsoever
shall be paid upon, or moneys or other property of Holdings set apart for
payment of any dividend upon, any Junior Security nor shall any Junior Security
be redeemed or purchased by Holdings or any subsidiary thereof (except by
conversion into or exchange for Junior
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Securities) nor shall any moneys or other property be paid to or made available
for a sinking fund for any such redemption or purchase of any Junior Security,
unless, in each such instance, all of the following conditions are met: (i) all
dividends on all outstanding shares of Holdings Preferred Stock accrued through
the most recent Dividend Reference Date shall have been paid or declared and
sufficient moneys (or, to the extent permitted by the Certificate of
Designation, shares of Holdings Preferred Stock) set aside for payment thereof;
(ii) all dividends on all outstanding shares of Holdings Preferred Stock accrued
through the most recent Dividend Reference Date from the Dividend Reference Date
immediately preceding such most recent Dividend Reference Date shall have been
paid in cash or declared and sufficient moneys set aside for payment thereof;
(iii) all shares of Holdings Preferred Stock issued by Holdings after December
31, 2002 as payment-in-kind dividends shall have been redeemed; (iv), Holdings
shall have redeemed all shares of Holdings Preferred Stock (A) for which it has
received a notice of redemption from the holders thereof pursuant to the right
of holders to demand redemption described below under the heading "Redemption on
Demand by Holder" and in respect of which Holdings' obligation to redeem such
shares shall not have terminated or (B) which are required to be redeemed
pursuant to the mandatory redemption obligation of Holdings described below
under the heading "Mandatory Redemption;" and (v) certain other limitations on
the maximum amount of such dividends on or redemptions or purchases of Junior
Securities are met. The foregoing provisions shall not prohibit (i) the payment
of any dividend within sixty (60) days after the date of declaration thereof, if
at the date of such declaration such payment would have complied with the
provisions of the Certificate of Designation, or (ii) the repurchase, redemption
or other retirement for value of any Equity Interests of Holdings held by any
member of the management or employees of Holdings or any subsidiary of Holdings
pursuant to the Stockholders Agreement to be entered into concurrently with the
closing of the Recapitalization, among Holdings and its stockholders named
therein; provided that (A) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall be subject to certain
limitations on the maximum amount thereof, (B) no Voting Rights Triggering Event
(defined below) shall have occurred and be continuing immediately after such
transaction, and (C) Holdings shall have redeemed all shares of Holdings
Preferred Stock (I) for which it has received a notice of redemption from the
holders thereof pursuant to the right of holders to demand redemption described
below under the heading "Redemption on Demand by Holder" and in respect of which
Holdings' obligation to redeem such shares shall not have terminated or (II)
which are required to be redeemed pursuant to the mandatory redemption
obligation of Holdings described below under the heading "Mandatory Redemption."
So long as any share of Holdings Preferred Stock remains outstanding, no
full dividend (payable other than in shares of Junior Securities) shall be paid
upon, or moneys or other property of Holdings set apart for payment of any full
dividend upon, any Parity Securities, unless all dividends on all outstanding
shares of Holdings Preferred Stock accrued through the most recent Dividend
Reference Date shall have been paid or declared and sufficient moneys (or, to
the extent required by the Certificate of Designation, shares of Holdings
Preferred Stock) set aside for payment thereof. If all such dividends are not so
paid, the Holdings Preferred Stock shall share dividends pro rata with such
Parity Securities.
Substantially all of Holdings' operations are conducted through the
Company. The ability of Holdings to pay cash dividends on the Holdings Preferred
Stock will be dependent upon the payment to it of dividends, interest or other
charges by the Company. The Company's right to make such payments is restricted
by the New Credit Facility and the Indenture.
Liquidation Preference
Upon any liquidation, dissolution or winding up of Holdings, whether
voluntary or involuntary, the holders of Holdings Preferred Stock will be
entitled to be paid out of the assets of Holdings available for distribution to
stockholders, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the sum of $1,000 per share of Holdings
Preferred Stock plus all accrued and unpaid dividends thereon (the "Liquidation
Value"). After such payment, the holders of Holdings Preferred Stock will not be
entitled to any further payment or claim to any of the remaining assets of
Holdings. If, upon any liquidation, dissolution or winding up of Holdings, the
assets of Holdings to be distributed among holders of Holdings Preferred Stock
are insufficient to permit payment to holders of the aggregate Liquidation Value
to which they are entitled, then the assets of Holdings to be distributed to
such holders will be distributed ratably among such holders. Neither the
consolidation or merger of Holdings into or with any other person or entity, nor
the sale or transfer by Holdings of all or any part of its assets, nor the
reduction of the capital stock of Holdings, will be deemed to be a liquidation,
dissolution or winding up of Holdings.
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Redemption
Holdings has the following redemption rights and obligations with respect
to the Preferred Stock:
Optional Redemptions by Holdings. At any time within six (6) months after a
Change of Control or a Qualified Public Offering (each as defined below),
Holdings may, at its election, redeem all or any part of the outstanding shares
of Holdings Preferred Stock, out of funds legally available therefor, at the
Liquidation Value. For purposes of the Certificate of Designation:
"Change of Control" shall mean the occurrence of any of the following:
(i) The sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of Holdings or the Company to any
"person" (as such term is used in Section 13(d)(3) of the Exchange Act), except
to the extent such transaction would not constitute a Change of Control under
clause (vi) of this definition;
(ii) The adoption of a plan relating to the liquidation or dissolution of
Holdings or the Company;
(iii) The consummation of any transaction (including but not limited to any
merger or consolidation, (A) prior to the initial underwritten public offering
of the common stock of Holdings pursuant to an effective registration statement
under the Securities Act (the "IPO") the result of which is that the JWC Holders
and their Related Parties become the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition) of less than 40%
of the Voting Stock of Holdings (measured by voting power rather than number of
shares) or (B) after the IPO, any person (as defined above), other than the JWC
Holders and their Related Parties, becomes the beneficial owner (as defined
above), directly or indirectly, of 35% or more of the Voting Stock of Holdings
and such person is or becomes, directly or indirectly, the beneficial owner of a
greater percentage of the voting power of the Voting Stock of Holdings,
calculated on a fully diluted basis, than the percentage beneficially owned by
the JWC Holders and their Related Parties;
(iv) The first day on which a majority of the members of the Board of
Directors of Holdings are not Continuing Directors;
(v) The first day on which Holdings shall own, directly or indirectly, less
than all of the issued and outstanding capital stock of the Company or of the
surviving or transferee Person of the Company in a transaction not constituting
a Change of Control under clause (vi) of this definition; or
(vi) Holdings or the Company consolidates with, or merges with or into, any
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, Holdings or the Company, as the case may be, in
any such event pursuant to a transaction in which (A) any of the outstanding
Voting Stock of Holdings is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
Holdings outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance) or (B) any
of the outstanding Voting Stock of the Company is converted into or exchanged
for cash, securities or other property (other than payments of or the right to
receive cash in respect of fractional shares of such Voting Stock), other than
any such transaction where the Voting Stock of the Company outstanding
immediately prior
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to such transaction is converted into or exchanged for Voting Stock of the
surviving or transferee Person all of which is owned, directly or indirectly, by
Holdings (immediately after giving effect to such issuance).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holdings who (i) was a member of such Board of
Directors on the date of adoption of the Certificate of Designation by the Board
of Directors of Holdings or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"JWC Holders" means the JWC Holders as defined in the Stockholders
Agreement to be entered into concurrently with the closing of the
Recapitalization among Holdings and the stockholders of Holdings named therein.
The Principals are included among the JWC Holders.
"Person" means any individual, partnership, corporation, limited liability
corporation, trust, estate, joint venture, association, unincorporated
organization, government or any department or agency thereof, or other entity.
"Qualified Public Offering" means one or more public sales of any capital
stock of Holdings pursuant to one or more registration statements (other than on
Form S-4 or S-8 or any other similar limited purpose form), that have become
effective under the Securities Act, yielding at least $10.0 million in aggregate
gross proceeds.
"Related Party" with respect to any JWC Holder means (i) any controlling
stockholder or 80% (or more) owned subsidiary of such JWC Holder or (ii) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partner, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of JWC Holders and/or such other Persons referred to
in the immediately preceding clause (i).
"Voting Stock" means, with respect to any Person, the capital stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
At any time and from time to time Holdings may, at its election, redeem all
or any part of the outstanding shares of Holdings Preferred Stock issued by the
Holdings as payment-in-kind dividends out of funds legally available therefor,
at the Liquidation Value.
Redemption on Demand by Holder. Within ten business days after a Change of
Control, Holdings shall, unless Holdings shall have theretofore given notice of
the optional redemption by Holdings of all of the outstanding shares of Holdings
Preferred Stock, give written notice to the holders of the Holdings Preferred
Stock of the demand redemption rights described in this paragraph. In addition,
within ten business days after each Dividend Reference Date occurring at least
six months after such Change of Control, Holdings shall give written notice to
the holders of Preferred Stock of such demand redemption rights. Upon receipt of
any such notice, each holder of shares of Holdings Preferred Stock may require
Holdings to redeem, at the Liquidation Value plus an amount equal to one percent
(1%) of such Liquidation Value at the time of redemption, up to the lesser of
(i) all of the shares of Holdings Preferred Stock held by such holder and (ii)
such number of shares of Holdings Preferred Stock held of record by such holder
as shall equal the product of (x) all of the shares of Holdings Preferred Stock
in respect of which such holder shall have exercised his demand redemption right
multiplied by (y) a ratio, the numerator of which shall be equal to the Cash
Available for Redemption and the denominator of which shall be equal to the
aggregate of the Liquidation Value plus an amount equal to one percent (1%) of
the Liquidation Value at the time of redemption for all of the shares of
Holdings Preferred Stock in respect of which holders of Holdings Preferred Stock
shall have exercised their demand redemption rights. Holdings will not be
required to pay the redemption price due in connection with the redemption of
any Holdings Preferred Stock as described in this paragraph until ninety-one
business days after the redemption of all of the Notes required to be redeemed
by the Company in connection with such Change of Control. The right of a holder
of shares of Holdings Preferred Stock to require Holdings to redeem, out of Cash
Available for Redemption, any or all of such shares (and any shares of Holdings
Preferred Stock thereafter issued as payment-in-kind dividends thereon)
following a Change of Control or any Dividend Reference Date occurring at least
six months after such Change of Control will terminate to the extent that such
holder fails to exercise his demand redemption right in respect of such shares
within the applicable exercise period following any date on which Holdings gives
notice of such demand redemption rights.
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For purposes of the Certificate of Designation, "Cash Available for
Redemption" means, as of any date, the sum of
(i) the lesser of
(A) the sum of (I) the aggregate amount of cash and cash equivalents
held by Holdings as of such date, plus (II) the maximum undrawn amount
available to Holdings (without duplication of any amount available to any
subsidiary of Holdings under any credit or loan agreements, as amended and
in effect from time to time, including but not limited to any such credit
or loan agreement in connection with which Holdings acts as a guarantor or
co- obligor of the obligations of any such subsidiary) as of such date
under any credit or loan agreements, as amended and in effect from time to
time, to which the Holdings is party, as borrower, plus
(B) the maximum amount that Holdings could, if it declared and paid a
cash dividend on its common stock on such date, declare and pay without
being in violation of or default under (with or without the lapse of time
or the giving of notice, or both) any applicable law or any note,
debenture, indenture or other agreement or instrument governing
indebtedness for borrowed money of Holdings, plus
(ii) the lesser of
(A) the sum of (I) the aggregate amount of cash and cash equivalents
held by the Company as of such date plus (II) the maximum undrawn amount
available as of such date under (x) the New Credit Facility, as amended and
in effect from time to time, or (y) any credit or loan agreements, as
amended and in effect from time to time, hereafter executed in connection
with any refinancing or replacement of the New Credit Facility, and
(B) the maximum amount that the Company could, if it declared and paid
a cash dividend on its common stock on such date, declare and pay without
being in violation of or default under (with or without the lapse of time
or the giving of notice, or both) any applicable law or any note,
debenture, indenture or other agreement or instrument governing
indebtedness for borrowed money of the Company, minus
(iii) a reasonable reserve determined by the Board of Directors of Holdings
in the good faith exercise of its business judgment.
Mandatory Redemption. On December 31, 2009, Holdings shall redeem, at the
Liquidation Value, all of the outstanding shares of Holdings Preferred Stock.
If the funds of Holdings legally available for redemption of Preferred
Stock on any redemption date are insufficient to redeem the total number of
shares of Holdings Preferred Stock to be redeemed on such date, those funds
which are legally available shall be used to redeem the maximum possible number
of shares of Holdings Preferred Stock ratably among the holders of the Holdings
Preferred Stock to be redeemed. At any time thereafter, when additional funds of
the Holdings are legally available for the redemption of Holdings Preferred
Stock, such funds shall immediately be used to redeem, without interest, the
balance of the Holdings Preferred Stock which Holdings has become obligated to
redeem on any redemption date but which it has not redeemed.
Substantially all of Holdings' operations are conducted through the
Company. The ability of Holdings to pay the redemption price due on the
redemption of any of the Holdings Preferred Stock will be dependent upon the
payment to it of dividends, interest or other charges by the Company. The
Company's right to make such payments is restricted by the New Credit Facility
and the Indenture.
Voting Rights
The outstanding shares of Holdings Preferred Stock have no voting rights
except as required by law and as follows:
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(a) The affirmative vote of the holders of record of at least two thirds (
2/3) of the outstanding shares of Holdings Preferred Stock, voting together as a
separate class, is required (i) to change (A) the rate or time of payment of any
dividends on, or (B) the time or amount of any redemption of, or (C) the amount
of any payments upon liquidation of Holdings with respect to, or (D) the
priorities afforded by the provisions of the Certificate of Designation for the
benefit of shares of Holdings Preferred Stock or (ii) to amend the redemption
rights of the holders of the Holdings Preferred Stock described above under the
heading "Mandatory Redemption" or (iii) to amend the voting rights of the
holders of the Holdings Preferred Stock.
(b) The affirmative vote of the holders of at least a majority of the
outstanding shares of Holdings Preferred Stock, voting together as a separate
class, is required to: (i) increase the number of authorized shares of Holdings
Preferred Stock or (ii) authorize or issue any additional shares of Holdings
Preferred Stock (other than as dividends on outstanding shares of Holdings
Preferred Stock to the extent permitted under the Certificate of Designation) or
(iii) issue any shares of capital stock of Holdings of any class, or any
security or obligations convertible into any capital stock of Holdings of any
class, in each case ranking on a parity with or prior to the Holdings Preferred
Stock as to distribution of assets in liquidation or in right of payment of
dividends (other than shares of Holdings Preferred Stock issued as dividends on
outstanding shares of Holdings Preferred Stock to the extent permitted under the
Certificate of Designation or in connection with the exchange, for shares of
Holdings Preferred Stock, of any Exchange Notes (as defined below) issued by
Holdings).
(c) In the event that (I) (A) dividends (either in cash or through the
issuance of additional shares of Holdings Preferred Stock to the extent
permitted under the Certificate of Designation) on the Holdings Preferred Stock
are in arrears and unpaid with respect to any Dividend Reference Date or (B)
December 31, 2002, Holdings fails on three (3) or more Dividend Reference Dates
(whether or not consecutive) to declare and pay in full in cash dividends, in
the amount of all accrued and unpaid dividends on the shares of Holdings
Preferred Stock outstanding as of each such Dividend Reference Date, on the then
outstanding shares of Holdings Preferred Stock (each, a "Dividend Voting Rights
Triggering Event") or (II) Holdings fails to redeem all of the then outstanding
shares of Holdings Preferred Stock on December 31, 2009 or otherwise fails to
discharge any redemption obligation with respect to the Holdings Preferred
Stock, then the maximum authorized number of directors of Holdings will be
increased by one (1) and holders of Holdings Preferred Stock shall be entitled
to vote their shares of Holdings Preferred Stock, together with the holders of
any Parity Securities upon which like voting rights have been conferred and are
exercisable, to elect, as a class, an additional one (1) director. Each such
event described in clauses (I) and (II) is herein referred to as a "Voting
Rights Triggering Event." So long as shares of Holdings Preferred Stock shall be
outstanding, the holders of Holdings Preferred Stock shall retain the right to
vote and elect, with the holders of any such Parity Securities, voting together
as a single class, such director until such time as (A) in the event such right
arises due to a Dividend Voting Rights Trigger Event, all accumulated dividends
that are in arrears on the Holdings Preferred Stock are paid in full in cash or,
with respect to any Dividend Reference Date occurring on or before December 31,
2002, through the issuance of additional shares of Holdings Preferred Stock; and
(B) in all other cases, the failure, breach or default giving rise to such
Voting Rights Triggering Event is remedied or waived by the holders of at least
a majority of the shares of Holdings Preferred Stock then outstanding and
entitled to vote thereon. Such period is herein referred to as a "Default
Period." Immediately upon the expiration of a Default Period, the right of the
holders of Holdings Preferred Stock to elect one director shall cease, the term
of office of the director elected by the holders of Holdings Preferred Stock and
such Parity Securities as a class shall terminate, and the number of directors
shall be such number as may be provided for in the Certificate of Incorporation,
as amended, or By-Laws of Holdings.
Exchange Notes
Exchange Provisions. Holdings may, at its election, exchange all but not
less than all of the outstanding shares of Holdings Preferred Stock for 12%
Junior Subordinated Notes due December 31, 2009 of Holdings (the "Exchange
Notes") having the general terms described below. Upon the exchange of the
Holdings Preferred Stock for the Exchange Notes, each holder of Holdings
Preferred Stock will be entitled to receive, per share of Holdings Preferred
Stock so
105
<PAGE>
exchanged, a principal amount of Exchange Notes equal to the Liquidation Value
of such share as of the date of such exchange. Upon such exchange, dividends on
the shares of Holdings Preferred Stock so exchanged shall cease to accrue, such
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of Holdings with respect to shares so exchanged
(except the right to receive from Holdings the Exchange Notes in the aggregate
original principal amount to which such holder is entitled upon such exchange)
shall cease. The Indenture and the New Credit Facility restrict the ability of
Holdings to elect to issue Exchange Notes in exchange for Holdings Preferred
Stock.
General. The Exchange Notes will be issued only if and when Holdings elects
to require the exchange of the Holdings Preferred Stock for the Exchange Notes.
The Exchange Notes will be unsecured obligations of Holdings and will be
subordinated to Holdings' obligations under the New Credit Facility and the
Holdings Guarantee of the Notes. The Exchange Notes will not be obligations of
the Company and, accordingly, the rights of the holders of the Exchange Notes
will be effectively subordinated to rights of the holders of the Notes, except
to the extent that Holdings may itself be a creditor with claims against the
Company. The maximum aggregate original principal amount of the Exchange Notes
will be limited to the aggregate original principal amount of the Exchange Notes
originally issued in exchange for shares of the Holdings Preferred Stock.
Interest. (a) The Exchange Notes will bear interest from their date of
issuance at the rate of 12% per annum, which will be due and payable on the last
day of each June 30 and December 31 after the Exchange Notes are issued.
Interest on the Exchange Notes will accrue from the most recent date on which
interest has been paid, or if no interest has been paid, from the original
issuance of the Exchange Notes. Interest is payable in cash, except that
Holdings may elect to defer the payment of any interest payable on any interest
payment date occurring on or before December 31, 2002 and prior to the Catch-up
Date (as hereinafter defined). To the extent that any interest accrued on the
Exchange Notes is not paid in cash on any interest payment date, such deferred
interest bears interest at 12% per annum, compounded on each interest payment
date thereafter until paid.
(b) On the last business day occurring on or before the first interest
payment date following the fifth anniversary of the date on which the Exchange
Notes were originally issued in exchange for shares of Holdings Preferred Stock
(the "Catch-up Date"), Holdings is required to pay in cash, in respect of
interest accrued and unpaid under the Exchange Notes, in addition to any
interest payment otherwise due on such date, such additional amount as is
necessary so that the aggregate amount includible for federal income tax
purposes in gross income with respect to the Exchange Notes by the holders
thereof for all periods ending on or before such first interest payment date
does not exceed the aggregate cumulative amount of interest paid in cash under
the Exchange Notes through such first interest payment date by more than the
product of the original principal amount of the Exchange Notes multiplied by
their yield to maturity.
(c) Each payment of interest due on an interest payment date occurring
after the Catch-up Date is required to be in an amount sufficient so that the
total amount of accrued and unpaid interest at the close of such interest
payment date shall in no event exceed the maximum amount which may be deferred
without causing a loss or deferral of Holdings' deduction of original issue
discount on the Exchange Notes under applicable provisions of the Internal
Revenue Code of 1986, as amended.
Holdings' operations are conducted through the Company. The rights of
Holdings and its creditors, including the holders of Exchange Notes, to
participate in the assets of the Company upon any liquidation or reorganization
of the Company or otherwise will be subject to the prior claims of creditors of
the Company (including, among others, holders of the Notes), except to the
extent that Holdings may itself be a creditor with claims against the Company.
The ability of Holdings to pay principal and cash interest payments on the
Exchange Notes will be dependent upon the payment to it of dividends, interest
or other charges by the Company. The Company's right to make such payments is
restricted by the New Credit Facility and the Indenture.
Redemption. Holdings has the following redemption rights and obligations
with respect to the Exchange Notes:
(a) At any time within six months after a Change of Control or a Qualified
Public Offering, Holdings may redeem all or any part of the outstanding
principal amount of the Exchange Notes, without premium, but together with
accrued and unpaid interest thereon.
106
<PAGE>
(b) Within ten business days after a Change of Control, Holdings shall,
unless Holdings shall have theretofore given notice of the optional redemption
by Holdings of all of the Exchange Notes, give written notice to the holders of
the Exchange Notes of the demand redemption rights described in this paragraph.
In addition, within ten business days after each interest payment date occurring
at least six months after such Change of Control, Holdings shall give written
notice to the holders of the Exchange Notes of such redemption rights. Upon
receipt of any such notice, each holder of Exchange Notes may require Holdings
to redeem, at a redemption price equal to the outstanding principal amount of
and accrued and unpaid interest on such Exchange Notes, together with a premium
thereon in an amount equal to one percent (1%) of such principal amount and
accrued and unpaid interest to be redeemed, and all accrued and unpaid interest
on such principal amount, up to the lesser of (i) all of the Exchange Notes held
by such holder and (ii) such aggregate amount of the Exchange Notes held of
record by such holder as shall equal the product of (A) the Cash Available for
Redemption multiplied by (B) a ratio, the numerator of which shall be equal to
the redemption price of all of the Exchange Notes in respect of which such
holder shall have exercised his demand redemption right and the denominator of
which shall be equal to the aggregate redemption price for all of the Exchange
Notes in respect of which the holders thereof shall have exercised their demand
redemption right. Holdings will not be obligated to pay the redemption price due
in connection with the redemption of any Exchange Notes as described in this
paragraph (b) until ten business days after the redemption of all of the Notes
required to be redeemed by the Company in connection with such Change of
Control. The right of a holder of Exchange Notes to require Holdings to redeem,
out of Cash Available for Redemption, any or all of such Exchange Notes
following a Change of Control or any interest payment date occurring at least
six months after such Change of Control will terminate to the extent that such
holder fails to exercise his demand redemption right in respect of such Exchange
Notes within the applicable exercise period following any date on which Holdings
gives notice of such demand redemption rights.
Subordination and Standstill Provisions. The payment of the principal,
premium, if any, and interest on the Exchange Notes is subordinated in right of
payment to the prior payment in full of all Senior Debt (as defined below) of
Holdings, whether outstanding on the date of issuance of the Exchange Notes or
thereafter created, incurred, assumed or guaranteed. Upon any distribution to
creditors of Holdings in a liquidation, dissolution or winding up of Holdings or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Holdings or its property, the holders of Senior Debt will be
entitled to receive payment in full in cash before the Exchange Noteholders are
entitled to receive any payment. If any such distribution is made to the
Exchange Noteholders before all Senior Debt has been paid in full or provision
has been made for such payment, such distribution must be paid over to the
holders of the Senior Debt. No such subordination will prevent the occurrence of
an Event of Default (as defined below).
During the continuance of (i) any default in the payment of the principal,
premium, if any, or interest on Senior Debt in an aggregate principal amount of
at least $10 million, including principal or interest which has become due by
reason of acceleration, or (ii) any other default, in respect of which Holdings
shall have been notified in writing by the holder of such Senior Debt or any
trustee therefor, with respect to Senior Debt in an aggregate principal amount
of at least $10 million permitting the holders thereof to accelerate the
maturity thereof, no payment may be made on the Exchange Notes, and payments may
thereafter be resumed only if both such default or any subsequent default shall
have been cured or waived or shall cease to exist; provided that, in the event
that a Senior Debt default (other than any such Senior Debt default of a nature
described in clause (i) of this paragraph) shall have occurred and be
continuing, the restrictions set forth in this paragraph shall, unless all of
the Senior Debt in respect of which such Senior Debt default shall have occurred
and be continuing shall have been declared due and payable under any
acceleration provision applicable thereto and such declaration shall not have
been waived, rescinded or annulled, cease to apply upon the earliest of (A) two
hundred seventy (270) days after the occurrence of such Senior Debt default or
(B) the date on which all Senior Debt defaults under such Senior Debt shall have
been cured or waived; provided, further, that the restrictions set forth in this
paragraph on payments with respect to the Exchange Notes in the event that a
Senior Debt default (other than any such Senior Debt default of a nature
described in clause (i) of this paragraph) may be invoked no more than one (1)
time in any three hundred sixty-five (365) day period, unless all of the Senior
Debt in respect of which such Senior Debt default shall have occurred and be
continuing shall have been declared due and payable under any acceleration
provision applicable thereto and such declaration shall not have been waived,
rescinded or annulled. If any such payment is made to the Exchange Noteholders
before all Senior Debt has been paid in full or provision has been made for such
payment, such payment must be paid over to the holders of the Senior Debt.
107
<PAGE>
Holders of the Exchange Notes may not take any action to accelerate the
maturity of the indebtedness evidenced by the Exchange Notes unless all Senior
Debt shall have been paid in full in cash or all Senior Debt shall theretofore
have become due and payable.
Holders of the Exchange Notes may not commence any action or proceeding
against Holdings to recover all or any part of any indebtedness evidenced by the
Exchange Notes or bring or join with any creditor in bringing, unless the
holders of the Senior Debt then outstanding shall join therein, any proceeding
against Holdings under any bankruptcy, reorganization, insolvency or similar law
or statute unless and until all Senior Debt shall be paid in full in cash.
For purposes of the Exchange Notes, "Senior Debt" means
(a) All obligations and liabilities of Holdings (other than indebtedness
represented by the Exchange Notes), direct or indirect, as to principal,
interest (including post-petition interest whether or not an allowed claim),
premium or otherwise, initially incurred or issued to institutional investors,
whether outstanding on the date hereof or hereafter created or incurred, and
whether at any time assigned or otherwise transferred to any other institutional
investor or any other person, including but not limited to (i) all obligations
and liabilities in respect of money borrowed or purchase money indebtedness by
or of Holdings, (ii) all guarantees and endorsements (other than for collection
or deposit in the ordinary course of business) of any such obligations and
liabilities of others, such as but not limited to guarantees of any such
obligation or liability of a subsidiary of Holdings, (iii) all obligations and
liabilities secured by any mortgage, lien, pledge, security interest or other
encumbrance in respect of property, whether incurred in connection with money
borrowed or the acquisition of property, (iv) all obligations and liabilities in
respect of any lease of property, and (v) reimbursement obligations with respect
to letters of credit and interest rate protection agreements;
(b) All obligations and liabilities of Holdings (other than indebtedness
represented by the Exchange Notes), direct or indirect, as to principal,
interest, premium or otherwise with respect to any obligation, note, or
debenture offered by Holdings for sale to the public in an offer structured so
as to comply with applicable rules and regulations for a public offering in the
jurisdiction or jurisdictions in which such obligation, note or debenture is
offered, whether outstanding on the date hereof or hereafter created or
incurred, which are not expressly made pari passu or subordinate to the Exchange
Notes;
(c) All obligations and liabilities of Holdings (other than indebtedness
represented by the Exchange Notes) to which the Exchange Notes shall be
expressly subordinated in writing by the holders of not less than a majority in
aggregate principal amount of the Exchange Notes then outstanding;
(d) All other obligations and liabilities of Holdings (other than
indebtedness represented by the Exchange Notes); and
(e) All renewals, extensions, modifications and refundings of any such
obligation or liability;
unless in the case of either (a), (b), (c), (d) or (e), the terms of the
agreement or instrument creating the obligation or liability provide that it is
not senior to the Exchange Notes.
Events of Default and Remedies. Subject to the subordination and standstill
provisions described above under the heading "Subordination and Standstill
Provisions": (i) upon the occurrence and continuation of any Event of Default
(as defined below), then (a) in the case of any Event of Default specified in
clause (a) or (d)(i) of the definition of "Event of Default," each holder of
Exchange Note, and (b) in the case of any other Event of Default specified in
clause (b) or (c) of the definition of "Event of Default," the holder or holders
of record of at least twenty-five percent (25%) in aggregate principal amount of
the Exchange Notes then outstanding, may proceed to protect and enforce his or
their rights, as the case may be, by suit in equity, action at law and/or other
appropriate proceeding either for specific performance of any covenant or
condition, or in aid of the exercise of any power granted in the Exchange Notes,
and may by notice in writing to Holdings declare all or any part of the unpaid
balance of the Exchange Notes held by him to be forthwith due and payable, and
the holder may proceed to enforce payment of such balance or part thereof in
such manner as he may elect; and (ii) Holdings shall pay to the holder, upon
demand, the reasonable costs and expenses
108
<PAGE>
(including reasonable attorneys fees and expenses) incurred by the holder in
connection with the enforcement of his rights and remedies arising upon the
occurrence and continuance of an Event of Default.
Anything in the Exchange Notes to the contrary notwithstanding, if any one
or more Events of Default specified in clause (d)(ii) or (iii) of the definition
of "Event of Default" shall occur and be continuing, then the holder or holders
of record of at least twenty-five percent (25%) in aggregate principal amount of
the Exchange Notes then outstanding may proceed to protect and enforce his or
their rights by suit in equity for specific performance and/or action at law for
damages; provided that the remedy, judgment, damages or other relief in equity
or at law of any such holder or holders shall be limited to the right to seek
specific performance of the obligation of Holdings to make payments in respect
of interest accrued on the Exchange Notes or damages, as the case may be, to,
and only to, the extent that Holdings shall have had cash available for interest
payments (defined in the Exchange Notes similarly to Cash Available for
Redemption) at the relevant date, determined in accordance with the Exchange
Notes. Such remedy (i) shall be the sole and exclusive remedy at law or in
equity of any such holder or holders of Exchange Notes in respect of any one or
more Events of Default specified in clause (d)(ii) or (iii) of the definition of
"Event of Default" and (ii) shall be subject to the subordination and standstill
provisions described above under the heading "Subordination and Standstill
Provisions."
For purposes of the Exchange Notes, "Event of Default" means the occurrence
and continuance of any of the following events:
(a) Except as otherwise provided in clause (d) below, Holdings shall have
failed, for a period of thirty days after written notice thereof, to make any
principal, interest, fee or other payment on any of the indebtedness evidenced
by the Exchange Notes (notwithstanding that such payment shall have been
suspended pursuant to the subordination provisions hereof); or
(b) Except as otherwise provided in clause (d) below, Holdings shall have
failed duly to observe or perform in any material respect any other covenant,
agreement or provision contained in the Exchange Notes other than those referred
to in subdivision (a) above, and such failure shall have continued for a period
of thirty days after written notice thereof; or
(c) Any customary bankruptcy-type event with respect to Holdings shall have
occurred and be continuing.
(d) notwithstanding the foregoing clauses (a), (b) and (c),
(i) the failure of Holdings to pay interest payable on any interest
payment date occurring after the earlier of (A) December 31, 2002 or (B)
the Catch-up Date shall constitute an Event of Default to, and only to, the
extent that Holdings shall fail to pay such interest in an amount at least
equal to the amount of cash available for interest payments, determined in
accordance with the Exchange Notes, as determined by Holdings as of a date
within ten business days prior to each such interest payment date;
(ii) the failure of Holdings to make the interest payment described in
paragraph (b) under the heading "-- Interest" shall not constitute an Event
of Default under the Exchange Notes to, and only to, the extent that
Holdings shall fail to make such payment in an amount at least equal to the
amount of cash available for interest payments, determined in accordance
with the Exchange Notes, as determined by Holdings as of a date within ten
business days prior to the Catch-up Date; and
(iii) the failure of Holdings to make any interest payment described in
paragraph (c) under the heading "-- Interest" shall constitute an Event of
Default under the Exchange Notes to, and only to, the extent that Holdings
shall fail to make such payment in an amount at least equal to the amount
of cash available for interest payments,
109
<PAGE>
determined in accordance with the Exchange Notes, as determined by Holdings
as of a date within ten business days prior to the relevant interest
payment date.
110
<PAGE>
LEGAL MATTERS
Certain legal matters related to the Notes offered hereby are being passed
upon for the Company by Sullivan & Worcester LLP, Boston, Massachusetts.
INDEPENDENT AUDITORS
The consolidated financial statements of Holdings at March 1, 1997 and
March 2, 1996, and for each of the three years in the period ended March 1,
1997, included in this Offering Memorandum, have been audited by Ernst & Young
LLP, independent auditors, as stated in their report appearing herein.
111
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
DESA HOLDINGS CORPORATION
Report of Ernst & Young LLP F-2
Consolidated Balance Sheets as of March 2, 1996, March 1, 1997 and November 29, 1997
(Unaudited) F-3
Consolidated Statements of Income for fiscal years ended February 25, 1995, March 2,
1996 and March 1, 1997 and the thirty-nine weeks ended November 30, 1996
and November
29, 1997 (Unaudited) F-4
Consolidated Statements of Stockholders' Equity (Deficit) for fiscal years ended
February 25, 1995, March 2, 1996 and March 1, 1997 and the thirty-nine
weeks ended
November 29, 1997 (Unaudited) F-5
Consolidated Statements of Cash Flows for fiscal years ended February 25, 1995,
March 2, 1996 and March 1, 1997 and the thirty-nine weeks ended November
30, 1996
and November 29, 1997 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY (A WHOLLY-OWNED
SUBSIDIARY OF HEATH HOLDING CORP.)
INDEPENDENT AUDITORS' REPORT F-20
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996:
Balance Sheet F-21
Statement of Operations F-22
Statement of Shareholders' Equity F-23
Statement of Cash Flows F-24
Notes to Financial Statements F-25
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED OCTOBER 5, 1997:
Balance Sheet F-30
Statement of Operations F-31
Statement of Shareholders' Equity F-32
Statement of Cash Flows F-33
Notes to Financial Statements F-
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
DESA Holdings Corporation
We have audited the accompanying consolidated balance sheets of DESA
Holdings Corporation (the "Company") as of March 2, 1996 and March 1, 1997, and
the related consolidated statements of income, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended March 1, 1997.
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. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of DESA Holdings
Corporation at March 2, 1996 and March 1, 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 1, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 3, the Company changed its method of determining the
cost of inventory in 1996.
New York, New York
April 4, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
DESA HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, excepts number of shares)
March 2, March 1, November 29,
1996 1997 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 145 $ 5,058 $ 201
Accounts receivable, net 10,751 13,066 65,586
Inventories:
Raw materials 363 508 740
Work-in-process 4,519 4,386 7,831
Finished goods 10,054 10,853 18,562
--------- --------- ---------
14,936 15,747 27,133
Deferred tax assets 1,621 1,206 1,177
Other current assets 218 555 1,154
--------- --------- ---------
Total current assets 27,671 35,632 95,251
Property, plant and equipment:
Land 390 390 390
Buildings and improvements 4,297 4,297 4,297
Machinery and equipment 22,144 24,892 28,582
Furniture and fixtures 655 640 640
--------- --------- ---------
27,486 30,21 33,909
Less accumulated depreciation (17,742) (20,137) (22,500)
--------- --------- ---------
9,744 10,082 11,409
Goodwill 41,947 40,829 39,999
Other assets 6,183 5,441 11,121
Total assets $ 85,545 $ 91,984 $ 157,780
========= ========= =========
Liabilities and stockholders' equity (deficit) Current liabilities:
Accounts payable $ 10,890 $ 17,997 $ 25,114
Accrued liabilities 9,115 8,695 10,319
Income taxes payable 810 1,156 2,705
Current portion of long-term debt 8,050 16,350 22,355
--------- --------- ---------
Total current liabilities 28,865 44,198 60,493
Long-term debt 149,709 130,600 240,500
Deferred tax liabilities 2,079 1,664 1,663
Other liabilities 294 276 379
--------- --------- ---------
Total liabilities 180,947 176,738 303,035
Commitments
Stockholders' equity (deficit):
Preferred stock, $.01 par value; authorized-- 2,000,000 shares;
issued and outstanding-- 17,600 shares at November 29, 1997 -- -- --
Capital in excess of par value--Preferred stock -- -- 17,600
Common stock, $.01 par value; authorized --50,000,000 shares; issued and
outstanding -- 23,363,876 shares at March 2, 1996, 23,573,876 at
March 1, 1997 and 12,606,162.9409 shares at November 29, 1997 234 236 126
Nonvoting common stock, $.01 par value; authorized-- 3,000,000
shares; issued and outstanding -- 1,781,557 shares at March 2, 1896
and March 1, 1997 and 90,603.6022 shares at November 29, 1997 18 18 1
Capital in excess of par value 26,514 26,722 82,273
Carryover predecessor basis adjustment (32,309) (32,309) (32,309)
Retained earnings (deficit) (89,829) (79,113) (212,484)
Cumulative translation adjustment (30) (308) (462)
--------- --------- ---------
Total stockholders' equity (deficit) (95,402) (84,754) (145,255)
--------- --------- ---------
Total liabilities and stockholders' equity (deficit) $ 85,545 $ 91,984 $ 157,780
========= ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
DESA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Fiscal years ended Thirty-nine weeks ended
---------------------------------------- ----------------------------
February 25, March 2, March 1, November 30, November 29,
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 172,501 $ 186,324 $ 209,105 $ 173,587 $ 193,404
Operating costs and expenses:
Cost of sales 107,484 116,217 130,890 108,587 123,243
Selling and administrative expenses 33,851 35,503 42,656 32,083 35,477
--------- --------- --------- --------- ---------
Operating profit 31,166 34,604 35,559 32,917 34,684
Other expenses:
Interest 5,777 7,073 14,509 11,105 11,321
Other 2,124 2,325 2,601 1,830 2,082
--------- --------- --------- --------- ---------
Income before provision for income taxes 23,265 25,206 18,449 19,982 21,281
Provision for income taxes 10,064 10,703 7,733 8,378 8,769
--------- --------- --------- --------- ---------
Income before extraordinary item 13,201 14,503 10,716 11,604 12,512
Extraordinary item, net of income tax of $1,723
and $2,285 -- 2,638 -- -- 7,797
--------- --------- --------- --------- ---------
Net income 13,201 11,865 10,716 11,604 4,715
Less dividends on preferred stock 900 853 -- -- 17
--------- --------- --------- --------- ---------
Income available for common stockholders $ 12,301 $ 11,012 $ 10,716 $ 11,604 $ 4,698
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
DESA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Fiscal years ended February 25, 1995, March 2, 1996 and March 1, 1997
and the thirty-nine weeks ended November 29, 1997 (Unaudited)
(In thousands)
Preferred Stock
---------------------- Carryover Total
Capital in Nonvoting Capital in Predecessor Retained Cumulative Stockholders'
excess of Common Common Excess of Basis Earnings Translation Equity
Series A par value Stock Stock Par Value Adjustment (Deficit) Adjustment (Deficit)
---------- ---------- --------- ---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 26, 1994 $ 5,150 $ 4,461 $ 225 -- $24,752 $(32,309) $ 12 $ (12) $ 2,279
Net income -- -- -- -- -- -- 13,201 -- 13,201
Dividends on preferred stock 646 254 -- -- -- -- (900) -- --
Exercise of stock options -- -- 7 -- 689 -- -- -- 696
Translation adjustment -- -- -- -- -- -- -- 18 18
Balance at February 25, 1995 5,796 4,715 232 -- 25,441 (32,309) 12,313 6 16,194
Net income -- -- -- -- -- -- 11,865 -- 11,865
Dividends on preferred stock 622 231 -- -- -- -- (853) -- --
Redemption of preferred stock (6,418) (4,946) -- -- -- -- -- -- (11,364)
Exercise of stock options -- -- 2 -- 200 -- -- -- 202
Exercise of BT warrant -- -- -- 18 873 -- -- -- 891
Dividends on common stock
and nonvoting common stock -- -- -- -- -- -- (113,154) -- (113,154)
Translation adjustment -- -- -- -- -- -- -- (36) (36)
Balance at March 2, 1996 -- -- 234 18 26,514 (32,309) (89,829) (30) (95,402)
Net income -- -- -- -- -- -- 10,716 -- 10,716
Exercise of stock options -- -- 2 -- 208 -- -- -- 210
Translation adjustment -- -- -- -- -- -- -- (278) (278)
Balance at March 1, 1997 -- -- 236 18 26,722 (32,309) (79,113) (308) (84,754)
Net income -- -- -- -- -- -- 4,715 -- 4,715
Issue preferred stock -- 17,600 -- -- -- -- -- -- 17,600
Repurchase of common stock -- -- (110) (17) 55,551 -- -- -- 55,424
Recapitalization -- -- -- -- -- -- (138,069) -- (138,069)
Dividends on preferred stock -- -- -- -- -- -- (17) -- (17)
Translation adjustment -- -- -- -- -- -- -- (154) (154)
Balance at November 29, 1997 $ -- $17,600 $ 126 $ 1 $82,273 $(32,309) $(212,484) $(462) $(145,255)
======= ======= ===== ==== ======= ======== ========= ===== =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
DESA HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal years ended Thirty-nine weeks ended
------------------------------------- ---------------------------
February 25, March 2, March 1, November 30, November 29,
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income $ 13,201 $ 11,865 $ 10,716 $ 11,604 $ 4,698
--------- --------- --------- --------- ---------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 2,148 2,332 2,432 2,127 2,363
Amortization 1,966 1,963 2,104 1,571 5,372
Deferred income taxes (1,260) 964 -- -- (78)
Equity in undistributed earnings of joint venture (109) (119) (132) (88) (124
Extraordinary item -- 2,638 -- -- 7,797
(Increase) decrease in operating assets:
Accounts receivable, net (2,656) 4,431 (2,315) (47,856) (52,520)
Inventories (6,474) (67) (811) (4,608) (11,386)
Other current assets (43) (64) (337) 102 (580)
Increase (decrease) in operating liabilities:
Accounts payable 6,867 (3,224) 7,107 15,837 7,117
Accrued liabilities 3,824 (2,516) (694) 4,183 1,641
Income taxes payable 833 1,380 346 4,743 1,548
Other liabilities 40 (208) (18) (7) 87
Net cash provided by (used in) operating activities 18,337 19,375 18,398 (13,378) (33,565)
--------- --------- --------- --------- ---------
Investing activities
Capital expenditures (1,499) (2,122) (2,770) (1,662) (3,690)
Dividends received from joint venture 196 112 132 111 124
Purchase of Toro assets (873) -- -- -- --
Other -- (50) (244) -- 27
Net cash used in investing activities (2,176) (2,060) (2,882) (1,551) (3,539)
--------- --------- --------- --------- ---------
Financing activities
Recapitalization transactions:
Proceeds from new Term Loans $ -- $ 155,000 $ -- $ -- $ 100,000
Proceeds from new revolver loan -- 9,900 -- -- 35,500
Proceeds from exercise of BT Warrant -- 891 -- -- 130,000
Redemption of Series A Preferred Stock -- (6,418) -- -- --
Redemption of Series B Preferred Stock -- (4,946) -- -- --
Repayment of old Term Loans -- (50,950) -- -- (183,095)
Dividends paid on common stock and nonvoting common stock -- (113,154) -- -- --
Payment of expenses -- (5,673) -- -- (17,490)
--------- --------- --------- --------- ---------
Net cash flow used in Recapitalization transactions -- (15,350) -- -- 64,915
Decrease in revolving loan -- (7,141) (2,759) 19,815 43,000
Principal payments of old Term Loans (2,250) (11,050) -- -- (6,855)
Principal payments of new Term Loans -- -- (8,050) (4,830) --
Decrease in promissory notes (97) -- -- -- (2,645)
Payments for repurchase of common stock -- -- -- -- (166,141)
Proceeds from issuance of preferred stock -- -- -- -- 17,600
Proceeds from issuance of common stock 696 202 210 201 82,400
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities (1,651) (17,989) (10,599) 15,186 32,641
--------- --------- --------- --------- ---------
Effect of exchange rates on cash 63 (1) (4) (9) (27)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents for the period 14,573 (16,025) 4,913 247 (4,857)
Cash and cash equivalents at beginning of period 1,597 16,170 145 145 5,058
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 16,170 $ 145 $ 5,058 $ 393 $ 201
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended February 25, 1995, March 2, 1996 and March 1, 1997 and the
thirty-nine weeks ended November 30, 1996 and November 29, 1997
(information for the thirty-nine weeks ended
November 30, 1996 and November 29, 1997 is unaudited)
1. Organization and Basis of Presentation
DESA Holdings Corporation (the "Company") was formed in 1993 by (i) a
contribution of $13.5 million by a group of investors formed by Hicks, Muse,
Tate & Furst Incorporated ("Hicks Muse"), a privately held investment firm, for
13,500,000 shares of $.01 par value common stock which represents 60% of the
outstanding voting shares of the Company, with the remaining 9,000,000 shares
acquired by the management shareholders of DESA Holding Corp. ("Old Holdings")
in exchange for 140,831 shares of Old Holdings, (ii) 200,000 shares of Series A
variable rate cumulative Preferred Stock issued to BT Investment Partners, Inc.
("Bankers Trust") and (iii) 176,000 shares of Series B variable rate cumulative
Preferred Stock issued to CIGNA Investments and Mutual Benefit Life Insurance
Company ("CIGNA/Mutual"). Bankers Trust also received a warrant to purchase
1,781,557 shares of common stock of the Company (the "BT warrant") at a price of
$.50 per share and the management shareholders received options to purchase
695,876 shares of common stock of the Company (see Note 7). The fair market
values assigned to these warrants and options were $1,781,557 and $695,876,
respectively. In December 1993, the Company acquired all of the outstanding
common shares of DESA International, Inc. (the "Restructuring" transaction).
This Restructuring met the criteria under the Emerging Issues Task Force Issue
No. 88-16, "Basis in Leveraged Buyout Transactions". Consequently, management's
entire residual interest in the Company was valued at its predecessor basis and
is shown as a Carryover Basis Adjustment of $32,308,744, which reduces
stockholders' equity on the consolidated balance sheet whereas Hicks Muse's
residual interest was valued at fair value.
The Company was refinanced on January 12, 1996 through new borrowings ("new
Term Loans") via a new credit agreement with Bankers Trust. In conjunction with
this transaction, the Company paid a dividend of $113,154,449 to the holders of
common stock and nonvoting common stock, redeemed all outstanding shares of
Series A and Series B preferred stock including payment of the accrued preferred
stock dividends and repaid the outstanding balance of the old Term Loans.
In addition, as part of the refinancing in January 1996, the Company issued
1,781,557 shares of nonvoting common stock in conjunction with the exercise of
the BT warrant. Each share of nonvoting common stock, at the option of the
holder, is convertible into one share of common stock, subject to certain
restrictions.
Since the refinancing in January 1996 did not result in a change in the
controlling interest held by the management shareholders and Hicks Muse, a
change in the accounting basis under generally accepted accounting principles to
reflect the current market value was not applied. Therefore, the above described
transactions (the "Recapitalization") have been accounted for as a
recapitalization with all amounts paid to the management shareholders, Bankers
Trust, Hicks Muse and CIGNA/Mutual being recorded as reductions in stockholders'
equity.
2. Company Operations
The Company is engaged in the manufacturing and marketing of various
consumer product lines, including zone heating products and specialty tools. No
single customer accounted for more than 10% of net sales in fiscal year 1995.
Two customers, which operate in the hardware homecenter industry, accounted for
10% and 11% of net sales, respectively, in fiscal year 1996 and 13% and 11% of
net sales, respectively, in fiscal year 1997.
F-7
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday closest to February 28. The
fiscal years for the financial statements included herein ended on March 1, 1997
(52 weeks), March 2, 1996 (53 weeks), and February 25, 1995 (52 weeks).
Consolidation
The accompanying consolidated financial statements include the accounts of
DESA Holdings Corporation and its wholly-owned subsidiaries: DESA International,
Inc.; DESA Industries of Canada, Inc.; and DESA Europe B.V. All significant
intercompany accounts and transactions have been eliminated. The Company's 50%
interest in a joint venture is accounted for using the equity method.
Interim Financial Information
The interim consolidated financial statements as of November 29, 1997 and
for the thirty-nine weeks ended November 30, 1996 and November 29, 1997 and
related disclosures in these notes are unaudited. The interim financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the thirty-nine weeks ended November 29, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending February 28, 1998.
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Effective February
26, 1995, the Company changed its method of determining the cost of all its
United States' inventories from the first-in, first-out (FIFO) method to the
last-in, first-out (LIFO) method. The Company believes the LIFO method results
in a better matching of current costs with current revenues.
At March 2, 1996 and March 1, 1997, approximately 95% and 88%,
respectively, of the total inventory balance is priced at LIFO. The effect of
the change in fiscal year 1996 and 1997 was to increase pre-tax income by
$95,000 and $278,000, respectively. The cumulative effect of this accounting
change and the pro forma effects on prior years' earnings have not been included
because such effects are not reasonably determinable.
If the LIFO method of valuing inventories was not used, total inventories
would have been $95,000 and $373,000 lower than reported at March 2, 1996 and
March 1, 1997, respectively.
F-8
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Major renewals and
betterments are capitalized whereas maintenance and repairs are expensed as
incurred. Upon disposition, the asset cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in
income. Depreciation of plant and equipment is determined on the straight-line
basis over the following estimated useful lives:
Buildings and improvements................................... 33 years
Machinery and equipment...................................... 5-12 years
Furniture and fixtures....................................... 5-10 years
Tooling and molds............................................ 3 years
Income Taxes
The Company accounts for income taxes using the liability method as required by
Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("FAS
109"). Under the provisions of FAS 109, deferred tax assets and liabilities are
determined based on tax rates expected to be in effect when the taxes will
actually be paid or refunds received.
Financing Costs
Financing costs are amortized using the straight-line method over the
life of the related debt instrument. The amortization of these financing costs
is included in other expenses in the consolidated statements of income.
Goodwill
Goodwill is amortized on the straight-line basis over 40 years and is
recorded at cost less accumulated amortization. The Company systematically
reviews the recoverability of its goodwill by comparing the unamortized carrying
value to anticipated undiscounted future cash flows. Any impairment is charged
to expense when such determination is made. Accumulated amortization at March 2,
1996 and March 1, 1997 was $2,542,000 and $3,660,000, respectively.
Foreign Currency Translation
All assets, liabilities and results of operations are measured in the
primary currency ("functional currency") in which each entity conducts its
business. Assets and liabilities denominated in a currency other than the
functional currency are remeasured and stated in the functional currency based
on current exchange rates. Gains or losses arising therefrom are included in net
income. Adjustments resulting from translating foreign functional currency
assets and liabilities into U.S. dollars, based on current exchange rates, are
recorded as a separate component of stockholders' equity (deficit) called
"Cumulative Translation Adjustment." Revenues and expenses are translated into
U.S. dollars at average monthly exchange rates. The Canadian dollar has been
determined to be the functional currency for the Company's Canadian subsidiary
and the Netherlands Guilder as the functional currency for the European
subsidiary.
F-9
<PAGE>
<TABLE>
<CAPTION>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Summary of Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," was issued in June 1997. The Company will be required to adopt the new
standard for the fiscal year ending February 27, 1999, although early adoption
is permitted. The primary objective of this statement is to report and disclose
a measure ("Comprehensive Income") of all changes in equity of a company that
result from transactions and other economic events of the period other than
transactions with owners. The Company will adopt this statement in fiscal year
1999 and does not anticipate that the statement will have a significant impact
on its financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information," was issued in June 1997. The Company
will be required to adopt the new standard for the fiscal year ending February
27, 1999, although early adoption is permitted. This statement requires use of
the "management approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments within the
company for making operating decisions and assessing performance. Reportable
segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a
company. The Company will adopt this statement in fiscal year 1999 and does not
anticipate that the adoption of the statement will have a significant impact on
its financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results can differ from those estimates.
4. Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of
$1,108,000 and $936,000 at March 2, 1996 and March 1, 1997, respectively.
F-10
<PAGE>
5. Financing Arrangements
Outstanding borrowings consist of the following (in thousands):
March 2, March 1, November 29,
1996 1997 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Senior Subordinated Notes 97/8% $ -- $ -- $130,000
Bankers Trust Co. and Various Banks Tranche A Term
Loan (weighted average interest rate of 7.72% in
1996, 8.04% in 1997, and 8.24% for the
thirty-nine weeks ended November 29, 1997) 100,000 92,500 $ --
Bankers Trust Co. and Various Banks Tranche B Term
Loan (weighted average interest rate of 9.22% in
1996, 8.54% in 1997, and 8.73% for the
thirty-nine weeks ended November 29, 1997) 55,000 54,450 --
Bankers Trust Co. and Various Banks Revolving Loan
Commitment (weighted average interest rate of
7.40% in 1996 and 8.24% in 1997 and 8.32% for
the thirty-nine weeks ended November 29, 1997) 2,759 -- --
NationsBank and Various Banks Tranche A Term
Loan (interest rate of ___% at November 29, 1997) -- -- 50,000
NationsBank and Various Banks Tranche B Term
Loan (interest rate of ___% at November 29, 1997) -- -- 50,000
NationsBank and Various Banks Revolving Loan
Commitment (interest rate of ___% at November 29, 1997) -- -- 32,855
-------- -------- --------
Total outstanding borrowings 157,759 146,950 262,855
Less current portion:
Revolving loan -- -- 17,855
Tranche A Term Loan 7,500 13,700 3,500
Tranche B Term Loan 550 2,650 1,000
-------- -------- --------
$149,709 $130,600 $240,500
======== ======== ========
</TABLE>
As part of the Recapitalization discussed in Note 1, the Company
entered into a new credit agreement on January 12, 1996 with Bankers Trust Co.
and various banks that consists of a Revolving Loan Commitment of up to
$65,000,000, a Tranche A Term Loan Commitment of $100,000,000 and a Tranche B
Term Loan Commitment of $55,000,000.
The Revolving Loan Commitment period extends to August 31, 2001. The
Company can utilize up to $10,000,000 in letters of credit under this
commitment. As of March 2, 1996 and March 1, 1997, the Company has approximately
$1,531,000 and $1,131,000, respectively, in standby letters of credit
outstanding. Currently, interest is payable at the prime rate plus 1.25% or
LIBOR plus 2.25% at the Company's option.
Borrowings are generally limited to specific percentages of eligible
trade receivables and inventory. The Company pays commitment fees of 1/2 of 1%
per annum on the daily unutilized Revolving Loan Commitment.
The Tranche A Term Loan Commitment period extends to August 31, 2001
with current interest payable at the prime rate plus 1.25% or LIBOR plus 2.25%
at the Company's option. Once repaid, Tranche A Term Loans may not be
reborrowed.
The Tranche B Term Loan Commitment period extends to February 28, 2003
with current interest payable at the prime rate plus 1.75% or LIBOR plus 2.625%
at the Company's option. Once repaid, Tranche B Term Loans may not be
reborrowed.
F-11
<PAGE>
5. Financing Arrangements (continued)
As part of the Recapitalization discussed in Note 14, the Company
entered into a new credit agreement on November 26, 1997 with NationsBank, N.A.,
UBS Securities LLC and Nationsbanc Montgomery Securities, Inc. that consists of
a Working Capital Loan Commitment of up to $75,000,000, a Tranch A Term Loan
Commitment of $50,000,000, a Tranche B Term Loan Commitment of $50,000,000 and
an Acquisition Loan Commitment of $20,000,000.
The Working Capital Loan Commitment period extends to November 26,
2003. The Company can utilize up to $10,000,000 in letters of credit under this
commitment. Currently, interest is payable at the prime rate plus 1.25% or LIBOR
plus 2.25% at the Company's option.
Borrowings are generally limited to specific percentages of eligible
trade receivables and inventory. The Company pays commitment fees of 1/2 of 1%
per annum on the daily unutilized Working Capital Loan Commitment.
The Tranche A Term Loan commitment period extends to November 26, 1003
with current interest payable at the prime rate plus 1.25% or LIBOR plus 2.25%
at the Company's option. Once repaid, Tranche A Term Loans may not be
reborrowed.
The Tranche B Term Loan commitment period extends to November 26, 1003
with current interest payable at the prime rate plus 1.625% or LIBOR plus 2.625%
at the Company's option. Once repaid, Tranche B Term Loans may not be
reborrowed.
The Acquisition Loan commitment period extends to November 26, 2003
with current interest payable at the prime rate plus 1.625% or LIBOR plus 2.625%
at the Company's option. Once repaid, Acquisition Loans may not be reborrowed.
The following table shows the required future repayments under the
Tranche A and Tranche B Terms Loans as of March 1, 1997 (in thousands):
Tranche A Tranche B
Fiscal Year Term Loan Term Loan Total
----------- --------- --------- -----
1998............................ $13,700 $ 2,650 $ 16,350
1999............................ 12,500 550 13,050
2000............................ 15,000 550 15,550
2001............................ 20,000 550 20,550
2002............................ 31,300 19,250 50,550
2003............................ -- 30,900 30,900
- - - - ----- ------- ------- --------
$92,500 $54,450 $146,950
======= ======= ========
Commencing in fiscal 1997, the required annual repayments under the
Tranche A and Tranche B Term Loans are increased by 75% (50% if certain leverage
ratios are met) of any excess cash flows at the end of the fiscal year, as
defined. Under the terms of this provision, the Company is obligated to make
additional payments in fiscal 1998 of $5,800,000 (Tranche A -- $3,700,000 and
Tranche B -- $2,100,000).
F-12
<PAGE>
5. Financing Arrangements (continued)
The Company's management believes the book values of its term loans
approximate market value. Market value is determined based on the effective
interest rate at which the Company could borrow funds with similar remaining
maturities.
The Company purchased an interest rate protection agreement in June
1996 which limits the maximum interest rate payable on the Term Loans to 8%. The
Company is required to purchase an interest rate protection agreement on an
annual basis for 50% of the aggregate outstanding principal amount of its Term
Loans until the aggregate outstanding principal amount is less than $75,000,000.
This credit agreement includes various restrictive covenants which,
among other things, prohibit payment of dividends to common stockholders, set
maximum limits on capitalized lease obligations and capital expenditures,
require minimum consolidated EBITDA (as defined) levels, and set consolidated
interest coverage and leverage ratios. Substantially all of the Company's assets
are pledged under these loan agreements.
Cash payments for interest for the years ended February 25, 1995, March
2, 1996, and March 1, 1997, were $5,425,000, $8,186,000, and $13,656,000,
respectively.
The following table shows the required future repayments under the Tranche
A and Tranche B Terms Loans as of November 29, 1997 (in thousands) and the
Acquisition Loan (percentage):
Tranche A Tranche B Acquisition
Fiscal Year Term Loan Term Loan Total Loan
----------- --------- --------- ----- ----
1998 $ 875 $ 250 $ 1,125 --
1999 4,250 1,000 5,250 --
2000 7,375 1,000 8,375 6.25%
2001 10,000 1,000 11,000 25.00%
2002 10,000 1,000 11,000 25.00%
2003 10,000 1,000 11,000 25.00%
2004 7,500 18,350 25,850 18.75%
2005 -- 26,400 26,400 --
-------- -------- -------- ------
$ 50,000 $ 50,000 $146,950 100.00%
======== ======== ======== ======
Commencing in fiscal 1999, the required annual repayments under the Tranche
A and Tranche B Term Loans are increased by 50% of any excess cash flows at the
end of the fiscal year, as defined.
The Company's management believes the book values of its term loans
approximate market value. Market value is determined based on the effective
interest rate at which the Company could borrow funds with similar remaining
maturities.
This credit agreement includes various restrictive covenants which, among
other things, prohibit payment of dividends to common stockholders, set maximum
limits on capitalized lease obligations and capital expenditures, and set
consolidated interest coverage, fixed charge coverage and leverage ratios.
Substantially all of the Company's assets are pledged under these loan
agreements.
F-13
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
February 25, March 2, March 1,
1995 1996 1997
---- ---- ----
Deferred tax liabilities:
Depreciation and amortization $ 1,861 $2,079 $1,792
Inventory reserves, including LIFO -- -- 146
Other-- net -- -- 35
-- -- --
Total gross deferred tax liabilities 1,861 2,079 1,973
======= ====== ======
Deferred tax assets:
Allowance for doubtful accounts 390 402 324
Inventory reserves, including LIFO 421 72 --
Accrued expenses 1,556 1,147 1,028
Other-- net -- -- 163
-- -- ---
Total gross deferred tax assets 2,367 1,621 1,515
------- ------ ------
Net deferred tax liabilities $ (506) $ 458 $ 458
======= ====== ======
No valuation allowance is necessary as management believes that all
deductible temporary differences will be utilized as charges against reversals
of future taxable temporary differences and future taxable income.
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
Thirty-nine weeks ended
Fiscal year --------------------------
----------- November 30, November 29,
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 9,356 $6,191 $5,821 $6,444 $4,207
State and local 1,758 1,389 1,110 832 1,003
Foreign 210 436 802 1,102 1,352
------- ------ ------ ------ ------
11,324 8,016 7,733 8,378 6,562
Deferred:
Federal (1,066) 855 -- -- (65)
State and local (194) 109 -- -- (13)
------- ------ ------ ------ ------
(1,260) 964 -- -- (78)
------- ------ ------ ------ ------
Total $10,064 $8,980 $7,733 $8,378 $6,484
------- ------ ------ ------ ------
</TABLE>
F-14
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Income Taxes (continued)
The income statement classification of the provision for income taxes
is as follows (in thousands):
<TABLE>
<CAPTION>
Thirty-nine weeks ended
Fiscal year --------------------------
----------- November 30, November 29,
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income tax expense attributable
to continuing operations $10,064 $10,703 $7,733 $8,378 $8,769
Extraordinary item -- (1,723) -- -- (2,285)
------- ------- ------ ------ ------
Total $10,064 $ 8,980 $7,733 $8,378 $6,484
======= ======= ====== ====== ======
</TABLE>
Included in earnings before income tax expense and extraordinary item
for the years ended February 25, 1995, March 2, 1996, and March 2, 1997 are
foreign earnings of $323,000, $747,000, and $1,688,000, respectively.
Undistributed earnings of the Company's foreign subsidiaries amounted
to approximately $1,830,000 at March 1, 1997. Approximately $1,438,000 of those
earnings are considered to be indefinitely reinvested and, accordingly, no
provision for U.S. federal and state income taxes has been provided thereon.
Upon distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (net of foreign tax credits)
and withholding taxes payable to the various foreign countries. In the event
that these indefinitely reinvested earnings were distributed, it is estimated
that U.S. federal and state income taxes, net of foreign tax credits of
approximately $564,000, would be due.
The effective income tax rate differs from the statutory rate as
follows (in thousands):
<TABLE>
<CAPTION>
Thirty-nine weeks ended
Fiscal year --------------------------
----------- November 30, November 29,
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax at statutory
rate $ 8,143 $ 8,822 $6,457 $6,996 $6,653
State income tax, net of Federal
benefit 1,017 974 722 541 645
Foreign income taxes 97 436 212 446 784
Other-- net 807 471 342 395 687
--- --- --- --- ---
Provision for income taxes $10,064 $10,703 $7,733 $8,378 $8,769
======= ======= ====== ====== ======
</TABLE>
Cash payments for income taxes for the years ended February 25, 1995,
March 2, 1996, and March 1, 1997 were $10,344,000, $8,174,000, and $7,387,000,
respectively.
7. Stockholders' Equity
Preferred Stock
Prior to the Recapitalization (see Note 1), the Company was authorized
to issue 2,000,000 shares of Preferred Stock of which 465,000 shares were
designated Series A variable rate cumulative Preferred Stock and 265,000 shares
were designated Series B variable rate cumulative Preferred Stock. The issued
shares were nonvoting.
F-15
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. Stockholders' Equity (continued)
Series A and B Preferred Stock
The holders of Series A variable rate cumulative Preferred Stock
("Series A") and the holders of Series B variable cumulative Preferred Stock
("Series B") were entitled, until redemption, to receive quarterly dividends at
various rates, as defined, of the stated value per share.
Preferred dividends accrued for fiscal 1995 and 1996 were $899,925 and
$853,100 which were paid in 25,833 and 24,888 shares of Series A and 10,164 and
9,236 shares of Series B, respectively.
As part of the Recapitalization transactions discussed in Note 1, the
Company redeemed and canceled the outstanding shares of Series A and Series B,
in whole, at a price equal to the stated value per share plus the dividends
which were accrued and unpaid but not added to the stated value.
Stock Option Plan
In March 1994, the Company established the 1994 Stock Option Plan which
terminates in ten years and provides for the issuance of incentive stock options
or nonqualified stock options for 1,169,261 shares of common stock. The stock
options may be granted to key employees or eligible nonemployees, as defined, as
determined by the Option Committee of the Board of Directors, and the term of
the options cannot exceed ten years from the grant date. The exercise price of
the incentive options shall be equal to or greater than the fair market value of
the common stock on the date of grant, and the exercise price of the
nonqualified options is determined by the Option Committee.
The Company adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock Based Compensation," during fiscal 1997.
SFAS 123 requires the Company to either adopt a fair value based method of
expense recognition for all stock based compensation awards, or provide pro
forma net income information as if the recognition and measurement provisions of
SFAS 123 had been adopted. The Company decided to account for its stock based
compensation awards following the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"). APB 25 requires compensation expense to be recognized
only if the market price of the underlying stock exceeds the exercise price on
the date of grant. The Company's stock based awards consist of stock options
with an exercise price equal to market price on the date of grant. As such, the
Company has not recorded compensation expense in connection with these awards.
The effect of applying the SFAS 123 fair value method to the Company's stock
based awards results in net income that is not materially different from the
amount reported.
In fiscal 1995, 1996 and 1997, the Company issued options to purchase
871,876 shares, 75,000 shares, and 215,000 shares, respectively, of common
stock, of which 176,000 incentive options, 51,000 incentive options, and 15,000
incentive options, respectively, vest in three equal annual installments
commencing on the first anniversary date. The remaining 200,000 incentive
options issued in fiscal 1997, 24,000 incentive options issued in fiscal 1996,
and 695,876 nonqualified options issued in fiscal 1995 vest immediately upon
grant.
F-16
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
7. Stockholders' Equity (continued)
The following is a summary of transactions:
Number
of Shares
---------
<S> <C>
Non qualified options:
Outstanding at February 26, 1994 --
Granted in 1995 at $1.00 per share 695,876
Exercised in 1995 at $1.00 per share (695,876)
--------
Outstanding at February 25, 1995 --
========
Incentive options:
Outstanding at February 26, 1994 --
Granted on April 1, 1994 at $1.00 per share 176,000
Forfeited in 1995 at $1.00 per share (12,000)
--------
Outstanding at February 25, 1995 at $1.00 per share 164,000
Granted on June 1, 1995 at $2.99 per share 24,000
Exercised in 1996 at $1.00 per share (144,000)
Exercised in 1996 at $2.99 per share (24,000)
Forfeited in 1996 at $1.00 per share (20,000)
Granted on February 22, 1996 at $1.00 per share 51,000
--------
Outstanding at March 2, 1996 at $1.00 per share 51,000
Granted on March 11, 1996 at $1.00 per share 100,000
Granted on May 21, 1996 at $1.00 per share 100,000
Granted on August 1, 1996 at $1.00 per share 15,000
Exercised in 1997 at $1.00 per share (210,000)
--------
Outstanding at March 1, 1997 at $1.00 per share 56,000
Granted on April 1, 1997 at $2.00 per share (Unaudited) 21,000
Granted on August 25, 1997 at $2.00 per share (Unaudited) 28,385
Exercised in 1997 at $1.00 per share (Unaudited) (5,000)
Exercised on November 26, 1997, including 51,000 options at
$1.00 per share (Unaudited) (51,000)
Exercised on November 29, 1997, including 49,385 options at $2.00 per share
(Unaudited) (49,385)
--------
Outstanding at November 29, 1997 0
========
</TABLE>
Shares Reserved for Issuance
At February 25, 1995, March 2, 1996, and March 1, 1997, 473,385 shares, 305,385
shares and 95,385 shares, respectively, of common stock were reserved for the
exercise and future grants of stock options. At February 25, 1995, March 2,
1996, and March 1, 1997, 1,781,557 shares of common stock were reserved for
issuance upon conversion of the nonvoting common stock.
F-17
<PAGE>
8. Pension Plans
All eligible salaried employees are covered by a defined contribution
plan ("401K"). After an employee has been employed for six months, the Company
contributes 2% of their salary. The Company matches an additional 50% of
participant contributions up to a maximum contribution of 1%. The cost of this
plan was $213,000, $260,000, and $299,000 for the fiscal years ended February
25, 1995, March 2, 1996, and March 1, 1997, respectively.
The Company has a defined benefit pension plan covering substantially all of its
industrial employees. The defined benefits are based on a service multiplier
that is multiplied by years of credited service. The Company's funding policy is
consistent with the requirements of federal laws and regulations.
Assets of the 401K and deferred benefit pension plans are invested in
securities of governmental agencies, common stocks, and insurance contracts.
A summary of the Company's net periodic pension cost related to the
defined benefit plan for fiscal years 1995, 1996, and 1997 is as follows (in
thousands):
Fiscal Year
-----------
1995 1996 1997
---- ---- ----
Service cost -- benefits earned during the
period $ 54 $ 92 $ 85
Interest cost on projected benefit obligation 90 110 136
Actual gain on plan assets 22 (251) (257)
Net amortization (105) 168 141
----- ----- -----
Net pension cost $ 61 $ 119 $ 105
===== ===== =====
The following table sets forth the funded status of the Company's
defined benefit plan and the amount recognized in the Company's consolidated
balance sheets as of March 2, 1996 and March 1, 1997 (in thousands):
1996 1997
---- ----
Actuarial present value of accumulated benefit obligation:
Vested obligation $ 1,523 $ 1,764
Unvested obligation 42 60
------- -------
Accumulated benefit obligation 1,565 $ 1,824
Future benefit increases 94 54
Projected benefit obligation $ 1,659 $ 1,878
======= =======
Plan assets at fair market value $ 1,573 $ 2,081
Projected benefit obligation 1,659 1,878
------- -------
Excess (deficiency) of plan assets over projected benefit
obligation (86) 203
Unrecognized net loss 209 122
Unrecognized net obligation 214 188
------- -------
Prepaid asset $ 337 $ 513
======= =======
F-18
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Pension Plans (continued)
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.25% and 8.00%,
respectively, for fiscal years 1996 and 1997. The expected long-term rate of
return on plan assets for fiscal years 1996 and 1997 was 9%. The impact in
fiscal year 1997 of the change in the weighted average discount rate used was to
increase the projected benefit obligation by approximately $28,000. Such change
in the weighted average discount rate used will impact the determination of the
net periodic pension cost in fiscal 1998.
9. Foreign Exchange Contracts
At March 1, 1997, the Company had forward exchange foreign currency
contracts, with maturities ranging from April 1997 to December 1997, to purchase
approximately $6.8 million in foreign currencies to cover future payments to
component suppliers. The carrying values of forward exchange foreign currency
contracts approximate their estimated fair values.
10. Lease Commitments
The Company leases certain machinery, office and manufacturing
facilities for periods up to five years under operating lease agreements. Total
rent expense for fiscal 1995, and 1996 and 1997 was approximately $665,000,
$1,336,000, and $1,624,000, respectively. Future minimum lease payments under
all noncancellable operating leases at March 1, 1997 are as follows (in
thousands):
Fiscal years ending:
1998................................................... $ 1,316
1999................................................... 1,195
2000................................................... 701
2001................................................... 298
2002................................................... 231
Thereafter............................................. 430
-------
Total minimum lease payments............................. $ 4,171
=======
11. Other Assets
Other assets consist of the following (in thousands):
March 2, March 1,
1996 1997
---- ----
Investment in joint venture $ 550 $ 550
Deferred financing costs 5,511 4,535
Other 122 356
------ ------
$6,183 $5,441
====== ======
In connection with the Recapitalization in January 1996 (see Note 1),
the Company charged to income the unamortized balance of deferred financing
costs of the Old Term Loans and other related expenditures of $4,361,000 and
recorded a tax benefit of $1,723,000 (net amount of $2,638,000 is reflected as
an extraordinary item). The financing costs incurred in connection with the 1996
Recapitalization, which are shown above net of amortization, have been
capitalized and are being amortized over the term of the new debt.
F-19
<PAGE>
DESA HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Foreign Operations
The accompanying consolidated financial statements include the
following amounts related to the Company's foreign operations in Canada and
Europe (in thousands):
Fiscal Year
1995 1996 1997
---- ---- ----
Total assets $ 3,484 $ 3,211 $ 4,121
Total liabilities 1,885 1,202 1,228
Net sales 8,601 11,160 17,188
Operating profit 435 953 1,695
13. Related Party Transactions
The Company entered into a monitoring and oversight agreement dated as
of December 1, 1993 pursuant to which Hicks Muse has provided financial advisory
services to the Company in connection with the negotiation and financing of the
Restructuring and will continue to provide financial advisory services to the
Company in the future. The term of this agreement is for three years and will
continue from year to year thereafter unless terminated by either party. As
compensation for such services, the Company will pay Hicks Muse a fee of $25,000
per quarter together with all reasonable expenses incurred in connection
therewith. This fee will be increased or decreased each fiscal year based on a
specified percentage of sales, as defined, but not less than $100,000 per annum.
Under this agreement, Hicks Muse was paid $114,000, $189,000 and $211,000 in
fiscal years 1995, 1996, and 1997, respectively.
14. Subsequent Events (Unaudited)
J.W. Childs Equity Partners, L.P. ("Childs") has entered into a Stock
Purchase Agreement dated as of October 8, 1997 with the Company and its
stockholders (the "Recapitalization Agreement"). Pursuant to the
Recapitalization Agreement, Childs and its affiliates are to acquire
approximately 90% of the equity interests in the Company. The Company will issue
new Common Stock and Redeemable Preferred Stock to Childs and its affiliates in
exchange for aggregate consideration of $91.4 million. The Company will use such
proceeds together with a portion of the proceeds borrowed under a new term loan,
acquisition, and revolving credit facility (the "New Credit Facility") with
NationsBank, N.A. ("NationsBank"), as administrative agent, to purchase a
portion of its outstanding common stock in a transaction intended to be
accounted for as a recapitalization (the "Recapitalization"). In connection with
the Recapitalization, the Company will enter into certain financing
transactions. Additional borrowings under the New Credit Facility, together with
the proceeds from the offering and issuance by the Company's subsidiary, DESA
International, Inc. ("International"), of $130,000,000 aggregate principal
amount of Senior Subordinated Notes, will be used by International to refinance
its existing indebtedness.
As of January 12, 1998, the Company entered into an agreement for the
acquisition of the Heath-Zenith business of Heath Holding Corp.However, no
assurances can be given that the acquisition will be ultimately consummated.
Heath-Zenith, headquartered in Benton Harbor, is the leading North American
manufacturer and marketer of residential motion sensor "security" lighting
products sold primarily to DIY retail home centers.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Heath Company
Benton Harbor, Michigan
We have audited the accompanying balance sheet of Heath Company (a wholly-owned
subsidiary of Heath Holding Corp.) (excluding Heathkit Division) and subsidiary
as of December 31, 1996, and the related statement of operations, shareholders'
equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Heath Company (a wholly-owned subsidiary of
Heath Holding Corp.) (excluding Heathkit Division) and subsidiary as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
April 24, 1997 (December 12, 1997 as to Note 10)
F-20
<PAGE>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY (A WHOLLY-OWNED
SUBSIDIARY OF HEATH HOLDING CORP.)
BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash $ 129
Accounts receivable:
Trade (net of allowances for doubtful accounts
and customer returns of $399) 6,105
Other 69
Inventories 12,197
Prepaid expenses 273
Deferred income taxes benefit 1,937
--------
Total current assets 20,710
PROPERTY, PLANT AND EQUIPMENT - NET 1,006
DEFERRED INCOME TAXES BENEFIT 1,904
--------
TOTAL ASSETS $ 23,620
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 7,130
Trade accounts payable 4,716
Payable to affiliate 1,426
Accrued expenses:
Warranty 1,292
Compensation and benefits 394
Merchandising programs 1,261
Settlements and other 2,370
--------
Total accrued expenses 5,317
Current maturities of long-term debt 221
--------
Total current liabilities 18,810
LONG-TERM DEBT, less current maturities 498
NEGATIVE GOODWILL, net of amortization of $286 1,755
MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY 3
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share - voting, 2,500
shares authorized; 1,500 shares issued and outstanding, 54
shares in treasury 15
Additional paid-in capital 1,485
Retained earnings 1,071
Foreign currency translation adjustment (17)
--------
Total shareholders' equity 2,554
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 23,620
========
See notes to financial statements.
F-21
<PAGE>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY (A WHOLLY-OWNED
SUBSIDIARY OF HEATH HOLDING CORP.)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
NET SALES $ 44,415
COST OF GOODS SOLD 34,758
--------
GROSS PROFIT 9,657
OPERATING EXPENSES 7,837
--------
INCOME FROM OPERATIONS 1,820
OTHER EXPENSE - SETTLEMENTS AND OTHER - NET 2,696
--------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
MINORITY INTEREST IN NET INCOME
OF SUBSIDIARY (876)
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY 6
--------
LOSS BEFORE PROVISION FOR INCOME TAXES (882)
PROVISION FOR INCOME TAXES (312)
--------
NET LOSS $ (570)
========
See notes to financial statements.
F-22
<PAGE>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY (A WHOLLY-OWNED
SUBSIDIARY OF HEATH HOLDING CORP.)
<TABLE>
<CAPTION>
STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
Foreign
Additional Currency
Common Paid-In Retained Translation
Stock Capital Earnings Adjustment Total
----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 15 $1,485 $1,641 $ (17) $3,124
Net Loss (570) (570)
---- ------ ------ ------ ------
BALANCE, DECEMBER 31, 1996 $ 15 $1,485 $1,071 $ (17) $2,554
==== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-23
<PAGE>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY (A WHOLLY-OWNED
SUBSIDIARY OF HEATH HOLDING CORP.)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (570)
Adjustments to reconcile net loss to net cash used in operating activities:
Allocation of Corporate income/expense - net (879)
Amortization of negative goodwill (149)
Depreciation 295
Gain on sale of equipment (1)
Deferred income taxes (312)
Minority interest in net income of subsidiary 6
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable (1,211)
Inventories (4,577)
Prepaid expenses (19)
Trade accounts payable 2,581
Payable to affiliate 1,173
Accrued expenses 2,457
-------
Net cash used in operating activities (1,206)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of equipment and tooling (477)
Proceeds from sales of equipment 7
-------
Net cash used in investing activities (470)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable (line-of-credit) 2,230
Repayment of subordinated debt (250)
Payments on long-term debt (221)
-------
Net cash provided by financing activities 1,759
-------
NET INCREASE IN CASH 83
CASH AT BEGINNING OF YEAR 46
-------
CASH AT END OF YEAR $ 129
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the year for interest $ 566
=======
</TABLE>
See notes to financial statements.
F-24
<PAGE>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY (A WHOLLY-OWNED
SUBSIDIARY OF HEATH HOLDING CORP.)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Heath Company, which is wholly owned by Heath
Holding Corp., consists of the Heath Zenith ("Heath Zenith") division and
the HeathKit ("Heathkit") division. Heath Company owns 99.5% of Heath
Limited which is located in Hong Kong with assets of approximately $4.6
million. The Heath Zenith division, located in Benton Harbor, Michigan is
engaged in the distribution of motion-senor lighting products and wireless
home-control devices. Heath Limited is engaged in the importing and
exporting of electronic components, parts and accessories, and the
supervision of manufacturing of electronic components, parts and
accessories carried out by sub-contractors. All of Heath Limited's sales
are to Heath Zenith. The customers of the Heath Zenith division are located
throughout the United States and Canada.
Heath Acquisition Corp. was formed in December 1994, solely for the purpose
of acquiring the outstanding common stock of Heath Company, a non
affiliated Company. In January 1995, Heath Acquisition Corp. acquired Heath
Company. Subsequently, Heath Acquisition Corp. amended its name to Heath
Holding Corp.
Basis of Presentation - The financial statements include the accounts of
Heath Zenith and Heath Limited. All significant intercompany transactions
have been eliminated.
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 disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Although management believes the
estimates are reasonable, actual results could differ from those estimates.
Payable to affiliate - Represents the payable to Heathkit.
Inventories - Inventories are carried at the lower of cost (first-in,
first-out method) or market.
Property, Plant and Equipment - Is recorded at cost. Depreciation is
computed by the straight-line method based on the estimated useful lives of
the related assets ranging from 2 to 20 years. Expenditures for maintenance
and repairs are charged to expense as incurred.
Taxes on Income - Deferred income tax assets and liabilities are computed
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future. Such deferred income tax asset and liability computations are based
on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Heath Company and Heath Limited are separate taxable entities. A portion of
the deferred tax asset benefit attributable to Heath Company was allocated
to the accounts of Heath Zenith based on the differences between the
financial statement and tax bases of the assets and liabilities of Heath
Zenith. Also included in the deferred tax asset benefit are amounts
attributable to Heath Limited. The provision for income taxes was allocated
to Heath Zenith based on the effective income tax rate of Heath Company.
Deferred tax assets attributable to net operating loss (NOL's)
carryforwards available to Heath Company have been allocated 100% to Heath
Zenith. No benefit related to future utilization of NOL's has been
allocated to Heathkit.
Negative Goodwill - Negative goodwill was allocated to the accounts of
Heath Zenith and Heath Limited based on the values of the assets and
liabilities attributable to Heath Zenith and Heath Limited on January 25,
1995 (date of acquisition) and is being amortized on a straight-line basis
over fifteen years.
F-25
<PAGE>
Foreign Currency Translation - The functional currency for the Heath Zenith
foreign operations is the Hong Kong dollar. The translation from Hong Kong
dollars is performed for balance sheet accounts using current exchange
rates in effect at the date of the balance sheet date and for revenue and
expense accounts using an average exchange rate during the period. The
gains or losses resulting from such translation are included as a separate
component of shareholder's equity. Gains or losses from foreign currency
transactions were not material during the year ended December 31, 1996 and
are reflected in income from operations.
Revenue Recognition - Sales are recognized at the time product is shipped.
Returns, including "destroy-in-field" items, are netted against sales and
amounted to approximately $2,707,000 for the year ended December 31, 1996.
Research and Development Costs - Such costs are expensed as incurred and
are included in operating expenses in the accompanying statement of income.
Research and development costs incurred for the year ended December 31,
1996 were approximately $1,100,000.
Corporate Allocations - Interest expense, management fees (see Note 8) and
general and administrative expenses have been allocated to Heath Zenith.
Heath Company's bank debt is currently recorded on the accounts of Heath
Zenith. An allocation of interest expense was made to Heathkit based on the
average receivable balance from the division and Heath Company's borrowing
rate (see Note 4). Management fees were allocated to Heath Zenith based on
the division's sales as a % of total Heath Company sales volume. General
and administrative expenses, consisting primarily of salaries for corporate
support functions and occupancy costs are allocated based on estimates of
time attributable to the division and square footage, respectively. Other
administrative expenses have been allocated based on a budget formula that
was agreed upon by management at the beginning of the year.
2. INVENTORY
Inventory at December 31 consisted of the following (in thousands):
Raw materials $ 690
Work-in-process 2,944
Finished goods 8,563
--------
Total $12,197
========
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consisted of the following (in
thousands):
Buildings and improvements $ 688
Machinery and equipment 1,194
Tooling 251
Construction in progress
------
2,133
Less accumulated depreciation 1,127
------
Total $1,006
======
F-26
<PAGE>
4. NOTE PAYABLE
Heath Company has a loan agreement (the "Agreement") with a bank which
provides a revolving line of credit and a term loan (see Note 5). Terms of
the Agreement include certain restrictions on expenditures for property and
operating leases. The Company is also required to maintain minimum levels
of working capital and net worth, along with certain financial ratios
measured annually. Borrowings under the agreement are collateralized by
substantially all assets of the Company.
The revolving line of credit has a maximum borrowing commitment of $11
million and is subject to a borrowing formula. The line of credit agreement
requires the payment of interest at the bank prime rate or base lending
rate, plus 1% (9.25% at December 31, 1996) or the LIBOR rate, plus 3.00%
(8.62% at December 31, 1996). The line of credit expires January 26, 1998.
The agreement also provides for letters of credit up to $3 million. No
advances were taken against the letters at December 31, 1996.
<TABLE>
<CAPTION>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<S> <C>
Term notes payable to bank - payable in monthly installments of $12, plus
interest at 1.25% over the prime rate (9.50% at December 31, 1996) or
LIBOR rate plus 3.25% (8.62%
at December 31, 1996) through January 1998 $ 719
Less current portion 221
-----
Total long-term debt $ 498
=====
The annual aggregate maturities of long-term debt at December 31, 1996, are
as follows (in thousands):
1997 $ 221
1998 498
-----
Total $ 719
=====
</TABLE>
6. RETIREMENT
Heath Company has a 401(k) defined contribution profit sharing plan
covering substantially all employees. The Company has the option to make
matching contributions at the discretion of management. The Company
contributed approximately $41,000 on behalf of Heath Zenith employees
during the year ended December 31, 1996.
<TABLE>
<CAPTION>
7. FEDERAL INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<S> <C>
Current tax liability $ 180
Benefit of operating loss carryforward (180)
Deferred tax credit (312)
--------
Provision for income taxes $ (312)
========
</TABLE>
F-27
<PAGE>
The effective tax rate on income differs from the federal statutory rate
primarily due to state income taxes and non-taxable amortization of
negative goodwill.
Deferred tax assets resulting from temporary differences are as follows at
December 31 (in thousands):
Deferred Tax
Assets
-----------------------
(In Thousands)
-----------------------
Current Non Current
------- -----------
Accounts receivable $ 136
Inventory 248
Settlements 620
Accrued warranty 438
Accrued promotional allowances 429
Accrued vacations 48
Fixed assets $1,056
Net operating loss 1,063
All other 18 23
------ ------
Subtotal 1,937 2,142
Less - valuation allowance -- 238
------ ------
Total $1,937 $1,904
====== ======
The Company has net operating loss carryforwards of approximately
$2,100,000 available to offset future taxable income. Of the total net
operating loss carryforward amount, $1,343,000 expires at a rate of
$133,000 each year for the next 10 years, while the remainder expires in 15
years.
8. RELATED PARTY TRANSACTIONS
The Company is required to pay $21,000 per month to HIG Capital Management,
Inc., a majority shareholder, for management services. During the year
ended December 31, 1996 the Company paid approximately $250,000 of which
approximately $217,000 was allocated to Heath Zenith.
9. MAJOR CUSTOMER TRANSACTIONS
Sales to one customer approximated $21.7 million for the year ended
December 31, 1996. Accounts receivable from this customer approximated $2.9
million at December 31, 1996.
10. LITIGATION
On November 18, 1997, Heath Company reached a settlement in a case
involving the Company as both a defendant and plaintiff, concerning alleged
patent infringement. The cases were initiated prior to December 31, 1996.
The settlement resulted in the Company paying a net amount of $1.825
million, for which the parties received certain licenses and covenant not
to sue rights. The Company believes the license received is of nominal
future value and, therefore the settlement amount has been recorded as an
expense and accrued as a liability in the 1996 financial statements. During
1996, the Company incurred other costs of approximately $1.1 million
related to the lawsuit.
Heath Company has received notification of other possible patent
infringements, none of which is currently in litigation. The Company
believes it has no material liability for which it is alleged that
infringement of patents has occurred, however, the ultimate outcome cannot
be determined at this time.
F-28
<PAGE>
Heath Company's insurance company has received notification of litigation
claim surrounding product liability. The insurance company's attorneys and
management of the Company has evaluated the circumstances surrounding the
case and believe it has no merit. In management's opinion, additional
liability in excess of insurance coverages, if any, will not have a
material affect on the Company's results of operations, financial position
or liquidity.
11. STOCK OPTION PLAN
During 1995, the Company's Board of Directors approved the "1995 stock
option plan." The plan allows eligible employees, as selected by the plan
administrator, to receive options to purchase shares of common stock at a
price determined by the administrator, but not less than the fair market
value at date of grant. The maximum term of an option may not exceed 10
years. There are 300,000 shares reserved under the plan. Transactions under
the plan are summarized as follows:
Shares Price Range
Options outstanding at January 26, 1995 191,000 $1.00
Options granted 5,000 $1.00-$1.10
-----------
Options outstanding at December 31, 1995 196,000 $1.00-$1.10
Options granted 4,000 $7.00
Options terminated (1,000) $1.00-$1.10
-----------
Options outstanding at December 31, 1996 199,000 $1.00-$7.00
===========
Subsequent to year-end, 2,000 of the options granted in 1996 were
terminated and the exercise price of the remaining 2,000 options granted in
1996 was revised to $1.00.
Statement of Financial Accounting Standards ("SFAS") No. 123 became
effective for the Company during 1996. The Company has elected to continue
to follow the "Intrinsic Value" method of Accounting Principles Board
opinion No. 25 ("APB 25") and include the required disclosures under SFAS
123. Stock options granted did not have a material affect on the Company's
financial position or results of operations.
12. SERIES A PREFERRED STOCK
The Company has authorized 500,000 shares of Series A Preferred Stock at a
par value of $1.00. The shares contain both voting and conversion rights.
Each share of Series A Preferred Stock is convertible, at any time at the
option of the holder, into shares of Common Stock. Additionally, Series A
Preferred Stock will be automatically converted to Common Stock upon the
occurrence of the closing of an underwritten public offering or upon the
conversion by the holders of eighty percent of the then issued and
outstanding shares of the Series A Preferred Stock into shares of Common
Stock. No preferred shares were outstanding at December 31, 1996 and
December 31, 1995.
F-29
<PAGE>
<TABLE>
<CAPTION>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF HEATH HOLDING CORP.)
BALANCE SHEET (unaudited)
5 October 1997
(IN THOUSANDS)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 131
Accounts receivable:
Trade (net of allowance for doubtful accounts and customer returns) 8,268
Other 1,079
Inventories 10,539
Prepaid expenses 160
Deferred income taxes benefit 1,561
-------
Total current assets 21,738
PROPERTY, PLANT AND EQUIPMENT - NET 1,040
DEFERRED INCOME TAXES BENEFIT 1,561
-------
TOTAL ASSETS $24,339
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 7,160
Trade accounts payable 3,307
Payable to affiliate 1,273
Accrued expenses:
Warranty 1,459
Compensation and benefits 512
Merchandising programs 1,411
Settlements and other 2,739
-------
Total accrued expenses 6,121
Current maturities of long-term debt 221
-------
Total current liabilities 18,082
LONG-TERM DEBT, less current maturities 313
NEGATIVE GOODWILL, net of amortization) 1,651
MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY --
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share - voting, 2500 shares authorized; 1,500
shares issued and outstanding, 54 shares in treasury 15
Additional paid-in-capital 1,485
Retained Earnings 2,793
Foreign currency translation adjustment
-------
Total shareholders' equity 4,293
-------
TOTAL LIABILITIES AND SHARHOLDERS' EQUITY $24,339
=======
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF HEATH HOLDING CORP.)
STATEMENT OF OPERATIONS (unaudited)
Thirty-nine Weeks Ended October 5, 1997 and September 29, 1996
(In thousands)
Thirty-nine Weeks Ended
---------------------------------------------
September 29, 1996 October 5, 1997
-------------------- ---------------------
<S> <C> <C>
NET SALES 30,723 $41,151
COST OF GOODS SOLD 23,937 31,409
------- -------
GROSS PROFIT 6,786 9,742
OPERATING EXPENSES 5,942 6,256
------- -------
INCOME FROM OPERATIONS 844 3,486
OTHER EXPENSE 676 1,012
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST IN NET INCOME
OF SUBSIDIARY 168 2,474
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY 5 5
------- -------
GAIN/(LOSS) BEFORE PROVISION FOR INCOME TAX 163 2,469
PROVISION FOR INCOME TAX 28 728
------- -------
NET INCOME / (LOSS) $ 135 $ 1,741
======= =======
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF HEATH HOLDING CORP.)
STATEMENT OF CASH FLOWS (unaudited)
Thirty-nine Weeks Ending October 5, 1997 and September 29, 1996
(In thousands)
Thirty-nine weeks ending
---------------------------
September October 5,
29, 1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 135 $ 1,741
Adj. to reconcile net income to net cash used in operating activities:
Amortization of negative Goodwill (113) (106)
Depreciation 256 351
(Gain) Loss on sale of equipment -- (1)
Deferred income taxes 253 720
Changes in operating assets and liabilities that provided (used) cash:
Accounts Recievable (987) (3,173)
Payable to affiliate 210 (156)
Inventories 1,208 1,658
Prepaid Expenses 3 113
Trade Accounts Payable (444) (1,409)
Accrued Expenses 301 803
------- -------
Net cash used in operating activities 822 541
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and tooling (389) (386)
Proceeds from sales of equipment -- 2
------- -------
Net cash provided by financing activities (389) (384)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable (line of credit) (265) 30
Repayment of subordinated debt -- --
Payments on long-term debt (166) (185)
------- -------
Net cash provided by financing activities (431) (155)
NET INCREASE / (DECREASE) IN CASH 2 2
CASH AT BEGINNING OF FISCAL YEAR 30 129
------- -------
CASH AT PERIOD END $ 32 $ 131
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for Interest $ 566 $ 587
</TABLE>
See notes to financial statements
DISCLOSURE: As of December 1995, balance sheet accounts were not accounted
for on a divisional basis. Therefore, figures above were
derived utilizing estimated balance sheet accounts for
Heath-Zenith at December 1995.
F-32
<PAGE>
<TABLE>
<CAPTION>
HEATH COMPANY (EXCLUDING HEATHKIT DIVISION) AND SUBSIDIARY
(A WHOLLY-OWNED SUBSIDIARY OF HEATH HOLDING CORP.)
STATEMENT OF SHAREHOLDERS' EQUITY (unaudited)
Thirty-nine Weeks Ended October 5, 1997 and September 29, 1996
(In thousands)
Foreign
Additional Currency
Common Paid-In Retained Translation
Stock Capital Earnings Adjustment Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $15 $1,485 $1,641 ($17) $3,124
Net Income 135 135
----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 29, 1996 $15 $1,485 $1,776 ($17) $3,259
=========== =========== =========== =========== ===========
BALANCE, JANUARY 1, 1996 $15 $1,485 $1,071 ($17) $2,554
Net loss 1,741 (2) 1,739
----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 5, 1997 $15 $1,485 $2,812 ($19) $4,293
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-33
<PAGE>
DESA INTERNATIONAL, INC.
REGISTRATION STATEMENT ON FORM S-4
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that in the case of a non-derivative action, any person made a party
to any action by reason of the fact that he is or was a director, officer,
employee or agent of the Company may and, in certain cases, must be indemnified
by the Company against, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorney's fees), if in either type of action he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. In a derivative action, this
indemnification does not apply to matters as to which it is adjudged that the
director, officer, employee or agent is liable to the Company, unless upon court
order it is determined that, despite such adjudication of liability, but in view
of all the circumstances of the case, he is fairly and reasonably entitled to
indemnity for expenses.
Article Tenth of the Company's Certificate of Incorporation states that the
Company shall indemnify any person who was, is, or is threatened to be made a
party to a proceeding by reason of the fact that the or she (i) is or was a
director or officer of the Company or (ii) while a director or officer of the
Company, is or was serving at the request of the Company as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
or another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the DGCL, as the same exists or may hereafter be
amended.
Item 21. Exhibits and Financial Statement Schedules.
Listed below are the exhibits which are filed as part of this registration
statement (according to the number assigned to them in Item 601 of Regulation
S-K).
<TABLE>
<CAPTION>
Exhibit No. Description of Document Exhibit File No.
- - - - ----------- ----------------------- ----------------
<S> <C> <C>
2.1 Recapitalization Agreement, dated as of October 8, 1997, among J.W. 2.1
Childs Equity Partners, L.P., Desa Holdings Corporation and each
Stockholder of Desa Holdings Corporation named therein
2.2 Stock Purchase Agreement, dated as of January 12, 1998, by and among 2.2
Heath Holding Corp., its Shareholders and Optionholders and the Company
3.1 Articles of Incorporation of the Company 3.1
3.1A Articles of Incorporation of Desa Holdings Corporation 3.1A
3.2 By-laws of the Company 3.2
3.2A By-laws of Desa Holdings Corporation 3.2A
4.1 Indenture, dated as of November 26, 1997, by and among the Company, 4.1
Holdings and Marine Midland Bank relating to $130,000,000 of the
Company's 97/8% Senior Subordinated Notes Due 2007
4.2 Registration Rights Agreement, dated as of November 26, 1997 by and 4.2
among the Company, Holdings, NationsBanc Montgomery Securities,
Inc. and UBS Securities LLC
II-1
<PAGE>
<CAPTION>
Exhibit No. Description of Document Exhibit File No.
- - - - ----------- ----------------------- ----------------
<S> <C> <C>
4.3 Purchase Agreement, dated as of November 21, 1997, by and among the 4.3
Company, Holdings, NationsBanc Montgomery Securities, Inc. and UBS
Securities LLC
4.4 Global Note Payable to CEDE & Co. 4.4
4.5 Holdings Guarantee 4.5
5 Opinion of Sullivan & Worcester LLP *
10.1 Credit Agreement, dated as of November 26, 1997 by and among the
Company, Holdings, NationsBank, N.A., UBS Securities LLC and
NationsBanc Montgomery Securities, Inc. 10.1
10.2 Management Incentive Plans of the Company, dated March 1, 1997 10.2
10.3 Sales Compensation and Incentive Plan of the Company for FY 1998 10.3
10.4 Services Agreement between the Company and Hamilton Ryker 10.4
Company
10.5 Services Agreement between the Company and Manpower Services 10.5
10.6 Manufacturer's Representative Agreement between the Company and 10.6
Sales & Marketing Specialists
10.7 Manufacturer's Representative Agreement between the Company and 10.7
The Upper Midwest Group
10.8 Manufacturer's Representative Agreement between the Company and 10.8
Marketing Consultants, Inc.
10.9 Manufacturer's Representative Agreement between the Company and 10.9
Belmont Enterprises, Inc.
10.10 Manufacturer's Representative Agreement between the Company and 10.10
Kitchin & Son, Inc.
10.11 Manufacturer's Representative Agreement between the Company and 10.11
Hurley Marketing Services
10.12 Manufacturer's Representative Agreement between the Company and 10.12
Marketing Services Group
10.13 Manufacturer's Representative Agreement between the Company and 10.13
Sales Managers, Inc.
10.14 Manufacturer's Representative Agreement between the Company and 10.14
Manufacturers Products, Inc.
10.15 Intellectual Property Agreement between the Company and Worgas 10.15
Bruciatori SRL dated December 1, 1996
10.16 Intellectual Property Agreement between the Company and Valor 10.16
Limited dated May 21, 1996
10.17 Intellectual Property Agreement between the Company and Remington 10.17
Arms Company dated August 29, 1969
10.18 Intellectual Property Agreement between the Company and Remington 10.18
Arms Company dated January 29, 1988
10.19 Lease Agreement between the Company and Shelbyville Industrial Spec. *
Building - WRS Partnership
10.20 Agreement to produce and sell finished goods between the Company and *
Tangible/Shinn Fu
II-2
<PAGE>
<CAPTION>
Exhibit No. Description of Document Exhibit File No.
- - - - ----------- ----------------------- ----------------
<S> <C> <C>
10.21 Agreement to produce and sell finished goods between the Company and 10.21
BYSE
10.22 Agreement to produce and sell finished goods between the Company and 10.22
NU-TEC
10.23 Agreement to produce and sell finished goods between the Company and 10.23
International Pin
10.24 Agreement to produce and sell finished goods between the Company and 10.24
Kingsman Industries
10.25 Agreement to produce and sell finished goods between the Company and 10.25
Sealey
10.26 Agreement to produce and sell finished goods between the Company and 10.26
Hudson Manufacturing
10.27 Agreement to produce and sell finished goods between the Company and 10.27
Sengoka Works, Ltd
10.28 Employment Agreement, dated as of November 26, 1997, between the 10.28
Company and Robert H. Elman
10.29 Employment Agreement, dated as of November 26, 1997, between the 10.29
Company and John M. Kelly
10.30 Employment Agreement, dated as of November 26, 1997, between the 10.30
Company and Terry G. Scariot
11 Schedule Re Computation of Earnings Per Share. *
12 Schedule of Earnings to Fixed Charges *
21 Subsidiaries of the Company 21
23.1 Consent of Sullivan & Worcester LLP Contained in Exhibit 5
23.2 Consent of Ernst & Young LLP *
23.3 Consent of Deloitte & Touche LLP *
24 Powers of Attorney Pages II-4 through II-7 of
the Registration Statement
27 Financial Data Schedule 27
99.1 Statement of Eligibility of Marine Midland Bank as trustee under the *
Indenture
99.2 Form of Letter of Transmittal to be used in connection with the Exchange *
Offer
99.3 From of Notice of Guaranteed Delivery *
- - - - ----------
* To be filed by amendment.
</TABLE>
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bowling Green, state of
Kentucky, on the 26th day of January, 1998.
Desa International, Inc.
By: /s/ Robert E. Elman
Name: Robert H. Elman
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on January 26, 1998. Each of the undersigned officers and
Directors of the Company hereby severally constitutes and appoints Robert H.
Elman, Terry G. Scariot, Adam L. Suttin and Dana L. Schmaltz, and each of them,
to sign for him, and in his name in the capacity indicated below, such
Registration Statement for the purpose of registering the securities registered
hereby under the Securities Act, and any and all amendments thereto, inclusing
without limitation any registration statement or post-effective amendment
thereof filed under and meeting the requirements of Rule 462(b) under the
Securities Act, hereby ratifying and confirming our signatures as they may be
signed by our attorneys to such Registration Statement and any and all
amendments thereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Elman Chairman and Chief Executive January 26, 1998
Robert H. Elman Officer
/s/ John W. Childs Director January 26, 1998
John W. Childs
/s/ Raymond B. Rudy Director January 26, 1998
Raymond B. Rudy
/s/ Adam L. Suttin Director January 26, 1998
Adam L. Suttin
/s/ Michael Greene Director January 26, 1998
Michael Greene
II-4
<PAGE>
/s/ Terry G. Scariot President and Director January 26, 1998
Terry G. Scariot
/s/ Edward G. Patrick Vice President of Finance, January 26, 1998
Edward G. Patrick Treasurer (principal financial
officer)
/s/ Scott M. Nehm Vice President and Controller January 26, 1998
Scott M. Nehm (principal accounting officer)
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Holdings has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Bowling Green, state of
Kentucky, on the 26th day of January, 1998.
Desa Holdings Corporation
By: /s/ Robert H. Elman
Name: Robert H. Elman
Title: Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on January 26, 1998. Each of the undersigned officers and
Directors of the Company hereby severally constitutes and appoints Robert H.
Elman, Terry G. Scariot, Adam L. Suttin and Dana L. Schmaltz, and each of them,
to sign for him, and in his name in the capacity indicated below, such
Registration Statement for the purpose of registering the securities registered
hereby under the Securities Act, and any and all amendments thereto, inclusing
without limitation any registration statement or post-effective amendment
thereof filed under and meeting the requirements of Rule 462(b) under the
Securities Act, hereby ratifying and confirming our signatures as they may be
signed by our attorneys to such Registration Statement and any and all
amendments thereto.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Elman Chairman and Chief Executive January 26, 1998
Robert H. Elman Officer
/s/ John W. Childs Director January 26, 1998
John W. Childs
/s/ Raymond B. Rudy Director January 26, 1998
Raymond B. Rudy
/s/ Adam L. Suttin Director January 26, 1998
Adam L. Suttin
/s/ Michael Greene Director January 26, 1998
Michael Greene
II-6
<PAGE>
/s/ Terry G. Scariot President and Director January 26, 1998
Terry G. Scariot
/s/ Edward G. Patrick Vice President of Finance, January 26, 1998
Edward G. Patrick Treasurer (principal financial
officer)
/s/ Scott M. Nehm Vice President and Controller January 26, 1998
Scott M. Nehm (principal accounting officer)
</TABLE>
II-7
EXHIBIT 2.1
RECAPITALIZATION AGREEMENT
This Recapitalization Agreement (this "Agreement"), dated as
of October 8, 1997, as amended and restated as of November 25, 1997, is made and
entered into by and among J.W. Childs Equity Partners, L.P., a Delaware limited
partnership ("Buyer"), Desa Holdings Corporation, a Delaware corporation
("Holdings"), and the undersigned stockholders (collectively, the "Sellers") of
Holdings.
RECITALS:
WHEREAS, Buyer, Holdings and the Sellers are parties to a
Stock Purchase Agreement dated as of October 8, 1997 (the "Stock Purchase
Agreement");
WHEREAS, Buyer, Holdings and the Sellers have agreed to amend
and restate the Stock Purchase Agreement as set forth herein;
WHEREAS, the Sellers own all of the issued and outstanding
shares of common stock, par value $.01 per share (the "Common Stock"), and
nonvoting common stock, par value $.01 per share (the "Nonvoting Common Stock"),
of Holdings;
WHEREAS, the Sellers desire to sell to Holdings, and Holdings
desires to purchase from the Sellers, certain shares of Common Stock and
Nonvoting Common Stock owned by the Sellers;
WHEREAS, certain of the Sellers desire to retain a certain
number of shares of Common Stock and/or Nonvoting Common Stock; and
WHEREAS, Holdings desires to issue and sell to Buyer, and
Buyer desires to purchase from Holdings, the Newly Issued Shares.
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
ARTICLE 1.
DEFINITIONS
The capitalized terms used herein will have the following
meanings. Unless the context otherwise requires, such capitalized terms will
include the singular and plural and the conjunctive and disjunctive forms of the
terms defined.
"Act" shall have the meaning ascribed to it in Section 5.3
hereof.
"Adjusted Working Capital" shall have the meaning ascribed to
it in Section 2.5(b)(i) hereof.
"Adverse Consequences" means all charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, Liabilities, obligations, Taxes, Liens,
expenses, and fees, including all attorneys' fees and court costs.
"Affiliate" of, or a Person "affiliated" with, a specified
Person, shall mean a Person that directly, or indirectly through one or more
intermediaries, Controls, is Controlled by, or is under common Control with, the
Person specified.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) filing consolidated Tax Returns.
"Agreement" shall mean this Recapitalization Agreement,
together with the exhibits attached hereto, and the Disclosure Schedule.
"Alternative Transaction" shall have the meaning ascribed to
it in Section 6.4 hereof.
"Arbitrator" shall have the meaning ascribed to it in Section
2.6(c) hereof.
"Assets" shall mean all assets or properties of every kind,
nature, character, and description (whether real, personal, or mixed, whether
tangible or intangible, whether absolute, accrued, contingent, fixed, or
otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person, including without limitation cash, cash equivalents,
securities (including capital stock and securities of Affiliates), accounts and
notes receivable, real estate, equipment, inventory (including, but not limited
to, raw materials, packaging, film, labels, work-in-progress and finished
goods), furniture, fixtures, goodwill, intellectual property and going-concern
value.
-2-
<PAGE>
"Balance Sheets" shall have the meaning ascribed to it in
Section 3.5 hereof.
"Bridge Commitment Letter" shall mean that certain bridge
commitment letter by and between NationsBridge, L.L.C. and Buyer included in
Exhibit C attached hereto.
"Buyer" shall have the meaning set forth in the first
paragraph of this Agreement.
"Cap" shall have the meaning set forth in Section 11.2 hereof.
"Closing" shall mean the closing of the transactions
contemplated by this Agreement as provided in Section 2.8 hereof.
"Closing Date" shall mean (a) the first business day after the
day following the expiration or termination of the applicable waiting period
under the HSR Act and the related regulations promulgated thereunder or (b) if
the other conditions to closing set forth in Articles 8 and 9 of this Agreement
are not satisfied at such time, as promptly as practicable after each of the
conditions set forth in Articles 8 and 9 of this Agreement have been either
waived or satisfied, but in no event after December 1, 1997, unless otherwise
agreed to by Buyer and the Representative.
"Closing Date Balance Sheet" shall have the meaning ascribed
to it in Section 2.6(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall have the meaning ascribed to it in the
recitals hereof.
"Company Benefit Plans" shall mean all material "employee
benefit plans" (as defined in Section 3(3) of ERISA) maintained by Holdings or
any of its Subsidiaries for the benefit of its employees.
"Confidentiality Agreement" shall have the meaning ascribed to
it in Section 6.5(b) hereof.
"Contract" shall mean any agreement, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance policy, or
other contract or commitment (whether written or oral).
"Control" shall mean the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
-3-
<PAGE>
"Costs" shall have the meaning ascribed to it in Section
2.7(a) hereof.
"CPAs" shall have the meaning ascribed to it in Section 2.6(a)
hereof.
"Current Board" shall have the meaning ascribed to it in
Section 2.8(b)(i) hereof.
"Customer Calls" shall have the meaning ascribed to it in
Section 6.5 hereof.
"Damages" shall have the meaning ascribed to it in Section
2.7(b) hereof.
"Designated Price" shall mean that per share price equal to
the quotient obtained by dividing (A) the sum of the Estimated Pre-Closing Net
Acquisition Purchase Price plus the aggregate exercise price of all Options by
(B) the aggregate number of Shares outstanding on the Closing Date.
"Disclosure Schedule" shall mean the disclosure schedule dated
the date hereof furnished by the Sellers and Holdings to Buyer and containing
all lists, descriptions, exceptions and other information and materials as are
required to be included therein pursuant to this Agreement.
"Environmental Laws" shall mean any federal, state, local or
foreign law, statute, ordinance, rule, regulation, consent, judgment, order or
permit applicable to Holdings and its Subsidiaries and pertaining to the
environment, natural resources or the licensing of underground storage tanks as
presently in effect.
"Environmental Permits" shall have the meaning ascribed to it
in Section 3.15 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended (including without limitation any successor act), and the
applicable regulations promulgated thereunder.
"Estimated Pre-Closing Net Acquisition Purchase Price" shall
have the meaning ascribed to it in Section 2.5(a) hereof.
"Estimated Recapitalization Proceeds" shall mean the Estimated
Pre-Closing Net Acquisition Purchase Price less the Rollover Amount.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"FAS 87" means Financial Accounting Standards Board Statement
No. 87, as amended from time to time.
-4-
<PAGE>
"Fiduciary" shall have the meaning set forth in Section 3(21)
of ERISA.
"Financial Statements" shall have the meaning ascribed to it
in Section 3.5 hereof.
"Financing Commitments" shall have the meaning ascribed to it
in Section 5.7 hereof.
"Funded Debt" shall have the meaning ascribed to it in Section
2.5(b)(ii) hereof.
"GAAP" shall mean generally accepted accounting principles
applied on a basis and method consistent with prior periods.
"Goldman Sachs" means Goldman, Sachs & Co.
"Governmental Entity" shall mean any federal, state, local,
municipal, foreign or other governmental or quasi-governmental entity or
authority of any nature.
"Gross Acquisition Purchase Price" shall mean $325,000,000.
"Hazardous Materials" shall mean any substance or material as
of the date of this Agreement (a) the presence of which requires investigation,
removal or remediation under any Environmental Law, (b) that is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" under any
Environmental Law including but not limited to the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. ss.6091 et. seq., as amended, and the rules and
regulations promulgated thereunder and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. 9601 et. seq., as amended, and
the rules and regulations promulgated thereunder ("CERCLA" or "Superfund").
"Holdings" shall have the meaning set forth in the first
paragraph of this Agreement.
"HSR Act" shall mean Section 7A of the Clayton Act (Title II
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended)
(including without limitation any successor act), and the rules and regulations
promulgated thereunder.
"Indemnified Party" shall have the meaning ascribed to it in
Section 11.4
hereof.
"Indemnifying Party" shall have the meaning ascribed to it in
Section 11.4 hereof.
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"Initial Period" shall have the meaning ascribed to it in
Section 6.5 hereof.
"Intellectual Property" means all (a) patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, and corporate names and
registrations and applications for registration thereof, (c) copyrights and
registrations and applications for registration thereof, (d) mask works and
registrations and applications for registration thereof, (e) computer software,
data, and documentation, (f) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information), (g) other proprietary rights, and (h) copies and tangible
embodiments thereof (in whatever form or medium) of Holdings and its
Subsidiaries. All references in this Agreement to "Intellectual Property" shall
include those items of intellectual property listed or described in Section 3.16
of the Disclosure Schedule.
"Interim Balance Sheets" shall have the meaning ascribed to it
in Section 3.5 hereof.
"IRS" shall mean the United States Internal Revenue Service or
any successor agency.
"knowledge of Holdings" shall mean the knowledge of the
management of Holdings and its Subsidiaries.
"Laws" shall mean all laws (including Securities Laws and
Environmental Laws), statutes, ordinances, regulations, and other pronouncements
having the effect of law of the United States of America, any foreign country,
or any domestic or foreign state, province, commonwealth, city, county,
municipality, territory, protectorate, possession, court, tribunal, agency,
government, department, commission, arbitrator, board, bureau, or
instrumentality thereof.
"Liabilities" shall mean all debts, obligations, guaranties
and other liabilities of a Person (whether absolute, accrued, contingent, fixed,
known or unknown or otherwise, or whether due or to become due).
"Lien" shall mean any mortgage, pledge, assessment, security
interest, lease, sublease, lien, adverse or prior claim, levy, charge, easement,
rights of way, covenants, restrictions, rights of first refusal, encroachments,
options or encumbrances of any kind, or any defects in title, conditional sale
Contract, title retention Contract, or other Contract to give or to refrain from
giving any of the foregoing; provided, however, that the term "Liens" shall
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not include (i) statutory liens for Taxes, assessments and other governmental
charges to the extent that the payment thereof is not in arrears or otherwise
due, (ii) encumbrances in the nature of zoning restrictions, easements, rights
or restrictions of record on the use of real property if the same do not detract
from the value of such property or impair its use in the business of Holdings or
its Subsidiaries as currently conducted, (iii) statutory or common law liens to
secure landlords, lessors or renters under leases or rental agreements confined
to the premises rented to the extent that no payment or performance under any
such lease or rental agreement is in arrears or is otherwise due, (iv) deposits
or pledges made in connection with, or to secure payment of, worker's
compensation, unemployment insurance, old age pension programs mandated under
applicable law or other social security and (v) statutory or common law liens to
secure claims for labor, materials or supplies and other like liens, in favor of
carriers, warehousemen, mechanics and materialmen, which secure obligations to
the extent that payment thereof is not in arrears or otherwise due.
"Litigation" shall have the meaning ascribed to it in Section
3.9 hereof.
"Material Adverse Effect" shall mean any change in or effect
on the business, operations, Liabilities, Assets or conditions, financial or
otherwise, of a party which, when considered either singly or in the aggregate
together with all other adverse changes or effects with respect to which such
phrase is used in this Agreement, is materially adverse to such party and its
Subsidiaries considered as one enterprise or, when used in reference to the
validity or enforceability of this Agreement, the consummation of the
transactions contemplated hereby, or a party's ability to perform its
obligations hereunder, shall mean a material and adverse effect on such
validity, enforceability, consummation, or ability, as the case may be. When
used in Section 9.1 or Section 10.4(a) in respect of the failure of any
representation or warranty to be true or correct, or the breach thereof, the
term "Material Adverse Effect" shall mean that the overall composite of the
representations and warranties as to the business, operations, Liabilities,
Assets or condition (financial or other) of Holdings and its Subsidiaries, taken
as a whole, set forth in this Agreement as supplemented by the Disclosure
Schedule, is materially and adversely inaccurate or false as to Holdings and its
Subsidiaries taken as a whole.
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA as to which Holdings or any of its Subsidiaries has any
obligation or liability (contingent or otherwise).
"Net Acquisition Purchase Price" shall mean (a) the Gross
Acquisition Purchase Price, minus (b) the Net Debt of Holdings on the Closing
Date, minus (c) to the extent not included in current Liabilities of Holdings
and its Subsidiaries on a consolidated basis, all unpaid management and
consulting fees and expenses and investment banking and financial advisor fees
owed to Hicks, Muse, Tate & Furst Incorporated and its Affiliates and all
transaction fees and expenses charged to Holdings or its Subsidiaries and
incurred or payable by or on behalf of Holdings or the Sellers in connection
with the transactions contemplated by
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this Agreement (other than in connection with Holdings' cooperation and
assistance relating to the financing pursuant to the Financing Commitments),
including those of Goldman Sachs, all attorneys, accountants, actuaries,
consultants, experts or other professionals engaged by or on behalf of Holdings
or the Sellers in connection with this Agreement and the transactions
contemplated hereby, plus (d) the amount of the Adjusted Working Capital on the
Closing Date.
"Net Debt" shall have the meaning ascribed to it in Section
2.5(b)(iv) hereof.
"New Board" shall have the meaning ascribed to it in Section
2.8(b)(i) hereof.
"Newly Issued Common Shares" shall mean that number of shares
of Common Stock to be purchased by the Buyer at Closing pursuant to this
Agreement.
"Newly Issued Shares" shall mean the Newly Issued Common
Shares plus the Preferred Stock to be purchased by Buyer at Closing pursuant to
this Agreement.
"Nonvoting Common Stock" shall have the meaning ascribed to it
in the recitals hereof.
"Offsetting Tax Benefit" shall have the meaning ascribed to it
in Section 11.5 hereof.
"Operating Subsidiary" shall mean Desa International, Inc., a
Delaware corporation and wholly-owned Subsidiary of Holdings.
"Options" shall have the meaning ascribed to it in Section 9.5
hereof.
"Order" shall mean any writ, judgment, decree, injunction or
similar order.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
its successor.
"Permits" shall mean licenses, franchises, permits and
authorizations.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, trust, union, association,
court, tribunal, agency, government, department, commission, self-regulatory
organization, arbitrator, board, bureau, instrumentality, or other entity,
enterprise, authority, or business organization.
"Plan" shall have the meaning ascribed to it in Section 9.5
hereof.
"Post-Closing Estimated Net Acquisition Purchase Price" shall
have the meaning ascribed to it Section 2.6(a) hereof.
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"Post-Closing Statement" shall have the meaning ascribed to it
in Section 2.6(a)
hereof.
"Pre-Closing Statement" shall have the meaning ascribed to it
in Section 2.5(a).
"Preferred Stock" shall mean a newly issued series of
preferred stock of Holdings having substantially the terms set forth on Exhibit
B hereof.
"Prohibited Transaction" means a non-exempt prohibited
transaction as described in Section 406 of ERISA or Section 4975 of the Code.
"Purchased Shares" shall mean an aggregate number of Shares
equal to the Shares less the Retained Shares. As to any Seller, such Seller's
Purchased Shares shall be equal to the number of Shares listed opposite such
Seller's name in the "Shares Purchased by Holdings" column set forth on Exhibit
A hereto.
"Recapitalization Proceeds" shall mean an aggregate amount
equal to the Net Acquisition Purchase Price less the Rollover Amount.
"Related Transactions" shall mean (i) the purchase of the
Shares, issuance of the Newly Issued Shares and other actions contemplated by
this Agreement, (ii) the issuance of the Preferred Stock and (iii) the
consummation of the transactions, including borrowings thereunder, contemplated
by the Financing Commitments.
"Reportable Event" means an event described in Section 4043(c)
of ERISA for which the 30-day notice has not been waived by applicable
regulation.
"Representative" shall have the meaning ascribed to it in
Section 2.7(a) hereof.
"Reserve" shall have the meaning ascribed to it in Section
2.7(a) hereof.
"Retained Shares" shall mean the Shares less the Purchased
Shares. As to any Seller, such Seller's Retained Shares shall be equal to the
number of Shares listed opposite such Seller's name in the "Shares Retained by
Seller" column set forth on Exhibit A hereto.
"Required Exercise" shall have the meaning set forth in
Section 8.8 hereof.
"Rollover Amount" shall mean $8.585 million; provided,
however, that if and to the extent the aggregate purchase price designated by
Buyer for shares of Common Stock pursuant to Section 2.4 is less than $73.8
million, the $8.585 million amount specified hereinabove shall be reduced pro
rata in proportion to the reduction in Buyer's designated shares of Common Stock
below $73.8 million in value.
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"Review Period" shall have the meaning ascribed to it in
Section 2.6(b) hereof.
"Securities Laws" shall mean the Act, the Exchange Act, the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, and the rules and regulations promulgated thereunder, and any
similar state Laws.
"Sellers" shall have the meaning set forth in the first
paragraph of this Agreement.
"Shares" shall mean (i) the total issued and outstanding
shares of Common Stock and Nonvoting Common Stock plus (ii) that number of
shares of Common Stock that would be issued assuming the exercise of all
outstanding Options, as determined on the Closing Date.
"Stockholders Agreement" shall mean that certain Stockholders
Agreement, to be dated as of the Closing Date, among Buyer, Holdings and the
Sellers, in substantially the form of Exhibit G hereto.
"Subsidiaries" shall mean each Person of which Holdings, Buyer
or another Person, as indicated, directly or indirectly owns shares of capital
stock or other ownership interests having in the aggregate 50% or more of the
total combined voting power of the issued and outstanding shares of capital
stock or other ownership interests entitled to vote generally in the election of
directors or other governing body of such Person and shall include Patco L.P.
as to Holdings only.
"Tax" means any income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, windfall profits,
environmental, customs duties, capital stock, franchise, profits, withholding,
social security, unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever imposed by the United States of
America, any state, local or foreign government, or any subdivision, agency, or
other similar Person of the United States or any such government, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Benefits" shall have the meaning ascribed to it in
Section 11.5 hereof.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Threshold" shall have the meaning ascribed to it in Section
11.2 hereof.
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Unless the context of this Agreement otherwise requires, (a)
words of any gender are deemed to include each other gender; (b) words using the
singular or plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby," "hereto," and
derivative or similar words refer to this entire Agreement; (d) the terms
"ARTICLE" or "Section" refer to the specified ARTICLE or Section of this
Agreement; (e) the term "or" means "and/or"; (f) the term "party" means, on the
one hand, Buyer, and on the other hand, the Sellers and Holdings; and (g) all
references to "dollars" or "$" refer to currency of the United States of
America.
ARTICLE 2.
HOLDINGS PURCHASE, SALE OF NEWLY ISSUED SHARES AND CLOSING
Section 2.1 Holdings Purchase. Subject to the terms and
conditions, and in reliance upon the representations, warranties and covenants,
set forth in this Agreement, the Sellers agree to sell the Purchased Shares to
Holdings at the Closing and Holdings agrees to purchase the Purchased Shares
from the Sellers at the Closing.
Section 2.2 Purchase and Sale of Newly Issued Shares. Subject
to the terms and conditions, and in reliance upon the representations,
warranties and covenants, set forth in this Agreement, Holdings agrees to sell
the Newly Issued Shares to Buyer at the Closing and Buyer agrees to purchase the
Newly Issued Shares from Holdings at the Closing.
Section 2.3 Purchase Price for Shares. Subject to the
post-closing adjustment to be made pursuant to Section 2.6, the purchase price
for each Purchased Share shall be equal to the Designated Price. Subject to the
post-closing adjustment to be made pursuant to Section 2.6, the aggregate amount
payable for the Purchased Shares shall be equal to the amount of the Estimated
Recapitalization Proceeds.
Section 2.4 Purchase Price for Newly Issued Shares. The
aggregate purchase price for the Newly Issued Shares shall be $91.6 million. The
purchase price for each share of Common Stock purchased pursuant to this Section
2.4 shall be equal to the Designated Price. The purchase price for each share of
Preferred Stock purchased by Buyer pursuant to this Section 2.4 shall be
designated by Buyer in writing to Holdings not later than seven days prior to
the Closing Date, but in no event shall such per share purchase price be less
than the par value of such share. Not later than seven days prior to the Closing
Date, Buyer shall provide a written notice to Holdings designating the number of
shares of Common Stock and the number of shares of Preferred Stock that Buyer
wishes to purchase pursuant hereto; provided, that in no event shall Buyer
designate a number of shares of Common Stock that would equal less than $61.6
million in aggregate purchase price or an aggregate number of Newly Issued
Shares that would result in a purchase price of less than $91.6 million. Buyer
shall have the right to
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assign its right to purchase Newly Issued Shares (but not its obligation to do
so) to a third party or parties.
Section 2.5 Pre-Closing Statement.
a. Not later than seven days prior to the Closing, Holdings
shall deliver to Buyer a statement (the "Pre-Closing Statement") which shall set
forth Holdings' good faith estimate of the Net Acquisition Purchase Price as of
the Closing Date (the "Estimated Pre-Closing Net Acquisition Purchase Price").
The Pre-Closing Statement shall have been prepared in accordance with GAAP,
without regard to any adjustment in respect of or relating to the transactions
contemplated hereby.
b. As used herein,
i. "Adjusted Working Capital" shall mean
current Assets (excluding cash and cash equivalents) minus current Liabilities
of Holdings (excluding accrued interest and Funded Debt, to the extent reflected
in current Liabilities) minus $29.686 million. Current Assets and current
Liabilities shall be determined for all purposes in accordance with GAAP. To the
extent the Adjusted Working Capital is a negative number, such amount shall be
deducted from the Gross Acquisition Purchase Price in calculating the Net
Acquisition Purchase Price.
ii. "Funded Debt" shall mean indebtedness of
Holdings for borrowed money (including accrued interest thereon and any
prepayment penalties assessed thereon) as reflected in existing instruments,
plus amounts reflected in capital leases to the extent that such amounts would
be required to be shown as indebtedness on a consolidated balance sheet of
Holdings prepared in accordance with GAAP.
iii. "Holdings", for purposes of Sections
2.3, 2.5 and 2.6 hereof, shall mean Holdings and its Subsidiaries on a
consolidated basis.
iv. "Net Debt" shall mean an amount equal to
Funded Debt minus cash and cash equivalents.
Section 2.6 Post-Closing Adjustment.
(a) Commencing promptly after the Closing, Buyer, at Buyer's
expense, shall cause Holdings to prepare and deliver to the Representative
within 30 days following the Closing Date a statement (the "Post-Closing
Statement") setting forth Buyer's calculation of the Net Acquisition Purchase
Price as of the Closing Date (the "Post-Closing Estimated Net Acquisition
Purchase Price") derived from the consolidated balance sheet of Holdings
prepared as of the Closing Date and immediately prior to Closing, without regard
to any adjustments thereto in respect of or relating to the transactions
contemplated hereby or simultaneous or
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subsequent action by Buyer or Holdings (the "Closing Date Balance Sheet"). The
Post-Closing Statement shall be prepared by Ernst & Young LLP ("CPAs"), the
accounting firm regularly engaged by Holdings. The Post-Closing Statement shall
include the Closing Date Balance Sheet and be supported by reasonable detail to
permit the Representative to determine the derivation of the Post-Closing
Estimated Net Acquisition Purchase Price.
(b) The Representative and its professionals shall consult
with the CPAs during the preparation of the Post-Closing Statement and shall
have the opportunity to review the Post-Closing Statement in detail upon
completion. In connection with such review, such persons shall have full access
to work papers and personnel to be able to determine the manner in which any
item reflected on the Post-Closing Statement was determined and the accuracy of
any such determination. Buyer shall provide, and shall cause Holdings to
provide, the Representative and its professionals full access at all reasonable
times to Holdings' books, records, premises and facilities and other materials,
and shall furnish the Representative and its professionals with such information
and assistance as any of them shall request to assist them in their review of
the Post-Closing Statement in accordance with this Section 2.6. Within 30 days
after delivery of the Post-Closing Statement (the "Review Period"), the
Representative shall deliver a written notice setting forth a description of all
of its objections, if any, to the Post-Closing Statement.
(c) Buyer and the Representative shall attempt to resolve all
of the Representative's objections within 15 days of delivery by the
Representative of its notice of objections. If any objections remain unresolved
after the end of such 15-day period, Buyer and the Representative shall retain
the New York office of Deloitte & Touche LLP (the "Arbitrator") to resolve all
disputes relating to the Closing Date Balance Sheet and the Post-Closing
Statement. Buyer and the Representative shall each pay one-half of the
Arbitrator's fees and expenses. The Arbitrator shall give full consideration to
all materials and positions presented by the Representative and Buyer and shall
make a final resolution of all disputes within 10 business days after being
retained by Buyer and the Representative.
(d) Within 10 days after the resolution of all disputes
arising out of the review of the Post-Closing Statement in accordance with
Section 2.6(c), or, if the Representative shall not have delivered the notice
setting forth its objections pursuant to Section 2.6(b), then within 10 days
after the Representative has indicated in writing its agreement with the
Post-Closing Statement or, if no notice of objections has been delivered by the
Buyer, within 10 days after the end of the Review Period, whichever is earlier,
(i) (A) there shall be added to the Net
Acquisition Purchase Price the amount, if any, by which the Adjusted Working
Capital derived from the Post-Closing Statement is more than the Adjusted
Working Capital derived from the Pre-Closing Statement; or (B) there shall be
subtracted from the Net Acquisition Purchase Price the amount, if any, by which
the Adjusted Working Capital derived from the
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Post-Closing Statement is less than the Adjusted Working Capital derived from
the Pre-Closing Statement; and
(ii) the Net Acquisition Purchase Price
shall be recomputed to reflect the adjustments set forth above in accordance
with the definition thereof.
(e) Following the recomputation, if any, to be made pursuant
to Section 2.6(d)(ii),
(i) Buyer shall promptly pay to the
Representative (on behalf of the Sellers) by wire transfer to an account
designated by the Representative any increase in the Net Acquisition Purchase
Price in excess of the Estimated Pre-Closing Net Acquisition Purchase Price paid
at the Closing; or
(ii) the Representative (on behalf of the
Sellers) shall promptly pay to Holdings by wire transfer to an account
designated by Holdings any decrease in the Net Acquisition Purchase Price below
the Estimated Pre-Closing Net Acquisition Purchase Price paid at the Closing.
Section 2.7 Designation of Representative; Indemnification of
Representative.
(a) Each Seller hereby designates Hicks, Muse, Tate & Furst
Incorporated and Robert H. Elman, jointly and acting in unison, as
representative (the "Representative") to act on behalf of the Sellers as
contemplated or provided herein. Buyer shall be entitled to rely upon
instructions from the Representative (signed by both parties comprising the
Representative) with respect to (i) the payment of the Estimated
Recapitalization Proceeds as provided for in Section 2.8(b) hereof, (ii) any
payment of an increase in the Net Acquisition Purchase Price in excess of the
Estimated Pre-Closing Net Acquisition Purchase Price as provided for in Section
2.6(e)(i) hereof, (iii) the payment of any Costs on behalf of the Sellers and
(iv) the allocation among Sellers of the Recapitalization Proceeds in accordance
with the terms hereof. Each Seller hereby appoints the Representative as its
agent for purposes of clauses (i) through (iv) of the preceding sentence,
including the receipt of any payments due from Buyer to the Sellers hereunder or
related hereto. Each Seller hereby agrees that, prior to distribution of the
Recapitalization Proceeds by the Representative, the Representative is hereby
instructed to pay all amounts, if any, owed to Holdings in respect of any
decrease in the Net Acquisition Purchase Price as provided for in Section
2.6(e)(ii) hereof. In addition, the Representative is hereby instructed to pay
all costs, fees, expenses and Liabilities of the Sellers hereunder, which amount
shall include any professional fees and expenses which Representative reasonably
determines to be necessary or advisable ("Costs"), and, if in the reasonable
judgment of the Representative a reserve for future Costs is necessary or
appropriate, to establish an appropriate reserve for such Costs and place an
amount in cash equal to any such reserve(s) in an interest-bearing account for
the benefit of the Sellers to meet future Costs (the "Reserve"). Following
payment of such sums, the Representative is hereby
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instructed to deliver to each Seller his or its share of the remaining
Recapitalization Proceeds pro rata as his or her interests may appear in
accordance with Exhibit A attached hereto. Each Seller who is an Option holder
acknowledges and agrees that any distribution to such Seller of his or its
portion of the Recapitalization Proceeds set forth on Exhibit A shall be net of
the exercise price of each of such Seller's Options, and applicable federal and
state withholding taxes. At such time as the Representative has determined in
its reasonable discretion that there is no longer any need for the Reserve, the
Representative shall distribute any amounts remaining in the Reserve to the
Sellers, pro rata in accordance with Exhibit A, net, to the extent applicable,
of the amount of any Option exercise price, and applicable federal and state
withholding taxes.
(b) To the fullest extent permitted by law, the Sellers, pro
rata in proportion to the number of Purchased Shares sold by each Seller, shall
indemnify and hold harmless the Representative and its affiliates and each of
their respective directors, officers, partners, employees, agents and
representatives from and against any and all losses, damages and expenses
(including, without limitation, reasonable attorneys' fees and expenses),
amounts paid in settlement, court costs and other expenses of litigation
(collectively, "Damages") to the extent relating to, resulting from or arising
out of any act or omission of the Representative acting in such capacity under
this Agreement and any instrument or other document delivered pursuant to this
Agreement. Each Seller hereby expressly agrees that any such Damages incurred by
the Representative may be withheld from the Recapitalization Proceeds prior to
the distribution to the Sellers thereof.
(c) By execution of this Agreement, each Seller hereby
appoints the Representative its attorney-in-fact to act on such Seller's behalf
and to take such actions and exercise such discretion as is required of the
Representative pursuant to the terms of this Agreement (and any such actions
shall be binding on each of the Sellers and the holders of Options) including
without limitation the following:
(i) to receive, hold and deliver to the Company the
share certificates representing the Common Stock and Nonvoting Common Stock and
any other documents relating thereto;
(ii) to execute, acknowledge, deliver, record and
file all ancillary agreements, certificates and documents which the
Representative deems necessary or appropriate in connection with the
consummation of the transactions contemplated by the terms and provisions of
this Agreement including without limitation any amendments to this Agreement
which change the economics of this Agreement or otherwise;
(iii) to receive any payments due under this
Agreement and acknowledge receipt for such payments;
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(iv) to waive any breach or default under this
Agreement, or to waive any condition precedent to the Closing;
(v) to terminate this Agreement; and
(vi) to receive service of process in connection with
any claims under this Agreement.
Section 2.8 Closing.
(a) The closing of the transactions contemplated hereby (the
"Closing") will take place at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, New York at 10:00 a.m., local time, on the Closing Date.
(b) The closings of each of the Related Transactions will be
deemed to have occurred substantially simultaneously subject to all the terms
and conditions of this Agreement, but in the sequence set forth below:
(i) The board of directors of Holdings as of the date
hereof (the "Current Board") will appoint a new board of directors as designated
by Buyer (the "New Board"), to be effective immediately upon the resignation of
each of the members of the Current Board.
(ii) Each of the members of the Current Board will
resign from the board of directors of Holdings.
(iii) Each of the members of the New Board will
accept his appointment by the Current Board and (x) ratify all actions taken by
the Current Board in connection with or related to the consummation of the
transactions contemplated by this Agreement; and (y) approve the issuance by
Holdings of the Preferred Stock and the issuance by Holdings and its
Subsidiaries of the indebtedness contemplated by the Financing Commitments.
(iv) Buyer will (x) pay to Holdings an amount equal
to $91.6 million by wire transfer of immediately available funds to such account
or accounts as Holdings specifies to Buyer in writing at least one business day
before the Closing Date; and (y) deliver to Holdings such documents and
instruments required to be delivered to Holdings under the terms of the
agreements relating to issuance of the Newly Issued Shares.
(v) Holdings will deliver to Buyer a certificate or
certificates representing the Newly Issued Shares.
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(vi) Buyer will (x) pay or cause to be loaned to
Holdings and/or its Subsidiaries an amount equal to the Estimated
Recapitalization Proceeds less $91.6 million by wire transfer of immediately
available funds to such account or accounts as Holdings specifies to Buyer in
writing at least one business day before the Closing Date; and (y) deliver to
Holdings such documents and instruments required to be delivered to Holdings
under the terms of this Agreement. Buyer will, to the extent necessary, cause
the Operating Subsidiary to advance or otherwise distribute to Holdings
sufficient funds to pay the Representative the Estimated Recapitalization
Proceeds.
(vii) Holdings or the Operating Subsidiary will (x)
pay to the Representative, by wire transfer of immediately available funds to
such account as the Representative may specify to Holdings in writing at least
one business day before the Closing Date, an amount equal to the Estimated
Recapitalization Proceeds for subsequent distribution to the Sellers in
accordance with Section 2.7 hereof; and (y) deliver to the Representative, on
behalf of the Sellers, such documents and instruments as are required to be
delivered by Holdings under the terms of this Agreement. As to any Seller who is
required to participate in the Required Exercise, such exercise price per Option
shall be deemed to have been made from the portion of the Estimated
Recapitalization Proceeds otherwise due to such Seller together with such
Seller's labor on behalf of Holdings and the Subsidiaries during such Seller's
employment.
(viii) Each Seller will deliver to Holdings (x) a
certificate or certificates representing all the Seller's Purchased Shares,
accompanied by a stock power duly endorsed in blank; and (y) such other
documents and instruments as are required to be delivered by such Seller under
the terms of this Agreement.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Holdings represents and warrants to Buyer that:
Section 3.1 Organization and Good Standing. Each of Holdings
and its respective Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation, and is duly qualified in all foreign jurisdictions in which it is
required to so qualify, except for where such failures to be so qualified,
individually or in the aggregate, would not have a Material Adverse Effect. Each
of Holdings and its respective Subsidiaries has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as it is currently being conducted by it. True and correct copies of the
certificate of incorporation and bylaws of Holdings and its respective
Subsidiaries have been made available to Buyer. This Agreement has been duly and
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validly authorized, executed and delivered by Holdings and, assuming this
Agreement constitutes a valid and binding obligation of Buyer and each of the
Sellers, is the valid and binding obligation of Holdings enforceable against
Holdings in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent transfer or conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
Section 3.2 Authorization and Validity. Holdings has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
Section 3.3 Capitalization of Holdings. The authorized
capitalization of Holdings consists of 30,000,000 shares of Common Stock,
2,000,000 shares of Nonvoting Common Stock, and 2,000,000 shares of preferred
stock. As of the date hereof, 23,568,876 shares of Common Stock, 1,781,557
shares of Nonvoting Common Stock, and no shares of preferred stock are issued
and outstanding, and such issued and outstanding shares are validly issued,
fully paid and nonassessable, and have not been issued in violation of any
preemptive rights of stockholders. The Newly Issued Shares, upon issuance as
contemplated by this Agreement and payment of the purchase price therefor, will
be validly issued, fully paid and nonassessable and will not have been issued in
violation of any preemptive rights of stockholders. Except as set forth in
Section 3.3 of the Disclosure Schedule, there are no outstanding options,
warrants, calls, conversion rights, commitments, preemptive or other rights
obligating Holdings to issue or sell any shares of Common Stock.
Section 3.4 Subsidiaries and Equity Investments.
a. Section 3.4 of the Disclosure Schedule sets forth (i) the
name of each Subsidiary of Holdings; and (ii) (A) the jurisdiction of
incorporation or organization and (B) the capitalization thereof and the
percentage of each class of voting stock or other ownership interest owned by
Holdings or by any of its Subsidiaries on the date hereof.
b. All of the outstanding shares of capital stock of each
Subsidiary that is a corporation have been duly authorized and validly issued,
are fully paid and nonassessable, have not been issued in violation of any
preemptive rights, and (except as specified in Section 3.4 of the Disclosure
Schedule) are owned of record and beneficially, directly or indirectly, by
Holdings, free and clear of any Liens, claims, charges, security interests or
other legal or equitable encumbrances, limitations or restrictions.
c. There are no options, warrants, calls, subscriptions,
conversion or other rights obligating any of the Subsidiaries to issue any
additional shares of capital stock of such
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Subsidiary or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock.
Section 3.5 Financial Statements. Holdings has delivered to
Buyer (i) copies of the audited consolidated balance sheets of Holdings and its
Subsidiaries as of March 2, 1996 and March 1, 1997 (the "Balance Sheets"),
together with the related audited consolidated statements of income,
stockholders' equity and changes in cash flow for the fiscal year ended on such
dates, and the notes thereto and (ii) copies of the unaudited consolidated
balance sheets of Holdings and its Subsidiaries dated August 30, 1997 (the
"Interim Balance Sheets"), together with the related unaudited consolidated
statements of income, stockholders' equity and changes in cash flow for the
six-month period ended on such date, certified by the chief executive officer
and the chief accounting officer of Holdings (such audited and unaudited interim
financial statements being hereinafter referred to as the "Financial
Statements"). The Financial Statements, including the notes thereto, (a) were
prepared in accordance with GAAP throughout the periods covered thereby, except
as otherwise noted thereon or disclosed in Section 3.5 of the Disclosure
Schedule, and (b) present fairly in all material respects the consolidated
financial position, results of operations and changes in cash flow of Holdings
as of such dates and for the periods then ended (subject, in the case of the
unaudited interim Financial Statements, to the absence of footnotes and normal
year-end audit adjustments consistent with prior periods that would not be
material, individually or in the aggregate). Except as disclosed in Section 3.5
of the Disclosure Schedule or specifically reflected in the Interim Balance
Sheets, there are no Liabilities against, relating to, or affecting Holdings or
its Subsidiaries that are required by GAAP to be reflected on a balance sheet.
Section 3.6 Absence of Changes. Since August 30, 1997, there
has not been, occurred, or arisen any change in, or any event, condition, or
state of facts of any character in respect of Holdings and its Subsidiaries,
except (i) as disclosed in Section 3.6 of the Disclosure Schedule or (ii) for
such changes, events, conditions or state of facts that would not have a
Material Adverse Effect. Except as disclosed in Section 3.6 of the Disclosure
Schedule or as contemplated by the Related Transactions, since August 30, 1997,
Holdings and its Subsidiaries have operated only in the ordinary and usual
course of business, and (without limiting the generality of the foregoing) there
has not been, occurred, or arisen:
a. any declaration, setting aside, or payment of any dividend
or other distribution in respect of the capital stock of Holdings and its
Subsidiaries or any direct or indirect redemption (other than the purchases
contemplated by this Agreement), purchase, or other acquisition by Holdings and
its Subsidiaries of any such stock;
b. any increase in the base compensation of any officer,
director or employee of Holdings or any of its Subsidiaries other than increases
that were made in the ordinary and usual course of business;
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c. any issuance, sale, or disposition by Holdings and the
Subsidiaries of any of their respective shares of capital stock (other than
pursuant to the exercise of options outstanding on the date hereof and pursuant
to the transactions contemplated by this Agreement) or any grant of options,
warrants or preemptive or other rights to acquire (including upon conversion or
exercise) any of its capital stock;
d. any material Lien created on any of the Assets of Holdings
or the Subsidiaries, other than those created in the ordinary and usual course
of business;
e. any Liability involving the borrowing of money or the
incurrence of any deferred purchase price obligation (other than trade credit
incurred by the Subsidiaries in the ordinary and usual course of business,
capital lease obligations and borrowings by the Operating Subsidiary under its
revolving credit facility made in the ordinary and usual course of business by
Holdings or the Subsidiaries);
f. any payment, prepayment, discharge, or satisfaction by
Holdings or its Subsidiaries of any material Lien or Liability other than Liens
or Liabilities that were paid, discharged, or satisfied in the ordinary and
usual course of business;
g. any cancellation of any Liability owed to Holdings or its
Subsidiaries by any other Person except substantially in accordance with prior
practice;
h. any sale, transfer, or conveyance of any material Assets of
Holdings or its Subsidiaries other than for fair market value in the ordinary
and usual course of business;
i. any transaction or arrangement under which Holdings or any
of its Subsidiaries paid, lent, or advanced any amount to or in respect of, or
sold, transferred, or leased any of its Assets or any services to, (i) any
Seller, (ii) any officer or director of Holdings or its Subsidiaries, (iii) any
Affiliate of Holdings or of its Subsidiaries, or of any such officer or
director, or (iv) any business or other Person in which any Seller, Holdings,
its Subsidiaries, any such officer or director, or any such Affiliate has any
material interest, except for (a) payments of salaries and wages to officers or
directors of Holdings and its Subsidiaries in the ordinary and usual course of
business, (b) advances made to, or reimbursements of, officers or directors of
Holdings and its Subsidiaries for travel and other business expenses in
reasonable amounts in the ordinary and usual course of business, (c) payments of
management and consulting fees to Hicks, Muse, Tate & Furst Incorporated or any
of its Affiliates pursuant to a monitoring and oversight agreement and a
financial advisory agreement between the parties and (d) transactions made
pursuant to an arm's length agreement on terms no more favorable than would be
afforded to third parties;
j. any commitments or agreements for capital expenditures
except in the ordinary and usual course of its business or consistent with its
annual budget;
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k. any amendment or termination (other than in accordance with
its terms) made or suffered to any Contract involving more than $500,000 to
which it is a party or by which it is bound (other than Contracts involving
sales to customers and trade credit incurred by the Subsidiaries in the ordinary
and usual course of business, and capital lease obligations and borrowings by
the Operating Subsidiary under its revolving credit facility made in the
ordinary and usual course of business by Holdings or the Subsidiaries);
l. any Contract involving more than $500,000 (other than sales
to customers or purchase from suppliers in the ordinary and usual course of
business);
m. any capital investment in, loan to or acquisition of the
securities or Assets of any other Person involving more than $500,000;
n. any charitable or other capital contribution other than in
the ordinary and usual course of business;
o. any change made or authorized in any of their respective
certificates of incorporation or bylaws;
p. as of the date hereof, any damage, destruction or loss
(whether or not covered by insurance) to its property in excess of $100,000 in
any case or $500,000 in the aggregate;
q. any termination that is not seasonal in nature of a
relationship with one of the customers of Holdings or its Subsidiaries listed in
Section 3.6(q) of the Disclosure Schedule; or
r. any commitment to do any of the foregoing except as
contemplated by this Agreement or the agreements in respect of the Related
Transactions
Section 3.7 Tax Matters. Except as set forth in Section 3.7 of
the Disclosure Schedule:
a. Each of Holdings and its Subsidiaries has filed all
material Tax Returns that it was required to file. All such Tax Returns were
correct and complete in all material respects. All material Taxes which are due
and owing with respect to each of Holdings and its Subsidiaries (whether or not
shown on any Tax Return) have been paid. None of Holdings and its Subsidiaries
currently is the beneficiary of any extension of time within which to file any
material Tax Return. No claim has been made within the last three years by any
taxing authority in any jurisdiction where any of Holdings and its Subsidiaries
does not file Tax Returns that it is or may be subject to material Taxes imposed
by that jurisdiction. There are no Liens on any of the Assets of any of Holdings
and its Subsidiaries that arose in connection with any failure to pay any
material Taxes on or before the due date thereof without penalty, except to the
extent such Taxes are being disputed in good faith through proper proceedings.
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b. Each of Holdings and its Subsidiaries has withheld and paid
all material Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor or independent contractor or
other third party.
c. There is no currently pending audit or proceeding with
respect to Taxes in which any claim for material unpaid Taxes due from any of
Holdings and its Subsidiaries has been made in writing by any taxing authority,
and to the knowledge of Holdings and its Subsidiaries, no such claim for
material unpaid Taxes has been threatened. Section 3.7 of the Disclosure
Schedule lists all federal and all material state, local and foreign income Tax
Returns filed with respect to any of Holdings and its Subsidiaries for the
taxable periods ended on or after December 31, 1993, indicates which of those
Tax Returns have been audited by a taxing authority, and indicates which of
those Tax Returns are currently the subject of an audit by a taxing authority.
Holdings has made available to Buyer or its representatives correct and complete
copies of all federal income Tax Returns of Holdings and its Subsidiaries with
respect to taxable periods ending on or after December 31, 1993, (ii)
examination reports with respect to federal income Taxes issued since December
31, 1993, and (iii) statements of material federal income Tax deficiencies
assessed against or agreed to by any of Holdings and its Subsidiaries since
December 31, 1993.
d. None of Holdings and its Subsidiaries has waived or
extended any statute of limitations in respect of the assessment or collection
of material Taxes.
e. The Interim Balance Sheets contain adequate accruals or
reserves for all material unpaid Taxes of Holdings and its Subsidiaries with
respect to current and prior taxable periods, determined as of the date thereof
and in accordance with GAAP.
f. None of Holdings and its Subsidiaries has filed a currently
effective consent under Code Section 341(f)(2) concerning collapsible
corporations. None of Holdings and its Subsidiaries is obligated to make any
payments or is a party to any agreement that could obligate it to make any
payments in connection with the transactions herein contemplated that will not
be deductible under Code Section 280G. None of the Sellers is a foreign person
within the meaning of Code Section 1445. None of Holdings and its Subsidiaries
is a party to any Tax allocation or Tax sharing agreement. Since January 1,
1994, none of Holdings and its Subsidiaries has been a member of an Affiliated
Group other than a group the common parent of which is Holdings.
g. None of Holdings or any Subsidiary is bound by any
currently effective private ruling issued by a taxing authority or any currently
effective closing agreement or other similar settlement agreement with any
taxing authority which has a continuing effect with respect to material Taxes.
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h. None of Holdings or any of its Subsidiaries is subject to
any adjustment under Code Section 481(a) as a result of its agreement to any
change in accounting method, and there is no application pending with any taxing
authority requesting permission for any change in any accounting method of
Holdings or any Subsidiary.
i. Immediately following the Closing Date, neither Holdings
nor any of its Subsidiaries will have any material amount of income or gain that
has been deferred under Treasury Regulation Section 1.1502-13, or any material
excess loss account in a Subsidiary corporation under Treasury Regulation
Section 1.1502-19.
Section 3.8 Employee Benefits. Section 3.8 of the Disclosure
Schedule lists all Company Benefit Plans that any of Holdings and its
Subsidiaries maintains or to which any of Holdings and its Subsidiaries
contributes for the benefit of any current or former employee of any of Holdings
and its Subsidiaries.
a. Each Company Benefit Plan (and each related trust) complies
in form and in operation in all material respects with the applicable
requirements of ERISA and the Code.
b. All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each Company
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code Section 162(i) have been met with respect to each Company Benefit Plan.
c. All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
Company Benefit Plan which is qualified under Section 401 of the Code, and all
contributions to each Company Benefit Plan which is a welfare plan in accordance
with past custom and practice for any period ending or before the Closing Date
which are not yet due have been paid or accrued or remain unpaid and not
accrued, in accordance with the past custom and practice of Holdings and its
Subsidiaries. All premiums or other payments for all periods ending on or before
the Closing Date have been timely paid with respect to each Company Benefit Plan
which is a welfare plan in accordance with past custom and practice.
d. Each Company Benefit Plan intended to qualify under Code
Section 401(a) does so qualify and has received, within the last six years, a
favorable determination letter from the IRS.
e. Except as disclosed in Section 3.8(e) of the Disclosure
Schedule, the market value of Assets under each Company Benefit Plan subject to
Title IV of ERISA (other than any Multi-employer Plan) equals or exceeds the
present value of accrued benefit liabilities thereunder (determined on a plan
termination basis). The projected benefit obligation of
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Holdings or any of its Subsidiaries (as calculated using actuarial assumptions
used to calculate liabilities under FAS 87 with respect to post-employment
benefits accrued) under each Company Benefit Plan that is a defined benefit
pension plan is fully funded by Assets of such plan or by an adequate reserve on
the applicable balance sheet of Holdings or any of its Subsidiaries. No Company
Benefit Plan subject to Title IV of ERISA (other than any Multi-employer Plan)
has been completely or partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any Company Benefit Plan subject to Title IV
of ERISA (other than any Multi-employer Plan) has been instituted or, to the
knowledge of any of the Sellers and Holdings and its Subsidiaries, threatened.
f. There have been no Prohibited Transactions with respect to
any Company Benefit Plan. No Fiduciary has any liability for breach of fiduciary
duty or any other failure to act or comply in connection with the administration
or investment of the Assets of any Company Benefit Plans which would reasonably
be expected to result in liability to Holdings and its Subsidiaries. No charge,
complaint, action, suit, proceeding, hearing, claim, or demand with respect to
the administration or the investment of the Assets of any Company Benefit Plan
(other than routine claims for benefits) is pending or, to the knowledge of any
of the Sellers and Holdings and its Subsidiaries, threatened. None of the
Sellers, Holdings and its Subsidiaries has any knowledge of any basis for any
such charge, complaint, action, suit, proceeding, claim (other than routine
claims for benefits), or demand.
g. Holdings has delivered to Buyer correct and complete copies
of (A) the most recent plan documents and summary plan descriptions, (B) the
most recent determination letter received from the IRS, (C) the most recent Form
5500 Annual Report, and (D) the most recent related trust agreements, insurance
contracts, and other funding agreements which implement each Company Benefit
Plan.
h. None of Holdings or its Subsidiaries contributes to, ever
has contributed to, or ever has been required to contribute to any
Multi-employer Plan or has any liability (including withdrawal liability) under
any Multi-employer Plan. None of Holdings and its Subsidiaries has incurred any
liability to the PBGC (other than PBGC premium payments) or otherwise under
Title IV of ERISA (including any withdrawal liability) with respect to any
Company Benefit Plan that any of Holdings and its Subsidiaries maintains or ever
has maintained or to which any of them contributes, ever has contributed, or
ever has been required to contribute. Except as disclosed in Section 3.8 of the
Disclosure Schedule, none of Holdings and its Subsidiaries maintains or ever has
maintained or contributes, ever has contributed, or ever has been required to
contribute to any Company Benefit Plan providing health, accident, or life
insurance benefits coverage to former employees, their spouses, or their
dependents (other than in accordance with Code Section 162(k)).
Section 3.9 Litigation. Except (a) as set forth in Section 3.9
of the Disclosure Schedule, (b) for claims under worker's compensation or
similar laws, (c) for routine claims
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for employee benefits and (d) for claims for money damages alone of less than
$50,000 in each case, as of the date hereof there is no action, suit or
proceeding ("Litigation") pending or, to the knowledge of Holdings and its
Subsidiaries, threatened against Holdings or any of its Subsidiaries before any
court, arbitrator or administrative or governmental body which, if determined
adversely, would have a Material Adverse Effect on (i) the validity or
enforceability of this Agreement with respect to Holdings, (ii) the consummation
of the transactions contemplated by this Agreement or (iii) Holdings. Neither
Holdings nor any of its Subsidiaries is in default under any judgment, decree,
injunction, or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Holdings or any of its
Subsidiaries. The reserve accrued in the Financial Statements in respect of the
litigation set forth in Section 3.9 of the Disclosure Schedule is adequate to
meet Liabilities arising therefrom.
Section 3.10 No Violation. Except as set forth in Section 3.10
of the Disclosure Schedule, neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will result in the breach
or violation of any term or provision of, or constitute a default under, any
charter provision or bylaw of Holdings or any agreement, mortgage, note, bond,
license, indenture, instrument, order, decree, law or regulation to which
Holdings or any Subsidiary is a party or which is otherwise applicable to any of
them, which breach, violation or default would have a Material Adverse Effect on
(i) the validity or enforceability of this Agreement with respect to Holdings,
(ii) the consummation of the transactions contemplated by this Agreement or
(iii) Holdings.
Section 3.11 Labor Relations. Other than as set forth in
Section 3.11 of the Disclosure Schedule, (a) none of Holdings or any of its
Subsidiaries has violated any applicable federal or state law or regulation
relating to labor or labor practices, the violation of which would have a
Material Adverse Effect and (b) to the knowledge of Holdings and its
Subsidiaries, neither Holdings nor any of its Subsidiaries has been the subject
of any union activity or labor dispute which would have a Material Adverse
Effect.
Section 3.12 No Consents. Other than as set forth in Section
3.12 of the Disclosure Schedule or required by the HSR Act, no consent,
declaration, filing or approval or authorization of, or registration with, any
federal, state, municipal or local government or regulatory authority or any
other Person is required in connection with the execution and delivery of this
Agreement by Holdings or the consummation of the transactions contemplated
hereby, other than such consents, declarations, filings, approvals or
authorizations, which the failure to make or obtain, as the case may be,
individually or in the aggregate, would not have a Material Adverse Effect on
(i) the validity or enforceability of this Agreement with respect to Holdings,
(ii) the consummation of the transactions contemplated by this Agreement or
(iii) Holdings.
Section 3.13 Insurance. All material insurance policies and
the amount of coverage thereunder with respect to the property, Assets,
operations, and business of Holdings
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and its Subsidiaries (including, without limitation, life insurance policies)
are listed in Section 3.13 of Disclosure Schedule and are on the date of this
Agreement in full force and effect. Holdings and its Subsidiaries are covered by
insurance in amounts customary and reasonable for the businesses in which they
are engaged.
Section 3.14 Title To Properties. Holdings and its
Subsidiaries have good and indefeasible title to all of the Assets and
properties which they purport to own, as reflected on the Interim Balance
Sheets, that are material to the business of Holdings and its Subsidiaries,
taken as a whole (except for Assets and properties sold, consumed or otherwise
disposed of since the date of the Interim Balance Sheets or disclosed in Section
3.14 of the Disclosure Schedule), free and clear of all Liens, except for (i)
Liens for current taxes not yet due and payable or for taxes the validity of
which is being contested in good faith by appropriate proceedings, (ii) as set
forth in Section 3.14 of the Disclosure Schedule, (iii) purchase money Liens
arising in the ordinary course of business, (iv) Liens described in the
Financial Statements and (v) Liens which individually or in the aggregate would
not result in a Material Adverse Effect.
Section 3.15 Environmental Matters.
a. Except as described in Section 3.15 of the Disclosure
Schedule, each of Holdings and its Subsidiaries has made all filings and has
obtained all permits, licenses, other authorizations, registrations and other
governmental consents ("Environmental Permits") which are required under any
Environmental Laws, other than filings as to which the failure to effect, and
Environmental Permits as to which the failure to obtain, would not have a
Material Adverse Effect. None of Holdings and its Subsidiaries has any material
Liability under any Environmental Laws. There has been no disposal, release,
burial, or placement of Hazardous Materials by Holdings or any Subsidiary on any
property owned, operated or leased by Holdings or any Subsidiary which would
reasonably be expected to result or has resulted in contamination at
concentrations in excess of those allowed by current Environmental Laws and
which would reasonably be expected to result in Holdings or any Subsidiary
incurring material Liability under current Environmental Laws. To the knowledge
of Holdings and its Subsidiaries, there are no underground storage tanks,
underground injection wells, asbestos or equipment containing polychlorinated
biphenyls located at any site or facility currently owned or operated by
Holdings or any Subsidiary the presence of which violates Environmental Laws in
any material respect.
b. Except as described in Section 3.15 of the Disclosure
Schedule, Holdings and each of its Subsidiaries has conducted their operations
in compliance with all terms and conditions of such Environmental Permits, all
other applicable Environmental Laws, and any applicable order, decree, judgment
or agreement with any governmental authority or any arbitral award relating to
any Environmental Law, excluding from the operation of this sentence any
failures to comply that would not have a Material Adverse Effect.
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Section 3.16 Intellectual Property Rights. Section 3.16 of the
Disclosure Schedule sets forth all Intellectual Property of Holdings and its
Subsidiaries. Except as set forth in Section 3.16 of the Disclosure Schedule,
Holdings and its Subsidiaries have the right to use, free and clear of any
claims or rights of others, all Intellectual Property and, to the knowledge of
Holdings and its Subsidiaries, such use does not infringe on any patent,
trademark, copyright, service mark or trade name of others.
a. Holdings and its Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for the operation of the combined businesses of Holdings and
its Subsidiaries as presently conducted and as presently proposed to be
conducted. Each material item of Intellectual Property owned or used by any of
Holdings and its Subsidiaries immediately prior to the Closing hereunder will be
owned or available for use by Holdings and its Subsidiaries on substantially
similar terms and conditions immediately subsequent to the Closing hereunder.
Each of Holdings and its Subsidiaries has taken all necessary or desirable
action to protect each item of Intellectual Property that it owns or uses.
b. Except as disclosed in Section 3.16(b) of the Disclosure
Schedule, none of Holdings and its Subsidiaries has during the past five years
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and none of
Holdings and its Subsidiaries has during the past five years received any
charge, complaint, claim or notice alleging any such interference, infringement,
misappropriation, or violation. To the knowledge of Holdings and its
Subsidiaries, and except as disclosed in Section 3.16(b) of the Disclosure
Schedule, during the past five years no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any of Holdings and its Subsidiaries.
c. Section 3.16 of the Disclosure Schedule identifies each
patent or trademark or registration therefor which has been issued to any of
Holdings and its Subsidiaries with respect to any of its Intellectual Property,
identifies each pending patent or trademark application or application for
registration which any of Holdings and its Subsidiaries has made with respect to
any of its Intellectual Property, and identifies each license, agreement, or
other permission which any of Holdings and its Subsidiaries has granted to any
third party with respect to any of its Intellectual Property (together with any
exceptions).
d. Section 3.16 of the Disclosure Schedule identifies each
material item of Intellectual Property that any third party owns and that any of
Holdings and its Subsidiaries uses pursuant to license, sublicense, agreement or
permission. With respect to each such item of used Intellectual Property:
(i) the license, sublicense, agreement or permission
covering the item is legal, valid, binding, enforceable and in full force and
effect;
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(ii) the license, sublicense, agreement or permission
will continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the Closing;
(iii) no party to the license, sublicense, agreement
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder; and
(iv) no party to the license, sublicense, agreement
or permission has repudiated any provision thereof.
Section 3.17 Finder's Fees. Other than fees paid or payable to
Goldman Sachs and reasonable out-of-pocket expenses of the Representative
incurred in acting as such (which fees and expenses have been deducted from the
Gross Acquisition Purchase Price), neither Holdings nor any of its Subsidiaries
has incurred any obligation for any finder's, broker's or agent's fee in
connection with the transactions contemplated by this Agreement.
Section 3.18 Tangible Assets. Each of Holdings and its
Subsidiaries owns or leases all tangible Assets necessary for the conduct of its
business as presently conducted.
Section 3.19 Product Warranty. Each product manufactured or
sold by any of Holdings and its Subsidiaries has been in conformity with all
applicable contractual commitments and all express and implied warranties in all
material respects, and none of Holdings and its Subsidiaries has any Liability
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth in the
Financial Statements as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Holdings and its
Subsidiaries.
Section 3.20 Product Liability. None of Holdings and its
Subsidiaries has any knowledge of Liability arising out of any injury to persons
or property as a result of the ownership, possession, or use of any product
manufactured or sold by any of Holdings and its Subsidiaries except as disclosed
in Section 3.20 of the Disclosure Schedule and as to which Holdings has adequate
insurance coverage (including self-retention portions thereof), together with
(but not in duplication of) any reserves set forth in the Financial Statements,
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of Holdings and its Subsidiaries, to meet such
Liabilities.
Section 3.21 Material Contracts. Section 3.21 of the
Disclosure Schedule contains a true and complete list of each of the following
Contracts or other documents or arrangements (true and complete copies, or, if
none, written descriptions, of which have been made available to Buyer), to
which Holdings or any of its Subsidiaries is a party or by which any of its
Assets is or may be bound:
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a. all employment, agency, consultation, letter or memorandum
agreements, or representation Contracts or other Contracts of any type
(including without limitation loans or advances) with any present officer,
director, employee, agent, consultant, or other similar representative of
Holdings or any of its Subsidiaries (or former officer, director, employee,
agent, consultant or similar representative of Holdings or any of its
Subsidiaries if there exists any present or future Liability with respect to
such Contract) which are not terminable at will with 30 days' notice without
penalty or premium;
b. all Contracts with any Person containing any provision or covenant
limiting the ability of Holdings or any of its Subsidiaries to (i) sell any
products or services of any other Person, (ii) engage in any line of business,
or (iii) compete with or to obtain products or services from any Person or
limiting the ability of any Person to compete with or to provide products or
services to Holdings or any of its Subsidiaries;
c. all Contracts relating to the borrowing of money by Holdings or any
of its Subsidiaries, relating to the deferred purchase price for property or
services, or relating to the direct or indirect guarantee by Holdings or any of
its Subsidiaries of any Liability in excess of $500,000 individually or in the
aggregate, including without limitation any Contract relating to (i) the
maintenance of compensating balances that are not terminable without penalty
upon not more than 60 calendar days' notice, (ii) any line of credit or similar
facility, (iii) the payment for property, products, or services of any other
Person, or (iv) the obligation to take-or-pay, keep-well, make-whole, or
maintain equity or earnings levels or perform other financial ratios or
requirements;
d. all Contracts pursuant to which Holdings or any of its Subsidiaries
has agreed to indemnify or hold harmless any Person (other than indemnifications
in the ordinary and usual course of business and consistent substantially with
past practice);
e. all leases or subleases of real property used in the business,
operations, or affairs of Holdings or any of its Subsidiaries;
f. all Contracts with suppliers for raw materials which exceed $500,000
(other than purchase orders entered into in the ordinary and usual course of
business);
g. all sales Contracts with customers for finished goods which exceed
$500,000 (other than purchase orders entered into in the ordinary and usual
course of business);
h. all Contracts with other Persons to produce, package, market or sell
finished goods which exceed $500,000; and
i. all other Contracts that involve the payment or potential payment,
pursuant to the terms of such Contracts, by or to Holdings or any of its
Subsidiaries of more than
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$500,000 individually or in the aggregate or that are otherwise material to the
business or condition of Holdings or any of its Subsidiaries.
Holdings has made available to Buyer a true, accurate and complete copy of each
Contract disclosed or required to be disclosed in Section 3.21 of the Disclosure
Schedule. Each Contract disclosed or required to be disclosed in Section 3.21 of
the Disclosure Schedule is in full force and effect and constitutes a legal,
valid, and binding obligation of Holdings or any of its Subsidiaries, as
applicable, and, to the knowledge of Holdings or any of its Subsidiaries, as
applicable, of each other party thereto in accordance with its terms. Except as
set forth in Section 3.21 of the Disclosure Schedule, neither Holdings nor any
of its Subsidiaries has received any notice, whether written or oral, of
termination or intention to terminate from any other party to such Contract.
Neither Holdings nor any of its Subsidiaries nor (to the knowledge of either
Holdings or any of its Subsidiaries) any other party to such Contract is in
material violation or breach of or default under any such Contract (or with or
without notice or lapse of time or both, would be in violation or breach of or
default under any such Contract).
Section 3.22 Compliance with Laws. Except (i) as set forth in
Schedule 3.22 of the Disclosure Schedule, (ii) for Permits the failure of which
to obtain would not result, individually or in the aggregate, in a Material
Adverse Effect, and (iii) for Laws and Orders the violation of which would not
result, individually or in the aggregate, in a Material Adverse Effect, (a)
Holdings and its Subsidiaries hold all Permits necessary for the lawful conduct
of their businesses under and pursuant to, and (b) the businesses of Holdings
and its Subsidiaries are not otherwise being conducted in violation of, any Law
or Order.
Section 3.23 Disclosure. The representations and warranties
contained in this Article 3 do not contain any untrue statement of a fact or
omit to state any fact necessary in order to make the statements and information
contained in this Article 3 not misleading in any material respect.
ARTICLE 4.
REPRESENTATIONS AND
WARRANTIES OF SELLERS
Each Seller, severally and not jointly, for such Seller alone,
represents and warrants to Buyer that, as of the date of this Agreement:
Section 4.1 Ownership of Shares. Such Seller is the holder of
record and owns beneficially that number of Shares set forth opposite his, her
or its name on Exhibit A hereto. Such Seller owns the Shares set forth on such
exhibit free and clear of any Liens. Such Seller is not a party to any voting
trust, proxy or other agreement with respect to the voting of any
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Shares which will remain in force or effect after the Closing. Upon consummation
of the transactions contemplated hereby, such Seller will convey to Holdings
good title to the Shares set forth opposite his, her or its name under the
column titled "Shares Purchased by Holdings" on Exhibit A hereto free and clear
of any Liens.
Section 4.2 Authority. Such Seller has full legal capacity to
execute and deliver this Agreement and to perform the obligations of such Seller
hereunder. This Agreement has been duly and validly executed and delivered by
such Seller and, assuming this Agreement constitutes a valid and binding
obligation of Buyer, and each of the other Sellers, will constitute a valid and
binding obligation of such Seller, enforceable against it in accordance with its
terms, except to the extent that such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally, and the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefore may be brought. Each consent, authorization, order or
approval of, or filing or registration with, any governmental commission, board
or other regulatory body, or any other person required by applicable law on or
before the Closing Date for or in connection with the execution and delivery by
such Seller of this Agreement, or the performance by such Seller of his, her or
its obligations hereunder, will have been obtained or made on or before the
Closing Date, except where the failure to obtain any such consent,
authorization, order, approval, filing or registration would not affect such
Seller's ability to perform his, her or its obligations under this Agreement in
any material respect.
Section 4.3 No Conflicts. The execution, delivery and
performance by such Seller of this Agreement does not (i) violate or breach any
provision of any law or statute applicable to such Seller, except where the
violation or breach would not affect such Seller's ability to perform its
obligations under this Agreement in any material respect or (ii) violate,
breach, cause a default under, or result in the creation of a Lien pursuant to,
any agreement or instrument to which such Seller is a party or to which it or
any of its properties may be subject, except where the violation, breach,
default or creation of a Lien is not material to such Seller's ability to
perform the obligations of such Seller under this Agreement in any material
respect.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Holdings and Sellers that:
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Section 5.1 Organization and Good Standing. Buyer is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware. Buyer has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted.
Section 5.2 Authorization and Validity. Buyer has the
requisite partnership power and authority to enter into this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
Section 5.3 Investment Intent. Buyer represents that it is and
will be acquiring the Shares for investment only and for its own account and not
with a view to the distribution or resale of the Shares within the meaning of
the Securities Act of 1933, as amended (the "Act"). Buyer will refrain from
transferring or otherwise disposing of any of the Shares, or any interest
therein, in such manner as to cause Sellers or Holdings to be in violation of
the registration requirements of the Act or applicable state securities or blue
sky laws.
Section 5.4 No Violation. Neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will
result in the breach or violation of any term or provision of, or constitute a
default under, the limited partnership agreement, as amended, or Certificate of
Limited Partnership (or other comparable constituent documents) of Buyer, or any
agreement, mortgage, note, bond, license, indenture, instrument, judgment,
order, decree, law, rule or regulation to which Buyer is a party or which is
otherwise applicable to Buyer, which breach, violation or default would have a
Material Adverse Effect on (i) the validity or enforceability of this Agreement
with respect to Buyer, (ii) the consummation of the transactions contemplated
under this Agreement or (iii) Buyer.
Section 5.5 No Consents. Except as required by the HSR Act, no
consent, declaration, filing or approval or authorization of, or registration
with, any federal, state, municipal or local governmental or regulatory
authority or any other person or entity is required in connection with the
execution and delivery of this Agreement by Buyer, or the consummation by Buyer
of the transactions contemplated hereby, other than such consents, declarations,
filings, approvals or authorizations, which the failure to make or obtain, as
the case may be, individually or in the aggregate, would not have a Material
Adverse Effect on (i) the validity or enforceability of this Agreement with
respect to Buyer, (ii) the consummation of the transactions contemplated by this
Agreement or (iii) Buyer.
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Section 5.6 Litigation. There are currently no pending, and to
the knowledge of Buyer, any threatened, lawsuits or administrative proceedings
against Buyer, or to which any of its Assets are subject, which could reasonably
be expected to have a Material Adverse Effect on the ability of Buyer to
consummate the transactions contemplated by this Agreement. Buyer is not subject
to any currently existing order, writ, injunction or decree relating to its
operations or any of its Assets which has, or would have, a Material Adverse
Effect on (i) the validity or enforceability of this Agreement with respect to
Buyer, (ii) the consummation of the transactions contemplated by this Agreement
or (iii) Buyer.
Section 5.7 Financing. Buyer has delivered to Holdings and the
Representative a true and complete copy of (i) a letter of commitment obtained
by Buyer from NationsBank, N.A. and NationsBanc Montgomery Securities, Inc. to
provide debt financing for the transactions contemplated hereby pursuant to a
senior credit facility; and (ii) a letter of commitment obtained by Buyer from
NationsBridge, L.L.C. with respect to senior subordinated debt financing for the
transactions contemplated hereby pursuant to the sale by Holdings of senior
subordinated notes (collectively, the "Financing Commitments"). Executed copies
of the Financing Commitments are attached hereto as Exhibit C. Assuming that the
financing contemplated by the Financing Commitments is consummated in accordance
with the terms thereof, the funds to be borrowed and/or provided thereunder by
Buyer and Holdings, together with additional equity available to Buyer, will
provide sufficient funds to pay the Gross Acquisition Purchase Price, plus the
Adjusted Working Capital and all related fees and expenses. As of the date of
this Agreement, Buyer is not aware of any facts or circumstances that create a
reasonable basis for Buyer to believe that Buyer and Holdings will not be able
to obtain financing in accordance with the terms of the Financing Commitments
and Buyer agrees to promptly notify Holdings and the Representative if it
becomes aware of any such facts and circumstances. Buyer agrees with Holdings
and the Representative that it will not waive, release, modify, rescind,
terminate or otherwise amend any of the material terms or conditions in the
commitment letters referred to in this Section 5.7, other than changes that are
favorable to the obligor without adversely affecting the equity structure of
Holdings without the prior written consent of Holdings and the Representative.
Section 5.8 Finder's Fee. Buyer has not incurred any
obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
Section 5.9 Solvency. As of and from and after the date of
this Agreement and after giving effect to the consummation of the Related
Transactions, Holdings and its Subsidiaries: (a) owns and will own Assets the
fair saleable value of which are (i) greater than the total amount of
Liabilities (including contingent Liabilities) of such Person and (ii) greater
than the amount that will be required to pay the probable Liabilities of such
Person's then existing debts as they become absolute and matured considering all
financing alternatives and potential Asset sales reasonably available to such
Person; (b) has capital that is not unreasonably small in relation to its
business as presently conducted or any contemplated or
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undertaken transaction; and (c) does not intend to incur and does not believe
that it will incur debts beyond its ability to pay such debts as they become
due.
ARTICLE 6.
COVENANTS OF HOLDINGS
Holdings covenants and agrees that between the date hereof and
the Closing, except to the extent Buyer may otherwise consent in writing (which
consent shall not be unreasonably withheld):
Section 6.1 Reasonable Efforts. Holdings shall take, and shall
cause each of its Subsidiaries to take, all commercially reasonable steps which
are within their respective power to cause to be fulfilled those of the
conditions precedent to Buyer's obligations to consummate the transactions
contemplated hereby which are dependent upon the actions of any of them.
Section 6.2 Hart-Scott-Rodino. Holdings will (i) take promptly
all actions necessary to make the filings required of Holdings or its Affiliates
under the HSR Act with respect to the transactions contemplated by this
Agreement, (ii) comply at the earliest practicable date with any request for
additional information received by Holdings or its Affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act, (iii) not (A) extend any waiting period under the HSR Act or (B)
enter into any agreement with any governmental agency not to consummate the
transactions contemplated by this Agreement, except with the prior consent of
Buyer, and (iv) cooperate with Buyer in connection with the filing by or on
behalf of Buyer under the HSR Act with respect to the transactions contemplated
by this Agreement and use its commercially reasonable efforts to cause the
lifting or removal of any temporary restraining order or preliminary injunction
which may be entered in connection with the transactions contemplated by this
Agreement as may be necessary to secure the expiration or termination of the
applicable waiting periods under the HSR Act or the removal, dissolution, stay
or dismissal of any injunction, restraining order or other judicial or
administrative order which prevents the consummation of the transactions
contemplated hereby.
Section 6.3 Business Operations. Except as contemplated by
this Agreement, as set forth in Section 6.3 of the Disclosure Schedule or with
the prior written consent of Buyer (which consent shall not be unreasonably
withheld) during the period from the date of this Agreement to the Closing Date,
Holdings will, and will cause each of its Subsidiaries to, conduct its business
and operations according to its ordinary and usual course of business. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement, neither Holdings nor any of its Subsidiaries will, prior to
the Closing Date, without the prior written consent of Buyer (which consent
shall not be unreasonably withheld):
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i. dispose of any material Assets other than in the
ordinary and usual course of business;
ii. change its certificate of incorporation or bylaws
or merge or consolidate with or into any entity or obligate itself to do so;
iii. issue, sell or pledge, or authorize or propose
the issuance, sale or pledge of, additional shares of capital stock of any class
(including shares of Common Stock) (other than as a result of the exercise of
options or warrants outstanding on the date hereof or pursuant to the
transactions contemplated by this Agreement), or securities convertible into any
such shares, or any rights, warrants or options to acquire any such shares or
other convertible securities or declare, set aside or pay any dividend or other
distribution on or in respect of shares of its capital stock, or redeem, retire
or purchase any of such shares (other than payments in respect of options or
warrants outstanding on the date hereof or pursuant to the transactions
contemplated by this Agreement);
iv. other than in the ordinary and usual course of
its business, discharge or satisfy any Lien or indebtedness which is
individually or in the aggregate material to the business, operations or
financial condition of Holdings and its Subsidiaries, taken as a whole, except
those required to be discharged or satisfied in accordance with their terms
during such period (excluding those required to be discharged or satisfied as a
result of any acceleration or default);
v. other than in the ordinary and usual course of its
business or consistent with its annual budget, make any capital expenditures;
vi. other than in the ordinary and usual course of
its business, institute, settle or agree to settle any Litigation, action or
proceeding before any court or governmental body which is individually or in the
aggregate material to the business, operations or financial condition of
Holdings and its Subsidiaries, taken as a whole;
vii. other than in the ordinary and usual course of
its business, mortgage, pledge or subject to any other encumbrance, any of its
property or Assets, tangible or intangible, which is individually or in the
aggregate material to the business, operations or financial condition of
Holdings and its Subsidiaries, taken as a whole;
viii. authorize any compensation increases for any
employee except for normal increases in the ordinary and usual course of
business;
ix. other than in the ordinary and usual course of
its business, cancel or terminate any policies of insurance with respect to any
of Holdings' or any of its Subsidiaries' insurable properties which are
individually or in the aggregate material to
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the business, operations or financial condition of Holdings and its
Subsidiaries, taken as a whole; or
x. other than in the ordinary and usual course of its
business, cancel any lease to which Holdings or its Subsidiaries is a party
which is individually or in the aggregate material to the business, operations
or financial condition of Holdings and its Subsidiaries, taken as a whole.
Section 6.4 Competing Proposals. From and after the date
hereof through the earlier of the date specified in Section 10.2 or the Closing
Date, Sellers and Holdings will not, and will direct their advisors and
representatives not to, directly or indirectly, (i) encourage or solicit any
inquiries or proposals by, or furnish any confidential information to, any
person (other than any holder of Shares or pursuant to the terms of this
Agreement) concerning a transaction involving a merger, recapitalization,
acquisition or purchase of Holdings and any of its Subsidiaries or the purchase,
sale, issuance (other than pursuant to exercises of options outstanding on the
date hereof) or encumbrance of any portion of their respective capital stock or
Assets (an "Alternative Transaction"), (ii) engage in any discussions or
negotiations concerning any Alternative Transaction or (iii) enter any agreement
or understanding concerning any Alternative Transaction. Upon the execution of
this Agreement, (i) to the extent that any confidential information regarding
Holdings or any of its Subsidiaries has been furnished prior to the date hereof
to any third party in connection with an Alternative Transaction proposed by
such third party, Holdings shall, as promptly as practicable, request that such
third party return to Holdings or destroy such confidential information and (ii)
Holdings shall cancel any meetings with any such third party for the purpose of
such third party conducting a due diligence investigation of Holdings.
Section 6.5 Access.
a. Prior to the Closing, Holdings shall permit the authorized
representatives of Buyer to meet with the management of Holdings and its
Subsidiaries and their representatives and to have access (upon reasonable prior
notice) during normal business hours to all the properties, financial,
accounting and business records and documents of Holdings and its Subsidiaries,
but only to the extent that such access does not unreasonably interfere with the
business and operations of Holdings and its Subsidiaries, and shall furnish to
Buyer and its representatives such financial records and other documents, or, at
Buyer's reasonable request, copies thereof, with respect to Holdings' and its
Subsidiaries' operations and business as Buyer shall reasonably request in order
that Buyer may conduct, among other things, a commercial, accounting, legal,
insurance and non-invasive environmental investigation of the business and
affairs of Holdings and its Subsidiaries, except that the furnishing of any such
records or documents or other information to Buyer hereunder shall be limited,
or reasonable procedures shall be implemented, to the extent necessary to avoid
any potential violation of law or anticompetitive concerns. In addition, during
the period commencing at the time this Agreement is executed and contact names
and telephone numbers are supplied to Buyer and
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continuing until two business days thereafter (the "Initial Period"), Buyer
shall be permitted to contact those customers of the business set forth on
Exhibit D hereto as to those matters specifically agreed upon between Buyer and
senior management of Holdings ("Customer Calls"); provided, however, that to the
extent, in the reasonable judgment of senior management of Holdings, Buyer has
used commercially reasonable efforts to make the Customer Calls and has failed
to complete same, the Initial Period shall be extended an additional two
business days.
b. Buyer acknowledges and agrees that any information provided
to Buyer pursuant to Section 6.5(a) above, or otherwise in connection with this
Agreement and the transactions contemplated hereby, shall be subject to the
Confidentiality Agreement dated July 12, 1997 between Goldman Sachs (on behalf
of Holdings) and Buyer (the "Confidentiality Agreement").
Section 6.6 Notice of Developments. The Sellers and Holdings
will give prompt written notice to Buyer of any material development affecting
the Assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of Holdings and its Subsidiaries taken as a
whole. The Sellers and Holdings will give prompt written notice to Buyer of any
material development affecting the ability of the Sellers or Holdings to
consummate the transactions contemplated by this Agreement. No disclosure
pursuant to this Section 6.6, however, shall be deemed to amend or supplement
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant, absent the express written agreement, waiver or
consent of Buyer.
Section 6.7 Preservation of Business. Except as set forth in
Section 6.7 of the Disclosure Schedule, as contemplated herein or as otherwise
consented to by Buyer, during the period from the date of this Agreement and
continuing until the Closing Date, Holdings will, and will cause its
Subsidiaries to, use their respective commercially reasonable efforts to (i)
carry on the business in the usual, regular and ordinary course as presently
conducted and consistent with past practice, (ii) keep the business intact,
(iii) keep available the services of the present employees of the business, and
(iv) maintain the goodwill associated with the business, including but not
limited to preserving the relationships of customers, suppliers and others
having business dealings with the business.
Section 6.8 Financial Information. Holdings will furnish Buyer
within 20 days after the end of each month ending prior to the Closing Date, a
consolidated balance sheet for Holdings and its Subsidiaries as at such
month-end and related consolidated statements of operations and cash flows for
such month and the year-to-date period then ended, in each case prepared in
accordance with GAAP (subject to normal year-end audit adjustments and the
absence of footnotes).
Section 6.9 Resignations of Directors. The Sellers will cause
such members of the board of directors and such officers of Holdings as are
designated by Buyer to tender,
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effective at the Closing, their resignations from such board of directors or
from such offices. If requested by Buyer, the Sellers will cause the election of
Buyer's nominees to such board of directors simultaneously with the Closing if
such election is necessary to carry out the transactions contemplated hereunder.
Section 6.10 Cooperation with Respect to Refinancings.
Holdings and its Subsidiaries shall use all commercially reasonable efforts to
cooperate with Buyer and its Affiliates and their respective representatives,
agents, financial consultants, advisors, counsel, accountants, and financing
sources in connection with Buyer's compliance with its covenant regarding the
refinancing of certain obligations of Holdings and its Subsidiaries set forth in
Section 7.3 hereof. Such cooperation shall include, without limitation, (i)
providing access to and the assistance of officers and employees of, and
financial consultants, advisors, accountants, and counsel to, Holdings and its
Subsidiaries to the extent that providing such access and assistance does not
unreasonably interfere with the operation of the businesses of Holdings and its
Subsidiaries, (ii) providing access to the books and records of Holdings and its
Subsidiaries to the extent that providing such access does not unreasonably
interfere with the operation of the businesses of Holdings and its Subsidiaries,
(iii) the preparation, adoption, approval, and delivery of documents and
instruments (including financing documents, board resolutions, officers'
certificates and legal opinions), (iv) causing the release and discharge of
Liens and the termination of all agreements relating to the obligations being
refinanced, and (v) waiving any required notice or waiting periods applicable
with respect to the discharge of any such obligations. Holdings and its
Subsidiaries shall use their respective commercially reasonable efforts to cause
the lenders under its credit facility to waive any right they may have to
receive any premium, prepayment penalties, make-whole amounts or similar
payments or amounts upon the refinancing of the indebtedness outstanding
thereunder as contemplated by Section 7.3 of this Agreement; provided, however,
that such commercially reasonable efforts shall not include the payment of any
such amounts by any Seller or Holdings.
Section 6.11 Intellectual Property. Holdings shall cause to be
removed or cleared the Liens and the title matters on certain trademarks and
patents set forth on the attached Exhibit E prior to Closing (other than in
respect of Bankers Trust).
Section 6.12 Accrual for Management Bonuses. At the Closing
Date, Holdings shall have accrued as a current Liability $1.2 million on its
financial books and records for the payment of management bonuses (the
"Management Bonuses") in accordance with the terms of Holdings' Management Bonus
Plan.
Section 6.13 Termination of Financial Advisory. At Closing,
Holdings shall cause the termination of all financial advisory agreements by and
among Holdings, Desa International, Inc. and Hicks, Muse, Tate & Furst
Incorporated.
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ARTICLE 7.
COVENANTS OF BUYER
Buyer covenants and agrees that between the date hereof and
the Closing, except to the extent the Representative may otherwise consent in
writing (which consent shall not be unreasonably withheld):
Section 7.1 Reasonable Efforts. Buyer shall take all
commercially reasonable steps which are within its power to cause to be
fulfilled those of the conditions precedent to Sellers' obligations to
consummate the transactions contemplated hereby which are dependent upon the
actions of Buyer.
Section 7.2 Hart-Scott-Rodino. Buyer will (i) take promptly
all actions necessary to make the filings required of Buyer or its Affiliates
under the HSR Act with respect to the transactions contemplated by this
Agreement, (ii) comply at the earliest practicable date with any request for
additional information received by Buyer or its Affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act, (iii) not (A) extend any waiting period under the HSR Act or (B)
enter into any agreement with any governmental agency not to consummate the
transactions contemplated by this Agreement, except with the prior consent of
both the Representative and Holdings, and (iv) cooperate with Holdings and its
Subsidiaries and any Seller in connection with the filing by or on behalf of
Holdings and its Subsidiaries or such Seller under the HSR Act with respect to
the transactions contemplated by this Agreement and use its commercially
reasonable efforts to cause the lifting or removal of any temporary restraining
order or preliminary injunction which may be entered in connection with the
transactions contemplated by this Agreement, and such cooperation shall include
the execution, delivery and performance by Buyer of such divestiture agreements
or other actions, as the case may be, as may be necessary to secure the
expiration or termination of the applicable waiting periods under the HSR Act or
the removal, dissolution, stay or dismissal of any injunction, restraining order
or other judicial or administrative order which prevents the consummation of the
transactions contemplated hereby or requires as a condition thereto that all or
any part of the business and Assets of Buyer or Holdings be held separate.
Section 7.3 Refinancing Certain Obligations.
(a) Contemporaneously with the Closing and with the
cooperation of the Sellers and Holdings as provided in Section 6.10 hereof and
subject to the condition set forth in Section 9.8, Buyer shall cause (i) the
indebtedness outstanding under the Credit Agreement among Holdings, the
Operating Subsidiary, the lenders party thereto, and Bankers Trust Company, as
Agent, dated as of November 30, 1993 and amended and restated as of January 12,
1996, to be paid in full and (ii) all prepayment penalties and fees in
connection with the repayment of the amounts set forth under item (i) to be paid
in full.
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(b) Contemporaneously with the Closing, Buyer shall cause the
funding contemplated by the Financial Commitments (including without limitation
the Bridge Commitment Letter to the extent necessary) to be provided by the
lender(s) named therein, subject to the conditions set forth in Section 9.8.
Section 7.4 Leverage Ratio.
(a) Subject to the fulfillment of the conditions to funding
contained in the Bridge Commitment Letter, to the extent that, on a pro forma
basis after giving effect to the consummation of the Related Transactions, the
debt to EBITDA ratio as defined in the Bridge Commitment Letter described under
the heading "Principal" in Exhibit A to the Bridge Commitment Letter is such
that it would exceed 6.0 to 1.0, Buyer shall provide such additional equity
capital by purchasing additional shares of Common Stock from Holdings in amounts
sufficient to assure that the condition to closing set forth in Section 9.8 is
met (unless noncompliance with such debt to EBITDA ratio is waived by
NationsBridge, L.L.C.).
(b) Buyer will not knowingly or intentionally take or agree or
commit to take any action to prohibit or prevent the financing sources of Buyer
and Holdings or its Subsidiaries from providing the debt and equity financing
contemplated by the Financing Commitments.
Section 7.5 Indemnification; Insurance.
a. For a period of six years from and after the Closing Date,
Buyer shall, and shall cause Holdings to, indemnify and hold harmless to the
fullest extent permitted under applicable law each person who is now an officer
or director of Holdings (or any Subsidiary thereof) (individually, and for
purposes of this Section 7.6 only, an "Indemnified Party" and collectively, the
"Indemnified Parties") against all losses, claims, damages, liabilities, costs
or expenses (including reasonable attorneys' fees), judgments, fines, penalties
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation (and shall pay reasonable expenses for legal fees in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under applicable law upon
receipt from any Indemnified Party of any undertaking contemplated by applicable
law, including, without limitation, an undertaking to reimburse Buyer or
Holdings for such expenses paid in advance in the event that it is ultimately
determined that such Indemnified Party is not entitled to the payment of such
expenses for any reason) arising out of or pertaining to acts or omissions, or
alleged acts or omissions, by them in their capacities as such prior to the
Closing Date, whether commenced, asserted or claimed before the Closing Date and
including, without limitation, liabilities arising under the Act, the Exchange
Act and state corporation laws; provided that Holdings shall pay for only one
law firm (in addition to local counsel) for all Indemnified Parties, unless the
use of one law firm for all Indemnified Parties would present such law firm with
a conflict of interest. For a period of six years from and after the Closing
Date and except as may be required by applicable law, Buyer shall cause
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Holdings to keep in effect Holdings' current provisions in its certificate of
incorporation and bylaws providing for exculpation of director and officer
liability and indemnification of the Indemnified Parties to the fullest extent
permitted under the General Corporation Law of the State of Delaware. In the
event of any actual or threatened claim, action, suit, proceeding or
investigation in respect of such acts or omissions, Buyer shall cause Holdings
to cooperate in the defense of any such matter; provided, however, that neither
Buyer nor Holdings shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld).
Notwithstanding the prior provisions of this paragraph, the indemnity provided
herein shall not apply to any Seller to the extent that any action is brought
against a Seller in his capacity as a Seller hereunder.
(b) From and after the Closing Date, Buyer shall, or shall
cause Holdings to, maintain in effect for a period ending not earlier than the
six year anniversary of the Closing Date directors' and officers' liability
insurance providing a minimum of $25 million in coverage and otherwise having
the same coverage with respect to Holdings' officers and directors as the
current policy maintained by Holdings, with respect to matters occurring prior
to or existing as of the Closing Date, including the transactions contemplated
by this Agreement and the Related Transactions, to the extent such insurance is
commercially available at reasonable cost with respect to such matters.
Section 7.6 Certificate of Incorporation. Buyer agrees that
Holdings may amend its certificate of incorporation after the date hereof and
prior to the Closing Date to the extent necessary to permit the valid issuance
of the Newly Issued Shares.
Section 7.7 Solvency Opinion. Buyer agrees that, to the extent
any lender under the Financing Commitments requires that Buyer cause the
delivery of a solvency opinion in respect of the Related Transactions, Buyer
shall cause such opinion to be addressed and delivered to the Current Board
dated as of the Closing Date.
Section 7.8 Payment of Management Bonuses. Following the
Closing, Buyer shall cause the Management Bonuses in the amount of $1.2 million
to be paid in accordance with Holdings' customary procedures and the terms of
Holdings' Management Bonus Plan.
ARTICLE 8.
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligation of each of Sellers under this Agreement to
close the transactions contemplated hereby is subject to the satisfaction at or
prior to the Closing of each of the following conditions:
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Section 8.1 Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement shall have
been true and correct in all respects as of the date hereof and as of the
Closing Date, with the same effect as though such representations and warranties
had been made as of the Closing Date (except for any representation or warranty
that expressly relates to an earlier date, in which case it shall have been true
and correct as of such earlier date), except where the failure of the
representations and warranties to be true and correct in all respects as of such
date would not have a Material Adverse Effect on Buyer's ability to perform its
obligations hereunder. In determining whether such failure to perform or comply
has resulted in a Material Adverse Effect, the terms "material," "materially,"
"material adverse effect" or similar terms, if contained in the text of the
subject covenant or agreement, shall be disregarded.
Section 8.2 Performance. Buyer shall have performed and
complied with in all respects all the covenants and agreements required by this
Agreement to be performed or complied with by Buyer at or prior to the Closing,
except where the failure to perform and comply with such covenants and
agreements would not have a Material Adverse Effect on Buyer or on Buyer's
ability to perform its obligations hereunder. In determining whether such
failure to perform or comply has resulted in a Material Adverse Effect, the
terms "material," "materially," "material adverse effect" or similar terms, if
contained in the text of the subject covenant or agreement, shall be
disregarded.
Section 8.3 No Legal Bar. There shall not be in effect on the
Closing Date any Law, Order, writ, injunction or decree of any governmental body
of competent jurisdiction prohibiting or making illegal the consummation of the
transactions contemplated by this Agreement.
Section 8.4 HSR Act. Any waiting period applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
Section 8.5 Certificate. The Representative shall have
received a certificate to the effect of Sections 8.1, 8.2 and 8.4 signed by an
executive officer of Buyer and dated as of the Closing Date.
Section 8.6 Stockholders Agreement. The Stockholders Agreement
shall have been duly executed and delivered by Buyer.
Section 8.7 Proceedings; Opinions. All actions to be taken by
Buyer in connection with the consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby will be reasonably satisfactory
in form and substance to Holdings and the Representative. Holdings and the
Sellers shall have received from counsel to Buyer a legal opinion reasonably
satisfactory in form and substance to Holdings and the Representative.
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Section 8.8 Exercise of Options. Each holder of Options on the
date of the Stock Purchase Agreement shall have (i) exercised, (ii) been deemed
to have exercised or (iii) elected to terminate his or her Options prior to the
date hereof. In the event any such holder of Options shall have exercised or
been deemed to have exercised his or her Options, such holder shall (i) retain,
if applicable, that number of shares of Common Stock set forth opposite such
holder's name under the column titled "Shares Retained by Seller" on Exhibit A
hereto and/or (ii) sell to the Company that number of shares of Common Stock set
forth opposite such holder's name under the column titled "Shares Purchased by
Holdings" on Exhibit A hereto.
ARTICLE 9.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer under this Agreement to close the
transactions contemplated hereby is subject to the satisfaction at or prior to
the Closing of each of the following conditions:
Section 9.1 Representations and Warranties. The
representations and warranties of Holdings and Sellers contained in this
Agreement shall have been true and correct in all respects as of the date hereof
and as of the Closing Date, with the same effect as though such representations
and warranties had been made as of the Closing Date (except for any
representation or warranty that expressly relates to an earlier date, in which
case it shall have been true and correct as of such earlier date), except where
the failure of the representations and warranties to be true and correct in all
respects as of such date would not have a Material Adverse Effect on Holdings or
on Holdings' or the Sellers' ability to perform their obligations hereunder. In
determining whether such breach has resulted in a Material Adverse Effect, the
terms "material," "materially," "material adverse effect" or similar terms, if
contained in the text of the subject representation or warranty, shall be
disregarded.
Section 9.2 Performance. Holdings and Sellers shall have
performed and complied with in all respects all the covenants and agreements
required by this Agreement to be performed or complied with by them at or prior
to the Closing, except where the failure to perform and comply with such
covenants and agreements would not have a Material Adverse Effect on Holdings or
on Holdings' or the Sellers' ability to perform their obligations hereunder. In
determining whether such failure to perform or comply has resulted in a Material
Adverse Effect, the terms "material," "materially," "material adverse effect" or
similar terms, if contained in the text of the subject covenant or agreement,
shall be disregarded.
Section 9.3 No Legal Bar. There shall not be in effect on the
Closing Date any Law, Order, writ, injunction or decree of any governmental body
of competent jurisdiction
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prohibiting or making illegal the consummation of the transactions contemplated
by this Agreement.
Section 9.4 HSR Act. Any waiting period applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
Section 9.5 Holdings Options. In accordance with Holdings'
1994 Stock Option Plan (the "Plan"), the board of directors of Holdings (or any
authorized committee thereof) shall have declared all outstanding options
("Options") to purchase Common Stock issued under the Plan immediately
exercisable, and all such Options shall have been exercised or terminated on or
prior to the date hereof in accordance with the Plan.
Section 9.6 Certificate. Buyer shall have received a
certificate to the effect of Sections 9.1, 9.2, 9.4, and 9.5 as they apply to
Holdings signed by an executive officer of Holdings and dated as of the Closing
Date.
Section 9.7 Purchase. Holdings shall have received from
Sellers such instruments of transfer, assignment, conveyance and other
instruments sufficient to convey, transfer and assign to Holdings all right,
title and interest in and to the Purchased Shares.
Section 9.8 Financing. The financing of the transactions
contemplated in the Financing Commitments heretofore delivered by Buyer to
Holdings and the Representative shall have been funded by such lenders;
provided, however, that the funding of the Financing Commitments by the lenders
shall only be a condition to Closing to the extent the Financing Commitments
have not been waived, released, modified, rescinded, terminated or otherwise
amended with respect to any of the material terms and conditions contained
therein other than changes that are favorable to the obligor without adversely
affecting the equity structure of Holdings without the prior written consent of
Holdings and the Representative.
Section 9.9 Employment Agreements. Robert H. Elman, Terry G.
Scariot and John M. Kelly shall have executed and delivered amendments to their
current employment agreements with Holdings or any Subsidiary, effective from
and after the Closing, substantially as set forth in Exhibit F hereto.
Section 9.10 Proceedings; Opinions. All actions to be taken by
the Sellers and Holdings and its Subsidiaries in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Buyer. Buyer shall have received from counsel to Sellers and Holdings a legal
opinion reasonably satisfactory in form and substance to Buyer.
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Section 9.11 Stockholders Agreement. The Stockholders
Agreement shall have been duly executed and delivered by the Sellers and
Holdings and all other stockholders of Holdings who continue to be stockholders
following the Closing Date. In addition, that certain Stockholders Agreement,
dated as of December 1, 1993, as amended, among Holdings and the stockholders of
Holdings signatory thereto, shall have been terminated.
ARTICLE 10.
TERMINATION
Section 10.1 Termination by Mutual Consent. This Agreement may
be terminated at any time prior to the Closing by the mutual written consent of
Buyer, Holdings and the Representative.
Section 10.2 Termination by Either Holdings or Buyer. This
Agreement may be terminated by Holdings or Buyer at any time:
a. if the Closing shall not have occurred on or before December 1,
1997; provided, that the terminating party shall not have breached its
obligations under this Agreement in any manner that shall have proximately
contributed to the failure of the Closing to occur; or
b. if a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or administrative
agency or commission shall have issued an Order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
Section 10.3 Termination by Holdings. This Agreement may be
terminated at any time prior to the Closing by Holdings if there shall have been
a breach of any representation, warranty, covenant or agreement on the part of
Buyer which breach shall not have been cured within 10 days following delivery
to Buyer of written notice of such breach (but such time period shall be
extended for so long as Buyer is diligently pursuing a cure of such breach or,
if more than one, aggregate then-existing breaches, and such cure is reasonably
susceptible of being effected prior to December 1, 1997); provided, that
Holdings may not terminate this Agreement pursuant to this section unless such
breach or breaches, individually or collectively, have resulted in a Material
Adverse Effect on Buyer or on the ability of Buyer to perform its obligations
hereunder, understanding that time is of the essence in such performance. In
determining whether such breach has resulted in a Material Adverse Effect, the
terms "material," "materially," "material adverse effect" or similar terms, if
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contained in the text of the subject representation, warranty, covenant or
agreement, shall be disregarded.
Section 10.4 Termination by Buyer.
a. This Agreement may be terminated at any time prior to the
Closing by Buyer if there shall have been a breach of any representation,
warranty, covenant or agreement on the part of Holdings or any Seller which
breach shall not have been cured within 10 days following delivery to Holdings
(and, in the case of a breach by Seller(s), such Seller(s)) of written notice of
such breach (but such time period shall be extended for so long as Holdings or
Seller(s), as the case may be, are diligently pursuing a cure of such breach or,
if more than one, aggregate then-existing breaches, and such cure is reasonably
susceptible of being effected prior to December 1, 1997). In addition, if in the
reasonable judgment of Buyer, it has learned any information during the course
of its Customer Calls that would lead Buyer to believe that Holdings and its
Subsidiaries, taken as a whole, have suffered or are subject to a material
diminution in value, this Agreement may be terminated by Buyer within a period
of four business days after the date hereof. Buyer may not terminate this
Agreement pursuant to the first sentence of this Section 10.4(a) unless such
breach or breaches, individually or collectively, have resulted in a Material
Adverse Effect on Holdings or on the ability of Sellers and Holdings to perform
their obligations hereunder. In determining whether such breach has resulted in
a Material Adverse Effect, the terms "material," "materially," "material adverse
effect" or similar terms, if contained in the text of the subject
representation, warranty, covenant or agreement, shall be disregarded.
(b) In the event (i) the Closing shall not have occurred on or
before December 1, 1997, (ii) all conditions to Buyer's obligations to
consummate the transactions contemplated by this Agreement (other than those
that have not been met as a result of a material breach of this Agreement by
Buyer) shall have been met on December 1, 1997, (iii) this Agreement shall not
have been validly terminated pursuant to Section 10.1, 10.2(b) or Section
10.4(a) on or before December 1, 1997, and (iv) Buyer shall not have the right,
as of December 1, 1997, to terminate this Agreement pursuant to Section 10.4(a),
then the Sellers, collectively, shall be entitled to recover from Buyer
liquidated damages of $4,000,000. It is understood and agreed that such
liquidated damage amount represents the Sellers' reasonable estimate of actual
damages and does not constitute a penalty. Recovery of liquidated damages shall
be the sole and exclusive remedy of the Sellers and Holdings with respect to the
failure by Buyer to consummate the transactions contemplated by this Agreement
and shall be applicable regardless of the actual amount of damages sustained by
any of the Sellers or Holdings and all other remedies are deemed waived by the
Sellers and Holdings.
Section 10.5 Effect of Termination. If this Agreement is
validly terminated by Holdings or Buyer pursuant to Article 10 hereof, this
Agreement will forthwith become null and void and there will be no liability or
obligation on the part of Holdings, Sellers or Buyer (or any of their respective
officers, directors, partners, employees, agents or other
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representatives or Affiliates), except that the provisions of this Section 10.5
and Section 6.5(b) will continue to apply following any such termination and
nothing contained herein shall relieve any party hereto from liability for any
willful and material breach of its representations, warranties, covenants or
agreements contained in this Agreement.
Section 10.6 Specific Performance. The parties recognize that
if any Seller or Holdings refuses to perform under the provisions of this
Agreement, monetary damages alone will not be adequate to compensate Buyer for
its injury. Buyer shall therefore be entitled, in addition to any other remedies
that may be available, to obtain specific performance of the terms of this
Agreement. If any action is brought by Buyer to enforce this Agreement, each
Seller and Holdings shall waive the defense that there is an adequate remedy at
law.
ARTICLE 11.
REMEDIES FOR BREACHES OF THIS AGREEMENT
Section 11.1 Survival of Representations, Warranties and
Covenants. Except as provided hereinbelow, all of the representations and
warranties of the Sellers and Holdings contained in Articles 3 and 4 above shall
survive the Closing for a period of one (1) year. The representations and
warranties set forth in Section 3.7 hereof shall survive until the 61st day
after the expiration of the last day on which any Tax may be validly assessed by
any Governmental Entity against Holdings or any of its Subsidiaries. The
representations and warranties set forth in Sections 4.1 and 4.2 hereof shall
survive indefinitely. The representations and warranties of Buyer contained in
Section 5 shall survive the Closing for one (1) year.
Section 11.2 Indemnification Provisions for Benefit of Buyer.
From and after the Closing, in the event any Seller or Holdings breaches any of
their respective representations, warranties, and covenants contained herein,
and provided that Buyer makes a written claim for indemnification pursuant to
Section 12.1 below within the applicable survival period, then each of the
Sellers (severally as to the representations, warranties or covenants of any
Seller and severally as their interests appear), agrees to indemnify Buyer from
and against the entirety of any Adverse Consequences Buyer may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences Buyer may suffer after the end of the applicable survival period)
resulting from, arising out of, relating to, or caused by such breach; provided,
however, that no Seller shall have any obligation from and after the Closing to
indemnify Buyer from and against any Adverse Consequences resulting from,
arising out of, relating to, or caused by the breach of any representation or
warranty of Holdings contained in Article 3 above until Buyer has suffered
aggregate losses by reason of all such breaches in excess of a $1,500,000
threshold ("Threshold") (and then only for any excess); provided, further, that
Buyer shall be entitled, in each case without regard to the Threshold or the
Cap, to recover the full amount of any Damages resulting from, arising out of,
relating to, or
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caused by the breach of any representation or warranty by any Seller (from such
breaching Seller) or the breach of the covenant set forth in Section 6.11
hereof); provided, further, that the maximum aggregate liability of the Sellers
under this Article 11 shall not exceed $4,000,000 (the "Cap"). For purposes of
determining whether a breach has resulted in aggregate losses exceeding the
Threshold, the terms "material," and "materially," "material adverse effect" or
similar terms, if contained in a representation, warranty or covenant, shall be
disregarded.
Section 11.3 Indemnification Provisions for Benefit of the
Sellers and Holdings. From and after the Closing, in the event Buyer breaches
any of its representations, warranties, and covenants contained herein, and any
of the Sellers and Holdings makes a written claim for indemnification pursuant
to Section 12.1 below within the applicable survival period, then Buyer agrees
to indemnify each of the Sellers and Holdings from and against the entirety of
any Adverse Consequences the Sellers or Holdings may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Sellers or Holdings may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, or caused by such breach.
Section 11.4 Matters Involving Third Parties. If any third
party shall notify any party (the "Indemnified Party") with respect to any
matter which may give rise to a claim for indemnification against any other
party (the "Indemnifying Party") under this Article 11, then the Indemnified
Party shall notify each Indemnifying Party thereof promptly; provided, however,
that no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is damaged. In the event any Indemnifying Party notifies the Indemnified Party
within 15 days after the Indemnified Party has given notice of the matter that
the Indemnifying Party is assuming the defense thereof (A) the Indemnifying
Party will defend the Indemnified Party against the matter with counsel of its
choice reasonably satisfactory to the Indemnified Party, (B) the Indemnified
Party may retain separate co-counsel at its sole cost and expense (except that
the Indemnifying Party will be responsible for the fees and expenses of the
separate co-counsel to the extent the Indemnified Party concludes reasonably
that the counsel the Indemnifying Party has selected has a conflict of
interest), (C) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party (not to be withheld unreasonably), and
(D) the Indemnifying Party will not consent to the entry of any judgment with
respect to the matter, or any settlement which does not include a provision
pursuant to which plaintiff or claimant in the matter releases the Indemnified
Party from all Liability with respect thereto, without the written consent of
the Indemnified Party. In the event no Indemnifying Party notifies the
Indemnified Party within 15 days after the Indemnified Party has given notice of
the matter that the Indemnifying Party is assuming the defense thereof, however,
the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate, all at
the risk and expense of the Indemnifying Party.
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Section 11.5 Determination of Loss. The parties shall make
appropriate adjustments for Tax Benefits and insurance proceeds (reasonably
certain of receipt and utility in each case) in determining the amount of loss
for purposes of this Article 11. For such purposes, "Tax Benefits" means any net
reduction in Taxes actually realized by Buyer, Holdings or any Subsidiary,
including, without limitation, an Offsetting Tax Benefit. The term "Offsetting
Tax Benefit" means the amount of any Tax Benefit actually realized by Buyer,
Holdings, its Subsidiaries or any Affiliate thereof in a subsequent taxable
period (including, without limitation, a taxable period ending after the Closing
Date) attributable to, realized in connection with or relating to an adjustment
with respect to Taxes in a prior taxable period which adjustment is subject to
indemnification by the Sellers hereunder.
Section 11.6 Exclusive Remedy. From and after the Closing, the
indemnification under this Article 11 shall be the sole and exclusive remedy of
the parties in respect of this Agreement and the representations, warranties and
covenants herein contained, except for actions in equity to enforce this
Agreement.
Section 11.7 Tax Matters. Without the prior written consent of
the Representative, Buyer shall not cause or permit any of Holdings or its
Subsidiaries to file any amended Tax Returns. Buyer shall pay any applicable
sales, transfer, recording, deed, stamp and other similar Taxes resulting from
the consummation of the transactions contemplated by this Agreement.
ARTICLE 12.
MISCELLANEOUS
Section 12.1 Notices. Any notice, request, instruction,
document or other communication to be given under this Agreement must be in
writing and shall be deemed to have been duly given only if delivered personally
or sent by registered or certified mail, postage prepaid, at the addresses shown
below, or to such other address or person as any party may designate by written
notice to the others or sent via facsimile to the facsimile number shown below
or to such other facsimile number as any party may designate by written notice
of the others.
To Holdings: Desa Holdings Corporation
c/o Desa International, Inc.
2701 Industrial Drive
Bowling Green, Kentucky 42102
Facsimile No.: (502) 781-9807
Attn: Robert H. Elman
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with copies to Hicks, Muse, Tate & Furst Incorporated
the Representative: 200 Crescent Court, Suite 1600
Dallas, Texas 75201
Facsimile No.: (214) 740-7313
Attn: Jack D. Furst
Lawrence D. Stuart, Jr.
with copies to: Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Facsimile No.: (214) 746-7777
Attn: Mary R. Korby, Esq.
and copies to: Thrailkill, Harris & Wood, PLC
Harpeth on the Green III
105 Westpark Drive, Suite 400
Brentwood, Tennessee 37027
Facsimile No.: (615) 376-3016
Attn: Larry T. Thrailkill, Esq.
To Buyer: J.W. Childs Equity Partners, L.P.
c/o J.W. Childs Associates, Inc.
One Federal Street
Boston, Massachusetts 02110
Attn: Adam L. Suttin
with copies to: Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Facsimile No.: (617) 338-2880
Attn: Christopher Cabot, Esq.
All such notices, requests, instructions, documents and other communications
will (i) if delivered personally to the address as provided in this Section
12.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission
to the facsimile number as provided in this Section 12.1, be deemed given upon
receipt, and (iii) if delivered by mail in the manner described above to the
address as provided in this Section 12.1, be deemed given upon receipt (in each
case regardless of whether such notice is received by any other person to whom a
copy of such communication is to be delivered pursuant to this Section 12.1).
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Section 12.2 Extensions and Waivers.
a. Buyer may, by written instrument, extend the time for the
performance of any of the obligations or other acts of Holdings or any of
Sellers, and (i) waive any inaccuracies of any of Sellers or Holdings in the
representations and warranties contained herein or in any document delivered
pursuant to this Agreement, (ii) waive compliance with any of the covenants of
Holdings or any of Sellers contained in this Agreement, (iii) waive performance
by Holdings or any of Sellers of any of the obligations set out in this
Agreement and (iv) waive any term or condition in this Agreement that it is
entitled to the benefits thereof.
b. The Representative may, by written instrument, extend the
time for the performance of any of the obligations or other acts of Buyer, and
(i) waive any inaccuracies of Buyer in the representations and warranties
contained herein or in any document delivered pursuant to this Agreement, (ii)
waive compliance with any of Buyer's covenants contained in this Agreement,
(iii) waive performance by Buyer of any of the obligations set out in this
Agreement and (iv) waive any term or condition in this Agreement that it is
entitled to the benefits thereof.
Section 12.3 Costs and Expenses. Whether or not the
transactions contemplated hereby are consummated, the parties shall each bear
their respective costs and expenses in connection with the negotiation and
consummation of the transactions contemplated hereby except as otherwise
provided in this Agreement.
Section 12.4 Agreements of Parties. This Agreement, the
Confidentiality Agreement and the documents referred to herein set forth all the
covenants, promises, agreements, conditions and understandings among the parties
hereto, and there are no other covenants, promises, agreements, conditions or
understandings, whether oral or written, among the parties hereto relating to
the subject matter hereof.
Section 12.5 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York (without
giving effect to the conflicts of laws principles thereof).
Section 12.6 Further Assurances. Each party hereto agrees to
execute any and all documents, and to perform such other acts, to the extent
permitted by law, whether before or after Closing, that may be reasonably
necessary or expedient to further the purposes of this Agreement or to further
assure the benefits intended to be conferred hereby.
Section 12.7 Successors and Assigns. All covenants and
agreements contained in this Agreement by or on behalf of the parties hereto
will bind or inure to the benefit of the respective personal representatives,
successors and assigns of such parties.
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Section 12.8 Counterparts. This Agreement may be executed in
one or more counterparts for the convenience of the parties hereto, all of which
together shall constitute one and the same instrument.
Section 12.9 Headings. The headings used in this Agreement
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.
Section 12.10 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (iii) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom and (iv) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
Section 12.11 Amendment. This Agreement may be amended,
supplemented or modified only by a written instrument duly executed by or on
behalf of Buyer, Holdings and the Representative.
Section 12.12 Public Announcements. At all times at or before
the Closing, none of Sellers, Holdings nor Buyer will issue or make any reports,
statements or releases to the public with respect to this Agreement or the
transactions contemplated hereby without the consent of the others, which
consent shall not be unreasonably withheld. If any of the parties is unable to
obtain the approval of its public report, statement or release from the other
parties and such report, statement or release is, in the written opinion of
legal counsel to such party, required by law in order to discharge such party's
disclosure obligations, then such party may make or issue the legally required
report, statement or release and promptly furnish the other parties with a copy
thereof. Holdings, Sellers and Buyer will also obtain the other parties' prior
approval of any press release to be issued immediately following the Closing
announcing the consummation of the transactions contemplated by this Agreement.
Section 12.13 Signing Stockholders. Buyer, Holdings and
Sellers shall permit any holder of Common Stock or Nonvoting Common Stock that
is not a party to this Agreement as of the date hereof to become a party to this
Agreement by executing a counterpart to this Agreement and delivering the same
to Holdings, Buyer and the Representative (on behalf of Sellers) at any time
before two business days prior to the Closing Date. Upon the execution and
delivery of such a counterpart to this Agreement by such a holder, this
Agreement shall automatically be deemed to be amended to add such holder as a
Seller, such holder shall be deemed a Seller for all purposes hereunder and the
portion of the
-52-
<PAGE>
shares of Common Stock or Nonvoting Common Stock to be sold by such holder to
Holdings hereunder shall be deemed to be Shares for all purposes of this
Agreement.
-53-
<PAGE>
EXHIBIT LIST
Exhibit A Shares and Options
Exhibit B Preferred Stock Terms
Exhibit C Financing Commitments
Exhibit D Customer Calls
Exhibit E Intellectual Property Liens
Exhibit F Employment Agreement Modifications
Exhibit G Stockholders' Agreement
-54-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. CHILDS ADVISORS, L.P., its general partner
By: J.W. CHILDS ASSOCIATES, L.P., its general
partner
By: J.W. CHILDS ASSOCIATES, INC., its
general partner
By:
Adam L. Suttin,
Vice President
DESA HOLDINGS CORPORATION
By:
Name:
Title:
-55-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
SELLERS:
HICKS, MUSE, TATE & FURST EQUITY FUND II, L.P.
By: HM2/GP PARTNERS, L.P., its general partner
By: HICKS, MUSE GP PARTNERS, L.P., its general
partner
By: HICKS, MUSE FUND II
INCORPORATED, its general partner
By:
Jack D. Furst,
Executive Vice President and
Managing Director
MUSE CHILDREN GS TRUST
By:
Name:
Title:
William L. Farrell
James N. Mills
William J. Turner
-56-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
John Barrett
-57-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Vincent G. Becker
-58-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Jerred G. Blanchard, Jr.
Roberta S. Billman
CCC/OMNI INVESTMENT PARTNERS, L.P.
By:
Name:
General Partner
BT INVESTMENT PARTNERS, INC.
By:
Name:
Title:
Lawrence D. Stuart, Jr.
-59-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Robert H. Elman
Richard S. Elman
Mark J. Elman
Wendy J. Elman
Valerie N. Elman
-60-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Terry G. Scariot
John M. Kelly
James M. Phillips
Donald W. Denton
Douglas D. Rohrer
Jerry L. Pfister
Ralph Pratt
Scott M. Nehm
Edward G. Patrick
-61-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
William A. Parsons
-62-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Donald R. Miller
Edward H. Miller
Mike Miller
Nancy Reed
Steve L. Miller
Dirk D. Miller Revocable Trust
-63-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Marilyn Parrigin
-64-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Thomas Reynolds
Kaitrin Marie Roberts
-65-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Gary Sanders
-66-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Blaine Chickering
-67-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Scott Slater
-68-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Doug Green
-69-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
George Johnson
-70-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Sarah Perry
-71-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Ed Plott
-72-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Doug Smith
-73-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Dan Waters
-74-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Linda Keown
David L. Keown
-75-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Jake Miller
-76-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Myra Weber
-77-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
R. Dennis Cornett
-78-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
T. K. Davis
-79-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
R. Scott Cohen
-80-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Sam Scarbrough
-81-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
V. Boyd Jeffries
-82-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Joseph B. Lee
-83-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Rebecca A. McConnell
Daniel S. Dross
Jeffry S. Fronterhouse
JDF FAMILY TRUST
By:
____________, Trustee
Dan L. Hockenbrough
Thomas O. Hicks
Alan B. Menkes
-84-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Steve Marcum
-85-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Jeffrey G. Mundy, as Custodian for
Catherine Marie Mundy
Jeffrey G. Mundy, as Custodian for
Elizabeth Ann Mundy
SMITH BARNEY INC., IRA
Custodian f/b/o Jeffrey G. Mundy
By:
Name:
Title:
John R. Muse
Kevin P. O'Meara
Andrew S. Rosen
-86-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Jeffrey Polofsky
-87-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Douglas D. Schneider
-88-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Sue Walker
-89-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Paul D. Stone
Charles W. Tate
-90-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
TRANSFINANCIAL BANK, N.A.,
Trustee U/A for Robert V. Vitale
By:
Name:
Title:
TRANSFINANCIAL BANK, N.A.,
Trustee U/A for Michael S. Vitale
By:
Name:
Title:
TRANSFINANCIAL BANK, N.A.,
Trustee U/A for Mary E. Vitale
By:
Name:
Title:
TRANSFINANCIAL BANK, N.A.,
Trustee U/A for Damon S. Vitale
By:
Name:
Title:
MANCHESTER CAPITAL, L.L.C.
By:
Name:
Title:
-91-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
3MS EQUITY PARTNERS
By:
Name:
Title:
-92-
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, in
one or more counterparts, each of which shall be deemed one and the same
instrument, as of the date first above written.
Robert V. Vitale,
Co-Trustee U/A for Mary E. Vitale
By:
Name:
Title:
-93-
<PAGE>
RECAPITALIZATION AGREEMENT
AMONG
J.W. CHILDS EQUITY PARTNERS, L.P.,
DESA HOLDINGS CORPORATION,
AND EACH STOCKHOLDER OF DESA HOLDINGS CORPORATION
NAMED HEREIN
Dated as of October 8, 1997
As amended and restated as of November 25, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS
2
ARTICLE 2
HOLDINGS PURCHASE, SALE OF NEWLY ISSUED SHARES AND CLOSING 13
Section 2.1 Holdings Purchase 13
Section 2.2 Purchase and Sale of Newly Issued Shares 13
Section 2.3 Purchase Price for Shares 13
Section 2.4 Purchase Price for Newly Issued Shares 13
Section 2.5 Pre-Closing Statement 14
Section 2.6 Post-Closing Adjustment 15
Section 2.7 Designation of Representative; Indemnification of Representative 17
Section 2.8 Closing 19
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF HOLDINGS 20
Section 3.1 Organization and Good Standing 20
Section 3.2 Authorization and Validity 21
Section 3.3 Capitalization of Holdings 21
Section 3.4 Subsidiaries and Equity Investments 21
Section 3.5 Financial Statements 22
Section 3.6 Absence of Changes 22
Section 3.7 Tax Matters 25
Section 3.8 Employee Benefits 26
Section 3.9 Litigation 28
Section 3.10 No Violation 29
Section 3.11 Labor Relations 29
Section 3.12 No Consents 29
Section 3.13 Insurance 29
Section 3.14 Title To Properties 30
Section 3.15 Environmental Matters 30
Section 3.16 Intellectual Property Rights 31
Section 3.17 Finder's Fees 32
<PAGE>
Section 3.18 Tangible Assets 32
Section 3.19 Product Warranty 32
Section 3.20 Product Liability 32
Section 3.21 Material Contracts 33
Section 3.22 Compliance with Laws 34
Section 3.23 Disclosure 35
ARTICLE 4
REPRESENTATIONS AND
WARRANTIES OF SELLERS 35
Section 4.1 Ownership of Shares. 35
Section 4.2 Authority. 35
Section 4.3 No Conflicts. 36
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER 36
Section 5.1 Organization and Good Standing 36
Section 5.2 Authorization and Validity 36
Section 5.3 Investment Intent 37
Section 5.4 No Violation 37
Section 5.5 No Consents 37
Section 5.6 Litigation 37
Section 5.7 Financing 37
Section 5.8 Finder's Fee 38
Section 5.9 Solvency 38
-ii-
<PAGE>
ARTICLE 6
COVENANTS OF HOLDINGS 39
Section 6.1 Reasonable Efforts 39
Section 6.2 Hart-Scott-Rodino 39
Section 6.3 Business Operations 39
Section 6.4 Competing Proposals 41
Section 6.5 Access 41
Section 6.6 Notice of Developments 42
Section 6.7 Preservation of Business 42
Section 6.8 Financial Information 43
Section 6.9 Resignations of Directors 43
Section 6.10 Cooperation with Respect to Refinancings 43
Section 6.11 Intellectual Property 44
Section 6.12 Accrual for Management Bonuses 44
Section 6.13 Termination of Financial Advisory 44
ARTICLE 7
COVENANTS OF BUYER 44
Section 7.1 Reasonable Efforts 44
Section 7.2 Hart-Scott-Rodino 44
Section 7.3 Refinancing Certain Obligations 45
Section 7.4 Leverage Ratio 45
Section 7.5 Indemnification; Insurance 46
Section 7.6 Certificate of Incorporation 47
Section 7.7 Solvency Opinion 47
Section 7.8 Payment of Management Bonuses 47
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SELLERS 47
Section 8.1 Representations and Warranties 47
Section 8.2 Performance 48
Section 8.3 No Legal Bar 48
Section 8.4 HSR Act 48
Section 8.5 Certificate 48
Section 8.6 Stockholders Agreement 48
Section 8.7 Proceedings; Opinions 48
Section 8.8 Exercise of Options 48
-iii-
<PAGE>
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF BUYER 49
Section 9.1 Representations and Warranties 49
Section 9.2 Performance 49
Section 9.3 No Legal Bar 49
Section 9.4 HSR Act 50
Section 9.5 Holdings Options 50
Section 9.6 Certificate 50
Section 9.7 Purchase 50
Section 9.8 Financing 50
Section 9.9 Employment Agreements 50
Section 9.10 Proceedings; Opinions 50
Section 9.11 Stockholders Agreement 51
ARTICLE 10
TERMINATION 51
Section 10.1 Termination by Mutual Consent 51
Section 10.2 Termination by Either Holdings or Buyer 51
Section 10.3 Termination by Holdings 51
Section 10.4 Termination by Buyer 52
Section 10.5 Effect of Termination 53
Section 10.6 Specific Performance 53
ARTICLE 11
REMEDIES FOR BREACHES OF THIS AGREEMENT 53
Section 11.1 Survival of Representations, Warranties and Covenants 53
Section 11.2 Indemnification Provisions for Benefit of Buyer 53
Section 11.3 Indemnification Provisions for Benefit of the Sellers and Holdings 54
Section 11.4 Matters Involving Third Parties 54
Section 11.5 Determination of Loss 55
Section 11.6 Exclusive Remedy 55
Section 11.7 Tax Matters 55
ARTICLE 12
MISCELLANEOUS 56
Section 12.1 Notices 56
Section 12.2 Extensions and Waivers 57
Section 12.3 Costs and Expenses 58
Section 12.4 Agreements of Parties 58
Section 12.5 Governing Law 58
Section 12.6 Further Assurances 58
-iv-
<PAGE>
Section 12.7 Successors and Assigns 58
Section 12.8 Counterparts 58
Section 12.9 Headings 58
Section 12.10 Invalid Provisions 59
Section 12.11 Amendment 59
Section 12.12 Public Announcements 59
Section 12.13 Signing Stockholders 59
</TABLE>
-v-
EXHIBIT 2.2
- - - - --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
Among
HEATH HOLDING CORP.,
its SHAREHOLDERS and OPTIONHOLDERS
and
DESA INTERNATIONAL, INC.
dated as of
January 12, 1998
- - - - --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C> <C>
I
REDEMPTION OF OPTIONS AND PURCHASE AND SALE OF SHARES....................................................2
1.01 Transaction Price...............................................................................2
1.02 Repurchase Transaction..........................................................................2
1.03 Sale Transaction................................................................................2
1.04 The Closing.....................................................................................3
1.05 Net Working Capital Adjustment..................................................................4
II
CONDITIONS TO CLOSING....................................................................................6
2.01 Conditions to Buyer's Obligations...............................................................6
2.02 Conditions to the Shareholders' Obligations.....................................................9
III
REPRESENTATIONS AND WARRANTIES OF
EACH SHAREHOLDER AND EACH OPTIONHOLDER..................................................................9
3.01 Execution and Delivery; Valid and Binding Agreements...........................................10
3.02 Authority......................................................................................10
3.03 Ownership of Capital Stock.....................................................................10
3.04 Brokerage......................................................................................10
3.05 Investment.....................................................................................10
3.06 Noncontravention...............................................................................11
IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................11
4.01 Organization and Corporate Power...............................................................11
4.02 Subsidiaries...................................................................................11
4.03 Authorization; No Breach.......................................................................12
4.04 Capital Stock..................................................................................12
4.05 Financial Statements...........................................................................13
4.06 Absence of Certain Developments................................................................13
4.07 Title to Properties............................................................................15
4.08 Tax Matters....................................................................................16
4.09 Contracts and Commitments......................................................................18
4.10 Intellectual Property..........................................................................19
4.11 Litigation.....................................................................................20
4.12 Governmental Consents, etc.....................................................................21
4.13 Employee Benefit Plans.........................................................................21
-i-
<PAGE>
4.14 Insurance......................................................................................22
4.15 Compliance with Laws...........................................................................23
4.16 Environmental Compliance and Conditions........................................................23
4.17 Banking and Agency Arrangements................................................................23
4.18 Affiliated Transactions........................................................................24
4.19 Brokers' Fees..................................................................................24
4.20 Assets and Properties..........................................................................24
4.21 Employees......................................................................................24
4.22 Product Warranty...............................................................................24
4.23 Product Liability..............................................................................25
4.24 Undisclosed Liabilities........................................................................25
4.25 Disclosure.....................................................................................25
V
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................25
5.01 Organization and Corporate Power...............................................................25
5.02 Authorization..................................................................................25
5.03 No Violation...................................................................................26
5.04 Governmental Authorities; Consents.............................................................26
5.05 Litigation.....................................................................................26
5.06 Brokerage......................................................................................26
5.07 Investment Representation......................................................................26
5.08 Financing......................................................................................26
5.09 No Knowledge of Misrepresentations or Omissions................................................26
VI
PRE-CLOSING COVENANTS...................................................................................27
6.01 Conduct of the Business........................................................................27
6.02 Access to Books and Records....................................................................27
6.03 Regulatory Filings.............................................................................27
6.04 Conditions.....................................................................................28
6.05 Exclusive Dealing..............................................................................28
6.06 Notification...................................................................................28
6.07 Preservation of Business.......................................................................28
6.08 Topping Fees...................................................................................28
6.09 Cooperation....................................................................................28
6.10 Contribution of Assets to and Assumption of Liabilities by Spin-Off Entities;
Distribution of Equity Interests...............................................................29
6.11 Other Agreements...............................................................................29
6.12 Trademark Withdrawal...........................................................................29
6.13 Heathkit Mark License Agreement. .............................................................29
-ii-
<PAGE>
VII
COVENANTS OF BUYER......................................................................................31
7.01 Access to Books and Records....................................................................31
7.02 Notification...................................................................................31
7.03 Director and Officer Liability and Indemnification.............................................31
7.04 Conditions.....................................................................................31
7.05 Contact with Customers and Suppliers...........................................................31
7.06 Employees......................................................................................32
7.07 Employee Benefit Plans.........................................................................32
VIII
TERMINATION.............................................................................................32
8.01 Termination....................................................................................32
8.02 Effect of Termination..........................................................................33
IX
SHAREHOLDERS' REPRESENTATIVE............................................................................33
9.01 Designation....................................................................................33
9.02 Authority......................................................................................33
9.03 Exculpation....................................................................................34
X
ADDITIONAL COVENANTS....................................................................................34
10.01 Survival Period................................................................................34
10.02 Indemnification................................................................................34
10.03 Limitation of Recourse.........................................................................38
10.04 Special Trademark License Indemnification Agreement............................................38
10.05 Disclosure Generally...........................................................................39
10.06 Acknowledgment by Buyer........................................................................39
10.07 Tax Matters....................................................................................39
10.08 Further Assurances.............................................................................40
10.09 Covenant Not to Compete, Solicit or Interfere..................................................40
XI
DEFINITIONS.............................................................................................41
11.01 Definitions....................................................................................41
11.02 Cross-Reference of Other Definitions...........................................................43
XII
MISCELLANEOUS...........................................................................................45
-iii-
<PAGE>
12.01 Press Releases and Communications..............................................................45
12.02 Expenses.......................................................................................46
12.03 Waiver of Certain Transfer Restrictions........................................................46
12.04 Knowledge Defined..............................................................................46
12.05 Notices........................................................................................46
12.06 Assignment.....................................................................................47
12.07 Severability...................................................................................47
12.08 No Strict Construction.........................................................................47
12.09 Amendment and Waiver...........................................................................47
12.10 Complete Agreement.............................................................................48
12.11 Counterparts...................................................................................48
12.12 Governing Law..................................................................................48
12.13 Specific Performance...........................................................................48
12.14 HIG Balance Sheet..............................................................................48
12.15 Jurisdiction and Venue.........................................................................48
</TABLE>
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement," which term
includes all exhibits and schedules hereto) is made as of January 12, 1998,
among Desa International, Inc., a Delaware corporation ("Buyer"), Heath Holding
Corp., a Delaware corporation (the "Company"), the Persons listed on the
attached Shareholders Schedule - Schedule I (the "Shareholders"), and the
Persons listed on the attached Optionholders Schedule - Schedule II (the
"Optionholders"). Capitalized terms used and not otherwise defined herein have
the meanings set forth in Article XI below.
Heath Company, a Delaware corporation ("Heath"), is a
wholly-owned subsidiary of the Company which in turn (i) directly owns 99.5% of
the issued and outstanding shares (the "HK Shares") of capital stock of Heath
Company Limited, a Hong Kong corporation ("Heath Ltd.") and (ii) indirectly owns
the remaining 0.5% of the HK Shares. Heath and Heath Ltd. are engaged in the
businesses of manufacturing and marketing residential motion sensor security
lighting and decorative lighting and wireless home devices (the "Heath/Zenith
Business"). Heath also is engaged in the businesses of developing and
manufacturing educational hardware products, software products, hobby kits and
course materials (the "Heathkit Business"). Immediately prior and as a condition
to the Closing hereunder, Heath will (i) contribute (A) all of its assets,
properties and businesses attributable to, or used in connection with, the
Heathkit Business to Heathkit Company, Inc. and (B) the Benton Harbor Facility
to The Benton Harbor Company, Inc. (together with Heathkit Company, Inc., the
"Spin-Off Entities") in exchange for 100% of the equity interests in Heathkit
Company, Inc. (the "Heathkit Equity Interests") and 100% of the equity interests
in The Benton Harbor Company, Inc. (the "Benton Harbor Equity Interests" and
together with the Heathkit Interests, the "Equity Interests") and (ii) then
distribute all of the Equity Interests to the Company which will in turn
distribute all of the Equity Interests to the Shareholders in exchange for
shares of capital stock of the Company (the "Exchanged Shares") (the
transactions described in the foregoing clauses (i) and (ii) are referred to
herein collectively as the "Pre-Closing Spin-Off Transactions").
The Shareholders own all of the issued and outstanding shares
of capital stock of the Company ("Shares"). The Optionholders own all of the
issued and outstanding options to acquire Shares, in the amounts set forth on
the Optionholders Schedule (the "Options").
Subject to the terms and conditions set forth herein, the
parties hereto desire to consummate the Repurchase Transactions (as described
below in Section 1.02 with respect to the outstanding Options) and the Sale
Transactions (as described below in Section 1.03 with respect to the outstanding
Shares).
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree, on and
subject to the terms and conditions set forth herein, as follows:
<PAGE>
ARTICLE I
REDEMPTION OF OPTIONS AND PURCHASE AND SALE OF SHARES
1.01 Transaction Price. The aggregate consideration to be
delivered by Buyer (the "Transaction Price") in connection with consummation of
the Repurchase Transactions and the Sale Transactions contemplated hereby shall
be $37,000,000 minus the outstanding amount of the Funded Indebtedness as of the
Closing, as adjusted pursuant to Section 1.05 below, payable as provided in this
Article I.
1.02 Repurchase Transaction.
(a) The Company shall repurchase all of the issued and
outstanding Options from the Optionholders for an aggregate option repurchase
price equal to the product of (i) $37,000,000 minus the outstanding amount of
the Funded Indebtedness as of the Closing, plus the aggregate Option exercise
price, multiplied by (ii) the Option Percentage (the "Base Option Repurchase
Price") as adjusted pursuant to Section 1.05 below (the "Option Repurchase
Price"), minus the aggregate exercise price of the Options.
(b) On the basis of the representations, warranties, covenants
and agreements and subject to satisfaction or waiver of the terms and conditions
set forth herein, each of the Company and the Optionholders agrees to and will
consummate (and the Shareholders agree to cause the Company to consummate), at
the Closing, the following transactions (the "Repurchase Transactions"), subject
to adjustment pursuant to Section 1.05(b)-(f): the Company shall repurchase from
each Optionholder all of the Options held by such holder and shall deliver to
each Optionholder an amount equal to such Optionholder's Option Pro Rata Portion
of the Base Option Repurchase Price (as adjusted pursuant to Section 1.05(a))
minus the aggregate exercise price of such Optionholder's Options, payable as
provided in this Article I.
1.03 Sale Transaction.
(a) The aggregate purchase price for the Shares (other than
the Exchanged Shares) shall be equal to the product of (i) $37,000,000 minus the
outstanding amount of the Funded Indebtedness as of the Closing, multiplied by
(ii) the Share Percentage (the "Base Share Purchase Price"), as adjusted
pursuant to Section 1.05 below (the "Share Purchase Price").
(b) On the basis of the representations, warranties, covenants
and agreements and subject to the satisfaction or waiver of the terms and
conditions set forth herein, each of the Shareholders covenants and agrees to
and will consummate, at the Closing, the following transactions (the "Sale
Transactions"), subject to adjustment pursuant to Section 1.05(b)-(f): the
Shareholders shall sell, assign, transfer and convey to Buyer, and Buyer shall
purchase and acquire from the Shareholders, all Shares (other than the Exchanged
Shares), free and clear of all claims, pledges, security interests, liens,
charges, encumbrances, options, proxies, voting trusts or agreements or other
restrictions of any kind, against payment at the Closing of the Base Share
Purchase Price (as adjusted pursuant to Section 1.05(a)), payable as provided in
this Article 1.
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1.04 The Closing.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such place as is mutually
agreeable to Buyer and the Shareholders' Representative) at 10:00 a.m. on the
third business day following full satisfaction or due waiver of all of the
closing conditions set forth in Article II hereof (other than those to be
satisfied at the Closing) or on such other date as is mutually agreeable to
Buyer and the Shareholders' Representative. The date and time of the Closing are
herein referred to as the "Closing Date."
(b) Subject to the terms and conditions set forth in this
Agreement, the parties hereto shall consummate the following transactions (the
"Closing Transactions") on the Closing Date:
(i) the Shareholders' Representative (on behalf of
the Optionholders) shall deliver to the Company the instruments (if
any) evidencing all of the Options and acknowledgments, duly executed
by the Optionholders, of the cancellation thereof, and the Company
shall cancel all of the issued and outstanding Options;
(ii) the Company shall deliver to each Optionholder
funds equal to such Optionholder's Option Pro Rata Portion of the Base
Option Repurchase Price (giving effect to such Optionholder's Option
Pro Rata Portion of the adjustment (if any) pursuant to Section
1.05(a)), minus the aggregate exercise price for such Optionholder's
Options, minus the principal amount of such Optionholder's Buyer Note,
by wire transfer of immediately available funds to one account
designated in writing by the Shareholders' Representative to Buyer at
least three (3) days prior to the Closing;
(iii) the Shareholders' Representative (on behalf of
the Shareholders) shall deliver to Buyer stock certificates
representing all of the Shares (other than the Exchanged Shares), free
and clear of all claims, pledges, security interests, liens, charges,
encumbrances, options, proxies, voting trusts or agreements or other
restrictions of any kind, duly endorsed for transfer or accompanied by
duly executed stock powers;
(iv) Buyer shall deliver to each Shareholder such
Shareholder's Share Pro Rata Portion of the Base Share Purchase Price
(giving effect to such Shareholder's Share Pro Rata Portion of the
adjustment thereto (if any) pursuant to Section 1.05(a)) minus the
principal amount of such Shareholder's Buyer Note, by wire transfer of
immediately available funds to one account designated in writing by the
Shareholders' Representative to Buyer at least three (3) days prior to
the Closing;
(v) Buyer shall repay, or cause to be repaid, on
behalf of the Company and its Subsidiaries, all amounts necessary to
discharge fully the then outstanding balance of the Funded Indebtedness
described on the attached Indebtedness Schedule - Schedule 1.04(b)(v),
by wire transfer of immediately available funds as directed in writing
by the holders of such Funded Indebtedness at or prior to the Closing,
and the Shareholders' Representative (on behalf of the Shareholders and
the Optionholders) shall cause the holders of such Funded Indebtedness
to deliver to Buyer all appropriate payoff letters, reasonably
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satisfactory in form and substance to Buyer, and shall make
arrangements reasonably satisfactory to Buyer for such holders to
deliver lien releases and canceled notes at the Closing;
(vi) Buyer shall deliver to each Shareholder and
each Optionholder such Shareholder's Share Pro Rata Portion and such
Optionholder's Option Pro Rata Portion, respectively, of the Buyer
Notes; and
(vii) Buyer, the Company and the Shareholders'
Representative (on behalf of the Shareholders and the Optionholders)
shall make such other deliveries as are required by and in accordance
with Article II hereof.
(c) For purposes hereof, the term "Funded Indebtedness" shall
mean, with respect to the Company and its Subsidiaries, the sum of (i) all
obligations, contingent or otherwise, which in accordance with GAAP should be
classified upon the Company's consolidated balance sheet as liabilities in
respect of borrowed money, notes or similar instruments, all obligations under
leases which should be capitalized on the consolidated balance sheet of the
Company or relating to the deferred purchase price of property, and all
guarantees, endorsements and other contingent obligations in respect of
indebtedness of others and (ii) accrued interest to and including the Closing
Date in respect of any of the obligations described in the foregoing clause (i)
of this definition and all premiums, penalties, charges, fees, expenses and
other amounts (including so-called "breakage" amounts) due in connection with
the payment and satisfaction in full of such obligations which will be paid or
prepaid at Closing.
1.05 Net Working Capital Adjustment.
(a) Not more than five (5) business days, but at least three
(3) business days, prior to the Closing Date, the Shareholders' Representative
(on behalf of the Shareholders and the Optionholders) in good faith shall
prepare and deliver to Buyer the Company's estimated Net Working Capital
immediately prior to the Closing (the "Estimated Closing Net Working Capital")
based on the Company's books and records and other information then available
and Buyer shall be given access to such books and records and other information
and the opportunity to consult with the Shareholders' Representative (on behalf
of the Shareholders and the Optionholders) for purposes of confirming or
disputing the Estimated Closing Net Working Capital; provided, however, that if
the Shareholders' Representative and Buyer cannot agree on the Estimated Closing
Net Working Capital, the Estimated Closing Net Working Capital shall be deemed
to be equal to the average of the Shareholders' Representative's and Buyer's
respective good faith determination thereof. At Closing:
(i) If the Estimated Closing Net Working Capital is
less than $12,500,000 (A) the aggregate Base Option Repurchase Price
shall be reduced by an amount equal to the product of the Option
Percentage multiplied by such deficiency and (B) the aggregate Base
Share Purchase Price shall be reduced by an amount equal to the product
of the Share Percentage multiplied by such deficiency.
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(ii) If the Estimated Closing Net Working Capital
exceeds $12,500,000 (A) the aggregate Base Option Repurchase Price
shall be increased by an amount equal to the product of the Option
Percentage multiplied by such excess and (B) the aggregate Base Share
Purchase Price shall be increased by an amount equal to the product of
the Share Percentage multiplied by such excess.
(b) As promptly as practicable, but in no event later than
ninety (90) days after the Closing Date, Buyer in good faith shall prepare and
deliver to the Shareholders' Representative, a consolidated balance sheet of the
Company as of the close of business on the Closing Date prepared in accordance
with GAAP, together with a report thereon prepared by the Company's accountants
(the "Closing Balance Sheet"), setting forth Buyer's calculation of the Net
Working Capital as of the Closing Date (the "Closing Net Working Capital").
(c) The Company shall, and shall cause its accountants to,
permit the Shareholders' Representative to have full access to the books,
records and other documents (including work papers) pertaining to or used in
connection with preparation of the Closing Balance Sheet and Buyer's calculation
of the Closing Net Working Capital and provide the Shareholders' Representative
with copies thereof (as reasonably requested by the Shareholders'
Representative). If the Shareholders' Representative (on behalf of the
Shareholders and the Optionholders) disagrees with Buyer's calculation of the
Closing Net Working Capital as set forth on the Closing Balance Sheet, the
Shareholders' Representative will notify Buyer in writing of such disagreement
(the "Objection Notice") (such Objection Notice setting forth the basis for such
disagreement in reasonable detail) within fifteen (15) business days after
Buyer's delivery of the Closing Balance Sheet to the Shareholders'
Representative. If the Shareholders' Representative fails to deliver an
Objection Notice within such fifteen (15) business day period, Buyer's
calculation of the Closing Net Working Capital shall be conclusive and binding
upon the Shareholders, the Optionholders, the Shareholders' Representative and
Buyer. If the Shareholders' Representative delivers an Objection Notice within
such fifteen (15) business day period, Buyer and the Shareholders'
Representative thereafter shall negotiate in good faith to resolve any such
disagreements with respect to the computation of the Closing Net Working
Capital. If Buyer and the Shareholders' Representative resolve in writing all
disagreements with respect to the computation of the Closing Net Working
Capital, such written resolution of the Closing Net Working Capital shall be
conclusive and binding upon the Shareholders, the Optionholders, the
Shareholders' Representative and Buyer. If Buyer and the Shareholders'
Representative are unable to resolve any such disagreements within fifteen (15)
days after the Shareholders' Representative's delivery of its Objection Notice
to Buyer, Buyer and the Shareholders' Representative shall submit the dispute to
a "Big Six" public accounting firm jointly selected by Buyer and the
Shareholders' Representative (the "Auditor") for resolution. If Buyer and the
Shareholders' Representative are unable to agree upon the Auditor, the Auditor
shall be a "Big Six" accounting firm selected by lot (after Buyer and the
Shareholders' Representative each exclude one such accounting firm).
(d) Buyer and the Shareholders' Representative shall use their
respective commercially reasonable efforts to cause the Auditor to resolve all
disagreements the Closing Net Working Capital as soon as practicable, but in any
event shall direct the Auditor to render a determination within forty-five (45)
days of its retention. The Auditor shall consider only those items and amounts
in the Closing Balance Sheet which are identified in the Objection Notice as
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being items which Buyer and the Shareholders' Representative are unable to
resolve. The determination of the Auditor will be conclusive and binding upon
the Shareholders, the Optionholders, the Shareholders' Representative and Buyer.
(e) The Auditor will determine the allocation of its costs and
expenses in determining the Closing Net Working Capital based upon the
percentage which the portion of the contested amount not awarded to each party
bears to the amount actually contested by such party. For example, if Buyer
claims the Closing Net Working Capital is $1000 less than the amount determined
by the Shareholders' Representative, and the Shareholders' Representative
contests only $500 of the amount claimed by Buyer, and if the Auditor ultimately
resolves the dispute by awarding Buyer $300 of the $500 contested, then the
costs and expenses of arbitration will be allocated 60% (i.e., 300 / 500) to the
Shareholders and 40% (i.e., 200 / 500) to Buyer.
(f) Within five (5) business days after the Closing Net
Working Capital is conclusively determined pursuant to this Section 1.05:
(i) If the Closing Net Working Capital is less than
the Estimated Net Working Capital, (A) each Shareholder shall pay to
Buyer an amount equal to such Shareholder's Share Pro Rata Portion of
the product of the Share Percentage, multiplied by such difference and
(B) each Optionholder shall pay to Buyer an amount equal to the product
of such Optionholder's Option Pro Rata Portion of the Option
Percentage, multiplied by such difference, in each case by wire
transfer of immediately available funds to an account designated by
Buyer.
(ii) If the Closing Net Working Capital is greater
than the Estimated Net Working Capital, (A) Buyer shall pay to each
Shareholder an amount equal to such Shareholder's Share Pro Rata
Portion of the product of the Share Percentage, multiplied by such
excess and (B) Buyer shall pay to each Optionholder an amount equal to
the product of such Optionholder's Option Pro Rata Portion of the
Option Percentage, multiplied by such excess, in each case by wire
transfer of immediately available funds to one account designated in
writing by the Shareholders' Representative (on behalf of the
Shareholders and the Optionholders).
ARTICLE II
CONDITIONS TO CLOSING
2.01 Conditions to Buyer's Obligations. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following conditions as of the Closing Date:
(a) The representations and warranties set forth in Articles
III and IV hereof shall be true and correct in all material respects (except for
any such representations and warranties that are qualified as to materiality,
which representations and warranties shall be true and correct in all
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respects) at and as of the Closing Date as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties;
(b) The Company, the Shareholders, the Optionholders and the
Shareholders' Representative shall have performed in all material respects all
of the covenants and agreements required to be performed by them under this
Agreement at or prior to the Closing;
(c) All consents which are set forth on the Third-Party
Consents Schedule - Schedule 4.09(c) attached hereto shall have been obtained;
(d) The applicable waiting periods, if any, under the HSR Act
shall have expired or been terminated, and all other governmental filings,
consents, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby (all of which items are set forth on the
Governmental Consents Schedule - Schedule 4.12 attached hereto) shall have been
made and obtained;
(e) No law shall have been enacted which would, and no action
or proceeding before any court or government body shall be pending wherein an
unfavorable judgment, decree or order would, prevent the performance of this
Agreement or the consummation of any of the transactions contemplated hereby,
declare unlawful the transactions contemplated by this Agreement or cause such
transactions to be rescinded, cause a Material Adverse Effect or require the
Company, any Subsidiary or Buyer to dispose of any material assets;
(f) The Company and the Shareholders shall have entered into a
transition services agreement in the form set forth as Exhibit A attached hereto
(the "Transition Agreement"), which Transition Agreement shall be in full force
and effect as of the Closing; and
(g) The Company or the Shareholders' Representative (on behalf
of the Shareholders and the Optionholders), as the case may be, shall have
delivered to Buyer each of the following:
(i) evidence of consummation of the Pre-Closing
Spin-Off Transactions (including but not limited to evidence of the due
execution and delivery of the Heathkit Business Contribution Agreement
and The Benton Harbor Facility Contribution Agreement by the respective
parties thereto);
(ii) a certificate of the Company in the form set forth
in Exhibit B attached hereto, dated the Closing Date, stating that the
conditions specified in subsections (a) and (b) of this Section,
inclusive, as they relate to the Company have been satisfied;
(iii) a certificate of the Shareholders' Representative
(on behalf of the Shareholders and the Optionholders) in the form of
Exhibit C attached hereto, dated the Closing Date, stating that the
conditions specified in subsections (a) and (b) of this Section as they
relate to the Shareholders, the Optionholders and the Shareholders'
Representative have been satisfied;
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(iv) copies of the third party and governmental
consents required by subsections (c) and (d) above;
(v) the stock certificates representing all Shares
(other than the Exchanged Shares duly transferred to the Company in
connection with the Pre-Closing Spin-off Transactions) from the
Shareholders, in each case duly endorsed for transfer by the
Shareholders or accompanied by stock powers duly executed by the
Shareholders and the instruments evidencing the Options accompanied by
acknowledgments, duly executed by the Optionholders, of the
cancellation thereof;
(vi) all minute books, stock books, ledgers and
registers, corporate seals and other corporate records relating to the
organization, ownership and maintenance of the Company and its
Subsidiaries;
(vii) resignations effective as of the Closing Date from
such officers and directors of the Company or its Subsidiaries as Buyer
shall have requested in writing not less than three days prior to the
Closing Date; and
(viii) a long form Certificate of Legal Existence and
Good Standing, dated within three (3) days prior to the Closing Date,
issued by, and a copy of the Certificate of Incorporation (including
all amendments thereto) of each of the Company and its Subsidiaries,
dated within three (3) days prior to the Closing Date, certified by the
secretary of state (or, in the case of Heath Ltd., the registrar of
companies) of its jurisdiction of incorporation or organization, as the
case may be, and Certificates of Good Standing from the Secretary of
State of Michigan, evidencing the Company's good standing in such
jurisdiction, and certificates of good standing and legal existence (if
available) or other comparable certification from the secretary of
state (or other applicable governmental authority) of each state
wherein the Subsidiary is duly qualified evidencing the Subsidiary's
good standing therein.
(h) Buyer shall have received from counsel to the Company, the
Shareholders, the Optionholders and the Shareholders' Representative an opinion
in form and substance reasonably satisfactory to Buyer and shall have received
from counsel to H.I.G. Investment Group, L.P. with respect to Cayman Islands law
an opinion in form and substance reasonably satisfactory to Buyer, and each of
the foregoing shall be addressed to Buyer and dated as of the Closing Date;
(i) All actions to be taken by the Shareholders and the
Optionholders, respectively, in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to Buyer;
(j) The Company shall have delivered to Buyer copies of the
resolutions duly adopted by the Company's board of directors authorizing the
execution, delivery and performance of this Agreement and each of the
Transaction Documents and copies of the Company's and Heath Ltd.'s bylaws, and
each of the foregoing shall be certified by the secretary or an assistant
secretary of the Company or Heath Ltd., as applicable; and
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(k) The Benton Harbor Company, Inc. shall have duly executed
and delivered a lease agreement in the form of lease agreement attached hereto
as Exhibit D (the "Lease Agreement").
2.02 Conditions to the Shareholders' Obligations. The
obligations of the Shareholders to consummate the transactions contemplated by
this Agreement are subject to the satisfaction of the following conditions as of
the Closing Date:
(a) The Pre-Closing Spin-Off Transactions shall have been
consummated;
(b) The representations and warranties set forth in Article V
hereof shall be true and correct in all material respects at (except for any
such representations and warranties that are qualified as to materiality, which
representations and warranties shall be true and correct in all respects) and as
of the Closing as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations and
warranties;
(c) Buyer shall have performed in all material respects all
the covenants and agreements required to be performed by it under this Agreement
at or prior to the Closing;
(d) No legal action or proceeding before any court or
government body shall be pending wherein an unfavorable judgment, decree or
order would prevent the performance of this Agreement or the consummation of any
of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded;
(e) The applicable waiting periods, if any, under the HSR Act
shall have expired or been terminated, and all other governmental filings,
consents, authorizations and approvals that are required for the consummation of
the transactions contemplated hereby shall have been duly made and obtained;
(f) Buyer shall have delivered to the Shareholders'
Representative certified copies of the resolutions duly adopted by Buyer's board
of directors authorizing the execution, delivery and performance of this
Agreement;
(g) Seller shall have received from counsel to Buyer an
opinion in form and substance reasonably satisfactory to the Shareholders'
Representative concerning the due authorization, execution, delivery and
enforceability of this Agreement and the Buyer Notes; and
(h) Buyer shall have delivered to the Shareholders'
Representative (on behalf of the Shareholders and the Optionholders) a
certificate in the form set forth as Exhibit E attached hereto, dated the
Closing Date, stating that the preconditions specified in subsections (b) and
(c) hereof have been satisfied.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
EACH SHAREHOLDER AND EACH OPTIONHOLDER
Each Shareholder and each Optionholder, solely for himself or
itself (on a several, and not joint and several basis), represents and warrants
to Buyer as follows:
3.01 Execution and Delivery; Valid and Binding Agreements. If
any Shareholder or any Optionholder is a corporation, partnership, business
trust, limited liability company or other entity, such Shareholder or such
Optionholder (as the case may be) is duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its organization, and the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by all requisite corporate,
partnership, business trust, limited liability company or other action on behalf
of such Shareholder or such Optionholder. This Agreement has been duly executed
and delivered by such Shareholder or such Optionholder (as the case may be), and
assuming that this Agreement is the valid and binding agreement of Buyer, this
Agreement constitutes the valid and binding obligation of such Shareholder or
such Optionholder (as the case may be), enforceable in accordance with its
terms.
3.02 Authority. Such Shareholder or such Optionholder (as the
case may be) has all requisite power and authority and full legal capacity to
execute and deliver this Agreement and to perform his or its obligations
hereunder (including, without limitation, all right, power, capacity and
authority to sell, transfer and convey his or its Shares or Options, as the case
maybe, as provided by this Agreement, subject to applicable federal and state
securities law restrictions).
3.03 Ownership of Capital Stock. Such Shareholder or such
Optionholder (as the case may be) is the record owner of the number of Shares or
Options, as applicable, as set forth opposite his or its name on the
Shareholders Schedule or the Optionholder Schedule, as the case may be, free and
clear of all claims, pledges, security interests, liens, charges, encumbrances,
options, proxies, voting trusts or agreements or other restrictions of any kind,
except as set forth on the Shareholders Schedule. On the Closing Date, such
Shareholder shall transfer to Buyer good title to such Shares and such
Optionholder shall surrender for cancellation such Options to the Company, in
either case free and clear of all claims, pledges, security interests, liens,
charges, encumbrances, options, proxies, voting trusts or agreements and other
restrictions and limitations of any kind, other than applicable federal and
state securities law restrictions.
3.04 Brokerage. Except for the fees and expenses of Bowles
Hollowell Conner & Co. (which the Shareholders agree shall be paid by the
Shareholders), there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of any
Shareholder, any Optionholder, the Company or any Affiliate of any of the
foregoing Persons.
3.05 Investment. Such Shareholder or such Optionholder (a)
understands that the Buyer Notes have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
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transactions not involving any public offering, (b) is acquiring such
Shareholder's or such Optionholder's (as the case may be) Buyer Notes solely for
his or its own account for investment purposes, and not with a view to the
distribution thereof, (c) is a sophisticated investor with knowledge and
experience in business and financial matters and (d) is able to bear the
economic risk and lack of liquidity inherent in holding such Shareholder's or
such Optionholder's (as the case may be) Buyer Notes.
3.06 Noncontravention. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (a) violate any law, statute, regulation, rule, judgment, order, decree
stipulation, injunction, charge or other restriction of any government,
governmental agency, or court to which such Shareholder or such Optionholder is
subject or, if applicable, any provision of its charter, bylaws or other such
constituent documents, or (b) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent under
any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
security interest, or other arrangement to which such Shareholder or such
Optionholder is a party or by which such Shareholder or such Optionholder is
bound or to which any of his or its assets is subject.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
4.01 Organization and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and the Company has all requisite corporate power and
authority and all authorizations, licenses and permits necessary to own and
operate its properties and to carry on its businesses as now conducted, except
where the failure to hold such authorizations, licenses and permits would not,
individually or in the aggregate, have a material adverse effect upon the
assets, liabilities, business, condition (financial or other), operations,
results of operations or prospects of the Company and its Subsidiaries, taken as
a whole (a "Material Adverse Effect"). The Company is qualified to do business
in every jurisdiction in which its ownership of property or the conduct of
business as now conducted requires it to qualify, except where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect.
4.02 Subsidiaries. Except as set forth on the attached
Subsidiary Schedule Schedule 4.02, neither the Company nor any of its
Subsidiaries owns or holds the right to acquire any stock, partnership interest
or joint venture interest or other equity ownership interest in any other
corporation, organization or entity. Each of the Subsidiaries identified on the
Subsidiary Schedule Schedule 4.02 is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority and, except as set forth on the attached
Subsidiary Schedule - Schedule 4.02, all authorizations, licenses and permits
necessary to own its properties and to carry on its businesses as now conducted
and is qualified to
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do business in every jurisdiction in which its ownership of property or the
conduct of businesses as now conducted requires it to qualify, except where the
failure to hold such authorizations, licenses and permits or to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect. For
purposes of this Agreement, the term "Subsidiary" shall mean any corporation of
which the securities having a majority of the ordinary voting power in electing
the board of directors are, at the time of such determination, owned by the
Company or another Subsidiary and shall include Heath Company, a Delaware
corporation, and Heath Company Limited, a Hong Kong corporation formerly known
as Prokit Electronics Company Limited. All of the Company's Subsidiaries are
expressly identified on the attached Subsidiary Schedule.
4.03 Authorization; No Breach. Except as set forth on the
attached Authorization Schedule - Schedule 4.03, the execution, delivery and
performance of this Agreement by the Company and the Shareholders and the
consummation of the transactions contemplated hereby have been duly authorized
by all corporate and other action on the part of the Company and do not conflict
with or result in any breach of, constitute a default under, result in a
violation of, result in the creation of any lien, security interest, charge or
encumbrance upon any assets of the Company or any of its Subsidiaries, or
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body or other Person, under (a) the
provisions of the Company's or any Subsidiary's certificate of incorporation or
bylaws or (b) any indenture, mortgage, lease, loan agreement or other material
agreement or instrument to which the Company or any of its Subsidiaries is
bound, or any law, statute, rule or regulation or order, judgment or decree to
which the Company or any of its Subsidiaries is subject, except, with respect to
the items set forth in clause (b) of this Section 4.03, such conflicts,
breaches, defaults, violations, liens, security interests, charges and
encumbrances as would not, individually or in the aggregate, have a Material
Adverse Effect. Assuming that this Agreement is a valid and binding obligation
of Buyer, this Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms.
4.04 Capital Stock.
(a) The authorized number of shares of capital stock of the
Company consists of 2,500,000 shares of the Company's common stock, par value
$.01 per share ("Common Stock"). As of the date hereof, 1,500,000 shares of
Common Stock are issued and outstanding and are owned of record by the
Shareholders in the amounts as set forth on the attached Shareholders Schedule.
All of the outstanding shares of capital stock of the Company have been duly
authorized and are validly issued, fully paid and nonassessable. Except as set
forth on the attached Capital Stock Schedule - Schedule 4.04, the Company does
not have any other capital stock, equity securities or securities containing any
equity features authorized, issued or outstanding, and there are no agreements,
options, warrants or other rights or arrangements existing or outstanding which
provide for the sale or issuance of any of the foregoing by the Company. Except
as set forth on the attached Capital Stock Schedule - Schedule 4.04, there are
no rights, subscriptions, warrants, options, conversion rights or agreements of
any kind outstanding to purchase or otherwise acquire any shares of capital
stock or other equity securities of the Company of any kind. Except as set forth
on the Capital Stock Schedule - Schedule 4.04, there are no agreements or other
obligations (contingent or otherwise) which require the Company or any
Subsidiary to repurchase or otherwise acquire any shares of the Company's
capital stock or other equity securities.
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(b) The attached Subsidiary Schedule - Schedule 4.02 correctly
sets forth the name of each Subsidiary of the Company, the jurisdiction of its
incorporation or organization, the Persons owning, of record and beneficially,
the outstanding capital stock or other equity securities of such Subsidiary and
the jurisdiction in which each such Subsidiary is qualified to do business. Each
Subsidiary of the Company (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and (ii) possesses all requisite corporate power and authority and, except as
set forth on the attached Subsidiary Schedule Schedule 4.02, has all licenses,
permits and authorizations necessary to own its properties and to carry on its
businesses as now being conducted. All of the outstanding shares of capital
stock of each Subsidiary of the Company that is a corporation are validly
issued, fully paid and nonassess able. Except as set forth on the Capital Stock
Schedule - Schedule 4.04, all shares of capital stock or other equity interests
of each of the Company's Subsidiaries are owned of record and beneficially by
the Company or one of its Subsidiaries in the respective amounts set forth in
the Subsidiary Schedule - Schedule 4.02, free and clear of all claims, pledges,
security interests, liens, charges, encumbrances, options, proxies, voting
trusts or agreement and other restrictions of any kind and are not subject to
any option or right to purchase any such shares or equity interests. Except as
set forth on the Capital Stock Schedule - Schedule 4.04, neither the Company nor
any of its Subsidiaries owns or holds the right to acquire any shares of stock
or any other security or interest in any other Person. The Company beneficially
owns, indirectly through Heath and Anthony Tamer, in trust for Heath, all of the
outstanding beneficial and other interests in Heath Ltd. After giving effect to
the transactions contemplated by this Agreement, Buyer will own all of the
outstanding equity interests in each of the Company, Heath and Heath Ltd., free
and clear of all liens and encumbrances.
4.05 Financial Statements. The Company has furnished to Buyer
true and complete copies of the following financial statements of Company and
its Subsidiaries (collectively, the "Financial Statements"); (i) the unaudited
consolidated balance sheet (the "Latest Balance Sheet") and related consolidated
statement of income (together with the Latest Balance Sheet, the "Latest
Financial Statements") for the Heath/Zenith Business of the Company and its
Subsidiaries as at and for the eleven-month period ended November 30, 1997; (ii)
the audited consolidated balance sheet and related consolidated statement of
income for the Heath/Zenith Business of the Company and its Subsidiaries and The
Benton Harbor Facility as at and for the fiscal year ended December 31, 1996
(the "1996 Heath/Zenith Financial Statements"); and (iii) the audited
consolidated balance sheet and related consolidated statement of income for the
Company and its Subsidiaries as at and for the fiscal years ended December 31,
1996 and 1995. The Financial Statements, including in each case the notes (if
any) thereto, have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, are true, complete and correct in
all material respects and are consistent with the books and records of the
Company and its Subsidiaries (which books and records are correct and complete
in all material respects) in all material respects, and present fairly the
consolidated financial condition and results of operations, in the case of the
Latest Financial Statements and the 1996 Heath/Zenith Financial Statements, of
the Heath/Zenith Business of the Company and its Subsidiaries (including, in the
case of the 1996 Heath/Zenith Financial Statements, The Benton Harbor Facility),
on the bases therein stated, as of the respective dates thereof and for the
respective periods covered thereby and, in the case of the other Financial
Statements, of the Company and its Subsidiaries, on the bases therein stated, as
of the respective dates thereof and for the respective periods covered thereby;
provided, however, that (A) the Latest Financial Statements are subject to
normal year-end adjustments and lack of footnote
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disclosure and (B) the Latest Financial Statements and the 1996 Heath/Zenith
Financial Statements have been prepared on a pro forma basis in accordance with
GAAP giving effect to the Pre-Closing Spin-Off Transactions as if they had
occurred on December 31, 1996, except in the case of the 1996 Heath/Zenith
Financial Statements which include The Benton Harbor Facility.
4.06 Absence of Certain Developments. Since December 31, 1996,
there has not been any Material Adverse Effect. There has occurred or arisen or
exists no change or event or condition or circumstance that, individually or in
the aggregate, would have or result in a Material Adverse Effect other than as
may result from general economic or political conditions or any change therein.
Except as set forth on the attached Developments Schedule - Schedule 4.06 and
except as expressly contemplated by this Agreement, since December 31, 1996,
neither the Company nor any Subsidiary has:
(a) created, incurred, assumed or guaranteed any
indebtedness (including capitalized lease obligations) either involving
more than $50,000 singly or $100,000 in the aggregate or outside the
ordinary course of business (which term, as used in this Agreement,
shall be deemed to mean the ordinary course of business of the Company
and its Subsidiaries consistent with their practices in the past year);
(b) mortgaged, pledged or subjected to any lien,
charge or other encumbrance, any portion of its assets, except liens
for current property taxes not yet due and payable;
(c) sold, assigned or transferred any of its tangible
assets, except in the ordinary course of business;
(d) sold, assigned or transferred any patents,
certificates of plant variety protection, trademarks, trade names,
copyrights, trade secrets or other intangible assets;
(e) experienced any damage, destruction or loss
(whether or not covered by insurance) to its property, or canceled,
compromised, waived, or released any right or claim (or series of
related rights and claims) outside the ordinary course of business or
in excess of $50,000 in the aggregate;
(f) issued, sold or transferred any of its capital
stock or other equity securities, securities convertible into its
capital stock or other equity securities or warrants, options or other
rights to acquire its capital stock or other equity securities, or any
bonds or debt securities;
(g) made any material capital expenditures or
commitments therefor outside the ordinary course of business or which
are not consistent with the Capital Expenditures Budget of the Company
and its Subsidiaries for fiscal year 1997, a true and complete copy of
which is attached as the Capital Expenditures Schedule - Schedule
4.06(g);
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(h) entered into any contract, lease, sublease,
license or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) outside the ordinary course of
business or involving in excess of $50,000 or relating to Intellectual
Property;
(i) accelerated, terminated, modified, or canceled
any contract, lease, sublease, license or sublicense (or series of
related contracts, leases, subleases, licenses and sublicenses) to
which any of the Company and its Subsidiaries is a party or by which
any of them is bound outside the ordinary course of business or
involving in excess of $50,000 in the aggregate or relating to
Intellectual Property;
(j) made any capital investment in, any loan to, or
any acquisition of the securities or assets of any other Person (or
series of related capital investments, loans and acquisitions) outside
the ordinary course of business;
(k) granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(l) made or authorized any change in the charter or
bylaws of any of the Company and its Subsidiaries;
(m) declared, set aside, or paid any dividend or
distribution with respect to its capital stock or redeemed, purchased
or otherwise acquired any of its capital stock;
(n) made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside
the ordinary course of business;
(o) entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any such existing contract or agreement;
(p) granted any increase outside the ordinary course
of business in the base compensation of any of its directors, officers
and employees;
(q) adopted any (i) bonus, (ii) profit-sharing, (iii)
incentive compensation, (iv) pension, (v) retirement, (vi) medical,
hospitalization, life or other insurance, (vii) severance, or (viii)
other plan, contract or commitment for any of its directors, officers
and employees, or modified or terminated any existing such plan
contract or commitment;
(r) made any other change in employment terms for any
of its directors, officers and employees;
(s) made or pledged to make any charitable or other
capital contribution outside the ordinary course of business;
(t) entered into any other material transaction,
except in the ordinary course of business; or
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(u) committed to or agreed to do any of the
foregoing.
4.07 Title to Properties.
(a) The Company owns good and marketable title to all of the
personal property shown on the Latest Balance Sheet, free and clear of all
liens, security interests and other encumbrances, except for liens relating to
current taxes not yet due and payable and liens and encumbrances set forth on
the attached Liens Schedule - Schedule 4.07(a).
(b) The real property demised by the leases described on the
attached Leased Real Property Schedule - Schedule 4.07(b) constitutes all of the
real property leased by the Company or any of its Subsidiaries. The leases
described on the Leased Real Property Schedule - Schedule 4.07(b) are valid and
enforceable against the Company or its Subsidiary that is party thereto and in
full force and effect, and the Company or a Subsidiary holds a valid and
existing leasehold interest under each of the leases for the term set forth on
the Leased Real Property Schedule. Except as set forth on the Leased Real
Property Schedule - Schedule 4.07(b), each of such leases will continue to be
legal, valid, binding, and enforceable and in full force and effect on identical
terms following the Closing, and the consummation of the transactions
contemplated by this Agreement will not conflict with or result in any breach or
violation of any of such leases. The Company has delivered to Buyer complete and
accurate copies of each of the leases described on the Leased Real Property
Schedule, and none of the leases have been modified in any material respect,
except to the extent that such modifications are disclosed by the copies
delivered to Buyer. Neither the Company nor any Subsidiary nor, to the Company's
knowledge, any other Person is in default in any material respect under any of
such leases.
(c) After giving effect to the Pre-Closing Spin-Off
Transactions, neither the Company nor any of its Subsidiaries owns any real
property.
4.08 Tax Matters. Except as set forth in the attached Taxes
Schedule - Schedule 4.08:
(a) Each of the Company and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by any of the Company and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. None of
the Company and its Subsidiaries currently is the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made in
writing addressed specifically to the Company by an authority in a jurisdiction
where any of the Company and its Subsidiaries does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction.
(b) Each of the Company and its Subsidiaries has withheld,
collected and paid over all Taxes required to have been withheld, collected and
paid over in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party, including without limitation all
sales, use and withholding taxes.
(c) There is no dispute or claim concerning any Tax Liability
of any of the Company and its Subsidiaries either (i) claimed or raised by any
authority in writing, or (ii) as to
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which any of the Shareholders or the directors, officers and employees
responsible for Tax matters of the Company and its Subsidiaries has knowledge
based upon personal contact with any agent of such authority. The Taxes Schedule
- - - - - Schedule 4.08 lists all federal, state, local, and foreign income Tax Returns
filed with respect to any of the Company and its Subsidiaries for taxable
periods ended on or after December 31, 1994, and indicates (other than with
respect to separate company Tax Returns included in a consolidated, combined or
unitary group other than a group the common parent of which was the Company) (i)
those Tax Returns that have been audited and (ii) those Tax Returns that
currently are the subject of audit.
(d) The Company has delivered to the Buyer correct and
complete copies of all income Tax Returns of the Company and its Subsidiaries
for taxable periods ending on or after 12/31/94, and all examination reports and
statements of deficiencies assessed against or agreed to by any of the Company
and its Subsidiaries since December 31, 1994.
(e) None of the Company and its Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(f) No liens, security interests or other encumbrances for
Taxes exist with respect to any of the assets or properties of the Company or
any Subsidiaries, except for statutory liens for Taxes not yet due or payable or
that are being contested in good faith;
(g) The unpaid Taxes of the Company and its Subsidiaries will
not exceed the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth in the Closing Balance Sheet (rather than in any notes thereto), which
reserve shall be established in accordance with the past custom and practice of
the Company and its Subsidiaries in filing their Tax Returns.
(h) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations.
(i) None of the Company and its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments, that will
not be deductible due to Code Section 280G.
(j) None of the Company and its Subsidiaries has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
(k) Other than with respect to Tax sharing agreements to which
no Person other than the Company or any of the Subsidiaries is a party, (A)
there is no existing or previously effective Tax sharing agreement that may or
will require that any payment be made by the Company or any of its Subsidiaries
on or after the Closing Date and all Tax sharing agreements to which the Company
or any of its Subsidiaries is a party shall be canceled as of the Closing Date
and thereafter the Company shall have no obligation thereunder, and (B) any
payments to which the Company or any of its Subsidiaries is or would be entitled
on or prior to the Closing Date under any such Tax
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<PAGE>
sharing agreement has been or will be paid to the Company or any such Subsidiary
on or prior to the Closing Date.
(l) Since January 25, 1995, none of the Company and its
Subsidiaries has been a member of an affiliated group of corporations other than
a group the common parent of which was the Company.
(m) Neither the Company nor any of its Subsidiaries is bound
by any currently effective private ruling, closing agreement or similar
agreement with any taxing authority relating to a material amount of Taxes.
(n) Neither the Company nor any of its Subsidiaries will be
required to include, in a taxable period ending after the Closing Date, any
taxable income that economically accrued in a prior taxable period as a result
of Section 481 of the Code, the installment method of accounting, the like-kind
exchange provisions of Section 1031 of the Code, or any comparable provision of
state or local Tax law. Immediately following the Closing Date, neither the
Company nor any of its Subsidiaries will have any material amount of income or
gain that has been deferred under Treasury Regulation Section 1.1502-13.
(o) No property owned by the Company or its Subsidiaries is
property that the Company is or will be required to treat as being owned by
another Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately before the enactment
of the Tax Reform Act of 1986, or is "tax-exempt use property" within the
meaning of Section 168(h)(1) of the Code.
(p) No material amount of assets of the Company or any of its
Subsidiaries is subject to a lease under Section 7701(h) of the Code.
(q) Except for Heath's ownership of the HK Shares, neither the
Company nor any of its Subsidiaries owns an interest in any (i) domestic
international sales corporation, (ii) foreign sales corporation, (iii)
controlled foreign corporation, or (iv) passive foreign investment company.
4.09 Contracts and Commitments.
(a) Except as set forth on the attached Contracts Schedule -
Schedule 4.09(a), neither the Company nor any Subsidiary is party to any: (i)
collective bargaining agreement or contract with any labor union; (ii) bonus,
pension, profit sharing, retirement or other form of deferred compensation plan,
other than as described in Section 4.13 or the schedules relating thereto; (iii)
stock purchase, stock option or similar plan; (iv) contract for the employment
of any officer, individual employee or other person on a full-time, part-time or
consulting basis; (v) agreement, document, instrument or indenture evidencing or
relating to the borrowing of money or to mortgaging, pledging or otherwise
placing a lien on any material portion of the Company's or any Subsidiary's
assets (including any such document evidencing or relating to Funded
Indebtedness); (vi) guaranty of any obligation for borrowed money or other
material guaranty; (vii) lease or agreement under which it is lessee of, or
holds or operates any personal property owned by any other party, for which the
annual rental exceeds $25,000; (viii) lease or agreement under which it is
lessor
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of or permits any third party to hold or operate any property, real or personal,
for which the annual rental exceeds $25,000; (ix) contract or group of related
contracts with the same party for the purchase of products or services, under
which the undelivered balance of such products and services has a selling price
in excess of $25,000; (x) contract or group of related contracts with the same
party for the sale of products or services under which the undelivered balance
of such products or services has a sales price in excess of $25,000; (xi)
noncompetition or other contract which prohibits or restricts the Company or any
Subsidiary from freely engaging in operations or business anywhere in the world;
(xii) written arrangement concerning a partnership or joint venture; (xiii)
written or other arrangement concerning confidentiality; (xiv) written or other
arrangement involving any of the Shareholders or the Optionholders and their
respective Affiliates; (xv) written arrangement under which the consequences of
a default or termination could have a Material Adverse Effect; (xvi) license,
sublicense, agreement or permission to use any patent, patent application,
trademark, service mark, trade dress, trade name or corporate name or
registration or application for registration thereof, or any other item of
material Intellectual Property owned by any third party and used by any of the
Company or its Subsidiaries; or (xvii) other material written arrangement (or
group of related written arrangements) or any written agreement not entered into
in the ordinary course of business.
(b) Buyer has been supplied with a true and correct copy of
all written contracts which are referred to on the Contracts Schedule - Schedule
4.09(a), together with all amendments, waivers or other changes thereto.
(c) With respect to each agreement, contract, plan, document,
instrument, indenture or arrangement so listed on the attached Contracts
Schedule - Schedule 4.09(a) (collectively, the "Material Contracts"): (i) such
Material Contract is legal, valid, binding and enforceable and in full force and
effect against the Company or the Subsidiary that is party thereto and, to the
Company's knowledge, against each Person (other than the Company or any of its
Subsidiaries) that is party thereto; (ii) subject to the Company's obtaining the
consents set forth on the attached Third-Party Consents Schedule - Schedule
4.09(c), such Material Contract will continue to be legal, valid, binding, and
enforceable against the Company or the Subsidiary that is party thereto and, to
the Company's knowledge, against each Person (other than the Company or any of
its Subsidiaries) that is party thereto and in full force and effect on
identical terms following the Closing; (iii) subject to the Company's obtaining
the consents indicated on the Third Party Consents Schedule - Schedule 4.09(c),
the consummation of the transactions contemplated by this Agreement will not
result in any breach or violation of such Material Contract; and (iv) the
Company is not in breach of or default under such contract, and to the Company's
knowledge, no event has occurred which, with notice or lapse of time would
constitute a breach of or default under or permit termination, modification, or
acceleration under, such contract.
(d) None of the Company and its Subsidiaries is a party to any
oral contract, agreement, or other arrangement which, if reduced to written
form, would be required to be listed in the Contracts Schedule - Schedule
4.09(c) under the terms of this Section 4.09.
(e) To the Company's knowledge, since December 31, 1996, there
is no unresolved threat by (i) any supplier or vendor of any of the Company and
its Subsidiaries that such supplier or vendor will stop, or materially decrease
the rate of, supplying materials, products, or
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services to any of them or (ii) by any customer of any of the Company and its
Subsidiaries that such customer will stop or materially decrease the rate of
buying material or products from any of them.
4.10 Intellectual Property.
(a) All (i) patents, patent applications, patent disclosures
and improvements thereto (ii) trademarks, service marks, logos, trade names, and
corporate names and registrations and applications for registration thereof,
(iii) copyrights and registrations and applications for registration thereof,
(iv) material mask works and registrations and applications for registration
thereof, (v) material computer software and (vi) material trade secrets and
proprietary manufacturing and production processes (collectively, "Intellectual
Property") owned or used by the Company or any of its Subsidiaries are set forth
on the attached Intellectual Property Schedule - Schedule 4.10. Except as set
forth on the Intellectual Property Schedule - Schedule 4.10, (a) the Company and
its Subsidiaries, as the case may be, owns and possesses all right, title and
interest in and to, or possesses the valid right to use, the Intellectual
Property set forth on the Intellectual Property Schedule - Schedule 4.10; (b)
neither the Company nor any Subsidiary has received any written notices of any
claim of ownership (in whole or in part), theft, license, shop right,
infringement or misappropriation from any third party with respect to the
Intellectual Property set forth on the Intellectual Property Schedule - Schedule
4.10 and neither the Company nor any Subsidiary has received any written notice
of the existence of any patent or patent application purportedly owned by any
third Person which relates to any product marketed by the Company or any
Subsidiary; and (c) neither the Company nor any of its Subsidiaries has
infringed or is currently infringing on the Intellectual Property of any other
Person, except for any nonconformance with clauses (a), (b) and (c) above which
would not, individually or in the aggregate, have a Material Adverse Effect.
Other than those items of Intellectual Property set forth on the Schedules to
the Heathkit Business Contribution Agreement, each item of Intellectual Property
owned or used by any of the Company and its Subsidiaries immediately prior to
the Closing hereunder will be owned or available for use by the Company or its
Subsidiaries on identical terms and conditions immediately subsequent to the
Closing hereunder. Except as described on the attached Intellectual Property
Schedule - Schedule 4.10, to the Company's knowledge, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of any of the Company and its
Subsidiaries which interference, infringement or misappropriation is likely,
individually or in the aggregate, to have a Material Adverse Effect.
(b) Except as described on the attached Intellectual Property
Schedule - Schedule 4.10, to the Company's knowledge, each of the Company and
its Subsidiaries has taken all necessary or desirable action to protect each
item of Intellectual Property that it owns or uses.
(c) The Intellectual Property Schedule - Schedule 4.10
identifies each patent or trademark or registration therefor which has been
owned by any of the Company and its Subsidiaries with respect to any of its
Intellectual Property, identifies each pending patent or trademark application
or application for registration which any of the Company and its Subsidiaries
has made or owns with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which any of the Company
and its Subsidiaries has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions).
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(d) The Intellectual Property Schedule - Schedule 4.10 also
identifies each item of Intellectual Property that any third party owns and that
any of the Company and its Subsidiaries uses pursuant to any license,
sublicense, agreement or permission.
4.11 Litigation. Except as set forth on the attached
Litigation Schedule, there are no actions, suits or proceedings pending or, to
the Company's knowledge, threatened against the Company or any Subsidiary, at
law or in equity, or before or by any foreign, federal, state, municipal or
other governmental department, commission, office, board, bureau, agency or
instrumentality, domestic or foreign, and neither the Company nor any Subsidiary
is subject to any outstanding judgment, order or decree of any court or
governmental body.
4.12 Governmental Consents, etc. Except for the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") and, except as set forth on the attached Governmental Consents
Schedule - Schedule 4.12, no permit, consent, approval or authorization of, or
declaration to or filing with, any governmental or regulatory authority is
required in connection with any of the execution, delivery or performance of
this Agreement by the Company, the Shareholders or the Optionholders or the
consummation by the Company, the Shareholders or the Optionholders of any other
transaction contemplated hereby.
4.13 Employee Benefit Plans.
(a) The attached Employee Benefits Schedule - Schedule 4.13
lists all employee benefit plans, as defined in Section 3(3) of ERISA, and all
other deferred compensation, bonus or other incentive compensation, stock
purchase, severance pay, salary continuation for disability or other leave of
absence, supplemental unemployment benefits, layoff or reduction in force,
change in control or educational assistance plans, arrangements or policies
including, but not limited to, any benefit arrangement, policy or practice, in
which any employee of the Company or any Subsidiary (including, but not limited
to, the President and its chief financial officer) participates on the date
hereof (collectively, the "Benefit Plans"). None of the Benefit Plans is (i) a
"defined benefit pension plan" as defined in Section 3(35) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) a
"multiemployer plan," as defined in Section 3(37) of ERISA, (iii) a "multiple
employer plan," as defined in ERISA or the Internal Revenue Code of 1986, as
amended (the "Code"), or (iv) a funded welfare benefit plan, as defined in
Section 419 of the Code. Each of the Company and its Subsidiaries has no
agreement or commitment to create any additional Benefit Plan or to modify or
change any Benefit Plan.
(b) With respect to each Benefit Plan, the Company has
heretofore delivered or made available to Buyer true, correct and complete
copies of (i) all documents which comprise the most current version of each such
Benefit Plan, including any related trust agreements, insurance contracts, or
other funding or investment agreements and any amendments thereto, and (ii) with
respect to each Benefit Plan that is an "employee benefit plan," as defined in
Section 3(3) of ERISA, (A) the two most recent Annual Reports (Form 5500 Series)
and accompanying schedules for each of the Benefit Plans for which such a report
is required, (B) the most current summary plan description (and any summary of
material modifications), (C) the most recent certified financial statements for
each of the Benefit Plans for which such a statement is required or was prepared
and (D) for each Benefit Plan intended to be "qualified" within the meaning of
Section 401(a) of the
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Code, the current IRS determination letter issued with respect to such Plan.
Except as set forth in the Employee Benefits Schedule - Schedule 4.13, since the
date of the documents so delivered to Buyer, there has not been any material
change in the assets or liabilities of any of the Benefit Plans or any change in
their terms and operations which could reasonably be expected to affect or alter
the tax status or materially affect the cost of maintaining such Plan, and none
of the Benefit Plans has been or will be amended prior to the Closing Date.
(c) Each of the Company and its Subsidiaries has performed and
complied in all material respects with its obligations under and with respect to
the Benefit Plans and each of the Benefit Plans has, at all times, in form,
operation and administration complied in all material respects with its terms,
and, where applicable, the requirements of the Code, ERISA and all other
applicable laws.
(d) There are no unpaid contributions with respect to any
Benefit Plan that are required to have been made under its terms and provisions,
any related insurance contract or any applicable law.
(e) Neither the Company, any Subsidiary, nor any other
"disqualified person" or "party in interest," as defined in Section 4975 of the
Code and Section 3(14) of ERISA, respectively, has engaged in any "prohibited
transaction," as defined in Section 4975 of the Code or Section 406 of ERISA,
with respect to any Benefit Plan, nor have there been any fiduciary violations
under ERISA which could subject the Company or any Subsidiary (or any officer,
director or employee thereof) to any penalty or tax under Section 502(i) of
ERISA or Sections 4971 and 4975 of the Code.
(f) Except as set forth in the Employee Benefits Schedule -
Schedule 4.13, there is not, with respect to any Benefit Plan: (i) any filing,
application or other matter pending with the IRS, the United States Department
of Labor or any other governmental authority, (ii) any pending action, suit or
claim other than routine claims for benefits, or (iii) any outstanding
liabilities for Taxes, penalties or fees.
(g) Neither the execution and delivery of this Agreement, nor
the consummation of any or all of the contemplated transactions will: (i)
entitle any employee or former employee of the Company or any Subsidiary to
severance pay, unemployment compensation or any similar payment, (ii) accelerate
the time of payment or vesting or increase the amount of any compensation due to
any employee or former employee, or (iii) directly or indirectly cause any
payment made or to be made to or on behalf of any person to constitute a
"parachute payment" within the meaning of Section 280G of the Code.
(h) Each employee benefit plan and compensation arrangement,
or benefit arrangement of any type, maintained by any Subsidiary of the Company
with respect to nonresident alien employees, has been maintained in accordance
with all applicable law (whether foreign or otherwise), and has been disclosed
on the Employee Benefit Schedule - Schedule 4.13.
(i) No party has failed to comply with the continuation health
care coverage requirements of Section 4980B of the Code and Section 601 through
607 of ERISA in respect of the Benefit Plans.
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4.14 Insurance. The attached Insurance Schedule - Schedule
4.14 lists each insurance policy maintained by the Company and its Subsidiaries
and any self-insurance arrangements affecting any of the Company its
Subsidiaries. All of such insurance policies are in full force and effect, and
to the Company's knowledge, neither the Company nor any Subsidiary is in default
with respect to its obligations under any of such insurance policies.
4.15 Compliance with Laws. Each of the Company and each
Subsidiary has complied in all material respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof, and no charge, complaint, action, suit, proceeding, investigation,
claim, demand, or notice has been filed or commenced against any of the Company
and its Subsidiaries alleging any failure to comply with any such law or
regulation and, to the Company's knowledge, there are no threatened actions or
investigations and no basis for any of the foregoing.
4.16 Environmental Compliance and Conditions.
(a) The Company and its Subsidiaries have obtained and possess
all permits, licenses and other authorizations required under federal, state,
local and foreign laws and regulations concerning public health and safety,
worker health and safety, and pollution or protection of the environment in
effect on or prior to the Closing Date, including all such laws and regulations
relating to the emission, discharge, release or threatened release of any
chemicals, petroleum, pollutants, contaminants or hazardous or toxic materials,
substances or wastes into ambient air, surface water, groundwater or lands or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any chemicals, petroleum,
pollutants, contaminants or hazardous or toxic materials, substances or waste
("Environmental and Safety Requirements"), except where the failure to possess
such licenses, permits and authorizations would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except as set forth on the attached Environmental
Compliance Schedule Schedule 4.16, the Company and its Subsidiaries are in
compliance with all terms and conditions of such permits, licenses and
authorizations and are also in compliance with all other Environmental and
Safety Requirements or any written notice or demand letter issued, entered,
promulgated or approved thereunder, except where the failure to comply would
not, individually or in the aggregate, have a Material Adverse Effect.
(c) (i) None of the Company and its Subsidiaries has any
material Liability under any Environment and Safety Requirements and (ii) none
of the Company or its Subsidiaries has handled or disposed of any Hazardous
Materials or arranged for the disposal of any Hazardous Materials in a manner
that would reasonably be anticipated to give rise to any such Liability. There
are no underground storage tanks, underground injection wells, asbestos or
equipment containing polychlorinated biphenyls located at any site currently
operated by the Company or any Subsidiary. None of the Company and its
Subsidiaries has any material Liability (i) under the Occupational Safety and
Health Act, as amended, or any other law (or rule or regulation thereunder) of
any federal, state, local or foreign government (or agency thereof) concerning
employee health and safety or (ii) for any illness of or personal injury to any
employee.
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4.17 Banking and Agency Arrangements.
(a) The attached Banking/Agency Schedule - Schedule 4.17 sets
forth a correct and complete list of:
(i) each bank, savings and loan or similar financial
institution in which the Company or any Subsidiary has an account or
safe deposit box or other custodial arrangement and the numbers of such
accounts or safe deposit boxes maintained by the Company or any
Subsidiary, as the case may be; and
(ii) the names of all Persons authorized to draw on
each such account or to have access to any such safe deposit box
facility.
(b) Except as set forth on the attached Banking/Agency
Schedule, neither the Company nor any Subsidiary has granted any general or
special powers of attorney or any other agency arrangement.
4.18 Affiliated Transactions. Except as set forth on the
attached Affiliated Transactions Schedule - Schedule 4.18, to the Company's
knowledge, no officer, director, Shareholder, Optionholder or Affiliate of the
Company or any individual in such officer's, director's, Shareholder's or
Optionholder's immediate family is a party to any agreement, contract,
commitment or transaction with the Company or any of its Subsidiaries or has any
interest in any property used by the Company or any of its Subsidiaries.
4.19 Brokers' Fees. Except for the fees and expenses of Bowles
Hollowell Conner & Co. (which shall be paid by the Shareholders (to the extent
not previously paid as of the Closing)), none of the Company and its
Subsidiaries has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
4.20 Assets and Properties. The tangible and intangible assets
and properties of the Company and its Subsidiaries constitute all of the
tangible and intangible assets and properties necessary to carry on the business
of the Company and its Subsidiaries as presently conducted (other than the
Heathkit Business). Each such tangible asset is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used.
4.21 Employees. To the Company's knowledge, no key employee or
group of employees has any plans to terminate employment with any of the Company
and any Subsidiary. Except as set forth on the attached Employee Schedule -
Schedule 4.21, (a) neither the Company nor any Subsidiary is a party to or bound
by any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes; (b) neither the Company nor any Subsidiary has committed
any unfair labor practice; and (c) to the Company's knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of either Company or any Subsidiary.
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4.22 Product Warranty. To the Company's knowledge, each
product manufactured, distributed, sold, serviced, leased or delivered by any of
the Company or any Subsidiary has been in conformity in all material respects
with all applicable contractual commitments and all express and implied
warranties and neither the Company nor any Subsidiary has any Liability for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth in the Latest Balance
Sheet, as adjusted for the passage of time through the Closing Date or in the
ordinary course of business of the Company and its Subsidiaries. No product
manufactured, sold, distributed, serviced, leased, or delivered by any of the
Company or any of its Subsidiaries is subject to any guaranty, warranty or other
indemnity of the Company or any Subsidiary beyond the applicable standard terms
and conditions of sale or lease.
4.23 Product Liability. Except as described on the attached
Product Liability Schedule - Schedule 4.23, to the Company's knowledge, neither
the Company nor any Subsidiary has any Liability (and there is no basis for any
present or future charge, complaint, action, suit, proceeding, investigation,
claim or demand against any of them giving rise to any Liability) arising out of
any injury to any Person or property as a result of the ownership, possession,
or use of any product manufactured, distributed, sold, leased, serviced or
delivered by the Company or any of its Subsidiaries.
4.24 Undisclosed Liabilities. To the Company's knowledge,
neither the Company nor any Subsidiary has any material Liability except for (i)
Liabilities set forth in the Latest Balance Sheet, (ii) Liabilities which have
arisen after the most recent fiscal year end in the ordinary course of business
(none of which relates to any breach of contract, breach of warranty, tort,
infringement, or violation of law or arose out of any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand) and (iii)
Liabilities identified on the attached Liabilities Schedule Schedule 4.24.
4.25 Disclosure. To the Company's knowledge, the
representations and warranties contained in this Article IV do not contain any
untrue statement of a fact or omit to state any fact necessary in order to make
the statements and information contained in this Article IV not misleading in
any material respect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Shareholders and the
Company that:
5.01 Organization and Corporate Power. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder.
5.02 Authorization. The execution, delivery and performance of
this Agreement by Buyer and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all requisite corporate action,
and no other corporate proceedings on its part are
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necessary to authorize the execution, delivery or performance of this Agreement.
Assuming that this Agreement is a valid and binding obligation of the
Shareholders, the Optionholders, the Shareholders' Representative and the
Company, this Agreement constitutes a valid and binding obligation of Buyer,
enforceable in accordance with its terms.
5.03 No Violation. Buyer is not subject to or obligated under
its certificate of incorporation, its bylaws, any applicable law (other than the
HSR Act), or rule or regulation of any governmental authority, or any material
agreement or instrument, or any license, franchise or permit, or subject to any
order, writ, injunction or decree, which would be breached or violated in any
material respect by Buyer's execution, delivery or performance of this
Agreement.
5.04 Governmental Authorities; Consents. Except for the
applicable requirements of the HSR Act, Buyer is not required to submit any
notice, report or other filing with any governmental authority in connection
with the execution, delivery or performance by it of this Agreement or the
consummation of the transactions contemplated hereby other than such notices,
reports or other filings the failure of which to submit would not, individually
or in the aggregate, materially adversely affect Buyer's performance of this
Agreement or the consummation of the transactions contemplated hereby. Except
for the required consent of the Buyer's senior lenders under its senior credit
agreement, no consent, approval or authorization of any governmental or
regulatory authority or any other party or Person is required to be obtained by
Buyer in connection with its execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby other than
such consents, approvals or authorizations the failure of which to obtain would
not, individually or in the aggregate, materially adversely affect Buyer's
performance of this Agreement or the consummation of the transactions
contemplated hereby.
5.05 Litigation. There are no actions, suits or proceedings
pending or, to the Buyer's knowledge, overtly threatened against or affecting
Buyer at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which would materially adversely affect
Buyer's performance under this Agreement or the consummation of the transactions
contemplated hereby.
5.06 Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Buyer.
5.07 Investment Representation. Buyer is purchasing the Shares
for its own account with the present intention of holding such securities for
investment purposes and not with a view to or for sale in connection with any
public distribution of such securities in violation of any federal or state
securities laws.
5.08 Financing. Buyer has and shall have at the Closing
sufficient cash and available credit facilities (and has provided evidence
thereof satisfactory to the Shareholders' Representative) to pay the full
consideration payable to the Shareholders hereunder, to make all other necessary
payments by it in connection with the purchase of the Shares and to pay all of
its related fees and expenses.
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5.09 No Knowledge of Misrepresentations or Omissions. As of
the date of execution of this Agreement, Buyer has no actual knowledge that the
representations and warranties of the Company or the Shareholders in this
Agreement and the schedules hereto are not true and correct in all material
respects, and Buyer has no actual knowledge of any material errors in, or
material omissions from, the schedules to this Agreement.
ARTICLE VI
PRE-CLOSING COVENANTS
6.01 Conduct of the Business.
(a) From the date hereof until the Closing Date, except as
otherwise permitted by this Agreement, the Company shall, and the Shareholders
shall cause the Company to, carry on its and each Subsidiary's business
according to its ordinary and usual course of business and substantially in the
same manner as heretofore conducted; provided that, the foregoing
notwithstanding, the Company may (i) use all available cash to repay any Funded
Indebtedness prior to the Closing, and (ii) take all actions necessary in
connection with the consummation the Pre-Closing Spin-Off Transactions.
(b) From the date hereof until the Closing Date, except as
otherwise provided for by this Agreement or consented to in writing by Buyer,
the Company shall not, and shall not permit its Subsidiaries to, (i) issue, sell
or deliver any shares of its or any Subsidiary's capital stock or other equity
interests in the Company or any Subsidiary or issue or sell any securities
convertible into, or options with respect to, or warrants to purchase or rights
to subscribe for, any shares of its or any Subsidiary's capital stock; (ii)
effect any recapitalization, reclassification, stock dividend, stock split,
reverse stock split, stock combination or like change in its capitalization;
(iii) amend its or any Subsidiary's certificate of incorporation (or other
charter documents) or bylaws; (iv) make any redemption or purchase of any shares
of its or any Subsidiary's capital stock; (v) declare, set aside or pay any
dividend or distribution with respect to its capital stock (other than as
expressly provided herein with respect to the Pre-Closing Spin-Off Transactions)
or redeem, purchase, or otherwise acquire any of its capital stock, or (vi) take
action, embark on any course of inaction, or enter into any transaction of the
sort described in Section 4.06 above.
6.02 Access to Books and Records. From the date hereof until
the Closing Date, the Company shall provide Buyer and its authorized
representatives ("Buyer's Representatives") with full access at all reasonable
times and upon reasonable notice to the offices, properties, personnel, books
and records of the Company and its Subsidiaries in order for Buyer to have the
opportunity to make such investigation as it shall reasonably desire to make of
the affairs of the Company and its Subsidiaries. Buyer acknowledges that it
remains bound by the Confidentiality Agreement, dated September 3, 1997, with
the Company (the "Confidentiality Agreement").
6.03 Regulatory Filings. Each party hereto shall coordinate
and cooperate with each of the other parties in exchanging such information and
assistance as such other parties may reasonably request in connection with all
filings and submissions required to be made under the HSR
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Act and any other material laws or regulations applicable to any party hereto
for the consummation of the transactions contemplated herein. Each party agrees
to use its commercially reasonable efforts to make the initial filings required
to be made under the HSR Act in connection with the transactions contemplated
herein as soon as practicable after the date of execution of this Agreement but,
in any event, no later than five business days following such date.
6.04 Conditions. The Company and the Shareholders shall
diligently pursue and use all commercially reasonable efforts to cause the
conditions set forth in Section 2.01 to be satisfied and to consummate the
transactions contemplated herein as soon as reasonably possible after the
satisfaction or waiver by Buyer of all of the conditions set forth in Article II
(other than those to be satisfied at the Closing); provided that neither the
Company, any Subsidiary nor any Shareholder shall be required to expend any
funds (other than filing fees and other amounts (a) required under existing
agreements or applicable law or (b) amounts or fees that are not outside of the
ordinary course of business of the Company and its Subsidiaries) to obtain any
third-party or governmental consents required under Section 2.01(c) or (d).
6.05 Exclusive Dealing. During the period from the date of
this Agreement through the Closing or the earlier termination of this Agreement
pursuant to Section 8.01, other than the Pre-Closing Spin-Off Transactions, each
Shareholder and each Optionholder shall not take or permit any other Person on
its behalf to take, and the Company shall not, and shall not permit its
Subsidiaries to, take any action to encourage, initiate or engage in discussions
or negotiations or enter into any agreements with, or provide any information
to, any Person (other than Buyer and its permitted assigns) concerning any
purchase of Shares or the Options or any merger or consolidation, liquidation,
distribution or recapitalization, sale of substantial assets or similar
transaction or business combination involving the Company, any Subsidiary or the
Heath/Zenith Business (other than assets sold in the ordinary course of business
and The Benton Harbor Facility transferred in connection with the Pre-Closing
Spin-Off Transactions immediately prior to the Closing). Each of the Company,
the Shareholders, the Optionholders and Shareholders' Representative shall
promptly advise Buyer of any proposal it may receive relating to any transaction
of the type described in the preceding sentence, and the identity of the Person
making it.
6.06 Notification. From the date hereof until the Closing
Date, the Company shall disclose to Buyer in writing any material variances from
the representations and warranties contained in Article IV promptly upon
discovery thereof.
6.07 Preservation of Business. The Company will, and the
Shareholders will cause the Company to, use commercially reasonable efforts to
cause the Company to keep its business and properties substantially intact,
including its relationships with lessors, licensors, suppliers, customers,
officers and employees.
6.08 Topping Fees. The Company represents, warrants and
covenants that it is not obligated to, and will not pay, or enter into an
agreement to pay or indemnify, any topping or similar fees.
6.09 Cooperation. Each of the parties hereto covenants and
agrees that it or he will not take any action, omit to take any action or enter
into any transaction which reasonably could be
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expected to render any representation or warranty or covenant contained in this
Agreement untrue or incorrect in any material respect (except to the extent a
representation or warranty or covenant is qualified by materiality, in which
case the parties will refrain from taking any action that would render such
representation or warranty or covenant untrue or incorrect in any respect) as of
the Closing.
6.10 Contribution of Assets to and Assumption of Liabilities
by Spin-Off Entities; Distribution of Equity Interests.
(a) Prior to the Closing and pursuant to the terms of the
Contribution and Assumption Agreement to be entered into by the Company and the
Spin-Off Entities in the forms attached hereto as Exhibit F (the "Heathkit
Business Contribution Agreement") and Exhibit G (the "Benton Harbor Facility
Contribution Agreement" and, together with the Heathkit Business Contribution
Agreement, the "Contribution Agreements"), Heath shall (and the Company and the
Shareholders agree to cause the Company to) (i) contribute and transfer (the
"Heathkit Contribution") to Heathkit Company, Inc. as is where is, all of
Heath's right, title and interest in and to any and all assets of Heath used
principally in the Heathkit Business, identified in Exhibit A to the Heathkit
Business Contribution Agreement, and (ii) contribute and transfer (the "Benton
Harbor Facility Contribution" and, together with the Heathkit Contribution, the
"Contributions") to The Benton Harbor Company, as is where is, the Benton Harbor
Facility.
(b) Concurrently with the Contributions, the Spin-Off Entities
will use all reasonable efforts to cause the Company and its Subsidiaries to be
released by all applicable third parties from any Liability to be assumed by the
Spin-Off Entities pursuant to the Contribution Agreements that is (i) debt for
borrowed money and similar monetary obligations (including letter of credit
reimbursement obligations) evidenced by bonds, notes, debentures, letters of
credit or other instruments, other than trade accounts payable in the ordinary
course of business or (ii) guaranties, endorsements, and other contingent
obligations, whether direct or indirect, in respect of liabilities of others or
any of the types described in clause (i).
(c) Following the Contributions and prior to the Closing,
pursuant to an Exchange Agreement between the Company and the Stockholders in
the form attached hereto as Exhibit H, (i) Heath shall (and the Company and the
Shareholders agree to cause Heath to) distribute (the "Distribution") all of the
Equity Interests in the Spin-Off Entities to the Company and (ii) the Company
shall (and the Shareholders agree to cause the Company to) distribute all of the
Equity Interests in the Spin-Off Entities to the Shareholders in exchange for
the Exchanged Shares.
6.11 Other Agreements. At the Closing, the Shareholders will
cause The Benton Harbor Company, Inc. to execute and deliver to Buyer the Lease
Agreement and Heathkit Company, Inc. to execute and deliver to Buyer the
Transition Agreement. As of the Closing, the Company will, and the Shareholders
and the Optionholders will cause the Company to, terminate each of the
Shareholders Agreement and the letter agreement dated January 26, 1995 between
H.I.G. Capital Management, Inc. ("H.I.G. Capital") and Heath regarding certain
management services to be provided to Heath by H.I.G. Capital.
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6.12 Trademark Withdrawal. On or as of the Closing, the
Company will withdraw or abandon the application submitted to the United States
Patent and Trademark Office in November 1997 with respect to the registration of
the "Heath Zenith" mark.
6.13 Heathkit Mark License Agreement. Buyer and Heathkit
Company, Inc. shall negotiate, and Heathkit Company, Inc., will and Buyer will
cause Heath to enter into, a mutually agreeable license agreement, pursuant to
which Heath shall license to Heathkit Company, Inc. the trademark HEATHKIT (the
"Mark") and all registrations thereof in the countries set forth on the attached
Associated Countries Schedule - Schedule 6.13 (the "Associated Countries"),
which license agreement shall contain the following terms and conditions and
such other terms and conditions as are customary (including, but not limited to,
customary indemnification provisions in favor of Heath) for an agreement of its
type: (i) Heath shall grant Heathkit Company, Inc. an exclusive, royalty-free,
perpetual, irrevocable and transferrable license (with the right to grant
sublicenses) to use the Mark and any composite marks containing the Mark; (ii)
Heathkit Company, Inc. shall have the right to enforce the Mark in the
Associated Countries in its own name and, at Heathkit Company, Inc.'s request,
Heath shall cooperate with or join Heathkit Company, Inc. in such enforcement,
all at Heathkit Company, Inc.'s sole cost and expense; (iii) Heath shall not
grant any voluntary liens, security interests and other encumbrances or
restrictions on the Mark; (iv) Heath shall not assign any of the Mark or such
license agreement other than to any Affiliate of Heath or in connection with any
disposition of all or substantially all of the Heath/Zenith Business; (v) Heath
shall take all actions reasonably requested by Heathkit Company, Inc. to
maintain and protect the Mark, including renewing registrations thereof and
filing new applications therefor, all at Heathkit Company, Inc.'s sole cost and
expense; (vi) Heathkit shall covenant that it will not and it will not permit
any other Person (whether by assignment, license or otherwise) to use the name
or mark "Heathkit" (either alone or in a combination of or with words, names,
symbols or devices) in connection with any product, service or business other
than in connection with those products manufactured, distributed, serviced,
marketed or sold by Heathkit prior to and as of the Closing ("Current Heathkit
Products") or after the Closing which relate to the Current Heathkit Products or
the Heathkit Business or any reasonably related development or extension
thereof, and Heath shall covenant with Heathkit that it will not, and it will
not authorize any other Person (whether by assignment, license or otherwise) to,
use the name "Heath" (either alone or in a combination of or with words, names,
symbols or devices) in connection with any Current Heathkit Products or any
other product (or service or business in connection therewith) which relates to
the Current Heathkit Products or the Heathkit Business or any reasonably related
development or extension thereof in any of the Associated Countries; and (vii)
each party shall have the right, upon thirty (30) days prior written notice to
such party, to enforce such party's rights described in the foregoing clause
(vi) by actions for injunctive relief and/or specific performance to the extent
permitted by law and shall agree to waive any requirement for security or the
posting of any bond or other surety in connection with any temporary or
permanent award of injunctive, mandatory or other equitable relief. Heath
covenants and agrees to take all actions reasonably requested by Heathkit
Company, Inc. after the Closing to dissolve the association between the
registrations for the Mark and the registrations for the trademark HEATH, all at
Heathkit Company, Inc.'s sole cost and expense. In the event any such
association is dissolved or upon a determination that no such association
exists, Buyer shall assign to Heathkit Company, Inc. all right, title and
interest in and to the Mark and the relevant registrations in the Associated
Countries, together with all goodwill associated therewith, free and clear of
all liens and security
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interests and other encumbrances or restrictions of any kind, other than the
limitations on the use of the Mark as described in the foregoing clause (vi) of
this Section 6.13.
ARTICLE VII
COVENANTS OF BUYER
7.01 Access to Books and Records. From and after the Closing,
Buyer shall, and shall cause the Company to, provide the Shareholders'
Representative, the Shareholders, the Optionholders and their agents with
reasonable access (for the purpose of examining and copying), during normal
business hours, to the books and records of the Company and its Subsidiaries
with respect to periods or occurrences prior to the Closing Date in connection
with any matter whether or not relating to or arising out of this Agreement or
the transactions contemplated hereby. Unless otherwise consented to in writing
by the Shareholders' Representative, the Company shall not, for a period of five
years following the Closing Date, destroy, alter or otherwise dispose of any of
the books and records of the Company for the period prior to the Closing Date
without first offering to surrender to the Shareholders' Representative (on
behalf of the Shareholders and the Optionholders) such books and records or any
portion thereof which Buyer or the Company may intend to destroy, alter or
dispose of.
7.02 Notification. Prior to the Closing, upon discovery Buyer
shall promptly inform the Company and the Shareholders' Representative in
writing of any material variances from Buyer's representations and warranties
contained in Article V, and Buyer shall promptly notify the Shareholders'
Representative if Buyer obtains actual knowledge that the representations and
warranties of the Shareholders or the Company in this Agreement and the
schedules hereto are not true and correct in all material respects, or if Buyer
obtains actual knowledge of any material errors in, or omissions from, the
schedules to this Agreement.
7.03 Director and Officer Liability and Indemnification. For a
period of six years after the Closing, Buyer shall not, and shall not permit the
Company or any of its Subsidiaries to amend, repeal or modify any provision in
the Company's or any of its Subsidiaries' certificate of incorporation or bylaws
relating to the exculpation or indemnification for any officers and directors
(in their respective capacities as such) (unless required by law) with respect
to matters effected at or prior to the Closing, it being the intent of the
parties that the officers and directors of the Company and its Subsidiaries (in
their respective capacities as such) shall continue to be entitled to such
exculpation and indemnification to the full extent of the law.
7.04 Conditions. Buyer shall use all commercially reasonable
efforts to cause the conditions set forth in Section 2.02(c), (f) and (g) to be
satisfied and to consummate the transactions contemplated herein as soon
reasonably possible after the satisfaction (or waiver by the Shareholders'
Representative) of the conditions set forth in Article II (other than those to
be satisfied at the Closing).
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7.05 Contact with Customers and Suppliers. Prior to the
Closing, Buyer and Buyer's representatives shall contact and communicate with
the customers and suppliers of the Company and its Subsidiaries in connection
with the transactions contemplated hereby only with the prior written consent of
the Company or the Shareholders' Representative, which consent shall not be
unreasonably withheld.
7.06 Employees. In connection with the Pre-Closing Spin-Off
Transactions, Heath shall terminate, without liability to Heath or the Company,
the employment of all of the employees identified as "Heathkit Employees" on the
Employee Schedule - Schedule 7.06 immediately prior to the Closing and all of
the employees identified as "Heath/Zenith Employees" on the Employee Schedule -
Schedule 7.06 shall remain employed by Heath.
7.07 Employee Benefit Plans. As soon as practicable after the
Closing and in no event later than 90 days after the Closing, Heath shall take
such actions and the Company shall cause Heath to take such actions as are
necessary to (a) spin-off a portion of the Heath Company Retirement Savings Plan
assets consisting of the account balances for all current and former Heath
employees who are not identified as "Heath/Zenith Employees" on the Employee
Schedule Schedule 7.06 and who are not employees of Heath Ltd., (b) transfer the
assets relating to such account balances under the Heath Company Retirement
Savings Plan to the underlying trust of a qualified retirement plan sponsored by
Heathkit Company, Inc. (provided that evidence reasonably satisfactory to Buyer
that such retirement plan is qualified under Section 401(a) of the Code shall
have been furnished to Buyer), (iii) spin-off a portion of the Heath Company
Flexible Benefits Plan assets consisting of the employee contribution account
balances for all current and former Heath employees who are not identified as
"Heath/Zenith Employees" on the Employee Schedule Schedule 7.06 and who are not
employees of Heath Ltd., and (iv) transfer the assets relating to such account
balances under the Heath Company Flexible Benefits Plan to a flexible spending
account plan sponsored by Heathkit Company, Inc.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual consent of Buyer and the
Shareholders' Representative (on behalf of the Shareholders and the
Optionholders);
(b) by Buyer, if there has been a violation or breach
in any material respect by the Company, the Shareholders'
Representative, the Optionholders or the Shareholders of any covenant,
representation or warranty contained in this Agreement and such
violation or breach has not been waived by Buyer or, in the case of a
covenant breach susceptible of cure prior to February 26, 1998, cured
by the Company, the Optionholders or the Shareholders within ten days
after written notice thereof from Buyer or by the Closing Date,
whichever comes first;
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(c) by the Shareholders' Representative (on behalf of
a Shareholder or an Optionholder), if there has been a violation or
breach in any material respect by Buyer of any covenant, representation
or warranty contained in this Agreement which has prevented the
satisfaction of any condition to the obligations of the Shareholders or
the Optionholders at the Closing and such violation or breach has not
been waived by the Shareholders' Representative or, with respect to a
covenant breach susceptible of cure prior to February 26, 1998, cured
by Buyer within ten days after written notice thereof from the
Shareholders' Representative, any Shareholder or any Optionholder or by
the Closing Date, whichever comes first; or
(d) by either Buyer or the Shareholders'
Representative if the transactions contemplated hereby have not been
consummated by February 26, 1998; provided that (i) neither Buyer nor
the Shareholders' Representative shall be entitled to terminate this
Agreement pursuant to this Section 8.01(d) if such Person (or, in the
case of termination by the Shareholders' Representative, any
Shareholder or any Optionholder) is in breach or default of this
Agreement in any material respect.
8.02 Effect of Termination. In the event of termination of
this Agreement by either Buyer or the Shareholders' Representative as provided
above, the provisions of this Agreement shall immediately become void and of no
further force and effect (other than this Section 8.02 and Article XII hereof
which shall survive the termination of this Agreement), and there shall be no
liability on the part of either Buyer, the Company, any Shareholder, any
Optionholder or the Shareholders' Representative to any other party to this
Agreement, except for breaches of this Agreement prior to the time of such
termination.
ARTICLE IX
SHAREHOLDERS' REPRESENTATIVE
9.01 Designation. H.I.G. Investment Group, L.P. (the
"Shareholders' Representative") is hereby designated by each Shareholder and
each Optionholder to serve as the representative of such Shareholder or such
Optionholder, as the case may be, with respect to the matters expressly set
forth in this Agreement to be performed by the Shareholders' Representative.
9.02 Authority. Each of the Shareholders and the
Optionholders, by the execution of this Agreement, hereby irrevocably appoints
the Shareholders' Representative as the agent, proxy and attorney-in-fact for
such Shareholder or such Optionholder, as the case may be, for all purposes of
this Agreement (including the full power and authority on such Shareholder's and
such Optionholder's behalf (i) to consummate the transactions contemplated
herein; (ii) to pay such Shareholder's and such Optionholder's expenses incurred
in connection with the negotiation and performance of this Agreement (whether
incurred on or after the date hereof); (iii) to disburse any funds received
hereunder to such Shareholder or such Optionholder and each other Shareholder or
Optionholder; (iv) to hold such Shareholder's or such Optionholder's pro rata
portion of $2,850,000 of the aggregate Transaction Price (including all or a
portion of the Buyer Notes) in an agency fund to satisfy indemnification
obligations of the Shareholders and the Optionholders in accordance with
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the provisions of Article X hereof; (v) to execute and deliver any certificates
representing the Shares and execution of such further instruments of assignment
as Buyer shall reasonably request; (vi) to execute and deliver on behalf of such
Shareholder and such Optionholder any amendment or waiver hereto; (vii) to take
all other actions to be taken by or on behalf of such Shareholder or such
Optionholder in connection herewith; (viii) to negotiate, settle, compromise and
otherwise handle the Net Working Capital adjustment; and (ix) to do each and
every act and exercise any and all rights which such Shareholder or the
Shareholders or such Optionholder or the Optionholders collectively are
permitted or required to do or exercise under this Agreement). Each of the
Shareholders and each of the Optionholders agrees that such agency and proxy are
coupled with an interest, are therefore irrevocable without the consent of the
Shareholders' Representative and shall survive the death, incapacity,
bankruptcy, dissolution or liquidation of any Shareholder or any Optionholder.
9.03 Exculpation. Neither the Shareholders' Representative nor
any agent employed by it shall incur any liability to any Shareholder or any
Optionholder by virtue of the failure or refusal of the Shareholders'
Representative for any reason to consummate the transactions contemplated hereby
or relating to the performance of its other duties hereunder, except for actions
or omissions constituting fraud or bad faith.
ARTICLE X
ADDITIONAL COVENANTS
10.01 Survival Period. The representations and warranties set
forth in this Agreement or in any certificates, instruments or documents
delivered at the Closing in connection with this Agreement shall survive for a
period (the "Survival Period") that will continue (i) with respect to the
representations and warranties in Section 4.08 (taxes) until the actual
expiration of the applicable statue of limitations, (ii) with respect to the
representations and warranties in Sections 3.01 (validity and binding effect),
3.02 (authority), (ownership of capital stock), the first sentence of 4.01
(organization and corporate power), the last sentence of 4.03 (authority), and
4.04 (capital stock), forever, (iii) with respect to Section 4.16
(environmental), until the third anniversary of the Closing, and (iv) with
respect to all other representations and warranties, until the second
anniversary of the Closing and shall thereafter be of no further force or
effect, unless and to the extent a notice of claim has been given prior to the
expiration of the applicable Survival Period.
10.02 Indemnification. Following and subject to the Closing:
(a) Subject to the provisions of this Section 10.02 and
Section 10.03 below, the Shareholders and the Optionholders, jointly and
severally, shall indemnify and hold Buyer, Desa Holdings Corporation, the
Company and its Subsidiaries (the "Buyer Indemnified Parties") harmless against
any actual loss, liability, damage or expense (including reasonable legal fees
and expenses) (collectively, "Losses" and individually, a "Loss") which any
Buyer Indemnified Party suffers, sustains or becomes subject to as a result of
(i) any breach of any of the covenants, representations and warranties of the
Company set forth herein or in any certificates, instruments or documents
delivered by the Company at the Closing (but expressly not including any
provision of the Lease, the Transition Agreement, the Contribution Agreements
and the Exchange Agreement) or (ii) the
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matters set forth in items a. through d. of Part V of the Intellectual Property
Schedule - Schedule 4.10 but only to the extent such Loss is attributable to
events, conditions or occurrences existing or arising prior to the Closing (in
the case of this clause (ii), whether or not such Loss is attributable to any
breach of any of the representations or warranties of the Company set forth
herein or in any certificates, instruments or documents delivered by the Company
at the Closing) (a "Specified IP Loss); provided that
(i) no Buyer Indemnified Party shall be entitled to
indemnification under this Section 10.02(a) with respect to any Loss
(other than due to a breach of any covenant) arising from or relating
to a breach of any representation or warranty of the Company in this
Agreement (other than a breach of Section 4.04(a)) or with respect to
any Specified IP Loss, to the extent such Loss together with all other
such Losses exceeds $2,850,000 (the "Cap");
(ii) the Buyer Indemnified Parties' right to
indemnification with respect to any Loss (other than due to a breach of
any covenant) from or relating to a breach of any representation or
warranty of the Company in this Agreement (other than a breach of
Section 4.04(a)) or with respect to any Specified IP Loss shall be
limited solely to (A) in the first instance, its right of set-off
against the Buyer Notes (including all accrued and unpaid interest
thereon) and (B) in the second instance, to the extent the aggregate of
such Losses exceeds the amount theretofore set off against the Buyer
Notes pursuant to the foregoing clause (A), up to an amount equal to
the Cap minus any amounts set-off against the Buyer Notes;
(iii) except as provided in clause (iv) of this
Section 10.02(a) with respect to Losses (other than due to a breach of
any covenant) arising out of any breach of Section 4.22 (collectively,
"Warranty Losses" and individually, a "Warranty Loss"), no Buyer
Indemnified Party shall be entitled to indemnification with respect to
any individual Loss from or relating to a breach of any representation
or warranty of the Company in this Agreement (other than any Warranty
Loss) or any individual Specified IP Loss unless such Loss, together
with (A) all other such Losses and (B) the excess of all other Warranty
Losses over $100,000, exceeds $200,000, in which case such Buyer
Indemnified Party shall be entitled to indemnification only for the
amount of such excess; and
(iv) no Buyer Indemnified Party shall be entitled to
indemnification with respect to any individual Warranty Loss until such
Warranty Loss, together with all other Warranty Losses, exceeds the sum
of
(A) $100,000 plus
(B) any amount by which the sum of all
Losses (other than Warranty Losses) plus the amount by which
all Warranty Losses exceed $100,000, is less than $100,000,
in which case such Buyer Indemnified Party shall only be entitled to
the amount of such excess.
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For purposes of the foregoing calculation, if the result of (B) is
negative, such result shall be deemed to be zero. The Buyer Indemnified
Parties shall not be entitled to indemnification with respect to any
Loss of which Buyer or its representatives or agents had actual
knowledge on or prior to the date of execution of this Agreement.
The following is an example of the effect of clauses (iii) and (iv) above on
Buyer's right to indemnification hereunder: assuming Buyer is entitled to
indemnification for Losses (other than Warranty Losses) which, in the aggregate
equal $140,000 and Warranty Losses which in the aggregate equal $220,000. In
this example, Buyer is not entitled to any indemnity payment hereunder with
respect to the Losses (other than Warranty Losses) because the aggregate amount
of such Losses ($140,000) do not exceed the $200,000 deductible described in
clause (iii) of this Section 10.02(a). Buyer is entitled to an indemnity payment
of $120,000 with respect to the Warranty Losses because $220,000 exceeds the
result of (i) $100,000, plus (ii) $100,000, minus ($120,000 (the amount of
Warranty Losses in excess of $100,000, plus $140,000 (the amount of Losses other
than Warranty Losses) (the result of this clause (ii) is negative and therefore
deemed to be zero). If, in the foregoing example there were no Losses other than
Warranty Losses, Buyer would be entitled to an indemnity payment of $20,000 with
respect to such Warranty Losses because $220,000 exceeds the result of (i)
$100,000, plus (ii) $100,000, minus ($120,000 (the amount of Warranty Losses in
excess of $100,000, plus $0 (the amount of Losses other than Warranty Losses)).
Anything herein to the contrary notwithstanding, clauses (i) through (iv) of
this Section 10.02(a) shall not apply to indemnification obligations of the
Shareholders and the Optionholders under Section 10.02(b) or 10.07(b).
(b) Subject to the provisions of Section 10.02(d) below, each
Shareholder and each Optionholder shall solely for himself or itself severally
(and not jointly and severally) indemnify Buyer and hold it harmless against any
Loss which Buyer suffers, sustains or becomes subject to as a result of the
breach by such Shareholder or such Optionholder (as the case may be) of any of
his or its representations and warranties and covenants and agreements contained
in this Agreement or in any certificates, instruments or documents delivered by
the Shareholders' Representative (on behalf of such Shareholder or such
Optionholder (as the case may be)) at the Closing; provided that any Shareholder
or any Optionholder shall not be liable under this Section 10.02(b) for more
than the portion of the Transaction Price actually received by such Shareholder
or such Optionholder (as the case may be).
(c) Subject to the provisions of Section 10.02(d) below, Buyer
shall indemnify each Shareholder and each Optionholder and hold him or it
harmless against any Loss which any such Shareholder or such Optionholder (as
the case may be) suffers, sustains or becomes subject to as a result of (i) any
breach by Buyer of its covenants, representations and warranties set forth
herein and as restated in any certificates delivered by Buyer at the Closing
(including, without limitation, Buyer's obligations under Section 10.07) and
(ii) the operations of the Company and its Subsidiaries following the Closing.
(d) No Person shall be liable for any claim for
indemnification under subsections (a), (b) or (c) above unless written notice
specifying in reasonable detail the nature of the claim for indemnification is
delivered by the Person seeking indemnification to the Person from whom
indemnification is sought prior to the expiration of the applicable Survival
Period.
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(e) Promptly after the assertion by any third party of any
claim (a "Third Party Claim") against any Person entitled to indemnification
under this Section 10.02 (the "Indemnitee") that results or may result in the
incurrence by such Indemnitee of any Loss for which such Indemnitee would be
entitled to indemnification pursuant to this Agreement, such Indemnitee shall
promptly notify the parties from whom such indemnification could be sought (the
"Indemnitors") and the Shareholders' Representative of such Third Party Claim;
provided, however, that no delay on the part of the Indemnitee in notifying any
Indemnitor shall relieve the Indemnitor from any liability hereunder unless (and
then solely to the extent) the Indemnitor is actually prejudiced thereby. The
Shareholders' Representative shall act on behalf of all Indemnitors in the case
of all Third Party Claims with respect to which Buyer is seeking indemnification
under subsection (a) above and may, at its option, assume the defense of the
Indemnitee against such Third Party Claim (including the employment of counsel
reasonably acceptable to Buyer) so long as, in any case where Buyer is the
Indemnitee, the aggregate Losses that Buyer could suffer or incur as a result of
Third Party Claims would not exceed the Cap; provided that, in the case of a
Third Party Claim arising out of a Specified IP Loss, the Shareholders'
Representative shall not be entitled to assume such defense, but will be
entitled to approve of counsel to be employed by Buyer in connection with the
defense of such Third Party Claim, such approval not to be unreasonably withheld
(it being understood that the employment of Jones, Day, Reavis & Pogue shall be
deemed to be satisfactory to Buyer). Any Indemnitee shall have the right to
employ separate counsel in any such Third Party Claim and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be an
expense of the Indemnitor unless (i) the Indemnitor shall have failed, within a
reasonable time after having been notified by the Indemnitee of the existence of
such Third Party Claim as provided in the preceding sentence, to assume the
defense of such Third Party Claim or (ii) the employment of such counsel has
been specifically authorized by the Indemnitor and/or the Shareholders'
Representative in the case of all Third Party Claims with respect to which the
Buyer is entitled to indemnification under subsection (a) above. Anything herein
to the contrary notwithstanding, if there are one or more legal defenses
available to the Indemnitee that conflict with those available to any
Indemnitor, the Indemnitee shall have the right, at the expense of the
Indemnitor, to assume the defense of the Third Party Claim; provided, however,
that the Indemnitee may not settle such Third Party Claim without the consent of
the Indemnitor, which consent shall not be unreasonably withheld or delayed. If
the Indemnitor assumes the defense of any Third Party Claim, it shall not settle
such Third Party Claim without the prior written consent of the Indemnitee
(which consent shall not be unreasonably withheld or delayed).
(f) Subject to the following sentence, the amount of any
indemnity payment which any Indemnitee shall be entitled to receive under this
Section 10 as a result of any Losses shall be reduced by any Tax benefit
actually received by such Indemnitee as a result of such Losses (after giving
effect to the tax effect of the receipt of the indemnification payments).
Notwithstanding the foregoing, the amount of any indemnity payment which any
Indemnitee shall be entitled to receive shall be reduced pursuant to this
subsection 10.02(f) only if, as and when, and only to the extent that, any net
Tax Benefit is actually realized by such Indemnitee. For purposes of determining
whether such Indemnitee realizes a net Tax benefit with respect to a Tax Period,
such Indemnitee's actual Tax Liability for such period shall be compared by such
Indemnitee's hypothetical Tax Liability for such period determined by excluding
in all periods all items attributable to the Losses and indemnification
payments. Further, an Indemnitor shall not be obligated to make any payment or
otherwise indemnify an Indemnitee for Losses arising out of or
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due to items covered by Section 10.02, to the extent that such Indemnitee has
actually received any insurance proceeds attributable to such Losses. If such
Indemnitee actually receives any insurance proceeds attributable to certain
Losses following an indemnification payment by an Indemnitor, and such insurance
proceeds are attributable to the Losses for which the indemnification payment
was made, such Indemnitee shall return the indemnification payment to such
Indemnitor (but not more than the actual amount of insurance proceeds received).
(g) Notwithstanding anything to the contrary contained in this
Section 10.02, there shall be no recovery for any Loss by Buyer under this
Section 10.02, and the Loss shall not be included in meeting the stated
thresholds hereunder, to the extent such item has been included in the
calculation of the Closing Net Working Capital as determined pursuant to Section
1.05 hereof.
10.03 Limitation of Recourse. Following and subject to the
Closing:
(a) Except with respect to claims based upon fraud, the
indemnification provided by Section 10.02(a) shall be the sole and exclusive
remedy for any Losses of Buyer, the Company or its Subsidiaries with respect to
any misrepresentation or inaccuracy in, or breach of, any representations or
warranties made by the Company in this Agreement or in any exhibit or schedules
hereto or any certificate delivered hereunder.
(b) Except as provided in Section 10.02(a) or (b), no claim
shall be brought or maintained by Buyer, the Company or any of its Subsidiaries
or their respective successors or permitted assigns against any officer,
director or employee (present or former), solely in his or her respective
capacity as such, of the Company or any of its Subsidiaries, and no recourse
shall be brought or granted against any of them, by virtue of or based upon any
alleged misrepresentation or inaccuracy in or breach of any of the
representations, warranties or covenants of the Company or set forth or
contained in this Agreement or any exhibit or schedule hereto or any certificate
delivered hereunder, except to the extent that the same shall have been the
result of fraud by any such Person (and in the event of such fraud, such
recourse shall be brought or granted solely against the Person or Persons
committing such fraud).
10.04 Special Trademark License Indemnification Agreement. The
Shareholders and the Optionholders, jointly and severally, shall indemnify and
hold the Buyer Indemnified Parties harmless against any Loss which any Buyer
Indemnified Party suffers or becomes subject to (a) as a result of or in
connection with preserving, protecting or defending its license to use the
"Heath/Zenith" mark or name, as licensee, under that certain Trademark License
Agreement, dated as of January 25, 1995, among Zenith Electronic Corporation
("ZEC"), Heath and the Company in accordance with the terms of such Agreement in
the event that ZEC is or becomes a debtor in a proceeding (whether voluntarily
or involuntarily) under the United States Bankruptcy Code (a "ZEC Bankruptcy
Proceeding") (including, without limitation, expenses associated with product
recall from customer shelves or private or public warehouses or like inventory
storage or product replacement); (b) solely due to the submission to the United
States Patent and Trademark Office by Heath in November 1997 of an application
for the registration of the "Heath Zenith" mark or (c) as a result of Heath's
use of the mark or name "Heath-Zenith" or the mark or name "Heath Zenith" in
lieu of the mark or name "Heath/Zenith" prior to the Closing or within one year
thereafter (provided that any such post-closing use by the Buyer or its
Affiliates of the name or mark "Heath-Zenith" or
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"Heath Zenith" is the result of the use of packaging and related materials and
products existing as of the Closing or received by the Company or any of its
Subsidiaries prior to the end of the three-month period following the Closing
containing the name or mark "Heath Zenith" or name or mark "Heath-Zenith");
provided that such Buyer Indemnified Party submits an indemnification claim with
respect to any such Loss to the Shareholders' Representative on or prior to the
fourth anniversary of the Closing, except that, the foregoing notwithstanding,
in the event that a ZEC Bankruptcy Proceeding is commenced within the four year
period following the Closing, such Buyer Indemnified Party may submit a claim
for indemnification pursuant to clause (a) of this Section 10.04 through the
sixth anniversary of the Closing; provided further that, notwithstanding any
provision herein to the contrary, the Buyer Indemnified Parties' right to seek
indemnification under this Section 10.04 shall be limited solely to its right to
set off against the Buyer Notes and, notwithstanding anything to the contrary in
this Section 10.04, all rights of any Buyer Indemnified Party to indemnification
under this Section 10.04 shall terminate at any time that the Buyer Notes have
been paid in full or the obligations thereunder have otherwise been satisfied.
10.05 Disclosure Generally. If and to the extent any
information required to be furnished in any schedule is contained in this
Agreement or in any Schedule attached hereto, such information shall be deemed
to be included in all other Schedules in which the information is required to be
included in each case to the extent that appropriate cross-references thereto
are made in such other Schedules or that it is otherwise reasonably evident that
such information was intended by the Company to be included in such other
Schedules. The inclusion of any information in any Schedule attached hereto
shall not be deemed to be an admission or acknowledgment by the Company or the
Shareholders, in and of itself, that such information is material to or outside
the ordinary course of the business of the Company.
10.06 Acknowledgment by Buyer. THE REPRESENTATIONS AND
WARRANTIES SET FORTH IN THIS AGREEMENT BY THE COMPANY AND THE SHAREHOLDERS AND
THE OPTIONHOLDERS CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND
WARRANTIES OF THE COMPANY, THE SHAREHOLDERS AND THE OPTIONHOLDERS TO BUYER IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND BUYER UNDERSTANDS,
ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY
KIND OR NATURE EXPRESSED OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING
TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF OPERATIONS, ASSETS
OR LIABILITIES OF THE COMPANY) ARE (OTHER THAN CLAIMS OF FRAUD) DISCLAIMED BY
THE COMPANY, THE SHAREHOLDERS AND THE OPTIONHOLDERS.
10.07 Tax Matters.
(a) Responsibility for Filing Tax Returns. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending prior to or including the Closing Date which are
filed after the Closing Date. At least 15 days prior to the date on which each
such Tax Return is filed, Buyer shall submit a draft of such Tax Return to the
Shareholders' Representative for the Shareholders' Representative's review and
approval, which approval shall not be withheld if the filing of such Tax Return,
as prepared by the Buyer, is not
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reasonably expected by the Shareholders' Representative to adversely affect the
Tax liability of any Shareholder or any Optionholder. Buyer agrees and
acknowledges that, without limitation, the Tax liability of each Shareholder and
each Optionholder will be adversely affected by (i) reporting on any such Tax
Return that (A) the value of the Heathkit Equity Interests exceeded $3.0 million
on the date that the Pre-Closing Spin-Off Transactions were consummated, (B) the
value of the Benton Harbor Equity Interests exceeded $2.1 million on the date
that the Pre-Closing Spin-Off Transactions were consummated or (C) the
Pre-Closing Spin-Off Transactions did not constitute a redemption of Company
stock treated as a distribution in exchange for Company stock qualifying under
Section 302(a) and (b) of the Code or (ii) failing to claim any allowable
deductions attributable to the consummation of the Repurchase Transactions on
the federal (and applicable state or local) income Tax Returns of the Company
and its Subsidiaries for the short taxable period ending on the Closing Date.
(b) Indemnification Against Certain Income Taxes. The
Shareholder and Optionholders shall, jointly and severally, indemnify the Buyer
Indemnified Parties and hold them harmless against any Taxes (including any
interest thereon) payable by the Company for any taxable period (or portion
thereof) ending on or prior to the Closing Date to the extent that such Taxes or
Liabilities would not have been payable by the Company but for the consummation
of the Pre-Closing Spin-Off Transactions.
10.08 Further Assurances. From time to time, as and when
requested by any party hereto and at such party's expense, any other party shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to
evidence and effectuate the transactions contemplated by this Agreement.
10.09 Covenant Not to Compete, Solicit or Interfere.
(i) During the three-year period commencing with the
date hereof (the "Non-Compete Period"), each Stockholder and
Optionholder agrees that such Stockholder or Optionholder shall not
(and shall not direct or assist others to) contact or solicit, offer
employment to, hire, or otherwise attempt to hire any Heath/Zenith
Employee unless such Heath/Zenith Employee's employment by Buyer and
its Affiliates has been terminated or Buyer otherwise consents. The
Stockholders shall not encourage, induce or assist others in inducing
any Heath/Zenith Employee to terminate such Stockholder's employment
with the Company or in any way interfere with the Company's or the
Buyer's respective relationships with their employees.
(ii) During the Non-Compete Period, the Stockholders
and Optionholders agree that they shall not contact or solicit, direct
or assist others to contact or solicit any customers, suppliers or
other business associates of the Company if such contact or
solicitation relates to the Heath/Zenith Business; and shall not
otherwise interfere with the relationships between the Company or the
Buyer, and their respective customers, suppliers or business associates
in the Heath/Zenith Business, it being understood that the foregoing
shall not prohibit the Stockholders or Optionholders or their
respective Affiliates from contacting or soliciting any of the
Company's customers, suppliers or other business
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associates, if and only to the extent that such customers or suppliers
are involved in, or have or may develop a relationship with the
Stockholders or their Affiliates in, businesses other than the
Heath/Zenith Business.
(iii) During the Non-Compete Period, the Stockholders
and Optionholders shall not directly or indirectly compete with the
Company or the Buyer in the Heath/Zenith Business in any manner
anywhere in the United States or Canada; provided that such restriction
on competition will be limited to those businesses of the Company in
which the Company was engaged prior to the date of this Agreement;
provided further that, notwithstanding the foregoing, any Stockholder
or Optionholder may make passive investments of no more than two
percent (2%) of the outstanding shares of, or any other equity interest
in, any company or entity engaged in the Heath/Zenith Business listed
or traded on a national securities exchange or in an over-the-counter
securities market.
ARTICLE XI
DEFINITIONS
11.01 Definitions. For purposes hereof, the following terms,
when used herein with initial capital letters, shall have the respective
meanings set forth herein:
"AAA" means the American Arbitration Association.
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a).
"Affiliates" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Benton Harbor Facility" means the real property and related
facility owned by the Company and located in Benton Harbor, Michigan.
"Buyer Notes" means, collectively, the promissory notes issued
to each of the Optionholders and the Shareholders, in the form of Exhibit I
hereto, in the aggregate principal amount equal to $2,000,000. Each
Optionholder's Buyer Note shall be in an amount equal to such Optionholder's
Option Pro Rata Portion of $2,000,000 and each Shareholder's Buyer Note shall be
in an amount equal to such Shareholder's Share Pro Rata Portion of $2,000,000.
"GAAP" means United States generally accepted accounting
principles consistently applied.
"Hazardous Materials" means any substance or material (a) the
presence of which requires investigation, removal or remediation under any
Environmental and Safety Requirement,
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(b) that is defined as a "hazardous waste", "hazardous material" or "hazardous
substance" under any Environment and Safety Requirement including but not
limited to the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss.6091
et. seq., as amended, and the rules and regulations promulgated thereunder and
the comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. 9601 et seq., as amended and the rules and regulations
promulgated thereunder ("CERCLA" or "Superfund").
"Liability" means any liability (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due, or to be come due, including any liability for Taxes.
"Net Working Capital" means the result, without duplication,
of (i) cash or cash equivalents held by the Company or any Subsidiary, plus (ii)
the excess of the value of the Company's and its Subsidiaries' trade accounts
receivable over the aggregate amount reserved for bad trade accounts receivable
on the Company's balance sheet, plus (iii) the excess of the value of the
Company's and its Subsidiaries' inventory over the aggregate amount reserved for
bad inventory on the Company's balance sheet, plus (iv) other current
receivables of the Company and its Subsidiaries, plus (v) prepayments, prepaid
costs and expenses of the Company and its Subsidiaries, in each case to the
extent required to be reflected as current assets on the Company's balance sheet
in accordance with GAAP minus (vi) accounts payable of the Company and its
Subsidiaries, minus (vii) accrued merchandising costs of the Company and its
Subsidiaries, minus (viii) accrued and unpaid compensation and commissions of
the Company and its Subsidiaries, minus (ix) accrued warranty liabilities of the
Company and its Subsidiaries, minus (x) Other Accruals, minus (xi) other current
liabilities and provisions and reserves (other than the current portion of
Funded Indebtedness), minus (xii) all unpaid investment banking and financial
advisor fees payable by the Company or any Subsidiary incurred in connection
with the transactions contemplated by this Agreement and all transaction and
other fees and expenses incurred or payable by or on behalf of the Company or
any Subsidiary in connection with the transactions contemplated by this
Agreement (including, but not limited to, attorneys', accountants', actuaries',
consultants', experts' fees and expenses and all fees and expenses of any other
Persons engaged by or on behalf of the Company or any Subsidiary in connection
with this Agreement and the transactions contemplated hereby), minus (xiii) all
unpaid management and other fees and expenses incurred by or payable by the
Company or any Subsidiary to H.I.G. Investment Group, L.P. or any of its
Affiliates pursuant to the terms of any management or similar agreement or
otherwise, in each case calculated in accordance with GAAP consistently applied,
except as otherwise specified below. If any item on (or which should be
reflected on) the Latest Balance Sheet is not reflected in accordance with GAAP
consistently applied in effect as of the Closing Date (based upon authoritative
accounting pronouncements and literature), the Net Working Capital shall
nonetheless be computed in accordance with GAAP in effect as of the Closing Date
(except as otherwise provided herein) consistently applied. In computing Net
Working Capital, (w) all accounting entries shall be taken into account
regardless of their amount, all known errors and omissions shall be corrected,
(x) all known proper adjustments shall be made and (y) accounts receivable,
inventory, accounts payable, and all items contributed to or assumed by either
of the Spin-Off Entities pursuant to the Contribution Agreements will not be
taken into account.
"Non-Compete Period" has the meaning set forth in Section
10.08.
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<PAGE>
"Other Accruals" means the following items which are
designated as "other accruals" on the Company's balance sheet: accrued Taxes,
medical benefits, worker's compensation, group life insurance, long term
disability insurance, inbound and outbound freight, customer refunds, utilities,
employee flexible spending, AD&D, unclaimed checks and miscellaneous reserves,
in each case to the extent required to be reflected as a current liability on
the Company's balance sheet in accordance with GAAP.
"Option Percentage" means the percentage equivalent of a
fraction, determined immediately prior to the Closing hereunder, the numerator
of which is the aggregate amount of outstanding Options and the denominator of
which is the aggregate amount of outstanding Shares and Options.
"Option Pro Rata Portion" means, with respect to each holder
of the Options, the pro rata portion of such Optionholder as set forth on the
Optionholders Schedule.
"Other Transaction Documents" means collectively, the Lease
Agreement, the Transition Agreement, the Contribution Agreements.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Share Percentage" means the percentage equivalent of a
fraction, determined immediately prior to the Closing hereunder, the numerator
of which is the aggregate amount of outstanding Shares and the denominator of
which is the aggregate amount of outstanding Shares and Options.
"Share Pro Rata Portion" means, with respect to each holder of
the Shares, the pro rata portion of such Shareholder as set forth on the
Shareholders Schedule.
"Tax" or "Taxes" means any federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unemployment,
disability, real property, ad valorem/personal property, stamp, excise,
occupation, sales, use, transfer, registration, value added, add-on, alternative
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"Tax Returns" means any return, report, information return or
other document (including schedules or any related or supporting information)
filed or required to be filed with any governmental entity or other authority in
connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
11.02 Cross-Reference of Other Definitions. Each capitalized
term listed below is defined in the corresponding Section of this Agreement:
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<PAGE>
<TABLE>
<CAPTION>
Term Section No.
<S> <C> <C>
1996 Heath/Zenith Financial Statements 4.05
Agreement Preamble
Associated Countries 6.13
Auditor 1.05(c)
Base Share Purchase Price 1.03(a)
Base Option Repurchase Price 1.02(a)
Benefit Plans 4.13
Benton Harbor Contribution 6.10(a)
Benton Harbor Equity Interests Preamble
Benton Harbor Facility Contribution Agreement 6.10(a)
Buyer Preamble
Buyer Indemnified Parties 10.02(a)
Buyer's Representative 6.02
Cap 10.02(a)
Closing 1.04(a)
Closing Balance Sheet 1.05(b)
Closing Date 1.04(a)
Closing Net Working Capital 1.05(b)
Closing Transaction 1.04(b)
Code 4.14(a)
Common Stock 4.04
Company Preamble
Confidentiality Agreement 6.02
Contribution 6.10(a)
Contribution Agreements 6.10(a)
Current Heathkit Products 6.13
Distribution 6.10(c)
Environmental and Safety Requirements 4.17(a)
Equity Interests Preamble
Estimated Net Working Capital 1.05(b)
Exchanged Shares Preamble
ERISA 4.14(a)
Financial Statements 4.05
Funded Indebtedness 1.04(c)
Heath Preamble
Heath Ltd. Preamble
Heathkit Business Preamble
Heathkit Business Contribution Agreement 6.10(c)
Heathkit Contribution 6.10(a)
Heathkit Equity Interests Preamble
Heath/Zenith Business Preamble
HIG 12.14
HIG Balance Sheet 12.14
H.I.G. Capital 6.11
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<PAGE>
HK Shares Preamble
HSR Act 4.13
Indemnitee 10.08(c)
Indemnitors 10.08(c)
Intellectual Property 4.10
Latest Financial Statements 4.05
Latest Balance Sheet 4.05
Lease Agreement 2.01(k)
Losses 10.02(a)
Mark 6.13
Material Adverse Effect 4.01
Material Contracts 4.09(c)
Non-Compete Period 10.09
Objection Notice 1.05(c)
Option Repurchase Price 1.02(a)
Optionholders Preamble
Options Preamble
Pre-Closing Spin-Off Transactions Preamble
Repurchase Transactions 1.02(b)
Sale Transactions 1.03(b)
Share Purchase Price 1.03(a)
Shares Preamble
Shareholders Preamble
Shareholders Agreement 12.03
Shareholders' Representative 9.01
Shares Preamble
Special IP Loss 10.02(a)
Spin-Off Entities Preamble
Subsidiary 4.02
Survival Period 10.01
Third Party Claim 10.02(e)
Transaction Price 1.01
Transition Agreement 2.01(f)
Warranty Loss 10.02(a)
ZEC 10.04
ZEC Bankruptcy Proceeding 10.04
</TABLE>
ARTICLE XII
MISCELLANEOUS
12.01 Press Releases and Communications. No press release or
public announcement related to this Agreement or the transactions contemplated
herein, or prior to the Closing any other announcement or communication to the
employees, customers or suppliers of the Company, shall be issued or made
without the joint approval of Buyer and the Shareholders'
-45-
<PAGE>
Representative, unless required by law (in the reasonable opinion of counsel) in
which case Buyer and the Shareholders' Representative shall have the right to
review, to the extent reasonably practicable, such press release or announcement
prior to publication.
12.02 Expenses. Except as otherwise expressly provided herein,
the Company and Buyer shall pay all of their own expenses (including attorneys'
and accountants' fees and expenses) in connection with the negotiation of this
Agreement, the performance of their respective obligations hereunder and the
consummation of the transactions contemplated by this Agreement (whether
consummated or not).
12.03 Waiver of Certain Transfer Restrictions. Concurrently
with the Closing, the Company and the Shareholders hereby expressly waive all of
their rights to purchase Shares in connection with the transactions contemplated
in this Agreement under (a) the Shareholders Agreement, dated January 25, 1995,
between the Company and the shareholders of the Company (the "Shareholders
Agreement") and (b) the Company's by-laws. The Shareholders Agreement shall
terminate and be of no further force and effect as of the Closing.
12.04 Knowledge Defined. For purposes of this Agreement, the
term "the Company's knowledge" or "the knowledge of the Company" as used herein
shall mean the knowledge, after due inquiry (or what would reasonably be the
knowledge if due inquiry were made), of Anthony A. Tamer, Brian D. Schwartz,
Donald J. Desrochers, Emmet Roche, Phillip Cole, Peter Battista and Y. F. Lai.
12.05 Notices. All notices, demands and other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered, delivered by Federal Express or similar overnight courier service or
mailed by first class mail, return receipt requested. Notices, demands and
communications to Buyer, the Company and the Shareholders shall, unless another
address is specified in writing, be sent to the address indicated below:
Notices to Buyer:
Desa International, Inc.
2701 Industrial Drive
P.O. Box 90004
Bowling Green, KY 42101
Attn: President
with a copy to:
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Attn: Timothy M. Lindamood
-46-
<PAGE>
Notices to Shareholders:
H.I.G. Investment Group, L.P.
c/o H.I.G. Capital Management, Inc.
1001 South Bayshore Drive, Suite 2310
Miami, Florida 33131
Attn: Anthony A. Tamer
Brian D. Schwartz
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: James L. Learner
Wendy L. Chronister
Notices to Company:
Heath Holding Co.
445 Riverside Drive
Benton Harbor, Michigan 49022
Attn: President
12.06 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the Parties and their
respective successors and permitted assigns, except that, prior to the Closing,
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned or delegated by Buyer (other than to Desa Holdings Corporation
or any Affiliate thereof), without the prior written consent of the
Shareholders' Representative.
12.07 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
12.08 No Strict Construction. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be applied
against any Person.
12.09 Amendment and Waiver. Any provision of this Agreement or
the schedules or exhibits hereto may be amended or waived only in writing signed
by Buyer, the Company and the Shareholders' Representative. No waiver of any
provision hereunder or any breach or default thereof shall extend to or affect
in any way any other provision or prior or subsequent breach or default.
-47-
<PAGE>
12.10 Complete Agreement. This Agreement and the documents
referred to herein (including the Confidentiality Agreement) contain the
complete agreement between the parties hereto and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
12.11 Counterparts. This Agreement may be executed in multiple
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together shall constitute one and the
same instrument.
12.12 Governing Law. All matters relating to the
interpretation, construction, validity and enforcement of this Agreement shall
be governed by and construed in accordance with the domestic laws of the State
of Illinois without giving effect to any choice or conflict of law provision or
rule (whether of the State of Illinois or any other jurisdiction) that would
cause the application of laws of any jurisdiction other than the State of
Illinois.
12.13 Specific Performance. The parties recognize that certain
of their rights under this Agreement are unique and, accordingly, any party
hereto shall (except solely as otherwise expressly provided in Section 10.03
hereof), in addition to such other remedies as may be available to it at law or
in equity, have the right to enforce its rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law. The
parties hereby waive any requirement for security or the posting of any bond or
other surety in connection with any temporary or permanent award of injunctive,
mandatory or other equitable relief. The rights and remedies of the parties
under this Agreement are cumulative and are not in lieu of, but are in addition
to, any other rights and remedies which the parties shall have under or by
virtue of any statute, rule or regulation or any rule of law, or in equity, or
any other agreement or obligation between the parties or any of them.
12.14 HIG Balance Sheet. H.I.G. Investment Group, L.P. ("HIG")
represents and warrants that it has furnished to the Buyer a true and complete
copy of the audited consolidated balance sheet of HIG and its subsidiaries as at
December 31, 1996 (the "HIG Balance Sheet") and that the HIG Balance Sheet has
been prepared in accordance with GAAP, is true, complete and correct and is
consistent with the books and records of HIG in all material respects, and
presents fairly the consolidated financial condition of HIG as of the date
thereof.
12.15 Jurisdiction and Venue. Each party to this Agreement
hereby irrevocably agrees that any legal action, suit or proceeding arising out
of or relating to this Agreement or any other agreements or transactions
contemplated hereby may be brought in any federal or state court in Florida,
Illinois, Kentucky or Massachusetts and each party hereto agrees not to assert,
by way of motion, as a defense or otherwise, in any such action, suit or
proceeding any claim that it is not subject personally to the jurisdiction of
such court, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement, any other agreement or transaction or the subject matter hereof or
thereof may not be enforced in or by such court. Each party hereto further and
irrevocably submits to the jurisdiction of such court in any action, suit or
proceeding.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
HEATH HOLDING CORP.
By_________________________
Its________________________
DESA INTERNATIONAL, INC.
By_________________________
Its________________________
SHAREHOLDERS:
(Signature Page to Stock Purchase Agreement)
<PAGE>
HIG INVESTMENT GROUP, L.P.
By_________________________
Its________________________
(Signature Page to Stock Purchase Agreement)
<PAGE>
KACTUS INVESTMENT CORPORATION
By_________________________
Its________________________
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Sami Mnaymneh
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Brian Schwartz
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Thomas Carver
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
John Bolduc
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Todd Scanlon
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Donald Desrochers
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
John Horton
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Phillip Cole
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Emmet Roche
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Peter Battista
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Ron Greathouse
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Gary McGriff
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Diane Peterson
(Signature Page to Stock Purchase Agreement)
<PAGE>
__________________________________
Brad Jensen
(Signature Page to Stock Purchase Agreement)
<PAGE>
EXHIBITS
Exhibit A Transition Agreement
Exhibit B Company Certificate
Exhibit C Shareholders' Representative Certificate
Exhibit D Form of Lease Agreement
Exhibit E Buyer Certificate
Exhibit F Form of Heathkit Business Contribution Agreement
Exhibit G Form of Benton Harbor Facility Contribution Agreement
Exhibit H Form of Exchange Agreement
Exhibit I Form of Buyer Note
<PAGE>
SCHEDULES
Associated Countries
Affiliated Transactions
Authorization
Banking and Agency
Capital Expenditures
Capital Stock
Contracts
Developments
Employee Benefits
Employee
Environmental Compliance
Governmental Consents
Indebtedness
Insurance
Intellectual Property
Leased Real Property
Liabilities
Liens
Litigation
Optionholders
Product Liability
Shareholders
Subsidiary
Taxes
Third-Party Consents
Undisclosed Liabilities
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DESA HOLDING CORP.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is DESA HOLDING CORP.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 229 South State
Street, City of Dover, County of Kent; and the name of the registered agent of
the Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation, which shall be in addition to the authority of the
Corporation to conduct any lawful business, to promote any lawful purpose, and
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, is as follows:
To purchase, own, and hold the stock of other corporations, and to do
every act and thing covered generally by the denomination "holding corporation"
and especially to direct the operations of other corporations through the
ownership of stock therein; to purchase, subscribe for, acquire, own, hold,
sell, exchange, assign, transfer, create security interests in, pledge, or
otherwise dispose of shares or voting trust certificates for shares of the
capital stock, or any bonds, notes, securities, or evidences of indebtedness
created by any other corporation or corporations organized under the laws of
this state or any other state or district or country, nation, or government and
also bonds or evidences of indebtedness of the United States or of any state,
district, territory, dependency, or country or subdivision or municipality
thereof; to issue in exchange therefor shares of the capital stock, bonds,
notes, or other obligations of the Corporation and while the owner thereof to
exercise all the rights, powers, and privileges or ownership including the right
to vote on any shares of stock or voting trust certificates so owned; to
promote, lend money to, and guarantee the dividends, stocks, bonds, notes,
evidences of indebtedness, contracts, or other obligations of, and otherwise aid
in any manner which shall be lawful, any corporation or association of which any
bonds, stocks, voting trust certificates, or other securities or evidences of
indebtedness shall be held by or for this Corporation, or in which, or in the
welfare of which, this Corporation shall have any interest, and to do any acts
and things permitted by law and
<PAGE>
designed to protect, preserve, improve, or enhance the value of any such bonds,
stocks or other securities or evidences of indebtedness or the property of this
Corporation.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ, use and
otherwise deal in and with real or personal property, or any interest therein,
wherever situated, and to sell, convey, lease, exchange, transfer or otherwise
dispose of, or mortgage or pledge, all or any of its property and assets, or any
interest therein, wherever situated.
To engage generally in the real estate business as principal, agent,
broker, and in any lawful capacity, and generally to take, lease, purchase, or
otherwise acquire, and to own, use, hold, sell, convey, exchange, lease,
mortgage, work, clear, improve, develop, divide, and otherwise handle, manage,
operate, deal in and dispose of real estate, real property, lands,
multiple-dwelling structures, houses, buildings and other works and any interest
or right therein; to take, lease, purchase or otherwise acquire, and to own,
use, hold, sell, convey, exchange, hire, lease, pledge, mortgage, and otherwise
handle, and deal in and dispose of, as principal, agent, broker, and in any
lawful capacity, such personal property, chattels, chattels real, rights,
easements, privileges, choses in action, notes, bonds, mortgages, and securities
as may lawfully be acquired, held, or disposed of; and to acquire, purchase,
sell, assign, transfer, dispose of, and generally deal in and with as principal,
agent, broker, and in any lawful capacity, mortgages and other interests in
real, personal, and mixed properties; to carry on a general construction,
contracting, building, and realty management business as principal, agent,
representative, contractor, subcontractor, and in any other lawful capacity.
To carry on a general mercantile, industrial, investing, and trading
business in all its branches; to devise, invent, manufacture, fabricate,
assemble, install, service, maintain, alter, buy, sell, import, export, license
as licensor or licensee, lease as lessor or lessee, distribute, job, enter into,
negotiate, execute, acquire, and assign contracts in respect of, acquire,
receive, grant, and assign licensing arrangements, options, franchises, and
other rights in respect of, and generally deal in and with, at wholesale and
retail, as principal, and as sales, business, special, or general agent,
representative, broker, factor, merchant, distributor, jobber, adviser, and in
any other lawful capacity, goods, wares, merchandise, commodities, and
unimproved, finished, processed, and other real, personal, and mixed property of
any and all kinds, together with the components, resultants and by-products
thereof.
To apply for, register, obtain, purchase, lease, take licenses in
respect of or otherwise acquire, and to hold, own, use, operate, develop, enjoy,
turn to account, grant licenses and immunities in respect of, manufacture under
and to introduce, sell, assign, mortgage, pledge or otherwise dispose of, and,
in any manner deal with and contract with reference to:
(a) inventions, devices, formulae, processes and any improvements and
modifications thereof;
(b) letters patent, patent rights, patented processes, copyrights,
designs, and similar rights, trademarks, trade names, trade symbols and other
indications of origin and
-2-
<PAGE>
ownership granted by or recognized under the laws of the United States of
America, the District of Columbia, any state or subdivision thereof, and any
commonwealth, territory, possession, dependency, colony, possession, agency or
instrumentality of the United States of America and of any foreign country, and
all rights connected therewith or appertaining thereunto;
(c) franchises, licenses, grants and concessions.
To guarantee, purchase, take, receive, subscribe for, and otherwise
acquire, own, hold, use, and otherwise employ, sell, lease, exchange, transfer,
and otherwise dispose of, mortgage, lend, pledge, and otherwise deal in and
with, securities (which term, for the purpose of this Article THIRD, includes,
without limitation of the generality thereof, any shares of stock, bonds,
debentures, notes, mortgages, other obligations, and any certificates, receipts
or other instruments representing rights to receive, purchase of subscribe for
the same, or representing any other rights or interests therein or in any
property or assets) of any persons, domestic and foreign firms, associations,
and corporations, and by any government or agency or instrumentality thereof; to
make payment in any lawful manner; and, while owner of any such securities, to
exercise any and all rights, powers and privileges in respect thereof, including
the right to vote.
To make, enter into, perform and carry out contracts of every kind and
description with any person, firm, association, corporation or government or
agency or instrumentality thereof.
To acquire by purchase, exchange or otherwise, all, or any part of, or
any interest in, the properties, assets, business and good will of any one or
more persons, firms, associations or corporations heretofore or hereafter
engaged in any business for which a corporation may now or hereafter be
organized under the laws of the State of Delaware; to pay for the same in cash,
property or its own or other securities; to hold, operate, reorganize,
liquidate, sell or in any manner dispose of the whole or any part thereof; and
in connection therewith, to assume or guarantee performance of any liabilities,
obligations or contracts of such persons, firms, associations or corporations,
and to conduct the whole or any part of any business thus acquired.
To lend money in furtherance of its corporate purposes and to invest
and reinvest its funds from time to time to such extent, to such persons, firms,
associations, corporations, governments or agencies or instrumentalities
thereof, and on such terms and on such security, if any, as the Board of
Directors of the corporations may determine.
To make contracts of guaranty and suretyship of all kinds and endorse
or guarantee the payment of principal, interest or dividends upon, and to
guarantee the performance of sinking fund or other obligations of, any
securities, and to guarantee in any way permitted by law the performance of any
of the contracts or other undertakings in which the corporation may otherwise be
or become interested, of any persons, firm, association, corporation, government
or agency or instrumentality thereof, or of any other combination, organization
or entity whatsoever.
-3-
<PAGE>
To borrower money without limit as to amount and at such rates of
interest as it may determine; from time to time to issue and sell its own
securities, including its shares of stock, notes, bonds, debentures, and other
obligations, in such amounts, on such terms and conditions, for such purposes
and for such prices, now or hereafter permitted by the laws of the State of
Delaware and by this certificate of incorporation, as the Board of Directors of
the Corporation may determine; and to secure any of its obligations by mortgage,
pledge or other encumbrance of all or any of its property, franchises and
income.
To be a promoter or manager of other corporations of any type or kind;
and to participate with others in any corporation, partnership, limited
partnership, joint venture, or other association of any kind, or in any
transaction, undertaking or arrangement which the corporation would have power
to conduct by itself, whether or not such participation involves sharing or
delegation of control with or to others.
To draw, make, accept, endorse, discount, execute, and issue promissory
notes, drafts, bills of exchange, warrants, bonds, debentures, and other
negotiable or transferable instruments and evidences of indebtedness whether
secured by mortgage or otherwise, as well as to secure the same by mortgage or
otherwise, so far as may be permitted by the laws of the State of Delaware.
To purchase, receive, take, reacquire or otherwise acquire, own and
hold, sell, lend, exchange, reissue, transfer or otherwise dispose of, pledge,
use, cancel, and otherwise deal in and with its own shares and its other
securities from time to time to such an extent and in such manner and upon such
terms as the Board of Directors of the Corporation shall determine; provided
that the Corporation shall not use its funds or property for the purchase of its
own shares of capital stock when its capital is impaired or when such use would
cause any impairment of its capital, except to the extent permitted by law.
To organize, as an incorporator, or cause to be organized under the
laws of the State of Delaware, or of any other State of the United States of
America, or of the District of Columbia, or of any commonwealth, territory,
dependency, colony, possession, agency, or instrumentality of the United States
of America, or of any foreign country, a corporation or corporations for the
purpose of conducting and promoting any business or purpose for which
corporations may be organized, and to dissolve, wind up, liquidate, merge or
consolidate any such corporation or corporations or to cause the same to be
dissolved, would up, liquidated, merged or consolidated.
To conduct its business, promote its purposes, and carry on its
operations in any and all of its branches and maintain offices both within and
without the State of Delaware, in any and all States of the United States of
America, in the District of Columbia, and in any or all commonwealths,
territories, dependencies, colonies, possessions, agencies, or instrumentalities
of the United States of America and of foreign governments.
To promote and exercise all or any part of the foregoing purposes and
powers in any and all parts of the world, and to conduct its business in all or
any of its branches as principal, agent, broker, factor, contractor, and in any
other lawful capacity, either alone or through or in conjunction with any
corporations, associations, partnerships, firms, trustees,
-4-
<PAGE>
syndicates, individuals, organizations, and other entities in any part of the
world, and, in conducting its business and promoting any of its purposes, to
maintain offices, branches and agencies in any part of the world, to make and
perform any contracts and to do any acts and things, and to carry on any
business, and to exercise any powers and privileges suitable, convenient, or
proper for the conduct, promotion, and attainment of any of the business and
purposes herein specified or which at any time may be incidental thereto or may
appear conducive to or expedient for the accomplishment of any of such business
and purposes and which might be engaged in or carried on by a corporation
incorporated or organized under the General Corporation Law of the State of
Delaware, and to have and exercise all of the powers conferred by the laws of
the State of Delaware upon corporations incorporated or organized under the
General Corporation Law of the State of Delaware.
The foregoing provisions of this Article THIRD shall be construed both
as purposes and powers and each as an independent purpose and power. The
foregoing enumeration of specific purposes and powers shall not be held to limit
or restrict in any manner the purposes and powers of the Corporation, and the
purposes and powers herein specified shall, except when otherwise provided in
this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of this
Certificate of Incorporation; provided, that the Corporation shall not conduct
any business, promote any purpose, or exercise any power or privilege within or
without the State of Delaware which, under the laws thereof, the Corporation may
not lawfully conduct, promote, or exercise.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 1,000 shares of Common Stock all of which are the same
class and all of which are of a par value of $1.00 each.
FIFTH: The name and mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Edward R. Mandell 555 Madison Avenue
New York, New York 10022
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholder or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the
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<PAGE>
said court directs. If a majority in number representing three-fourths (3/4) in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of Directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws.
The phrase "whole Board" and the phrase "total number of Directors"
shall be deemed to have the same meaning, to-wit, the total number of
Directors which the Corporation would have if there were no vacancies.
No election of Directors need be by written ballot.
2. After the original or other By-Laws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the Corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
By-Laws of the Corporation may be exercised by the Board of Directors
of the Corporation; provided, however, that any provision for the
classification of Directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial By-Law or in a By-Law adopted by the stockholder entitled to
vote of the Corporation unless provisions for such classification shall
be set forth in this Certificate of Incorporation.
3. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
Certificate of Incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (c)(2) of Section 242 of the General Corporation Law of
the State of Delaware shall otherwise require; provided, that no share
of any such class which is otherwise denied voting power shall entitle
the holder thereof to vote upon the increase or decrease in the number
of authorized shares of said Class.
-6-
<PAGE>
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said Section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
Section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-Law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be Director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article TENTH.
Signed on November 25, 1988.
-----------------------------------
Edward R. Mandell, Incorporator
555 Madison Avenue
New York, New York 10022
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DESA HOLDING CORP.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Desa Holding Corp.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article FOURTH thereof and by substituting in lieu of
said Article the following new Article:
"FOURTH: The aggregate number of shares which the
Corporation shall have authority to issue is Three Million
(3,000,000) shares of Common Stock all of which are the same
class and all of which are of a par value of $.01 each."
3. The Corporation has not received any payment for any of its stock.
4. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Section 241 of the
General Corporation
Law of the State of Delaware.
Signed and Attested
to on December 7, 1988
------------------------------
Edward R. Mandell
Sole Incorporator
<PAGE>
CERTIFICATE OF MERGER
MERGING DESA INTERNATIONAL, INC.
AND DESA MERGER CORPORATION
INTO DESA HOLDING CORP.
(Pursuant to Section 251(c) of the General
Corporation Law of the State of Delaware)
Desa Holding Corp., a Delaware corporation (the "Corporation"), for the
purpose of merging Desa International, Inc., a Delaware corporation ("Desa
International"), and Desa Merger Corporation, a Delaware corporation ("Desa
Merger"), into the Corporation (the "Merger"), does hereby certify as follows:
FIRST: Desa Holding Corp., a Delaware corporation, Desa International,
Inc., a Delaware corporation, and Desa Merger Corporation, a Delaware
corporation, are the constituent corporations of the Merger.
SECOND: An Agreement and Plan of Merger and Exchange (the "Merger
Agreement") relating to the Merger has been approved, adopted, certified,
executed, and acknowledged by each of the Corporation, Desa Merger, and Desa
International in accordance with Section 251(c) of the General Corporation Law
of the State of Delaware.
THIRD: The name of the surviving corporation of the Merger is Desa
Holding Corp., to be changed upon consummation of the Merger pursuant to the
Restated Certificate of Incorporation (as hereinafter defined) to Desa
International, Inc.
FOURTH: The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety (the "Restated Certificate of
Incorporation") as attached hereto as Exhibit A (and attached as Exhibit G to
the Merger Agreement), and such Restated Certificate of Incorporation shall be
the Restated Certificate of Incorporation of the surviving corporation.
FIFTH: The fully executed Merger Agreement is on file at the principal
place of business of the Corporation at P.O. Box 7919, 2701 Industrial Drive,
Bowling Green, Kentucky 42101.
SIXTH: A copy of the fully executed Merger Agreement will be furnished
by the Corporation, as the surviving corporation pursuant to the Merger, on
request and without cost, to any stockholder of the Corporation, Desa
International, or Desa Merger.
<PAGE>
IN WITNESS WHEREOF, Desa Holding Corp. has cause this certificate to be
executed as of this ____ day of December, 1993.
DESA HOLDING CORP.
By:
Name:
Title:
ATTEST:
By:
Name:
Title:
-2-
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
DESA HOLDING CORP.
(Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware (the "Delaware Code"))
DESA Holding Corp., a corporation organized and existing under the
Delaware Code, does hereby certify as follows:
1. The name of the corporation is DESA HOLDING CORP. (the
"Corporation").
2. The date of filing the original Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware was November
30, 1988.
3. This Restated Certificate of Incorporation amends and restates the
provisions of the Certificate of Incorporation of the Corporation, as amended,
and was adopted pursuant to the Agreement and Plan of Merger and Exchange dated
as of November 16, 1993 by and among Desa Acquisition Company, Desa Merger
Corporation, the Corporation, Desa International, Inc., and each stockholder of
the Corporation named therein (the "Merger Agreement").
4. The Merger Agreement and this Restated Certificate of Incorporation
(which was attached as an exhibit to the Merger Agreement) were adopted by the
unanimous written consent of the stockholders of the Corporation entitled to
vote thereon in accordance with the provisions of Sections 228, 242, 245, and
251 of the Delaware Code.
5. The Certificate of Incorporation of the Corporation, as amended and
restated hereby, shall, upon its filing with the Secretary of State of the State
of Delaware, read in its entirety as follows:
FIRST: The name of the Corporation is Desa International, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation and the nature and object of the
business to be transacted, promoted, and carried on are to engage in any lawful
act or activity for which corporations may be organized under the Delaware Code.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 10,000 shares, par value $0.01 per share, designated
Common Stock.
<PAGE>
FIFTH: Directors of the Corporation need not be elected by written
ballot unless the by- laws of the Corporation otherwise provide.
SIXTH: The directors of the Corporation shall have the power to adopt,
amend, and repeal the by-laws of the Corporation.
SEVENTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
is in effect. Any repeal or amendment of this Article TENTH shall be prospective
only and shall not limit the rights of any such director or officer or the
obligations of the Corporation with respect to any claim arising from or related
to the services of such director or officer in any of the foregoing capacities
prior to any such repeal or amendment to this Article TENTH. Such right shall
include the right to be paid by the Corporation expenses incurred in defending
any such proceeding in advance of its final disposition to the maximum extent
permitted under the Delaware General Corporation Law, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is
-2-
<PAGE>
not paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim,
and if successful in whole or in part, the claimant shall also be entitled to be
paid the expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense are not
permitted under the Delaware General Corporation Law, but the burden or proving
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its board of directors or any committee thereof, independent legal
counsel, or stockholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement of costs of
defense to, the claimant is permissible in the circumstances nor an actual
determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, by-law,
resolution of stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article NINTH by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article ELEVENTH, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the Delaware General
Corporation Law.
TENTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of Delaware.
-3-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be executed and attested on this day of
December, 1993.
DESA HOLDING CORP.
By:
Name:
Title:
ATTEST:
By:
Name:
Title:
-4-
EXHIBIT 3.1A
CERTIFICATE OF INCORPORATION
OF
DESA ACQUISITION COMPANY
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the General Corporation
Law of the State of Delaware, do hereby adopt the following Certificate of
Incorporation for the Corporation:
FIRST: The name of the Corporation is Desa Acquisition Company.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage
in any and all lawful acts and activity for which corporations may be organized
under the General Corporation Law of Delaware. The Corporation will have
perpetual existence.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 10,000 shares, par value $.01 per share, designated
Common Stock.
FIFTH: The name of the incorporator of the Corporation is Jeffrey B.
Hitt, and the mailing address of such incorporator is 100 Crescent Court, Suite
1300, Dallas, Texas 75201.
SIXTH: The number of directors constituting the initial board of
directors is one, and the name and mailing address of the persons who is to
serve as director until the first annual meeting of stockholders or until his
successor is elected and qualified is as follows:
Jack D. Furst 200 Crescent Court, Suite 1600
Dallas, Texas 75201
SEVENTH: Directors of the Corporation need not be elected by written
ballot unless the by-laws of the Corporation otherwise provide.
EIGHTH: The directors of the Corporation shall have the power to adopt,
amend, and repeal the by-laws of the Corporation.
NINTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
<PAGE>
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the board of directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
is in effect. Any repeal or amendment of this Article Tenth shall be prospective
only and shall not limit the rights of any such director or officer or the
obligations of the Corporation with respect to any claim arising from or related
to the services of such director or officer in any of the foregoing capacities
prior to any such repeal or amendment to this Article Tenth. Such right shall
include the right to be paid by the Corporation expenses incurred in defending
any such proceeding in advance of its final disposition to the maximum extent
permitted under the Delaware General Corporation Law, as the same exists or may
hereafter be amended. If a claim for indemnification or advancement of expenses
hereunder is not paid in full by the Corporation within sixty (60) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the expenses of prosecuting such claim. It shall be a
defense to any such action that such indemnification or advancement of costs of
defense are not permitted under the Delaware General Corporation Law, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) to have made its determination prior
to the commencement of such action that indemnification of, or advancement of
costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible, In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, by-law,
resolution or stockholders or directors, agreement or otherwise.
<PAGE>
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit or proceeding.
ELEVENTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or amendment of this Article Eleventh by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article Eleventh, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the Delaware General
Corporation Law.
TWELFTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of Delaware.
<PAGE>
I, the undersigned, for the purpose of forming the Corporation under
the laws of the State of Delaware, do make, file, and record this Certificate of
Incorporation and do certify that this is my act and deed and that the facts
stated herein are true and, accordingly, I do hereunto set my hand on this 22nd
day of October, 1993.
------------------------------
Jeffrey B. Hitt
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
DESA ACQUISITION COMPANY
The undersigned, being the Chairman of the Board, President
and Secretary, and Assistant Secretary and Treasurer of Desa Acquisition
Company, a Delaware corporation (the "Corporation"), organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Delaware Code"), do hereby certify:
FIRST: The name of the Corporation is Desa Acquisition Company.
SECOND: The Certificate of Incorporation was filed with the Secretary
of State of Delaware on October 29, 1993.
THIRD: Article FIRST of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
"FIRST: The name of the Corporation is Desa
Holdings Corporation."
FOURTH: Article FOURTH of the Certificate of Incorporation is hereby
amended to read in its entirety as set forth in Exhibit A hereto (and
incorporated herein by reference).
FIFTH: The aforementioned amendments to the Certificate of
Incorporation were duly adopted in accordance with Section 242 of the Delaware
Code. Unanimous written consent of the Corporation's stockholders has been given
in accordance with the provisions of Section 228 of the Delaware Code.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed pursuant to Section 103(a)(2) of the
Delaware Code by the undersigned duly authorized officers of the Corporation as
of this ____ day of November, 1993.
DESA ACQUISITION COMPANY
By:
Jack D. Furst
Chairman of the Board,
President and Secretary
ATTEST:
- - - - ------------------------
Paul D. Stone
Assistant Secretary
and Treasurer
<PAGE>
EXHIBIT A
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 32,000,000 shares
consisting of (a) 2,000,000 shares of a class designated as Preferred Stock, par
value $.01 per share ("Preferred Stock") and (b) 30,000,000 shares of a class
designated Common Stock, par value $.01 per share ("Common Stock").
The designations and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock and the
Common Stock are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted by the board of directors of the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the
board of directors of the Corporation to authorize the issuance of the Preferred
Stock from time to time in one or more classes or series, and with respect to
each class or series of the Preferred Stock, to fix and state by the resolution
or resolutions from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the class or series is to have
voting rights, full, special or limited, or is to be without voting
rights, and whether or not such class or series is to be entitled to
vote as a separate class either alone or together with the holders of
one or more other classes or series of stock;
(ii) the number of shares to constitute the class
or series and the designations thereof;
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(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any,
with respect to any class or series;
(iv) whether or not the shares of any class or series
shall be redeemable at the option of the Corporation or the
holders thereof or upon the happening of any specified event,
and, if redeemable, the redemption price or prices (which may
be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and
conditions upon which, such shares shall be redeemable and the
manner of redemption;
(v) whether or not the shares of a class or series
shall be subject to the operations of retirement or sinking
funds to be applied to the purchase or redemption of such
shares for retirement, and, if such retirement or sinking fund
or funds are to be established, the annual amount thereof, and
the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable
in cash, stock of the Corporation, or other property, the
conditions upon which and the times when such dividends are
payable, the preference to or the relation to the payment of
dividends payable on any other class or classes or series of
stock, whether or not such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which
such dividends shall accumulate;
(vii) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall
be entitled to receive upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
(viii) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof
or upon the happening of any specified event, shall be
convertible into or exchangeable for, the shares of any other
class or classes or of any other series of the same or any
other class or classes of stock, securities, or other property
of the Corporation and the conversion price or
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prices or ratio or ratios or the rate or rates at which such
exchange may be made, with such adjustments, if any, as shall
be stated and expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective
provisions with respect to any class or series as may to the
board of directors of the Corporation seem advisable.
(c) The shares of each class or series of the Preferred Stock
may vary from the shares of any other class or series thereof in any or all of
the foregoing respects. The board of directors of the Corporation may increase
the number of shares of the Preferred Stock designated for any existing class or
series by a resolution adding to such class or series authorized and unissued
shares of the Preferred Stock not designated for any other class or series. The
board of directors of the Corporation may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution
subtracting from such class or series authorized and unissued shares of the
Preferred Stock designated for such existing class or series, and the shares so
subtracted shall become authorized, unissued, and undesignated shares of the
Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Except as otherwise required by law, and subject to any
special voting rights which may be granted any class or series of Preferred
Stock in the board of directors resolution which creates such class or series,
each holder of Common Stock shall be entitled to one vote for each share of
Common Stock standing in such holder's name on the records of the Corporation on
each matter submitted to a vote of the stockholders.
(b) Subject to the rights of the holders of the Preferred
Stock, the holders of the Common Stock shall be entitled to receive when, as,
and if declared by the board of directors of the Corporation, out of funds
legally available therefor, dividends payable in cash, stock, or otherwise.
(c) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock and the holders of any bonds,
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debentures, or other obligations of the Corporation shall have been paid in full
the amounts to which they shall be entitled (if any), or a sum sufficient for
such payment in full shall have been set aside, the remaining net assets of the
Corporation shall be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights and interests, to the exclusion of the
holders of the Preferred Stock and any bonds, debentures, or other obligations
of the Corporation.
3. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (in any form, but not less
in value than the par value thereof) as may be fixed by the board of directors
of the Corporation, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion subject to the foregoing conditions. Shares
so issued for which the consideration shall have been paid or delivered to the
Corporation shall be deemed fully paid stock and shall not be liable to any
further call or assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase or otherwise acquire
shares of the Corporation's capital stock of any class or series or other
securities of the Corporation, and such rights and options shall be evidenced by
instrument(s) approved by the board of directors of the Corporation. The board
of directors of the Corporation shall be empowered to set the exercise price,
duration, times for exercise, and other terms of such options or rights;
provided, however, that the consideration to be received (which may be in any
form) for any shares of capital stock subject thereto shall have a value not
less than the par value thereof.
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DESA HOLDINGS CORPORATION
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Desa Holdings Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The name of the Corporation is Desa Holdings Corporation.
SECOND: The original Certificate of Incorporation was filed with the
Secretary of State of Delaware on October 29, 1993.
THIRD: Article Fourth of the Corporation's Certificate of
Incorporation, as amended, is hereby amended to read in its entirety as set
forth in Exhibit A attached hereto and incorporated herein by reference.
FOURTH: The majority stockholder of the Corporation executed a written
consent adopting the above-stated proposed amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware (the "DGCL"), and written notice to those stockholders of the
Corporation not consenting in writing has been given as provided in Section
228(d) of the DGCL.
FIFTH: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as of the ____ day of January, 1996.
DESA HOLDINGS CORPORATION
By:
Terry G. Scariot
Vice President
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EXHIBIT A
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 34,000,000 shares
consisting of (a) 2,000,000 shares of a class designated as Preferred Stock, par
value $.01 per share ("Preferred Stock"), (b) 30,000,000 shares of a class
designated as Common Stock, par value $.01 per share ("Common Stock"), and (c)
2,000,000 shares of a class designated as Nonvoting Common Stock, par value $.01
per share ("Nonvoting Common Stock").
The designations and the powers, preferences, rights,
qualifications, limitations, and restrictions of the Preferred Stock, Common
Stock and Nonvoting Common Stock are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted by the board of directors of the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the
board of directors of the Corporation to authorize the issuance of the Preferred
Stock from time to time in one or more classes or series, and with respect to
each class or series of the Preferred Stock, to fix and state by the resolution
or resolutions from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the class or series is to have
voting rights, full, special or limited, or is to be without voting
rights, and whether or not such class or series is to be entitled to
vote as a separate class either alone or together with the holders of
one or more other classes or series of stock;
(ii) the number of shares to constitute the class or
series and the designations thereof;
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(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the qualifications,
limitations, or restrictions thereof, if any, with respect to any class
or series;
(iv) whether or not the shares of any class or series
shall be redeemable at the option of the Corporation or the holders
thereof or upon the happening of any specified event, and, if
redeemable, the redemption price or prices (which may be payable in the
form of cash, notes, securities, or other property), and the time or
times at which, and the terms and conditions upon which, such shares
shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series
shall be subject to the operations of retirement or sinking funds to be
applied to the purchase or redemption of such shares for retirement,
and, if such retirement or sinking fund or funds are to be established,
the annual amount thereof, and the terms and provisions relative to the
operation thereof;
(vi) the dividend rate, whether dividends are payable
in cash, stock of the Corporation, or other property, the conditions
upon which and the time when such dividends are payable, the preference
to or the relation to the payment of dividends payable on any other
class or classes or series of stock, whether or not such dividends
shall be cumulative or noncumulative, and if cumulative, the date or
dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts
thereof which the holders of any class or series thereof shall be
entitled to receive upon the voluntary or involuntary dissolution of,
or upon any distribution of the assets of, the Corporation;
(viii) whether or not the shares of any class or
series, at the option of the Corporation or the holder thereof or upon
the happening of any specified event, shall be convertible into or
exchangeable for, the shares of any other class or classes or of any
other series of the same or any other class or classes of stock,
securities, or other property of the Corporation and the conversion
price or prices or ratio or ratios or the rate or rates at which such
exchange may be made, with such adjustments, if any, as shall be stated
and expressed or provided for in such resolution or resolutions; and
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(ix) such other special rights and protective
provisions with respect to any class or series as may to the board of
directors of the Corporation seem advisable.
(c) The shares of each class or series of the Preferred Stock
may vary from the shares of any other class or series thereof in any or all of
the foregoing respects. The board of directors of the Corporation may increase
the number of shares of the Preferred Stock designated for any existing class or
series by a resolution adding to such class or series authorized and unissued
shares of the Preferred Stock not designated for any other class or series. The
board of directors of the Corporation may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution
subtracting from such class or series authorized and unissued shares of the
Preferred Stock designated for such existing class or series, and the shares so
subtracted shall become authorized, unissued, and undesignated shares of the
Preferred Stock.
2. Provisions Relating to the Common Stock and Nonvoting Common
Stock.
(a) Except as otherwise provided in this ARTICLE FOURTH, all
shares of Common Stock and Nonvoting Common Stock shall be identical and shall
entitle the holder thereof to the same rights and privileges.
(b) From and after the date of issuance, subject to the rights
of the holders of Preferred Stock, the holders of outstanding shares of Common
Stock and Nonvoting Common Stock shall be entitled to receive dividends on the
shares of Common Stock and Nonvoting Common Stock when, as, and if declared by
the board of directors of the Corporation, out of funds legally available for
such purpose. All holders of shares of Common Stock and Nonvoting Common Stock
shall share ratably, in accordance with the numbers of shares held by each such
holder, in all dividends or distributions on shares of Common Stock and
Nonvoting Common Stock payable in cash, in property or in securities of the
Corporation (other than shares of Common Stock). All dividends or distributions
declared on shares of Common Stock and Nonvoting Common Stock which are payable
in shares of Common Stock or Nonvoting Common Stock shall be declared on both
classes of shares at the same rate, provided that any such dividend or
distribution shall be payable in shares of the class of Common Stock or
Nonvoting Common Stock held by the stockholder to whom the dividend or
distribution is payable.
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(c) The Corporation shall not in any manner subdivide (by
stock split, stock dividend, or otherwise), or combine (by reverse stock split,
or otherwise) the outstanding shares of Common Stock or Nonvoting Common Stock
unless the outstanding shares of the other class shall be proportionately
subdivided or combined. No reclassification or any other adjustment or
modification of the rights or preferences shall be effected (including without
limitation pursuant to a merger, consolidation or liquidation involving the
Corporation) with respect to either the Common Stock or the Nonvoting Common
Stock unless both the Common Stock and Nonvoting Common Stock are reclassified
or the rights or preferences are adjusted or modified in exactly the same manner
and at the same time. In this regard, and without limiting the generality of the
foregoing, in the case of any consolidation or merger of the Corporation with or
into any other entity (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the Common Stock), or
in case of any sale or transfer of all or substantially all the assets of the
Corporation, or the reclassification of the Common Stock into any other form of
capital stock of the Corporation, whether in whole or in part, each share of
Nonvoting Common Stock shall, after such consolidation, merger, sale, or
transfer or reclassification, be converted into the kind and amount of shares of
stock and other securities and property which such holder would have been
entitled to receive upon such consolidation, merger, sale, or transfer or
reclassification if such holder had held such Common Stock issuable upon the
conversion of such share of Nonvoting Common Stock immediately prior to such
consolidation, merger, sale, or transfer or reclassification; provided, however,
that no such shares of stock or other securities into which shares of Nonvoting
Common Stock are so converted shall have any voting rights whatsoever.
(d) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, and after the
holders of the Preferred Stock and the holders of any bonds, debentures, or
other obligations of the Corporation shall have been paid in full the amounts to
which they shall be entitled (if any), or a sum sufficient for such payment in
full shall have been set aside, the holders of shares of Common Stock and
Nonvoting Common Stock shall be entitled to share ratably, in accordance with
the number of shares held by each such holder, in all of the assets of the
Corporation available for distribution to the holders of shares of common stock.
(e) Except as otherwise provided herein or by law, the entire
voting power of the Corporation shall be vested in the holders of shares of
Common Stock and each holder of shares of Common Stock shall be entitled to one
vote for each
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share of Common Stock held of record by such holder; provided that, without the
consent of the holders of record of at least 51% of the Nonvoting Common Stock
at the time outstanding (assuming, for the purposes of this provision, that the
holders of rights to acquire shares of Nonvoting Common Stock shall be deemed to
be the holders of the shares of Nonvoting Common Stock which are at the time
issuable upon the full exercise thereof whether or not such holders are then
entitled to exercise such rights pursuant to the terms thereof), given in
writing or by the vote at any regular or special meeting of stockholders of the
Corporation, the Corporation shall not:
(i) amend, alter, modify, or repeal any provision of
this Certificate of Incorporation or the Bylaws of the Corporation in
any manner which adversely affects the relative rights, preferences,
qualifications, powers, limitations or restrictions of the Nonvoting
Common Stock, or amend, alter, modify, or repeal this Section 2(e);
(ii) effect an exchange or reclassification of shares
of Nonvoting Common Stock into shares of another class of capital stock
of the Corporation; or
(iii) effect a merger or consolidation of the
Corporation with another corporation, unless the certificate or
articles of incorporation of the surviving corporation shall provide
that the shares of the capital stock of such surviving corporation into
which the shares of Nonvoting Stock hereunder shall be converted shall
have the identical rights and privileges as the shares of capital stock
of such surviving corporation into which the shares of Common Stock
hereunder shall be converted, other than the voting rights in this
Section 2(e) and the conversion and other rights in Section 3 below,
each of which shall not be adversely affected by such merger or
consolidation.
3. Conversion.
(a) Subject to and upon compliance with the provisions of this
Section 3, any holder of shares of Nonvoting Common Stock shall be entitled at
any time and from time to time to convert each share of Nonvoting Common Stock
held by such holder into a share of Common Stock at the conversion rate of one
share of Common Stock for one share of Nonvoting Common Stock.
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(b) The conversion of any shares of Nonvoting Common Stock
into shares of Common Stock shall be effected by the holder of the shares of
Nonvoting Common Stock to be converted surrendering the certificate therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
shares of Common Stock or at such other place as the Corporation is willing to
accept such surrender accompanied by written notice to the Corporation at such
office or other place that it elects to so convert and stating the number of
shares of Nonvoting Common Stock being converted. Thereupon the Corporation
shall promptly issue and deliver at such office or other place to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled, registered in the name of such holder or a designee of
such holder as specified in such notice. Such conversion shall be deemed to have
been made at the close of business on the date of such surrender of the shares
to be converted in accordance with the procedure set forth in the first sentence
of this Section 3(b), and the Person entitled to receive the shares issuable
upon such conversion shall be treated for all purposes as having become the
record holder of such shares at such time. In the event of the conversion of
less than all of the shares of Nonvoting Common Stock into shares of Common
Stock evidenced by the certificate so surrendered, the Corporation shall execute
and deliver to or upon the written order of such holder, without charge to such
holder, a new certificate evidencing the shares of Nonvoting Common Stock not
converted.
(c) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, or any
shares of Common Stock held in its treasury, solely for the purpose of issue
upon conversion of the shares of Nonvoting Common Stock as provided herein, such
number of shares of Common Stock as shall then be issuable upon the conversion
of all outstanding shares of Nonvoting Common Stock. The shares of Common Stock
so issuable shall when so issued be duly and validly issued, fully paid, and
nonassessable.
(d) Notwithstanding any right of conversion of Nonvoting
Common Stock pursuant to this Section 3, except to the extent then provided by
Regulation Y or the Bank Holding Company Act, no shares of Nonvoting Common
Stock originally issued by the Corporation to a Person subject to the provisions
of Regulation Y shall be converted by the original holder thereof or any direct
or indirect transferee thereof into shares of Common Stock, if after giving
effect to such conversion, such Person, its Bank Holding Company Affiliates and
any direct or indirect transferee thereof would beneficially own more than 4.9%
of the total issued and outstanding shares of Common Stock, unless such shares
are being distributed, disposed of or sold in any one of the following
transactions:
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(i) such shares are being sold in a public offering
of such shares registered under the Securities Act of 1933, as amended,
or a public sale pursuant to Rule 144 promulgated thereunder or any
successor rule then in effect;
(ii) such shares are being sold (including by virtue
of a merger, consolidation or similar transaction involving the
Corporation) to a Person or group of Persons (within the meaning of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), if,
after such sale, such Person or group of Persons in the aggregate would
own or control securities of the Corporation (excluding any Nonvoting
Common Stock converted and disposed of in connection with such
transaction) which possess in the aggregate the ordinary voting power
to elect a majority of the Corporation's directors;
(iii) such shares are being sold to a Person or group
of Persons (within the meaning of the Exchange Act), if, after such
sale, such Person or group of Persons in the aggregate would not own,
control or have the right to acquire more than 2% of the outstanding
securities of any class of voting securities of the Corporation; or
(iv) such shares are being sold in any other manner
permitted by the Federal Reserve Board.
4. Definitions.
As used in this ARTICLE FOURTH, the terms indicated below
shall have the following respective meanings:
"Bank Holding Company Affiliate" shall mean, with respect to
any Person subject to the provisions of Regulation Y, (i) if such Person is a
bank holding company, any company directly or indirectly controlled by such bank
holding company, and (ii) otherwise, the bank holding company that controls such
Person and any company (other than such Person) directly or indirectly
controlled by such bank holding company.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System, or any successor thereto.
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"Person" means an individual, partnership, association, joint
venture, corporation, business, trust, estate, unincorporated organization, or
government or any department, agency or subdivision thereof.
"Regulation Y" shall mean Regulation Y promulgated by the
Federal Reserve Board (12 C.F.R. ss. 225) or any successor regulation.
5. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock, Common
Stock and Nonvoting Common Stock from time to time for such consideration (in
any form, but not less in value than the par value thereof) as may be fixed by
the board of directors of the Corporation, which is expressly authorized to fix
the same in its absolute and uncontrolled discretion subject to the foregoing
conditions. Shares so issued for which the consideration shall have been paid or
delivered to the Corporation shall be deemed fully paid stock and shall not be
liable to any further call or assessment thereon, and the holders of such shares
shall not be liable for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase or otherwise acquire
shares of the Corporation's capital stock of any class or series or other
securities of the Corporation, and such rights and options shall be evidenced by
instrument(s) approved by the board of directors of the Corporation. The board
of directors of the Corporation shall be empowered to set the price, exercise
price, duration, times for exercise, and other terms of such options or rights;
provided, however, that the consideration to be received (which may be in any
form) for any shares of capital stock subject thereto shall have a value not
less than the par value thereof.
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DESA HOLDINGS CORPORATION
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES, AND RIGHTS OF THE
SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
The following resolutions were duly adopted by unanimous
written consent of the Board of Directors of Desa Holdings Corporation, a
Delaware corporation (the "Corporation"), pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, on November 30,
1993.
WHEREAS, the Board of Directors of the Corporation is
authorized, within the limitations and restrictions stated in the Corporation's
Certificate of Incorporation, as amended to date (as amended, the "Certificate
of Incorporation"), to fix by resolution or resolutions the designation of each
series of preferred stock and the powers, preferences, and relative
participating, optional, or other special rights, and qualifications,
limitations, or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution, or the distribution of assets, conversion,
or exchange, and such other subjects or matters as may be fixed by resolution or
resolutions of the Board of Directors under the General Corporation Law of the
State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and fix the
terms of a series of preferred stock and the number of shares constituting such
series.
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. The designation of said
series of preferred stock, par value $.01 per share, authorized by this
resolution shall be "Series A Cumulative Redeemable Preferred Stock" (herein
<PAGE>
referred to as the "Series A Preferred Stock"), which shall consist of 465,000
shares of such Series A Preferred Stock.
2. Ranking. The Series A Preferred Stock and the Corporation's
Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share (the
"Series B Preferred Stock"), shall have equal rank with respect to the payment
of dividends thereon and the distribution of assets upon the liquidation,
dissolution, or winding up of the Corporation. The Series A Preferred Stock
shall be equal in rank to any series of stock issued by the Corporation that is
expressly designated as ranking pari passu to the Series A Preferred Stock in
payment of dividends or the distribution of assets upon the liquidation,
dissolution, or winding up of the Corporation (collectively with the Series B
Preferred Stock, the "Pari Passu Stock"). The Series A Preferred Stock shall
rank senior to the Common Stock, par value $.01 per share, of the Corporation
(the "Common Stock") and to any other class or series of stock of the
Corporation not expressly designated as Pari Passu Stock or senior stock with
respect to the payment of dividends and the distribution of assets upon the
liquidation, dissolution, or winding up of the Corporation (collectively, the
"Junior Stock"). The Series A Preferred Stock shall rank junior, as to the
payment of dividends and the distribution of assets on liquidation, dissolution,
or winding up of the Corporation, to any other class or series of capital stock
which by its express terms provides that it ranks senior to the Series A
Preferred Stock.
3. Dividends.
(a) General. The holders of Series A Preferred Stock
shall be entitled to be paid, as and when declared by the Board of Directors out
of funds legally available therefor, cumulative dividends on each share of
Series A Preferred Stock for each Quarterly Period (as hereinafter defined)
determined by multiplying the Applicable Dividend Rate (as hereinafter defined)
in effect for such Quarterly Period times $25.00. The "Applicable Dividend Rate"
shall mean (i) 12.00% per annum with respect to each Quarterly Period commencing
with the Quarterly Period ending March 31, 1994 and through the Quarterly Period
ending on March 31, 2001, (ii) 16.00% per annum with respect to each Quarterly
Period commencing with the Quarterly Period ending on June 30, 2001 through the
Quarterly Period ending on March 31, 2002, and (iii) 18.00% per annum
thereafter. Such dividends shall be payable
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quarterly on December 31, March 31, June 30, and September 30 in each year,
commencing on March 31, 1994, or if any such day is not a business day, on the
next succeeding business day (each of such dates being a "Dividend Payment
Date"). Dividends shall be paid to holders of record as they appear on the
register of the Series A Preferred Stock on the December 15, March 15, June 15,
and September 15, respectively, immediately preceding such Dividend Payment
Date. Upon each Dividend Payment Date for the period from and including March
31, 1994 through and including December 31, 2000, any dividend on the Series A
Preferred Stock accrued and payable as provided in this paragraph 3 shall, if
and when paid, be payable either, as elected by the Board of Directors, (i) in
cash, (ii) by issuing a number of additional shares (or fractional shares) of
Series A Preferred Stock (the "Additional Shares") valued at $25.00 per
Additional Share, or (iii) in any combination thereof. Beginning with the
Dividend Payment Date for the Quarterly Period ending March 31, 2001 and until
such time as all shares of the Series A Preferred Stock are redeemed, all
dividends shall be paid in cash, to the extent that funds are legally available
therefor. "Quarterly Period" shall mean the period from the original date of
issuance of the Series A Preferred Stock to the first Dividend Payment Date and
each quarterly period between consecutive Dividend Payment Dates thereafter.
(b) Accrual. Dividends shall accrue from the date of
original issue of each share of the Series A Preferred Stock. If at any time
dividends with respect to any shares of Series A Preferred Stock are not
declared and paid in full on any Dividend Payment Date, whether in cash or
Additional Shares or any combination thereof (the "Omitted Dividends"), such
shares of Series A Preferred Stock shall accrue additional dividends as though
such Omitted Dividends had been paid in Additional Shares and such Additional
Shares had thereafter accrued dividends in accordance herewith (the "Cumulative
Dividends"). Such Cumulative Dividends shall be fully cumulative (whether or not
earned or declared) and shall be deemed to constitute accrued and unpaid
dividends for all purposes hereof even if such additional dividends are not
specifically mentioned in any particular context.
(c) Prohibitions. Except as provided in paragraph
3(d) and paragraph 5 hereof, so long as any Series A Preferred Stock shall
remain outstanding, no dividend or distribution whatsoever (other than a
dividend
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or dividends payable solely in Junior Stock and/or warrants or other rights to
acquire Junior Stock) shall be declared or paid or set apart for payment with
respect to any Junior Stock or Pari Passu Stock nor shall any shares of any
Junior Stock or Pari Passu Stock be redeemed, purchased, or otherwise acquired
(other than by capital contribution and other than Junior Stock redeemed from
employees of the Corporation upon termination of employment) by the Corporation
or any subsidiary thereof (except in exchange for Junior Stock and/or warrants
or other rights to acquire Junior Stock). Notwithstanding any other provision
hereof, the Corporation may redeem shares of Series B Preferred Stock in
accordance with the terms of paragraph 6 of the Certificate of Designations
creating such stock, as such Certificate of Designations exists on the date
hereof.
(d) Parallel Dividends. No whole or partial dividend
shall be paid or declared or set apart for payment with respect to any share of
Series A Preferred Stock for any Quarterly Period unless at the same time (i) a
like proportionate dividend for the same Quarterly Period shall be paid or set
aside for payment on all shares of the Series A Preferred Stock then outstanding
and entitled to receive such dividend and (ii) there shall have been paid or set
aside for payment on all shares of any Pari Passu Stock dividends (payable in
the same type of property, including cash) ratably in proportion to the
respective accumulated dividends, including dividends accrued or in arrears, on
the Series A Preferred Stock and said Pari Passu Stock. No dividend shall be
paid or declared or set apart for payment with respect to any shares of any Pari
Passu Stock then outstanding unless there shall have been paid or set apart for
payment on all shares of Series A Preferred Stock then outstanding dividends
(payable in the same type of property, including cash) ratably in proportion to
the respective dividends, including dividends accrued or in arrears, on the
Series A Preferred Stock and said Pari Passu Stock.
4. Liquidation.
(a) Liquidation Preference. Subject to the rights of
the holders of any class of capital stock or series thereof expressly ranking
senior to the Series A Preferred Stock as to the distribution of assets on
liquidation, in the event of any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the holder of each share of
Series A Preferred Stock shall be entitled to receive, out of the assets of the
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Corporation legally available therefor, a cash liquidation payment equal to
$25.00 per share (the "Liquidation Preference"), plus a cash amount equal to all
dividends accumulated and unpaid thereon to the date of payment (whether or not
earned and declared) before any distribution or payment shall be made to the
holders of Junior Stock. If legally available funds are not sufficient to pay
the full amount owed as a liquidation preference to the holders of the Series A
Preferred Stock pursuant to the preceding sentence and the full amount owed to
the holders of any Pari Passu Stock, such funds shall be distributed to the
holders of the Series A Preferred Stock and such Pari Passu Stock on a pro rata
basis in proportion to their respective claims.
(b) Effect of Merger or Consolidation. Neither the
merger or consolidation of the Corporation into or with any other Person (as
hereinafter defined), nor the merger or consolidation of any other Person into
or with the Corporation (each, a "Merger"), nor a sale, transfer, or lease or
other disposition of all or any part of the assets of the Corporation, shall,
without further corporate action, be deemed to be a liquidation, dissolution, or
winding up of the affairs of the Corporation within the meaning of this
paragraph 4. As used herein, "Person" shall mean any individual, corporation,
partnership, joint venture, limited liability company, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
5. Optional Redemption.
(a) Redemption Price. The Corporation may, at its
option, at any time and from time to time, redeem all or any portion of the
outstanding shares of the Series A Preferred Stock and Series B Preferred Stock,
ratably, for cash in an amount equal to the Liquidation Preference per share
plus an amount equal to all accumulated and unpaid dividends thereon (whether or
not earned and declared and whether or not there are funds of the Corporation
legally available for the payment of dividends) to the Redemption Date (as
hereinafter defined), in accordance with subparagraph (b) of this paragraph 5.
Notwithstanding the provisions of this paragraph (a), unless the full cumulative
dividends on all outstanding shares of each series of Series A Preferred Stock
shall have been paid or contemporaneously are declared and paid for all past
dividend periods or portions thereof, none of the shares of Series A Preferred
Stock shall be redeemed unless all outstanding shares of
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Series A Preferred Stock on the redemption date are simultaneously redeemed.
(b) Redemption Procedure. If the Corporation shall
determine to redeem less than all shares of the Series A Preferred Stock then
outstanding pursuant to subparagraph (a) of this paragraph 5, (i) the shares to
be redeemed shall be selected pro rata (or as nearly as may be) so that the
number of shares redeemed from each holder shall bear the same proportion to all
the shares to be redeemed that the total number of shares then held by such
holder bears to the total number of shares then outstanding or (ii) if the
number of holders of the Series A Preferred Stock exceeds 50, and the Board of
Directors so determines, the shares to be redeemed shall be selected by lot.
(c) Notice. Notice of every redemption pursuant to
this paragraph 5 shall be mailed, first class, postage prepaid, not less than 30
nor more than 60 days prior to the date fixed for redemption (the "Redemption
Date"), to each holder of record of shares to be redeemed, at such holder's
address as it appears on the books of the Corporation. Each such notice shall
state the Redemption Date; the number of shares of Series A Preferred Stock to
be redeemed, and, if less than all shares of Series A Preferred Stock held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder; the redemption price applicable to the shares to be redeemed; the
place or places where such shares are to be surrendered; and that dividends on
shares to be redeemed will cease to accrue on the Redemption Date.
(d) Rights of Holders. Notice having been mailed as
aforesaid, from and after the Redemption Date (unless the Corporation defaults
in providing money for the payment of the redemption price) dividends on shares
called for redemption shall cease to accrue, said shares shall no longer be
deemed to be outstanding, all rights of holders thereof as stockholders of the
Corporation (except the right to receive the redemption price thereof, without
interest) shall terminate, and, upon surrender, in accordance with said notice,
of the certificates representing any such shares (properly endorsed or assigned
for transfer, if the Board of Directors of the Corporation shall so require),
such shares shall be redeemed by the Corporation at the applicable redemption
price; provided, however, that the Corporation may include in such notice a
statement that the money required for the payment of the redemption price will
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be deposited on a specified date, prior to the Redemption Date, with a specified
bank or trust company (which shall have an office in The City of New York and
which shall have a combined capital and surplus of not less than $50,000,000) in
trust for the benefit of holders of shares called for redemption, and, notice
having been given, from and after such deposit shares called for redemption
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith upon such deposit cease and terminate except for the
right to receive the amount payable upon surrender of the certificates
representing such shares from such bank or trust company (but not from the
Corporation). If less than all the shares represented by any surrendered
certificate are redeemed, a new certificate representing the unredeemed shares
shall be issued to the holder who surrendered such certificate. Holders of
shares of Series A Preferred Stock called for redemption shall not be entitled
to any interest allowed by any such depositary on money deposited to effect the
redemption but any such interest shall be paid to the Corporation. Any money
deposited as aforesaid for redemption of any shares and remaining unclaimed for
four years and eleven months after the date of such deposit shall then be repaid
to the Corporation upon its request, and the holders of such shares shall
thereafter look only to the Corporation for payment of the redemption price
thereof, without interest.
(e) Status of Redeemed Shares. Any share of Series A
Preferred Stock redeemed or otherwise purchased or acquired by the Corporation
shall be retired, shall no longer be deemed outstanding, and shall not be
reissued.
6. Special Corporate Events.
(a) Change in Control. Upon a Change in Control (as
defined herein), the Corporation will mail to each holder of Series A Preferred
Stock a notice (the "Change in Control Notice") (i) stating that a Change in
Control has occurred and each holder of Series A Preferred Stock shall have the
right to require that the Corporation purchase, to the extent the Corporation
lawfully may do so, all or a portion of the shares of Series A Preferred Stock
held by such holder, at a cash purchase price equal to the Liquidation
Preference per share, plus all accrued and unpaid dividends thereon to the date
of cash purchase (the "Purchase Price"), (ii) setting forth the Purchase Price
and a purchase date (the "Purchase Date"), which shall be no earlier than 15
days nor later than 30 days from the date
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the Change in Control Notice is mailed, and (iii) setting forth the instructions
reasonably determined by the Corporation, consistent with this paragraph 6 and
applicable law, that a holder must follow in order to require the purchase of
his Series A Preferred Stock. Notwithstanding anything to the contrary contained
above, prior to compliance with the foregoing provisions the Corporation will,
or will cause the Company (as hereinafter defined) to, either repay all
indebtedness and terminate all commitments outstanding under the Credit
Agreement (as hereinafter defined) or obtain the requisite consents, if any,
under the Credit Agreement required to permit the repurchase of Series A
Preferred Stock required by this provision. Until the requirements of the
immediately preceding sentence are satisfied, the Corporation will not make, and
will not be obligated to make, any such purchase of Series A Preferred Stock or
any mailing or delivery of any Change in Control Notice. As used herein, (x)
"Company" shall mean Desa International, Inc. and its subsidiaries and (y)
"Credit Agreement" shall mean the Credit Agreement dated on or about the date of
initial issuance of the Series A Preferred Stock, among the Corporation, the
Company, the lenders from time to time party thereto and Bankers Trust Company,
as agent, together with the related documents thereto (including, without
limitation, any guaranty agreements and security documents), in each case as
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing, or otherwise restructuring (including
adding subsidiaries of the Corporation as additional borrowers or guarantors
thereunder) all or a portion of the indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other lender
or group of lenders.
(b) Payment of Purchase Price. The Purchase Price
shall be paid in cash; provided, however, that, to the extent that the HMC Group
(as hereinafter defined) has received securities or other non-cash consideration
("Non- Cash Consideration") in exchange for its Common Stock as a result of the
event or series of events which have resulted in a Change in Control, the
Purchase Price may, at the option of the Board of Directors and subject to the
provisions set forth below and in paragraph 15 hereof, be paid in identical
Non-Cash Consideration or a combination of cash and Non-Cash Consideration. To
the extent that any cash consideration is to be paid, distributed, made
available, or otherwise delivered to holders of equity securities of the
Corporation as a result of such Change in
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Control, such cash consideration shall be paid, distributed, made available, or
otherwise delivered first to the holders of Series A Preferred Stock and Pari
Passu Stock, pro rata as determined by the sum of their relative holdings of
such securities, plus all accrued and unpaid dividends thereon, prior to the
distribution of any such cash consideration to holders of any class of Junior
Stock. Notwithstanding the other provisions of this subparagraph, upon the
request of the holders of a majority in interest of the Series A Preferred Stock
received by the Corporation within 15 days of the mailing of the Change in
Control Notice, the Corporation shall, at its expense, engage a
nationally-recognized independent investment banking firm (an "Independent
Firm") to value any Non-Cash Consideration to be received as a result of such
Change in Control. Such Independent Firm shall provide a written appraisal of
the value of such Non-Cash Consideration within 15 days of their engagement. The
Independent Firm shall, to the extent appropriate, determine an adjustment to
the amount of Non- Cash Consideration to be paid as all or a portion of the
Purchase Price per share if such appraisal results in a determination that the
value of such Non-Cash Consideration is more or less than the value placed
thereon by the HMC Group upon receipt thereof. In the event that an appraisal by
an Independent Firm is requested by such holders, the Purchase Date may, at the
option of the Corporation, be extended by 30 days from the date originally
designated as the Purchase Date.
(c) Surrender of Certificates. Holders of Series A
Preferred Stock seeking to require that the Corporation purchase their shares in
accordance with this paragraph 6 will be required to surrender any
certificate(s) representing their shares to the Corporation prior to the close
of business of the third business day prior to the Purchase Date (properly
endorsed or assigned for transfer, if the Board of Directors of the Corporation
shall so require).
(d) Failure to Purchase. If the Corporation shall
fail, because it lacks legally available funds, to discharge its obligation to
purchase all of the outstanding shares of Series A Preferred Stock required to
be purchased pursuant to this paragraph 6 (the "Purchase Obligation"), the
Purchase Obligation shall be discharged promptly at such time as the Corporation
is able to discharge such Purchase Obligation legally and in accordance with the
terms hereof. If and for so long as the Purchase Obligation shall not
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fully be discharged, (i) dividends on the Series A Preferred Stock shall
continue to cumulate in accordance with paragraph 3 hereof, and (ii) the
Corporation shall not declare, pay, or set aside any sum for payment of any
dividend on, or make any other distribution as to, any Junior Stock or Pari
Passu Stock, or purchase, redeem, or otherwise acquire such securities, or any
warrant, right or security convertible into or exchangeable for any such
security, for any consideration (or make any payment to or available for a
sinking fund for the redemption of such securities) other than in Junior Stock.
(e) Definitions. A "Change in Control"
shall be deemed to have occurred if:
(i) the HMC Group has "beneficial ownership"
(within the meaning of Section 13(d) of the
Exchange Act (as hereinafter defined) and
the rules and regulations promulgated
thereunder) of less than 50.1% of the issued
and outstanding Common Stock of the
Corporation, without regard to issuances in
a firm commitment underwritten public
offering pursuant to an effective
registration statement under the Securities
Act of 1933, as amended (the "Securities
Act") (including issuances of Common Stock
upon conversion of the Series B Preferred
Stock to the extent such Common Stock is
sold in such public offering); or
(ii) there is a sale, lease, transfer, or other
disposition of all or substantially all of
the assets of the Corporation to any Person
(other than the HMC Group or the Hicks, Muse
Holders (as hereinafter defined)) as an
entirety or substantially as an entirety in
one transaction or a series of related
transactions; or
(iii) the Hicks, Muse Holders have beneficial
ownership, determined as set forth in
subclause (i) above, of less than 6,750,000
shares of Common Stock (as adjusted
appropriately to reflect the
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<PAGE>
number of shares and/or kind of securities
into which such Common Stock is subsequently
converted, split, combined, exchanged,
reclassified, or like events);
provided, however, that, notwithstanding clause (ii) of this
definition, no Change in Control shall be deemed to have occurred in
the event of a Merger unless, after giving effect to the consummation
of the Merger, one of the events specified in clause (i) or (iii) of
this definition shall have occurred.
As used herein, "HMC Group" shall mean a group
composed of Hicks, Muse & Co. Incorporated (or any successor to all or
substantially all of the assets of Hicks, Muse, collectively, "Hicks,
Muse"), HM 2/Desa, L.P., and their respective Affiliates, and the
Management Holders (as hereinafter defined), and "Hicks, Muse Holders"
shall mean a group composed of Hicks, Muse, HM 2/Desa, L.P., and their
respective Affiliates and any spouse or child (natural or adopted) of
any Affiliate who is a natural Person. The fact that one or more
members of the HMC Group or the Hicks, Muse Holders has sold or
otherwise transferred his or its Voting Securities shall not be deemed
to constitute a dissolution of the HMC Group or the Hicks, Muse
Holders, respectively. As used herein, "Affiliate" shall mean, as to
any Person, (a) any other Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with, such
Person or (b) any natural Person who is a director, officer, or
employee (i) of such Person, (ii) of any subsidiary of such Person, or
(iii) of any Person described in the preceding clause (a). For purposes
of the definition of "Affiliate", "control" of a Person shall mean the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract or
otherwise. As used herein, "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended. As used herein, "Management Holders"
shall mean a group composed of Robert H. Elman, Mark J. Elman, Wendy J.
Elman, Valerie N. Elman, Damon S. Vitale, Terry G. Scariot, John M.
Kelly, William A. Parsons, James M. Phillips, Donald W. Denton, Dirk D.
Miller, Doug Rohrer, and Ralph Pratt and any spouse or child (natural
or adopted) of any of them; provided, that any person who is
subsequently
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elected to an office of the Corporation in replacement of any of the
above-named persons who also purchases Common Stock shall be included
in the definition of Management Holders. As used herein, "Voting
Securities" shall mean all classes of capital stock of the Corporation
then outstanding and normally entitled to vote in the election of the
directors of the Corporation.
(f) Procedure for Purchase. On the Purchase Date, the
Purchase Price of such shares shall be payable to the order of the Person whose
name appears on the certificate or certificates representing such shares as the
owner thereof and each surrendered certificate shall be canceled. From and after
the Purchase Date, unless there shall have been a default in payment of the
Purchase Price, all rights of the holders of shares of Series A Preferred Stock
so purchased, except the right to receive the Purchase Price without interest,
shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. In addition, from and after the date the Corporation
shall irrevocably deposit an amount (which may include Non-Cash Consideration,
as provided herein) equal to the Purchase Price with a bank or trust company
(which shall have an office in The City of New York and which shall have a
combined capital and surplus of not less than $50,000,000) in trust for the
benefit of holders of shares electing a purchase, and, notice having been given,
from and after such deposit such shares shall no longer be deemed to be
outstanding and all rights with respect to such shares shall forthwith upon such
deposit cease and terminate except for the right to receive the Purchase Price
upon surrender of the certificates representing such shares from such bank or
trust company (but not from the Corporation). If less than all the shares
represented by any surrendered certificate are purchased, a new certificate
representing the unpurchased shares shall be issued to the holder who
surrendered such certificate. Holders of shares of Series A Preferred Stock
electing purchase shall not be entitled to any interest allowed by any such
depositary on money deposited to effect the purchase, but any such interest
shall be paid to the Corporation. Any money deposited as aforesaid for purchase
of any shares and remaining unclaimed for four years and eleven months after the
date of such deposit shall then be repaid to the Corporation upon its request,
and the holders
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of such shares shall thereafter look only to the Corporation for payment of the
Purchase Price thereof, without interest.
7. Merger. (a) In the event of the Merger of the Corporation
with or into any other corporation, each share of Series A Preferred Stock may,
at the option of the Corporation, be converted into another security (the
"Resulting Security") of the Corporation or the surviving corporation (the
"Survivor"), as the case may be, the value of which, based upon the economic
terms of such Resulting Security, is not less than the sum of the Liquidation
Preference, plus all accrued and unpaid dividends to the date of such
conversion, of such shares of Series A Preferred Stock, as determined by an
Independent Firm engaged by the Corporation, which determination shall be
communicated in writing to the holders of the Series A Preferred Stock within 15
days of its engagement; provided, however, that any security issued to holders
of Junior Stock as a result of such Merger must be subordinate in right of
payment to the Resulting Security and the Resulting Security must contain
covenants which (i) prohibit the Survivor from making any payment or
distribution on, or purchasing, redeeming, or otherwise acquiring any Junior
Stock (other than (A) any payment or distribution in, or repurchase effected in
exchange for, Junior Stock and/or warrants or other rights to acquire Junior
Stock and (B) redemptions or purchases of Junior Stock from employees of the
issuer upon termination of employment) and from issuing a class or series of
stock that ranks senior, as to the payment of dividends or the distribution of
assets on liquidation, dissolution or winding up of the Corporation, to the
Resulting Security, (ii) prohibit the Survivor from guaranteeing another
Person's debt and from issuing debt that, in either case, by its terms,
participates in the earnings and profits of the Survivor, and (iii) prohibit the
Survivor from creating a class or series of stock that (A) is equal to the
Resulting Security in payment of dividends or the distribution of assets upon
the liquidation, dissolution or winding up of the Corporation and (B) has a
dividend rate which exceeds 16.00% per annum ("Pari Passu Resulting Security");
provided, however, that if such Pari Passu Resulting Security, by its terms
(whether pursuant at a specified date or upon the occurrence of a specified
event or otherwise), is mandatorily redeemable, at the time of the creation of
such Pari Passu Resulting Security, the Corporation shall, to the extent
necessary, amend its Certificate of Incorporation to provide expressly that
shares of the Series A Preferred Stock and the Series B
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Preferred Stock are mandatorily redeemable ratably (whether at a specified date
or upon the occurrence of a specified event or otherwise) prior to the time that
such Pari Passu Security is mandatorily redeemable. Notwithstanding the prior
sentence, to the extent that any cash or Cash Equivalent (as hereinafter
defined) consideration is to be paid, distributed, made available, or otherwise
delivered to holders of equity securities of the Corporation as a result of such
Merger, such cash or Cash Equivalent consideration shall be paid, distributed,
made available, or otherwise delivered first to the holders of Series A
Preferred Stock and Pari Passu Stock, pro rata as determined by the sum of their
relative holdings of such securities, plus all accrued and unpaid dividends
thereon, until such holders are paid the full amounts of the respective
liquidation preferences of such stock, plus all accrued and unpaid dividends
thereon to the date of payment, prior to the distribution of any such cash
consideration to holders of any Junior Stock. In the event that, as a result of
such Merger, neither of the events specified in clauses (i) or (iii) of the
definition of Change of Control shall have occurred, the provisions set forth in
paragraph 6 hereof shall be deemed to be incorporated, with appropriate language
changes in order to reflect in all material respects the terms and conditions of
such paragraph, into the Resulting Security, and such terms and conditions shall
thereafter apply to the Resulting Security. As used in this paragraph 7(a), the
term "Cash Equivalent" shall mean (1) 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; (2)
commercial paper maturing within one year from the date issued and, at the time
of acquisition thereof, having a rating of at least A-1 or the equivalent
thereof from Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc.; (3) certificates of deposit or
bankers' acceptances maturing within one year from the date of issuance thereof
issued by, or overnight reverse repurchase agreements from, any commercial bank
organized under the laws of the United States or any state thereof or the
District of Columbia having a combined capital and surplus of not less than
$250,000,000; and (4) funds investing exclusively in any or all of the
investments described in (1) through (3) above.
(b) Notwithstanding subparagraph 7(a) hereof, immediately
prior to a Merger, at the option of each holder
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of Series A Preferred Stock elected as provided in subparagraph 7(c) below, each
then outstanding share of Series A Preferred Stock shall be deemed to have been
surrendered for conversion, and shall be converted, into a number of shares of
Common Stock (which, for purposes of this subparagraph, shall include any stock
into which such Common Stock may hereafter be converted or exchanged) equal to
the Conversion Price (as hereinafter defined). The "Conversion Price" shall be
equal to the sum of (A) $25 plus (B) the accrued and unpaid dividends on such
share to the closing date of the Merger, divided by the fair market value per
share of one share of Common Stock, as determined by an Independent Firm (the
"Common Stock Price"). The Corporation will not be required to issue any
fractional share of Common Stock upon such conversion and the Corporation may,
at its option, pay an amount in cash, in lieu of issuing any fractional share,
equal to the same fraction of the Common Stock Price. The Corporation will issue
certificates representing the shares of Common Stock into which the outstanding
shares of Series A Preferred Stock have been converted promptly following the
receipt of the respective certificates that, prior to such conversion,
represented shares of Series A Preferred Stock.
(c) Not later than 30 days prior to effecting any Merger, the
Corporation shall provide written notice to all record holders of Series A
Preferred Stock, stating its intention to effect such Merger, generally
describing the terms and conditions of such Merger and stating that such record
holder has the right to convert its Series A Preferred Stock to Common Stock in
accordance with the terms of subparagraph (b) above. Each such holder, if it
wishes to effect such conversion of its Series A Preferred Stock, shall, no
later than ten days prior to the Merger, provide written notice to the
Corporation of its intention to convert its Series A Preferred Stock in
accordance with the terms of subparagraph (b) above and shall, together
therewith, deliver to the Corporation the certificate(s) representing its Series
A Preferred Stock, together with duly executed stock powers and other
appropriate instruments of transfer, as reasonably requested by the Corporation.
8. Voting Rights.
(a) Generally. The holders of shares of Series A
Preferred Stock shall not be entitled to vote except as set forth in the
Certificate of Incorporation of the Corporation, as herein set forth in this
paragraph 8 and
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as otherwise provided by law. In any vote by the holders of the Series A
Preferred Stock pursuant to the preceding sentence, each holder of the Series A
Preferred Stock shall be entitled to one vote for each full share and a fraction
of a vote equal to the fraction of a share for each fractional share.
(b) Special Voting Rights to Elect Directors. If at
any time or times (i) the equivalent of two or more consecutive quarterly
dividends on the Series A Preferred Stock shall be in arrears, in part or in
whole, and shall not either be paid in cash or by issuance of Additional Shares
or (ii) the Corporation has not met any then-existing obligation pursuant to
paragraph 6 hereof, then the number of directors constituting the Board of
Directors, without further action, shall be increased by one and the holders of
the Series A Preferred Stock shall have the exclusive right, voting separately
as a class, at any annual meeting of stockholders, or special meeting called for
such purpose or pursuant to written consent, to elect, by majority vote, one
director of the Corporation to fill such newly created directorship; provided,
however, that in the event that more than 75% of the aggregate number of
outstanding shares of Series A Preferred Stock is at such time held by any
holder subject to BHC Laws (as defined in paragraph 15 hereof), then the holders
of the Series A Preferred Stock shall have the right, acting separately as a
class, in lieu of the right to elect one director of the Corporation pursuant to
the foregoing provisions, to designate a representative (the "Observer") to
attend each meeting of the Board of Directors of the Corporation in person or by
conference call; provided, further, in no event shall any holder of Series A
Preferred Stock have the right to vote for the election of a director pursuant
to this paragraph 8(b) unless such right and the exercise thereof shall not
cause or result in the violation of any applicable BHC Laws. The presence, or
lack thereof, of any Observer shall have no bearing on the determination of
whether a quorum exists for the purpose of conducting the business of the
Corporation, and any failure by the Corporation to provide notice of a meeting
of the Board of Directors shall have no effect on the efficacy of any action
taken by the Board of Directors at such meeting. Such Observer shall, by virtue
of such attendance, be deemed to have agreed to keep confidential and not
disclose to any third party any information concerning the Corporation which is
discussed or disseminated during or in connection with any such meeting of the
Board of Directors. Such voting rights shall
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terminate at such time that (x) all accrued and unpaid dividends (whether or not
earned or declared and whether or not there are funds of the Corporation legally
available for the payment of dividends) on shares of the Series A Preferred
Stock then outstanding shall have been either paid in cash or (solely in the
case of Dividend Payment Dates occurring on or before December 31, 2000) by
issuance of Additional Shares, as permitted pursuant to paragraph 3 hereof, (y)
dividends thereon for the then-current Dividend Period shall have either been
paid in cash or, if permitted pursuant to paragraph 3 hereof, by the issuance of
Additional Shares, or declared or set apart for payment and (z) the Corporation
shall have fully complied with its obligations pursuant to paragraph 6 hereof,
subject, however, to revesting of such voting rights in the event of each and
every subsequent failure of the Corporation to pay dividends as described above.
9. Certain Actions. So long as any shares of the Series A
Preferred Stock are outstanding, the Corporation shall not, without the written
consent or the affirmative vote at a meeting called for that purpose of the
holders of at least a majority of the votes of the shares of the Series A
Preferred Stock then outstanding, voting separately as a class, (i) create,
authorize, or issue any class or series of capital stock ranking senior to the
Series A Preferred Stock as to payment of dividends or as to distribution of
assets on liquidation, or any Pari Passu Stock unless (A) such Pari Passu Stock
is created in connection with an acquisition of the stock, other equity
interests, and/or assets of another entity or of an operating division of
another entity (or a refinancing or refunding of such an acquisition), (B) if
such Pari Passu Stock, by its terms, is mandatorily redeemable (whether at a
specified date or upon the occurrence of a specified event or otherwise), at the
time of the creation of such mandatorily redeemable Pari Passu Stock, the
Corporation shall, to the extent necessary, amend its Certificate of
Incorporation to provide expressly that shares of the Series A Preferred Stock
and the Series B Preferred Stock are also mandatorily redeemable ratably
(whether at a specified date or upon the occurrence os a specified event or
otherwise) immediately prior to the time such newly created series of Pari Passu
Stock is mandatorily redeemable, and (C) such Pari Passu Stock does not have a
dividend rate which exceeds 16.00% per annum, (ii) amend, alter, or repeal any
of the powers, preferences, or special rights of the Series A Preferred Stock
(as expressed in the Certificate of
17
<PAGE>
Incorporation of the Corporation) so as to affect adversely such powers,
preferences, or special rights, or (iii) sell, lease, or convey all or
substantially all of the Corporation's assets or merge or consolidate with or
into any other entity if as a result of such transaction the Series A Preferred
Stock would be purchased for or otherwise converted into consideration of less
than its Liquidation Preference plus any accrued and unpaid dividends, or as a
result of which the Series A Preferred Stock would continue in existence (either
as stock in the Corporation or in the surviving company in a merger) but with an
adverse alteration in its specified designations, rights, preferences, or
privileges; provided, however, that nothing contained in this paragraph 9 shall
affect the Corporation's obligations pursuant to paragraph 6 hereof.
10. Reporting Requirements. The Corporation will furnish to
each record holder of shares of Series A Preferred Stock any documents filed by
the Corporation pursuant to Section 13, 14, or 15(d) of the Exchange Act and any
annual, quarterly, or other reports furnished to the Corporation's public
securityholders, if any; provided that if the Corporation is not subject to the
requirements of Section 13, 14, or 15(d) of the Exchange Act, the Corporation
will promptly furnish to each such record holder:
(i) as soon as available and in any event within 90
days after the end of each fiscal year of the Corporation a
consolidated balance sheet of the Corporation as of the end of such
fiscal year and the related statements of income and retained earnings
and statement of cash flows for such fiscal year, in each case
(commencing with any such reports delivered after the first full fiscal
year of the Corporation following the date hereof) setting forth
comparative figures for the preceding fiscal year, accompanied by an
opinion of independent public accountants of nationally recognized
standing selected by the Corporation as to the fair presentation in
accordance with generally accepted accounting principles by such
financial statements of the Corporation's consolidated financial
position, results of operations, and statement of cash flows; and
(ii) as soon as available and in any event within 45
days after the end of each of the first three fiscal quarters of each
fiscal year of the Corporation (on a consolidated basis), a balance
sheet as of the
18
<PAGE>
end of the month ending such quarter and the related statements of
income and statement of cash flows for such month and for the portion
of the Corporation's fiscal year ended at the end of such month,
setting forth in each case in comparative form the figures for the
corresponding month and the corresponding portion of the Corporation's
preceding fiscal year, all certified (subject to normal year-end audit
adjustments) as to fairness of presentation, generally accepted
accounting principles, and consistency by the principal financial and
accounting officers.
For so long as any Series A Preferred Stock is outstanding, the Corporation will
furnish to each holder of Series A Preferred Stock, no later than 15 days after
the receipt by the Corporation of audited financial statements for each fiscal
year, a compliance certificate, executed by the Corporation's chief executive
officer or president, stating that the Corporation has complied with all the
covenants set forth herein, or, if such statement cannot be made, explaining the
reasons therefor in detail.
11. Issuance. The Corporation will not issue more than 465,000
shares of Series A Preferred Stock, of which 200,000 shares shall be available
for initial issuance and 265,000 shares shall be available for issuance as
Additional Shares.
12. Fractional Shares. Any fractional shares of Series A
Preferred Stock shall be entitled to appropriately proportionate dividends,
liquidation payments, voting rights, and all other rights of the Series A
Preferred Stock.
13. Affiliate Transactions. For so long as any shares of
Series A Preferred Stock are outstanding, the Corporation shall not, and shall
not permit any subsidiary thereof to, conduct any business or enter into any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange, or lease of any assets or property or the
rendering of any services) with any Affiliate of the Corporation, Hicks, Muse,
or the Management Group unless the terms of such business transaction or series
of related transactions are (A) no less favorable to the Corporation or such
subsidiary, as the case may be, than would be obtainable in a comparable
transaction or series of related transactions in arms' length dealing with an
unrelated third party and (B) set
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<PAGE>
forth in writing, if such transaction or series of related transactions involves
aggregate payment in excess of $100,000, and (C) with respect to a transaction
or series of related transactions involving the sale, purchase, lease, or
exchange of property or assets having a value in excess of $1,000,000, such
transaction or series of related transactions has been determined to be fair,
from a financial point of view, to the Corporation or such subsidiary, by a
majority of the Board of Directors. The foregoing provisions do not prohibit (i)
any transaction with an officer or director of the Corporation or a subsidiary
thereof entered into in the ordinary course of business (including compensation
or employee benefit arrangements with any such officer or director pursuant to
plans or agreements approved by a majority of the disinterested directors of the
Corporation), (ii) required payments under any tax sharing agreement entered
into among the Corporation and its subsidiaries and approved by a majority of
the Board of Directors of the Corporation, (iii) the Management and Oversight
Agreement dated of substantially even date herewith by and among the
Corporation, the Company, and an Affiliate of Hicks, Muse, or (iv) any
transaction between the Corporation and a wholly-owned subsidiary or between or
among any wholly-owned subsidiaries of the Corporation.
14. General Provisions.
(a) "Outstanding" Securities. The term "outstanding",
when used with reference to shares of stock, shall mean issued shares, excluding
shares held by the Corporation or a subsidiary.
(b) Headings. The headings of the paragraphs,
subparagraphs, clauses, and subclauses of this Certificate of Designations are
for convenience of reference only and shall not define, limit, or affect any of
the provisions hereof.
(c) Restrictions in Senior Lending Documents. Each
holder of Series A Preferred Stock, by acceptance thereof, acknowledges and
agrees that the redemption and repurchase of such securities by the Corporation
are subject to restrictions contained in the Credit Agreement, and that the
Corporation shall not be in violation of any provision hereof as a result of its
failure to redeem such securities due to the existence of such restrictions;
provided, that the Corporation shall be
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<PAGE>
obligated to use its best efforts to secure the consent to such redemption of
any lender(s) under such Credit Agreement.
15. Bank Regulatory Restrictions. Notwithstanding any other
provision of this Certificate of Designations, if the receipt of Non-Cash
Consideration pursuant to paragraph 6 hereof or a Resulting Security pursuant to
paragraph 7 hereof (collectively, "Subsequent Securities") by a holder of Series
A Preferred Stock would violate applicable bank regulatory laws or any rules,
regulations, and interpretations thereunder (collectively, the "BHC Laws"), such
holder shall notify the Corporation promptly in writing of such potential
violation, stating that such event would violate a BHC Law (the "BHC Violation
Notice"). The BHC Violation Notice shall describe with reasonable specificity
the BHC Laws that would be violated and the facts that would result in the
violation by such holder of such BHC Laws and shall otherwise be in form and
substance reasonably satisfactory to the Corporation. In the event the BHC
Violation Notice is reasonably satisfactory to the Corporation, the Corporation
shall or, in the case of Non-Cash Consideration or a Resulting Security to be
issued by another entity, shall cause such entity to, create a class or series
of non-voting securities identical in all material respects (subject to the next
sentence hereof) to the Subsequent Security (the "Nonvoting Securities") and
such Nonvoting Securities shall be issued to such holder in lieu of the
Subsequent Security. The Nonvoting Securities shall be convertible into the
Subsequent Security at any time by the holder thereof or by the Corporation, the
Successor, or other issuing entity as the case may be (without the payment of
any additional consideration) on such terms and conditions (intended to comply
with applicable BHC Laws) as shall be reasonably requested by the holder and
reasonably acceptable to the Corporation.
[REMAINDER OF THIS PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, Desa Holdings Corporation
has caused this certificate to be signed by its Vice President and Assistant
Secretary, respectively, this _____ day of _________, 1993.
DESA HOLDINGS CORPORATION
By:
Vice President
ATTEST:
Assistant Secretary
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<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
DESA HOLDINGS CORPORATION
Desa Holdings Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The name of the Corporation is Desa Holdings Corporation.
SECOND: The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 29, 1993.
THIRD: The first sentence of Article FOURTH of the Corporation's
Certificate of Incorporation, as amended, is hereby amended and restated in its
entirety to read as follows:
"FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 55,000,000 shares
consisting of (a) 2,000,000 shares of a class designated as preferred stock, par
value $.01 per share ("Preferred Stock"), (b) 50,000,000 shares of a class
designated as common stock, par value $.01 per share ("Common Stock"), and (c)
3,000,000 shares of a class designated as nonvoting common stock, par value $.01
per share ("Nonvoting Common Stock")."
FOURTH: The majority stockholder of the Corporation executed a written
consent adopting the above-stated proposed amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware (the "DGCL"), and written notice to those stockholders of the
Corporation who did not consent in writing has been given as provided in Section
228(d) of the DGCL.
FIFTH: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment as of the __ day of November, 1997.
DESA HOLDINGS CORPORATION
By:
Edward G. Patrick
Vice President - Finance,
Treasurer and Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION
SERIES C 12% SENIOR REDEEMABLE
EXCHANGEABLE PAY-IN-KIND PREFERRED STOCK
DESA HOLDINGS CORPORATION
Desa Holdings Corporation, a Delaware corporation (as hereinafter
further defined, the "Corporation"), certifies that pursuant to the authority
contained in Article 4 of its Certificate of Incorporation, as amended, and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, its Board of Directors has adopted the following
resolution creating a series of its preferred stock designated as the Series C
12% Senior Redeemable Exchangeable Pay-In-Kind Preferred Stock:
RESOLVED, that a series of the class of authorized preferred stock of
the Corporation be and hereby is created, and that the designation and the
amount thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
DESIGNATION OF
SERIES C 12% SENIOR REDEEMABLE
EXCHANGEABLE PAY-IN-KIND PREFERRED STOCK
Section 1. Designation; Number of Shares.
The shares of such series shall be designated "Series C 12% Senior
Redeemable Exchangeable Pay-In-Kind Preferred Stock" (herein in this Certificate
of Designation referred to as the "Series C Preferred Stock" or this "Series")
and the number of shares constituting such series initially shall be forty
thousand (40,000) shares.
Section 2. Dividends.
(a) General Obligation.
(i) When and as declared by the Board of Directors of the
Corporation, and to the extent permitted under the General Corporation
Law of the State of Delaware, the Corporation shall pay dividends to
the holders of Series C Preferred Stock at the times and in the amounts
provided for in this Section 2. Except as otherwise provided herein,
cumulative dividends on the Series C Preferred Stock shall accrue on a
daily basis (computed on the basis of a 365-day year and the actual
number of days elapsed) at the rate per annum of twelve percent (12%)
per share of Series C Preferred Stock, with the Series C Preferred
Stock being valued (subject
<PAGE>
to adjustment from time to time to appropriately give effect to any
split or combination of the shares of this Series) at $1,000 per share
for such purpose, from and including the date of issuance of each such
share of Series C Preferred Stock. Holders of Series C Preferred Stock
shall be entitled to receive such dividends prior and in preference to
payment of any dividend upon (including accrued dividends), or the
setting apart of any moneys or other property of the Corporation for
payment of any dividend upon, any Junior Security. Such dividends shall
accrue and be cumulative whether or not they have been declared and
whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. The date on
which the Corporation originally issues any share of Series C Preferred
Stock shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such share of Series C Preferred Stock is
made on the stock records of the Corporation, and regardless of the
number of certificates which may be issued to evidence such share of
Series C Preferred Stock. The dividend rate per share of this Series
shall be appropriately adjusted from time to time to reflect any split
or combination of the shares of this Series. The per share dividend
amount payable to each holder of record of Series C Preferred Stock on
any Dividend Reference Date shall be rounded to the nearest cent.
Except as otherwise provided in Section 2(a)(ii), all dividends on the
Series C Preferred Stock shall be payable in cash. No interest shall be
payable in respect of any dividend payment or payments on this Series
which may be in arrears.
(ii) Notwithstanding the provisions of Section 2(a)(i), if any
dividend payable on any Dividend Reference Date occurring before
December 31, 2009 is not declared and paid in full in cash on such
Dividend Reference Date, the amount payable as a dividend on such
Dividend Reference Date that is not paid in cash on such Dividend
Reference Date shall, subject to the terms of any Parity Securities or
Senior Securities, be declared and paid in additional shares of Series
C Preferred Stock, with such additional shares of Series C Preferred
Stock being valued (subject to adjustment from time to time to
appropriately give effect to any split or combination of the shares of
this Series) at $1,000 per share for such purpose, on such Dividend
Reference Date; provided that the Corporation may at its option pay
cash in lieu of any fractional shares that may otherwise be issuable
pursuant to this sentence. Such amount payable as a dividend on such
Dividend Reference Date shall be deemed paid in full and shall not
accumulate to the extent that such amount is so paid in cash or
additional shares of Series C Preferred Stock.
(iii) Each dividend will be payable or issuable, as the case
may be, to holders of record of the Series C Preferred Stock as they
appear on the stock transfer books of the Corporation on a record date,
which shall be not more than sixty (60) nor less than ten (10) days
before the relevant
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<PAGE>
Dividend Reference Date, fixed by the Board of Directors of the
Corporation. The Corporation shall at all times reserve and keep
available out of its authorized but unissued Series C Preferred Stock
the full number of shares of Series C Preferred Stock thereafter
deliverable as dividends upon the then outstanding shares of Series C
Preferred Stock pursuant to this Section 2(a), and shall take all such
actions and obtain all such approvals, consents, authorizations,
licenses, orders or permits as may be necessary to enable the
Corporation lawfully to issue such Series C Preferred Stock as provided
herein.
(b) Payment of Dividends. Dividends accrued on the Series C
Preferred Stock shall be payable on the last day of each June and December in
each year (each such date being referred to herein as a "Dividend Reference
Date"), beginning June 30, 1998, when and as declared by the Board of Directors
of the Corporation in accordance with this Section 2.
(c) Distribution of Partial Dividend Payments. If at any time
the Corporation distributes less than the total amount of dividends then accrued
with respect to Series C Preferred Stock, such payment shall be distributed
among the holders of the Series C Preferred Stock, so that an equal amount shall
be paid (as nearly as possible) with respect to each outstanding share of Series
C Preferred Stock.
(d) Priority. So long as any share of Series C Preferred Stock
remains outstanding:
(i) No dividend (payable other than in shares of Junior
Securities) whatsoever shall be paid upon, or moneys or other property
of the Corporation set apart for payment of any dividend upon, any
Junior Security nor shall any Junior Security be redeemed or purchased
by the Corporation or any subsidiary thereof (except by conversion into
or exchange for Junior Securities) nor shall any moneys or other
property be paid to or made available for a sinking fund for any such
redemption or purchase of any Junior Security, unless, in each such
instance, all of the following conditions are met: (A) all dividends on
all outstanding shares of Series C Preferred Stock accrued through the
most recent Dividend Reference Date shall have been paid or declared
and sufficient moneys (or, to the extent permitted by Section 2(a),
shares of Series C Preferred Stock) set aside for payment thereof; (B)
all dividends on all outstanding shares of Series C Preferred Stock
accrued through the most recent Dividend Reference Date from the
Dividend Reference Date immediately preceding such most recent Dividend
Reference Date shall have been paid in cash or declared and sufficient
moneys set aside for payment thereof; (C) all shares of Series C
Preferred Stock issued by the Corporation pursuant to Section 2(a)(ii)
after December 31, 2002 shall have been redeemed; (D) the Corporation
shall have redeemed all shares of Series C Preferred Stock (I) for
which it has received a notice of redemption under Section
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<PAGE>
4(b) and in respect of which the right of redemption under Section 4(b)
shall not have terminated or (II) which are required to be redeemed
under Section 4(c); and (E) the aggregate amount of moneys or other
property of the Corporation (other than shares of Junior Securities)
paid upon or otherwise distributed, or set apart for payment upon or
other distribution with respect to, Junior Securities after November
30, 1997, whether as dividends upon or in redemption or purchase of any
Junior Securities (after giving effect to any such proposed dividend,
redemption or repurchase at the time proposed by the Corporation to be
made), shall not exceed the aggregate sum, through the most recent
Dividend Reference Date, of (x) the aggregate amount theretofore
declared and paid in cash, or declared and set aside for payment, by
the Corporation as dividends on shares of Series C Preferred Stock plus
(y) the aggregate amount theretofore paid in cash, or set aside for
payment, by the Corporation in redemption of shares of Series C
Preferred Stock pursuant to Section 4(a)(ii) hereof. Anything herein to
the contrary notwithstanding, the foregoing provisions of this Section
2(d)(i) shall not prohibit the payment of any dividend within sixty
(60) days after the date of declaration thereof, if at the date of such
declaration such payment would have complied with the provisions of
this Certificate of Designation, or the repurchase, redemption or other
retirement for value, out of funds legally available therefor, of any
Equity Interests of the Corporation held by any member of the
management or employees of the Corporation or any subsidiary of the
Corporation; provided that (x) the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed the greater of (1) $1,500,000 in any twelve-month period or (2)
the maximum amount, determined as of the date of any such proposed
repurchase, redemption or other retirement, that Desa International,
Inc. would be permitted to pay as a dividend to the Corporation
pursuant to Section 4.07 of the Senior Subordinated Note Indenture
(assuming for purposes of this clause (2) that, notwithstanding any
modification or termination of the Senior Subordinated Note Indenture,
the Senior Subordinated Note Indenture is in full force and effect, as
originally in effect, as of such date of determination), (y) no Voting
Rights Triggering Event shall have occurred and be continuing
immediately after such transaction, and (z) the Corporation shall have
redeemed all shares of Series C Preferred Stock (1) for which it has
received a notice of redemption under Section 4(b) and in respect of
which the right of redemption under Section 4(b) shall not have
terminated or (2) which are required to be redeemed under Section 4(c).
(ii) So long as any share of Series C Preferred Stock remains
outstanding, no full dividend (payable other than in shares of Junior
Securities) shall be paid upon, or moneys or other property of the
Corporation set apart for payment of any full dividend upon, any Parity
Securities, unless all dividends on all outstanding shares of Series C
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<PAGE>
Preferred Stock accrued through the most recent Dividend Reference Date
shall have been paid or declared and sufficient moneys (or, to the
extent required by Section 2(a), shares of Series C Preferred Stock)
set aside for payment thereof. If all such dividends are not so paid,
the Series C Preferred Stock shall share dividends pro rata with such
Parity Securities.
Section 3. Liquidation.
Subject to the rights of holders of any Senior Securities, upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series C Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders (whether from capital, surplus or earnings), before any
distribution or payment is made upon any Junior Securities of the Corporation an
amount in cash equal to the aggregate Liquidation Value of all Series C
Preferred Stock outstanding, and the holders of the Series C Preferred Stock
shall not be entitled to any further payment or claim to any of the remaining
assets of the Corporation. If upon any such liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation to be distributed among
holders of Series C Preferred Stock and any Parity Securities are insufficient
to permit payment to such holders of the aggregate amount which they are
entitled to be paid, then the entire assets of the Corporation to be distributed
to such holders shall be distributed ratably among such holders based upon the
aggregate Liquidation Value of the Series C Preferred Stock held by each such
holder of Series C Preferred Stock and the liquidation preference of such Parity
Securities held by the holders thereof. The Corporation shall mail written
notice of such liquidation, dissolution or winding up, not less than thirty (30)
days prior to the payment date stated therein, to each record holder of Series C
Preferred Stock. Neither the consolidation or merger of the Corporation into or
with any other Person or Persons, nor the sale or transfer by the Corporation of
all or any part of its assets, nor the reduction of the capital stock of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section 3.
Section 4. Redemption.
(a) Optional Redemption by the Corporation.
(i) At any time within six (6) months after any Change of
Control or any Qualified Public Offering the Corporation may, at its
election, redeem all or any part of the outstanding shares of Series C
Preferred Stock, out of funds legally available therefor, at the
Redemption Price. Not less than ten (10) nor more than thirty (30)
Business Days prior written notice shall be given to the holders of
record of the Series C Preferred Stock so elected to be redeemed
pursuant to this Section 4(a)(i). Such notice shall specify the
Redemption Price and the place at which and the date, which
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<PAGE>
date shall be a Business Day, on which the shares so called for
redemption shall be redeemed and shall specify the shares called for
redemption. Subject to the provisions hereof, the Board of Directors
shall have authority to prescribe the manner in which the Series C
Preferred Stock shall be redeemed from time to time.
(ii) At any time and from time to time the Corporation may, at
its election, redeem all or any part of the outstanding shares of
Series C Preferred Stock issued by the Corporation pursuant to Section
2(a)(ii), out of funds legally available therefor, at the Redemption
Price. Not less than ten (10) nor more than thirty (30) Business Days
prior written notice shall be given to the holders of record of the
Series C Preferred Stock so elected to be redeemed pursuant to this
Section 4(a)(ii). Such notice shall specify the Redemption Price and
the place at which and the date, which date shall be a Business Day, on
which the shares so called for redemption shall be redeemed and shall
specify the shares called for redemption. Subject to the provisions
hereof, the Board of Directors shall have authority to prescribe the
manner in which the Series C Preferred Stock shall be redeemed from
time to time.
(b) Redemption on Demand of Holder.
(i) Notice of Change of Control. Within ten (10) Business Days
after a Change of Control, the Corporation shall, unless the
Corporation shall have theretofore given notice of the optional
redemption by the Corporation of all of the outstanding shares of
Series C Preferred Stock pursuant to Section 4(a)(i), give written
notice to the holders of Series C Preferred Stock of the occurrence of
such Change of Control. Such notice shall (A) contain a statement of or
reference to the redemption right set forth in Section 4(b)(ii), (B)
specify the place at which certificates for shares of Series C
Preferred Stock may be surrendered for redemption pursuant to this
Section 4(b) and the date on which the right to redeem pursuant to this
Section 4(b) shall terminate, (C) set forth the aggregate number of
shares of Series C Preferred Stock outstanding at the close of business
on the date of the Change of Control, and (D) set forth the
Corporation's estimate of the amount of Cash Available for Redemption
as of the date of the Change of Control.
(ii) Demand Redemption Right. Upon receipt of the notice
required pursuant to Section 4(b)(i), each holder of shares of Series C
Preferred Stock shall, at its election, be entitled to require the
Corporation to redeem, at a price per share of Series C Preferred Stock
equal to the Redemption Price plus the Redemption Premium, any or all
of the shares of Series C Preferred Stock held of record by such
holder, on and subject to the terms and provisions of this Section
4(b).
(iii) Initial Redemption.
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<PAGE>
(A) Any holder electing to require the Corporation to
redeem pursuant to this Section 4(b)(iii) shares of Series C Preferred
Stock held of record by such holder shall, within thirty (30) days
after the date on which the notice required under Section 4(b)(i)
hereof is given by the Corporation (the "Initial Exercise Period"),
surrender the certificate or certificates for such shares at the
principal office of the Corporation during regular business hours,
together with stock powers therefor duly endorsed in blank, and shall
give written notice to the Corporation at such office that such holder
elects to require the Corporation to redeem such shares.
(B) Within ten (10) Business Days after the later of
(1) the end of the Initial Exercise Period and (2) the redemption of
all Senior Subordinated Notes required to be redeemed by Desa
International, Inc. pursuant to the Senior Subordinated Note Indenture
in connection with such Change of Control, the Corporation shall
determine, as of a date within five (5) Business Days of the later of
the dates referred to in the foregoing clauses (1) and (2) of this
Section 4(b)(iii)(B), the amount of Cash Available for Redemption.
Within fifteen (15) Business Days after the later of the dates referred
to in the foregoing clauses (1) and (2) of this Section 4(b)(iii)(B),
the Corporation shall redeem from each holder of record of shares of
Series C Preferred Stock in respect of which such holder shall have
exercised his redemption right in accordance with Section 4(b)(iii)(A),
at the Redemption Price plus the Redemption Premium, the lesser of
(I) All of the shares of Series C Preferred Stock in
respect of which such holder shall have exercised his
redemption right in accordance with Section 4(b)(iii)(A); and
(II) Such number of shares of Series C Preferred
Stock held of record by such holder as shall equal the product
of (x) all of the shares of Series C Preferred Stock in
respect of which such holder shall have exercised his
redemption right in accordance with Section 4(b)(iii)(A)
multiplied by (y) a fraction, the numerator of which shall be
equal to the Cash Available for Redemption, determined as
provided in this Section 4(b)(iii)(B), and the denominator of
which shall be equal to the aggregate of the Redemption Price
plus the Redemption Premium, as of the Redemption Date
therefor, for all of the shares of Series C Preferred Stock in
respect of holders of Series C Preferred Stock shall have
exercised their redemption rights in accordance with Section
4(b)(iii)(A).
In case fewer than all the shares represented by any certificate
surrendered to the Corporation pursuant to Section 4(b)(iii)(A) are to
be redeemed, a new certificate shall be
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<PAGE>
issued representing the unredeemed shares, without cost to the
holder thereof.
(iv) Subsequent Redemptions.
(A) Within ten (10) Business Days after each Dividend
Reference Date occurring at least six (6) months after the Change of
Control, the Corporation shall give written notice to each holder of
shares of Series C Preferred Stock of such holder's right, if any, to
require the Corporation to redeem such shares pursuant to Section
4(b)(iv)(B). Such notice shall (I) contain a statement of or reference
to the redemption right set forth in this Section 4(b)(iv), (II)
specify the place at which the certificate or certificates for such
shares may be surrendered for redemption pursuant to this Section
4(b)(iv) and the date on which the right to redeem pursuant to this
Section 4(b)(iv) shall terminate, (III) set forth the aggregate number
of shares of Series C Preferred Stock outstanding at the close of
business on the date of such Dividend Reference Date, and (IV) set
forth the Corporation's estimate of the amount of Cash Available for
Redemption as of such Dividend Reference Date.
(B) Subject to the provisions of Section 4(b)(v), any
holder electing to require the Corporation to redeem pursuant to this
Section 4(b)(iv) shares of Series C Preferred Stock held of record by
such holder shall, within ten (10) Business Days after the date on
which the notice required under Section 4(b)(iv)(A) hereof is given by
the Corporation (a "Subsequent Exercise Period"), surrender the
certificate or certificates for such shares at the principal office of
the Corporation during regular business hours, together with stock
powers therefor duly endorsed in blank, and shall give written notice
to the Corporation at such office that such holder elects to redeem
such shares.
(C) Within ten (10) Business Days after the end of
the Subsequent Exercise Period, the Corporation shall determine, as of
a date within five (5) Business Days of the end of the Subsequent
Exercise Period, the amount of Cash Available for Redemption. Subject
to the provisions of Section 4(b)(v), within fifteen (15) Business Days
after the end of the Subsequent Exercise Period, the Corporation shall
redeem from each holder of record of shares of Series C Preferred Stock
in respect of which such holder shall have exercised his redemption
right in accordance with Section 4(b)(iv)(B), at the Redemption Price
plus the Redemption Premium, the lesser of
(I) All of the shares of Series C Preferred Stock in
respect of which both (x) the right of the holder thereof to
require such redemption shall not have terminated pursuant to
Section 4(b)(v)(B) or (C) and (y) such holder shall have
exercised his redemption right in accordance with Section
4(b)(iv)(B); and
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(II) Such number of shares of Series C Preferred
Stock held of record by such holder as shall equal the product
of (x) all of the shares of Series C Preferred Stock held of
record by such holder described in clause (I) of this Section
4(b)(iv)(C) multiplied by (y) a fraction, the numerator of
which shall be equal to the Cash Available for Redemption,
determined as provided in this Section 4(b)(iv)(C), and the
denominator of which shall be equal to the aggregate of the
Redemption Price plus the Redemption Premium, as of the
Redemption Date therefor, for all of the shares of Series C
Preferred Stock in respect of both (1) the right of the
holders thereof to require such redemption shall not have
terminated pursuant to Section 4(b)(v)(B) or (C) and (2) such
holders shall have exercised their redemption right in
accordance with Section 4(b)(iv)(B).
In case fewer than all the shares represented by any certificate
surrendered to the Corporation pursuant to Section 4(b)(iv)(B) are to
be redeemed, a new certificate shall be issued representing the
unredeemed shares, without cost to the holder thereof.
(v) Termination of Demand Redemption Right.
(A) The right of the holder of any shares of Series C
Preferred Stock to require the Corporation to redeem any or all of such
shares pursuant to Section 4(b)(iii) shall terminate at the close of
business on the date that is thirty (30) days after the date on which
the notice required under Section 4(b)(i) hereof is given by the
Corporation.
(B) To the extent that any holder of shares of Series
C Preferred Stock shall not exercise, in accordance with Section
4(b)(iii)(A), his right to require the Corporation to redeem any of the
shares of Series C Preferred Stock at the time held by such holder
prior to the end of the Initial Exercise Period, then the right of such
holder to require the Corporation to redeem pursuant to Section
4(b)(iv) any or all of such shares of Series C Preferred Stock,
together with all shares of Series C Preferred Stock thereafter issued
pursuant to Section 2(a) hereof in respect of such shares of Series C
Preferred Stock, shall cease and terminate.
(C) To the extent that any holder of shares of Series
C Preferred Stock shall not exercise, in accordance with Section
4(b)(iv)(B), his right to require the Corporation to redeem any of the
shares of Series C Preferred Stock at the time held by such holder
prior to the end of any Subsequent Exercise Period, then the right of
such holder to require the Corporation to redeem pursuant to Section
4(b)(iv) any or all of such shares of Series C Preferred Stock,
together with all shares of Series C Preferred Stock thereafter issued
pursuant
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to Section 2(a) hereof in respect of such shares of Series C Preferred
Stock, shall cease and terminate.
(c) Mandatory Redemption Without Premium. On December 31,
2009, the Corporation shall redeem all of the then outstanding shares of Series
C Preferred Stock which have not been previously redeemed pursuant hereto, at a
price per share of Series C Preferred Stock equal to the Redemption Price. Not
less than ten (10) nor more than thirty (30) Business Days prior written notice
shall be given to the holders of record of the shares of Series C Preferred
Stock to be redeemed pursuant to this Section 4(c).
(d) Redemption Price. For each share of Series C Preferred
Stock which is to be redeemed pursuant to Section 4(a) or 4(c), the Corporation
shall be obligated, within three (3) Business Days after the later of the
Redemption Date for such share or the date on which the holder thereof
surrenders at the Corporation's principal office the certificate representing
such share together with a stock power therefor duly endorsed in blank, to pay
to the holder thereof an amount in cash equal to the Redemption Price. For each
share of Series C Preferred Stock which is to be redeemed pursuant to Section
4(b), the Corporation shall be obligated, on the date specified in Section 4(b),
to pay to the holder thereof an amount in cash equal to the Redemption Price
plus the Redemption Premium. If the funds of the Corporation legally available
for redemption of Series C Preferred Stock pursuant to Section 4(b) or 4(c) on
any Redemption Date are insufficient to redeem the total number of shares of
Series C Preferred Stock to be redeemed on such date, those funds which are
legally available shall be used to redeem the maximum possible number of shares
of Series C Preferred Stock ratably among the holders of the Series C Preferred
Stock to be redeemed. At any time thereafter, when additional funds of the
Corporation are legally available for the redemption of Series C Preferred
Stock, such funds shall immediately be used to redeem, without interest, the
balance of the Series C Preferred Stock which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.
(e) Determination of the Number of Shares of each Holder's
Series C Preferred Stock to be Redeemed. The number of shares of Series C
Preferred Stock to be redeemed from each holder thereof in redemptions by the
Corporation pursuant to Section 4(a) or (c), if less than all such shares, shall
be the number of shares of Series C Preferred Stock, rounded (at the option of
the Corporation) to the nearest whole share, determined by multiplying the total
number of shares of Series C Preferred Stock desired to be redeemed times a
fraction, the numerator of which shall be the total number of shares of Series C
Preferred Stock then held by such holder and the denominator of which shall be
the total number of shares of Series C Preferred Stock then outstanding.
(f) Effect of Redemption Date. From and after the Redemption
Date for any shares of Series C Preferred Stock, dividends on the shares of this
Series so redeemed shall cease to accrue, such shares shall no longer be deemed
to be outstanding,
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and all rights of the holders thereof as stockholders of the Corporation with
respect to shares so redeemed (except the right to receive from the Corporation
the Redemption Price and, solely in the case of a redemption on demand pursuant
to Section 4(b), the Redemption Premium, all without interest, upon surrender at
the Corporation's principal office of the certificate representing such shares
together with a stock power therefor duly endorsed in blank) shall cease
(including any right to receive dividends otherwise payable on any Dividend
Reference Date that would have occurred after the Redemption Date), except to
the extent the Corporation defaults in the payment of the Redemption Price and,
solely in the case of a redemption on demand pursuant to Section 4(b), the
Redemption Premium. In case fewer than all the shares represented by any such
certificate are to be redeemed, a new certificate shall be issued representing
the unredeemed shares, without cost to the holder thereof.
Section 5. Exchange.
(a) The Corporation may, at the election of the Board of
Directors of the Corporation, exchange all but not less than all of the shares
of Series C Preferred Stock at the time outstanding for 12% Junior Subordinated
Notes due December 31, 2009 of the Corporation (the "Notes"), which Notes shall
be substantially in the form attached as Exhibit A hereto. Upon the exchange of
the Series C Preferred Stock for the Notes, each holder of Series C Preferred
Stock shall be entitled to receive, per share of Series C Preferred Stock so
exchanged, a principal amount of Notes equal to the Liquidation Value of such
share as of the date of such exchange (the "Exchange Date").
(b) Not less than ten (10) nor more than thirty (30) Business
Days prior written notice shall be given by the Corporation to the holders of
record of the Series C Preferred Stock of the exchange pursuant to this Section
5. Said notice shall specify the place at which and the Exchange Date, which
date shall be a Business Day, on which the shares to be exchanged shall be
exchanged and shall specify the shares called for exchange. Subject to the
provisions hereof, the Board of Directors shall have authority to prescribe the
manner in which the Series C Preferred Stock shall be so exchanged.
(c) If (i) notice of the exchange shall have been given as
provided in Section 5(b) and, (ii) before the Exchange Date, all Notes necessary
to effect the exchange shall have been duly authorized and executed by the
Corporation, then from on and after the Exchange Date dividends on the shares of
this Series so exchanged shall cease to accrue, such shares shall no longer be
deemed to be outstanding, and all rights of the holders thereof as stockholders
of the Corporation with respect to shares so exchanged (except the right to
receive Notes from the Corporation, in the aggregate original principal amount
to which such holder is entitled upon such exchange, upon surrender at the
Corporation's principal office of the certificate representing such shares
together with a stock power therefor duly endorsed in blank) shall
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cease (including any right to receive dividends otherwise payable on any
Dividend Reference Date that would have occurred after the Exchange Date).
(d) The exchange of any shares of Series C Preferred Stock
pursuant to this Section 5 shall be deemed to have been made immediately prior
to the close of business as of the Exchange Date. Each holder of Series C
Preferred Stock entitled to receive Notes issuable upon such exchange shall be
treated for all purposes as the record holder of such Notes as of the close of
business on the Exchange Date.
(e) The Corporation shall pay any and all issue, stamp,
documentation, transfer or other taxes that may be payable in respect of any
issue or delivery of Notes on exchange of shares of this Series pursuant to this
Section 5. The Corporation shall not, however, be required to pay any tax which
is payable in respect of any transfer involved in the issue or delivery of Notes
in a name other than that in which the shares of this Series so exchanged were
registered, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Corporation the amount of such tax,
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
Section 6. Voting Rights.
The outstanding shares of Series C Preferred Stock shall have no voting
rights except as required by law and such additional voting rights as are set
forth below:
In addition to any other vote or consent of stockholders required by
the Certificate of Incorporation, as amended, or the By-Laws of the Corporation
or by law:
(a) The affirmative vote of the holders of at least two-thirds
(2/3) of the outstanding shares of Series C Preferred Stock, voting together as
a separate class, shall be necessary (i) to change (A) the rate or time of
payment of any dividends on, or (B) the time or amount of any redemption of, or
(C) the amount of any payments upon liquidation of the Corporation with respect
to, or (D) the priorities afforded by the provisions of Section 2(d) of this
Certificate of Designation for the benefit of, shares of Series C Preferred
Stock or (ii) to amend Section 4(b) or 4(c) or this Section 6.
(b) The affirmative vote of the holders of at least a majority
of the outstanding shares of Series C Preferred Stock, voting together as a
separate class, shall be necessary to: (i) increase the number of authorized
shares of Series C Preferred Stock or (ii) authorize or issue any additional
shares of Series C Preferred Stock (other than as provided in Section 2(a)) or
(iii) issue any Senior Securities or Parity Securities, or any security or
obligations convertible into any Senior Securities or Parity Securities (other
than shares of Series C Preferred Stock issued as provided in Section 2(a)).
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<PAGE>
(c) In the event that (i) (A) dividends (either in cash or
through the issuance of additional shares of Series C Preferred Stock) on the
Series C Preferred Stock are in arrears and unpaid with respect to any Dividend
Reference Date or (B) after December 31, 2002, the Corporation fails on three
(3) or more Dividend Reference Dates (whether or not consecutive) to declare and
pay in full in cash dividends, in the amount of all accrued and unpaid dividends
on the shares of Series C Preferred Stock outstanding as of each such Dividend
Reference Date, on the then outstanding shares of Series C Preferred Stock (each
a "Dividend Voting Rights Triggering Event") or (ii) the Corporation fails to
redeem all of the then outstanding shares of Series C Preferred Stock on
December 31, 2009 or otherwise fails to discharge any redemption obligation with
respect to the Series C Preferred Stock, then the maximum authorized number of
directors of the Corporation will be increased by one (1) and holders of Series
C Preferred Stock shall be entitled to vote their shares of Series C Preferred
Stock, together with the holders of any Parity Securities upon which like voting
rights have been conferred and are exercisable, in accordance with the
procedures set forth below, to elect, as a class, an additional one (1)
director. Each such event described in clauses (i) and (ii) of the first
sentence of this Section 6(c) is herein referred to as a "Voting Rights
Triggering Event". So long as shares of Series C Preferred Stock shall be
outstanding, the holders of Series C Preferred Stock shall retain the right to
vote and elect, with the holders of any such Parity Securities, voting together
as a single class (with each share being entitled to the number of votes
otherwise specified for such securities) without regard to series, such director
until such time as (I) in the event such right arises due to a Dividend Voting
Rights Triggering Event, all accumulated dividends that are in arrears on the
Series C Preferred Stock are paid in full in cash or, with respect to any
Dividend Reference Date occurring on or before December 31, 2002, through the
issuance of additional shares of Series C Preferred Stock; and (II) in all other
cases, the failure, breach or default giving rise to such Voting Rights
Triggering Event is remedied or waived by the holders of at least a majority of
the shares of Series C Preferred Stock then outstanding and entitled to vote
thereon. Such period is herein referred to as a "Default Period".
(i) So long as any shares of Series C Preferred Stock shall be
outstanding, during any Default Period (except to the extent otherwise
provided in Section 6(c)(v) below), such voting right of the holders of
Series C Preferred Stock may be exercised initially at a special
meeting called pursuant to Section 6(c)(ii) below or at any annual
meeting of stockholders or by written consent signed by the holders of
all of the outstanding shares of Series C Preferred Stock, which
written consent shall be delivered to the principal office of the
Corporation.
(ii) Unless the holders of Series C Preferred Stock and Parity
Securities so entitled, if any are then outstanding, have, during an
existing Default Period (except
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to the extent otherwise provided in Section 6(c)(v) below), previously
exercised their right to elect directors, the Board of Directors of the
Corporation may order, or any stockholder or stockholders owning shares
having in the aggregate not less than 10% of the votes of Series C
Preferred Stock and such Parity Securities, taken together as a single
class, may request, the calling of a special meeting of holders of
Series C Preferred Stock and such Parity Securities, if any are then
outstanding, which meeting shall thereupon be called by the Chairman of
the Board, the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which
holders of Series C Preferred Stock and such Parity Securities are
entitled to vote pursuant to this Section 6(c) shall be given to each
holder of record of Series C Preferred Stock by mailing a copy of such
notice to such holder at such holder's last address as the same appears
on the stock transfer books of the Corporation. Such meeting shall be
called for a time not later than thirty (30) days after such order or
request. At any meeting held for the purpose of electing a director at
which the holders of Series C Preferred Stock and any Parity Securities
shall have the right to elect such director as aforesaid, the presence
in person or by proxy of the holders owning shares having at least a
majority of the votes of Series C Preferred Stock and such Parity
Securities shall be required to constitute a quorum of such Series C
Preferred Stock and such Parity Securities. Notwithstanding the
provisions of this Section 6(c)(ii), no such special meeting shall be
called during the period within ninety (90) days immediately preceding
the date fixed for the next annual meeting of stockholders.
(iii)During any Default Period (except to the extent otherwise
provided in Section 6(c)(v) below), the holders of common stock of the
Corporation, and other classes of stock of the Corporation, if
applicable, shall continue to be entitled to elect all of the directors
unless and until the holders of Series C Preferred Stock and Parity
Securities so entitled shall have exercised their right to elect one
director, after the exercise of which right (A) the director so elected
by the holders of Series C Preferred Stock and such Parity Securities
shall continue in office until the earlier of (I) such time as his or
her successor shall have been elected by such holders or (II) the
expiration of the Default Period, and (B) any vacancy in the Board of
Directors may be filled by vote of the remaining director or directors,
if any, theretofore elected by the holders of the class or classes of
stock which elected the director whose office shall have become vacant.
References in this Section 6(c)(iii) to directors elected by the
holders of a particular class or classes of stock shall include
directors elected by such director or directors to fill vacancies as
provided in clause (B) of the foregoing sentence.
(iv) Immediately upon the expiration of a Default
Period (A) the right of the holders of Series C Preferred
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Stock to elect one director shall cease, (B) the term of office of the
director elected by the holders of Series C Preferred Stock and such
Parity Securities as a class shall terminate, and (C) the number of
directors shall be such number as may be provided for in the
Certificate of Incorporation, as amended, or By-Laws of the Corporation
irrespective of any increase made pursuant to the provisions of Section
6(c)(i) (such number being subject, however, to change thereafter in
any manner provided by law or in the Certificate of Incorporation, as
amended, or By-Laws of the Corporation).
(v) Immediately upon the commencement of any action, lawsuit
or other proceeding (including but not limited to any derivative action
or other action against directors of the Corporation based upon or
relating to any violation or alleged violation of any fiduciary or
other duty of directors of the Corporation arising under or in
connection with this Certificate of Designation), whether at law or in
equity, by any holder of Series C Preferred Stock seeking (A) damages
relating to any breach or alleged breach of any of the Corporation's
obligations under this Certificate of Designation, or (B) to enforce
any rights or alleged rights of holders of Series C Preferred Stock
arising under or in connection with this Certificate of Designation,
(C) or other relief, and continuing for so long thereafter as such
action, lawsuit or other proceeding shall continue, (I) the right of
the holders of Series C Preferred Stock to elect one director shall be
suspended, (II) the term of office of the director (if any) elected by
the holders of Series C Preferred Stock and such Parity Securities as a
class shall terminate, and (III) the number of directors shall be such
number as may be provided for in the Certificate of Incorporation, as
amended, or By-Laws of the Corporation irrespective of any increase
made pursuant to the provisions of Section 6(c)(i) (such number being
subject, however, to change thereafter in any manner provided by law or
in the Certificate of Incorporation, as amended, or By-Laws of the
Corporation).
(e) In any case in which the holders of Series C
Preferred Stock shall be entitled to vote pursuant to this Section 6 or pursuant
to Delaware law, each holder of Series C Preferred Stock entitled to vote with
respect to such matter shall be entitled to one vote for each share of Series C
Preferred Stock held.
Section 7.Certain Definitions.
For purposes of this Certificate of Designation, the following terms
shall have the specified therefor:
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York, New York or Boston, Massachusetts are
authorized or required by law to close.
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"Cash Available for Redemption" means, as of any date as of which the
amount thereof is determined, the sum of
(i) The lesser of:
(A) The sum of (I) the aggregate amount of cash and
cash equivalents held by the Corporation as of such date, plus (II) the
maximum undrawn amount available to the Corporation as of such date
under any credit or loan agreements, as amended and in effect from time
to time, to which the Corporation is a party as borrower (provided,
however, that, for purposes of this clause (II), there shall not be
deemed available to the Corporation any undrawn amount or other amount
available under the Credit Agreement (as defined in clause (ii)(A) of
this definition of Cash Available for Redemption) or any other credit
or loan agreements, as amended and in effect from time to time, in
connection with which the Corporation acts as a guarantor or co-obligor
of the obligations of any subsidiary), and
(B) The maximum amount that the Corporation could, if
it declared and paid a cash dividend on its common stock on such date,
could declare and pay without being in violation of or default under
(with or without the lapse of time or the giving of notice, or both)
any applicable law or any note, debenture, indenture or other agreement
or instrument governing indebtedness for borrowed money of the
Corporation,
plus
(ii) The lesser of
(A) The sum of (I) the aggregate amount of cash and
cash equivalents held by Desa International, Inc. as of such date plus
(II) the maximum undrawn amount available as of such date under (x) the
Credit Agreement, dated as of or about the date of filing of this
Certificate of Designation, among Desa International, Inc., the
Company, the banks, financial institutions and other institutional
lenders listed on the signature pages thereof as the initial lenders,
the initial issuing bank and the swing line bank named therein,
NationsBank as administrative agent, UBS Securities LLC as co- arranger
and documentation agent and NationsBanc Montgomery Securities, Inc. as
co-arranger and syndication agent, as amended and in effect from time
to time (the "Credit Agreement"), or (y) any credit or loan agreements,
as amended and in effect from time to time, hereafter executed in
connection with any refinancing or replacement of such Credit
Agreement, and
(B) The maximum amount that Desa International, Inc.
could, if it declared and paid a cash dividend on its common stock on
such date, could declare and pay without being in violation of or
default under (with or without the lapse of time or the giving of
notice, or both) any applicable law or
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any note, debenture, indenture or other agreement or instrument
governing indebtedness for borrowed money of Desa International, Inc.,
minus
(iii)A reasonable reserve determined by the Board of Directors
of the Corporation in the good faith exercise of its business judgment.
"Change of Control" shall mean the occurrence of any of the following:
(i) The sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of the
Corporation or Desa International, Inc. to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act), except to the extent
that such transaction would not constitute a Change of Control under
clause (vi) of this definition;
(ii) The adoption of a plan relating to the liquidation or
dissolution of the Corporation or Desa International, Inc.;
(iii)The consummation of any transaction (including but not
limited to any merger or consolidation) (A) prior to the initial
underwritten public offering of the common stock of the Corporation
pursuant to an effective registration statement under the Securities
Act (the "IPO") the result of which is that either (I) the JWC Holders
and their Related Parties become the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that for purposes of calculating the beneficial ownership of any
person, such person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition) of less than 40% of the Voting
Stock of the Corporation or Desa International, Inc. (measured by
voting power rather than number of shares) or (II) any person (as
defined above), other than the JWC Holders and their Related Parties,
becomes the "beneficial owner" (as defined above), directly or
indirectly, of 40% or more of the Voting Stock of the Corporation or
Desa International, Inc. and such person is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting
power of the Voting Stock of the Corporation or Desa International,
Inc., calculated on a fully diluted basis, than the percentage
beneficially owned by the JWC Holders and their Related Parties, or (B)
after the IPO, any person (as defined above), other than the JWC
Holders and their Related Parties, becomes the beneficial owner (as
defined above), directly or indirectly, of 35% or more of the Voting
Stock of the Corporation or Desa International, Inc.
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and such person is or becomes, directly or indirectly, the beneficial
owner of a greater percentage of the voting power of the Voting Stock
of the Corporation or Desa International, Inc., calculated on a
fully-diluted basis, than the percentage beneficially owned by the JWC
Holders and their Related Parties;
(iv) The first day on which a majority of the members of the
Board of Directors of the Corporation are not Continuing Directors;
(v) The first day on which the Corporation shall own, directly
or indirectly, less than all of the issued and outstanding capital
stock of Desa International, Inc. or of the surviving or transferee
Person of Desa International, Inc. in a transaction which does not
constitute a Change of Control under clause (vi) of this definition; or
(vi) The Corporation or Desa International, Inc. consolidates
with, or merges with or into, any Person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges
with or into, the Corporation or Desa International, Inc., as the case
may be, in any such event pursuant to a transaction in which (A) any of
the outstanding Voting Stock of the Corporation is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Corporation outstanding
immediately prior to such transaction is converted into or exchanged
for Voting Stock of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person (immediately after giving effect to such
issuance) or (B) any of the outstanding Voting Stock of Desa
International, Inc. is converted into or exchanged for cash, securities
or other property (other than payments of or other right to receive
cash in respect of fractional shares of such Voting Stock), other than
any such transaction where the Voting Stock of Desa International, Inc.
outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock of the surviving or transferee Person all of
which is owned, directly or indirectly, by the Corporation (immediately
after giving effect to such issuance).
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Corporation who (i) was a member of such
Board of Directors on the date of adoption of this Certificate of Designation by
the Board of Directors of the Corporation or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
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"Corporation" shall mean Desa Holdings Corporation, a Delaware
corporation, or the surviving or transferee Person of Desa Holdings Corporation
in a transaction not constituting a Change of Control under clause (vi) of the
definition herein of "Change of Control".
"Default Period" shall have the meaning set forth in Section 6(c) of
this Certificate of Designation.
"Desa International, Inc." shall mean Desa International, Inc., a
Delaware corporation, or the surviving or transferee Person of Desa
International, Inc. in a transaction permitted under clause (vi) of the
definition herein of "Change of Control".
"Dividend Reference Date" shall have the meaning set forth in Section
2(b) of this Certificate of Designation.
"Dividend Voting Rights Triggering Event" shall have the meaning set
forth in Section 6(c) of this Certificate of Designation.
"Equity Interests" means capital stock and all warrants, options or
other rights to acquire capital stock (but excluding any debt security that is
convertible into, or exchangeable for, capital stock).
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, all as from time
to time in effect.
"Exchange Date" shall have the meaning set forth in Section 5(a) of
this Certificate of Designation.
"Initial Exercise Period" shall have the meaning set forth in Section
4(b) of this Certificate of Designation.
"Junior Security" means any shares of the voting common stock and the
non-voting common stock of the Corporation and any other class or series of
stock of the Corporation which, by the terms of the Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be junior to the Series C
Preferred Stock in respect of the right to receive dividends or to participate
in any distribution of assets (including but not limited to any distribution of
assets in connection with the liquidation of the Corporation) other than by way
of dividends.
"JWC Holders" means the JWC Holders as defined in that certain
Stockholders Agreement of the Corporation dated as of or about the date of
filing of this Certificate of Designation.
"Liquidation Value" of any share of Series C Preferred Stock as of any
particular date shall, subject to the last sentence of this paragraph, be equal
to the sum of (i) $1,000 plus, (ii) to the
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extent not paid on any Dividend Reference Date and until thereafter so paid, all
dividends which have accrued on such share of Series C Preferred Stock then
outstanding during the period from and including the immediately preceding
Dividend Reference Date (or from the date of issuance in the case of the initial
Dividend Reference Date) to such Dividend Reference Date, plus (iii) dividends
accrued from and including the next preceding Dividend Reference Date to but
excluding the payment date in any liquidation, dissolution or winding up of the
Corporation or the Redemption Date, as the case may be. The Liquidation Value
shall be subject to adjustment from time to time to appropriately give effect to
any split or combination of the shares of this Series.
"Notes" shall have the meaning set forth in Section 5(a) of this
Certificate of Designation.
"Parity Security" means any shares of any class or series of stock of
the Corporation which, by the terms of the Certificate of Incorporation or of
the instrument by which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be on a parity with the Series C
Preferred Stock in respect of the right to receive dividends and to participate
in any distribution of assets (including but not limited to any distribution of
assets in connection with the liquidation of the Corporation) other than by way
of dividends.
"Person" means any individual, partnership, corporation, limited
liability Corporation, trust, estate, joint venture, association, unincorporated
organization, government or any department or agency thereof, or other entity.
"Qualified Public Offering" means one or more public sales of any
capital stock of the Corporation pursuant to one or more registration statements
(other than on Form S-4 or S-8 or any other similar limited purpose form), that
have become effective under the Securities Act, yielding at least $10,000,000 in
aggregate gross proceeds.
"Redemption Date" as to any share of Series C Preferred Stock means (i)
in the case of a redemption at the election of the Corporation pursuant to
Section 4(a), the date specified in the notice of redemption given pursuant to
Section 4(a)(i) or (ii), (ii) in the case of a redemption on demand pursuant to
Section 4(b), the date on which the Corporation pays the Redemption Price
therefor pursuant to the provisions of Section 4(b) and, (iii) in the case of a
redemption pursuant to Section 4(c), December 31, 2009.
"Redemption Price" for any share of Series C Preferred Stock as of any
particular Redemption Date shall be an amount equal to the Liquidation Value of
such share of Series C Preferred Stock at such date.
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"Redemption Premium" for any share of Series C Preferred Stock as of
any particular Redemption Date shall be an amount equal to one percent (1%) of
its Liquidation Value at such date.
"Related Party" with respect to any JWC Holder means (i) any
controlling stockholder or 80% (or more) owned subsidiary of such JWC Holder or
(ii) or trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of JWC Holders and/or such other Persons
referred to in the immediately preceding clause (i).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, all as from time to time in
effect.
"Senior Subordinated Notes" means any of the 9 7/8% Senior Subordinated
Notes Due 2007 of Desa International, Inc. issued pursuant to the Senior
Subordinated Note Indenture.
"Senior Subordinated Note Indenture" means the Indenture, dated on or
about the date of filing of this Certificate of Designation with the Secretary
of State of the State of Delaware, between Desa International, Inc., the
Corporation and Marine Midland Bank, as trustee, pursuant to which the Senior
Subordinated Notes have been or will be issued.
"Senior Security" means any shares of any class or series of stock of
the Corporation which, by the terms of the Certificate of Incorporation or of
the instrument by which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be senior to the Series C Preferred
Stock in respect of the right to receive dividends or to participate in any
distribution of assets (including but not limited to any distribution of assets
in connection with the liquidation of the Corporation) other than by way of
dividends.
"Stockholders Agreement" shall mean that certain Stockholders Agreement
of the Corporation dated as of or about the date of filing of this Certificate
of Designation.
"Subsequent Exercise Period" shall have the meaning set forth in
Section 4(b) of this Certificate of Designation.
"Voting Rights Triggering Event" shall have the meaning set forth in
Section 6(c) of this Certificate of Designation.
"Voting Stock" means, with respect to any Person, the capital stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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Section 8.Transfers; Registration of Transfers.
The Corporation shall keep at its principal office (or such other place
as the Corporation reasonably designates) a stock register for the registration
of shares of Series C Preferred Stock of the Corporation. Subject to the
requirements of applicable securities laws and to any restrictions on transfer
(including without limitation, those referred to in any legend on the
certificate so surrendered), upon the surrender of any certificate representing
shares of Series C Preferred Stock at such place together with appropriate stock
powers therefor duly endorsed, the Corporation shall, at the request of the
registered holder thereof, issue in exchange therefor a certificate or
certificates representing in the aggregate the number of shares of Series C
Preferred Stock represented by the surrendered certificate (and the Corporation
forthwith shall cancel such surrendered certificate). Each such new certificate
shall be registered in such name and shall represent such number of shares of
Series C Preferred Stock as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance; provided, however, that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and deliver of any certificate in a name other than that of the holder of the
surrendered certificate.
Section 9.Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder of a certificate evidencing shares of Series
C Preferred Stock shall be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of any certificate evidencing one or more shares of
Series C Preferred Stock and, in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that, if the holder is a pension fund, insurance company
or financial institution, its own unsecured agreement of indemnity shall be
satisfactory), or, in the case of any such mutilation, upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series C Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 10. Other Provisions.
(a)All notices from the Corporation to the holders shall be
given by first class mail, postage prepaid, to the holders of shares of this
Series at their last address as it shall appear on the stock register. With
respect to any notice to a holder of shares of this Series required to be
provided hereunder, neither
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failure to mail such notice, nor any defect therein or in the mailing thereof,
shall affect the sufficiency of the notice or the validity of the proceedings
referred to in such notice or affect the legality or validity of any
distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice which was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.
(b)All notices and other communications from a holder of
shares of this Series shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to the Corporation at the
following address (or at such other address as the Corporation shall specify in
a notice to holders of Series C Preferred Stock given in accordance with Section
10(a)): c/o J.W. Associates, L.P., 21st Floor, One Federal Street, Boston,
Massachusetts 02110.
(c)Shares of this Series which have been redeemed, exchanged
or otherwise acquired by the Corporation shall not be reissued as shares of
Series C Preferred Stock and shall, after such redemption, exchange or
acquisition, as the case may be, be retired and promptly canceled and the
Corporation shall take all appropriate action to cause such shares to obtain the
status of authorized but unissued shares of Preferred Stock, without designation
as to series or until such shares are once more designated as part of a
particular series (other than Series C Preferred Stock) by the Board of
Directors. The Corporation may cause a certificate setting forth a resolution
adopted by the Board of Directors that none of the authorized shares of this
Series are outstanding to be filed with the Secretary of State of the State of
Delaware. When such certificate becomes effective, all references to Series C
Preferred Stock shall be eliminated from the Certificate of Incorporation and
the shares of Preferred Stock designated hereby as Series C Preferred Stock
shall have the status of authorized and unissued shares of Preferred Stock and
may be reissued as part of any new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors.
(d)The shares of this Series shall be issuable in whole shares
or in any fraction of a whole share.
(e)The Corporation shall, to the fullest extent permitted by
law, be entitled to recognize the exclusive right of a Person registered on its
records as the holder of shares of this Series, and such record holder shall be
deemed the holder of such shares for all purposes.
(f)All notice periods referred to in this Certificate of
Designation shall commence on the date of the mailing of the applicable notice.
(g)Subject to applicable law, any determinations made in the
exercise of the good faith business judgment of the Board of
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Directors under any provision of this Certificate of Designation shall be final
and binding on all stockholders of the Corporation, including the holders of
shares of this Series.
(h)Certificates for shares of this Series shall bear such
legends as the Corporation shall from time to time deem appropriate.
* * * *
IN WITNESS WHEREOF, Desa Holdings Corporation has caused this
Certificate of Designation to be signed and attested this _____ day of
____________, 1997.
DESA HOLDINGS CORPORATION
By:_______________________________
Adam L. Suttin, Vice President
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EXHIBIT 3.2
BY-LAWS
OF
DESA HOLDING CORP.
------------------------------
(A Delaware Corporation)
--------------------
ARTICLE 1
STOCKHOLDERS
1. Certificates Representing Stock. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of, the corporation by the Chairman or Vice-Chairman of the Board of
Directors, if any, or by the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation. Any
and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer.,
transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or of
any such partly paid stock shall set forth thereon the statements prescribed by
the General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place
of any certificate theretofore issued by it, alleged to have been lost, stolen,
or destroyed, and the Board of Directors may require the owner of any lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate.
<PAGE>
2. Fractional Share Interests. The corporation may, but shall
not be required to, issue fractions of a share. If the corporation does not
issue fractions of a share, it shall (i) arrange for take disposition of
fractional interests by those entitled thereto, (ii) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer for which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
3. Stock Transfers. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the corporation
shall be made only on the stock ledger of the corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon.
4. Record Date For Stockholders. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock
or for the purpose of any other lawful action, the directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at any meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
5. Meaning of Certain Terms. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote threat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the
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corporation is authorized to issue only one class of shares of stock, and said
reference is also intended to include any outstanding share or shares of stock
and any holder or holders of record of outstanding shares of stock of any class
upon which or upon whom the Certificate of Incorporation confers such rights
where there are two or more classes or series of shares of stock or upon which
or upon whom the General Corporation Law confers such rights notwithstanding
that the Certificate of Incorporation may provide for more than one class or
series of shares of stock, one or more of which are limited or denied such
rights thereunder; provided, however, that no such right shall vest in the event
of an increase or decrease in the authorized number of shares of stock of any
class or series which is otherwise denied voting rights under the provisions of
the Certificate of Incorporation, except as any provision of law may otherwise
require.
6. Stockholder Meetings.
(a) Time. The annual meeting shall be held on the
date and at the time fixed, from time to time, by the Directors, provided, that
the first annual meeting shall be held on a date within thirteen (13) months
after the organization of the corporation, and each successive annual meeting
shall be held on a date within thirteen (13) months after the date of the
preceding annual meeting. A special meeting shall be held on the date and at the
time fixed by the Directors.
(b) Place. Annual meetings and special meetings shall
be held at such place, within or without the State of Delaware, as the Directors
may, from time to time, fix. Whenever the Directors shall fail to fix such
place, the meeting shall be held at the registered office of the corporation in
the State of Delaware.
(c) Call. Annual meetings and special meetings may be
called by the Directors or by any officer instructed by the Directors to call
the meeting.
(d) Notice or Waiver of Notice. Written notice of all
meetings shall be given, stating the place, date, and hour of the meeting and
stating the place within the city or other municipality or community at which
the list of stockholders of the corporation may be examined. The notice of an
annual meeting shall state that the meeting is called for the election of
Directors and for the transaction of other business which may properly come
before the meeting, and shall, (if any other action which could be taken at a
special meeting is to be taken at such annual meeting) state the purpose or
purposes. The notice of a special meeting shall in all instances state the
purpose or purposes for which the meeting is called. The notice of any meeting
shall also include, or be accompanied by, any additional statements,
information, or documents prescribed by the General Corporation Law. Except as
otherwise provided by the General Corporation Law, a copy of the notice of any
meeting shall be given, personally or by mail, not less than ten (10) days nor
more than sixty (60) days before the date of the meeting, unless the lapse of
the prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the corporation. Notice by
mail shall be deemed to be given when deposited, with postage thereon prepaid,
in the United States Mail. If a meeting is adjourned to another time, not more
than thirty (30) days hence, and/or to another place, and if an announcement of
the adjourned time and/or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting unless the Directors, after
adjournment, fix a new record date for the adjourned meeting. Notice need not be
given to any stockholder who
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submits a written waiver of notice signed by him before or after the time stated
therein. Attendance of a stockholder at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
(e) Stockholder List. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city or other municipality or
community where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list required
by this section or the books of the corporation, or to vote at any meeting of
stockholders.
(f) Conduct of Meeting. Meetings of the stockholders
shall be presided over by one of the following officers in the order of
seniority and if present and acting the President, a Vice-President, or, if none
of the foregoing is in office and present and acting, by a chairman to be chosen
by the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present the Chairman of the meeting
shall appoint a secretary of the meeting.
(g) Proxy Representation. Every stockholder may
authorize another person or persons to act for him by proxy in all matters in
which a stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three (3) years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and, if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
(h) Inspectors. The Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person residing at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the Directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to
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<PAGE>
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting,
the inspector or inspectors, if-any, shall make a report in writing of any
challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
(i) Quorum. The holders of a majority of the
outstanding shares of stock shall constitute a quorum at a meeting of
stockholders for the transaction of any business. The stockholders present may
adjourn the meeting despite the absence of a quorum.
(j) Voting. Each share of stock shall entitle the
holder thereof to one vote. Except as otherwise provided in the Certificate of
Incorporation or any written agreement among the shareholders and/or directors
of the corporation, in the election of directors, a plurality of the votes cast
shall elect. Except as otherwise provided in the Certificate of Incorporation or
any written agreement among the shareholders and/or directors of the
corporation, any other action shall be authorized by a majority of the votes
cast except where the General Corporation Law prescribes a different percentage
of votes and/or a different exercise of voting power, and except as may be
otherwise prescribed by the provisions of the Certificate of Incorporation and
these By-Laws.
7. Stockholder Action Without Meetings. Except as otherwise
provided in the Certificate of Incorporation or any written agreement among the
shareholders and/or directors of the Corporation, any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taxing of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE 2
DIRECTORS
1. Functions and Definition. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation except is otherwise provided in any written agreement among
the shareholders and/or directors of the corporation. The use of the phrase
"whole Board" herein refers to the total number of Directors which the
corporation would have if there were no vacancies.
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2. Qualifications and Number. A Director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The directors shall be as Provided in the Certificate of Incorporation
or any written agreement among the stockholders and/or directors of the
corporation.
3. Election and Term. The first Board of Directors shall be
elected by the incorporator and shall hold office until the first annual meeting
of stockholders and until their successors are elected and qualified or until
their earlier resignation or removal.
4. Meetings.
(a) Time. Meetings shall be held at such time as the
Board shall fix, except that the first meeting of a newly elected Board shall be
held as soon after its election as the Directors may conveniently assemble.
(b) Place. Meetings shall be held at such place
within or without the State of Delaware as shall be fixed by the Board;
(c) Call. No call shall be required for regular
meetings for which the time and place have been fixed. Special meetings may be
called by or at the direction of the then President.
(d) Notice Or Actual Or Constructive Waiver. No
notice shall be required for regular meetings for which the time and place have
been fixed. Written, oral, or any other mode of notice of the time and place
shall be given for special meetings in sufficient time for the convenient
assembly of the Directors thereat. Notice need not be given to any Director or
to any member of a committee of Directors who submits a written Waiver of Notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a Waiver of Notice of such meeting, except
when he attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Directors need be specified in
any written Waiver of Notice.
(e) Quorum and Action. A majority of the whole Board
shall constitute a quorum. Except as herein otherwise provided, or in the
Certificate of Incorporation or in any written agreement among the stockholders
and/or directors of the corporation and except as otherwise provided by the
General Corporation Law, the vote of the majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board.
Any member or members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board, or
any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
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(f) Chairman of the Meeting. The President, if
present and acting, or any other Director chosen by the Board, shall preside.
5. Removal of Directors. Except as may otherwise be provided
by the General Corporation Law or as otherwise provided in the Certificate of
Incorporation or any written agreement among the shareholders and/or directors
of the corporation, any Director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of Directors.
6. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. Written Action. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
ARTICLE 3
OFFICERS
The officers of the corporation shall consist of a President,
a Secretary, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Treasurer, a Chairman of the Board, a Vice-Chairman of the Board, a
Senior Vice President, an Executive Vice President, one or more other
Vice-Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers with such titles as the resolution of the
Board of Directors choosing them shall designate.
All officers of the corporation shall have such authority and
perform such duties in the management and operation of the corporation as shall
be prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office except
to the extent that such resolutions may be inconsistent therewith. The Secretary
or an Assistant Secretary of the corporation shall record all of the proceedings
of all meetings and actions in writing of stockholders, directors, and
committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer may
-7-
<PAGE>
be removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
ARTICLE 4
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE 5
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
ARTICLE 6
CONTROL OVER BY-LAWS
Subject to the provisions of the Certificate of Incorporation
and the provisions of the General Corporation Law, the power to amend, alter or
repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
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EXHIBIT 3.2A
AMENDED AND RESTATED
BYLAWS
OF
DESA HOLDINGS CORPORATION
A Delaware Corporation
<PAGE>
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent...................................... 1
1.2 Other Offices.................................................... 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting................................................... 1
2.2 Special Meeting.................................................. 2
2.3 Place of Meetings................................................ 2
2.4 Notice........................................................... 2
2.5 Voting List...................................................... 3
2.6 Quorum........................................................... 3
2.7 Required Vote; Withdrawal of Quorum.............................. 3
2.8 Method of Voting; Proxies........................................ 4
2.9 Record Date...................................................... 4
2.10 Conduct of Meeting............................................... 6
2.11 Inspectors....................................................... 6
ARTICLE THREE: DIRECTORS
3.1 Management....................................................... 7
3.2 Number; Qualification; Election; Term............................ 7
3.3 Change in Number................................................. 7
3.4 Removal.......................................................... 7
3.5 Vacancies........................................................ 8
3.6 Meetings of Directors............................................ 8
3.7 First Meeting.................................................... 9
3.8 Election of Officers............................................. 9
3.9 Regular Meetings................................................. 9
3.10 Special Meetings................................................. 9
3.11 Notice........................................................... 9
3.12 Quorum; Majority Vote............................................ 9
3.13 Procedure........................................................ 10
3.14 Presumption of Assent............................................ 10
3.15 Compensation..................................................... 10
ARTICLE FOUR: COMMITTEES
4.1 Designation...................................................... 10
4.2 Number; Qualification; Term...................................... 11
4.3 Authority........................................................ 11
4.4 Committee Changes................................................ 11
4.5 Alternate Members of Committees.................................. 11
4.6 Regular Meetings................................................. 11
4.7 Special Meetings................................................. 11
4.8 Quorum; Majority Vote............................................ 12
4.9 Minutes.......................................................... 12
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4.10 Compensation..................................................... 12
4.11 Responsibility................................................... 12
ARTICLE FIVE: NOTICE
5.1 Method........................................................... 12
5.2 Waiver........................................................... 13
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office................................... 13
6.2 Removal.......................................................... 13
6.3 Vacancies........................................................ 14
6.4 Authority........................................................ 14
6.5 Compensation..................................................... 14
6.6 Chairman of the Board............................................ 14
6.7 President........................................................ 14
6.8 Vice Presidents.................................................. 15
6.9 Treasurer........................................................ 15
6.10 Assistant Treasurers............................................. 15
6.11 Secretary........................................................ 15
6.12 Assistant Secretaries............................................ 16
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares.......................................... 16
7.2 Replacement of Lost or Destroyed
Certificates..................................................... 16
7.3 Transfer of Shares............................................... 17
7.4 Registered Stockholders.......................................... 17
7.5 Regulations...................................................... 17
7.6 Legends.......................................................... 17
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends........................................................ 18
8.2 Reserves......................................................... 18
8.3 Books and Records................................................ 18
8.4 Fiscal Year...................................................... 18
8.5 Seal............................................................. 18
8.6 Resignations..................................................... 18
8.7 Securities of Other Corporations................................. 19
8.8 Telephone Meetings............................................... 19
8.9 Action Without a Meeting......................................... 19
8.10 Invalid Provisions............................................... 20
8.11 Mortgages, etc................................................... 20
8.12 Headings......................................................... 21
8.13 References....................................................... 21
8.14 Amendments....................................................... 21
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
DESA HOLDINGS CORPORATION
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of Desa Holdings Corporation, a Delaware
corporation (the "Corporation"). In the event of a direct conflict between the
provisions of these bylaws and the mandatory provisions of the Delaware General
Corporation Law or the provisions of the certificate of incorporation of the
Corporation, such provisions of the Delaware General Corporation Law or the
certificate of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
<PAGE>
2.2 Special Meeting. A special meeting of the stockholders may be
called at any time by the Chairman of the Board, the President or the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be held
on such date and at such time as shall be designated by the person(s) calling
the meeting and stated in the notice of the meeting or in a duly executed waiver
of notice of such meeting. Only such business shall be transacted at a special
meeting as may be stated or indicated in the notice of such meeting or in a duly
executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time
of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the President, the Secretary, or the
officer or person(s) calling the meeting, to each stockholder of record entitled
to vote at such meeting. If such notice is to be sent by mail, it shall be
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
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2.5 Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares registered in the name of each stockholder. For a period of ten days
prior to such meeting, such list shall be kept on file at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of meeting or a duly executed waiver of notice of such meeting or, if not
so specified, at the place where the meeting is to be held and shall be open to
examination by any stockholder during ordinary business hours. Such list shall
be produced at such meeting and kept at the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at
any meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide
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any question brought before such meeting, unless the question is one on which,
by express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
2.9 Record Date. (a) For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, for any such determination of
stockholders, such date in any case to be not more than 60 days and not less
than ten days prior to such meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of
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stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law or these bylaws, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
in the State of Delaware, principal place of business, or such officer or agent
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.
5
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2.10 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the absence
or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by some person appointed by the
meeting.
2.11 Inspectors. The board of directors may, in advance of any meeting
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request, or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
6
<PAGE>
ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of directors
which shall constitute the entire board of directors shall be not less than one.
The first board of directors shall consist of the number of directors named in
the certificate of incorporation of the Corporation or, if no directors are so
named, shall consist of the number of directors elected by the incorporator(s)
at an organizational meeting or by unanimous written consent in lieu thereof.
Thereafter, within the limits above specified, the number of directors which
shall constitute the entire board of directors shall be determined by resolution
of the board of directors or by resolution of the stockholders at the annual
meeting thereof or at a special meeting thereof called for that purpose. Except
as otherwise required by law, the certificate of incorporation of the
Corporation, or these bylaws, the directors shall be elected at an annual
meeting of stockholders at which a quorum is present. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy and entitled to vote on the election of directors. Each director so chosen
shall hold office until the first annual meeting of stockholders held after his
election and until his successor is elected and qualified or, if earlier, until
his death, resignation, or removal from office. None of the directors need be a
stockholder of the Corporation or a resident of the State of Delaware. Each
director must have attained the age of majority.
3.3 Change in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these by-laws, at any meeting of
stockholders called expressly for that purpose, any director or the entire board
of directors may be removed, with or without cause, by a vote of the
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holders of a majority of the shares then entitled to vote on the election of
directors; provided, however, that so long as stockholders have the right to
cumulate votes in the election of directors pursuant to the certificate of
incorporation of the Corporation, if less than the entire board of directors is
to be removed, no one of the directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
3.5 Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director, and each director so chosen shall hold office until the
first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if earlier, until his death, resignation,
or removal from office. If there are no directors in office, an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly-created directorship, the directors then in
office shall constitute less than a majority of the whole board of directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of the
total number of the shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly-created directorships or to replace the directors chosen by
the directors then in office. Except as otherwise provided in these bylaws, when
one or more directors shall resign from the board of directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
bylaws with respect to the filling of other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
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3.7 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 Election of Officers. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall
be held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.10 Special Meetings. Special meetings of the board of directors shall
be held whenever called by the Chairman of the Board, the President or any
director.
3.11 Notice. The Secretary shall give notice (by telephone, telegram,
telex, or telefax) of each special meeting to each director at least 24 hours
before the meeting. Notice of any such meeting need not be given to any director
who shall, either before or after the meeting, submit a signed waiver of notice
or who shall attend such meeting without protesting, prior to or at its
commencement, the lack of notice to him. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors,
a majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or these bylaws, the act of
a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director
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on any matter, every reference in these bylaws to a majority or other proportion
of directors shall refer to a majority or other proportion of the votes of such
directors.
3.13 Procedure. At meetings of the board of directors, business shall
be transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of the
Corporation shall act as the secretary of each meeting of the board of directors
unless the board of directors appoints another person to act as secretary of the
meeting. The board of directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.
3.14 Presumption of Assent. A director of the Corporation who is
present at the meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
3.15 Compensation. The board of directors shall have the authority to
fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
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4.2 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The board of directors may
designate one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting of
the committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at,
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nor the purpose of, any special meeting of any committee need be specified in
the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the request
of the board of directors. The minutes of the proceedings of each committee
shall be delivered to the Secretary of the Corporation for placement in the
minute books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such director
by law.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of
the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight
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courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given at the time when
the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by overnight courier service shall be deemed
to be delivered and given at the time delivered to such service with all charges
prepaid and addressed as aforesaid. Any notice required or permitted to be given
by telegram, telex, or telefax shall be deemed to be delivered and given at the
time transmitted with all charges prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation
shall be a President, a Secretary, and such other officers as the board of
directors may from time to time elect or appoint, including a Chairman of the
Board, one or more Vice Presidents (with each Vice President to have such
descriptive title, if any, as the board of directors shall determine, including,
without limitation, Senior Vice Presidents), and a Treasurer. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified, until his death, or until he shall resign or shall have been removed
in the manner hereinafter provided. Any two or more offices may be held by the
same person. None of the officers need be a stockholder or a director of the
Corporation or a resident of the State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best
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interest of the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation
(by death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, however,
that the board of directors may delegate the power to determine the compensation
of any officer and agent (other than the officer to whom such power is
delegated) to the Chairman of the Board or the President.
6.6 Chairman of the Board. The Chairman of the Board, if elected by the
board of directors, shall preside at all meetings of the stockholders and of the
board of directors. Such officer may sign all certificates for shares of stock
of the Corporation. The Chairman of the Board shall act as Chief Executive
Officer of the corporation, and shall have, together with any additional powers
and duties as may be prescribed by the board of directors of the corporation,
general management and control of the business and property of the corporation
in the ordinary course of its business with all such powers with respect to such
general management and control as may be reasonably incident to such
responsibilities.
6.7 President. The President shall act as Chief Operating Officer of
the corporation, and shall have such powers, rights and duties as the Chairman
of the Board shall designate. If the board of directors has not elected a
Chairman of the Board or in the absence or inability to act of the Chairman of
the Board, the President shall exercise all of the powers and discharge all of
the duties of the Chairman of the Board. As between the Corporation and third
parties, any action taken by the President in the performance of the duties of
the Chairman of the Board shall
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be conclusive evidence that there is no Chairman of the Board or that the
Chairman of the Board is absent or unable to act.
6.8 Vice Presidents. Each Vice President (which for the purposes hereof
shall include any Vice President, however qualified by the board of directors,
including any Executive Vice President or Senior Vice President) shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board or the President, and (in order of their seniority as
determined by the board of directors or, in the absence of such determination,
as determined by the length of time they have held the office of Vice President)
shall exercise the powers of the President during that officer's absence or
inability to act. As between the Corporation and third parties, any action taken
by a Vice President in the performance of the duties of the President shall be
conclusive evidence of the absence or inability to act of the President at the
time such action was taken.
6.9 Treasurer. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board or the
President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board or the President. The Assistant Treasurers (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer during
that officer's absence or inability to act.
6.11 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the
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seal of the Corporation thereto. He may sign with the Chairman of the Board or
the President all certificates for shares of stock of the Corporation, and he
shall have charge of the certificate books, transfer books, and stock papers as
the board of directors may direct, all of which shall at all reasonable times be
open to inspection by any director upon application at the office of the
Corporation during business hours. He shall in general perform all duties
incident to the office of the Secretary, subject to the control of the board of
directors, the Chairman of the Board and the President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board or the President. The Assistant Secretaries (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Secretary) shall exercise the powers of the Secretary during
that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board, the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or
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certificates theretofore issued by the Corporation and alleged to have been lost
or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate or certificates representing shares to be lost or
destroyed. When authorizing such issue of a new certificate or certificates the
board of directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond with a surety or
sureties satisfactory to the Corporation in such sum as it may direct as
indemnity against any claim, or expense resulting from a claim, that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority
to provide that certificates representing shares of stock bear such legends as
the board of directors deems appropriate to assure that the
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Corporation does not become liable for violations of federal or state securities
laws or other applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to provide
for contingencies, to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall end on the Saturday
closest to February 28 of each year.
8.5 Seal. The seal of the Corporation shall be such as from time to
time may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may resign
by so stating at any meeting of the board of directors or by giving written
notice to the board of
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directors, the Chairman of the Board, the President, or the Secretary. Such
resignation shall take effect at the time specified therein or, if no time is
specified therein, immediately upon its receipt. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy, or
consent with respect to any such securities.
8.8 Telephone Meetings. Stockholders (acting for themselves or through
a proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are
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recorded. Every written consent of stockholders shall bear the date of signature
of each stockholder who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by this
Section 8.9(a) to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery to
its registered office in the State of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office, principal place of business, or such officer or
agent shall be by hand or by certified or registered mail, return receipt
requested.
(b) Unless otherwise restricted by the certificate of incorporation of
the Corporation or by these bylaws, any action required or permitted to be taken
at a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect as
a vote of such directors or committee members, as the case may be, and may be
stated as such in any certificate or document filed with the Secretary of State
of the State of Delaware or in any certificate delivered to any person. Such
consent or consents shall be filed with the minutes of proceedings of the board
or committee, as the case may be.
8.10 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage,
or other instrument executed by the Corporation through its duly authorized
officer or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
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8.12 Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 Amendments. These bylaws may be altered, amended, or repealed or
new bylaws may be adopted by the stockholders or by the board of directors at
any regular meeting of the stockholders or the board of directors or at any
special meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.
The undersigned, the Secretary of the Corporation, hereby certifies
that the foregoing amended and restated bylaws were adopted by unanimous consent
by the directors of the Corporation as of ___________, 1993.
___________________________
Andrew Rosen
Assistant Secretary
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EXHIBIT 4.1
INDENTURE dated as of November 26, 1997 among DESA International,
Inc., a Delaware corporation (the "Company"), DESA Holdings Corporation, the
parent of the Company and a guarantor ("Holdings") and Marine Midland Bank, as
trustee (the "Trustee").
The Company, Holdings and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the Series A 97/8% Senior Subordinated Notes due 2007 (the "Unregistered Notes")
and the Series B 97/8% Senior Subordinated Notes due 2007 (the "New Notes" and,
together with the Unregistered Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Notes" means up to $75.0 million aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture, in
accordance with this Indenture hereof (and substantially in the form of Exhibit
A attached hereto), as part of the same series as the Initial Notes.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Premium" means, with respect to a Note, the greater of
(i) 4.9375% of the then outstanding principal amount of such Note or (ii) the
excess of (A) the present value of the remaining required interest and principal
payments due on such Note (exclusive of accrued and unpaid interest and
Liquidated Damages, if any), computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the then outstanding principal
amount of such Note.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory or other current assets in the
ordinary course of business or obsolete equipment (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of (x) the Company and its Restricted Subsidiaries taken as a whole or (y)
Holdings and its Restricted Subsidiaries as a whole, will be governed by Section
4.15 hereof and/or Section 5.01 hereof and not by the provisions of Section 4.10
hereof), and (ii) the issue or sale by the Company, Holdings or any of their
respective Subsidiaries of Equity Interests of any of the Company's or
<PAGE>
Holdings' Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions that have a fair market
value (as determined in good faith by the Board of Directors of the Company) in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a
Subsidiary to the Company or to a Wholly Owned Restricted Subsidiary of the
Company, (ii) a transfer of assets by Holdings to a Wholly Owned Restricted
Subsidiary of Holdings or by a Subsidiary (other than the Company or a
Subsidiary of the Company) to Holdings or to a Wholly Owned Restricted
Subsidiary of Holdings, (iii) an issuance of Equity Interests by Wholly Owned
Restricted Subsidiary of the Company or to another Wholly Owned Restricted
Subsidiary of the Company, (iv) an issuance of Equity Interests by a Wholly
Owned Restricted Subsidiary of Holdings (other than the Company or any of its
Subsidiaries) to Holdings or to another Wholly Owned Restricted Subsidiary of
Holdings, and (v) a Restricted Payment that is permitted by Section 4.07 hereof
will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life to Stated Maturity" means, when applied, to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of a Person, or any
authorized committee of the Board of Directors.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or Holdings, as applicable,
to have been duly adopted by the Board of Directors of the Company or Holdings,
as applicable, and to be in full force and effect on the date of such
certification.
"Borrowing Base" means, as of any date, an amount equal to the sum of
85% of accounts receivable of the Company, Holdings and the Restricted
Subsidiaries as of such date that are not more than 90 days past due, plus 65%
of the book value of all inventory owned by the Company, Holdings and the
Restricted Subsidiaries as of such date, in each case calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory as of a
specific date, the Company and Holdings may utilize the most recent available
information for purposes of calculating the Borrowing Base.
"Business Day" means any day other than a Legal Holiday.
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"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participation, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the New
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500.0 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper of a domestic issuer having a rating of at
least A-1 by Standard and Poor's Ratings Services or P-1 by Moody's Investors
Service, Inc. maturing within twelve months after the date of acquisition and
(vi) any mutual fund which invests solely in investments of the types described
in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger of consolidation), in one or a series of related transactions, of all or
substantially all of the assets of either (x) Holdings and its Restricted
Subsidiaries taken as a whole or (y) the Company and its Restricted Subsidiaries
taken as a whole, in each case, to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or their Related
Parties, (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company or Holdings, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) (a) prior to the
initial underwritten public offering by the Company or Holdings of its common
stock pursuant to an effective registration statement under the Securities Act
(the "IPO") the result of which is that either (A) the Principals and their
Related Parties become the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that for purposes of
calculating the beneficial ownership of any person, such person shall be deemed
to have "beneficial ownership" of all securities that such person has the right
to acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition) of less than 40% of the Voting
Stock of the Company or Holdings (measured by voting power rather than number of
shares) or (B) any person (as defined above), other than the Principals and
their Related Parties, becomes the beneficial owner (as defined above), directly
or indirectly, of 40% or more of the Voting Stock of the Company or Holdings and
such person is or becomes, directly or indirectly, the beneficial owner of a
greater percentage of the voting power of the Voting Stock of the Company or
Holdings, calculated on a fully diluted basis, than the percentage beneficially
owned by the Principals and their Related Parties, or (b) after the IPO, any
person (as defined above), other than the Principals and their Related Parties,
becomes the beneficial owner (as defined above), directly or indirectly, of 35%
or more of the Voting Stock of the Company or Holdings and such person is or
becomes, directly or indirectly, the beneficial owner of a greater percentage of
the voting power of the Voting Stock of the Company or Holdings, calculated on a
fully
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diluted basis, than the percentage beneficially owned by the Principals and
their Related Parties, (iv) the first day on which a majority of the members of
the Board of Directors of the Company or Holdings are not Continuing Directors,
(v) the first day on which Holdings ceases to own 100% of the outstanding Equity
Interests of the Company, or (vi) the Company or Holdings consolidates with, or
merges with or into, any Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, the Company or Holdings,
in any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the Company or Holdings is converted into or exchanged for cash,
securities or other property, other than any such transaction where the Voting
Stock of the Company or Holdings outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance). For
purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purpose of acquiring Voting Stock of the Company or
Holdings will be deemed to be a transfer of such portion of such Voting Stock as
corresponds to the portion of the equity of such entity that has been so
transferred.
"Company" means DESA International, Inc., a Delaware corporation.
"Consolidated Cash Flow" means, with respect to the Company or
Holdings for any period, the Consolidated Net Income of such Person for such
period plus, without duplication, (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to the extent such
losses were deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it represents
an accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company or Holdings, as the case may be, by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
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"Consolidated Net Income" means, with respect to the Company or
Holdings for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of dividends or distributions paid in cash to the referent Person or a
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company, Holdings or one of their Subsidiaries.
"Consolidated Net Worth" means, with respect to the Company or
Holdings as of any date, the sum of (i) the consolidated equity of the common
stockholders of such Person and its consolidated Subsidiaries as of such date,
plus (ii) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of this Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (y) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), and (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company or Holdings who (i) was a member
of such Board of Directors on the date of this Indenture or (ii) was nominated
for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.02 hereof or such other address as to which
the Trustee may give notice to the Company.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Notes" means Notes that are in the form of the Notes
attached hereto as Exhibit A, that do not include the information called for by
footnotes 1 and 3 thereof.
"Depository" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depository with respect to the Notes, until a successor shall
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have been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) so long as any Senior
Indebtedness under the New Credit Facility is outstanding, such Senior
Indebtedness and (ii) thereafter, any other Senior Indebtedness permitted under
this Indenture the principal amount of which is $50 million or more and that has
been designated by the Company as "Designated Senior Indebtedness" in the
instrument evidencing such Senior Indebtedness.
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature; provided, however,
that any Capital Stock that would constitute Disqualified Stock solely because
the holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall
not constitute Disqualified Stock if the terms of such Capital Stock provide
that the Company may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with Section 4.07
hereof.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company and
Holdings pursuant to the Registration Rights Agreement to exchange New Notes for
Unregistered Notes.
"Exchange Notes" means the 12% Junior Subordinated Notes due December
31, 2009 of Holdings, issuable pursuant to the terms of the Holdings Preferred
Stock as in effect on the Issue Date.
"Existing Indebtedness" means Indebtedness of the Company, Holdings
and their Subsidiaries (other than Indebtedness under the New Credit Facility)
in existence on the date of this Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to the Company or Holdings for
any period, the sum, without duplication, of (i) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations but excluding amortization of debt issuance costs), (ii)
the consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, (iii) any interest expense on
Indebtedness of another Person that is guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one of
its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon), and (iv) the product of (a) all cash dividend payments on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests (other
than Disqualified Stock)
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of the Company or Holdings, as the case may be, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person and
its Restricted Subsidiaries, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to the Company or
Holdings for any period, the ratio of the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for such period to the Fixed Charges of such
Person and its Restricted Subsidiaries for such period. In the event that the
Company, Holdings or any of the Restricted Subsidiaries incurs, assumes,
guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company, Holdings or any of the Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date , shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Global Note" means a Note that contains the paragraph referred to in
footnote 1 and the additional schedule referred to in footnote 3 to the form of
the Note attached hereto as Exhibit A.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantee" means a guarantee of the Notes (including the Holdings
Guarantee and each Subsidiary Guarantee).
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"Guarantor" means (i) Holdings, (ii) each Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, and
(iii) their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or the value of foreign currencies purchased or received by
the Company in the ordinary course of business.
"Holder" means a Person in whose name a Note is registered.
"Holdings" means Desa Holdings Corporation, a Delaware corporation
and parent of the Company.
"Holdings Guarantee" means the guarantee of the Notes by Holdings,
substantially in the form of Exhibit C attached hereto.
"Holdings Preferred Stock" means Holdings' Series C 12% Senior
Redeemable Exchangeable Pay-In-Kind Preferred Stock, par value $.01 per share,
as in effect on the Issue Date.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Notes" means $130.0 million aggregate principal amount of
Notes issued under this Indenture on the Issue Date.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel, and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company, Holdings or any of their respective Subsidiaries sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company or Holdings such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Company or Holdings, the Company and/or Holdings, as the case may be, shall be
deemed to have made an Investment on the date of any such sale or disposition
equal
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to the fair market value of the Equity Interests of such Restricted Subsidiary
not sold or disposed of in an amount determined as provided in Section 4.07
hereof.
"Issue Date" means the first date of issuance of Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company, Holdings or any of the Restricted Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, net of the
direct costs relating to such Asset Sale (including,without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under the New Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets in accordance with GAAP.
"New Credit Facility" means that certain bank facility, dated as of
the Issue Date by and among the Company, Holdings and NationsBank, N.A., as
administrative agent, issuing bank and swing line bank and the other parties
thereto, together with all "Loan Documents" as defined therein and all other
documents, instruments and agreements executed in connection therewith
(including, without limitation, any guarantees, security documents and Hedging
Obligations), and in each case as amended, supplemented or modified from time to
time, including any renewal, refunding, replacement, restructuring or
refinancing of all or a portion thereof from time to time whether by the same or
any other agent, lender or other party thereto.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company, nor Holdings nor any of the Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company, Holdings or any of the Restricted Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and (iii) as to which the lenders have
been notified in writing that they will not have any recourse to the stock or
assets of the Company, Holdings or any of its Restricted Subsidiaries.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Notes" means the Company's 97/8% Senior Subordinated Notes due 2007
issued under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, the Chief
Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Permitted Investments" means (a) any Investment in the Company or in
a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment by
Holdings or any of its Subsidiaries (other than the Company or a Subsidiary of
the Company) in Holdings or in a Wholly Owned Restricted Subsidiary of Holdings;
(c) any Investment in Cash Equivalents; (d) any Investment by the Company or any
of its Restricted Subsidiaries in a Person, if as a result of such Investment
(i) such Person becomes a Wholly Owned Restricted Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys all or substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (e)
any Investment by Holdings or any of its Restricted Subsidiaries in a Person, if
as a result of such Investment (i) such Person becomes a Wholly Owned Restricted
Subsidiary of Holdings or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys all or substantially all of
its assets to, or is liquidated into, Holdings or a Wholly Owned Restricted
Subsidiary of Holdings; (f) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with Section 4.10 hereof; (g) any acquisition of assets solely
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in exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company or Holdings; and (h) other Investments in any Person having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (h) that are at the time
outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility; (ii) Liens on assets of Subsidiaries of the Company in favor of
the Company; (iii) Liens on assets of Subsidiaries of Holdings (other than the
Company or any of its Subsidiaries) in favor of Holdings; (iv) Liens on property
of a Person existing at the time such Person is merged into or consolidated with
the Company, Holdings or any of their respective Restricted Subsidiaries;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or Holdings or such
Restricted Subsidiary, as the case may be; (v) Liens on property existing at the
time of acquisition thereof by the Company, Holdings or any of their respective
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory or regulatory obligations, leases, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of Section 4.09
hereof covering only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of this Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business with respect to amounts not yet more than ninety
days overdue or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (x) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security; (xi) easements, rights-of-way, municipal and
zoning ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of the Company, Holdings or any of the Restricted Subsidiaries; (xii)
Liens encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company, Holdings or its Restricted
Subsidiaries relating to such property or assets; (xiii) any interest or title
of a lessor in the property subject to any Capitalized Lease or operating lease;
(xiv) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xv) Liens in favor of the Company, Holdings or any Restricted
Subsidiary; (xvi) Liens arising from the rendering of a final judgment or order
against the Company, Holdings or any Restricted Subsidiary that does not give
rise to an Event of Default; (xvii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xviii) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within the
general parameters customary in the industry and incurred in the ordinary course
of business, in each case securing Hedging Obligations; (xix) Liens arising out
of conditional sale, title retention, consignment or similar arrangements for
the sale of goods entered into by the Company, Holdings or any of the Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company, Holdings and the Restricted Subsidiaries prior to the
Issue Date; (xx) Liens incurred in the ordinary course of business of the
Company, Holdings or any of their respective Subsidiaries with respect to
obligations that do not exceed $5.0 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and
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(b) do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company,
Holdings or such Subsidiary; (xxi) Liens on assets of Unrestricted Subsidiaries
that secure Non-Recourse Debt of Unrestricted Subsidiaries; and (xxii) Liens on
assets of the Company securing Obligations under any Senior Indebtedness of the
Company and Liens on assets of a Guarantor securing Obligations under any Senior
Indebtedness of such Guarantor.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company, Holdings or any of their respective Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund Existing Indebtedness or other Indebtedness of the Company,
Holdings or any of the Restricted Subsidiaries incurred in accordance with this
Indenture (other than Indebtedness incurred in accordance with clauses (i),
(ii), (iv), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi)
and (xvii) of the second paragraph of Section 4.09 hereof) provided that: (i)
the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date at or later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date at or later than the final maturity date
of, and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iv) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is Indebtedness of the Company or its
Restricted Subsidiaries, such Indebtedness is incurred by the Company, Holdings
or the Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded and (v) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is Indebtedness of Holdings or its Restricted Subsidiaries (other than the
Company and its Restricted Subsidiaries), such Indebtedness is incurred by
Holdings or the Restricted Subsidiary who is the obligor of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principals" means (i) J.W. Childs Equity Partners, L.P., (ii) each
Affiliate of J.W. Childs Equity Partners, L.P. as of the Issue Date, and (iii)
each officer or employee (including their respective immediate family members)
of J.W. Childs Associates, L.P. as of the Issue Date.
"Public Equity Offering" means an underwritten public offering of
common stock (other than Disqualified Stock) of the Company or Holdings,
pursuant to an effective registration statement filed with the Commission in
accordance with the Securities Act; provided, however, that, in the case of a
Public Equity Offering by Holdings, Holdings contributes to the capital of the
Company net cash proceeds thereof in an amount sufficient to redeem the Notes
called for redemption in accordance with the terms of this Indenture.
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"Qualified Subordinated Indebtedness" means Indebtedness of Holdings
which (i) does not require payments (other than payments made with additional
Qualified Subordinated Indebtedness) in respect of principal, premium, interest
or otherwise (pursuant to mandatory redemption, sinking fund obligation or
otherwise) prior to the date that is 91 days after the date on which the Notes
mature, (ii) does not directly or indirectly provide for any restrictive
covenants or events of default other than the covenants and events of default
which are substantially the same as those provided for in the Exchange Notes (as
in effect on the Issue Date) and (iii) is subordinated in right of payment to
the Notes at least to the same extent as the Holdings Preferred Stock is
subordinated to the Notes on the Issue Date (including with respect to the
standstill provisions provided therein).
"Recapitalization" means the recapitalization of Holdings, pursuant
to the Stock Purchase Agreement, as more fully described in the Company's
Offering Memorandum pertaining to the Notes, dated November 21, 1997.
"Stock Purchase Agreement" means that Recapitalization Agreement,
dated October 8, 1997, among J.W. Childs Equity Partners, L.P., Holdings, and
the stockholders of Holdings named therein, as amended and restated as of
November 25, 1997 and in effect on the Issue Date.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 26, 1997, by and among the Company, Holdings and
the other parties named therein, as such agreement may be amended, modified or
supplemented from time to time.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or 80% (or more) owned Subsidiary of such Principal or
(B) or trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding and 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Indebtedness.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration department of the Trustee
(or any successor group of the Trustee) with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Indebtedness" means (i) all "Obligations" in respect of and
as defined in the New Credit Facility (including, without limitation, interest
that accrues after the filing of a petition initiating any action or proceeding
under Bankruptcy Law or any other bankruptcy, insolvency or similar law or
statute protecting creditors in effect in any jurisdiction), whether or not such
interest accrues after the filing of such petition for purposes of Bankruptcy
Law or such other law or statute or is an allowed claim in any such action or
proceeding, whether existing on the date hereof of hereafter incurred, and (ii)
any other Indebtedness permitted to be incurred by the Company or any Guarantor
pursuant to the terms of this Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness shall not include (w) any
liability for federal, state, local or other taxes owed or owing by the Company
or any Guarantor, (x) any Indebtedness of the Company or any Guarantor to any of
their respective Subsidiaries or other Affiliates, except to the extent any such
Indebtedness is pledged as security under the New Credit Facility, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of this
Indenture.
"Significant Restricted Subsidiary" means a Restricted Subsidiary
that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of this Indenture.
"Stated Maturity" means, with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) or (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means each guarantee of the Notes,
substantially in the form of Exhibit C attached hereto, issued by a Subsidiary
of Holdings or the Company pursuant to this Indenture.
"Subsidiary Guarantor" means each Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, its
respective successors and assigns.
"Tax Sharing Agreement" means the tax sharing agreement among
Holdings, the Company and any one or more of Holdings' subsidiaries, as amended
from time to time, so long as the method of calculating the amount of the
Company's payments, if any, to be made thereunder is not less favorable to the
Company than as provided in such agreement as in effect on the Issue Date
(except to the extent required to reflect changes in applicable federal or state
tax laws), as determined in good faith by the Board of Directors of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date hereof; provided, however, that in the
event the Trust Indenture Act of 1939 is amended after such date, then "TIA"
means, to the extent required by such amendment, the Trust Indenture Act of 1939
as so amended.
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"Transfer Restricted Securities" means securities that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) which has become publicly available at least two Business Days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Average Life to Stated Maturity of the Notes;
provided, however, that if the Average Life to Stated Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Average Life to Stated Maturity of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors of the Company or Holdings, as the case may be, as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent
that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b)
is not party to any agreement, contract, arrangement or understanding with the
Company, Holdings or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company, Holdings or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company or
Holdings (as determined in good faith by the Board of Directors of the Company
or Holdings, as the case may be); (c) is a Person with respect to which neither
the Company, nor Holdings nor any of the Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company, Holdings or any of the Restricted Subsidiaries. Any
such designation by such Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary as of such
date (and, if such Indebtedness is not permitted to be incurred as of such date
by Section 4.09 hereof, the Company and Holdings shall be in default of such
covenant). The Board of Directors of the Company or Holdings may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted by Section 4.09 hereof, calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" means, with respect to any Person, the Capital Stock
of such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction".................................... 4.11
"Asset Sale"............................................... 4.10
"Asset Sale Offer"......................................... 3.09
"Bankruptcy Law"........................................... 4.01
"Change of Control Offer".................................. 4.15
"Change of Control Payment"................................ 4.15
"Change of Control Payment Date"........................... 4.15
"Covenant Defeasance"...................................... 8.03
"Custodian"................................................ 4.13
"Event of Default"......................................... 6.01
"Excess Proceeds".......................................... 4.10
"Guaranteed Debt".......................................... 4.18
"incur".................................................... 4.09
"Legal Defeasance" ........................................ 8.02
"Offer Amount"............................................. 3.09
"Offer Period"............................................. 3.09
"Paying Agent"............................................. 2.03
"Payment Blockage Notice"..................................10.04
"Payment Default".......................................... 6.01
"Permitted Debt"........................................... 4.09
"Purchase Date"............................................ 3.09
"Registrar"................................................ 2.03
"Restricted Payments"...................................... 4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
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"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, Holdings and any successor
obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, which is part of this Indenture.
The Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its authentication.
The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes and the Holdings
Guarantee shall constitute, and are hereby expressly made, a part of this
Indenture and the Company, Holdings and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the text referred to in footnotes 1 and 3
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without including the text referred to in
footnotes 1 and 3 thereto).
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Each Global Note shall represent such of the outstanding Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the amount of outstanding Notes represented thereby shall be made by
the Trustee or the Note Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof as required by Section
2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the Company by
manual or facsimile signature. An Officer of a Guarantor shall sign the
Guarantee for such Guarantor by manual or facsimile signature.
If the Officer of the Company or a Guarantor whose signature is on a
Note or a Guarantee, as the case may be, no longer holds that office at the time
a Note is authenticated, the Note or the Guarantee, as the case may be, shall
nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by one
Officer, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company, Holdings
or any of their Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global Notes.
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SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company, Holdings or
any of their Subsidiaries) shall have no further liability for the money. If the
Company, Holdings or any of their Subsidiaries acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders all
money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized
denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his
attorney, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer
Restricted Security, such request shall be
accompanied by the following additional information
and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a
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certification to that effect from such Holder
(in substantially the form of Exhibit B hereto);
or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities
Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from
registration in accordance with Rule 144 or Rule
904 under the Securities Act or pursuant to an
effective registration statement under the
Securities Act, a certification to that effect
from such Holder (in substantially the form of
Exhibit B hereto); or
(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification to that effect
from such Holder (in substantially the form of
Exhibit B hereto) and an Opinion of Counsel from
such Holder or the transferee reasonably
acceptable to the Company and to the Registrar
to the effect that such transfer is in
compliance with the Securities Act.
(b) Transfer of a Definitive Note for a Beneficial Interest in a
Global Note. A Definitive Note may not be exchanged for a beneficial interest in
a Global Note except upon satisfaction of the requirements set forth below. Upon
receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
(i) if such Definitive Note is a Transfer Restricted Security, a
certification from the Holder thereof (in substantially the form
of Exhibit B hereto) to the effect that such Definitive Note is
being transferred by such Holder to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Note is a Transfer Restricted
Security, written instructions from the Holder thereof directing
the Trustee to make, or to direct the Note Custodian to make, an
endorsement on the Global Note to reflect an increase in the
aggregate principal amount of the Notes represented by the
Global Note,
in which case the Trustee shall cancel such Definitive Note in accordance with
Section 2.11 hereof and cause, or direct the Note Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depository and the Note Custodian, the aggregate principal amount of Notes
represented by the Global Note to be increased accordingly. If no Global Notes
are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depository (and/or the Trustee), in accordance with this Indenture and the
procedures of the Depository therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a
Definitive Note.
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(i) Any Person having a beneficial interest in a Global Note
may upon request exchange such beneficial interest for a
Definitive Note. Upon receipt by the Trustee of written
instructions or such other form of instructions as is
customary for the Depository, from the Depository or its
nominee on behalf of any Person having a beneficial
interest in a Global Note, and, in the case of a Transfer
Restricted Security, the following additional information
and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred
to the Person designated by the Depository as
being the beneficial owner, a certification to
that effect from such Person (in substantially
the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred
to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities
Act or pursuant to an exemption from
registration in accordance with Rule 144 or Rule
904 under the Securities Act or pursuant to an
effective registration statement under the
Securities Act, a certification to that effect
from the transferor (in substantially the form
of Exhibit B hereto); or
(C) if such beneficial interest is being transferred
in reliance on another exemption from the
registration requirements of the Securities Act,
a certification to that effect from the
transferor (in substantially the form of Exhibit
B hereto) and an Opinion of Counsel from the
transferee or transferor reasonably acceptable
to the Company and to the Registrar to the
effect that such transfer is in compliance with
the Securities Act,
in which case the Trustee or the Note Custodian, at the
direction of the Trustee, shall, in accordance with the
standing instructions and procedures existing between the
Depository and the Note Custodian, cause the aggregate
principal amount of Global Notes to be reduced accordingly
and, following such reduction, the Company shall execute
and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate
and deliver to the transferee a Definitive Note in the
appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.06(d)
shall be registered in such names and in such authorized
denominations as the Depository, pursuant to instructions
from its direct or indirect participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such
Definitive Notes to the Persons in whose names such Notes
are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(f) Authentication of Definitive Notes in Absence of Depository. If
at any time:
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(i) the Depository for the Notes notifies the Company that the
Depository is unwilling or unable to continue as
Depository for the Global Notes and a successor Depository
for the Global Notes is not appointed by the Company
within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of
Definitive Notes under this Indenture,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and
(iii), each Note certificate evidencing Global Notes and
Definitive Notes (and all Notes issued in exchange
therefor or substitution thereof) shall bear legends in
substantially the following form:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE
144A UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY
THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1) (A) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 904 UNDER THE SECURITIES ACT OR (D) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET
FORTH IN (1) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Note) pursuant to Rule 144 under
the Securities Act or pursuant to an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Note, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted
Security for a
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Definitive Note that does not bear the legend set
forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer
Restricted Security shall not be required to bear the
legend set forth in (i) above, but shall continue to
be subject to the provisions of Section 2.06(c)
hereof; provided, however, that with respect to any
request for an exchange of a Transfer Restricted
Security that is represented by a Global Note for a
Definitive Note that does not bear the legend set
forth in (i) above, which request is made in reliance
upon Rule 144, the Holder thereof shall certify in
writing to the Registrar that such request is being
made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt
of an authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate New Notes in
exchange for Unregistered Notes accepted for exchange in
the Exchange Offer, which New Notes shall not bear the
legend set forth in (i) above, and the Registrar shall
rescind any restriction on the transfer of such Notes;
provided, however, in each case, the Company shall not
issue New Notes to a Holder of such Unregistered Notes if
such Holder is either (A) a broker-dealer, (B) a Person
participating in the distribution of the Unregistered
Notes or (C) a Person who is an affiliate (as defined in
Rule 144A) of the Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Definitive
Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Definitive Notes, redeemed, repurchased or cancelled, the
principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Notes Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Definitive Notes and Global Notes at the
Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company
may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer
taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.07, 4.10,
4.15 and 9.05 hereto).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for
redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part.
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(iv) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive
Notes or Global Notes shall be the valid obligations
of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture,
as the Definitive Notes or Global Notes surrendered
upon such registration of transfer or exchange.
(v) The Company shall not be required:
(A) to issue, to register the transfer of or to
exchange Notes during a period beginning at the
opening of business 15 days before the day of
any selection of Notes for redemption under
Section 3.02 hereof and ending at the close of
business on the day of selection; or
(B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note
being redeemed in part; or
(C) to register the transfer of or to exchange a
Note between a record date and the next
succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name
any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of
principal of and interest on such Notes, and neither
the Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
(vii)The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of
Section 2.02 hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receives evidence to its satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by one Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding.
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Except as set forth in Section 2.09 hereof, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, Holdings, a Subsidiary
or an Affiliate of any thereof) holds, on a redemption date or maturity date,
money sufficient to pay Notes payable on that date, then on and after that date
such Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, Holdings or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or
Holdings, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes that a Responsible Officer of the
Trustee knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
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Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of
Holders entitled to vote or consent to any action by vote or consent authorized
or permitted under this Indenture shall be determined as provided for in TIA ss.
316(c).
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number and,
if it does so, the Trustee shall use the CUSIP number in notices of redemption
or exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.15. COMPUTATION OF INTEREST.
Interest on the Notes will be computed on the basis of a 360-day
year comprised of twelve 30- day months.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of
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partial redemption by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemp tion price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
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SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price, plus accrued and unpaid interest and
Liquidated Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clauses (b) and (c) of this Section 3.07,
the Company shall not have the option to redeem the Notes pursuant to this
Section 3.07 prior to December 15, 2002. Thereafter, the Company shall have the
option to redeem the Notes, in whole or in part, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 15 of the years indicated below:
Year Percentage
2002.............................................104.9375%
2003.............................................103.2917%
2004 ............................................101.6458%
2005 and thereafter..............................100.0000%
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(b) Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to December 15, 2000, the Company may (but shall not
have the obligation to) redeem up to 35% of the original aggregate principal
amount of Notes (including Additional Notes) at a redemption price of 109.875%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings; provided that at least 65% in aggregate principal
amount of Notes (including any Additional Notes) remain outstanding immediately
after the occurrence of such redemption; and provided, further that such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.
(c) Upon the occurrence of a Change of Control prior December 15,
2002, the Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each Holder
of Notes to be redeemed, at a redemption price equal to the sum of (i) the then
outstanding principal amount thereof plus (ii) accrued and unpaid interest
thereon and Liquidated Damages, if any, to the redemption date plus (iii) the
Applicable Premium.
(d) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.15 hereof, the Company
shall not be required to make mandatory redemption payments with respect to the
Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company and
Holdings shall be required to commence an offer to all Holders to purchase Notes
(an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company and Holdings shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer.
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The Asset Sale Offer shall be made to all Holders. The notice, which shall
govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale
Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d) that, unless the Company or Holdings defaults in making such
payment, any Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased and
may not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depository or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new
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Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent (if other than the Company, Holdings or any of
their Subsidiaries) holds as of 10:00 a.m. Eastern Time on the due date money
deposited by the Company, Holdings in immediately available funds and designated
for and sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
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The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company and Holdings shall furnish to
all Holders (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Holdings were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of Holdings and its
consolidated subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and the Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries), but excluding exhibits, and, with respect to the
annual information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the SEC on Form 8-K if Holdings were required to file such reports. In addition,
whether or not required by the rules and regulations of the SEC, Holdings shall
file a copy of all such information and reports with the SEC for public
availability (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. The Company and each Guarantor shall at all times comply with TIA ss.
314(a).
(b) For so long as any Notes remain outstanding, the Company and
Holdings shall furnish to all Holders and to securities analysts and prospective
investors upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor shall deliver to the Trustee,
within 90 days after the end of each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company, Holdings and their
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company, Holdings and any other Guarantor have kept, observed, performed and
fulfilled their obligations under this Indenture, and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge the Company, Holdings and the other Guarantors (if any) have kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and are not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action the Company, Holdings and
any other Guarantor are taking or propose to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company, Holdings and any other
Guarantor are taking or propose to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's and Holdings' independent public accountants
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(who shall be a firm of established national reputation) that in making the
examination necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that the Company or
Holdings has violated any provisions of Article Four or Article Five hereof or,
if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be liable
directly or indirectly to any Person for any failure to obtain knowledge of any
such violation. In the event that such written statement of the Company's
independent public accountants cannot be obtained, the Company shall deliver an
Officer's Certificate certifying that it has used its best efforts to obtain
such statement but was unable to do so.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company, Holdings and any other Guarantor are
taking or propose to take with respect thereto.
SECTION 4.05. TAXES.
The Company and Holdings shall pay, and shall cause each of their
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings and with respect to which appropriate reserves have been
taken in accordance with GAAP or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and Holdings covenant (to the extent that they may
lawfully do so) that they shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company and
Holdings (to the extent that they may lawfully do so) hereby expressly waive all
benefit or advantage of any such law, and covenant that they shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company and Holdings shall not, and shall not permit any of the
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment distribution on account of the Company's,
Holdings' or any of the Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or Holdings) or to the direct or indirect holders of the
Company's, Holdings' or any Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Holdings; (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company or Holdings
any Equity Interests of the Company, Holdings, any Restricted Subsidiary of the
Company or Holdings, or any Affiliate of the Company or Holdings (other than any
such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes (other than Notes), except a payment of interest or
principal at (other than interest payments on any Exchange Notes or Qualified
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Subordinated Indebtedness) Stated Maturity or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company (in the case of a Restricted Payment by the Company
or any of its Restricted Subsidiaries) or Holdings (in all other cases)
would, at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have a Fixed Charge
Coverage Ratio of a least 2.0 to 1 pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09 hereof;
(c) in the case of a Restricted Payment of the Company or a
Restricted Subsidiary of the Company, such Restricted Payment, together
with the aggregate of all other Restricted Payments made by the Company
and its Restricted Subsidiaries after the date of this Indenture
(excluding Restricted Payments permitted by clause (ii) of the second
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated
Net Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the date
of this Indenture to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by the Company from the issue or sale
since the date of this Indenture of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of
the Company that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or convertible debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of this Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment plus (iv) the amount resulting from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (in each case, such
amount to be valued as provided in the second succeeding paragraph) not to
exceed the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary and which was
treated as a Restricted Payment under this Indenture; and
(d) in the case of a Restricted Payment by Holdings or a Restricted
Subsidiary of Holdings (other than the Company or a Restricted Subsidiary
of the Company), such Restricted Payment, together with the aggregate of
all other Restricted Payments made by Holdings, the Company and their
Restricted Subsidiaries after the date of this Indenture (excluding
Restricted Payments permitted by clause (ii) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of Holdings for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of this
Indenture to the end of Holdings' most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by Holdings from the issue or sale since the date
of this Indenture of Equity Interests of Holdings (other than Disqualified
Stock) or of Disqualified Stock or debt securities of Holdings that have
been converted into such Equity Interests (other than Equity Interests (or
Disqualified
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Stock or convertible debt securities) sold to a Subsidiary of Holdings and
other than Disqualified Stock or convertible debt securities that have
been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of this Indenture is
sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment plus (iv) the amount resulting from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (in each case,
such amount to be valued as provided in the second succeeding paragraph)
not to exceed the amount of Investments previously made by Holdings in
such Unrestricted Subsidiary and which was treated as a Restricted Payment
under this Indenture.
The foregoing provisions will not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of other Equity Interests
of the Company (other than any Disqualified Stock); provided that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c) (ii) of paragraph (c) above; (iii) the redemption, repurchase,
retirement, defeasance or other acquisition of any subordinated Indebtedness or
Equity Interests of Holdings in exchange for, or out of the net cash proceeds
of, the substantially concurrent sale (other than to the Company or a Restricted
Subsidiary of Holdings) of other Equity Interests of Holdings (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (d)(ii) of paragraph (d) above;
(iv) the defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (v) the making of any Restricted Payment by Holdings
utilizing the proceeds of a Restricted Payment made by the Company to Holdings
in accordance with this Indenture; (vi) the payment of any dividend by a
Restricted Subsidiary of the Company or Holdings (other than the Company) to the
holders of its common Equity Interests on a pro rata basis; (vii) so long as no
Default or Event of Default shall have occurred and is continuing, the
repurchase, redemption or other retirement for value of any Equity Interests of
the Company, Holdings or a Restricted Subsidiary, or dividends or other
distributions by the Company to Holdings the proceeds of which are utilized by
Holdings to repurchase, redeem or otherwise acquire or retire for value any
Equity Interests of Holdings, in each case, held by any member of the
management, employees or consultants of the Company, a Restricted Subsidiary or
Holdings pursuant to any management, employee or consultant equity subscription
agreement or stock option agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed the sum of (x) $500,000 in any twelve-month period and (y) the aggregate
cash proceeds received by the Company or Holdings from any reissuance of Equity
Interests by Holdings or the Company to members of management of the Company or
Holdings (provided that the cash proceeds referred to in this clause (y) shall
be excluded from clause (c) (ii) of paragraph (c) above); (viii) dividends or
other payments to Holdings sufficient to enable Holdings to pay (x) accounting,
legal, corporate reporting and administrative expenses of Holdings incurred in
the ordinary course of business, (y) required fees and expenses, and any
adjustments to the purchase price under the Stock Purchase Agreement, in each
case in connection with the Recapitalization, and (z) the registration fees and
expenses under applicable laws and regulations of its debt or equity securities;
and (ix) payments to Holdings pursuant to the Tax Sharing Agreement. In
addition, the Company may make a distribution to Holdings to enable Holdings to
consummate the Recapitalization.
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The Board of Directors of the Company or Holdings, as the case may
be, may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if
such designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by the Company, Holdings and the
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greater (x) the net
book value of such Investments at the time of such designation and (y) the fair
market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a Board Resolution delivered to the Trustee) on
the date of the Restricted Payment of the asset(s) or securities proposed to be
transferred or issued by the Company, Holdings or such Subsidiary, as the case
may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors of the
Company or Holdings, as the case may be, whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based upon an
opinion or appraisal issued by an accounting, appraisal or investment banking
firm of national standing if such fair market value exceeds $5.0 million.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section were computed, together with a copy of any
fairness opinion or appraisal required by this Indenture, which calculations may
be based upon Holdings' latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company and Holdings shall not, and shall not permit any
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company, Holdings or any of the Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any Indebtedness owed to the
Company, Holdings or any of the Restricted Subsidiaries, (ii) make loans or
advances to the Company, Holdings or any of the Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company, Holdings or any of the
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) applicable law, (b) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company, Holdings or
any of the Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of
this Indenture to be incurred, (c) by reason of customary non-assignment
provisions in leases, licenses, encumbrances, contracts or similar assets
entered into or acquired in the ordinary course of business and consistent with
past practices, (d) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (e) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien on,
any property or assets of the Company,
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Holdings or any Restricted Subsidiary not otherwise prohibited by this
Indenture, (f) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary, (g) Indebtedness of the Company and its Restricted
Subsidiaries containing restrictions on dividends, distributions and other
payments to Holdings and its Restricted Subsidiaries (other than the Company and
its Restricted Subsidiaries), (h) the New Credit Facility, provided that such
restrictions are no more restrictive than those contained in the New Credit
Facility as in effect on the Issue Date or such Permitted Refinancing
Indebtedness is no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company and Holdings shall not, and shall not permit any of their
respective Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), shall not issue any Disqualified Stock
and shall not permit any of their respective Subsidiaries to issue any shares of
preferred stock; provided, however, that (i) the Company may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock if the Fixed
Charge Coverage Ratio of the Company for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 1.75 to 1, if such
incurrence or issuance is on or prior to December 15, 1999 or 2.0 to 1, if such
incurrence or issuance is after December 15, 1999, in each case, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period and (ii) Holdings may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio
of Holdings for Holdings' most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 1.75 to 1, if such incurrence or issuance is on
or prior to December 15, 1999, or 2.0 to 1, if such incurrence or issuance is
after December 15, 1999, in each case, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions for the first paragraph of this Section 4.09 will not
apply to the incurrence of any of the following (collectively, "Permitted
Debt"), each of which shall be given independent effect:
(i) the incurrence by the Company, Holdings and their respective
Subsidiaries of Indebtedness (including letters of credit), or guarantees
of such Indebtedness, pursuant to the term loan portion of the New Credit
Facility; provided that, after giving pro forma effect to any such
incurrence and the application of the proceeds therefrom, the aggregate
principal amount of all Indebtedness of the Company, Holdings and their
Subsidiaries outstanding under the term loan portion of the New Credit
Facility does not exceed $100.0 million less the aggregate amount of all
Net Proceeds of Asset Sales applied to permanently repay any such
Indebtedness pursuant to Section 4.10 hereof;
(ii) the incurrence by the Company, Holdings and their respective
Subsidiaries of Indebtedness (including letters of credit), or guarantees
of such Indebtedness, pursuant to the revolving loan portion
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of the New Credit Facility (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company,
Holdings and their Subsidiaries thereunder); provided that, after giving
pro forma effect to any such incurrence and the application of the
proceeds therefrom, the aggregate principal amount of all Indebtedness
(including letters of credit) of the Company, Holdings and their
Subsidiaries outstanding under the revolving loan portion of the New
Credit Facility does not exceed the greater of (x) $75.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
repay any such Indebtedness pursuant to Section 4.10 hereof; or (y) the
amount of the Borrowing Base as of any date of incurrence;
(iii) the incurrence by the Company of Indebtedness represented by
the Notes (other than any Additional Notes), the incurrence by Holdings of
the Holdings Guarantee or the incurrence by any Restricted Subsidiary of
Subsidiary Guarantees;
(iv) the incurrence by the Company, Holdings or any of their
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company, Holdings or such Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(v) the incurrence by any corporation that becomes a Subsidiary of
the Company after the Issue Date of Acquired Debt, which Indebtedness is
existing at the time such corporation becomes a Subsidiary; provided,
however, that (A) either (x) the principal amount (or accreted value, as
applicable) of such Acquired Debt, together with any other outstanding
Indebtedness incurred pursuant to this clause (iv), does not exceed $5.0
million since the Issue Date or (y) immediately after giving effect to
such corporation becoming a Subsidiary, Holdings could incur at least
$1.00 of additional Indebtedness (other than Permitted Debt) in accordance
with this Indenture (B) such Indebtedness is without recourse to the
Company, Holdings or to any of their respective Subsidiaries or to any of
their respective properties or assets other than Person becoming a
Subsidiary or its properties and assets and (C) such Indebtedness was not
incurred as a result of or in connection with or in contemplation of such
entity becoming a Subsidiary;
(vi) the incurrence by the Company, Holdings or any of their
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by this Indenture to be
incurred;
(vii) the incurrence of intercompany Indebtedness between or among
the Company, Holdings and any of their respective Wholly Owned Restricted
Subsidiaries; provided, however, that (i) if the Company or Holdings is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii) (A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company, Holdings or a Wholly Owned Restricted
Subsidiary and (B) any sale or other transfer of any such Indebtedness to
a Person that is not either the Company, Holdings or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company, Holdings or such
Subsidiary, as the case may be;
(viii)Indebtedness of an Unrestricted Subsidiary owed to and held by
the Company, Holdings or a Restricted Subsidiary, provided that the
Company, Holdings or such Restricted Subsidiary is permitted
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to make an investment in such Unrestricted Subsidiary under this Indenture
at the time such Indebtedness is incurred in an amount equal to the
principal amount of such Indebtedness;
(ix) the incurrence by the Company or Holdings of Hedging Obligations
that are incurred for the purpose of fixing or hedging currency risk or
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(x) the incurrence by Unrestricted Subsidiaries of Non-Recourse Debt,
provided, however, that if any such Indebtedness ceases to be Non-Recourse
Debt of an Unrestricted Subsidiary, such event shall be deemed to
constitute an incurrence of Indebtedness by a Restricted Subsidiary;
(xi) Indebtedness incurred in respect of performance, surety and
similar bonds provided by the Company, Holdings and the Restricted
Subsidiaries in the ordinary course of business, and refinancings thereof;
(xii) Indebtedness for letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the
ordinary course of business;
(xiii) Indebtedness arising from guarantees of Indebtedness of the
Company, Holdings or any Subsidiary or other agreements of the Company,
Holdings or a Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or Subsidiary,
other than guarantees of Indebtedness incurred by any person acquiring all
or any portion of such business, assets or Subsidiary for the purpose of
financing such acquisition, provided that the maximum aggregate liability
in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company, Holdings and their Subsidiaries
in connection with such disposition;
(xiv) the issuance by Holdings, on the Issue Date, of shares of
Holdings Preferred Stock, with an aggregate liquidation value of up to
$17.6 million and the issuance of additional shares of Holdings Preferred
Stock as dividends on outstanding shares of Holdings Preferred Stock
subsequent to the Issue Date in accordance with the terms of the Holdings
Preferred Stock;
(xv) the incurrence of Exchange Notes issued (a) in exchange for all,
but not less than all, of the outstanding Holdings Preferred Stock in
accordance with the terms of the Holdings Preferred Stock as in effect on
the Issue Date, if immediately prior to giving effect to the incurrence of
such Exchange Notes, the Fixed Charge Coverage Ratio of Holdings would
have been at lease 2.0 to 1 pursuant to the Fixed Charge Ratio test set
forth in clause (ii) of the proviso of the first paragraph of this
Section; provided that, in calculating such Fixed Charge Coverage Ratio of
Holdings, no effect shall be given to clause (ii) of the definition of
"Consolidated Net Income" and (b) as interest on Exchange Notes originally
issued in compliance with this Indenture;
(xvi) the incurrence by Holdings of Qualified Subordinated
Indebtedness in an aggregate principal amount not to exceed $5.0 million
at any time outstanding; and
(xvii) the incurrence by the Company, Holdings or any of their
Subsidiaries of additional Indebtedness (in addition to Indebtedness
permitted by any other clause of this paragraph) in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding not to
exceed $20.0 million.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
SECTION 4.10. ASSET SALES.
The Company and Holdings shall not, and shall not permit any of their
respective Subsidiaries to consummate an Asset Sale unless (i) the Company,
Holdings or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a Board Resolution set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company, Holdings or such Restricted Subsidiary is in the form
of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as
shown on the Company's, Holdings' or such Restricted Subsidiary's most recent
balance sheet) of the Company, Holdings or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes), the Holdings Guarantee or any Subsidiary Guarantee) that are assumed
by the transferee of any such assets pursuant to a customary novation agreement
that releases the Company, Holdings or such Restricted Subsidiary from further
liability and (y) any notes or other obligations received by the Company,
Holdings or any such Restricted Subsidiary from such transferee that are
immediately converted by the Company, Holdings or such Restricted Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this Section.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or Holdings, as the case may be, may apply such Net Proceeds,
at its option, (a) to permanently reduce outstanding Senior Indebtedness (and
correspondingly reduce commitments thereunder) or (b) to acquire a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in the same or a similar
line of business as the Company was engaged in on the date of this Indenture.
Pending the final application of any such Net Proceeds, the Company or Holdings,
as the case may be, may temporarily reduce revolving credit Indebtedness or
otherwise invest such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company and Holdings shall commence an Asset Sale Offer pursuant to
Section 3.09 hereof to purchase the maximum principal amount of Notes that may
be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in Section 3.09 hereof. To the extent that the
aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company or Holdings, as the case may be, may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
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SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company and Holdings shall not, and shall not permit any
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of their respective properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company, Holdings or the relevant Restricted Subsidiary,
as the case may be, than those that would have been obtained in a comparable
transaction by the Company, Holdings or such Restricted Subsidiary, as the case
may be, with an unrelated Person and (ii) the Company or Holdings delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a Board Resolution approving such Affiliate Transaction and an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing; provided, that (x) any employment agreement entered into by
the Company, Holdings or any of their Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company, Holdings or such
Subsidiary, (u) transactions between or among (A) the Company and/or its
Restricted Subsidiaries and (B) Holdings and its Restricted Subsidiaries (other
than the Company and its Restricted Subsidiaries), (v) Restricted Payments
(other than Restricted Investments) that are permitted by Section 4.07 hereof,
(w) investment banking and management fees in an aggregate amount no greater
than $240,000 in the aggregate in any calendar year (plus reimbursement of
expenses) to be paid by the Company and/or Holdings to the Principals or any
Related Party, (x) an aggregate cash fee of $3.25 million payable by the Company
and/or Holdings to the Principals or any Related Party or UBS Capital LLC on or
about the Issue Date and (y) any loans made to the Company under the New Credit
Facility by an Affiliate of the Union Bank of Switzerland and fees and
reimbursement of expenses in respect thereof and (z) discounts and commissions
payable to UBS Securities LLC in the Offering of the Notes, in each case, shall
not be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company and Holdings shall not, and shall not permit any of their
respective Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS.
The Company and Holdings shall not, and shall not permit any
Restricted Subsidiaries to, enter into any sale and leaseback transaction (other
than, (x) among the Company and Wholly Owned Restricted Subsidiaries of the
Company or (y) among Wholly Owned Restricted Subsidiaries of the Company);
provided that the Company or Holdings may enter into a sale and leaseback
transaction if (i) the Company or Holdings, as the case may be, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to Section 4.09 hereof and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof,
(ii) the gross cash proceeds of such sale and leaseback transaction are at least
equal to the fair market value (as determined in good faith by the Board of
Directors
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of the Company or Holdings, as applicable, and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company or Holdings, as
the case may be, applies the proceeds of such transaction in compliance with,
Section 4.10 hereof.
SECTION 4.14. CORPORATE EXISTENCE.
(a) Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if its
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
(b) Subject to Article 5 hereof, Holdings shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of Holdings or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of Holdings and its Subsidiaries; provided, however, that Holdings shall not be
required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of its Subsidiaries, if its Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of Holdings and its Subsidiaries, taken as a
whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer (a "Change of Control Offer") to each Holder to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of each Holder's
Notes at a purchase price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of repurchase (the "Change of Control Payment"). Within 15
days following any Change of Control, the Company shall mail to each Holder a
notice describing the transaction or transactions that constitute the Change of
Control and stating: (1) that the Change of Control Offer is being made pursuant
to this Section 4.15 and that all Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed (the "Change
of Control Payment Date"); (3) that any Note not tendered will continue to
accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date; (5) that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer will be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of
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the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes in connection with a
Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered; provided that each such new Note shall be in a principal
amount of $1,000 or an integral multiple thereof. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
(c) Prior to complying with the provisions of this Section 4.15, but
in any event within 75 days following a Change of Control, the Company shall
either repay all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Indebtedness
to permit the repurchase of Notes required by this Section 4.15.
(d) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture, applicable to a Change of Control
Offer made by the Company and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the
Company shall not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Indebtedness and senior in any respect in right of payment to the
Notes and (ii) no Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Indebtedness of such Guarantor, and senior in any
respect in right of payment to such Guarantor's guarantees of the Notes.
SECTION 4.17. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES.
(a) The Company (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any such Wholly Owned Restricted
Subsidiary to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer,
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conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof and, (ii) shall not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
(b) Holdings (i) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of Holdings to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any such Wholly Owned Restricted Subsidiary to
any Person (other than Holdings or a Wholly Owned Restricted Subsidiary of
Holdings), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with Section 4.10 hereof,
and (ii) shall not permit any Wholly Owned Restricted Subsidiary of Holdings to
issue of any its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to Holdings or a Wholly Owned Restricted Subsidiary of Holdings.
SECTION 4.18. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Company and Holdings shall not permit any Restricted Subsidiary
to guarantee the payment of any Indebtedness of the Company, Holdings or any
other Restricted Subsidiary, (in each case, the "Guaranteed Debt"), unless (i)
if such Restricted Subsidiary is not a Guarantor, such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Subsidiary Guarantee of payment of the Notes by such Restricted
Subsidiary, (ii) if the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary are subordinated in right of payment to the Guaranteed
Debt, the Subsidiary Guarantee under the supplemental indenture shall be
subordinated to such Restricted Subsidiary's guarantee with respect to the
Guaranteed Debt substantially to the same extent as the Notes or the Subsidiary
Guarantee are subordinated to the Guaranteed Debt under this Indenture, (iii) if
the Guaranteed Debt is by its express terms subordinated in right of payment to
the Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary,
any such guarantee of such Restricted Subsidiary with respect to the Guaranteed
Debt shall be subordinated in right of payment to such Restricted Subsidiary's
Subsidiary Guarantee with respect to the Notes substantially to the same extent
as the Guaranteed Debt is subordinated to the Notes or the Subsidiary Guarantee
(if any) of such Restricted Subsidiary, (iv) such Restricted Subsidiary
subordinates rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee to its
obligation under its Subsidiary Guarantee, and (v) such Restricted Subsidiary
shall deliver to the Trustee an opinion of counsel to the effect that (A) such
Subsidiary Guarantee has been duly authorized, executed and delivered, and (B)
such Subsidiary Guarantee constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary, except insofar as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity.
SECTION 4.19. PAYMENTS FOR CONSENT.
Neither the Company, nor Holdings nor any of their respective
Subsidiaries shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of this Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders
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of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation) or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to another corporation, Person or
entity unless (i)(a) the Company is either the surviving corporation or (b) the
entity or the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes
and this Indenture, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction, no
Default or Event of Default exists; (iv) except in the case of a merger of the
Company with or into a Wholly Owned Restricted Subsidiary, the Company or the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof; and (v) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, sale assignment, transfer, lease, conveyance or
other disposition and such supplemental indenture complies with this Indenture
and that all conditions precedent provided for in this Indenture relating to
such transaction have been complied with.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not
prohibited by the subordination provisions of this Indenture);
(ii) default in the payment when due of principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination
provisions of this Indenture);
(iii) failure by the Company or Holdings to comply with the
provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 hereof;
(iv) failure by the Company or Holdings for 60 days after notice
by the Trustee to the Company or by Holders of at least 25% in
aggregate principal amount of the outstanding Notes to the Company
and the Trustee to comply with any of its other agreements in this
Indenture, the Notes or any Guarantee;
(v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company,
Holdings or any of the Restricted Subsidiaries (or the payment of
which is guaranteed by the Company, Holdings or any of the Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or
interest on the final maturity date of such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount
of such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more;
(vi) failure by the Company, Holdings or any of the Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a
period of 60 days;
(vii) except as permitted by this Indenture or any Guarantee that
is given by a Guarantor, any Guarantee of a Significant Restricted
Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full
force and effect;
(viii) the Company, Holdings or any of their Significant
Restricted Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary pursuant to or
within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
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(b) consents to the entry of an order for relief against it
in an involuntary case,
(c) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors, or
(e) generally is not paying its debts as they become due; or
(ix) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against Holdings, the Company or any of
their respective Significant Restricted Subsidiaries or any group
of such Subsidiaries that, taken as a whole, would constitute such
a Significant Restricted Subsidiary in an involuntary case;
(b) appoints a Custodian of the Company, Holdings or any of
their respective Significant Restricted Subsidiaries or any group
of Subsidiaries that, taken as a whole, would constitute a
Significant Restricted Subsidiary or for all or substantially all
of the property of the Company, Holdings or any of its Significant
Restricted Subsidiaries or any group of Restricted Subsidiaries
that, taken as a whole, would constitute a Significant Restricted
Subsidiary; or
(c) orders the liquidation of the Company, Holdings or any of
its Significant Subsidiaries or any group of Restricted
Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (viii) or (ix) of Section 6.01 hereof) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes by written notice to the Company (and the Trustee, if given by
Holders) may declare the unpaid principal of, premium, if any, and accrued and
unpaid interest and Liquidated Damages, if any, on all the Notes to be due and
payable; provided, however, that such declaration will not become effective
until the earlier to occur of (i) the acceleration of the maturity of any
Indebtedness under the New Credit Facility or (ii) five Business Days after the
Agent under the New Credit Facility or other designated representative of
holders of Senior Indebtedness shall have received written notice of the
intention of such Holders to accelerate. Upon such declaration the principal,
premium, if any, and interest and Liquidated Damages, if any, on all the Notes
shall be due and payable immediately. Notwithstanding the foregoing, if an Event
of Default specified in clause (viii) or (ix) of Section 6.01 hereof occurs, all
outstanding Notes shall be due and payable immediately without further action or
notice. The Holders of a majority in aggregate principal amount of the then
outstanding Notes by written notice to the Trustee may on behalf of all of the
Holders rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
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If an Event of Default occurs by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding payment of the premium that the Company would have had to pay if the
Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, upon the acceleration of the Notes. If an Event of
Default occurs prior to December 15, 2002 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Notes prior to such date, then,
upon acceleration of the Notes, the premium, as discussed below, shall also
become and be immediately due and payable in an amount, for each of the years
beginning on December 15 of the years set forth below, as set forth below:
Year Percentage
1997...............................................109.8750%
1998...............................................108.8875%
1999...............................................107.9000%
2000...............................................106.9125%
2001...............................................105.9250%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal, premium and Liquidated Damages, if any, or interest
on, the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with
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law or this Indenture that the Trustee determines may be unduly prejudicial to
the rights of other Holders or that may involve the Trustee in personal
liability. The Trustee may take any other action which it deems proper which is
not inconsistent with any such direction. Notwithstanding any provision to the
contrary in this Indenture, the Trustee shall not be obligated to take any
action with respect to the provisions of the last paragraph of Section 6.02
hereof unless directed to do so pursuant to this Section 6.05.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes if:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default or the Trustee receives such notice from the Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(i) or (ii) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company or any other obligor for
the whole amount of principal of, premium, if any, and interest and Liquidated
Damages, if any, remaining unpaid on the Notes and interest on overdue principal
and, to the extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all other amounts due the Trustee pursuant to Section
7.07 hereof.
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SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due the Trustee pursuant to Section 7.07 hereof) and the Holders allowed
in any judicial proceedings relative to the Company (or any other obligor upon
the Notes), its creditors or its property and shall be entitled and empowered to
collect, receive and distribute any money or other property payable or
deliverable on any such claims and any custodian in any such judicial proceeding
is hereby authorized by each Holder to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments directly
to the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders for amounts due and unpaid on the Notes for
principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: without duplication, to Holders for any other Obligations
owing to the Holders under this Indenture or the Notes; and
Fourth: to the Company or to such other party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.10.
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SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the Trustee need
perform only those duties that are specifically set forth in this
Indenture or the TIA and no others, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii)the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section 7.01.
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(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders pursuant to the
provisions of this Indenture, including, without limitation, the provisions of
Section 6.05 hereof, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or documents, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, Holdings or any other Guarantor, personally or by agent or
attorney.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company. A permissive right granted to the Trustee
hereunder shall not be deemed an obligation to act.
(f) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless either (i) a Responsible Officer of the Trustee shall
have actual knowledge of such Default or Event of Default or (ii) written notice
of such Default or Event of Default shall have been given to the Trustee by the
Company or any Holder.
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as defined in the TIA) it must eliminate such conflict within 90 days,
apply to the SEC for permission to continue as trustee or resign. Any Agent may
do the same with like rights and duties. The Trustee is also subject to Sections
7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Notes, or any Guarantee it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to a Responsible Officer of the Trustee, the Trustee shall mail to the
Holders of the Notes a notice of the Default or Event of Default within 90 days
after it occurs. Except in the case of a Default or Event of Default in payment
on any Note pursuant to Section 6.01(i) and (ii) hereof, the Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of the
Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders a brief report dated as of such reporting date
that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a)
has occurred within the twelve months preceding the reporting date, no report
need be transmitted). The Trustee also shall comply with TIA ss. 313(b). The
Trustee shall also transmit by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders shall
be mailed to the Company and filed with the SEC and each stock exchange on which
the Notes are listed in accordance with TIA ss. 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder as
provided from time to time in agreements between the Company and the Trustee.
The Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services.
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Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other Person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the resignation and removal of the Trustee and the satisfaction and discharge of
this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation and
removal of the Trustee and the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(viii) or (ix) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
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(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder, fails to comply
with Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the successor corporation without any further act shall be the
successor Trustee or Agent.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50.0
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest and Liquidated Damages, if any,
on such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Section 8.02, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 3.09, 4.03, 4.04, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 5.01 and 11.04
hereof with respect to the outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not "outstanding" for the purposes of
any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the
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conditions set forth in Section 8.04 hereof, Sections 6.01(iii) through 6.01(vi)
hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders, cash in United States
dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium and Liquidated Damages, if any, and
interest on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be and the Company must
specify whether the Notes are being defeased to maturity or to a
particular redemption date;
(ii) in the case of an election under Section 8.02 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of
this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(iii) in the case of an election under Section 8.03
hereof, the Company shall have delivered to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default
or Event of Default resulting from resulting from the borrowing of
funds to be applied to such deposit) or insofar as Sections
6.01(viii) or 6.01(ix) hereof is concerned, at any time in the period
ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than this Indenture) to
which the Company, Holdings or any of their Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
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applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
(viii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains
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unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the Notes or
any Guarantee without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's or any Guarantor's
obligations to the Holders of the Notes in the case of a merger or
consolidation pursuant to Article 5 hereof;
(d) to provide for the issuance of a Subsidiary Guarantee by a
Subsidiary of the Company or Holdings;
(e) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture on the Issue Date;
(f) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any such Holder; or
(g) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by resolutions of its and
the Guarantor's Board of Directors authorizing the execution of any such amended
or supplemental Indenture, and upon receipt by the
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Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company and the Guarantors in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture and the Notes
and the Guarantees may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then outstanding
(including without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a Default
or Event of Default in the payment of the principal of, premium, if any, or
interest or Liquidated Damages, if any, on the Notes, except a payment default
resulting from an acceleration that has been rescinded) or compliance with any
provision of this Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes). In addition, without the consent of at least 75% in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for such Notes), no waiver or amendment to
this Indenture may make any change in the provisions of Article 10 hereof that
adversely affects the rights of any Holder of Notes.
Upon the request of the Company accompanied by resolutions of its and
the Guarantors' Board of Directors authorizing the execution of any such amended
or supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company and the Guarantors in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company or any Guarantor with any
provision of this Indenture or, the Notes or the Guarantees. However, without
the consent of each Holder affected, an amendment or waiver may not (with
respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
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(ii) reduce the principal of or change the fixed maturity of any
Notes or alter the provisions with respect to the redemption of the
Notes (except as provided above with respect to Sections 3.09, 4.10
and 4.15 hereof);
(iii) reduce the rate of or change the time for payment of
interest and Liquidated Damages on any Note;
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest and Liquidated Damages,
if any, on the Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate principal
amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any, or
interest and Liquidated Damages, if any, on the Notes;
(vii) waive a redemption payment with respect to any Note (other
than a payment required by Sections 3.09, 4.10 and 4.15 hereof;
(viii) release any Guarantor from any of its obligations under
its Guarantee or this Indenture, except in accordance with the terms
of this Indenture; or
(ix) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Notes or the
Guarantees shall be set forth in a amended or supplemental Indenture that
complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
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Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
Neither the Company nor any Guarantor may sign an amendment or supplemental
Indenture until its respective Board of Directors approves it. In executing any
amended or supplemental indenture, the Trustee shall be entitled to receive and
(subject to Section 7.01) shall be fully protected in relying upon, an Officer's
Certificate and an Opinion of Counsel stating that the execution of such amended
or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder of Notes by accepting a Note
agrees, that all Obligations on the Notes are subordinated in right of payment,
to the extent and in the manner provided in this Article, to the prior payment
in full in cash of all Senior Indebtedness (whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Indebtedness.
SECTION 10.02. CERTAIN DEFINITIONS.
A distribution may consist of cash, securities or other property, by
set-off or otherwise.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company or Holdings in a
liquidation or dissolution of the Company, as the case may be, or Holdings or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or their respective property, an assignment for the
benefit of creditors or any marshalling of the Company's or Holdings' assets and
liabilities, the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before Holders of
Notes shall be entitled to receive any payment with respect to the Notes or the
Holdings Guarantee and until all Obligations with respect to Senior Indebtedness
are paid in full in cash (and all commitments or other Obligations under the New
Credit Facility have been terminated), any distribution to which the Holders of
Notes would be entitled shall be made to the holders of Senior Indebtedness
(except that Holders of Notes may receive securities that are subordinated to at
least the same extent as the Notes to Senior Indebtedness and any securities
issued in exchange for Senior Indebtedness and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof); and
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SECTION 10.04. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS.
The Company and Holdings may not make any payment or distribution to
the Trustee or any Holder of Notes in respect of Obligations with respect to the
Notes and may not acquire from the Trustee or any Holder of Notes any Notes for
cash or property (other than (i) securities that are subordinated to at least
the same extent as the Notes to (a) Senior Indebtedness and (b) any securities
issued in exchange for Senior Indebtedness and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof) until all principal and other Obligations with respect to the Senior
Indebtedness have been paid in full if:
(i) a default in the payment of any Obligation on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of
grace in the agreement, indenture or other document governing such
Designated Senior Indebtedness; or
(ii) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage Notice") from a
Person who may give it pursuant to Section 10.12 hereof. If the Trustee
receives any such Payment Blockage Notice, no subsequent Payment Blockage
Notice shall be effective for purposes of this Section unless and until
(i) at least 360 days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments
of principal, premium, if any, and interest on the Notes that have come
due have been paid in full in cash. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
The Company and/or Holdings may and shall resume payments on and
distributions in respect of the Notes or the Holdings Guarantee, as applicable,
and may acquire them upon the earlier of:
(1) the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.04(ii) hereof,
the earlier of the date on which such nonpayment default is cured or
waived or 179 days pass after a Payment Blockage Notice is received,
unless the maturity of such Designated Senior Indebtedness has been
accelerated,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.05. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify the agent under the New Credit
Facility and the holders of Senior Indebtedness of the acceleration and any such
acceleration shall be subject to Section 6.02 thereof.
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SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of Notes receives any
payment of any Obligations with respect to the Notes at a time when the Trustee
or such Holder of Notes, as applicable, has actual knowledge that such payment
is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee
or such Holders of Notes, in trust for the benefit of, and shall be paid
forthwith over and delivered, to the agent under the New Credit Facility with
respect to Obligations thereunder or, if no Obligations or commitments are
outstanding thereunder as provided in Section 10.03 hereof, to the holders of
other Senior Indebtedness or the Representative for such other holders under the
indenture of other agreement (if any) pursuant to which such other Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all Obligations with respect to the New Credit
Facility and, if no Obligations or commitments with respect thereto are
outstanding as provided in Section 10.03 hereof, all other Senior Indebtedness
remaining unpaid to the extent necessary to pay such Obligations in full in
accordance with their terms and Section 10.03 hereof, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holder of Notes or the Company or Holdings or any other Person money
or assets to which any holders of Senior Indebtedness shall be entitled by
virtue of this Article 10, except if such payment is made as a result of the
willful misconduct or gross negligence of the Trustee.
SECTION 10.07. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company or Holdings that would cause a payment of any
Obligations with respect to the Notes to violate this Article, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article.
SECTION 10.08. SUBROGATION.
After all Senior Indebtedness is paid in full and commitments under
the New Credit Facility have been terminated as provided in Section 10.03 hereof
and until the Notes are paid in full, Holder of Notes shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Notes) to
the rights of holders of Senior Indebtedness to receive distributions applicable
to Senior Indebtedness to the extent that distributions otherwise payable to the
Holder of Notes have been applied to the payment of Senior Indebtedness. A
distribution made under this Article to holders of Senior Indebtedness that
otherwise would have been made to Holder of Notes is not, as between the Company
and Holder of Notes, a payment by the Company on the Notes.
SECTION 10.09. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of Notes and
holders of Senior Indebtedness. Nothing in this Indenture shall:
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(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the Trustee or any Holders of Notes from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders of Notes.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given the agent
under the New Credit Facility with respect to Obligations thereunder and to any
other designated Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article 10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article. Only the Company, Holdings,
the agent under the New Credit Facility or (if all Obligations under the New
Credit Facility have been paid in full in cash and all commitments thereunder
terminated as provided in Section 10.03 hereof) the holders of any other
designated Senior Indebtedness may give the notice. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
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The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes
and directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, the Representatives are hereby authorized to file an appropriate claim
for and on behalf of the Holders of the Notes.
SECTION 10.14. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Senior Indebtedness.
ARTICLE 11
GUARANTEES
SECTION 11.01. GUARANTEES.
Each Guarantor fully and unconditionally guarantees to each Holder of
a Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes or the obligations of the Company hereunder or thereunder,
that: (a) the principal of and interest on the Notes will be promptly paid in
full when due, whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest on the Notes, if any, if
lawful, and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Notes or any of such other obligations,
that same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed
or any performance so guaranteed for whatever reason, such Guarantor will be
obligated to pay the same immediately. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenant that its Guarantee will
not be discharged except by complete performance of the obligations contained in
the Notes and this Indenture. If any Holder or the Trustee is required by any
court or otherwise to return to the Company or the Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to either the
Company or the Guarantors, any amount paid by any such entity to the Trustee or
such Holder, the Guarantees, to the extent theretofore
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discharged, shall be reinstated in full force and effect. Each Guarantor agrees
that it shall not be entitled to any right of subrogation in relation to the
Holders in respect of any obligations guaranteed hereby until payment in full of
all obligations guaranteed hereby. Each Guarantor further agrees that, as
between the Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 for the purposes of the Guarantees,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such obligations as provided in
Article 6, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantors for the purpose of the Guarantees. The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Guarantees.
SECTION 11.02. EXECUTION AND DELIVERY OF GUARANTEE.
To evidence its Guarantee set forth in Section 11.01, each Guarantor
hereby agrees that a notation of such Guarantee substantially in the form of
Exhibit C, which is part of this Indenture, shall be endorsed by an officer of
such Guarantor on each Note authenticated and delivered by the Trustee and that
this Indenture shall be executed on behalf of such Guarantor by its President or
one of its Vice Presidents.
Each Guarantor hereby agrees that its Guarantee set forth in Section
11.01 shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
If the Officer whose signature is on this Indenture or on the
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Guarantee is endorsed, the Guarantee shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee set forth in
this Indenture on behalf of such Guarantor.
SECTION 11.03. SUBORDINATION OF GUARANTEES.
Each Guarantor agrees, and each Holder by accepting a Note and the
Guarantees agrees, that the payment of all Obligations on the Notes pursuant to
the Guarantees is subordinated in right of payment, to the extent and in the
manner provided in Article 10, to the prior payment of all Senior Indebtedness
guaranteed by such Guarantor and the subordination set forth herein is for the
benefit of and enforceable by the holders of Senior Indebtedness. Each Holder by
accepting a Note authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to acknowledge or effectuate the
subordination between the Holders and the holders of Senior Indebtedness as
provided in this Section 11.03 and appoints the Trustee as attorney-in-fact for
any and all such purposes.
Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provision is, and is intended to be, an inducement and a
consideration to each holder of any Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of the Notes,
to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, such Senior Indebtedness. No right of any holder of Senior Indebtedness to
enforce the subordination
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of the Indebtedness evidenced by the Notes shall be impaired by any act or
failure to act by the Company or Holdings by the failure of either to comply
with this Indenture.
SECTION 11.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Except as set forth in this Section and Articles 4 and 5, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into the Company or another
Guarantor, or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety, or substantially as an entirety, to the Company,
unless immediately after giving effect to such transaction, a Default or Event
of Default exists.
(b) Holdings may not consolidate with or merge with or into (whether
or not Holdings is the surviving Person), another corporation, Person or entity
whether or not affiliated with Holdings unless (i) subject to the provisions of
the following paragraph, the Person formed by or surviving any such
consolidation or merger (if other than Holdings) assumes all the obligations of
Holdings pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction, no Default or Event of Default exists;
(iii) Holdings, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of
Holdings immediately preceding the transaction; and (iv) Holdings would be
permitted immediately after giving effect to such transaction, to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in Section 4.09 hereof.
(c) Except as set forth in this Section and Articles 4 and 5, nothing
contained in this Indenture or in any of the Notes shall prevent any
consolidation or merger of a Subsidiary Guarantor with or into (whether or not
such Subsidiary Guarantor is the surviving Person) another corporation, Person
or entity, whether or not affiliated with such Subsidiary Guarantor, or
successive consolidations or mergers in which a Subsidiary Guarantor or its
successor or successors shall be a party or parties, or shall prevent any sale
or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety or any sale or other disposition of all the capital
stock of any Subsidiary Guarantor, to a corporation other than the Company
(whether or not affiliated with the Subsidiary Guarantor) authorized to acquire
and operate the same; provided, however, (i) that each Subsidiary Guarantor
shall covenant and agree that, upon any such consolidation, merger, sale or
conveyance, the Subsidiary Guarantee endorsed on the Notes, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in the merger), by supplemental indenture satisfactory in form and
substance to the Trustee, executed and delivered to the Trustee, by the
corporation formed by such consolidation or into which the Subsidiary Guarantor
shall have been merged, or by the corporation which shall have acquired such
property, (ii) that immediately after giving effect to such transaction, no
Default or Event of Default exists and (iii) that the Trustee shall be entitled
to receive and (subject to Section 7.01) shall be fully protected in relying
upon, an Officer's Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form and substance to
the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and
punctual performance of all of the covenants and conditions of this Indenture to
be performed by the Subsidiary Guarantor, such successor corporation shall
succeed to and be substituted for the Subsidiary Guarantor with the same effect
as if it had been named herein as a Subsidiary
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Guarantor. Such successor corporation thereupon may cause to be signed any or
all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
SECTION 11.05. RELEASES OF SUBSIDIARY GUARANTEES FOLLOWING SALE OF ASSETS.
Concurrently with any Asset Sale (including, if applicable, all of
the capital stock of any Subsidiary Guarantor), any Liens in favor of the
Trustee in the assets sold thereby shall be released; provided that in the event
of an Asset Sale, the Net Proceeds of such sale or other disposition are applied
in accordance with the provisions of Section 4.10 hereof. If the assets sold in
such sale or other disposition include all or substantially all of the assets of
any Subsidiary Guarantor or all of the capital stock of any Subsidiary
Guarantor, then such Subsidiary Guarantor (in the event of a sale or other
disposition of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of a Subsidiary Guarantor) shall be
released and relieved of its obligations under its Subsidiary Guarantee or
Section 11.04 hereof, as the case may be; provided that in the event of an Asset
Sale, the Net Proceeds from such sale or other disposition are treated in
accordance with the provisions of Section 4.10 hereof. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to
the effect that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture, including without limitation
Section 4.10 hereof, the Trustee shall execute any documents reasonably required
in order to evidence the release of any Subsidiary Guarantor from its
obligations under its Subsidiary Guarantee. Any Subsidiary Guarantor not
released from its obligations under its Subsidiary Guarantee shall remain liable
for the full amount of principal of and interest on the Notes and for the other
obligations of any Subsidiary Guarantor under this Indenture as provided in this
Article 11.
SECTION 11.06. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY.
Each Subsidiary Guarantor, and by its acceptance of Notes, each
Holder, hereby confirms that it is the intention of all such parties that the
Subsidiary Guarantee of such Subsidiary Guarantor not constitute a fraudulent
transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law to the extent applicable to any Subsidiary Guarantee. To effectuate
the foregoing intention, the Trustee, the Holders and the Subsidiary Guarantors
hereby irrevocably agree that the obligations of such Subsidiary Guarantor under
its Subsidiary Guarantee and this Article 11 shall be limited to the maximum
amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Subsidiary Guarantor that are relevant
under such laws, and after giving effect to any collections from, rights to
receive contribution from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under this Article 11, result in the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer
or conveyance.
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 11 shall in such case (unless the context
shall otherwise require) be construed as extending to and including such Paying
Agent within its
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meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article 11 in place of the Trustee.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss.318(c), the imposed duties shall control.
SECTION 12.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or Holdings:
DESA International, Inc.
2701 Industrial Drive
P.O. Box 90004
Bowling Green, Kentucky 42102
Telecopier No.: 502-781-5705
Attention: Edward G. Patrick
With a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopier No.: 617-338-2880
Attention: Michael A. Matzka, Esq.
If to the Trustee:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005
Facsimile No.: 212-658-6425
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
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All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
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<PAGE>
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator
or stockholder of the Company or Holdings, as such, shall have any liability for
any obligations of the Company, Holdings or any Subsidiary under the Notes, this
Indenture, the Guarantees or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SECTION 12.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company, Holdings or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
SECTION 12.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
73
<PAGE>
SIGNATURES
Dated as of November __, 1997 DESA INTERNATIONAL, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
DESA HOLDINGS CORPORATION
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Dated as of November __, 1997 MARINE MIDLAND BANK
Trustee
By:______________________________
Name:
Title:
<PAGE>
================================================================================
EXHIBIT A
(Face of Note)
97/8% Senior Subordinated Notes due 2007
CUSIP:
No. $130,000,000
DESA INTERNATIONAL, INC.
promises to pay to CEDE & CO or registered assigns, the principal sum
of One Hundred Thirty Million Dollars, or such greater or lesser amount
as may from time to time be endorsed on Schedule A hereto, on December
15, 2007.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Dated: November __, 1997
DESA INTERNATIONAL, INC.
By:______________________________
Name:
Title:
DESA HOLDINGS CORPORATION
By:______________________________
Name:
Title:
This is one of the Global
Notes referred to in
within-mentioned Indenture:
MARINE MIDLAND BANK,
as Trustee
By:
================================================================================
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<PAGE>
(Back of Note)
97/8% Senior Subordinated Notes due 2007
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuers or their agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]1/
[THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED
HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE HOLDER OF
THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (D) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1) ABOVE.]2/
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
- - - - --------
1. To be included only if the Note is issued in Global form.
2. This legend should be included on the Unregistered Notes and omitted from the
New Notes.
A-2
<PAGE>
1. INTEREST. DESA International, Inc., a Delaware corporation (the
"Company") promises to pay interest on the principal amount of this Note at
97/8% per annum from June 15, 1998 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages
semi-annually on June 15 and December 15 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Note will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be June 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if
any (without regard to any applicable grace periods) from time to time on demand
at the same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the June 1 or December 1
next preceding the Interest Payment Date, even if such Notes are cancelled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered Holders on such Interest Payment Date, and
may be paid to the registered Holders at the close of business on a special
interest payment date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders not
less than 10 days prior to such special interest payment date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture. The Notes will be payable as to principal, premium, interest and
Liquidated Damages at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Marine Midland Bank, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company, Holdings or any of their subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of November 26, 1997 (the "Indenture") between the Company, Holdings and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. The Notes are general obligations of the Company limited to $205.0
million in aggregate principal amount, plus amounts, if any issued to pay
Liquidated Damages on outstanding Notes as set forth in Paragraph 2 hereof.
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<PAGE>
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clauses (b) and (c) of this Paragraph 5,
the Company shall not have the option to redeem the Notes prior to December 15,
2002. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 15 of the years
indicated below:
Year Percentage
2002..............................................104.9375%
2003..............................................103.2917%
2004 .............................................101.6458%
2005 and thereafter...............................100.0000%
(b) Notwithstanding the provisions of Paragraph (a) of this Paragraph
5, at any time prior to December 15, 2000, the Company may (but shall not have
the obligation to) redeem up to 35% of the original aggregate principal amount
of Notes (including Additional Notes) at a redemption price of 109.875% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon to the redemption date, with the net cash proceeds of one or more Public
Equity Offerings; provided that at least 65% in aggregate principal amount of
Notes (including any Additional Notes) remain outstanding immediately after the
occurrence of such redemption; and provided, further that such redemption shall
occur within 60 days of the date of the closing of such Public Equity Offering.
(c) Upon the occurrence of a Change of Control prior December 15,
2002, the Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each Holder
to be redeemed, at a redemption price equal to the sum of (i) the then
outstanding principal amount thereof plus (ii) accrued and unpaid interest
thereon and Liquidated Damages, if any, to the redemption date plus (iii) the
Applicable Premium.
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the principal amount thereof plus, in each case, accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase (in
either case, the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company shall mail a notice to each Holder setting forth
the procedures governing the Change of Control Offer as required by the
Indenture.
(b) If the Company, Holdings or any of their respective Restricted
Subsidiaries consummates any Asset Sale, within five days of each date on which
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company and
Holdings shall commence an offer to all Holders of Notes (as "Asset Sale Offer")
pursuant to Section 3.09 of the Indenture to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal
A-4
<PAGE>
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
to the date fixed for the closing of such offer, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company, or Holding, as the case may be, may use such deficiency
for general corporate purposes. If the aggregate principal amount of Notes and
Additional Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Holders of Notes that are the subject of an offer to purchase will
receive an Asset Sale Offer from the Company prior to any related purchase date
and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 of the
Indenture, a notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder whose Notes are to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part but only in whole multiples of $1,000, unless all of the
Notes held by a Holder are to be redeemed. On and after the redemption date
interest ceases to accrue on Notes or portions thereof called for redemption.
9. SUBORDINATION. The Notes are subordinated in right of payment, to the
extent and in the manner provided in the Indenture, to the prior payments in
full in cash of all Senior Indebtedness (as defined in the Indenture), which
includes (i) all "Obligations" in respect of and as defined in the New Credit
Facility (including, without limitation, interest that accrues after the filing
of a petition initiating any action or proceeding under the Bankruptcy Law or
any other bankruptcy, insolvency or similar law or statute protecting creditors
in effect in any jurisdiction, whether or not such interest accrues after the
filing of such petition for purposes of the Bankruptcy Law or such other law or
statute or is an allowed claim in any such action or proceeding), whether
existing on the date of the Indenture of thereafter incurred, and (ii) any other
Indebtedness that is permitted to be incurred by the Company or any Guarantor
pursuant to the Indenture unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company or any Guarantor, (x)
any Indebtedness of the Company or any Guarantor to any of their respective
Subsidiaries or other Affiliates except to the extent any such Indebtedness is
pledged as security under the New Credit Facility, (y) any trade payables or (z)
any Indebtedness that is incurred in violation of the Indenture.
10. SUBORDINATION OF GUARANTEES. Each Guarantor agrees, and each Holder by
accepting a Note and the Guarantees agrees, that all Obligations on the Notes
pursuant to the Guarantees is subordinated in right of payment, to the extent
and in the manner provided in the Section 11.03, to the prior payment of all
Senior Indebtedness guaranteed by such Guarantor and the subordination set forth
herein is for the benefit of an enforceable by the holders of Senior
Indebtedness. Each Holder by accepting a Note authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Holders and the holders
of Senior Indebtedness as provided in Section 11.03 of the Indenture and
appoints the Trustee as attorney-in-fact for any and all such purposes.
11. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the
A-5
<PAGE>
unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
12. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in the
aggregate principal amount of the Notes then outstanding, if such amendment
would adversely affect the rights of Holders of Notes. Without the consent of
any Holder of a Note, the Indenture or the Notes may be amended or supplemented
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or any Guarantor's obligations to Holders of the
Notes in case of a merger or consolidation, to provide for the issuance of
Additional Notes in accordance with the limitations set forth in the Indenture
on the Issue Date), to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
14. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on, or Liquidated Damages with respect
to, the Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in the payment when due of principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company or Holdings to comply with the
provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv)
failure by the Company or Holdings for 60 days after notice from the Trustee or
Holders of at least 25% in aggregate principal amount of the outstanding Notes
to comply with any of its other agreements in the Indenture, the Notes or any
Guarantee; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company, Holdings or any of the
Restricted Subsidiaries (or the payment of which is guaranteed by the Company,
Holdings or any of the Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on the final maturity date of such Indebtedness (a "Payment Default")
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) failure by the Company, Holdings or any of the
Restricted Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture or any Guarantee that is given
by a Guarantor, any Guarantee of a Significant Restricted Subsidiary shall be
held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect; and (viii) certain events of
bankruptcy or insolvency with respect to the Company, Holdings or any of their
Significant Restricted Subsidiaries or a group of Subsidiaries that, taken as a
whole, would constitute a Significant Restricted Subsidiary. If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable; provided, however that such declaration will not become
effective until the earlier to occur of (i) the acceleration of the
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<PAGE>
maturity of any Indebtedness under the New Credit Facility or (ii) five Business
Days after the Agent under the New Credit Facility or other designated
representative of holders of Senior Indebtedness shall have received written
notice of the intention of such Holders to accelerate. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
15. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or their Affiliates, and may otherwise deal with the
Company, Holdings or their Affiliates, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator or stockholder of the Company or Holdings, as
such, shall have any liability for any obligations of the Company, Holdings or
any Subsidiary under the Notes, the Indenture, the Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
17. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
19. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of November 26, 1997, between the
Company, Holdings and the other parties thereto (the "Registration Rights
Agreement").
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
DESA International, Inc.
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<PAGE>
2701 Industrial Drive
P.O. Box 90004
Bowling Green, Kentucky 42102
Attention: Vice President - Finance
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<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date:______________________
Your Signature:_____________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:________________
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date:____________________ Your Signature:_____________________
(Sign exactly as your name appears
on the Note)
Tax Identification No.:_____________
Signature Guarantee:________________
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<PAGE>
Schedule A
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES3/
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- - - - ---------------------- ---------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
- - - - --------
3. This should be included on if the Note is issued in Global form.
A-11
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF NOTES
Re: 97/8% Senior Subordinated Notes due 2007 of DESA International, Inc.
This Certificate relates to $_____ principal amount of Notes held in
* ________ book-entry or *_______ certificated form by ________________ (the
"Transferor").
The Transferor*:
has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary a Note or
Notes in certificated, registered form of authorized denominations in an
aggregate principal amount equal to its beneficial interest in such Global Note
(or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above captioned Notes and as provided in Section 2.06 of such
Indenture, the transfer of this Note does not require registration under the
Securities Act (as defined below) because:*
|_| Such Note is being acquired for the Transferor's own account, without
transfer (in satisfaction of Section 2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of
the Indenture).
|_| Such Note is being transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")) in reliance on Rule 144A or to an "Accredited Investor," (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in
accordance with Regulation D under the Securities Act (in satisfaction of
Section 2.06(a)(ii)(B), Section 2.06(b)(i) or Section 2.06(d)(i) (B) of the
Indenture) or pursuant to an exemption from registration in accordance with Rule
904 under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or
Section 2.06(d)(i)(B) of the Indenture.)
- - - - ---------------
*Check applicable box.
B-1
<PAGE>
|_| Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section
2.06(d)(i)(B) of the Indenture).
|_| Such Note is being transferred in reliance on and in compliance with an
exemption from the registration requirements of the Securities Act, other than
Rule 144A, 144 or Rule 904 under the Securities Act. An Opinion of Counsel to
the effect that such transfer does not require registration under the Securities
Act accompanies this Certificate (in satisfaction of Section 2.06(a)(ii)(C) or
Section 2.06(d)(i)(C) of the Indenture).
_____________________________________
[INSERT NAME OF TRANSFEROR]
By:__________________________________
Date:__________________________
- - - - ---------------
*Check applicable box.
B-2
<PAGE>
EXHIBIT C
GUARANTEE
The Guarantor hereby, jointly and severally with any other Guarantor,
unconditionally guarantees to each Holder of Notes authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, irrespective
of the validity and enforceability of the Indenture, the Notes or the
Obligations of the Company to the Holders or the Trustee under the Notes or
under the Indenture, that: (a) the principal of, and premium and Liquidated
Damages, if any, and interest on the Notes shall be promptly paid in full when
due, whether at maturity, by acceleration, redemption or otherwise, and interest
on overdue principal of interest and Liquidated Damages on the Note, if any, if
lawful and all other Obligations of the Company to the Holders or the Trustee
under the Indenture or under the Notes shall be promptly paid in full or
performed, all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations, the same will be promptly paid in full when due in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
for whatever reason, the Guarantor will be jointly and severally obligated to
pay the same immediately.
The Obligations of the Guarantor to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article 11 of the Indenture, and reference is hereby made to such Indenture for
the precise terms of this Guarantee. The terms of Article 11 of the Indenture
are incorporated herein by reference.
No past, present or future director, officer, employee, incorporator or
stockholder of the Guarantor, as such, shall have any liability under this
Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation.
The Guarantor agrees, and each Holder by accepting a Note and this
Guarantee agrees, that the payment of all Obligations on the Notes pursuant to
this Guarantee is subordinated in right of payment, to the extent and in the
manner provided in the Articles 10 and 11, to the prior payment of all Senior
Indebtedness that is guaranteed by such Guarantor and the subordination set
forth herein is for the benefit of and enforceable by the holders of Senior
Indebtedness. Each Holder by accepting a Note authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Holders and the holders
of Senior Indebtedness as provided in the Indenture and appoints the Trustee as
attorney-in-fact for any and all such purposes.
Upon any distribution to creditors of the Guarantor in a liquidation or
dissolution of the Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Guarantor or its property, an
assignment for the benefit of creditors or any marshalling of the Guarantor's
assets and liabilities, the holders of Senior Indebtedness that is guaranteed by
the Guarantor will be entitled to receive payment in full of all Obligations due
in respect of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) as provided in the Indenture before the Holders of Notes
will be entitled to receive any payment with respect to this Guarantee, and
until all Obligations with respect to all Senior Indebtedness guaranteed by the
Guarantor are paid in full as provided in the Indenture, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Indebtedness guaranteed by the Guarantor (except that Holders of Notes
may receive securities that are subordinated at least to the same extent as this
Guarantee of the Notes to Senior Indebtedness guaranteed by the Guarantor and
any securities issued in exchange for Senior Indebtedness guaranteed by the
Guarantor).
C-1
<PAGE>
In addition, the Guarantor may not make any payment or distribution to the
Trustee or any Holder of Notes in respect of Obligations with respect to the
Notes and may not acquire from the Trustee or any Holder of Notes any Notes for
cash or property (other than (i) securities that are subordinated to at least
the same extent as the Notes to (a) Senior Indebtedness and (b) any securities
issued in exchange for Senior Indebtedness and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01 of
the Indenture) until all principal and other Obligations with respect to the
Senior Indebtedness have been paid in full if: (i) a default in the payment of
any Obligations on Designated Senior Indebtedness occurs and is continuing
beyond any applicable period of grace in the agreement, indenture or other
document governing such Designated Senior Indebtedness; or (ii) a default, other
than a payment default, on Designated Senior Indebtedness occurs and is
continuing that then permits holders of the Designated Senior Indebtedness to
accelerate its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from a Person who may give it pursuant to Section
10.12 of the Indenture. If the Trustee receives any such Payment Blockage
Notice, no subsequent Payment Blockage Notice shall be effective for purposes of
the Indenture unless and until (i) at least 360 days shall have elapsed since
the effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice. The Guarantor may and shall resume payments on and distributions in
respect of this Guarantee upon the earlier of: (1) the date upon which the
default is cured or waived, or (2) in the case of a default referred to in
Section 10.04(ii) of the Indenture, the earlier of the date on which such
nonpayment default is cured or waived or 179 days pass after a Payment Blockage
Notice is received, unless the maturity of such Designated Senior Indebtedness
has been accelerated, if the Indenture otherwise permits the payment,
distribution or acquisition at the time of such payment or acquisition.
Each Holder by accepting a Note acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of any Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of the Notes,
to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, such Senior Indebtedness. No right of any holder of Senior Indebtedness to
enforce the subordination of the Indebtedness evidenced by the Notes shall be
impaired by any act or failure to act by the Company or any Guarantor by the
failure of any of them to comply with the Indenture.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon the Guarantor and its respective successors and
assigns to the extent set forth in the Indenture until full and final payment of
all of the Company's Obligations under the Notes and the Indenture and shall
inure to the benefit of the successors and assigns of the Trustee and the
Holders of Notes and, in the event of any transfer or assignment of rights by
any Holder of Notes or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This a guarantee of
payment and not a guarantee of collection.
In certain circumstances more fully described in the Indenture, the
Guarantor may be released from its liability under this Guarantee, and any such
release will be effective whether or not noted hereon.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Note upon which this Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
C-2
<PAGE>
For purposes hereof, the Guarantor's liability will be that amount from
time to time equal to the aggregate liability of the Guarantor hereunder, but
shall be limited to the lesser of (i) the aggregate amount of the Obligations of
the Company under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered the Guarantor "insolvent" (as such term is defined
in the Bankruptcy Law and in the Debtor and Creditor Law of the State of New
York) or (B) left it with unreasonably small capital at the time this Guarantee
of the Notes was entered into, after giving effect to the incurrence of existing
Indebtedness immediately prior to such time; provided that, it shall be a
presumption in any lawsuit or other proceeding in which the Guarantor is a party
that the amount guaranteed pursuant to this Guarantee is the amount set forth in
clause (i) above unless any creditor, or representative of creditors of the
Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor,
otherwise proves in such a lawsuit that the aggregate liability of the Guarantor
is limited to the amount set forth in clause (ii). In making any determination
as to the solvency or sufficiency of capital of the Guarantor in accordance with
the previous sentence, the right of the Guarantor to contribution from other
Guarantors, if any, and any other rights the Guarantor may have, contractual or
otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture, dated November 26, 1997, among DESA International, Inc., DESA
Holdings Corporation and Marine Midland Bank, unless otherwise indicated.
[GUARANTOR]
By:_____________________
Name:
Title:
C-3
<PAGE>
================================================================================
DESA INTERNATIONAL, INC.
and
DESA HOLDINGS CORPORATION
97/8% SENIOR SUBORDINATED NOTES DUE 2007
-----------------
INDENTURE
Dated as of November 26, 1997
-----------------
-----------------
MARINE MIDLAND BANK
-----------------
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1)........................................................... 7.10
(a)(2).......................................................... 7.10
(a)(3) ......................................................... N.A.
(a)(4).......................................................... N.A.
(a)(5).......................................................... 7.10
(b) ............................................................ 7.10
(c) ............................................................ N.A.
311 (a) ............................................................. 7.11
(b) ............................................................ 7.11
(c) ............................................................ N.A.
312 (a).............................................................. 2.05
(b)............................................................. 12.03
(c) ............................................................ 12.03
313 (a) ............................................................. 7.06
(b)(1) ......................................................... 10.03
(b)(2) ......................................................... 7.06
(c) ............................................................7.06;12.02
(d)............................................................. 7.06
314 (a) .............................................................4.03;12.05
(e) ........................................................... 12.05
316 (c).............................................................. 2.13
318 (a).............................................................. N.A.
(b)............................................................. N.A.
(c)............................................................. 12.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions....................................................... 1
Section 1.02. Other Definitions................................................. 17
Section 1.03. Incorporation by Reference of Trust Indenture Act................. 17
Section 1.04. Rules of Construction............................................. 18
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating................................................... 18
Section 2.02. Execution and Authentication...................................... 19
Section 2.03. Registrar and Paying Agent........................................ 19
Section 2.04. Paying Agent to Hold Money in Trust............................... 20
Section 2.05. Holder Lists...................................................... 20
Section 2.06. Transfer and Exchange............................................. 20
Section 2.07. Replacement Notes................................................. 25
Section 2.08. Outstanding Notes................................................. 26
Section 2.09. Treasury Notes.................................................... 26
Section 2.10. Temporary Notes................................................... 26
Section 2.11. Cancellation...................................................... 26
Section 2.12. Defaulted Interest................................................ 27
Section 2.13. Record Date....................................................... 27
Section 2.14. CUSIP Number...................................................... 27
Section 2.15. Computation of Interest........................................... 27
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee................................................ 27
Section 3.02. Selection of Notes to Be Redeemed................................. 28
Section 3.03. Notice of Redemption.............................................. 28
Section 3.04. Effect of Notice of Redemption.................................... 29
Section 3.05. Deposit of Redemption Price....................................... 29
Section 3.06. Notes Redeemed in Part............................................ 29
Section 3.07. Optional Redemption............................................... 29
Section 3.08. Mandatory Redemption.............................................. 30
Section 3.09. Offer to Purchase by Application of Excess Proceeds............... 30
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.................................................. 32
Section 4.02. Maintenance of Office or Agency................................... 32
Section 4.03. Reports........................................................... 33
Section 4.04. Compliance Certificate............................................ 33
Section 4.05. Taxes............................................................. 34
Section 4.06. Stay, Extension and Usury Laws.................................... 34
Section 4.07. Restricted Payments............................................... 35
i
<PAGE>
Section 4.08. Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries........................................... 37
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred
Stock............................................................. 38
Section 4.10. Asset Sales....................................................... 41
Section 4.11. Transactions with Affiliates...................................... 42
Section 4.12. Liens............................................................. 43
Section 4.13. Sale and Leaseback Transactions................................... 43
Section 4.14. Corporate Existence............................................... 43
Section 4.15. Offer to Repurchase Upon Change of Control........................ 44
Section 4.16. No Senior Subordinated Debt....................................... 45
Section 4.17. Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Subsidiaries......................................... 45
Section 4.18. Limitations on Issuances of Guarantees of Indebtedness............ 46
Section 4.19. Payments for Consent.............................................. 46
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.......................... 46
Section 5.02. Successor Corporation Substituted................................. 47
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default................................................. 47
Section 6.02. Acceleration...................................................... 49
Section 6.03. Other Remedies.................................................... 50
Section 6.04. Waiver of Past Defaults........................................... 50
Section 6.05. Control by Majority............................................... 50
Section 6.06. Limitation on Suits............................................... 51
Section 6.07. Rights of Holders of Notes to Receive Payment..................... 51
Section 6.08. Collection Suit by Trustee........................................ 51
Section 6.09. Trustee May File Proofs of Claim.................................. 52
Section 6.10. Priorities........................................................ 52
Section 6.11. Undertaking for Costs............................................. 53
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee................................................. 53
Section 7.02. Rights of Trustee................................................. 54
Section 7.03. Individual Rights of Trustee...................................... 55
Section 7.04. Trustee's Disclaimer.............................................. 55
Section 7.05. Notice of Defaults................................................ 55
Section 7.06. Reports by Trustee to Holders of the Notes........................ 55
Section 7.07. Compensation and Indemnity........................................ 56
Section 7.08. Replacement of Trustee............................................ 56
Section 7.09. Successor Trustee by Merger, etc.................................. 57
Section 7.10. Eligibility; Disqualification..................................... 57
Section 7.11. Preferential Collection of Claims Against Company................. 58
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
ii
<PAGE>
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance........................................................ 58
Section 8.02. Legal Defeasance and Discharge.................................... 58
Section 8.03. Covenant Defeasance............................................... 58
Section 8.04. Conditions to Legal or Covenant Defeasance........................ 59
Section 8.05. Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions.......................... 60
Section 8.06. Repayment to Company.............................................. 61
Section 8.07. Reinstatement..................................................... 61
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............................... 61
Section 9.02. With Consent of Holders of Notes.................................. 62
Section 9.03. Compliance with Trust Indenture Act............................... 63
Section 9.04. Revocation and Effect of Consents................................. 64
Section 9.05. Notation on or Exchange of Notes.................................. 64
Section 9.06. Trustee to Sign Amendments, etc................................... 64
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.......................................... 64
Section 10.02. Certain Definitions............................................... 64
Section 10.03. Liquidation; Dissolution; Bankruptcy.............................. 65
Section 10.04. Default on Designated Senior Indebtedness......................... 65
Section 10.05. Acceleration of Notes............................................. 66
Section 10.06. When Distribution Must Be Paid Over............................... 66
Section 10.07. Notice by Company................................................. 66
Section 10.08. Subrogation....................................................... 67
Section 10.09. Relative Rights................................................... 67
Section 10.10. Subordination May Not Be Impaired by Company...................... 67
Section 10.11. Distribution or Notice to Representative.......................... 67
Section 10.12. Rights of Trustee and Paying Agent................................ 68
Section 10.13. Authorization to Effect Subordination............................. 68
Section 10.14. Amendments........................................................ 68
ARTICLE 11
GUARANTEES
Section 11.01. Guarantees........................................................ 68
Section 11.02. Execution and Delivery of Guarantee............................... 69
Section 11.03. Subordination of Guarantees....................................... 70
Section 11.04. Guarantors May Consolidate, etc., on Certain Terms................ 70
Section 11.05. Releases of Subsidiary Guarantees Following Sale of
Assets............................................................ 71
Section 11.06. Limitation on Subsidiary Guarantor Liability...................... 72
Section 11.07. "Trustee" to Include Paying Agent................................. 72
ARTICLE 12
iii
<PAGE>
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls...................................... 72
Section 12.02. Notices........................................................... 72
Section 12.03. Communication by Holders of Notes with Other Holders
of Notes.......................................................... 73
Section 12.04. Certificate and Opinion as to Conditions Precedent................ 74
Section 12.05. Statements Required in Certificate or Opinion..................... 74
Section 12.06. Rules by Trustee and Agents....................................... 74
Section 12.07 No Personal Liability of Directors, Officers, Employees
and Stockholders.................................................. 74
Section 12.08. Governing Law..................................................... 75
Section 12.09. No Adverse Interpretation of Other Agreements..................... 75
Section 12.10. Successors........................................................ 75
Section 12.11. Severability...................................................... 75
Section 12.12. Counterpart Originals............................................. 75
Section 12.13. Table of Contents, Headings, etc.................................. 75
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B CERTIFICATE OF TRANSFEROR
Exhibit C FORM OF GUARANTEE
</TABLE>
iv
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
by and among
DESA International, Inc.
and DESA Holdings Corporation
and
NationsBanc Montgomery Securities, Inc.
and UBS Securities LLC
Dated as of November 26, 1997
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of November 26, 1997 by and among DESA International, Inc., a
Delaware corporation (the "Company"), DESA Holdings Corporation, a Delaware
Corporation (the "Guarantor"), and NationsBanc Montgomery Securities, Inc. and
UBS Securities LLC (each an "Initial Purchaser" and, collectively, the "Initial
Purchasers"), each of whom has agreed to purchase the Company's 97/8% Senior
Subordinated Notes due 2007 (the "Initial Notes") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 21, 1997 (the "Purchase Agreement"), by and among the Company, the
Guarantor and the Initial Purchasers (i) for the benefit of each Initial
Purchaser and (ii) for the benefit of the holders from time to time of the Notes
(including each Initial Purchaser). In order to induce the Initial Purchasers to
purchase the Initial Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers set forth in Section
7 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Initial Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Initial Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The 97/8% Senior Subordinated Notes due 2007, of the
same series under the Indenture as the Initial Notes, to be issued to Holders in
exchange for Transfer Restricted Securities pursuant to this Agreement.
1
<PAGE>
Exchange Offer: The registration by the Company under the Act of the
Exchange Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Initial Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, and to certain institutional
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Act ("Accredited Institutions").
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of November 26, 1997, among the
Company, Marine Midland Bank, as trustee (the "Trustee"), and the Guarantor,
pursuant to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Initial Notes: The 97/8% Senior Subordinated Notes due 2007 of the
same series under the Indenture as the Exchange Notes, for so long as such
securities constitute Transfer Restricted Securities.
Initial Placement: The issuance and sale by the Company of the
Initial Notes to the Initial Purchasers pursuant to the Purchase Agreement.
Initial Purchaser: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Initial Notes and the Exchange Notes.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
2
<PAGE>
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement and (c) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Act or by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company and the Guarantor shall (i)
cause to be filed with the Commission as soon as practicable after the Closing
Date, but in no event later than 60 days after the Closing Date, a Registration
Statement under the Act relating to the Exchange Notes and the Exchange Offer,
(ii) use their best efforts to cause such Registration Statement to become
effective at the earliest possible time, but in no event later than 120 days
after the Closing Date, (iii) in connection with the foregoing, file (A) all
pre-effective amendments to such Registration Statement as may reasonably be
necessary in order to cause such Registration Statement to become effective, (B)
if applicable, a post-effective amendment to such Registration Statement
pursuant to Rule 430A under the Act and (C) cause all necessary filings in
connection with the registration and qualification of the Exchange Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. The Exchange
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Offer shall be on the appropriate form permitting registration of the Exchange
Notes to be offered in exchange for the Transfer Restricted Securities and to
permit resales of Notes held by Broker-Dealers as contemplated by Section 3(c)
below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 30 business days. The Company shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 45 business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Initial Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Initial Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the Exchange Notes received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such resales by Broker-Dealers that the
Commission may require in order to permit such resales pursuant thereto, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Notes held by any such Broker-Dealer except to the extent required
by the Commission (it being understood that it is not currently so required).
The Company and the Guarantor shall use their best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure that it conforms with the requirements
of this Agreement, the Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period ending on the earlier of
(i) 180 days from the date on which the Exchange Offer Registration Statement is
declared effective and (ii) the date on which a Broker-Dealer is no longer
required to deliver a prospectus in connection with market-making or other
trading activities.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
180-day (or shorter as provided in the next prior paragraph) period in order to
facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with), (ii)
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for any reason the Exchange Offer is not Consummated within 150 days after the
Closing Date, or (iii) with respect to any Holder of Transfer Restricted
Securities (A) such Holder is prohibited by applicable law or Commission policy
from participating in the Exchange Offer, or (B) that such Holder may not resell
the Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, or (C) that such Holder is a Broker-Dealer and holds Initial Notes
acquired directly from the Company or one of its affiliates, then, upon such
Holder's request, the Company and the Guarantor shall
(x) cause to be filed a shelf registration statement pursuant to
Rule 415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement") on or prior to the earliest to occur of (1) the 60th day after
the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement and (2) the 60th day after the
date on which the Company receives notice from a Holder of Transfer
Restricted Securities as contemplated by clause (ii) above (such earliest
date being the "Shelf Filing Deadline"), which Shelf Registration
Statement shall provide for resales of all Transfer Restricted Securities,
provided that such Holders shall have provided the information required
pursuant to Section 4(b) hereof; and
(y) use their best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the
120th day after the Shelf Filing Deadline.
The Company and the Guarantor shall use their best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for resales of Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a), and
to ensure that it conforms with the requirements of this Agreement, the Act and
the policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. ADDITIONAL INTEREST
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately
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(following the review period provided by Section 6(c)(iv)) by a post-effective
amendment to such Registration Statement that cures such failure and that is
itself immediately declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default"), the Company and the Guarantor
hereby jointly and severally agree to pay liquidated damages to each Holder of
Transfer Restricted Securities with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities. All accrued liquidated damages shall be paid to Record
Holders by the Company by wire transfer of immediately available funds or by
federal funds check on each Damages Payment Date, as provided in the Indenture.
Following the cure of all Registration Defaults relating to Transfer Restricted
Securities, the interest rate borne by the relevant Transfer Restricted
Securities will be reduced to the original interest rate borne by Transfer
Restricted Securities; provided, however, that, if after any such reduction in
interest rate, a different Registration Default occurs, the interest rate borne
by the Transfer Restricted Securities shall again be increased pursuant to the
foregoing provisions.
All obligations of the Company and the Guarantor set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantor shall comply with all of the
provisions of Section 6(c) below, shall use their best efforts to effect such
exchange to permit the sale of Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company there
is a question as to whether the Exchange Offer is permitted by applicable
law, the Company and the Guarantor hereby agree to seek a no-action letter
or other favorable decision from the Commission allowing the Company and
the Guarantor to Consummate an Exchange Offer for such Initial Notes. The
Company and the Guarantor each hereby agrees to pursue the issuance of
such a decision to the Commission staff level but shall not be required to
take commercially unreasonable action to effect a change of Commission
policy. The Company and the Guarantor each hereby agrees, however, to (A)
participate in telephonic conferences with the Commission, (B) deliver to
the Commission staff an analysis prepared by counsel to the Company
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursue a favorable resolution by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Company, (B) it is not engaged in, and does not intend to
engage
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in, and has no arrangement or understanding with any person to participate
in, a distribution of the Exchange Notes to be issued in the Exchange
Offer and (C) it is acquiring the Exchange Notes in its ordinary course of
business. In addition, all such Holders of Transfer Restricted Securities
shall otherwise cooperate in the Company's preparations for the Exchange
Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer
and any such Holder using the Exchange Offer to participate in a
distribution of the securities to be acquired in the Exchange Offer (1)
could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange
for Initial Notes acquired by such Holder directly from the Company.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantor shall comply with all the
provisions of Section 6(c) below and shall use their best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will as expeditiously as possible prepare and file
with the Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder, financial
statements of the Guarantor) for the period specified in Section 3 or 4 of
this Agreement, as applicable; upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein
(A) to contain a material misstatement or omission or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file promptly an
appropriate amendment to such Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the case
of either clause (A) or (B), use its best efforts to cause such amendment
to be declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as applicable, or such shorter
period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in
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accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
and the Guarantor shall use their best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or Prospectus
(including all documents incorporated by reference after the initial
filing of such Registration Statement), which documents will be subject to
the review of such Holders and underwriter(s), if any, for a period of at
least five business days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which a selling Holder of Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s), if any, shall reasonably object within five business days
after the receipt thereof. A selling Holder or underwriter, if any, shall
be deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed
to be filed, contains a material misstatement or omission;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s), if any, make the Company's representatives available (and
representatives of the Guarantor) for discussion of such document and
other customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and
the Guarantor and cause the Company's and the Guarantor's officers,
directors and employees to supply all information reasonably requested by
any such
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Holder, underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the underwriter(s),
if any, promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the
Transfer Restricted Securities, information with respect to the principal
amount of Transfer Restricted Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be incorporated in such Prospectus supplement
or post-effective amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of
Notes covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(x) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company and the
Guarantor hereby consent to the use of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(xi) enter into, and cause the Guarantor to enter into, such
agreements (including an underwriting agreement), and make, and cause the
Guarantor to make, such representations and warranties, and take all such
other actions in connection therewith in order to reasonably expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any Registration Statement contemplated by this Agreement, all to such
extent as may be reasonably requested by any Initial Purchaser or by any
Holder of Transfer Restricted Securities or underwriter in connection with
any sale or resale pursuant to any Registration Statement contemplated by
this Agreement; and whether or not an underwriting agreement is entered
into and whether or not the registration is an Underwritten Registration,
the Company and the Guarantor shall:
(A) furnish to each Initial Purchaser, each selling Holder and
each underwriter, if any, in such substance and scope as they may
request and as are customarily made by issuers to underwriters in
primary underwritten offerings, upon the date of the Consummation of
the Exchange Offer and, if applicable, the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (y) the
President or any Vice President and (z) a principal financial or
accounting officer of each of
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the Company and the Guarantor, confirming, as of the date
thereof, the matters set forth in paragraphs (a), (b), (c) and
(d) of Section 7 of the Purchase Agreement and such other
matters as such parties may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantor, covering the matters set forth in
paragraph (i) of Section 7 of the Purchase Agreement and such
other matter as such parties may reasonably request, and in any
event including a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company, the Initial
Purchasers' representatives and the Initial Purchasers' counsel
in connection with the preparation of such Registration
Statement and the related Prospectus and have considered the
matters required to be stated therein and the statements
contained therein, although such counsel has not independently
verified the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on the basis of
the foregoing (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other
representatives of the Company and without independent check or
verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the
case of the Exchange Offer Registration Statement, as of the
date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or fairness
of the financial statements, notes and schedules and other
financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from
the Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 7(n) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (xi), if any.
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If at any time the representations and warranties of the Company and
the Guarantor contemplated in clause (A)(1) above cease to be true and
correct, the Company or the Guarantor shall so advise the Initial
Purchasers and the underwriter(s), if any, and each selling Holder
promptly and, if requested by such Persons, shall confirm such advice in
writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with, and cause the Guarantor to cooperate with, the
selling Holders, the underwriter(s), if any, and their respective counsel
in connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may request and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the Shelf Registration Statement; provided, however, that
neither the Company nor the Guarantor shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits
or to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xiii) shall issue, upon the request of any Holder of Initial
Notes covered by the Shelf Registration Statement, Exchange Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Initial Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Exchange Notes to be
registered in the name of such Holder or in the name of the purchaser(s)
of such Notes, as the case may be; in return, the Initial Notes held by
such Holder shall be surrendered to the Company for cancellation;
(xiv) cooperate with, and cause the Guarantor to cooperate with,
the selling Holders and the underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and enable such Transfer Restricted Securities to be in such permitted
denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to
any sale of Transfer Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities, subject to the proviso contained in clause (viii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D)
above shall exist or have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
and provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depositary Trust Company;
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(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies
or authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if not
sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate, and cause the
Guarantor to cooperate, with the Trustee and the Holders of Notes to
effect such changes to the Indenture as may be required for such Indenture
to be so qualified in accordance with the terms of the TIA; and execute,
and cause the Guarantor to execute, and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
(xxi) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Initial Notes
or the managing underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of Section
13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice, however, no such extension shall be taken into
account in determining whether Additional Interest is due pursuant to Section 5
hereof or the amount of such Additional
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Interest, it being agreed that the Company's option to suspend use of a
Registration Statement pursuant to this paragraph shall be treated as a
Registration Default for purposes of Section 5.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or the Guarantor's
performance of or compliance with this Agreement will be borne by the Company or
the Guarantor, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses
(including filings required to be made by any Initial Purchaser or Holder with
the NASD (and, if applicable, the reasonable fees and expenses of any "qualified
independent underwriter" and its counsel that may be required by the rules and
regulations of the NASD)); (ii) all fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) all expenses of printing
(including printing certificates for the Exchange Notes to be issued in the
Exchange Offer and printing of Prospectuses), messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company, the
Guarantor and, subject to Section 7(b) below, the Holders of Transfer Restricted
Securities; (v) all application and filing fees in connection with listing Notes
on a national securities exchange or automated quotation system, if required,
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantor
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantor's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Latham & Watkins or such other counsel as may be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantor, jointly and severally, agree to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, rep resentatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without limitation and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or
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alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (or any amendment or supplement thereto), or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which in demnity may be sought
against the Company or the Guarantor, such Indemnified Holder (or the
Indemnified Holder controlled by such controlling person) shall promptly notify
the Company and the Guarantor in writing (provided, that the failure to give
such notice shall not relieve the Company or the Guarantor of its obligations
pursuant to this Agreement). Such Indemnified Holder shall have the right to
employ its own counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Company and the Guarantor (regardless
of whether it is ultimately determined that an Indemnified Holder is not
entitled to indemnification hereunder). The Company and the Guarantor shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for such Indemnified Holders, which
firm shall be designated by the Holders. The Company shall be liable for any
settlement of any such action or proceeding effected with the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company agrees to indemnify and hold harmless any Indemnified Holder from and
against any loss, claim, damage, liability or expense by reason of any
settlement of any action effected with the written consent of the Company. The
Company shall not, without the prior written consent of each Indemnified Holder,
settle or compromise or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Holder is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional release
of each Indemnified Holder from all liability arising out of such action, claim,
litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantor,
and their respective directors, officers, and any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
and the respective officers, directors, partners, employees, representatives and
agents of each such person, to the same extent as the foregoing indemnity from
the Company and the Guarantor to each of the Indemnified Holders, but only with
respect to claims and actions based on information relating to such Holder
furnished in writing by such Holder expressly for use in any Registration
Statement. In case any action or proceeding shall be brought against the Company
or its directors or officers or any such controlling person in respect of which
indemnity may be sought against a Holder of Transfer Restricted Securities, such
Holder shall have the rights and duties given the Company and the Company or its
directors or officers or such controlling person shall have the rights and
duties given to each Holder by the preceding paragraph. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
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indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Holders on the other hand from
the issuance and sale of the Initial Notes or if such allocation is not
permitted by applicable law, the relative fault of the Company on the one hand
and of the Indemnified Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company and the Guarantor on the one hand and of the Indemnified
Holder on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Guarantor or by the Indemnified Holder and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, the Guarantor and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, none of the Holders (and its related Indemnified
Holders) shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total discount received by such Holder with respect
to the Initial Notes exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to con tribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Initial Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and the Guarantor each hereby agrees with each Holder,
for so long as any Transfer Restricted Securities remain outstanding, to make
available to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all
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<PAGE>
reasonable questionnaires, powers of attorney, indemnities, underwriting
agreements, lock-up letters and other documents required under the terms of such
underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
SECTION 12. MARKET-MAKING PROSPECTUSES
Following the consummation of any Exchange Offer or the effectiveness
of a Shelf Registration Statement and for so long as the Notes are outstanding
if, in the reasonable judgment of an Initial Purchaser, such Initial Purchaser
or any of its affiliates (as such term is defined in the rules and regulations
under the Act) are required to deliver a prospectus in connection with sales of,
or market-making activities with respect to, such securities, the Company agrees
(A) to periodically amend the applicable Registration Statement so that the
information contained therein complies with the requirements of Section 10(a) of
the Act, (B) to amend the applicable Registration Statement or supplement the
related prospectus or the documents incorporated therein when necessary to
reflect any material changes in the information provided therein so that the
Registration Statement, and the prospectus will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances existing as of the date
the prospectus is so delivered, not misleading and (C) to provide the Initial
Purchasers with copies of each such amendment or supplement as the Initial
Purchasers may reasonably request.
SECTION 13. MISCELLANEOUS
(a) Remedies. The Company and the Guarantor agree that monetary
damages (including the liquidated damages contemplated hereby) would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, and will cause
the Guarantor not to, on or after the date of this Agreement enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor the Guarantor has previously entered
into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Adjustments Affecting the Notes. The Company will not take any
action, or permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
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(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
DESA International, Inc.
2701 Industrial Drive
P.O. Box 90004
Bowling Green, Kentucky 42102
Telecopier No.: (502) 781-5705
Attention: Ed Patrick
With a copy to:
Sullivan and Worcester LLP
One Post Office Square
Boston, Massachusetts 62109
Telecopier No.: (617) 338-2880 (or 2883)
Attention: Michael A. Matzka, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
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(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other Offering
Documents (as defined in the Purchase Agreement) is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
DESA INTERNATIONAL, INC.
By: __________________________
Name: Edward G. Patrick
Title: Vice President Finance Treasurer
DESA HOLDINGS CORPORATION
By: __________________________
Name: Edward G. Patrick
Title: Vice President Finance Treasurer
<PAGE>
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: __________________________
Name:
Title:
<PAGE>
UBS SECURITIES LLC
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:
EXHIBIT 4.3
DESA INTERNATIONAL, INC.
$130,000,000
97/8% SENIOR SUBORDINATED NOTES DUE 2007
PURCHASE AGREEMENT
November 21, 1997
NationsBanc Montgomery Securities, Inc.
UBS Securities LLC
c/o NationsBanc Montgomery Securities, Inc.
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
Desa International, Inc., a Delaware corporation ("Desa" or
the "Company"), proposes to issue and sell to you (the "Initial Purchasers")
$130,000,000 in aggregate principal amount of its 97/8% Senior Subordinated
Notes due 2007 (the "Notes"). The Notes will be fully and unconditionally
guaranteed (the "Holdings Guarantee" and, collectively with the Notes, the
"Securities") on a senior subordinated basis by Desa Holdings Corporation, a
Delaware corporation and the parent of the Company ("Holdings," and together
with the Company, the "Issuers").
The sale of the Securities to the Initial Purchasers will be
made without registration of the Securities under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon exemptions from the
registration requirements of the Securities Act. You have advised the Company
and Holdings that you will offer and sell the Securities purchased by you
hereunder in accordance with Section 2 hereof as soon as you deem advisable.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum, dated November 6, 1997 (the
"Preliminary Memorandum") and a final offering memorandum, dated November 21,
1997 (the "Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Company, Holdings and
the Securities. Each of the Issuers hereby confirms that it has authorized the
use of the Preliminary Memorandum and the Final Memorandum, and any amendment or
supplement thereto, in connection with the offer and sale of the Securities by
the Initial Purchasers. Unless stated to the contrary, all references herein to
the Final Memorandum are to the Final Memorandum at the time of execution and
delivery of this Agreement (the "Execution Time") and are not meant to include
any amendment or supplement, or any information incorporated by reference
therein, subsequent to the Execution Time.
The Initial Purchasers and their direct and indirect
transferees will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Company and Holdings
will agree to use their best efforts to commence an offer to exchange the
Securities for the Company's 97/8% Senior Subordinated Notes due 2007 (the "New
Notes"), which will also be guaranteed by the Holdings Guarantee (together with
the New Notes, the "Exchange Securities"), that have been registered under the
Securities Act, and that otherwise are identical in all respects to the
Securities, or to cause a shelf registration statement to become effective under
the Securities Act and to remain effective for the period designated in such
Registration Rights Agreement.
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The Securities are being issued and sold in connection with
the recapitalization (the "Recapitalization") of Holdings, pursuant to a stock
purchase agreement dated as of October 8, 1997, as amended through the date
hereof (the "Recapitalization Agreement") between Holdings, J.W. Childs Equity
Partners, L.P. ("Childs") and the stockholders of Holdings named therein.
Pursuant to the Recapitalization Agreement, Childs and certain other investors
are to acquire 89.6% of the equity interests of Holdings. In order to finance
the Recapitalization (which includes the retirement of existing indebtedness of
the Company and Holdings), in addition to the sale of the Securities hereunder,
Holdings will require additional financing of up to approximately $230.1
million. Of such amount, (i) approximately $100.0 million be provided by an
investment (the "Equity Financing") by Childs, UBS Capital LLC and certain
existing stockholders of Holdings (including certain members of management of
Holdings) (the "Investors") in the equity interests of Holdings (which shall
include $73.8 million in Holdings' common stock and, $17.6 million in Holdings'
preferred stock and $8.6 million in non-cash resources) and (ii) approximately
$130.1 million will come through borrowings under $195.0 million of senior
secured bank loan facilities made available to Desa (the "New Credit Facility").
The Recapitalization Agreement and the documents entered into
in connection therewith including, without limitation, the agreements attached
thereto as exhibits, are herein collectively referred to as the
"Recapitalization Documents." This Agreement, the Registration Rights Agreement,
the Notes, the Indenture and the Holdings Guarantee are herein collectively
referred to as the "Offering Documents." The Offering Documents, the New Credit
Facility, the Recapitalization Documents, the documents pursuant to which the
Equity Financing will be consummated and the documents necessary for the
repayment of the Company's and Holding's existing indebtedness and any other
documents necessary to consummate the Recapitalization are herein collectively
referred to as the "Transaction Documents." The time of the consummation of the
Recapitalization is referred to herein as the "Effective Time."
1. Representations and Warranties. The Company and Holdings jointly and
severally represent and warrant to each Initial Purchaser as follows:
(a) The Preliminary Memorandum, at the date thereof, did not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Final Memorandum, at the date hereof, does not,
and at the Closing Date (as defined below) will not (and any amendment or
supplement thereto, at the date thereof and at the Closing Date, will not),
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however that the Company
and Holdings make no representation or warranty as to the information relating
to the Initial Purchasers contained in or omitted from the Preliminary
Memorandum or the Final Memorandum, or any amendment or supplement thereto, in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of the Initial Purchasers specifically for inclusion
therein.
(b) Neither the Company, nor Holdings, nor any of their
"Affiliates" (as defined in Rule 501(b) of Regulation D under the
Securities Act ("Regulation D")), nor any person acting on their behalf
has, directly or indirectly, made offers or sales of any security, or
solicited offers to buy any security, under circumstances that would
require the registration of the Securities under the Securities Act.
Neither the Company, nor Holdings, nor any of their Affiliates, nor any
person acting on their behalf has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation
D) in connection with any offer or sale of the Securities, provided,
that neither the Company nor Holdings makes any representations
regarding the Initial Purchasers. The Securities satisfy the
eligibility requirements of Rule 144A(d)(3) under the Securities Act.
The Final Memorandum and each amendment or supplement thereto, as of
its date, contains the information specified in Rule 144A(d)(4) under
the Securities Act. The Company will use its best efforts to work with
the National Association of Securities Dealers, Inc. Private Offerings,
Resales and Trading through the Automated Linkages Market ("PORTAL") to
insure that the Securities will be designated
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PORTAL eligible securities in accordance with the rules and regulations
of the National Association of Securities Dealers, Inc.
(c) Assuming (i) that the representations and warranties and
covenants of the Initial Purchasers contained in Section 3 hereof are
true and correct and (ii) that the Initial Purchasers comply with their
agreements contained in Section 3 hereof, (A) registration under the
Securities Act of the Securities or qualification of the Indenture
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), is not required in connection with the offer and sale of the
Securities to the Initial Purchasers in the manner contemplated by the
Final Memorandum or this Agreement and (B) initial resales of the
Securities by the Initial Purchasers on the terms and in the manner set
forth in the Final Memorandum and Section 3 hereof are exempt from the
registration requirements of the Securities Act.
(d) Since the respective dates of the most recent financial
statements appearing in the Preliminary Memorandum and the Final
Memorandum, except as otherwise stated therein, (i) neither the Company
nor Holdings has or, at and as of the Effective Time, will have
incurred any liabilities or obligations, direct or contingent, or
entered into or agreed to enter into any transactions or contracts
(written or oral) not in the ordinary course of business which
liabilities, obligations, transactions or contracts would, individually
or in the aggregate, be material to the condition, financial or
otherwise, earnings, affairs or business prospects of the Company or
Holdings, (ii) neither the Company nor Holdings has, or, at and as of
the Effective Time, will have purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock, except as otherwise set
forth in the Preliminary Memorandum and the Final Memorandum and (iii)
there shall not have been any change in the capital stock or long-term
indebtedness of the Company or Holdings, except for those changes in
capital stock and long-term indebtedness contemplated by the
Transaction Documents.
(e) Each of the Company and Holdings is and, after giving
effect to the Recapitalization, will be, duly incorporated, and
validity existing as a corporation in good standing under the laws of
Delaware with corporate power and authority to own, lease and operate
its properties and conduct its businesses as described in the
Preliminary Memorandum and the Final Memorandum; each of the Company
and Holdings is and, after giving effect to the Recapitalization, will
be, duly qualified as a foreign corporation to transact business, and
is, and, after giving effect to the Recapitalization will be, in good
standing in each jurisdiction in which either owns or leases properties
or in which the conduct of its business requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not (i) have a material adverse effect on the assets,
business, condition (financial or otherwise), results of operations or
prospects of the Company, Holdings or their subsidiaries, taken as a
whole or (ii) materially and adversely affect the offering of the
Securities or any of the other transactions contemplated by the
Transaction Documents (any such event, a "Material Adverse Effect").
Attached as Schedule A hereto is a complete and accurate list
of each direct and indirect subsidiary and each other investment of the
Company and Holdings and the jurisdictions of organization of such
subsidiary or other investment. Each of the Company's and Holdings'
respective subsidiaries is and, after giving effect to the
Recapitalization, will be, duly incorporated, and validity existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation with corporate power and authority to own, lease and
operate its properties and conduct its businesses as described in the
Preliminary Memorandum and the Final Memorandum; each of the Company's
and Holdings' subsidiaries is and, after giving effect to the
Recapitalization, will be, duly qualified as a foreign corporation to
transact business, and is, and, after giving effect to the
Recapitalization will be, in good standing in each jurisdiction in
which either owns or leases properties or in which the conduct of its
business requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
Material Adverse Effect. Except as set forth in Schedule A attached
hereto, all of the capital stock of each direct or indirect subsidiary
and other investment of
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the Company or Holdings, is owned by the Company, Holdings or another
subsidiary of either the Company or Holdings, free and clear of any
lien or security interest or other encumbrance.
(f) Each of the Company and Holdings has, and after giving
effect to the Recapitalization, will have the authorized, issued and
outstanding capitalization set forth in the Preliminary Memorandum and
the Final Memorandum; all of the outstanding shares of capital stock of
the Company and Holdings are and, after giving effect to the
Recapitalization, will be duly authorized and validly issued, fully
paid and nonassessable and not issued in violation of any preemptive or
similar rights.
(g) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire
any shares of capital stock of, or other ownership interest in, the
Company or Holdings, except as otherwise disclosed in the Preliminary
Memorandum and the Final Memorandum. At and as of the Effective Time,
there will be no outstanding subscriptions, rights, warrants options,
calls, convertible securities, commitments of sale or liens related to
or entitling any person to purchase or otherwise to acquire any shares
of capital stock of, or other ownership interest in, the Company or
Holdings except as otherwise disclosed in the Preliminary Memorandum
and the Final Memorandum.
(h) Neither the Company nor Holdings nor any of their
respective subsidiaries is, or after giving effect to the
Recapitalization, will be (i) in violation of its charter documents,
(ii) in breach or violation of any law, administrative regulation or
administrative or court decree or (iii) in default in the performance
or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by
which its respective properties may be bound, other than with respect
to clauses (ii) and (iii), breaches, violations or defaults which would
not have a Material Adverse Effect.
(i) No consent, approval, authorization or order of any court
or governmental authority or agency, or third party is required for the
performance of any of the Transaction Documents by the Company,
Holdings or any of their subsidiaries or the consummation of the
transactions contemplated by the Transaction Documents, except such as
may be required under state securities or Blue Sky laws or as set forth
in the Registration Rights Agreement. The execution, delivery and
performance by the Company, Holdings or any of their subsidiaries of
the Transaction Documents and the consummation of the transactions
contemplated thereby will not conflict with or constitute a breach of,
or default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company,
Holdings or any of their subsidiaries, pursuant to any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the either Company, Holdings or any of their
subsidiaries is a party or by which any of them may be bound or to
which any of the property or assets of the Company, Holdings or any of
their subsidiaries is, or after giving effect to the Recapitalization,
will be subject, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company, Holdings or any of
their subsidiaries or any law, rules, regulation or administrative or
court decree.
(j) Each of the Company, Holdings and their respective
subsidiaries possesses, and after giving effect to the
Recapitalization, will possess, adequate certificates, authorities,
permits or other authorizations (collectively, "Permits") including,
without limitation, under any applicable Environmental Laws (as defined
herein), issued by the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct its business as now or proposed
to be conducted as set forth in the Final Memorandum. Each of the
Company, Holdings and their respective subsidiaries has, and after
giving effect to the Recapitalization, will have fulfilled and
performed all of its obligations with respect to such Permits in all
material respects. Each of the Company, Holdings and their respective
subsidiaries has, and after giving effect to the Recapitalization, will
not have received any notice or proceedings relating to the revocation
or modification of any such Permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
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(k) There are no material legal or governmental proceedings
involving or affecting the Company, Holdings, any of their subsidiaries
or any of their respective properties or assets that are not described
in the Preliminary Memorandum or the Final Memorandum, nor are there
any material contracts or other documents that are not described in the
Preliminary Memorandum or the Final Memorandum. Except as set forth in
the Preliminary Memorandum and the Final Memorandum, there is not
pending or, to the knowledge of the Company or Holdings threatened any
action, suit or proceeding before or by any court or governmental
agency or body, domestic or foreign, to which the Company, Holdings or
any of their subsidiaries (both before and after giving effect to the
Recapitalization) is a party, which affects the Company, Holdings or
any of their subsidiaries or, after giving effect to the
Recapitalization, will effect the Company, Holdings or any of their
subsidiaries which, if the subject of an unfavorable decision, ruling
or finding, would have a Material Adverse Effect.
(l) Each of the Company, Holdings and their subsidiaries has,
and after giving effect to the Recapitalization, will have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by it and necessary in
the conduct of its business in each case free and clear of all liens,
encumbrances and defects except (i) such as are referred to in the
Preliminary Memorandum and the Final Memorandum, (ii) sales of
inventory in the ordinary course of business or (iii) such as do not
materially adversely affect the value of such property to it, and do
not materially interfere with the use made and proposed to be made of
such property by it. All leases, contracts and agreements to which any
of the Company, Holdings and any of their subsidiaries is and, after
giving effect to the Recapitalization, will be a party or by which it
is bound are valid and enforceable against it and are valid and
enforceable against the other party or parties thereto and are in full
force and effect with only such exceptions as would not, individually
or in the aggregate, have a Material Adverse Effect.
(m) Each of the Company, Holdings and their subsidiaries has,
and after giving effect to the Recapitalization, will own or possess
adequate licenses or other rights to use all patents, trademarks,
service marks, trade names, copyrights, know-how and other intellectual
property (collectively, "Trademarks") necessary to conduct the business
now or proposed to be operated by it as described in the Preliminary
Memorandum and the Final Memorandum, except as would not, individually
or in the aggregate, have a Material Adverse Effect; and the
consummation of the transactions contemplated hereby and by the
Recapitalization will not alter or impair any such rights, except for
such alterations or impairments as would not have a Material Adverse
Effect. Neither the Company, nor Holdings nor any of their subsidiaries
has and, after giving effect to the Recapitalization, will have
received any notice of infringement of or conflict with (or know of any
such infringement of or conflict with) alleged rights of others with
respect to any Trademarks (or questioning the validity or effectiveness
of any license or other agreement or instrument relating thereto)
which, if such alleged infringement or conflict were sustained, would
have a Material Adverse Effect; and to the best knowledge of the
Company and Holdings, there is no valid basis for any such claim and
the use of such Trademarks by the Company, Holdings or any of their
subsidiaries does not infringe on the rights of any person.
(n) Each of the Company, Holdings and each of their
subsidiaries has, and after giving effect to the Recapitalization, will
have all the requisite corporate power and authority to executive,
deliver and perform its obligations under each of the Transaction
Documents (other than the Offering Documents and the New Credit
Facility) to which it is a party; the Recapitalization Agreement has
been duly and validly authorized, executed and delivered by Holdings;
each of such Transaction Documents, at and as of the Effective Time,
will have been duly and validly authorized, executed and delivered by
the Company, Holdings and each of their subsidiaries, as applicable,
and will constitute a valid and legally binding obligation of the
Company, Holdings and their subsidiaries, as applicable, enforceable
against the Company, Holdings and their subsidiaries, as applicable, in
accordance with its terms; and the Recapitalization has been duly
authorized by all necessary action, if any, of the stockholders of the
Company and Holdings.
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(o) Each of the Company and Holdings has and, after giving
effect to the Recapitalization, will have, all requisite corporate
power and authority to execute, deliver and perform its obligations
under the Offering Documents, as applicable, and to authorize, issue,
sell and deliver the Securities as provided herein and therein.
(p) There exists as of the date hereof and will exist on the
Closing Date, after giving effect to the Recapitalization, no event or
condition which would constitute a default or an event of default or
other violation or breach of any Transaction Document. Each of the
representations and warranties of the Company and Holdings contained in
each of the Transaction Documents (other than the Offering Documents)
are true and correct in all material respects. Each of the Transaction
Documents conforms to the description thereof in the Final Memorandum
in all material respects.
(q) Except as disclosed in the Preliminary Memorandum and the
Final Memorandum, and except as would not individually or in the
aggregate have a Material Adverse Effect, (w) each of the Company,
Holdings and their respective subsidiaries is in compliance with all
applicable Environmental Laws, (x) each of the Company, Holdings and
their respective subsidiaries has all Permits under any applicable
Environmental Laws and is in compliance with their requirements, (y)
there are no pending or, to the best knowledge of the Company and
Holdings, threatened Environmental Claims (as defined below) against
the Company, Holdings or any of their subsidiaries and (z) each of the
Company and Holdings does not have knowledge of any circumstances with
respect to any of its properties or operations that could reasonably be
anticipated to form the basis of an Environmental Claim against the
Company, Holdings, any of their subsidiaries or any of their respective
properties or operations and the business operations relating thereto.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means, with respect to any
person, any federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law and any
published judicial or administrative interpretation thereof including
any judicial or administrative order, consent decree or judgment
binding on such person or any of its subsidiaries, relating to the
environment, health, safety or any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any such
governmental authority. "Environmental Claims" means any and all
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental
Law.
(r) In the ordinary course of its business, each of the
Company and Holdings conducts a periodic review of the effect of
Environmental Laws on its business, operations and properties, in the
course of which it identifies and evaluates associate costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any Permit, any related constraints on
operating activities and potential liabilities to third parties). On
the basis of such review, each of the Company, Holdings and their
respective subsidiaries has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
Material Adverse Effect.
(s) Each of the Company, Holdings and their respective
subsidiaries has not and, after giving effect to the Recapitalization,
will not have violated any foreign, federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable foreign, federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules
and regulations promulgated thereunder, which in each case would singly
or in the aggregate, have a Material Adverse Effect.
(t) There is (i) no unfair labor practice complaint pending
against the Company, Holdings or any of their subsidiaries or, to the
best knowledge of the Company and Holdings, threatened against any of
them, before the National Labor Relations Board or any state or local
labor relations board, and no significant grievance or more significant
arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company, Holdings or any
of their subsidiaries or, to the best knowledge of the Company and
Holdings, threatened against any of
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them, and (ii) no significant strike, labor dispute, slowdown or
stoppage pending against the Company, Holdings or any of their
subsidiaries or, to the best knowledge of the Company and Holdings,
threatened against any of them.
(u) Each of the Company, Holdings and their respective
subsidiaries carries and, after giving effect to the Recapitalization,
will carry reasonably adequate insurance (including self-insurance) in
such amounts and covering such risks as would be obtained by companies
in the same or similar businesses in the ordinary course for the
conduct of its business and the value of its properties.
(v) Ernst & Young LLP are independent public accountants with
respect to the Company and Holdings within the meaning of the
Securities Act and the rules and regulations thereunder.
(w) The combined financial statements, together with related
schedules and notes forming part of the Preliminary Memorandum and the
Final Memorandum (and any amendment or supplement thereto), present
fairly the consolidated financial position, results of operations and
changes in financial position of the Holdings and its subsidiaries on
the basis stated in the Preliminary Memorandum and the Final Memorandum
at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information
and data set forth in the Preliminary Memorandum and the Final
Memorandum (and any amendment or supplement thereto) is, in all
material respects, accurately presented and prepared on a basis
consistent with such financial statements, except as otherwise stated
therein. The statistical and market-related data (including, without
limitation, estimates of market size and share) included in the
Preliminary Memorandum and the Final Memorandum are based on or derived
from sources which the Company and Holdings believe to be reliable and
accurate.
(x) The pro forma financial statements included in the
Preliminary Memorandum and the Final Memorandum have been prepared on a
basis consistent with the historical financial statements of Holdings
and its subsidiaries and give effect to assumptions used in the
preparation thereof on a reasonable basis and in good faith and present
fairly the historical and proposed transactions contemplated by the
Preliminary Memorandum and the Final Memorandum; and such pro forma
financial statements comply as to form in all material respects with
the requirements applicable to pro forma financial statements included
in registration statements on Form S-1 under the Securities Act. The
other pro forma financial and statistical information and data included
in the Preliminary Memorandum and the Final Memorandum are, in all
material respects, accurately presented and prepared on a basis
consistent with the pro forma financial statements.
(y) Neither the Company, nor Holdings nor any of their
subsidiaries is, or will be, after giving effect to the
Recapitalization, an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company
Act of 1940, as amended (the "Investment Company Act").
(z) The Company, Holdings and their subsidiaries have complied
with all provisions of Section 517.075, Florida Statutes (Chapter
92-198, Laws of Florida) relating to doing business with the Government
of Cuba or with persons or affiliates located in Cuba.
(aa) Each of the Company, Holdings and their respective
subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements that conform with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
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(bb) Each of the Company, Holdings and their respective
subsidiaries has and, after giving effect to the Recapitalization, will
have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed, other than those filings
being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment
received by the Company, Holdings or any of their subsidiaries have
been, and after giving effect to the Recapitalization, will be paid,
other than those being contested in good faith and for which adequate
reserves have been provided.
(cc) Except as stated in the Final Memorandum, neither the
Company nor Holdings knows of any outstanding claims for services,
either in the nature of a finder's fee, financial advisory fee,
origination fee or similar fee, with respect to the transactions
contemplated hereby.
(dd) This Agreement has been duly authorized, executed and
delivered by the Company and Holdings and constitutes a valid and
binding agreement of the Company and Holdings, enforceable against the
Company and Holdings in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity and except
insofar as the enforceability and the indemnity and contribution
provisions contained in this Agreement may be limited by federal or
state securities laws and the public policy underlying such laws.
(ee) The Indenture has been duly authorized, and when executed
and delivered by the Company and Holdings, will be a valid and binding
agreement of the Company and Holdings, enforceable against the Company
and Holdings in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity.
(ff) The Notes have been duly authorized by the Company, and,
when executed and authenticated in accordance with the provisions of
the Indenture, will conform in all material respects to the description
thereof in the Preliminary Memorandum and the Final Memorandum and when
delivered to and paid for by the Initial Purchasers in accordance with
this Agreement, will be valid and binding obligations of the Company,
entitled to the benefits of the Indenture and will be enforceable
against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(gg) The Holdings Guarantee endorsed on the Notes has been
duly authorized by Holdings and, when the Notes are executed and
authenticated in accordance with the provisions of the Indenture and
delivered to the Initial Purchasers in accordance with this Agreement,
the Holdings Guarantee will be the valid and binding obligation of
Holdings, entitled to the benefits of the Indenture and will be
enforceable against Holdings in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(hh) The Exchange Securities have been duly authorized by the
Company and Holdings, and, when executed and authenticated in
accordance with the provisions of the Indenture, will be valid and
binding obligations of the Company and Holdings, entitled to the
benefits of the Indenture and will be enforceable against the Company
and Holdings in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity.
(ii) The Registration Rights Agreement has been duly
authorized by the Company and Holdings, and, when duly executed and
delivered by the Company and Holdings, will be a valid and binding
agreement of the Company and Holdings, enforceable against the Company
and Holdings in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance,
8
<PAGE>
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(jj) The New Credit Facility (and the guarantees thereof) has
been duly authorized by the Company and Holdings, and, when duly
executed and delivered by the Company and Holdings, will be a valid and
binding obligation of the Company and Holdings, enforceable against the
Company and Holdings in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity.
(kk) Neither the Company, nor Holdings, nor any agent thereof
acting on the behalf of the Company or Holdings has taken, and none of
them will take, any action that might cause the New Credit Facility,
this Agreement or the issuance or sale of the Securities pursuant to
the terms of this Agreement to violate Regulation G (12 C.F.R. Part
207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part
221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of
the Federal Reserve System.
(ll) Immediately after the consummation of the
Recapitalization, the fair value and present fair saleable value of the
assets of the Company and Holdings will exceed the sum of its stated
liabilities and identified contingent liabilities; and neither the
Company nor Holdings is, or after giving effect to the execution,
delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated thereby, will be, (i)
left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted, (ii) unable to pay its
debts (contingent or otherwise) as they mature or (iii) otherwise
insolvent.
(mm) Neither the Company, nor Holdings nor any of their
subsidiaries, nor, to either the Company's or Holding's knowledge, any
director, officer, agent, employee, stockholder or other person, in any
such case, acting on behalf of the Company, Holdings or any of their
respective subsidiaries, has used any corporate funds during the last
five years for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
payoff, influence payment, kickback or other payment that is unlawful.
(nn) Neither the Company, nor Holdings nor any affiliate of
the Company or Holdings has sold, offered for sale or solicited offers
to buy or otherwise negotiated in respect of any security (as defined
in the Securities Act) in a transaction would require the registration
under the Securities Act of the Securities.
(oo) Neither the Company, nor Holdings nor any of their
subsidiaries is a "public utility" or a "holding company" within the
meaning of the Public Utility Holdings Company Act of 1935, as amended.
2. Purchase and Sale. On the basis of the representations and
warranties contained in, and subject to the terms and conditions of, this
Agreement, each of the Issuers agrees to sell to the Initial Purchasers and the
Initial Purchasers agree to purchase the aggregate principal amount of
Securities set forth opposite its name as shown in Schedule B hereto, at a
purchase price equal to 97% of the principal amount thereof.
The Issuers shall not be obligated to deliver any of the
Securities to be delivered except upon payment for all the Securities to be
purchased as provided herein.
3. Sale and Resale of the Securities by the Initial
Purchasers. Each of the Initial Purchasers represents and warrants to the
Company and Holdings that:
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(a) It will offer the Securities to be purchased hereunder for resale only upon
the terms and conditions set forth in this Agreement and in the Final
Memorandum.
(b) It (i) will not solicit offers for, or offer or sell, the
Notes by means of any form of general solicitation or general
advertising within the meaning of Regulation D or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act, and (ii) will solicit offers for the Notes only from,
and will offer, sell or deliver the Notes, as part of its initial
offering, only to the following persons (each an "Eligible Purchaser")
(A) persons in the United States whom such Initial Purchaser reasonably
believes to be qualified institutional buyers ("QIBs") as defined in
Rule 144A under the Securities Act, as such rule may be amended from
time to time ("Rule 144A") or, if any such person is buying for one or
more institutional accounts for which such person is acting as
fiduciary or agent, only when such person has represented to such
Initial Purchaser that each such account is a QIB, to whom notice has
been given that such sale or delivery is being made in reliance on Rule
144A, (B) to a limited number of institutional accredited investors as
defined in Rule 501(a) (1), (2), (3) or (7) under Regulation D
("Accredited Investors") that, prior to their purchase of the
Securities, execute and deliver a letter containing certain
representations and agreements in the form attached as Annex A to the
Final Memorandum and (C) outside the United States to non-U.S. persons
in offshore transactions in reliance on Regulation S under the
Securities Act ("Regulation S"), in each case, in transactions under
Rule 144A or Regulation D in private sales exempt from registration
under the Securities Act.
(c) With respect to Securities sold in reliance on Regulation
S, (i) neither the Company nor any of its affiliates nor anyone acting
on its or their behalf has offered or sold, and will not offer or sell,
any Securities by means of any directed selling efforts (as defined in
Rule 902 of Regulation S) in the United States, (ii) at or prior to
confirmation of such sales of securities made in reliance on Regulation
S, it will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases the
Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933, as amended (the "Securities
Act") and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. persons (i) as
part of a distribution thereof at any time or (ii) otherwise
until 40 days after the later of the date of the commencement
of the offering and the closing date, except in either case in
accordance with an exemption from or in a transaction not
subject to the Securities Act. Terms used above have the
meanings given them by Regulation S."
(iii) the Securities offered and sold in reliance on Regulation S will
only be sold in offshore transactions and (iv) the sale of the
Securities to non-U.S. persons in offshore transactions is not part of
a plan or scheme to avoid the registration requirements of the
Securities Act.
(d) (i) It has not solicited, and will not solicit, offers to
purchase any of the Securities from, (ii) it has not sold, and will not
sell, any of the Securities to, and (iii) it has not distributed, and
will not distribute, the Preliminary Memorandum or the Final Memorandum
to, any person or entity in any jurisdiction outside of the United
States except, in each case, in compliance in all material respects
with all applicable laws of such jurisdiction. For purposes of this
Agreement, "United States" means the United States of America, its
territories, its possessions (including the Commonwealth of Puerto
Rico), and other areas subject to its jurisdiction.
(e) Unless prohibited by applicable law, (i) it will furnish
to each person to whom it offers any Securities, a copy of the
Preliminary Memorandum (as amended or supplemented) or Final Memorandum
or (unless delivery of such Preliminary Memorandum is required by
applicable law) shall inform each such person that a copy of such
Preliminary Memorandum or the Final
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Memorandum will be available upon request and (ii) it will furnish to
each person to whom it sells Securities a copy of the Final Memorandum
(as then amended or supplemented) and shall inform each such person
that a copy of such Final Memorandum will be available upon request.
4. Delivery of and Payment for the Notes. Delivery of and
payment for the Securities shall be made at the office of Latham & Watkins, 885
Third Avenue, New York, New York at 9:00 A.M., New York City time, on November
26, 1997, or at such other date or place as shall be determined by agreement
between the Initial Purchasers and the Issuers. This date and time are sometimes
referred to as the "Closing Date." On the Closing Date, the Issuers shall
deliver or cause to be delivered the Securities to the Initial Purchasers for
the account of the Initial Purchasers against payment to or upon the order of
the Issuers of the purchase price by wire transfer in federal (same-day) funds.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of the
Initial Purchasers hereunder. Upon delivery, the Securities shall be in
definitive fully registered form and registered in the name of Cede & Co., as
nominee of the Depositary Trust Company ("DTC"), or such other name or names and
in such denominations as the Initial Purchasers shall request in writing not
less than one business day prior to the Closing Date. For the purpose of
expediting the checking and packaging of the Securities, the Company shall make
the Securities available for inspection by the Initial Purchasers in New York,
New York, not later than 2:00 P.M., New York City time, on the business day
prior to the Closing Date.
5. Further Agreements of the Company and Holdings. The Company
and Holdings, jointly and severally, agree with each Initial Purchaser as set
forth below:
(a) The Company and Holdings will furnish to the Initial Purchasers, without
charge, as many copies of the Final Memorandum and any supplements and
amendments thereto as they may reasonably request.
(b) Prior to making any amendment or supplement to the
Preliminary Memorandum or the Final Memorandum, the Company and
Holdings shall furnish a copy thereof to the Initial Purchasers and
counsel to the Initial Purchasers and will not effect any such
amendment or supplement to which the Initial Purchasers shall
reasonably object by notice to the Company after a reasonable period to
review.
(c) If, at any time prior to completion of the distribution of
the Securities by the Initial Purchasers, any event shall occur or
condition exist as a result of which it is necessary, in the opinion of
counsel for the Initial Purchasers or counsel for the Issuers, to amend
or supplement the Final Memorandum in order that the Final Memorandum
will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein
not misleading in light of the circumstances existing at the time it is
delivered to a purchaser, or if it is necessary to amend or supplement
the Final Memorandum to comply with applicable law, the Company and
Holdings will promptly prepare such amendment or supplement as may be
necessary to correct such untrue statement or omission or so that the
Final Memorandum, as so amended or supplemented, will comply with
applicable law and furnish to the Initial Purchasers such number of
copies of such amendment or supplement as they may reasonably request.
(d) So long as any Securities are outstanding and are
"Restricted Securities" within the meaning of Rule 144(a)(3) under the
Securities Act and during any period in which either the Company or
Holdings is not subject to Section 13 or 15(d) of the Exchange Act of
1934, as amended (the "Exchange Act"), the Company and Holdings will
furnish to holders of the Securities and prospective purchasers of
Securities designated by such holders, upon request of such holders or
such prospective purchasers, the information, if any, required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(e) So long as the Securities and Exchange Securities are
outstanding, the Company and Holdings will furnish to the Initial
Purchasers copies of any annual reports, quarterly reports and current
reports filed with the Securities and Exchange Commission ("SEC") on
Forms 10-K, 10-Q
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and 8-K, or such other similar forms as may be designated by the SEC,
and such other documents, reports and information as shall be furnished
by the Company and Holdings to the Trustee or to the holders of the
Securities and Exchange Securities pursuant to the Indenture.
(f) The Company and Holdings will use their best efforts to
qualify the Securities for sale under the securities or Blue Sky laws
of such jurisdictions as the Initial Purchasers reasonably designate
and to continue such qualifications in effect so long as reasonably
required for the distribution of the Securities. The Company and
Holdings will also arrange for the determination of the eligibility for
investment of the Securities under the laws of such jurisdictions as
the Initial Purchasers reasonably request. Notwithstanding the
foregoing, neither the Company nor Holdings shall be obligated to
qualify as a foreign corporation in any jurisdiction in which they are
not so qualified or to file a general consent to service of process or
to subject themselves to taxation in respect of doing business in any
jurisdiction in which it is not otherwise subject.
(g) The Company and Holdings will use their best efforts to
permit the Securities to be designated PORTAL securities in accordance
with the rules and regulations adopted by the National Association of
Securities Dealers, Inc. relating to trading in the PORTAL market and
to permit the Securities to be eligible for clearance and settlement
through DTC.
(h) Except following the effectiveness of any Registration
Statement (as defined in the Registration Rights Agreement) and except
for such offers as may be made as a result of, or subsequent to, filing
such Registration Statement or amendments thereto prior to the
effectiveness thereof, the Company and Holdings will not, and will
cause their affiliates not to, solicit any offer to buy or offer to
sell the Securities by means of any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(i) The Company and Holdings will consummate the transactions
contemplated by the Transaction Documents (to the extent each is a
party thereto) in accordance with the terms thereof, and apply the net
proceeds from the sale of the Securities, in each case, as set forth in
the Final Memorandum.
(j) The Company and Holdings will take such steps as shall be
necessary to ensure that neither the Company, nor Holdings nor any of
their respective subsidiaries shall become (i) an "investment company"
within the meaning of the Investment Company Act, or (ii) a "holding
company" or a "subsidiary company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holdings Company Act
of 1935, as amended.
(k) The Company, Holdings and their respective subsidiaries
will not, and will cause their respective affiliates not to, take any
action that would require the registration under the Securities Act of
the Securities (other than pursuant to the Registration Rights
Agreement) including, without limitation, (i) engaging in any directed
selling efforts (within the meaning of Regulation S) during any
applicable restricted period or (ii) offering any other securities in a
manner that would be integrated with the transactions contemplated
hereby.
(l) Prior to the consummation of the Exchange Offer (as
defined in the Registration Rights Agreement) or the effectiveness of
an applicable shelf registration statement if, in the reasonable
judgment of the Initial Purchasers, the Initial Purchasers or any of
their affiliates are required to deliver an offering memorandum in
connection with sales of, or market-making activities with respect to,
the Securities, (A) the Company and Holdings will periodically amend or
supplement the Final Memorandum so that the information contained in
the Final Memorandum complies with the requirements of Rule 144A of the
Securities Act, (B) the Company and Holdings will amend or supplement
the Final Memorandum when necessary to reflect any material changes in
the information provided therein so that the Final Memorandum will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
light of the
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circumstances existing as of the date the Final Memorandum is so
delivered, not misleading and (C) the Company and Holdings will provide
the Initial Purchasers with copies of each such amended or supplemented
Final Memorandum, as the Initial Purchasers may reasonably request.
The Company and Holdings hereby expressly acknowledges that
the indemnification and contribution provisions of Section 8 hereof are
specifically applicable and relate to each offering memorandum,
registration statement, prospectus, amendment or supplement referred to
in this Section 5(l).
(m) The Company will do all things reasonably necessary to
satisfy the closing conditions set forth in Section 7 hereof.
6. Expenses. The Company and Holdings, jointly and severally,
agree to pay (a) the costs incident to the authorization, issuance, sale and
delivery of the Securities and Exchange Securities and any issue or stamp taxes
payable in that connection; (b) the costs incident to the preparation and
printing of the Preliminary Memorandum, the Final Memorandum and any amendments,
supplements and exhibits thereto; (c) the costs of distributing the Preliminary
Memorandum, the Final Memorandum and any amendment or supplement thereto; (d)
the fees and expenses of qualifying the Securities and Exchange Securities under
the securities laws of the several jurisdictions as provided in Section 5(f) and
of preparing, printing and distributing a Blue Sky Memorandum (including
reasonable related fees and expenses of counsel to the Initial Purchasers); (e)
the cost of printing the Securities and the Exchange Securities; (f) the fees
and expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of any counsel for the Trustee in connection with the Indenture
and the Securities and Exchange Securities; (g) any fees paid to rating agencies
in connection with the rating of the Securities and Exchange Securities; (h) the
costs and expenses of DTC and its nominee, including its book-entry system; (i)
all expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL market; and (j) all other costs and
expenses incident to the performance of the obligations of the Company and
Holdings under this Agreement.
7. Conditions of Initial Purchasers' Obligations. The
obligations of the Initial Purchasers to purchase and pay for the Securities on
the Closing Date will be subject to satisfaction of each of the following
conditions:
(a) Each of the representations and warranties on the part of the Company and
Holdings contained herein shall be true and correct in all material respects on
the date herein and on the Closing Date with the same force and effect as if
made on and as of the Closing Date.
(b) The Final Memorandum shall have been printed and copies
distributed to the Initial Purchasers as soon as practicable but in no
event later than on the Business Day following the date of this
Agreement or at such later date and time as to which the Initial
Purchasers may agree, and no stop order suspending the qualification or
exemption from qualification of the Securities in any jurisdiction
referred to in Section 5(f) shall have been issued and no proceeding
for that purpose shall have been commenced or shall be pending or
threatened.
(c) The Initial Purchasers shall not have advised the Company
that the Final Memorandum, or any amendment or supplement thereto,
contains an untrue statement of fact or omits to state a fact which,
the Initial Purchasers have concluded, is material and in the case of
an omission is required to be stated therein or is necessary to make
the statements therein not misleading.
(d) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, singly or in
the aggregate, reasonably be expected to have a Material Adverse
Effect; no action, suit or proceeding shall have been commenced and be
pending against or affecting or, to the knowledge of the Company or
Holdings, threatened against the Company, Holdings or any of their
subsidiaries
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before any court or arbitrator or any governmental body, agency or
official that, singly or in the aggregate, if adversely determined,
would reasonably be expected to result in a Material Adverse Effect;
and no stop order shall have been issued by the SEC or any governmental
agency of any jurisdiction referred to in Section 5(f) preventing the
use of the Final Memorandum, or any amendment or supplement thereto, or
which would reasonably be expected to have a Material Adverse Effect.
(e) Since the date of the latest balance sheet included in the
Final Memorandum, there shall not have been any material adverse
change, or any development involving a prospective material adverse
change, in the condition, financial or otherwise, or in the earnings,
affairs or business prospects, whether or not arising in the ordinary
course of business, of the Company, Holdings or any of their respective
subsidiaries, (ii) since the date of the latest balance sheet included
in the Final Memorandum there shall not have been any change, or any
development involving a prospective material adverse change, in the
capital stock or in the long-term debt of the Company, Holdings or any
of their respective subsidiaries except as described in the Final
Memorandum, (iii) none of the Company, Holdings or any of their
respective shall have any liability or obligation, direct or
contingent, which is material to it, other than those reflected in the
Final Memorandum and (iv) on the Closing Date you shall have received a
certificate of each of the Company and Holdings, dated the Closing
Date, signed on its behalf by (x) the president or any vice president
and (y) a principal financial or accounting officer of the Company or
Holdings, as applicable, confirming, as of the Closing Date, the
matters set forth in paragraphs (a), (b), (c) and (d) of this Section 7
(as to the Company and Holdings) and confirming that the
representations and warranties contained in Section 1 are true and
correct with the same force and effect as though made on and as of the
Closing Date.
(f) As of the Closing Date, the Company and Holdings will have
delivered to the Initial Purchasers true and correct executed copies of
the Transaction Documents in the form as originally executed, together
with all related documents, instruments and agreements and all
schedules or exhibits thereto; there will have been no amendments,
alterations, modifications or waivers thereto or in the exhibits or
schedules thereto other than those as to which the Initial Purchasers
shall previously have been advised and shall not have reasonably
objected after being furnished a copy thereof.
(g) None of the issuance and sale of the Securities pursuant
to this Agreement, the Recapitalization or any of the other
transactions contemplated by any of the Transaction Documents or the
Final Memorandum shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued or
any action, suit or proceeding shall have been commenced with respect
to this Agreement, the Recapitalization Agreement, the New Credit
Facility or any of the other transactions contemplated by the
Transaction Documents or the Final Memorandum, before any court or
governmental authority.
(h) On the Closing Date, the Initial Purchasers shall have
received copies of all opinions delivered by any counsel, consultants
or advisors to Childs or any of its affiliates, and such other
certificates, documents and opinions reasonably obtainable by Childs or
any of its affiliates delivered to any party under the Transaction
Documents, in each case in which the Initial Purchasers reasonably
request, together with letters addressed to the Initial Purchasers,
stating that the Initial Purchasers may rely on such certificates,
documents and opinions as if they had been addressed to the Initial
Purchasers.
(i) The Initial Purchasers shall have received a favorable
opinion of Sullivan & Worcester LLP, counsel for the Company and
Holdings, dated the Closing Date to the effect that:
(i) Each of the Company and Holdings is duly
incorporated and is validly existing as a corporation in good
standing under the laws of Delaware with corporate power and
authority to own, lease and operate its properties and conduct
its business as described in the Preliminary Memorandum and
the Final Memorandum; and is duly qualified as a
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foreign corporation to transact business and is in good
standing in each jurisdiction as to which the management of
the Company has advised such counsel that the Company or
Holdings, as applicable, owns or leases property or in which
the conduct of its business requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a Material Adverse Effect.
(ii) Assuming, (i) the accuracy of and compliance
with the representations, warranties and covenants of the
Company and Holdings set forth in Section 1 of this Agreement,
and (ii) the accuracy of and compliance with the Initial
Purchasers' representations, warranties and covenants set
forth in this Agreement, the offer, issuance, sale and
delivery of the Securities to the Initial Purchasers, and the
initial reoffer, resale and delivery of the Securities by the
Initial Purchasers, as contemplated by this Agreement and the
Final Memorandum, do not require registration under the
Securities Act, or qualification of the Indenture under the
Trust Indenture Act, it being understood that no opinion is
expressed as to any subsequent resale of Securities or any
resale of Securities by any person other than the Initial
Purchasers.
(iii) Each of the Company and Holdings has the
authorized, issued and outstanding capital stock as set forth
in the Final Memorandum; all of the outstanding shares of
capital stock of the Company and Holdings has been duly
authorized and validly issued, are fully paid and
nonassessable and were not, to the best of such counsel's
knowledge, issued in violation of any preemptive or similar
rights.
(iv) To the knowledge of such counsel, there are,
and, after giving effect to the Recapitalization, will be no
outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire, or instruments
convertible into or exchangeable for, any such shares of
capital stock or other equity interest of the Company,
Holdings or any of their respective subsidiaries, except as
described in the Final Memorandum.
(v) Each of the Company and Holdings has all the
requisite corporate power and authority to execute, deliver
and perform its respective obligations under each of the
Transaction Documents to which it is a party.
(vi) Each of the Company and Holdings has duly
authorized, executed and delivered each of the Transaction
Documents to which it is party.
(vii) Each of the Company and Holdings has duly and
validly authorized this Agreement and the consummation by the
Company and Holdings of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the
Company and Holdings.
(viii) Each of the Company and Holdings has duly and
validly authorized, executed and delivered the Indenture, and
the Indenture constitutes a valid and binding agreement of the
Company and Holdings, enforceable against each of them in
accordance with its terms except that the obligations, rights
and remedies of parties may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, marshaling or other
similar laws affecting generally creditors' rights and
remedies, and (ii) general principles of equity (regardless of
whether considered in a proceeding at law or in equity),
including, without limitation, the discretion of any court of
competent jurisdiction in granting specific performance or
other equitable relief.
(ix) The Company has duly authorized the Notes,
which, when executed and authenticated in accordance with the
provisions of the Indenture, and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this
Agreement, will be valid and binding obligations of the
Company enforceable against the Company in accordance with
their
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<PAGE>
terms except that the obligations, rights and remedies of
parties may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, marshaling or other similar laws
affecting generally creditors' rights and remedies, and (ii)
general principles of equity (regardless of whether considered
in a proceeding at law or in equity), including, without
limitation, the discretion of any court of competent
jurisdiction in granting specific performance or other
equitable relief, and will be entitled to the benefits of the
Indenture.
(x) Holdings has duly authorized the Holdings
Guarantee, which, when the Notes are executed and
authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement,
will be the valid and binding obligation of Holdings
enforceable against Holdings (both before and after giving
effect to the Recapitalization) in accordance with its terms
except that the obligations, rights and remedies of parties
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, marshaling or other similar laws affecting
generally creditors' rights and remedies, and (ii) general
principles of equity (regardless of whether considered in a
proceeding at law or in equity), including, without
limitation, the discretion of any court of competent
jurisdiction in granting specific performance or other
equitable relief, and will be entitled to the benefits of the
Indenture.
(xi) Each of the Company and Holdings has duly
authorized the Exchange Securities, which, when executed and
delivered by the Company and Holdings and duly authenticated
by the Trustee in accordance with the provisions of the
Indenture, will be valid and binding obligations of the
Company and Holdings, respectively, enforceable against the
Company and Holdings in accordance with their terms except
that the obligations, rights and remedies of parties may be
limited by (i) bankruptcy, insolvency, reorganization,
moratorium, marshaling or other similar laws affecting
generally creditors' rights and remedies, and (ii) general
principles of equity (regardless of whether considered in a
proceeding at law or in equity), including, without
limitation, the discretion of any court of competent
jurisdiction in granting specific performance or other
equitable relief, and will be entitled to the benefits of the
Indenture.
(xiiEach of the Company and Holdings has duly
authorized the Registration Rights Agreement, which, when
executed and delivered by the Company and Holdings, will be
valid and binding obligations of the Company and Holdings,
respectively, enforceable against the Company and Holdings in
accordance with their terms except that the obligations,
rights and remedies of parties may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, marshaling
or other similar laws affecting generally creditors' rights
and remedies, (ii) general principles of equity (regardless of
whether considered in a proceeding at law or in equity),
including, without limitation, the discretion of any court of
competent jurisdiction in granting specific performance or
other equitable relief, and (iii) the validity and
enforceability of any indemnification or contribution
provisions thereof may be limited under applicable securities
laws or public policies.
(xiii) The Indenture, the Securities, the
Registration Rights Agreement, the Recapitalization Agreement
and the New Credit Facility conform in all material respects
to the descriptions thereof contained in the Final Memorandum.
(xiv) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental
authority or agency, or third party is required (which has not
been obtained) in connection with the consummation by the
Company and Holdings of the transactions contemplated by the
Transaction Documents, except such as may be required under
state securities or Blue Sky laws. To the best of its
knowledge and information, the execution, delivery and
performance by each of the Company and Holdings of the
Transaction Documents and the consummation of the transactions
contemplated thereby will not conflict with or constitute a
breach of, or default under (or an event which with notice or
16
<PAGE>
passage of time or both would constitute or a default under)
or violation of any of (A) any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which it is a party or by which it may be bound or to which
any of its property or assets is, and at and as of the
Effective Time will be subject, (B) the provisions of the
charter or by-laws of the Company or Holdings, or (C)
(assuming compliance with all applicable state securities or
Blue Sky laws) any law, administrative regulation or
administrative or court decree applicable to the Company,
Holdings or any of their properties or assets, except for any
such breach or violation which would not, individually or in
the aggregate, have a Material Adverse Effect.
(xv) To the knowledge of such counsel, neither the
Company nor Holdings is, nor after giving effect to the
Recapitalization, will be in violation of its charter
documents.
(xvi) To such counsel's knowledge, no legal or
governmental proceeding pending or threatened to which either
of the Company or Holdings is a party or to which any of their
respective properties are or will be subject that would be
required to be described in a registration statement on Form
S-1 or a prospectus contained therein delivered at the time of
the confirmation of the sale of an offering of securities
registered under the Securities Act that are not described in
the Final Memorandum.
(xvii) To such counsel's knowledge, no legal or
governmental proceedings are pending or threatened to which
either the Company or Holdings is a party or to which any of
their properties is subject which, if determined adversely to
such party would result, individually or in the aggregate, in
a Material Adverse Effect, or which seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the
issuance and sale of the Securities or the consummation of the
other transactions contemplated by the Transaction Documents.
(xviii) Neither the Company nor Holdings is (i) an
"investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended or (ii) a "holding company" or
a "subsidiary company" or an "affiliate" of a holding company
within the meaning of the Public Utility Holdings Company Act
of 1935, as amended.
(xix) Neither the consummation of the transactions
contemplated by the New Credit Facility and this Agreement nor
the issuance or sale of the Securities will violate Regulation
G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the Federal Reserve
System.
(xx) When the Securities are issued and delivered
pursuant to this Agreement, such Securities will not be of the
same class (within the meaning of Rule 144A(d)(3) under the
Securities Act) as securities of the Company or Holdings that
are listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted on an automated
inter-dealer quotation system.
In addition, such counsel shall also state that such counsel
has participated in conferences with officers and representatives of
the Company and Holdings, representatives of the independent public
accountants for the Company and Holdings, the Initial Purchasers and
their counsel at which the contents of the Final Memorandum and related
matters were discussed and, although such counsel is not passing upon
and does not assume any responsibility for and has not verified the
accuracy, completeness or fairness of the statements contained in the
Final Memorandum, and has not made any independent check or
verification thereof, on the basis of the foregoing (relying as to
materiality to the extent they deemed appropriate upon facts provided
by officers and other representatives of the Company and Holdings), no
facts have come to the attention of such counsel that lead such counsel
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to believe that the Final Memorandum, as of its date or the Closing
Date, contained an untrue statement of a material fact or omitted to
state any material fact necessary to make the statements therein, in
light of the circumstances under which there were made, not misleading
(it being understood that such counsel need express no belief or
opinion with respect to the financial statements and notes thereto and
other financial and statistical data included therein).
In addition, such counsel may rely on an opinion by Weil
Gotshal & Manges LLP, but only to the extent that such opinion states
that the Initial Purchasers are entitled to rely on such opinion.
(j) You shall have received on the Closing Date an opinion of
Latham & Watkins, counsel for the Initial Purchasers, dated the Closing
Date and addressed to you, in form and substance reasonably
satisfactory to you.
(k) The Company, Holdings and the Trustee shall have entered
into the Indenture and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(l) The Company, Holdings and the Initial Purchasers shall
have entered into the Registration Rights Agreement and the Initial
Purchasers shall have received counterparts, conformed as executed,
thereof.
(m) The Company, Holdings and the lenders thereunder shall
have entered into the New Credit Facility (the form and substance of
which shall be reasonably acceptable to the Initial Purchasers) and the
Initial Purchasers shall have received counterparts, conformed as
executed, thereof and of all other documents and agreements entered
into in connection therewith. There shall exist at and as of the
Closing Date no conditions that would constitute a default (or an event
that with notice or the lapse of time, or both, would constitute a
default) under the New Credit Facility. On the Closing Date, the New
Credit Facility shall be in full force and effect and shall not have
been modified.
(n) At the Execution Time and at the Closing Date, Ernst &
Young LLP shall have furnished to the Initial Purchasers a letter or
letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance reasonably satisfactory to the
Initial Purchasers, confirming that they are independent accountants
within the meaning of the Securities Act and the Exchange Act and the
applicable rules and regulations thereunder and Rule 101 of the Code of
Professional Conduct of the American Institute of Certified Public
Accountants (the "AICPA") and otherwise reasonably satisfactory in form
and substance to the Initial Purchasers and their counsel.
(o) The Recapitalization shall have been consummated on the
terms and conditions set forth in the Transaction Documents (without
waiver).
(p) On the Closing Date:
(i) the New Credit Facility with aggregate advances
and commitments thereunder of not less than $195.0 million
shall be in full force and effect, no event shall have
occurred and no event shall have failed to occur, which would
relieve the lenders under the New Credit Facility (the
"Lenders") of their obligation to advance funds, or preclude
them from advancing funds to the Company thereunder, and
concurrently with the Closing the Lenders shall have advanced
funds under the New Credit Facility in such amounts as are
necessary to fund the Recapitalization (after giving effect to
the Equity Financing and the sale of the Securities
hereunder);
(ii) the Equity Financing shall have been consummated
on terms and conditions satisfactory to the Initial Purchasers
and the preferred stock of Holdings shall have been issued
having terms and conditions acceptable to the Initial
Purchasers; and
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(iii) the Company will have delivered to the Initial
Purchasers true and correct executed copies of the Transaction
Documents (other than the Offering Documents), in the form as
originally executed, together with all related documents,
instruments and agreements and all schedules or exhibits
thereto; there will have been no amendments, alterations,
modifications or waivers thereto or in the exhibits or
schedules thereto other than those as to which the Initial
Purchasers shall previously have been advised and shall not
have reasonably objected after being furnished a copy thereof.
(q) Simultaneously with the Closing, the closing contemplated
by the Recapitalization Agreement, including, without limitation, the
acquisition by Childs and certain other investors of 89.6% of the
equity interests of Holdings, shall have been consummated in accordance
with the terms of the Recapitalization Agreement.
(r) Counsel for the Underwriter shall have been furnished with
such other documents and opinions as they may reasonably require.
(s) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or The NASDAQ Stock
Market's National Market or in the over-the-counter market shall have
been suspended or materially limited, or minimum prices shall have been
established on such exchange by the SEC, or by such exchange or by any
other regulatory body or governmental authority having jurisdiction,
(ii) a banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities
involving the United States or there shall have been a declaration of a
national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political
or financial conditions (or the effect of international conditions on
the financial markets in the United States shall be such) as to make
it, in the reasonable judgment of the Initial Purchasers, impracticable
or inadvisable to proceed with the offering or delivery of the
Securities being delivered on the Closing Date on the terms and in the
manner contemplated herein and in the Final Memorandum.
(t) As of the Closing Date, no "nationally recognized
statistical rating organization" as such term is defined for purposes
of Rule 436(g)(2) under the Securities Act (i) will have imposed (or
will have informed the Company or Holdings that it is considering
imposing) any condition (financial or otherwise) on the Company's or
Holdings' retaining any rating assigned to the Company or Holdings, any
securities of the Company or Holdings or (ii) will have indicated to
the Company or Holdings that it is considering (a) the downgrading,
suspension, or withdrawal of, or any review for a possible change that
does not indicate the direction of the possible change in, any rating
so assigned or (b) any change in the outlook for any rating of the
Company, Holdings or any securities of the Company or Holdings.
8. Indemnification and Contribution. (a) The Company and
Holdings, jointly and severally, agree to indemnify and hold harmless the
Initial Purchasers and each person, if any, who controls an Initial Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
or judgments (including without limiting the foregoing the reasonable legal and
other expenses incurred in connection with any action, suit or proceeding or any
claim asserted) arising out of any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Memorandum or the Final
Memorandum, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to the
Initial Purchasers furnished in writing to the Company or Holdings by the
Initial Purchasers expressly for use therein. This indemnity agreement will be
in addition to any liability which the Company or Holdings may otherwise have to
the persons referred to above in this Section 8(a).
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(b) Each Initial Purchaser agrees, severally and not jointly,
to indemnify and hold harmless the Company, Holdings, their directors, their
officers and each person, if any, who controls the Company or Holdings within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages liabilities
and judgments (including without limiting the foregoing the reasonable legal and
other expenses incurred in connection with any action, suit or proceeding or any
claim asserted) arising out of any untrue statement or alleged untrue statement
of a material fact contained in the Preliminary Memorandum or the Final
Memorandum (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with reference
to information relating to the Initial Purchasers furnished to the Company or
Holdings in writing by the Initial Purchasers through you expressly for use in
the Preliminary Memorandum, the Final Memorandum or any amendment or supplement
thereto.
(c) In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (hereinafter called the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (hereinafter called the "indemnifying party") in writing
and the indemnifying party, upon request of the indemnified party, shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
action, each indemnified party may retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the indemnifying party shall have
failed to assume the defense and employ counsel or (iii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests among them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the reasonable fees and expenses of more than one separate
firm (in addition to local counsel) for the Initial Purchasers and all persons,
if any, who control an Initial Purchaser within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act and (b) the reasonable
fees and expenses of more than one separate firm (in addition to local counsel)
for the Company, Holdings, their directors, their officers and each person, if
any, who controls the Company or Holdings within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Initial Purchasers and such control persons of an
Initial Purchaser, such firm shall be designated in writing by the Initial
Purchasers. In the case of any such separate firm for the Company and Holdings,
and such directors, officers and control persons of the Company and Holdings,
such firm shall be designated in writing by the Company. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent; but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the immediately preceding sentence, if
in any case where the fees and expenses of counsel are at the expense of the
indemnifying party and an indemnified party shall have requested the
indemnifying party to reimburse the indemnified party for expenses of counsel as
incurred, such indemnifying party agrees that it shall be liable for any
settlement of any action effected without its written consent if (i) such
settlement is entered into more than twenty business days after the receipt by
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall have failed to reimburse the indemnified party in accordance with
such request for reimbursement prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each
20
<PAGE>
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
Holdings on the one hand and the Initial Purchasers on the other from the
offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and Holdings on the one hand and the
Initial Purchasers on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and Holdings on the one hand and the Initial Purchasers on the
other shall be deemed to be in the same proportions as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total discounts and commissions received by the Initial Purchasers, in each
case as set forth in the table on the cover page of the Final Memorandum. The
relative fault of the Company and Holdings on the one hand and the Initial
Purchasers on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company, Holdings or by the Initial Purchasers and the party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company, Holdings and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to Section 8(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action pursuant to Section 8(d), and in no event shall the
Initial Purchasers be required to contribute any amount in excess of the amount
by which the total price at which the Securities purchased by them exceeds the
amount of any damages which the Initial Purchasers have otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
9. Termination. The obligations of the Initial Purchasers
hereunder may be terminated by the Initial Purchasers by notice given to and
received by the Company prior to delivery of and payment for the Securities if,
prior to that time, any of the events described in Sections 7(s) or 7(t) shall
have occurred or if the Initial Purchasers shall decline to purchase the
Securities for any reason permitted under this Agreement.
10. Reimbursement of Initial Purchasers' Expenses. If (a) the
Company shall fail to tender the Securities for delivery to the Initial
Purchasers otherwise than for any reason permitted under this Agreement or (b)
the Initial Purchasers shall decline to purchase the Securities for any reason
permitted under this Agreement, the Company and Holdings shall reimburse the
Initial Purchasers for the reasonable fees and expenses of their counsel and for
such other reasonable out-of-pocket expenses as shall have been incurred by them
in connection with this Agreement and the proposed purchase of the Securities,
and upon demand the Company and/or Holdings shall pay the full amount thereof to
the Initial Purchasers.
11. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered
or sent by mail, telex or facsimile transmission to NationsBanc
Montgomery Securities, Inc., 767 5th Avenue, NY1-003-12- A1, Floor 12A,
New York, New York (Facsimile: 212-838-1811), Attention: Paul Jetter,
with a copy to Latham & Watkins, 885 Third Avenue, New York, New York
10022 (Facsimile: 212-751-4864), Attention: Kirk A. Davenport;
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<PAGE>
(b) if to the Company, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set
forth in the Final Memorandum, Attention: Ed Patrick (Facsimile:
502-781-5705), with a copy to Sullivan & Worcester LLP, One Post Office
Square, Boston, Massachusetts 02109 (Facsimile: 617-338-2880),
Attention: Michael A. Matzka, Esq.
Any such statements, requests, notices or agreements shall
take effect at the time of receipt thereof. The Company shall be entitled to act
and rely upon any request, consent, notice or agreement given or made on behalf
of the Initial Purchasers.
12. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Initial Purchasers, the
Company, Holdings, and their respective successors. This Agreement and the terms
and provisions hereof are for the sole benefit of only those persons, except
that (A) the representations, warranties, indemnities and agreements of the
Company and Holdings contained in this Agreement shall also be deemed to be for
the benefit of directors, officers, employees and agents (including, without
limitation, attorneys) of the Initial Purchasers and the person or persons, if
any, who control an Initial Purchasers within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Initial Purchasers
contained in Section 8(b) of this Agreement shall be deemed to be for the
benefit of directors of the Company, Holdings, officers, employees and agents
(including, without limitation, attorneys) of the Company, Holdings and any
person controlling any of the Company or Holdings within the meaning of Section
15 of the Securities Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this Section
12, any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
13. Survival. The respective indemnities, representations,
warranties and agreements of the Company, Holdings and the Initial Purchasers
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Securities and shall remain in full force and effect, regardless of any
investigation made by or on behalf of any of them or any person controlling any
of them.
14. Definition of "Business Day." For purposes of this
Agreement, "business day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of New York,
New York are authorized or obligated by law, executive order or regulation to
close.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
16. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
[Signature page follows]
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<PAGE>
If the foregoing correctly sets forth the agreement between
the Company and the Initial Purchaser, please indicate your acceptance in the
space provided for that purpose below.
Very truly yours,
DESA INTERNATIONAL, INC.
By: _____________________________________
Name: _______________________________
Title: ________________________________
DESA HOLDINGS CORPORATION
By: _____________________________________
Name: _______________________________
Title: ________________________________
<PAGE>
The foregoing Agreement is hereby
confirmed, accepted and agreed as
of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:
UBS SECURITIES LLC
By: __________________________
Name:
Title:
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT A
Registration Rights Agreement
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Subsidiaries and Investments
Name Subsidiary or Jurisdiction of Situation of Capital Stock Ownership
Investment of: Organization
<S> <C> <C> <C>
DESA Industries of Subsidiary of DESA Ontario, Canada 100% owned
Canada International, Inc.
DESA Europe B.V. Subsidiary of DESA The Netherlands 100% owned
International, Inc.
DESA Industries of Subsidiary of DESA U.S. Virgin Islands 100% owned
V.I., LTD. International, Inc.
PATCO L.P. Joint Venture of DESA Illinois 49.50% owned by DESA International,
International, Inc. Inc. as limited partner. The general
partner of PATCO, PAT Tool, Inc. (a
Delaware corporation) owns 1% of
PATCO and is, in turn, 50% owned by
DESA International, Inc.
</TABLE>
<PAGE>
SCHEDULE B
DESA INTERNATIONAL, INC.
Initial Purchaser Amount
- - - - ----------------- ---------
NationsBanc Montgomery Securities, Inc...............................$97,500,000
UBS Securities LLC...................................................$32,500,000
$130,000,000.00
===============
EXHIBIT 4.4
97/8% Senior Subordinated Notes due 2007
CUSIP: 232971AA9
No. 1 $130,000,000
DESA INTERNATIONAL, INC.
promises to pay to CEDE & CO. or registered assigns, the principal sum
of One Hundred Thirty Million Dollars, or such greater or lesser amount
as may from time to time be endorsed on Schedule A hereto, on December
15, 2007.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Dated: November 26, 1997
DESA INTERNATIONAL, INC.
By:______________________________
Name: Edward G. Patrick
Title: Vice President Finance
Treasurer
DESA HOLDINGS CORPORATION
By:______________________________
Name: Edward G. Patrick
Title: Vice President Finance
Treasurer
This is one of the Global
Notes referred to in
within-mentioned Indenture:
MARINE MIDLAND BANK,
as Trustee
By:__________________________________
Authorized Signature
<PAGE>
97/8% Senior Subordinated Notes due 2007
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuers or their agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED
HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE HOLDER OF
THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (D) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1) ABOVE.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
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<PAGE>
1. INTEREST. DESA International, Inc., a Delaware corporation (the
"Company") promises to pay interest on the principal amount of this Note at
97/8% per annum from June 15, 1998 until maturity and shall pay the Liquidated
Damages payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company will pay interest and Liquidated Damages
semi-annually on June 15 and December 15 of each year (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest on the Note will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be June 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if
any (without regard to any applicable grace periods) from time to time on demand
at the same rate to the extent lawful. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the June 1 or December 1
next preceding the Interest Payment Date, even if such Notes are cancelled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered Holders on such Interest Payment Date, and
may be paid to the registered Holders at the close of business on a special
interest payment date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders not
less than 10 days prior to such special interest payment date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture. The Notes will be payable as to principal, premium, interest and
Liquidated Damages at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Marine Midland Bank, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company, Holdings or any of their subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of November 26, 1997 (the "Indenture") between the Company, Holdings and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. The Notes are general obligations of
3
<PAGE>
the Company limited to $205.0 million in aggregate principal amount, plus
amounts, if any issued to pay Liquidated Damages on outstanding Notes as set
forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clauses (b) and (c) of this Paragraph 5, the
Company shall not have the option to redeem the Notes prior to December 15,
2002. Thereafter, the Company shall have the option to redeem the Notes, in
whole or in part, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 15 of the years
indicated below:
Year Percentage
2002.......................................... 104.9375%
2003.......................................... 103.2917%
2004 ......................................... 101.6458%
2005 and thereafter........................... 100.0000%
(b) Notwithstanding the provisions of Paragraph (a) of this Paragraph
5, at any time prior to December 15, 2000, the Company may (but shall not have
the obligation to) redeem up to 35% of the original aggregate principal amount
of Notes (including Additional Notes) at a redemption price of 109.875% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon to the redemption date, with the net cash proceeds of one or more Public
Equity Offerings; provided that at least 65% in aggregate principal amount of
Notes (including any Additional Notes) remain outstanding immediately after the
occurrence of such redemption; and provided, further that such redemption shall
occur within 60 days of the date of the closing of such Public Equity Offering.
(c) Upon the occurrence of a Change of Control prior December 15,
2002, the Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each Holder
to be redeemed, at a redemption price equal to the sum of (i) the then
outstanding principal amount thereof plus (ii) accrued and unpaid interest
thereon and Liquidated Damages, if any, to the redemption date plus (iii) the
Applicable Premium.
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Company shall not be required to make mandatory redemption payments with respect
to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the principal amount thereof plus, in each case, accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase (in
either case, the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company shall mail a notice to each Holder setting forth
the procedures governing the Change of Control Offer as required by the
Indenture.
4
<PAGE>
(b) If the Company, Holdings or any of their respective Restricted
Subsidiaries consummates any Asset Sale, within five days of each date on which
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company and
Holdings shall commence an offer to all Holders of Notes (as "Asset Sale Offer")
pursuant to Section 3.09 of the Indenture to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date fixed
for the closing of such offer, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company,
or Holding, as the case may be, may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes and Additional Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Holders of
Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Company prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 of the
Indenture, a notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder whose Notes are to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part but only in whole multiples of $1,000, unless all of the
Notes held by a Holder are to be redeemed. On and after the redemption date
interest ceases to accrue on Notes or portions thereof called for redemption.
9. SUBORDINATION. The Notes are subordinated in right of payment, to the
extent and in the manner provided in the Indenture, to the prior payments in
full in cash of all Senior Indebtedness (as defined in the Indenture), which
includes (i) all "Obligations" in respect of and as defined in the New Credit
Facility (including, without limitation, interest that accrues after the filing
of a petition initiating any action or proceeding under the Bankruptcy Law or
any other bankruptcy, insolvency or similar law or statute protecting creditors
in effect in any jurisdiction, whether or not such interest accrues after the
filing of such petition for purposes of the Bankruptcy Law or such other law or
statute or is an allowed claim in any such action or proceeding), whether
existing on the date of the Indenture of thereafter incurred, and (ii) any other
Indebtedness that is permitted to be incurred by the Company or any Guarantor
pursuant to the Indenture unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness shall not include (w) any liability for federal,
state, local or other taxes owed or owing by the Company or any Guarantor, (x)
any Indebtedness of the Company or any Guarantor to any of their respective
Subsidiaries or other Affiliates except to the extent any such Indebtedness is
pledged as security under the New Credit Facility, (y) any trade payables or (z)
any Indebtedness that is incurred in violation of the Indenture.
10. SUBORDINATION OF GUARANTEES. Each Guarantor agrees, and each Holder by
accepting a Note and the Guarantees agrees, that all Obligations on the Notes
pursuant to the Guarantees is subordinated in right of payment, to the extent
and in the manner provided in the Section 11.03, to the prior payment of all
Senior Indebtedness guaranteed by such Guarantor and the subordination set forth
herein is for the benefit of an enforceable by the holders of Senior
Indebtedness. Each Holder by accepting a Note authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate
5
<PAGE>
the subordination between the Holders and the holders of Senior Indebtedness as
provided in Section 11.03 of the Indenture and appoints the Trustee as
attorney-in-fact for any and all such purposes.
11. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a record date and
the corresponding Interest Payment Date.
12. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes. In addition, any
amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in the
aggregate principal amount of the Notes then outstanding, if such amendment
would adversely affect the rights of Holders of Notes. Without the consent of
any Holder of a Note, the Indenture or the Notes may be amended or supplemented
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or any Guarantor's obligations to Holders of the
Notes in case of a merger or consolidation, to provide for the issuance of
Additional Notes in accordance with the limitations set forth in the Indenture
on the Issue Date), to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
14. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on, or Liquidated Damages with respect
to, the Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in the payment when due of principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Indenture); (iii) failure by the Company or Holdings to comply with the
provisions of Section 4.07, 4.09, 4.10, 4.15 or 5.01 of the Indenture; (iv)
failure by the Company or Holdings for 60 days after notice from the Trustee or
Holders of at least 25% in aggregate principal amount of the outstanding Notes
to comply with any of its other agreements in the Indenture, the Notes or any
Guarantee; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company, Holdings or any of the
Restricted Subsidiaries (or the payment of which is guaranteed by the Company,
Holdings or any of the Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on the final maturity date of such Indebtedness (a "Payment Default")
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the
6
<PAGE>
principal amount of such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or more; (vi)
failure by the Company, Holdings or any of the Restricted Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days; (vii) except as permitted by
the Indenture or any Guarantee that is given by a Guarantor, any Guarantee of a
Significant Restricted Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect; and (viii) certain events of bankruptcy or insolvency with respect to
the Company, Holdings or any of their Significant Restricted Subsidiaries or a
group of Subsidiaries that, taken as a whole, would constitute a Significant
Restricted Subsidiary. If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable; provided,
however that such declaration will not become effective until the earlier to
occur of (i) the acceleration of the maturity of any Indebtedness under the New
Credit Facility or (ii) five Business Days after the Agent under the New Credit
Facility or other designated representative of holders of Senior Indebtedness
shall have received written notice of the intention of such Holders to
accelerate. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all outstanding Notes
will become due and payable without further action or notice. Holders may not
enforce the Indenture or the Notes except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest. The Holders of a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Notes. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
15. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or their Affiliates, and may otherwise deal with the
Company, Holdings or their Affiliates, as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator or stockholder of the Company or Holdings, as
such, shall have any liability for any obligations of the Company, Holdings or
any Subsidiary under the Notes, the Indenture, the Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
17. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
18. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
7
<PAGE>
19. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Securities shall have all the rights set forth in the
Registration Rights Agreement dated as of November 26, 1997, between the
Company, Holdings and the other parties thereto (the "Registration Rights
Agreement").
20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
DESA International, Inc.
2701 Industrial Drive
P.O. Box 90004
Bowling Green, Kentucky 42102
Attention: Vice President - Finance
8
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:__________________
Your Signature:___________________________
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee:______________________
9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date:________________ Your Signature:____________________________
(Sign exactly as your name appears on
the Note)
Tax Identification No.:____________________
Signature Guarantee:_______________________
10
<PAGE>
Schedule A
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note authorized officer of
Principal Amount of Principal Amount of following such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- - - - --------------------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
11
EXHIIBT 4.5
HOLDINGS GUARANTEE
The Guarantor hereby, jointly and severally with any other Guarantor,
unconditionally guarantees to each Holder of Notes authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, irrespective
of the validity and enforceability of the Indenture, the Notes or the
Obligations of the Company to the Holders or the Trustee under the Notes or
under the Indenture, that: (a) the principal of, and premium and Liquidated
Damages, if any, and interest on the Notes shall be promptly paid in full when
due, whether at maturity, by acceleration, redemption or otherwise, and interest
on overdue principal of interest and Liquidated Damages on the Note, if any, if
lawful and all other Obligations of the Company to the Holders or the Trustee
under the Indenture or under the Notes shall be promptly paid in full or
performed, all in accordance with the terms thereof; and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations, the same will be promptly paid in full when due in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so guaranteed,
for whatever reason, the Guarantor will be jointly and severally obligated to
pay the same immediately.
The Obligations of the Guarantor to the Holders of Notes and to the
Trustee pursuant to this Guarantee and the Indenture are expressly set forth in
Article 11 of the Indenture, and reference is hereby made to such Indenture for
the precise terms of this Guarantee. The terms of Article 11 of the Indenture
are incorporated herein by reference.
No past, present or future director, officer, employee, incorporator or
stockholder of the Guarantor, as such, shall have any liability under this
Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creation.
The Guarantor agrees, and each Holder by accepting a Note and this
Guarantee agrees, that the payment of all Obligations on the Notes pursuant to
this Guarantee is subordinated in right of payment, to the extent and in the
manner provided in the Articles 10 and 11, to the prior payment of all Senior
Indebtedness that is guaranteed by such Guarantor and the subordination set
forth herein is for the benefit of and enforceable by the holders of Senior
Indebtedness. Each Holder by accepting a Note authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Holders and the holders
of Senior Indebtedness as provided in the Indenture and appoints the Trustee as
attorney-in-fact for any and all such purposes.
Upon any distribution to creditors of the Guarantor in a liquidation or
dissolution of the Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Guarantor or its property, an
assignment for the benefit of creditors or any marshalling of the Guarantor's
assets and liabilities, the holders of Senior Indebtedness that is guaranteed by
the Guarantor will be entitled to receive payment in full of all Obligations due
in respect of such Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness) as provided in the Indenture before the Holders of Notes
will be entitled to receive any payment with respect to this Guarantee, and
until all Obligations with respect to all Senior Indebtedness guaranteed by the
Guarantor are
1
<PAGE>
paid in full as provided in the Indenture, any distribution to which the Holders
of Notes would be entitled shall be made to the holders of Senior Indebtedness
guaranteed by the Guarantor (except that Holders of Notes may receive securities
that are subordinated at least to the same extent as this Guarantee of the Notes
to Senior Indebtedness guaranteed by the Guarantor and any securities issued in
exchange for Senior Indebtedness guaranteed by the Guarantor).
In addition, the Guarantor may not make any payment or distribution to
the Trustee or any Holder of Notes in respect of Obligations with respect to the
Notes and may not acquire from the Trustee or any Holder of Notes any Notes for
cash or property (other than (i) securities that are subordinated to at least
the same extent as the Notes to (a) Senior Indebtedness and (b) any securities
issued in exchange for Senior Indebtedness and (ii) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01 of
the Indenture) until all principal and other Obligations with respect to the
Senior Indebtedness have been paid in full if: (i) a default in the payment of
any Obligations on Designated Senior Indebtedness occurs and is continuing
beyond any applicable period of grace in the agreement, indenture or other
document governing such Designated Senior Indebtedness; or (ii) a default, other
than a payment default, on Designated Senior Indebtedness occurs and is
continuing that then permits holders of the Designated Senior Indebtedness to
accelerate its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from a Person who may give it pursuant to Section
10.12 of the Indenture. If the Trustee receives any such Payment Blockage
Notice, no subsequent Payment Blockage Notice shall be effective for purposes of
the Indenture unless and until (i) at least 360 days shall have elapsed since
the effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the Notes that
have come due have been paid in full in cash. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice. The Guarantor may and shall resume payments on and distributions in
respect of this Guarantee upon the earlier of: (1) the date upon which the
default is cured or waived, or (2) in the case of a default referred to in
Section 10.04(ii) of the Indenture, the earlier of the date on which such
nonpayment default is cured or waived or 179 days pass after a Payment Blockage
Notice is received, unless the maturity of such Designated Senior Indebtedness
has been accelerated, if the Indenture otherwise permits the payment,
distribution or acquisition at the time of such payment or acquisition.
Each Holder by accepting a Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of the
Notes, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, such Senior Indebtedness. No right of any holder of Senior Indebtedness to
enforce the subordination of the Indebtedness evidenced by the Notes shall be
impaired by any act or failure to act by the Company or any Guarantor by the
failure of any of them to comply with the Indenture.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantor and its respective successors and
assigns to the extent set forth in the Indenture until full and final payment of
all of the Company's Obligations under the Notes and the Indenture and shall
inure to the benefit of the successors and assigns of the Trustee and the
Holders of Notes and, in the event of any transfer or assignment of rights by
any Holder of Notes or the Trustee,
2
<PAGE>
the rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions hereof. This a guarantee of payment and not a guarantee of
collection.
In certain circumstances more fully described in the Indenture, the
Guarantor may be released from its liability under this Guarantee, and any such
release will be effective whether or not noted hereon.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
For purposes hereof, the Guarantor's liability will be that amount from
time to time equal to the aggregate liability of the Guarantor hereunder, but
shall be limited to the lesser of (i) the aggregate amount of the Obligations of
the Company under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered the Guarantor "insolvent" (as such term is defined
in the Bankruptcy Law and in the Debtor and Creditor Law of the State of New
York) or (B) left it with unreasonably small capital at the time this Guarantee
of the Notes was entered into, after giving effect to the incurrence of existing
Indebtedness immediately prior to such time; provided that, it shall be a
presumption in any lawsuit or other proceeding in which the Guarantor is a party
that the amount guaranteed pursuant to this Guarantee is the amount set forth in
clause (i) above unless any creditor, or representative of creditors of the
Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor,
otherwise proves in such a lawsuit that the aggregate liability of the Guarantor
is limited to the amount set forth in clause (ii). In making any determination
as to the solvency or sufficiency of capital of the Guarantor in accordance with
the previous sentence, the right of the Guarantor to contribution from other
Guarantors, if any, and any other rights the Guarantor may have, contractual or
otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture, dated November 26, 1997, among DESA International, Inc., DESA
Holdings Corporation and Marine Midland Bank, unless otherwise indicated.
DESA HOLDINGS CORPORATION
By: _______________________________
Name: Edward G. Patrick
Title: Vice President Finance Treasurer
3
EXHIBIT 10.1
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of November 26, 1997 among DESA
INTERNATIONAL, INC., a Delaware corporation (the "Borrower"), DESA HOLDINGS
CORPORATION, a Delaware corporation (the "Parent Guarantor"), the banks,
financial institutions and other institutional lenders listed on the signature
pages hereof as the Initial Lenders (the "Initial Lenders"), NATIONSBANK, N.A.
("NationsBank"), as the initial issuing bank (in such capacity, the "Initial
Issuing Bank"), NATIONSBANK, as the swing line bank (in such capacity, the
"Swing Line Bank"), NATIONSBANK, as administrative agent (together with any
successor appointed pursuant to Article VII, the "Administrative Agent") for the
Lender Parties and the other Secured Parties (each as hereinafter defined),
NATIONSBANC MONTGOMERY SECURITIES, INC. ("NMSI"), as syndication agent (in such
capacity, the "Syndication Agent") for the Lender Parties, UBS SECURITIES LLC
("UBS Securities"), as documentation agent (in such capacity, the "Documentation
Agent") for the Lender Parties, and NMSI and UBS SECURITIES, as co-arrangers (in
such capacity, the "Co-Arrangers").
PRELIMINARY STATEMENTS
(1) J.W. Childs Equity Partners, L.P., a Delaware limited
partnership ("Childs"), has entered into a Recapitalization Agreement dated as
of October 8, 1997 and amended and restated as of November 25, 1997 (the
"Recapitalization Agreement") with the Parent Guarantor and the Sellers (defined
and listed therein), pursuant to which the Childs Investors (as hereinafter
defined), together with certain Institutional Investors (as hereinafter
defined), intend to purchase, in connection with a proposed recapitalization
(the "Recapitalization"), certain shares of the Parent Guarantor's common stock
(both voting and nonvoting), $0.01 par value (collectively, the "Parent
Guarantor Common Stock"), warrants to purchase up to an additional 3.52% of the
Parent Guarantor's nonvoting common stock (on a fully diluted basis) and shares
of Parent Guarantor's 12% senior redeemable exchangeable pay-in-kind preferred
stock (the "Parent Guarantor Preferred Stock").
(2) Pursuant to the Recapitalization Agreement, after giving
effect to the Recapitalization, the Management Investors (as hereinafter
defined) and certain of the Sellers referred to therein will retain a certain
number of shares of Parent Guarantor Common Stock.
(3) The Borrower has requested that concurrently with the
consummation of the Recapitalization, the Lender Parties lend to the Borrower up
to $195,000,000 (i) to finance in part the Recapitalization, (ii) to pay fees
and expenses incurred in connection therewith, (iii) to refinance the
outstanding principal balance of certain Debt (as hereinafter defined) of the
Borrower in existence on the date of the Initial Extension of Credit (as
hereinafter defined) and (iv) from time to time, to finance certain acquisitions
and for other general corporate purposes of
<PAGE>
the Parent Guarantor and its Subsidiaries. The Lender Parties have indicated
their willingness to agree to lend such amounts on the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Accepting Lenders" has the meaning specified in Section 2.06(c).
"Acquisition Advance" has the meaning specified in Section 2.01(d).
"Acquisition Availability Date" means the earlier of (a) November 26,
1999 and (b) the date of termination in whole of the Acquisition Commitments
pursuant to Section 2.05 or 6.01.
"Acquisition Borrowing" means a borrowing consisting of simultaneous
Acquisition Advances of the same Type made by the Acquisition Lenders.
"Acquisition Commitment" means, with respect to any Acquisition Lender
at any time, the amount set forth opposite such Lender's name on Schedule I
hereto under the caption "Acquisition Commitment" or, if such Lender has entered
into one or more Assignments and Acceptances, set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 9.07(d) as
such Lender's "Acquisition Commitment", as such amount may be reduced at or
prior to such time pursuant to Section 2.05.
"Acquisition Facility" means, at any time, the aggregate amount of the
Acquisition Lenders' Acquisition Commitments at such time.
"Acquisition Lender" means any Lender that has an Acquisition
Commitment.
"Acquisition Note" means a promissory note of the Borrower payable to
the order of any Acquisition Lender, in substantially the form of Exhibit A-1
hereto, evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the Acquisition Advances made by such Lender.
"Acquisition Reduction Amount" has the meaning specified in Section
2.06(b)(vii)(B).
-2-
<PAGE>
"Acquisition Termination Date" means the earlier of (a) November 26,
2003 and (b) the date of termination in whole of the Acquisition Commitments
pursuant to Section 2.05 or 6.01.
"Adjusted Funded Debt" means, with respect to the Parent Guarantor and
its Subsidiaries at any date of determination, (a) all Funded Debt of the Parent
Guarantor and its Subsidiaries outstanding on such date, after excluding
therefrom (solely to the extent otherwise included in the determination of
Funded Debt of the Parent Guarantor and its Subsidiaries at such date) all
intercompany Debt among the Parent Guarantor and its Subsidiaries outstanding on
such date and all of the Debt evidenced by the Parent Guarantor Preferred Stock
on such date less (b) the aggregate amount of all cash on deposit in the Cash
Collateral Account, the L/C Cash Collateral Account and the Blocked Accounts on
such date less (c) the aggregate principal amount of all Junior Exchange Notes
and all Debt incurred pursuant to Section 5.02(b)(i)(E) outstanding on such
date; provided that, solely for purposes of this definition, the aggregate
principal amount of all Working Capital Advances, Letter of Credit Advances and
Swing Line Advances outstanding on any date of determination shall be deemed to
be (i) solely in the case of the first three Measurement Periods occurring after
the date of the Initial Extension of Credit, the lesser of (A) the average of
the aggregate principal amount of all Working Capital Advances, Letter of Credit
Advances and Swing Line Advances and all Revolving Loans that have been
outstanding during the consecutive 12 month period ended on such date and (B)
$8,000,000 and (ii) in the case of each Measurement Period occurring thereafter,
the average of the aggregate principal amount of all Working Capital Advances,
Letter of Credit Advances and Swing Line Advances that have been outstanding
during the consecutive 12 month period ended on such date.
"Administrative Agent" has the meaning specified in the recital of
parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent with NationsBank at
its office at 100 North Tryon Street, Charlotte, North Carolina 28255, Account
No. 136621-2250600, Attention: CCS/Agency Services Unit, Reference: Desa
International.
"Advance" means an Acquisition Advance, a Term A Advance, a Term B
Advance, a Working Capital Advance, a Swing Line Advance or a Letter of Credit
Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling", "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 5% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.
-3-
<PAGE>
"Agents" means, collectively, the Administrative Agent, the
Documentation Agent, the Syndication Agent and the Co-Arrangers.
"Alternate Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be equal to
the higher of:
(a) the rate of interest announced publicly by
NationsBank, N.A., in New York, New York, from time to time, as the NationsBank
prime rate; and
(b) 0.50% per annum above the Federal Funds Rate.
"Alternate Base Rate Advance" means an Advance that bears interest as
provided in Section 2.07(a)(i).
"Applicable Lending Office" means (a) with respect to each Lender, such
Lender's Domestic Lending Office in the case of an Alternate Base Rate Advance
and such Lender Party's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance and (b) with the Issuing Bank, its Domestic Lending Office for all
purposes of this Agreement.
"Applicable Margin" means (a) at any time during the period from the
date of this Agreement through the earlier of (i) the date on which the
Consolidated financial statements of the Parent Guarantor and its Subsidiaries
for the quarter ending May 30, 1998 are delivered to the Lenders pursuant to
Section 5.03(c) and (ii) July 15, 1998, 1.250% per annum for Alternate Base Rate
Advances and 2.250% per annum for Eurodollar Rate Advances in the case of the
Term A Facility and the Working Capital Facility and 1.625% per annum for
Alternate Base Rate Advances and 2.625% per annum for Eurodollar Rate Advances
in the case of the Term B Facility and the Acquisition Facility and (b) at any
time and from time to time thereafter, a percentage per annum equal to the
applicable percentage set forth below for the Performance Level set forth below:
<TABLE>
<CAPTION>
Alternate Eurodollar Alternate
Base Rate Rate Base Eurodollar
Advances Advances Rate Rate
Under Term Under Term Advances Advances
A and A and Under Term Under Term
Working Working B and B and
Performance Capital Capital Acquisition Acquisition
Level Facilities Facilities Facilities Facilities
----- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
I 0.500% 1.500% 1.125% 2.125%
II 0.750% 1.750% 1.125% 2.125%
III 1.000% 2.000% 1.375% 2.375%
-4-
<PAGE>
IV 1.250% 2.250% 1.625% 2.625%
V 1.500% 2.500% 1.875% 2.875%
== ===== ===== ===== =====
</TABLE>
For purposes of clause (b) of the immediately preceding sentence, the Applicable
Margin for each Alternate Base Rate Advance shall be determined by reference to
the Performance Level in effect from time to time and the Applicable Margin for
each Eurodollar Rate Advance shall be determined by reference to the Performance
Level in effect on the first day of each Interest Period for such Advance.
"Applicable Percentage" means, with respect to the fees set forth in
Section 2.08(a), (a) at any time during the period from the date of this
Agreement through the earlier of (i) the date on which the Consolidated
financial statements of the Parent Guarantor and its Subsidiaries for the
quarter ending May 30, 1998 are delivered to the Lenders pursuant to Section
5.03(c) and (ii) July 15, 1998, 0.500% per annum and (b) at any time and from
time to time thereafter, a percentage per annum equal to the applicable
percentage set forth below for the Performance Level set forth below:
Performance Level Commitment Fee
- - - - ----------------- --------------
I 0.325%
II 0.375%
III 0.375%
IV 0.500%
V 0.500%
== =====
For purposes of clause (b) of the immediately preceding sentence, the Applicable
Percentage for the Commitment Fee shall be determined by reference to the
Performance Level in effect from time to time.
"Application Date" has the meaning specified in Section
2.06(b)(iii)(A).
"Appropriate Lender" means, at any time, with respect to (a) the
Acquisition Facility, the Term A Facility, the Term B Facility or the Working
Capital Facility, a Lender that has a Commitment with respect to such Facility
at such time, (b) the Letter of Credit Facility, (i) the Issuing Bank and (ii)
if the other Working Capital Lenders have made Letter of Credit Advances
pursuant to Section 2.03(c) that are outstanding at such time, each such other
Working Capital Lender and (c) the Swing Line Facility, (i) the Swing Line Bank
and (ii) if the other Working Capital Lenders have made Swing Line Advances
pursuant to Section 2.02(b) that are outstanding at such time, each such other
Working Capital Lender.
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"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender Party and an Eligible Assignee, and accepted by the
Administrative Agent, in accordance with Section 9.08 and in substantially the
form of Exhibit C hereto.
"Available Amount" of any Letter of Credit means, at any time, the
maximum amount available to be drawn under such Letter of Credit at such time
(assuming compliance at such time with all conditions to drawing).
"Bank Hedge Agreement" means any interest rate Hedge Agreement required
or permitted under Article V that is entered into by and between the Borrower
and any Hedge Bank.
"Blocked Accounts" has the meaning specified in the Security Agreement.
"Borrower" has the meaning specified in the recital of parties to this
Agreement.
"Borrower's Account" means the account of the Borrower maintained by
the Borrower with NationsBank, at its office at P.O. Box 832404, Dallas, Texas
75283-2404, Account No. 3750901773, Transient No. 11000012, Attention: Funds
Transfer Department.
"Borrowing" means an Acquisition Borrowing, a Term A Borrowing, a Term
B Borrowing, a Swing Line Borrowing or a Working Capital Borrowing.
"Borrowing Base Certificate" means a certificate, in substantially the
form of Exhibit H hereto, duly certified by the chief financial officer (or
person performing similar functions) of the Borrower.
"Business Day" means a day of the year on which banks are not required
or authorized by law to close in New York City and, if the applicable Business
Day relates to any Eurodollar Rate Advances, on which dealings are carried on in
the London interbank market.
"Capital Expenditures" means, for any Person for any period, the sum
(without duplication) of (a) all expenditures made, directly or indirectly, by
such Person or any of its Subsidiaries during such period for equipment, fixed
assets, real property or improvements, or for replacements or substitutions
therefor or additions thereto, that have been or should be, in accordance with
GAAP, reflected as additions to property, plant or equipment on a Consolidated
balance sheet of such Person and (b) the aggregate principal amount of all Debt
(including Obligations under Capitalized Leases) assumed or incurred in
connection with any such expenditures. For purposes of this definition, the
purchase price of equipment that is purchased simultaneously with the trade in
of existing equipment or with insurance proceeds shall be included in Capital
Expenditures only to the extent of the gross amount of such purchase price less
the credit granted by the seller of such equipment for the equipment being
traded in at such time or the amount of such proceeds, as the case may be.
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"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Cash Collateral Account" has the meaning specified in the Security
Agreement.
"Cash Equivalents" means any of the following, to the extent owned by
the Borrower or any of its Subsidiaries free and clear of all Liens other than
Liens created under the Collateral Documents and having a maturity of not
greater than 12 months from the date of issuance thereof: (a) readily marketable
direct obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the full
faith and credit of the Government of the United States, (b) insured
certificates of deposit of or time deposits with any commercial bank that is a
Lender Party or a member of the Federal Reserve System that issues (or the
parent of which issues) commercial paper rated as described in clause (c), is
organized under the laws of the United States or any state thereof and has
combined capital and surplus of at least $1 billion, (c) commercial paper in an
aggregate amount of no more than $2,500,000 per issuer outstanding at any time,
issued by any corporation organized under the laws of any state of the United
States and rated at least "Prime-1" (or the then equivalent grade) by Moody's
Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard &
Poor's Ratings Services, (d) Investments, classified in accordance with GAAP, as
current assets of the Borrower or any of its Subsidiaries, in money market
investment programs registered under the Investment Company Act of 1940, as
amended, which are administered by financial institutions that have the highest
rating obtainable from either Moody's Investors Services, Inc. or Standard &
Poor's Rating Services, and the portfolios of which are limited solely to
Investments of the character and quality described in clauses (a), (b) and (c)
of this definition, or (e) Investments in the WCMA Working Capital Management
Account at Merrill Lynch, Pierce, Fenner & Smith Inc. in accordance with the
past business practices of the Borrower and in an aggregate amount of no more
than $7,500,000.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System maintained by the U.S. Environmental Protection
Agency.
"Childs" has the meaning specified in the Preliminary Statements to
this Agreement.
"Childs Investors" means the Equity Investors set forth in Part A of
Schedule II.
"Clean-Up Period" means a period of 30 consecutive days occurring
between January 1 and May 30 in each calendar year, commencing January 1, 1998.
"Co-Arrangers" has the meaning specified in the recital of parties to
this Agreement.
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"Collateral" means all "Collateral" referred to in the Collateral
Documents and all other property that is or is intended to be subject to any
Lien in favor of the Administrative Agent for the benefit of the Secured
Parties.
"Collateral Documents" means, collectively, the Security Agreement, the
Intellectual Property Security Agreement, the Mortgages and any other agreement
that creates or purports to create a Lien in favor of the Administrative Agent
for the benefit of the Secured Parties.
"Commitment" means an Acquisition Commitment, a Term A Commitment, a
Term B Commitment, a Working Capital Commitment or a Letter of Credit
Commitment.
"Commitment Date" has the meaning specified in Section 2.06(b)(iii)(A).
"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.
"Consolidated Cash Interest Expense" means, with respect to any Person
for any period, all interest expense (net of interest income) paid or payable on
all Funded Debt of such Person and its Subsidiaries for such period, determined
on a Consolidated basis and in accordance with GAAP for such period, including,
without limitation, (a) in the case of the Borrower, (i) interest expense paid
or payable in respect of Funded Debt resulting from Advances and (ii) all fees
paid or payable pursuant to Section 2.08(a), (b) the interest component of all
Obligations in respect of Capitalized Leases, (c) commissions, discounts and
other fees and charges paid or payable in connection with letters of credit
(including, without limitation, the Letters of Credit) and (d) the net payment,
if any, paid or payable in connection with Hedge Agreements less the net credit,
if any, received in connection with Hedge Agreements, but excluding, in each
case, (A) any amortization of original issue discount, (B) the interest portion
of any deferred payment obligation and (C) any other interest not payable in
cash.
"Consolidated EBITDA" means, with respect to any Person for any period,
(a) the net income (or net loss) of such Person and its Subsidiaries for such
period plus (b) the sum of each of the following expenses that have been
deducted from the determination of the net income (or net loss) of such Person
and its Subsidiaries for such period: (i) all interest expense of such Person
and its Subsidiaries for such period, (ii) all income tax expense (whether
federal, state, local, foreign or otherwise) of such Person and its Subsidiaries
for such period, (iii) all depreciation expense of such Person and its
Subsidiaries for such period, (iv) all amortization expense of such Person and
its Subsidiaries for such period and (v) all extraordinary losses deducted in
determining the net income (or net loss) of such Person and its Subsidiaries for
such period less all extraordinary gains added in determining the net income (or
net loss) of such Person and its Subsidiaries for such period plus (c) in the
case of the Parent Guarantor and its Subsidiaries to the extent otherwise
deducted from the net income (or net loss) thereof, (i) all fees paid pursuant
to the terms of the Management Agreements to the extent otherwise permitted
under Section 5.01(l), (ii) all costs and expenses incurred in connection with
the consummation of the Recapitalization and the Facilities and (iii) all
noncash dividends accrued on the Parent
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<PAGE>
Guarantor Preferred Stock in accordance with the terms thereof on the date of
this Agreement, in each of the foregoing cases determined on a Consolidated
basis and in accordance with GAAP for such period.
"Conversion", "Convert" and "Converted" each refer to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section 2.09 or
2.10.
"Current Assets" of any Person means all assets of such Person that
would, in accordance with GAAP, be classified as current assets of a company
conducting a business the same as or similar to that of such Person, after
deducting adequate reserves in each case in which a reserve is proper in
accordance with GAAP.
"Current Liabilities" of any Person means (a) all Debt of such Person
that by its terms is payable on demand or matures within one year after the date
of determination (excluding any Debt renewable or extendible, at the option of
such Person, to a date more than one year from such date or arising under a
revolving credit or similar agreement that obligates the lender or lenders to
extend credit during a period of more than one year from such date) and (b) all
other items (including taxes accrued as estimated) that in accordance with GAAP
would be classified as current liabilities of such Person.
"Debt" of any Person means (a) all indebtedness of such Person for
borrowed money, (b) all Obligations of such Person for the deferred purchase
price of property or services (other than trade payables not overdue by more
than 90 days incurred in the ordinary course of such Person's business), (c) all
Obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all Obligations of such Person created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Obligations of such Person as lessee under
Capitalized Leases, (f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities, (g) all Obligations of
such Person to purchase, redeem, retire, defease or otherwise make any payment
in respect of any capital stock of or other ownership or profit interest in such
Person or any other Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of Redeemable Preferred Stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Obligations of such Person in respect of Hedge Agreements,
(i) all Debt of others referred to in clauses (a) through (h) above or clause
(j) below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Debt or to advance or supply funds for the payment or
purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of such Debt
against loss, (iii) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (iv)
otherwise
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to assure a creditor against loss, and (j) all Debt referred to in clauses (a)
through (h) above of another Person secured by (or for which the holder of such
Debt has an existing right, contingent or otherwise, to be secured by) any Lien
on property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for the
payment of such Debt; provided that until such time as any such Person has
declared a dividend on any class of its capital stock or a dividend on any such
class shall otherwise have become payable, the accrued and unpaid dividends on
such class shall not constitute Debt for purposes of this Agreement.
"Declining Lender" has the meaning specified in Section 2.06(c).
"Default" means any Event of Default or any event that would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both.
"Defaulted Advance" means, with respect to any Lender Party at any
time, the portion of any Advance required to be made by such Lender Party to the
Borrower pursuant to Section 2.01 or 2.02 at or prior to such time which has not
been made by such Lender Party or by the Administrative Agent for the account of
such Lender Party pursuant to Section 2.02(e) as of such time. In the event that
a portion of a Defaulted Advance shall be deemed made pursuant to Section
2.15(a), the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to Section 2.01 on the
same date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Lender Party at any time,
any amount required to be paid by such Lender Party to the Administrative Agent
or any other Lender Party hereunder or under any other Loan Document at or prior
to such time which has not been so paid as of such time, including, without
limitation, any amount required to be paid by such Lender Party to (a) the Swing
Line Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line
Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section
2.03(c) to purchase a portion of a Letter of Credit Advance made by the Issuing
Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to reimburse the
Administrative Agent for the amount of any Advance made by the Administrative
Agent for the account of such Lender Party, (d) any other Lender Party pursuant
to Section 2.13 to purchase any participation in Advances owing to such other
Lender Party and (e) the Administrative Agent or the Issuing Bank pursuant to
Section 7.05 to reimburse the Administrative Agent or the Issuing Bank for such
Lender Party's ratable share of any amount required to be paid by the Lender
Parties to the Administrative Agent or the Issuing Bank as provided therein. In
the event that a portion of a Defaulted Amount shall be deemed paid pursuant to
Section 2.15(b), the remaining portion of such Defaulted Amount shall be
considered a Defaulted Amount originally required to be paid hereunder or under
any other Loan Document on the same date as the Defaulted Amount so deemed paid
in part.
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<PAGE>
"Defaulting Lender" means, at any time, any Lender Party that, at such
time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any
action or be the subject of any action or proceeding of a type described in
Section 6.01(f).
"Documentation Agent" has the meaning specified in the recital of
parties to this Agreement.
"Domestic Lending Office" means, with respect to any Lender Party, the
office of such Lender Party specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender Party, as the case may be, or such other office of such
Lender Party as such Lender Party may from time to time specify to the Borrower
and the Administrative Agent.
"Eligible Assignee" means (a) with respect to any Facility (other than
the Letter of Credit Facility), (i) a Lender; (ii) an Affiliate of a Lender;
(iii) a commercial bank organized under the laws of the United States, or any
state thereof, and having total assets in excess of $500,000,000; (iv) a savings
and loan association or savings bank organized under the laws of the United
States, or any state thereof, and having total assets in excess of $500,000,000;
(v) a commercial bank organized under the laws of any other country that is a
member of the OECD or has concluded special lending arrangements with the
International Monetary Fund associated with its General Arrangements to Borrow,
or a political subdivision of any such country, and having total assets in
excess of $500,000,000, so long as such bank is acting through a branch or
agency located in the United States; (vi) the central bank of any country that
is a member of the OECD; (vii) a finance company, insurance company or other
financial institution or fund (whether a corporation, partnership, trust or
other entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having total assets
in excess of $500,000,000; and (viii) any other Person approved by the
Administrative Agent and, unless a Default under Section 6.01(a) or 6.01(f) or
an Event of Default has occurred and is continuing at the time any assignment is
proposed to be effected in accordance with Section 9.07, the Borrower, such
approval not to be unreasonably withheld or delayed, and (b) with respect to the
Letter of Credit Facility, a Person that is an Eligible Assignee under subclause
(iii) or (v) of clause (a) of this definition and is approved by the
Administrative Agent and, unless a Default under Section 6.01(a) or 6.01(f) or
an Event of Default has occurred and is continuing at the time any assignment is
proposed to be effected in accordance with Section 9.07, the Borrower, such
approval not to be unreasonably withheld or delayed; provided, however, that
neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an
Eligible Assignee.
"Eligible Collateral" means, collectively, Eligible Inventory and
Eligible Receivables.
"Eligible Inventory" means the gross dollar value (valued at the lower
of cost or market value, on a first-in-first-out basis) of (x) the inventory of
the Borrower which conforms to the representations and warranties contained in
the Security Agreement, less any supplies (other than raw materials) or
promotional, marketing or shipping materials, goods returned by customers
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(other than goods returned in the ordinary course of business representing
unsold inventory which remains marketable at cost or greater), goods rejected by
customers, goods to be returned to suppliers, goods and other inventory that are
obsolete, unusable or otherwise unavailable for sale and, at any time and from
time to time on and after February 23, 1998, goods and other inventory located
on leaseholds (other than public warehouses leased by the Borrower on a monthly
basis) as to which the lessor has not entered into an agreement providing the
Administrative Agent with the right to receive notices of default and the right
to take possession of such goods or other inventory, and less any reserves
required in accordance with GAAP for special order goods, market value declines
and bill and hold (deferred shipment) sales, (y) any inventory to be purchased
by the Borrower to the extent such inventory is supported by a Letter of Credit
and (z) any inventory of DESA Europe or DESA Canada stored outside the United
States, to the extent the same meets the requirements of clause (x) above (with
necessary reference changes and except that same may be owned by DESA Europe or
DESA Canada and stored outside of the United States, and are not subject to the
liens created under the Security Agreement), in an aggregate amount not to
exceed $5,000,000; provided that, notwithstanding the foregoing provisions of
this definition, the Administrative Agent may, in its reasonable discretion
following an audit field examination conducted (solely at the expense of the
Borrower) by a qualified independent auditor and based upon its analysis of
factors and circumstances arising after the date of this Agreement that may
affect all or any portion of the goods and other inventory of the Borrower and
its Subsidiaries or the value thereof, and upon at least five Business Days'
notice to the Borrower of its intention to do so, exclude one or more other
types of goods or other inventory from Eligible Inventory for all purposes of
this Agreement.
"Eligible Receivable" means (x) the gross amount of the accounts
receivable of the Borrower and DESA Canada which conform to the representations
and warranties contained herein and in the Security Agreement (with necessary
reference changes in the case of DESA Canada and except that the accounts
receivable of DESA Canada are owned by, and owed to, DESA Canada and are not
subject to the liens created pursuant to the Security Agreement), less any
returns, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted or outstanding) and less reserves for any other matter
affecting the creditworthiness of account debtors owing any of the accounts
receivable (including, without limitation, accounts receivable owing from any
Person that shall take or be the subject of any action or proceeding of the type
described in Section 6.01(f)) and excluding (i) governmental sales (except to
the extent supported by a letter of credit issued by an issuer satisfactory to
the Administrative Agent), (ii) bill and hold (or deferred shipment)
transactions, guaranteed sales, sales-or-return, sales on approval or on a
consignment basis or sales subject to any right of return, setoff or chargeback,
(iii) contracts or sales to any Affiliate of the Borrower or to the Parent
Guarantor or any of its Subsidiaries and (iv) all accounts receivable which have
not been paid in full within 60 days of the due date thereof and (y) the gross
amount of those accounts receivable of DESA Europe where the payment of at least
75% of the amount of the respective accounts receivable is assured pursuant to
credit insurance issued by an insurer acceptable to the Administrative Agent,
which insurance is in full force and effect; provided that, notwithstanding the
foregoing provisions of
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this definition, the Administrative Agent may, in its reasonable discretion
following an audit field examination conducted (and solely at the expense of the
Borrower) by a qualified independent auditor and based upon its analysis of
factors and circumstances arising after the date of this Agreement that may
affect all or any portion of the accounts receivable of the Borrower and its
Subsidiaries or the value thereof, and upon at least five Business Days' notice
to the Borrower of its intention to do so, exclude one or more other types of
accounts receivable from Eligible Receivables for all purposes of this
Agreement.
"Environmental Action" means any action, suit, demand, demand letter,
claim, notice of noncompliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to public or
employee health or safety or the environment, including, without limitation, (a)
by any governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any governmental or
regulatory authority or third party for damages, contribution, indemnification,
cost recovery, compensation or injunctive relief.
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"Environmental Law" means any federal, state, local or foreign statute,
law, ordinance, rule, regulation, code, order, writ, judgment, injunction or
decree, or judicial or agency interpretation, policy or guidance having the
force or effect of law, relating to pollution or protection of the environment,
public or employee health or safety, or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any Environmental Law.
"Equipment" has the meaning specified in Section 1(a) of the Security
Agreement.
"Equity Investors" means, collectively, the Childs Investors, the
Institutional Investors and the Management Investors.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of any Loan Party, or under common
control with any Loan Party, within the meaning of Section 414 of the Internal
Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the PBGC
or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without
regard to subsection (2) of such Section) are met with respect to a contributing
sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event
described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA
is reasonably expected to occur with respect to such Plan within the following
30 days; (b) the application for a minimum funding waiver with respect to a
Plan; (c) the provision by the administrator of any Plan of a notice of intent
to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in Section 4041(e) of
ERISA); (d) the cessation of operations at a facility of any Loan Party or any
ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
the withdrawal by any Loan Party or any ERISA Affiliate from a Multiple Employer
Plan during a plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under
Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the
adoption of an amendment to a Plan requiring the provision of security to such
Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of
proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA that
constitutes grounds for the termination of, or the appointment of a trustee to
administer, such Plan.
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"Eurocurrency Liabilities" has the meaning specified in Regulation D of
the Board of Governors of the Federal Reserve System, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite its
name on Schedule I hereto or in the Assignment and Acceptance pursuant to which
it became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to the Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for all Eurodollar
Rate Advances comprising part of the same Borrowing, an interest rate per annum
equal to the rate per annum obtained by dividing (a) the rate per annum
appearing on page 3750 (or any successor page) of the Dow Jones Telerate Screen
as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M.
(London time) two Business Days before the first day of such Interest Period and
for a period equal to such Interest Period; provided that, if for any reason
such rate is not available, the term "Eurodollar Rate" shall mean, for any
Interest Period for all Eurodollar Rate Advances comprising part of the same
Borrowing, the rate per annum appearing on Reuters Screen LIBO Page as the
London interbank offered rate for deposits in U.S. dollars at approximately
11:00 A.M. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period (and, if more than
one rate is specified on Reuters Screen LIBO Page at such time, the applicable
rate shall be the arithmetic mean of all such rates), by (b) a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest as
provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" means, for any Interest Period for
all Eurodollar Rate Advances comprising part of the same Borrowing, the reserve
percentage applicable two Business Days before the first day of such Interest
Period under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other category of
liabilities that includes deposits by reference to which the interest rate on
Eurodollar Rate Advances is determined) having a term equal to such Interest
Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Cash Flow" means, for any period, the sum (without duplication)
of (a) Consolidated net income (or loss) of the Parent Guarantor and its
Subsidiaries for such period plus (b) the aggregate amount of all noncash
charges deducted in arriving at such Consolidated
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<PAGE>
net income (or loss) plus (c) if there was a net increase in Consolidated
Current Liabilities of the Parent Guarantor and its Subsidiaries during such
period, the amount of such net increase plus (d) if there was a net decrease in
Consolidated Current Assets (excluding cash and Cash Equivalents) of the Parent
Guarantor and its Subsidiaries during such period, the amount of such net
decrease less (e) the aggregate amount of all noncash credits included in
arriving at such Consolidated net income (or loss) less (f) if there was a net
decrease in Consolidated Current Liabilities of the Parent Guarantor and its
Subsidiaries during such period, the amount of such net decrease less (g) if
there was a net increase in Consolidated Current Assets (excluding cash and Cash
Equivalents) of the Parent Guarantor and its Subsidiaries during such period,
the amount of such net increase less (h) an amount equal to the amount of all
Capital Expenditures of the Parent Guarantor and its Subsidiaries paid in cash
during such period to the extent otherwise permitted by this Agreement less (i)
an amount equal to the aggregate amount of all Required Principal Payments made
during such period to the extent otherwise permitted by this Agreement, together
with any optional prepayments of Term Advances or Acquisition Advances made
during such period in accordance with Section 2.06(a), less (j) to the extent
not otherwise excluded from the calculation of Excess Cash Flow for such period,
an amount equal to the net gain, if any, attributable to the sale, lease,
transfer or other disposition of property and assets of the Parent Guarantor and
its Subsidiaries and included in determining the Consolidated net income (or
loss) of the Parent Guarantor and its Subsidiaries for such period less (k) an
amount equal to the aggregate amount of all dividends and other distributions on
the Parent Guarantor Stock paid in cash during such period to the extent
otherwise permitted under this Agreement.
"Extraordinary Receipt" means any cash received by or paid to or for
the account of any Person not in the ordinary course of business, including,
without limitation, tax refunds, pension plan reversions, proceeds of insurance
(other than proceeds of business interruption insurance to the extent such
proceeds constitute compensation for lost earnings), condemnation awards (and
payments in lieu thereof), indemnity payments in respect of loss or damage to
equipment, fixed assets or real property and payments in respect of judgments or
settlements of litigation or proceedings; provided, however, that an
Extraordinary Receipt shall not include cash receipts received from proceeds of
insurance, condemnation awards (or payments in lieu thereof), indemnity payments
or payments in respect of judgments or settlements of litigation or proceedings
to the extent that such proceeds, awards or payments to the extent otherwise
permitted under the Loan Documents are applied (or in respect of which
expenditures were previously incurred) to replace or repair the equipment, fixed
assets or real property in respect of which such proceeds were received in
accordance with the terms of the Loan Documents, so long as such application is
made within 12 months after the occurrence of such damage or loss.
"Facility" means the Acquisition Facility, the Term A Facility, the
Term B Facility, the Working Capital Facility, the Swing Line Facility or the
Letter of Credit Facility.
"Federal Funds 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
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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 New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day for such transactions received by the Administrative
Agent from three federal funds brokers of recognized standing selected by it.
"Fiscal Year" means a fiscal year of the Borrower and its Subsidiaries
ending on the Saturday closest to February 28 in any calendar year.
"Fixed Charge Coverage Ratio" means, with respect to the Parent
Guarantor and its Subsidiaries for any Measurement Period, the ratio of (a) (i)
Consolidated EBITDA of the Parent Guarantor and its Subsidiaries for such period
less (ii) solely in the case of the first three Measurement Periods occurring
after the date of the Initial Extension of Credit, the lesser of (A) the
aggregate amount of all Capital Expenditures made by the Parent Guarantor and
its Subsidiaries since the date of the Initial Extension of Credit and, in the
case of each Measurement Period occurring thereafter, the aggregate amount of
all Capital Expenditures made by the Parent Guarantor and its Subsidiaries
during such period, and (B) $4,000,000 to (b) the sum of (i) solely in the case
of the first three Measurement Periods occurring after the date of the Initial
Extension of Credit, all Consolidated Cash Interest Expense of the Parent
Guarantor and its Subsidiaries since the date of the Initial Extension of
Credit, and, in the case of each Measurement Period occurring thereafter, all
Consolidated Cash Interest Expense of the Parent Guarantor and its Subsidiaries
for such period, (ii) solely in the case of the first three Measurement Periods
occurring after the date of the Initial Extension of Credit, the aggregate
amount of all Required Principal Payments made (or required to be made) by the
Parent Guarantor and its Subsidiaries during the period commencing on the date
of the Initial Extension of Credit and ending on November 30, 1998, and, in the
case of each Measurement Period occurring thereafter, the aggregate amount of
all Required Principal Payments made by the Parent Guarantor and its
Subsidiaries during such period, and (iii) the aggregate amount of all dividends
and other distributions on the Parent Guarantor Stock made in cash by the Parent
Guarantor during such period to the extent otherwise permitted by this
Agreement.
"Foreign Corporation" means any Foreign Subsidiary that constitutes a
"controlled foreign corporation" under Section 957 of the Internal Revenue Code.
"Foreign Subsidiary" means, at any time, any of the direct or indirect
Subsidiaries of the Parent Guarantor (other than the Borrower) that are
organized outside of the laws of the United States or any state or other
political subdivision thereof at such time.
"Funded Debt" of any Person means Debt in respect of the Advances, in
the case of the Borrower, and all other Debt of such Person that by its terms
matures more than one year after the date of determination or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year after such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit
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during a period of more than one year after such date, including, without
limitation, all amounts of Funded Debt of such Person required to be paid or
prepaid within one year after the date of determination.
"Funded Facilities" means, at any date of determination, the aggregate
principal amount of all Term Advances and Acquisition Advances outstanding on
such date.
"GAAP" has the meaning specified in Section 1.03.
"Guaranteed Obligations" has the meaning specified in Section 8.01.
"Hazardous Materials" means (a) petroleum or petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous, toxic
or words of similar import under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.
"Hedge Bank" means any Lender Party or any of its Affiliates, in its
capacity as a party to a Bank Hedge Agreement.
"Indemnified Party" has the meaning specified in Section 9.04(b).
"Information Memorandum" means the information memorandum dated
November 1997 used by the Administrative Agent in connection with the
syndication of the Commitments.
"Initial Extension of Credit" means the earlier to occur of (a) the
initial Borrowing and (b) the initial issuance of a Letter of Credit hereunder.
"Initial Issuing Bank" has the meaning specified in the recital of
parties to this Agreement.
"Initial Lenders" has the meaning specified in the recital of parties
to this Agreement.
"Initial Pledged Debt" has the meaning specified in the Security
Agreement.
"Initial Pledged Shares" has the meaning specified in the Security
Agreement.
"Institutional Investors" means the Equity Investors set forth in Part
C of Schedule II hereto.
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"Insufficiency" means, with respect to any Plan, the amount, if any, of
its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Intellectual Property Security Agreement" has the meaning specified in
Section 3.01(j)(ix).
"Interest Coverage Ratio" means, with respect to the Parent Guarantor
and its Subsidiaries for any Measurement Period, the ratio of (a) Consolidated
EBITDA of the Parent Guarantor and its Subsidiaries for such period to (b)
solely in the case of the first three Measurement Periods occurring after the
date of the Initial Extension of Credit, all Consolidated Cash Interest Expense
of the Parent Guarantor and its Subsidiaries since the date of the Initial
Extension of Credit, and, in the case of each Measurement Period occurring
thereafter, all Consolidated Cash Interest Expense of the Parent Guarantor and
its Subsidiaries for such period.
"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Eurodollar
Rate Advance or the date of the Conversion of any Alternate Base Rate Advance
into such Eurodollar Rate Advance and ending on the last day of the period
selected by the Borrower pursuant to the provisions below and, thereafter, each
subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by the
Borrower pursuant to the provisions below. The duration of each such Interest
Period shall be one, two, three or six months, as the Borrower may, upon notice
received by the Administrative Agent not later than 12:00 Noon (Charlotte, North
Carolina time) on the third Business Day prior to the first day of such Interest
Period, select; provided, however, that:
(a) the Borrower may not select any Interest Period
with respect to any Eurodollar Rate Advance under a Facility that ends after any
principal repayment installment date for such Facility unless, after giving
effect to such selection, the aggregate principal amount of Alternate Base Rate
Advances and of Eurodollar Rate Advances having Interest Periods that end on or
prior to such principal repayment installment date for such Facility shall be at
least equal to the aggregate principal amount of Advances under such Facility
due and payable on or prior to such date;
(b) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Borrowing shall be of the
same duration;
(c) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding Business Day,
provided, however, that, if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Business Day; and
(d) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there is no numerically
corresponding day in the calendar
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month that succeeds such initial calendar month by the number of months equal to
the number of months in such Interest Period, such Interest Period shall end on
the last Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Inventory" has the meaning specified in Section 1(b) of the Security
Agreement.
"Investment" in any Person means any loan or advance to such Person,
any purchase or other acquisition of any capital stock or other ownership or
profit interest, warrants, rights, options, obligations or other securities of
such Person, any capital contribution to such Person or any other investment in
such Person, including, without limitation, any arrangement pursuant to which
the investor incurs Debt of the types referred to in clause (i) or (j) of the
definition of "Debt" in respect of such Person.
"IP Security Agreement Supplement" has the meaning specified in the
Intellectual Property Security Agreement.
"Issuing Bank" means the Initial Issuing Bank and each Eligible
Assignee to which the Letter of Credit Commitment hereunder has been assigned
pursuant to Section 9.07.
"Junior Exchange Notes" means the 12% Junior Subordinated Notes of the
Parent Guarantor due 2009, in each case in the form of Exhibit A to the
certificate of designation for the Parent Guarantor Preferred Stock, issued upon
the exchange of all of the outstanding Parent Guarantor Preferred Stock pursuant
to Section 5 of such certificate of designation.
"L/C Cash Collateral Account" has the meaning specified in the Security
Agreement.
"L/C Related Documents" has the meaning specified in Section
2.04(e)(ii)(A).
"Lender/Agent Indemnified Costs" has the meaning specified in Section
7.05(a).
"Lender/Issuing Bank Indemnified Costs" has the meaning specified in
Section 7.05(b).
"Lender Party" means any Lender, the Issuing Bank or the Swing Line
Bank.
"Lenders" means the Initial Lenders and each Person that shall become a
Lender hereunder pursuant to Section 9.07.
"Letter of Credit" has the meaning specified in Section 2.01(f).
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"Letter of Credit Advance" means an advance made by the Issuing Bank or
any Working Capital Lender pursuant to Section 2.03(c).
"Letter of Credit Agreement" has the meaning specified in Section
2.03(a).
"Letter of Credit Commitment" means, with respect to the Issuing Bank
at any time, the amount set forth opposite the Issuing Bank's name on Schedule I
hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank
has entered into one or more Assignments and Acceptances, set forth for the
Issuing Bank in the Register maintained by the Administrative Agent pursuant to
Section 9.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such
amount may be reduced at or prior to such time pursuant to Section 2.05.
"Letter of Credit Facility" means, at any time, an amount equal to the
amount of the Issuing Bank's Letter of Credit Commitment at such time, as such
amount may be reduced at or prior to such time pursuant to Section 2.05.
"Lien" means any lien, security interest or other charge or encumbrance
of any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan Documents" means (a) for purposes of this Agreement and the Notes
and any amendment or modification hereof or thereof and for all other purposes
other than for purposes of the Parent Guaranty, the Subsidiary Guaranties and
the Collateral Documents, (i) this Agreement, (ii) the Notes, (iii) the Parent
Guaranty, (iv) the Subsidiary Guaranties, (v) the Collateral Documents and (vi)
each Letter of Credit Agreement and (b) for purposes of the Parent Guaranty, the
Subsidiary Guaranties and the Collateral Documents and all other purposes not
otherwise included in clause (a) of this definition, (i) this Agreement, (ii)
the Notes, (iii) the Subsidiary Guaranties, (iv) the Parent Guaranty, (v) the
Collateral Documents, (vi) each Letter of Credit Agreement and (vii) each Bank
Hedge Agreement, in each case as amended, supplemented or otherwise modified
from time to time.
"Loan Parties" means the Borrower, the Parent Guarantor and each
Subsidiary Guarantor.
"Loan Value" means, as at any date on which the amount thereof is being
determined, an amount equal to the sum of 85% of Eligible Receivables and 65% of
Eligible Inventory, each as determined from the Borrowing Base Certificate most
recently delivered pursuant to Section 5.03(r); provided that during the period
from January 1 to May 31 in each year, the Loan Value of all Eligible Collateral
shall be deemed to be an amount equal to the greater of (i) $15,000,000 and (ii)
the sum of 85% of Eligible Receivables and 65% of Eligible Inventory, each as
determined from the Borrowing Base Certificate most recently delivered pursuant
to Section 5.03(r).
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"Management Agreements" means, collectively, (a) the Management
Agreement dated as of November 26, 1997 among J.W. Childs Associates L.P., the
Parent Guarantor and the Borrower and (b) the Management Agreement dated as of
November 26, 1997 among UBS Management, Inc., the Parent Guarantor and the
Borrower, in each case, as such agreement may be amended, supplemented or
otherwise modified in accordance with their terms, but to the extent permitted
hereunder.
"Management Investors" means the Equity Investors set forth in Part B
of Schedule II hereto.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means any material adverse change in the
assets, business, condition (financial or otherwise), operations, performance,
properties or prospects of the Parent Guarantor and its Subsidiaries, taken as a
whole.
"Material Adverse Effect" means a material adverse effect on (a) the
assets, business, condition (financial or otherwise), operations, performance,
properties or prospects of the Parent Guarantor and its Subsidiaries, taken as a
whole, (b) the rights and remedies of the Administrative Agent or any Lender
Party under any Loan Document or any Related Document or (c) the ability of any
Loan Party to perform its Obligations under any Loan Document or any Related
Document to which it is or is to be a party.
"Material Subsidiary" means, at any date of determination, any
Subsidiary of the Parent Guarantor that, either individually or, together with
its Subsidiaries, taken as a whole, (a) accounted for more than 5% of the
consolidated revenues of the Parent Guarantor and its Subsidiaries for the most
recently completed Fiscal Year prior to such date, (b) owned more than 5% of the
Consolidated assets of the Parent Guarantor and its Subsidiaries as of the last
day of the most recently completed Fiscal Year prior to such date or (c)
accounted for more than 5% of the Consolidated net earnings of the Parent
Guarantor and its Subsidiaries for the most recently completed Fiscal Year prior
to such date, in each case as reflected on the most recently completed
Consolidated financial statements of the Parent Guarantor and its Subsidiaries
delivered to the Lenders pursuant to Section 5.03(b), 5.03(c) or 5.03(d) prior
to such date and determined in accordance with GAAP for such period.
"Measurement Period" means, at any date of determination, the most
recently completed four consecutive fiscal quarters of the Parent Guarantor on
or immediately prior to such date; provided, however, that (a) the calculation
of Capital Expenditures in subclause (a)(ii)(A) of the Fixed Charge Coverage
Ratio or any calculation of Consolidated Cash Interest Expense for the first
Measurement Period ending after the date of the Initial Extension of Credit
shall be multiplied by four, (b) the calculation of Capital Expenditures in
subclause (a)(ii)(A) of the Fixed Charge Coverage Ratio or any calculation of
Consolidated Cash Interest Expense for the second Measurement Period ending
after the date of the Initial Extension of Credit shall be
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multiplied by two and (c) the calculation of Capital Expenditures in subclause
(a)(ii)(A) of the Fixed Charge Coverage Ratio or any calculation of Consolidated
Cash Interest Expense for the third Measurement Period ending after the date of
the Initial Extension of Credit shall be multiplied by 1.33.
"Mortgage" has the meaning specified in Section 3.01(j)(x).
"Mortgage Policy" has the meaning specified in Section 3.01(j)(x)(B).
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and at least one Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which any
Loan Party or any ERISA Affiliate could have liability under Section 4064 or
4069 of ERISA in the event such plan has been or were to be terminated.
"NationsBank" has the meaning specified in the recital of parties to
this Agreement.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
other disposition of any asset or the sale or issuance of any Debt or capital
stock or other ownership or profit interest, any securities convertible into or
exchangeable for capital stock or other ownership or profit interest or any
warrants, rights, options or other securities to acquire capital stock or other
ownership or profit interest by any Person, or any Extraordinary Receipt
received by or paid to or for the account of any Person, the aggregate amount of
cash received from time to time (whether as initial consideration or through
payment or disposition of deferred consideration) by or on behalf of such Person
in connection with such transaction after deducting therefrom only (without
duplication) (a) brokerage commissions, underwriting fees and discounts, legal
fees, finder's fees and other similar fees and commissions, (b) the amount of
taxes payable in connection with or as a result of such transaction and (c) the
amount of any Debt permitted by Section 5.02(b) (other than Debt incurred under
the Loan Documents) and secured by a Lien on such asset that, by the terms of
such transaction, is required to be repaid upon such disposition, in each case
to the extent, but only to the extent, that the amounts so deducted are properly
attributable to such transaction or to the asset that is the subject thereof and
are, in the case of clauses (a) and (c), at the time of receipt of such cash,
actually paid to a Person that is not an Affiliate of such Person or any Loan
Party or any Affiliate of any Loan Party and, in the case of clause (b), on the
earlier of the dates on which the tax return covering such taxes is filed or
required to be filed, actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party, provided that if
the amount deducted pursuant to clause
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(b) above is greater than the amount actually so paid, the amount of such excess
shall constitute "Net Cash Proceeds".
"NMSI" has the meaning specified in the recital of parties to this
Agreement.
"Note" means an Acquisition Note, a Term A Note, a Term B Note or a
Working Capital Note.
"Notice of Borrowing" has the meaning specified in Section 2.02(a).
"Notice of Default" has the meaning specified in Section 7.06.
"Notice of Issuance" has the meaning specified in Section 2.03(a).
"Notice of Renewal" has the meaning specified in Section 2.01(f).
"Notice of Swing Line Borrowing" has the meaning specified in Section
2.02(b).
"Notice of Termination" has the meaning specified in Section 2.01(f).
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including, without
limitation, any liability of such Person on any claim, whether or not the right
of any creditor to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any proceeding referred to in
Section 6.01(f). Without limiting the generality of the foregoing, the
Obligations of the Loan Parties under the Loan Documents include (a) the
obligation to pay principal, interest, Letter of Credit commissions, charges,
expenses, fees, reasonable attorneys' fees and disbursements, indemnities and
other amounts payable by any Loan Party under any Loan Document and (b) the
obligation of any Loan Party to reimburse any amount in respect of any of the
foregoing that any Lender Party, in its sole discretion, may elect to pay or
advance on behalf of such Loan Party.
"OECD" means the Organization for Economic Cooperation and Development.
"Open Year" has the meaning specified in Section 4.01(aa).
"Other Taxes" has the meaning specified in Section 2.12(b).
"Parent Guarantor" has the meaning specified in the recital of parties
to this Agreement.
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"Parent Guarantor Common Stock" has the meaning specified in the
Preliminary Statements to this Agreement.
"Parent Guarantor Preferred Stock" has the meaning specified in the
Preliminary Statements to this Agreement.
"Parent Guarantor Stock" means, collectively, the Parent Guarantor
Common Stock and the Parent Guarantor Preferred Stock.
"Parent Guaranty" has the meaning specified in Section 8.01.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Performance Level" means Performance Level I, Performance Level II,
Performance Level III, Performance Level IV or Performance Level V, as the
context may require. For purposes of determining the Performance Level at any
date of determination, no change in the Performance Level shall be effective
until three Business Days after the date on which the Administrative Agent
receives Consolidated financial statements of the Parent Guarantor and its
Subsidiaries pursuant to (and satisfying all of the requirements of) Section
5.03(c) or 5.03(d) reflecting such change and the related certificate pursuant
to Section 5.03(d); provided, however, that if the Parent Guarantor has not
submitted to the Administrative Agent all of the information required under this
definition as and when required under Section 5.03(c) or 5.03(d), as the case
may be, the Performance Level shall be deemed to be at Performance Level V for
so long as such information has not been submitted.
"Performance Level I" means, at any date of determination, that the
Parent Guarantor and its Subsidiaries shall have maintained a Senior Leverage
Ratio of less than 2.00:1 as of the last day of the most recently completed
Measurement Period prior to such date.
"Performance Level II" means, at any date of determination, that (a)
the Performance Level does not meet the requirements of Performance Level I and
(b) the Parent Guarantor and its Subsidiaries shall have maintained a Senior
Leverage Ratio of less than 2.50:1 as of the last day of the most recently
completed Measurement Period prior to such date.
"Performance Level III" means, at any date of determination, that (a)
the Performance Level does not meet the requirements of Performance Level I or
Performance Level II and (b) the Parent Guarantor and its Subsidiaries shall
have maintained a Senior Leverage Ratio of less than 3.00:1 as of the last day
of the most recently completed Measurement Period prior to such date.
"Performance Level IV" means, at any date of determination, that (a)
the Performance Level does not meet the requirements of Performance Level I,
Performance Level II or Performance Level III and (b) the Parent Guarantor and
its Subsidiaries shall have maintained a
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Senior Leverage Ratio of less than 3.50:1 as of the last day of the most
recently completed Measurement Period prior to such date.
"Performance Level V" means, at any date of determination, that the
Performance Level does not meet the requirements of Performance Level I,
Performance Level II, Performance Level III or Performance Level IV.
"Permitted Encumbrances" has the meaning specified in the Mortgages.
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments and governmental charges or
levies to the extent not otherwise required to be paid under Section 5.01(b);
(b) Liens imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's Liens and other similar Liens arising in the ordinary
course of business securing obligations (other than Debt for borrowed money) (i)
that are not overdue for a period of more than 60 days or (ii) the amount,
applicability or validity of which are being contested in good faith and by
appropriate proceedings diligently conducted and with respect to which the
Parent Guarantor has established reserves in accordance with GAAP; (c) pledges
or deposits to secure obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; (d) Liens securing the
performance of, or payment in respect of, bids, tenders, government contracts
(other than for the repayment of borrowed money), surety and appeal bonds and
other obligations of a similar nature incurred in the ordinary course of
business; (e) any interest or title of a lessor or sublessor and any restriction
or encumbrance to which the interest or title of such lessor or sublessor may be
subject that is incurred in the ordinary course of business and, either
individually or when aggregated with all other Permitted Liens in effect on any
date of determination, could not be reasonably expected to have a Material
Adverse Effect; (f) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with the
importation of goods; and (g) Permitted Encumbrances and other easements, rights
of way and other encumbrances on title to real property that do not render title
to the property encumbered thereby unmarketable or materially adversely affect
the use of such property for its present purposes or materially interfere with
the ordinary course of business of the Parent Guarantor or any of its
Subsidiaries.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Preferred Stock" means, with respect to any corporation, capital stock
issued by such corporation that is entitled to a preference or priority over any
other capital stock issued by such corporation upon any distribution of such
corporation's assets, whether by dividend or upon liquidation.
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"Prepayment Amount" has the meaning specified in Section 2.06(c).
"Prepayment Date" has the meaning specified in Section 2.06(c).
"Pro Rata Share" of any amount means, with respect to any Working
Capital Lender at any time, the product of such amount times a fraction the
numerator of which is the amount of such Lender's Working Capital Commitment at
such time and the denominator of which is the Working Capital Facility at such
time.
"Quarterly Payment Date" means the last Business Day of each February,
May, August and November, commencing February 27, 1998.
"Recapitalization" has the meaning specified in the Preliminary
Statements to this Agreement.
"Recapitalization Agreement" has the meaning specified in the
Preliminary Statements to this Agreement.
"Receipt Date" has the meaning specified in Section 2.06(c).
"Receivables" has the meaning specified in Section 1(c) of the Security
Agreement.
"Redeemable" means, with respect to any capital stock or other
ownership or profit interest, Debt or other right or Obligation, any such right
or Obligation that (a) the issuer has undertaken to redeem at a fixed or
determinable date or dates, whether by operation of a sinking fund or otherwise,
or upon the occurrence of a condition not solely within the control of the
issuer or (b) is redeemable at the option of the holder.
"Reduction Amount" has the meaning specified in Section 2.06(b)(vi)(A).
"Register" has the meaning specified in Section 9.07(d).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Related Documents" means the Recapitalization Agreement, the
Subordinated Note Documents, the Shareholders Agreement and the Management
Agreements.
"Required Lenders" means at any time Lenders owed or holding at least a
majority in interest of the sum of (a) the aggregate principal amount of the
Advances outstanding at such time, (b) the aggregate Available Amount of all
Letters of Credit outstanding at such time, (c) the aggregate unused Commitments
under the Term A Facility and the Term B Facility at such time and (d) the
aggregate Unused Acquisition Commitments and Unused Working Capital
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Commitments at such time; provided, however, that, if any Lender shall be a
Defaulting Lender at such time, there shall be excluded from the determination
of Required Lenders at such time (A) the aggregate principal amount of the
Advances owing to such Lender (in its capacity as a Lender) and outstanding at
such time, (B) such Lender's Pro Rata Share of the aggregate Available Amount of
all Letters of Credit issued by such Lender and outstanding at such time, (C)
the aggregate unused Term A Commitment and Term B Commitment of such Lender at
such time and (D) the Unused Acquisition Commitment and Unused Working Capital
Commitment of such Lender at such time. For purposes of this definition, the
aggregate principal amount of Swing Line Advances owing to the Swing Line Bank
and of Letter of Credit Advances owing to the Issuing Bank and the Available
Amount of each Letter of Credit shall be considered to be owed to the Working
Capital Lenders ratably in accordance with their respective Working Capital
Commitments.
"Required Principal Payments" means, with respect to any Person for any
period, the sum of all regularly scheduled principal payments or redemptions and
all required prepayments, repurchases, redemptions or similar acquisitions for
value of outstanding Funded Debt made during such period.
"Revolving Loans" has the meaning specified in the Amended and Restated
Credit Agreement dated as of January 12, 1996 among the Borrower, the Parent
Guarantor, the banks and other financial institutions from time to time party
thereto and Bankers Trust Company, as agent thereunder, as such agreement may
have been further amended, supplemented or otherwise modified to the date
hereof.
"Secured Obligations" has the meaning specified in the Security
Agreement.
"Secured Parties" means, collectively, the Administrative Agent, the
Lender Parties and the Hedge Banks.
"Security Agreement" has the meaning specified in Section
3.01(j)(viii).
"Senior Leverage Ratio" means, with respect to the Parent Guarantor and
its Subsidiaries at any date of determination, the ratio of (a) (i) Adjusted
Funded Debt at such date less (ii) the sum of (A) the aggregate principal amount
of all Subordinated Notes outstanding on such date and (B) the aggregate
principal amount of all Debt incurred pursuant to Section 5.02(b)(iv)(F)
outstanding on such date to (b) Consolidated EBITDA of the Parent Guarantor and
its Subsidiaries for the most recently completed Measurement Period on or prior
to such date.
"Stockholders Agreement" means the Stockholders Agreement dated as of
November 26, 1997 by and among the Parent Guarantor and the Equity Investors, as
amended, supplemented or otherwise modified from time to time in accordance with
its terms, but only to the extent permitted hereunder.
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"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and no Person other than the Loan Parties and the
ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party
or any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay such debts and liabilities as they mature and (d) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Standby Letter of Credit" means any Letter of Credit issued under the
Letter of Credit Facility, other than a Trade Letter of Credit.
"Subordinated Note Documents" means the agreements, indentures,
guarantees and instruments which govern the Subordinated Notes, as the same may
be amended, modified or otherwise supplemented from time to time in accordance
with the provisions of this Agreement.
"Subordinated Notes" means the 9-7/8% senior subordinated notes of the
Borrower due 2007 in an aggregate principal amount of $130,000,000 issued and
sold (or to be issued and sold) on or prior to the Effective Date pursuant to
the terms of the Subordinated Note Documents.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
joint venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries.
"Subsidiary Guaranties" has the meaning specified in Section
5.01(o)(i).
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"Subsidiary Guarantor" means any subsidiary, direct or indirect, of the
Parent Guarantor that executes a Subsidiary Guaranty in accordance with the
terms of the Loan Documents.
"Surviving Debt" has the meaning specified in Section 3.01(f).
"Swing Line Advance" means an advance made by (a) the Swing Line Bank
pursuant to Section 2.01(e) or (b) any Working Capital Lender pursuant to
Section 2.02(b).
"Swing Line Bank" has the meaning specified in the recital of parties
to this Agreement.
"Swing Line Borrowing" means a borrowing consisting of a Swing Line
Advance made by the Swing Line Bank.
"Swing Line Facility" has the meaning specified in Section 2.01(e).
"Syndication Agent" has the meaning specified in the recital of parties
to this Agreement.
"Taxes" has the meaning specified in Section 2.12(a).
"Term A Advance" has the meaning specified in Section 2.01(a).
"Term A Borrowing" means a borrowing consisting of simultaneous Term A
Advances of the same Type made by the Term A Lenders.
"Term A Commitment" means, with respect to any Term A Lender at any
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Term A Commitment" or, if such Lender has entered into one or
more Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 9.07(d) as such
Lender's "Term A Commitment", as such amount may be reduced at or prior to such
time pursuant to Section 2.05.
"Term A Facility" means, at any time, the aggregate amount of the Term
A Lenders' Term A Commitments at such time.
"Term A Lender" means any Lender that has a Term A Commitment.
"Term A Note" means a promissory note of the Borrower payable to the
order of any Term A Lender, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from the
Term A Advance made by such Lender.
"Term A Termination Date" means the earlier of (a) November 26, 2003
and (b) the date of termination in whole of the Term A Commitments pursuant to
Section 2.05 or 6.01.
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"Term Advances" means, collectively, the Term A Advances and the Term B
Advances.
"Term B Advance" has the meaning specified in Section 2.01(b).
"Term B Borrowing" means a borrowing consisting of simultaneous Term B
Advances of the same Type made by the Term B Lenders.
"Term B Commitment" means, with respect to any Term B Lender at any
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Term B Commitment" or, if such Lender has entered into one or
more Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 9.07(d) as such
Lender's "Term B Commitment", as such amount may be reduced at or prior to such
time pursuant to Section 2.05.
"Term B Facility" means, at any time, the aggregate amount of the Term
B Lenders' Term B Commitments at such time.
"Term B Lender" means any Lender that has a Term B Commitment.
"Term B Note" means a promissory note of the Borrower payable to the
order of any Term B Lender, in substantially the form of Exhibit A-3 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from the
Term B Advance made by such Lender.
"Term B Termination Date" means the earlier of (a) November 26, 2004
and (b) the date of termination in whole of the Term B Commitments pursuant to
Section 2.05 or 6.01.
"Term Facilities" means, collectively, the Term A Facility and the Term
B Facility.
"Total Leverage Ratio" means, with respect to the Parent Guarantor and
its Subsidiaries at any date of determination, the ratio of (a) Adjusted Funded
Debt at such date to (b) Consolidated EBITDA of the Parent Guarantor and its
Subsidiaries for the most recently completed Measurement Period on or prior to
such date.
"Trade Letter of Credit" means any Letter of Credit that is issued
under the Letter of Credit Facility for the benefit of a supplier of Inventory
to the Borrower or any of its Subsidiaries to effect payment for such Inventory.
"Type" refers to the distinction between Advances bearing interest at
the Alternate Base Rate and Advances bearing interest at the Eurodollar Rate.
"UBS Securities" has the meaning specified in the recital of parties to
this Agreement.
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"Unfunded Facilities" means, from time to time, the Working Capital
Commitments plus Acquisition Commitments minus Acquisition Advances then
outstanding.
"Unused Acquisition Commitment" means, with respect to any Acquisition
Lender at any time, (a) such Lender's Acquisition Commitment at such time minus
(b) the aggregate principal amount of all Acquisition Advances made by such
Lender and outstanding at such time.
"Unused Working Capital Commitment" means, with respect to any Working
Capital Lender at any time, (a) such Lender's Working Capital Commitment at such
time minus (b) the sum of (i) the aggregate principal amount of all Working
Capital Advances, Swing Line Advances and Letter of Credit Advances made by such
Lender (in its capacity as a Lender) and outstanding at such time, plus (ii)
such Lender's Pro Rata Share of (A) the aggregate Available Amount of all
Letters of Credit outstanding at such time, (B) the aggregate principal amount
of all Letter of Credit Advances made by the Issuing Bank pursuant to Section
2.03(c) and outstanding at such time and (C) the aggregate principal amount of
all Swing Line Advances made by the Swing Line Bank pursuant to Section 2.01(e)
and outstanding at such time.
"Voting Equity Interests" has the meaning specified in Section
5.01(o)(iii).
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
ERISA, that is maintained for employees of any Loan Party or in respect of which
any Loan Party could have liability.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
"Working Capital Advance" has the meaning specified in Section 2.01(c).
"Working Capital Borrowing" means a borrowing consisting of
simultaneous Working Capital Advances of the same Type made by the Working
Capital Lenders.
"Working Capital Commitment" means, with respect to any Working Capital
Lender at any time, the amount set forth opposite such Lender's name on Schedule
I hereto under the caption "Working Capital Commitment" or, if such Lender has
entered into one or more Assignments and Acceptances, set forth for such Lender
in the Register maintained by the Administrative Agent pursuant to Section
9.07(d) as such Lender's "Working Capital Commitment", as such amount may be
reduced at or prior to such time pursuant to Section 2.05.
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"Working Capital Facility" means, at any time, the aggregate amount of
the Working Capital Lenders' Working Capital Commitments at such time.
"Working Capital Lender" means any Lender that has a Working Capital
Commitment.
"Working Capital Note" means a promissory note of the Borrower payable
to the order of any Working Capital Lender, in substantially the form of Exhibit
A-4 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender
resulting from the Working Capital Advances made by such Lender.
"Working Capital Termination Date" means the earlier of (a) the Term A
Termination Date and (b) the date of termination in whole of the Working Capital
Commitments pursuant to Section 2.05 or 6.01.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. The Advances. (a) The Term A Advances. Each Term
A Lender severally agrees, on the terms and conditions hereinafter set forth, to
make a single advance (a "Term A Advance") to the Borrower on any Business Day
during the period from the date hereof until December 31, 1997 in an amount not
to exceed such Lender's Term A Commitment at such time. The Term A Borrowing
shall consist of Term A Advances made simultaneously by the Term A Lenders
ratably according to their Term A Commitments. Amounts borrowed under this
Section 2.01(a) and repaid or prepaid may not be reborrowed.
(b) The Term B Advances. Each Term B Lender severally agrees,
on the terms and conditions hereinafter set forth, to make a single advance (a
"Term B Advance") to the Borrower on the same Business Day that the Term A
Advances are made pursuant to Section 2.01(a) during the period from the date
hereof until December 31, 1997 in an amount not to exceed such Lender's Term B
Commitment at such time. The Term B Borrowing shall consist of Term B Advances
made simultaneously by the Term B Lenders ratably according to their
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Term B Commitments. Amounts borrowed under this Section 2.01(b) and repaid or
prepaid may not be reborrowed.
(c) The Working Capital Advances. Each Working Capital Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each, a "Working Capital Advance") to the Borrower from time to time
on any Business Day during the period from the date hereof until the Working
Capital Termination Date in an amount for each such Advance not to exceed such
Lender's Unused Working Capital Commitment at such time. Each Working Capital
Borrowing shall be in an aggregate amount of $1,500,000 or an integral multiple
of $250,000 in excess thereof (other than a Borrowing the proceeds of which
shall be used solely to repay or prepay in full outstanding Swing Line Advances
or outstanding Letter of Credit Advances) and shall consist of Working Capital
Advances made simultaneously by the Working Capital Lenders ratably according to
their Working Capital Commitments. Within the limits of each Working Capital
Lender's Unused Working Capital Commitment in effect from time to time, the
Borrower may borrow under this Section 2.01(c), prepay pursuant to Section
2.06(a) and reborrow under this Section 2.01(c).
(d) The Acquisition Advances. Subject to Section 2.14(b), each
Acquisition Lender severally agrees, on the terms and conditions hereinafter set
forth, to make advances (each, an "Acquisition Advance") to the Borrower from
time to time on any Business Day during the period from the date hereof until
the Acquisition Availability Date in an amount for each such Advance not to
exceed such Lender's Unused Acquisition Commitment at such time. Each
Acquisition Borrowing shall be in a minimum amount of $1,000,000 and shall
consist of Acquisition Advances made simultaneously by the Acquisition Lenders
ratably according to their Acquisition Commitments. Amounts borrowed under this
Section 2.01(d) and repaid or prepaid may not be reborrowed.
(e) The Swing Line Advances. The Borrower may request the
Swing Line Bank to make, and the Swing Line Bank severally agrees, on the terms
and conditions hereinafter set forth, to make Swing Line Advances to the
Borrower from time to time on any Business Day during the period from the date
hereof until the Working Capital Termination Date (i) in an aggregate amount not
to exceed at any time outstanding $5,000,000 (the "Swing Line Facility") and
(ii) in an amount for each such Swing Line Borrowing not to exceed the aggregate
amount of the Unused Working Capital Commitments of the Working Capital Lenders
at such time. No Swing Line Advance shall be used for the purpose of funding the
payment of principal of any other Swing Line Advance. Each Swing Line Borrowing
shall be in an amount of $100,000 or an integral multiple of $50,000 in excess
thereof and shall be made as a Alternate Base Rate Advance. Within the limits of
the Swing Line Facility and within the limits referred to in clause (ii) above,
the Borrower may borrow under this Section 2.01(d), repay pursuant to Section
2.04(d) or prepay pursuant to Section 2.06(a) and reborrow under this Section
2.01(d).
(f) Letters of Credit. The Issuing Bank agrees, on the terms
and conditions hereinafter set forth, to issue letters of credit containing
terms and conditions requested by the
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Borrower and reasonably acceptable to the Issuing Bank (the "Letters of Credit")
for the account of the Borrower from time to time on any Business Day during the
period from the date hereof until 30 days before the Working Capital Termination
Date (i) in an aggregate Available Amount for all Letters of Credit not to
exceed at any time the Issuing Bank's Letter of Credit Commitment at such time
and (ii) in an Available Amount for each such Letter of Credit not to exceed the
lesser of (1) the Letter of Credit Facility at such time and (2) the Unused
Working Capital Commitments of the Working Capital Lenders at such time. No
Letter of Credit shall have an expiration date (including all rights of the
Borrower or the beneficiary to require renewal) later than the earlier of ten
days before the Working Capital Termination Date and (A) in the case of a
Standby Letter of Credit, one year after the date of issuance thereof, but may
by its terms be renewable annually upon notice (a "Notice of Renewal") given to
the Issuing Bank and the Administrative Agent on or prior to any date for notice
of renewal set forth in such Letter of Credit but in any event at least three
Business Days prior to the date of the proposed renewal of such Standby Letter
of Credit and upon fulfillment of the applicable conditions set forth in Article
III unless the Issuing Bank has notified the Borrower (with a copy to the
Administrative Agent) on or prior to the date for notice of termination set
forth in such Letter of Credit but in any event at least 30 Business Days prior
to the date of automatic renewal of its election not to renew such Standby
Letter of Credit (a "Notice of Termination") and (B) in the case of a Trade
Letter of Credit, 60 days after the date of issuance thereof; provided that the
terms of each Standby Letter of Credit that is automatically renewable annually
shall (x) require the Issuing Bank that issued such Standby Letter of Credit to
give the beneficiary named in such Standby Letter of Credit notice of any Notice
of Termination, (y) permit such beneficiary, upon receipt of such notice, to
draw under such Standby Letter of Credit prior to the date such Standby Letter
of Credit otherwise would have been automatically renewed and (z) not permit the
expiration date (after giving effect to any renewal) of such Standby Letter of
Credit in any event to be extended to a date later than ten days before the
Working Capital Termination Date. If either a Notice of Renewal is not given by
the Borrower or a Notice of Termination is given by the Issuing Bank pursuant to
the immediately preceding sentence, such Standby Letter of Credit shall expire
on the date on which it otherwise would have been automatically renewed;
provided, however, that even in the absence of receipt of a Notice of Renewal
the Issuing Bank may in its discretion, unless instructed to the contrary by the
Administrative Agent or the Borrower, deem that a Notice of Renewal had been
timely delivered and in such case, a Notice of Renewal shall be deemed to have
been so delivered for all purposes under this Agreement. Within the limits of
the Letter of Credit Facility, and subject to the limits referred to above, the
Borrower may request the issuance of Letters of Credit under this Section
2.01(e), repay any Letter of Credit Advances resulting from drawings thereunder
pursuant to Section 2.03(c) and request the issuance of additional Letters of
Credit under this Section 2.01(e).
(g) Clean-Up. Notwithstanding the provisions of Sections
2.01(c) and 2.01(e), no Borrowings may be made under Section 2.01(c) or 2.01(e)
and no Letters of Credit shall be issued during any Clean-Up Period, unless the
sum of the aggregate principal amount of Working Capital Advances, Letter of
Credit Advances and Swing Line Advances outstanding (or
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to be outstanding) after giving effect to such Borrowing or such issuance, as
the case may be, shall not exceed $15,000,000.
SECTION 2.02. Making the Advances. (a) Except as otherwise
provided in Section 2.02(b) or 2.03, each Borrowing shall be made on notice,
given not later than 12:00 Noon (Charlotte, North Carolina time) on the third
Business Day prior to the date of the proposed Borrowing in the case of a
Borrowing consisting of Eurodollar Rate Advances, or the first Business Day
prior to the date of the proposed Borrowing in the case of a Borrowing
consisting of Alternate Base Rate Advances, by the Borrower to the
Administrative Agent, which shall give to each Appropriate Lender prompt notice
thereof by telecopier. Each such notice of a Borrowing (a "Notice of Borrowing")
shall be by telephone, confirmed immediately in writing, or by telecopier, in
substantially the form of Exhibit B hereto, specifying therein the requested (i)
date of such Borrowing (which shall be a Business Day), (ii) Facility under
which such Borrowing is to be made, (iii) Type of Advances comprising such
Borrowing, (iv) aggregate amount of such Borrowing and (v) in the case of a
Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for
each such Advance. Each Appropriate Lender shall, before 11:00 A.M. (Charlotte,
North Carolina time) on the date of such Borrowing, make available for the
account of its Applicable Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's ratable portion
of such Borrowing in accordance with the respective Commitments under the
applicable Facility of such Lender and the other Appropriate Lenders. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the Borrower by crediting the Borrower's Account;
provided, however, that in the case of any Working Capital Borrowing, the
Administrative Agent shall first make a portion of such funds equal to the
aggregate principal amount of any Swing Line Advances and Letter of Credit
Advances made by the Swing Line Bank or the Issuing Bank, as the case may be,
and by any other Working Capital Lender and outstanding on the date of such
Working Capital Borrowing, plus interest accrued and unpaid thereon to and as of
such date, available to the Swing Line Bank or the Issuing Bank, as the case may
be, and such other Working Capital Lenders for repayment of such Swing Line
Advances and Letter of Credit Advances.
(b) Each Swing Line Borrowing shall be made on notice, given
not later than 12:00 Noon (Charlotte, North Carolina time) on the date of the
proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the
Administrative Agent. Each such notice of a Swing Line Borrowing (a "Notice of
Swing Line Borrowing") shall be by telephone, confirmed immediately in writing,
or by telecopier, in form and substance reasonably satisfactory to the
Administrative Agent and the Swing Line Bank, specifying therein the requested
(i) date of such Borrowing (which shall be a Business Day), (ii) amount of such
Borrowing and (iii) maturity of such Borrowing (which maturity shall be no later
than the seventh day after the requested date of such Borrowing). Upon
fulfillment of the applicable conditions set forth in Article III, the Swing
Line Bank will make the amount thereof available to the Administrative Agent at
the Administrative Agent's Account, in same day funds. After the Administrative
Agent's receipt of
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such funds, the Administrative Agent will make such funds available to the
Borrower by crediting the Borrower's Account. Upon written demand by the Swing
Line Bank, with a copy of such demand to the Administrative Agent, each other
Working Capital Lender shall purchase from the Swing Line Bank, and the Swing
Line Bank shall sell and assign to each such other Working Capital Lender, such
other Lender's Pro Rata Share of such outstanding Swing Line Advance as of the
date of such demand, by making available for the account of its Applicable
Lending Office to the Administrative Agent for the account of the Swing Line
Bank, by deposit to the Administrative Agent's Account, in same day funds, an
amount equal to the portion of the outstanding principal amount of such Swing
Line Advance to be purchased by such Lender. The Borrower hereby agrees to each
such sale and assignment. Each Working Capital Lender agrees to purchase its Pro
Rata Share of an outstanding Swing Line Advance on (i) the Business Day on which
demand therefor is made by the Swing Line Bank, (so long as notice of such
demand is given not later than 12:00 Noon (Charlotte, North Carolina time) on
such Business Day) or (ii) the first Business Day next succeeding such demand if
notice of such demand is given after such time. Upon any such assignment by the
Swing Line Bank to any other Working Capital Lender of a portion of a Swing Line
Advance, the Swing Line Bank represents and warrants to such other Lender that
the Swing Line Bank is the legal and beneficial owner of such interest being
assigned by it, but makes no other representation or warranty and assumes no
responsibility with respect to such Swing Line Advance, the Loan Documents or
any Loan Party. If and to the extent that any Working Capital Lender shall not
have so made the amount of such Swing Line Advance available to the
Administrative Agent, such Working Capital Lender agrees to pay to the
Administrative Agent forthwith on demand such amount, together with interest
thereon, for each day from the date of demand by the Swing Line Bank until the
date such amount is paid to the Administrative Agent, at the Federal Funds Rate.
If such Working Capital Lender shall pay to the Administrative Agent such amount
for the account of the Swing Line Bank on any Business Day, such amount so paid
in respect of principal shall constitute a Swing Line Advance made by such
Working Capital Lender on such Business Day for all purposes of this Agreement,
and the outstanding principal amount of the Swing Line Advance made by the Swing
Line Bank shall be reduced by such amount on such Business Day.
(c) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
any Borrowing if the aggregate amount of such Borrowing is less than $1,000,000
or if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances
shall then be suspended pursuant to Section 2.09 or Section 2.10 and (ii) the
Acquisition Advances may not be outstanding as part of more than six separate
Borrowings, the Term A Advances may not be outstanding as part of more than
three separate Borrowings, the Term B Advances may not be outstanding as part of
more than three separate Borrowings and the Working Capital Advances made on any
date may not be outstanding as part of more than ten separate Borrowings.
(d) Each Notice of Borrowing and Notice of Swing Line
Borrowing shall be irrevocable and binding on the Borrower. In the case of any
Borrowing that the related Notice of Borrowing specifies is to be comprised of
Eurodollar Rate Advances, if the Borrower fails to
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fulfill on or before the date specified in such Notice of Borrowing for such
Borrowing the applicable conditions set forth in Article III and the Advance to
be made by any Appropriate Lender as part of such Borrowing, as a result of such
failure, is not made on such date, the Borrower will pay to the Administrative
Agent for such Appropriate Lender an amount equal to the present value
(calculated in accordance with this Section 2.02(d)) of interest for the
Interest Period specified in such Notice of Borrowing on the amount of such
Advance, at a rate per annum equal to the excess of (a) the Eurodollar Rate that
would have been in effect for such Interest Period over (b) the Eurodollar Rate
applicable on the date of determination to a deemed Interest Period ending on
the last day of such Interest Period. The present value of such additional
interest shall be calculated by discounting the amount of such interest for each
day in the Interest Period specified in such Notice of Borrowing from such day
to the date of such repayment or termination at an interest rate per annum equal
to the interest rate determined pursuant to the immediately preceding sentence,
and by adding all such amounts for all such days during such period. The
determination by the Administrative Agent of such amount of interest shall be
conclusive and binding, absent manifest error.
(e) Unless the Administrative Agent shall have received notice
from an Appropriate Lender prior to the date of any Borrowing under a Facility
under which such Lender has a Commitment that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Administrative Agent, such
Lender and the Borrower severally agree to repay or pay to the Administrative
Agent forthwith on demand such corresponding amount and to pay interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid or paid to the Administrative Agent, at (i) in
the case of the Borrower, the interest rate applicable at such time under
Section 2.07 to Advances comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative
Agent such corresponding amount, such amount so paid shall constitute such
Lender's Advance as part of such Borrowing for all purposes of this Agreement.
(f) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
issued upon notice, given not later than 12:00 Noon (Charlotte, North Carolina
time) on the third Business Day prior to the
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date of the proposed issuance of such Letter of Credit, by the Borrower to the
Issuing Bank, which shall give to the Administrative Agent and each Working
Capital Lender prompt notice thereof by telecopier. Each such notice of issuance
of a Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed
immediately in writing, or by telecopier, specifying therein the requested (i)
date of such issuance (which shall be a Business Day), (ii) Available Amount of
such Letter of Credit, (iii) expiration date of such Letter of Credit, (iv) name
and address of the beneficiary of such Letter of Credit and (v) form of such
Letter of Credit, and shall be accompanied by such application and agreement for
letter of credit as the Issuing Bank may specify to the Borrower for use in
connection with such requested Letter of Credit (a "Letter of Credit
Agreement"). If the requested form of such Letter of Credit is acceptable to the
Issuing Bank in its sole discretion, the Issuing Bank will, upon fulfillment of
the applicable conditions set forth in Article III, make such Letter of Credit
available to the Borrower at its office referred to in Section 9.02 or as
otherwise agreed with the Borrower in connection with such issuance. In the
event and to the extent that the provisions of any Letter of Credit Agreement
shall conflict with this Agreement, the provisions of this Agreement shall
govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish
(i) to the Administrative Agent on the first Business Day of each week a written
report summarizing issuance and expiration dates of Letters of Credit issued
during the previous week and drawings during such week under all Letters of
Credit, (ii) to each Working Capital Lender on the first Business Day of each
month a written report summarizing issuance and expiration dates of Letters of
Credit issued during the preceding month and drawings during such month under
all Letters of Credit and (iii) to the Administrative Agent and each Working
Capital Lender on the first Business Day of each calendar quarter a written
report setting forth the average daily aggregate Available Amount during the
preceding calendar quarter of all Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank
of a draft drawn under any Letter of Credit shall constitute for all purposes of
this Agreement the making by the Issuing Bank of a Letter of Credit Advance,
which shall be a Alternate Base Rate Advance, in the amount of such draft. Upon
written demand by the Issuing Bank, with a copy of such demand to the
Administrative Agent, each Working Capital Lender shall purchase from the
Issuing Bank, and the Issuing Bank shall sell and assign to each such Working
Capital Lender, such Lender's Pro Rata Share of such outstanding Letter of
Credit Advance as of the date of such purchase, by making available for the
account of its Applicable Lending Office to the Administrative Agent for the
account of the Issuing Bank, by deposit to the Administrative Agent's Account,
in same day funds, an amount equal to the portion of the outstanding principal
amount of such Letter of Credit Advance to be purchased by such Lender. Promptly
after receipt thereof, the Administrative Agent shall transfer such funds to the
Issuing Bank. The Borrower hereby agrees to each such sale and assignment. Each
Working Capital Lender agrees to purchase its Pro Rata Share of an outstanding
Letter of Credit Advance on (i) the Business Day on which demand therefor is
made by the Issuing Bank (so long as notice of such demand is given not later
than 12:00 Noon (Charlotte, North Carolina time) on such Business Day) or (ii)
the first Business Day next succeeding such demand if notice of such demand is
given after such
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time. Upon any such assignment by the Issuing Bank to any other Working Capital
Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents
and warrants to such other Lender that the Issuing Bank is the legal and
beneficial owner of such interest being assigned by it, free and clear of any
liens, but makes no other representation or warranty and assumes no
responsibility with respect to such Letter of Credit Advance, the Loan Documents
or any Loan Party. If and to the extent that any Working Capital Lender shall
not have so made the amount of such Letter of Credit Advance available to the
Administrative Agent, such Working Capital Lender agrees to pay to the
Administrative Agent forthwith on demand such amount together with interest
thereon, for each day from the date of demand by the Issuing Bank until the date
such amount is paid to the Administrative Agent, at the Federal Funds Rate for
its account or the account of the Issuing Bank, as applicable. If such Working
Capital Lender shall pay to the Administrative Agent such amount for the account
of the Issuing Bank on any Business Day, such amount so paid in respect of
principal shall constitute a Letter of Credit Advance made by such Working
Capital Lender on such Business Day for purposes of this Agreement, and the
outstanding principal amount of the Letter of Credit Advance made by the Issuing
Bank shall be reduced by such amount on such Business Day.
(d) Failure to Make Letter of Credit Advances. The failure of
any Working Capital Lender to make the Letter of Credit Advance to be made by it
on the date specified in Section 2.03(c) shall not relieve any other Working
Capital Lender of its obligation hereunder to make its Letter of Credit Advance
on such date, but no Working Capital Lender shall be responsible for the failure
of any other Working Capital Lender to make the Letter of Credit Advance to be
made by such other Working Capital Lender on such date.
SECTION 2.04. Repayment of Advances. (a) Acquisition Advances.
The Borrower shall repay to the Administrative Agent for the ratable account of
the Acquisition Lenders on the following dates an amount equal to the percentage
indicated for such date of the aggregate amount of Acquisition Advances
outstanding on the Acquisition Availability Date (after giving effect to any
prepayments thereof on the Acquisition Availability Date) (which amounts shall
be reduced as a result of the application of further prepayments in accordance
with the order of priority set forth in Section 2.06):
Quarterly Payment Date Percentage
---------------------- ----------
February, 2000 6.25%
May, 2000 6.25%
August, 2000 2.5%
November, 2000 10%
February, 2001 6.25%
May, 2001 6.25%
August, 2001 2.5%
November, 2001 10%
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February, 2002 6.25%
May, 2002 6.25%
August, 2002 2.5%
November, 2002 10%
February, 2003 6.25%
May, 2003 6.25%
August, 2003 2.5%
November, 2003 10%
provided, however, that the final principal installment shall be repaid on the
Acquisition Termination Date and in any event shall be in an amount equal to the
aggregate principal amount of the Acquisition Advances outstanding on such date.
(b) Term A Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Term A Lenders the aggregate
outstanding principal amount of the Term A Advances on the following dates in
the amounts indicated for such dates (which amounts shall be reduced as a result
of the application of prepayments in accordance with the order of priority set
forth in Section 2.06):
Quarterly Payment Date Amount
---------------------- ------
February, 1998 $875,000
May, 1998 875,000
August, 1998 350,000
November, 1998 1,400,000
February, 1999 1,625,000
May, 1999 1,625,000
August, 1999 650,000
November, 1999 2,600,000
February, 2000 2,500,000
May, 2000 2,500,000
August, 2000 1,000,000
November, 2000 4,000,000
February, 2001 2,500,000
May, 2001 2,500,000
August, 2001 1,000,000
November, 2001 4,000,000
February, 2002 2,500,000
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May, 2002 2,500,000
August, 2002 1,000,000
November, 2002 4,000,000
February, 2003 2,500,000
May, 2003 2,500,000
August, 2003 1,000,000
November 31, 2003 4,000,000
provided, however, that the final principal installment shall be repaid on the
Term A Termination Date and in any event shall be in an amount equal to the
aggregate principal amount of the Term A Advances outstanding on such date.
(c) Term B Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Term B Lenders the aggregate
outstanding principal amount of the Term B Advances on the following dates in
the amounts indicated for such dates (which amounts shall be reduced as a result
of the application of prepayments in accordance with the order of priority set
forth in Section 2.06):
Quarterly Payment Date Amount
---------------------- ------
February, 1998 $250,000
May, 1998 250,000
August, 1998 250,000
November, 1998 250,000
February, 1999 250,000
May, 1999 250,000
August, 1999 250,000
November, 1999 250,000
February, 2000 250,000
May, 2000 250,000
August, 2000 250,000
November, 2000 250,000
February, 2001 250,000
May, 2001 250,000
August, 2001 250,000
November, 2001 250,000
February, 2002 250,000
May, 2002 250,000
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August, 2002 250,000
November, 2002 250,000
February, 2003 250,000
May, 2003 250,000
August, 2003 250,000
November, 2003 250,000
February, 2004 17,600,000
May, 2004 4,400,000
August, 2004 4.400,000
November, 2004 17,600,000
provided, however, that the final principal installment shall be repaid on the
Term B Termination Date and in any event shall be in an amount equal to the
aggregate principal amount of the Term B Advances outstanding on such date.
(d) Working Capital Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Working Capital Lenders on
the Working Capital Termination Date the aggregate outstanding principal amount
of the Working Capital Advances then outstanding.
(e) Swing Line Advances. The Borrower shall repay to the
Administrative Agent for the account of the Swing Line Bank and each other
Working Capital Lender that has made a Swing Line Advance the outstanding
principal amount of each Swing Line Advance made by each of them on the earlier
of (i) the maturity date specified in the applicable Notice of Swing Line
Borrowing (which maturity shall be no later than the 30th day after the
requested date of such Swing Line Borrowing) and (ii) the Working Capital
Termination Date.
(f) Letter of Credit Advances. (i) The Borrower shall repay to
the Administrative Agent for the account of the Issuing Bank and each other
Working Capital Lender that has made a Letter of Credit Advance the outstanding
principal amount of each Letter of Credit Advance made by each of them on the
earlier of (A) the date of demand therefor and (B) the Working Capital
Termination Date.
(ii) The Obligations of the Borrower under this Agreement, any
Letter of Credit Agreement and any other agreement or instrument relating to any
Letter of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, such Letter of Credit
Agreement and such other agreement or instrument under all circumstances,
including, without limitation, the following circumstances (it being understood
that any such payment by the Borrower is without prejudice to, and does not
constitute a waiver
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of, any rights the Borrower might have or might acquire as a result of the
payment by the Issuing Bank of any draft or the reimbursement by the Borrower
thereof):
(A) any lack of validity or enforceability of any Loan Document, any
Letter of Credit Agreement, any Letter of Credit or any other agreement or
instrument relating thereto (all of the foregoing being, collectively, the "L/C
Related Documents");
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of the Borrower in respect of any
L/C Related Document or any other amendment or waiver of or any consent to
departure from all or any L/C Related Document;
(C) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee of a
Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank or any other Person, whether in
connection with the transactions contemplated by the L/C Related Documents or
any unrelated transaction;
(D) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect;
(E) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of such Letter of Credit, unless such draft or certificate is
substantially different from the applicable form specified by such Letter of
Credit;
(F) any exchange, release or nonperfection of any Collateral or other
collateral, or any release or amendment or waiver of or consent to departure
from the Parent Guaranty, any Subsidiary Guaranty or any other guarantee, for
all or any of the Obligations of the Borrower in respect of the L/C Related
Documents; or
(G) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
SECTION 2.05. Termination or Reduction of the Commitments. (a)
Optional. The Borrower may, upon at least five Business Days' notice to the
Administrative Agent, terminate in whole or reduce in part the unused portions
of the Acquisition Commitments, the Term A Commitments, the Term B Commitments,
the Letter of Credit Facility and the Unused Working Capital Commitments;
provided, however, that each partial reduction of a Facility shall be in an
aggregate amount of $2,500,000 or an integral multiple of $500,000 in excess
thereof.
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(b) Mandatory. (i) On the date of the Term A Borrowing, after
giving effect to such Term A Borrowing, and from time to time thereafter upon
each repayment or prepayment of the Term A Advances, the aggregate Term A
Commitments of the Term A Lenders shall be automatically and permanently
reduced, on a pro rata basis, by an amount equal to the amount by which the
aggregate Term A Commitments immediately prior to such repayment or prepayment
exceed the aggregate unpaid principal amount of the Term A Advances then
outstanding.
(ii) On the date of the Term B Borrowing, after giving effect
to such Term B Borrowing, and from time to time thereafter upon each repayment
or prepayment of the Term B Advances, the aggregate Term B Commitments of the
Term B Lenders shall be automatically and permanently reduced, on a pro rata
basis, by an amount equal to the amount by which the aggregate Term B
Commitments immediately prior to such repayment or prepayment exceed the
aggregate unpaid principal amount of the Term B Advances then outstanding.
(iii) The Working Capital Facility shall be automatically and
permanently reduced on each date on which prepayment thereof is required to be
made pursuant to clause (i), (ii) or (iii) of Section 2.06(b) by an amount equal
to the applicable Reduction Amount.
(iv) (A) Prior to the Acquisition Availability Date, the
Acquisition Facility shall be automatically and permanently reduced on each date
on which prepayment thereof is required to be made pursuant to clause (i), (ii)
or (iii) of Section 2.06(b) by an amount equal to the applicable Acquisition
Reduction Amount and (B) thereafter from time to time upon each repayment or
prepayment of the Acquisition Advances, the aggregate Acquisition Commitments of
the Acquisition Lenders shall be automatically and permanently reduced, on a pro
rata basis, by an amount equal to the amount by which the aggregate Acquisition
Commitments immediately prior to such repayment or prepayment exceed the
aggregate unpaid principal amount of the Acquisition Advances then outstanding.
(v) The Swing Line Facility shall be automatically and
permanently reduced from time to time on the date of each reduction in the
Working Capital Facility by the amount, if any, by which the amount of the Swing
Line Facility exceeds the Working Capital Facility after giving effect to such
reduction of the Working Capital Facility.
(vi) The Letter of Credit Facility shall be automatically and
permanently reduced from time to time on the date of each reduction in the
Working Capital Facility by the amount, if any, by which the amount of the
Letter of Credit Facility exceeds the Working Capital Facility after giving
effect to such reduction of the Working Capital Facility.
(c) Application of Commitment Reductions. Upon each reduction
of any of the Facilities pursuant to this Section 2.05, the Commitment of each
of the Appropriate Lenders under such Facility shall be reduced by such Lender's
ratable share of the amount by which such
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Facility is reduced in accordance with the Appropriate Lenders' respective
Commitments with respect to such Facility.
SECTION 2.06. Prepayments. (a) Optional. The Borrower may,
upon at least one Business Day's notice in the case of Alternate Base Rate
Advances and three Business Days' notice in the case of Eurodollar Rate
Advances, in each case to the Administrative Agent received not later than 12:00
Noon (Charlotte, North Carolina time) stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding aggregate principal amount of the Advances
comprising part of the same Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the aggregate principal
amount prepaid; provided, however, that (x) each partial prepayment (other than
prepayments of Swing Line Advances) shall be in an aggregate principal amount of
$1,000,000 or an integral multiple of $500,000 in excess thereof and (y) if any
prepayment of a Eurodollar Rate Advance shall be made other than on the last day
of an Interest Period therefor, the Borrower shall also pay any amounts owing
pursuant to Section 9.04(c). Each such prepayment of any Advances (other than
Swing Line Advances or Working Capital Advances) shall be applied ratably to the
Funded Facilities and to the principal installments thereof first, in order of
maturity to the principal installments that are due within the 12 months
following the date of such prepayment, and second, ratably to the remaining
principal installments thereof.
(b) Mandatory. (i) The Borrower shall, on the earlier of (A)
the third Business Day following each date on which the Parent Guarantor
delivers the audited Consolidated financial statements of the Parent Guarantor
and its Subsidiaries pursuant to Section 5.03(d) and (B) 96 days after the end
of each Fiscal Year, commencing with the Fiscal Year ended February 27, 1999,
prepay an aggregate principal amount of the Advances comprising part of the same
Borrowings equal to 50% of the remainder of (1) Excess Cash Flow for such Fiscal
Year minus (2) $500,000. Each such prepayment shall be applied ratably to the
Funded Facilities and to the principal installments thereof first, in order of
maturity to the principal installments that are due within the 12 months
following the date of such prepayment, and second, ratably to the remaining
principal installments thereof. To the extent that no Advances in respect of the
Funded Facilities remain outstanding, prepayments shall be applied permanently
to reduce the Unfunded Facilities as set forth in clause (vii) below.
(ii) The Borrower shall, on the date of receipt of the Net
Cash Proceeds by any Loan Party or any of its Subsidiaries from (A) the sale,
lease, transfer or other disposition of any assets of any Loan Party or any of
its Subsidiaries (other than any sale, lease, transfer or other disposition of
assets pursuant to clause (i), (ii), (iii) or (v) of Section 5.02(d)), (B) the
incurrence or issuance by any Loan Party or any of its Subsidiaries of any Debt
(other than Debt incurred or issued pursuant to clause (i), (ii), (iii) and (iv)
of Section 5.02(b)), (C) the sale or issuance by any Loan Party or any of its
Subsidiaries of any capital stock (or other equity or ownership or profit
interest), any securities convertible into or exchangeable for any capital stock
(or other equity or ownership or profit interest) or any warrants, rights or
options to
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acquire any capital stock (or other equity or ownership or profit interest)
(other than the sale or issuance of any additional Parent Guarantor Stock (or
any warrants, rights or options to acquire additional Parent Guarantor Stock)
(1) to any of the Childs Investors or (2) to any of the Equity Investors in
consideration for any capital contribution made thereby in cash pursuant to
Section 5.02(e)(viii)) and (D) any Extraordinary Receipt received by or paid to
or for the account of any Loan Party or any of its Subsidiaries and not
otherwise included in clause (A), (B) or (C) above, prepay an aggregate
principal amount of the Advances comprising part of the same Borrowings equal to
the amount of such Net Cash Proceeds; provided that, so long as no Default under
Section 6.01(a) or 6.01(f) or Event of Default has occurred and is continuing,
the Borrower may defer making any prepayment otherwise required under this
Section 2.06(b)(ii) until the aggregate Net Cash Proceeds received by the Loan
Parties and their Subsidiaries under this Section 2.06(b)(ii), whether as a
result of one or more transactions covered hereby, equals at least $1,000,000
(although during such deferral period, the Borrower may apply all or any part of
such aggregate amount to prepay Working Capital Advances and may, subject to the
fulfillment of the conditions set forth in Section 3.02, reborrow such amounts
(which amounts, to the extent originally constituting Net Cash Proceeds, shall
be deemed to retain their original character as Net Cash Proceeds when so
reborrowed) for application as required by this Section 2.06); provided,
however, that, upon the occurrence of a Default under Section 6.01(a) or 6.01(f)
or an Event of Default, the Borrower shall immediately prepay Advances in the
amount of all Net Cash Proceeds received by the Borrower that are required to be
applied to prepay Advances by this Section 2.06 (without giving effect to the
immediately preceding proviso) but which have not previously been so applied.
Each such prepayment shall be applied ratably to the Funded Facilities and to
the principal installments thereof first, in order of maturity to the principal
installments that are due within the 12 months following the date of such
prepayment, and second, ratably to the remaining principal installments thereof.
To the extent that no Advances in respect of the Funded Facilities remain
outstanding, prepayments shall be applied permanently to reduce the Unfunded
Facilities as set forth in clause (vii) below.
(iii) Notwithstanding any of the other provisions of this
Section 2.06,
(A) if, following the occurrence of any "Asset Sale" (as defined in the
indenture for the Subordinated Notes), the Borrower is required to commit by a
particular date (a "Commitment Date") to apply or to cause any of its
Subsidiaries to apply an amount equal to any of the "Net Proceeds" (as defined
in the indenture for the Subordinated Notes) thereof in a particular manner, or
to apply or to cause any of its Subsidiaries to apply by a particular date (an
"Application Date") an amount equal to any such "Net Proceeds" in a particular
manner, in either case in order to excuse the Borrower from being required to
make an offer to redeem or to repurchase all or a portion of the Subordinated
Notes as a result of such "Asset Sale", and the Borrower shall have failed to so
commit or to so apply, or to have caused any of its Subsidiaries to so commit or
to so apply, an amount equal to such "Net Proceeds" at least 30 days before the
Commitment Date or the Application Date, as the case may be, or
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(B) if the Borrower at any other time shall have failed to apply or to
commit, or to have caused any of its Subsidiaries to apply or to commit, an
amount equal to any such "Net Proceeds", and within 30 days thereafter assuming
no further application or commitment of an amount equal to such "Net Proceeds",
the Borrower would otherwise be required to make an offer to redeem or to
repurchase all or a portion of the Subordinated Notes as a result of such "Asset
Sale",
then, in either such case, the Borrower shall immediately apply or cause to be
applied to the prepayment of the aggregate principal amount of Advances
comprising part of the same Borrowings an amount equal to the amount of such
"Net Proceeds" required to excuse the Borrower from making any such offer of
redemption or repurchase. Each such prepayment shall be applied ratably to the
Funded Facilities and to the principal installments thereof first, in order of
maturity to the principal installments that are due within the 12 months
following the date of such prepayment, and second, ratably to the remaining
principal installments thereof. To the extent that no Advances in respect of the
Funded Facilities remain outstanding, prepayments shall be applied permanently
to reduce the Unfunded Facilities as set forth in clause (vii) below.
(iv) The Borrower shall, on each Business Day, prepay an
aggregate principal amount of the Working Capital Advances comprising part of
the same Borrowings and the Letter of Credit Advances and the Swing Line
Advances equal to the amount by which (A) the sum of (x) the aggregate principal
amount of the Working Capital Advances, the Letter of Credit Advances and the
Swing Line Advances then outstanding plus (y) the aggregate Available Amount of
all Letters of Credit then outstanding exceeds (B) the lesser of (x) the Working
Capital Facility and (y) the Loan Value of all Eligible Collateral on such
Business Day.
(v) The Borrower shall, on each Business Day, pay to the
Administrative Agent for deposit in the L/C Cash Collateral Account an amount
sufficient to cause the aggregate amount on deposit in such L/C Cash Collateral
Account to equal the amount by which the aggregate Available Amount of all
Letters of Credit then outstanding exceeds the Letter of Credit Facility on such
Business Day.
(vi) The Borrower shall pay to the Administrative Agent, on
the first day of each Clean-Up Period, an amount equal to the amount by which
the aggregate principal amount of the Working Capital Advances, the Letter of
Credit Advances and the Swing Line Advances then outstanding exceeds
$15,000,000, to be applied to prepay such outstanding Working Capital Advances,
the Letter of Credit Advances and the Swing Line Advances.
(vii) (A) Prepayments of the Working Capital Facility made
pursuant to clause (i), (ii), (iii), (iv) or (vi) above shall be first applied
to prepay Letter of Credit Advances then outstanding until such Advances are
paid in full, second applied to prepay Swing Line Advances then outstanding
until such Advances are paid in full, third applied to prepay Working Capital
Advances then outstanding comprising part of the same Borrowings until such
Advances are paid in full and fourth deposited in the L/C Cash Collateral
Account to cash collateralize 100%
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of the Available Amount of the Letters of Credit then outstanding; and, in the
case of prepayments of the Working Capital Facility required pursuant to clause
(i), (ii) or (iii) above, the amount remaining (if any) after the prepayment in
full of the Working Capital Advances then outstanding and the cash
collateralization of the aggregate Available Amount of Letters of Credit then
outstanding (the sum of such prepayment amounts, cash collateralization amounts
and remaining amounts being referred to herein as the "Reduction Amount") may be
retained by the Borrower for use in its business and operations in the ordinary
course, and the Working Capital Facility shall be permanently reduced as set
forth in Section 2.05(b)(iv). Upon the drawing of any Letter of Credit for which
funds are on deposit in the L/C Cash Collateral Account, such funds shall be
applied to reimburse the Issuing Bank or Working Capital Lenders, as applicable.
(B) In the case of prepayments of the Acquisition Facility
required pursuant to clause (i) or (ii) above, the amount remaining (if any)
after the prepayment in full of the Acquisition Advances then outstanding (the
sum of such prepayment amounts and remaining amount being referred to herein as
the "Acquisition Reduction Amount") may be retained by the Borrower for use in
its business and operations in the ordinary course, and the Working Capital
Facility shall be permanently reduced as set forth in Section 2.05(b)(v).
(viii) All prepayments under this subsection (b) shall be made
together with (A) accrued interest to the date of such prepayment on the
principal amount prepaid and (B) in the case of any such prepayment of a
Eurodollar Rate Advance on a date other than the last day of an Interest Period
therefor, any amounts owing in respect of such Eurodollar Rate Advance pursuant
to Section 9.04(c).
(c) Application of Prepayments; Term B Opt-Out. With respect
to any prepayment of the Funded Facilities, the Administrative Agent shall
ratably pay such Facilities; provided, however, that any Term B Lender, at its
option, may elect not to accept such prepayment, in which event the provisions
of the next sentence shall apply. Upon receipt by the Administrative Agent of
any prepayment, the amount of the prepayment that is available to prepay the
Term B Advances (subject to the proviso to the immediately preceding sentence)
shall be deposited in the Cash Collateral Account (the "Prepayment Amount"),
pending application of such amount on the Prepayment Date as set forth below and
promptly after such receipt (the date of such receipt being the "Receipt Date"),
the Administrative Agent shall give written notice to the Term B Lenders of the
amount available to prepay the Term B Advances and the date on which such
prepayment shall be made (the "Prepayment Date"), which date shall be 10 days
after the Receipt Date. Any Lender declining such prepayment (a "Declining
Lender") shall give written notice to the Administrative Agent by 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day immediately preceding the
Prepayment Date. On the Prepayment Date, an amount equal to that portion of the
Prepayment Amount accepted by the Term B Lenders other than the Declining
Lenders (such Lenders being the "Accepting Lenders") to prepay Term B Advances
owing to such Accepting Lenders shall be withdrawn from the Cash Collateral
Account and applied to prepay Term Advances owing to such Accepting Lenders on a
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pro rata basis. Any amounts that would otherwise have been applied to prepay
Advances under the Funded Facilities owing to Declining Lenders shall instead be
applied ratably to prepay the remaining Advances under the Funded Facilities as
provided in Sections 2.06(a) and (b); provided further that on prepayment in
full of Advances under the Funded Facilities owing to Lenders other than
Declining Lenders, the remainder of any Prepayment Amount shall be applied
ratably to prepay Term B Advances owing to Declining Lenders.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Advance owing to each
Lender from the date of such Advance until such principal amount shall be paid
in full, at the following rates per annum:
(i) Alternate Base Rate Advances. During such periods as such
Advance is an Alternate Base Rate Advance, a rate per annum equal at all times
to the sum of (A) the Alternate Base Rate in effect from time to time plus (B)
the Applicable Margin for such Type of Advance in effect from time to time,
payable in arrears quarterly on each Quarterly Payment Date during such periods
and on the date such Alternate Base Rate Advance shall be Converted or paid in
full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during
each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for
such Interest Period for such Advance plus (B) the Applicable Margin for such
Type of Advance in effect from time to time, payable in arrears on the last day
of such Interest Period and, if such Interest Period has a duration of more than
three months, on each day that occurs during such Interest Period every three
months from the first day of such Interest Period and on the date such
Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the
continuance of a Default under Section 6.01(a) or 6.01(f), the Borrower shall
pay interest on (i) the unpaid principal amount of each Advance owing to each
Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii)
above and on demand, at a rate per annum equal at all times to 2% per annum
above the rate per annum required to be paid on such Advance pursuant to clause
(a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the
amount of any interest, fee or other amount payable hereunder that is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid, in the case of interest, on the Type of Advance
on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above,
and, in all other cases, on Alternate Base Rate Advances pursuant to clause
(a)(i) above.
(c) Notice of Interest Rate. Promptly after receipt of a
Notice of Borrowing pursuant to Section 2.02(a), the Administrative Agent shall
give notice to the Borrower and each
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Appropriate Lender of the applicable interest rate determined by the
Administrative Agent for purposes of clause (a)(i) or (a)(ii) above.
SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay
to the Administrative Agent for the account of the Appropriate Lenders (i) a
working capital commitment fee, from the date hereof in the case of each Initial
Lender and from the effective date specified in the Assignment and Acceptance
pursuant to which it became a Working Capital Lender in the case of each other
Working Capital Lender until the Term A Termination Date and (ii) an acquisition
commitment fee, from the date hereof in the case of each Initial Lender and from
the effective date specified in the Assignment and Acceptance pursuant to which
it became an Acquisition Lender in the case of each other Acquisition Lender
until the Acquisition Availability Date, and, in the case of clauses (i) and
(ii), payable in arrears on the date of the Initial Extension of Credit
hereunder, thereafter on each Quarterly Payment Date and on the Term A
Termination Date or the Acquisition Availability Date, respectively, at the
Applicable Percentage in effect from time to time on the average daily unused
portion of the Facilities.
(b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to
the Administrative Agent for the account of each Working Capital Lender a
commission, payable in arrears quarterly on each Quarterly Payment Date, on the
earliest to occur of the full drawing expiration, termination or cancellation of
any such Letter of Credit and on the Working Capital Termination Date, on such
Lender's Pro Rata Share of the average daily aggregate Available Amount during
such quarter of (i) all Standby Letters of Credit outstanding from time to time
at a rate equal to the Applicable Margin at such time for Eurodollar Rate
Advances under the Working Capital Facility and (2) all Trade Letters of Credit
outstanding at such time at a rate equal to 0.50% per annum.
(ii) The Borrower shall pay to the Issuing Bank, for its own
account, (A) a fronting fee, payable in arrears quarterly on each Quarterly
Payment Date and on the Term A Termination Date, on the average daily amount of
its Letter of Credit Commitment during such quarter, from the date hereof until
the Working Capital Termination Date, at the rate of 0.25% per annum and (B)
such other commissions, fronting fees, transfer fees and other fees and charges
in connection with the issuance or administration of each Letter of Credit as
the Borrower and the Issuing Bank shall agree.
(c) Agents' Fees. The Borrower shall pay to each of the Agents
for their own accounts such fees as may from time to time be agreed between the
Borrower, on the one hand, and the Administrative Agent and, if applicable, such
other Agent, on the other hand.
SECTION 2.09. Conversion of Advances. (a) Optional. The
Borrower may on any Business Day, upon notice given to the Administrative Agent
not later than 12:00 Noon (Charlotte, North Carolina time) on the third Business
Day prior to the date of the proposed Conversion and subject to the provisions
of Section 2.10, Convert all or any portion of the Advances of one Type
comprising the same Borrowing into Advances of the other Type;
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provided, however, that any Conversion of Eurodollar Rate Advances into
Alternate Base Rate Advances shall be made only on the last day of an Interest
Period for such Eurodollar Rate Advances, any Conversion of Alternate Base Rate
Advances into Eurodollar Rate Advances shall be in an amount not less than the
minimum amount specified in Section 2.02(c), no Conversion of any Advances shall
result in more separate Borrowings than permitted under Section 2.02(c) and each
Conversion of Advances comprising part of the same Borrowing under any Facility
shall be made ratably among the Appropriate Lenders in accordance with their
Commitments under such Facility. Each such notice of Conversion shall, within
the restrictions specified above, specify (i) the date of such Conversion, (ii)
the Advances to be Converted and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period for such Advances.
Each notice of Conversion shall be irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $1,000,000, such
Advances shall automatically Convert into Alternate Base Rate Advances.
(ii) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Appropriate
Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Alternate
Base Rate Advance.
(iii) Upon the occurrence and during the continuance of any
Default under Section 6.01(a) or 6.01(f) or an Event of Default, (x) each
Eurodollar Rate Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Alternate Base Rate Advance and (y) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.
SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i)
the introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender Party of agreeing to make
or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to
issue or of issuing or maintaining Letters of Credit or of agreeing to make or
of making or maintaining Letter of Credit Advances (excluding for purposes of
this Section 2.10 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.12 shall govern) and (ii) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender Party
is organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrower shall from time to time, upon demand by such Lender
Party (with a copy of such
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demand to the Administrative Agent), pay to the Administrative Agent for the
account of such Lender Party additional amounts sufficient to compensate such
Lender Party for such increased cost; provided, however, that the Borrower shall
not be responsible for costs under this Section 2.10(a) arising more than 90
days prior to receipt by the Borrower of the certificate from the affected
Lender pursuant to this Section 2.10(a) with respect to such costs; and provided
further that a Lender Party claiming additional amounts under this Section
2.10(a) agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to designate a different Applicable
Lending Office if the making of such a designation would avoid the need for, or
reduce the amount of, such increased cost that may thereafter accrue and would
not, in the reasonable judgment of such Lender Party, be otherwise
disadvantageous to such Lender Party. A certificate as to the amount of such
increased cost (together with a schedule setting forth in reasonable detail the
calculation thereof), submitted to the Borrower by such Lender Party, shall be
conclusive and binding for all purposes, absent manifest error. In determining
such amount, such Lender Party may use any reasonable averaging and attribution
methods.
(b) If, due to either (i) the introduction of or any change in
or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or expected to be maintained by any Lender Party or
corporation controlling such Lender Party as a result of or based upon the
existence of such Lender Party's commitment to lend or to issue Letters of
Credit hereunder and other commitments of such type or the issuance or
maintenance of the Letters of Credit (or similar contingent obligations), then,
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender Party, from time to time as specified by such Lender
Party, additional amounts sufficient to compensate such Lender Party in the
light of such circumstances, to the extent that such Lender Party reasonably
determines such increase in capital to be allocable to the existence of such
Lender Party's commitment to lend or to issue Letters of Credit hereunder or to
the issuance or maintenance of any Letters of Credit; provided, however, that
the Borrower shall not be responsible for costs under this Section 2.10(b)
arising more than 90 days prior to receipt by the Borrower of the certificate
from the affected Lender pursuant to this Section 2.10(b) with respect to such
costs. A certificate as to such amounts (together with a schedule setting forth
in reasonable detail the calculation thereof) submitted to the Borrower by such
Lender Party shall be conclusive and binding for all purposes, absent manifest
error. In determining such amount, such Lender Party may use any reasonable
averaging and attribution methods.
(c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed at least a majority of the then aggregate unpaid
principal amount of Eurodollar Rate Advances under such Facility notify the
Administrative Agent that the Eurodollar Rate for any Interest Period for such
Advances will not adequately reflect the cost to such Lenders of making, funding
or maintaining their Eurodollar Rate Advances for such Interest Period, the
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Administrative Agent shall forthwith so notify the Borrower and the Appropriate
Lenders, whereupon (i) each such Eurodollar Rate Advance under any Facility will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Alternate Base Rate Advance and (ii) the obligation of the
Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if
the introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Administrative Agent, (i) each Eurodollar Rate Advance under each
Facility under which such Lender has a Commitment will automatically, upon such
demand, Convert into a Alternate Base Rate Advance and (ii) the obligation of
the Appropriate Lenders under each such Facility to make, or to Convert Advances
into, Eurodollar Rate Advances shall be suspended until the Administrative Agent
shall notify the Borrower that such Lender has determined that the circumstances
causing such suspension no longer exist; provided, however, that, before making
any such demand, such Lender agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to designate a
different Eurodollar Lending Office if the making of such a designation would
allow such Lender or its Eurodollar Lending Office to continue to perform its
obligations to make Eurodollar Rate Advances or to continue to fund or maintain
Eurodollar Rate Advances and would not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender.
SECTION 2.11. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes, irrespective of any right
of counterclaim or set-off (except as otherwise provided in Section 2.15), not
later than 12:00 Noon (Charlotte, North Carolina time) on the day when due (or,
in the case of payments made by the Parent Guarantor pursuant to Section 8.01,
on the date of demand therefor) in U.S. dollars to the Administrative Agent at
the Administrative Agent's Account in same day funds. The Administrative Agent
will promptly thereafter cause like funds to be distributed (i) if such payment
by the Borrower is in respect of principal, interest, commitment fees or any
other Obligation then payable hereunder and under the Notes to more than one
Lender Party, to such Lender Parties for the account of their respective
Applicable Lending Offices ratably in accordance with the amounts of such
respective Obligations then payable to such Lender Parties and (ii) if such
payment by the Borrower is in respect of any Obligation then payable hereunder
to one Lender Party, to such Lender Party for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 9.07(d),
from and after the effective date of such Assignment and Acceptance, the
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Administrative Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Lender Party assignee
thereunder, and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) If the Administrative Agent receives funds for application
to the Obligations under the Loan Documents under circumstances for which the
Loan Documents do not specify the Advances or the Facility to which, or the
manner in which, such funds are to be applied, the Administrative Agent may, but
shall not be obligated to, elect to distribute such funds to each Lender Party
ratably in accordance with such Lender Party's proportionate share of the
principal amount of all outstanding Advances and the Available Amount of all
Letters of Credit then outstanding, in repayment or prepayment of such of the
outstanding Advances or other Obligations owed to such Lender Party, and for
application to such principal installments, as the Administrative Agent shall
direct.
(c) The Borrower hereby authorizes each Lender Party, if and
to the extent payment owed to such Lender Party is not made when due hereunder
or, in the case of a Lender, under the Note held by such Lender, to charge from
time to time against any or all of the Borrower's accounts with such Lender
Party any amount so due. Each of the Lender Parties hereby agrees to notify the
Borrower promptly after any such setoff and application shall be made by such
Lender Party; provided, however, that the failure to give such notice shall not
affect the validity of such charge.
(d) All computations of interest, fees and Letter of Credit
commissions shall be made by the Administrative Agent on the basis of a year of
360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest,
fees or commissions are payable. Each determination by the Administrative Agent
of an interest rate, fee or commission hereunder shall be conclusive and binding
for all purposes, absent manifest error.
(e) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to any Lender
Party hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each
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such Lender Party on such due date an amount equal to the amount then due such
Lender Party. If and to the extent the Borrower shall not have so made such
payment in full to the Administrative Agent, each such Lender Party shall repay
to the Administrative Agent forthwith on demand such amount distributed to such
Lender Party together with interest thereon, for each day from the date such
amount is distributed to such Lender Party until the date such Lender Party
repays such amount to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.12. Taxes. (a) Any and all payments by the Parent
Guarantor or the Borrower hereunder or under the Notes shall be made, in
accordance with Section 2.11, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender Party and the Administrative Agent, taxes that are imposed on its
overall net income by the United States and taxes that are imposed on its
overall net income (and franchise taxes imposed in lieu thereof) by the state or
foreign jurisdiction under the laws of which such Lender Party or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Lender Party, taxes that are
imposed on its overall net income (and franchise taxes imposed in lieu thereof)
by the state or foreign jurisdiction of such Lender Party's Applicable Lending
Office or any political subdivision thereof (all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities in respect of
payments hereunder or under the Notes being hereinafter referred to as "Taxes").
If the Parent Guarantor or the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note to any
Lender Party or the Administrative Agent, (i) the sum payable shall be increased
as may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.12) such
Lender Party or the Administrative Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Parent Guarantor or the Borrower shall make such deductions and (iii) the
Parent Guarantor or the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Parent Guarantor or the Borrower hereby
agree to pay any present or future stamp, documentary, excise, property or
similar taxes, charges or levies that arise from any payment made hereunder or
under the Notes or from the execution, delivery or registration of, performing
under, or otherwise with respect to, this Agreement or the Notes (hereinafter
referred to as "Other Taxes").
(c) Each of the Parent Guarantor and the Borrower shall
indemnify each Lender Party and the Administrative Agent for and hold it
harmless against the full amount of Taxes and Other Taxes, and for the full
amount of taxes of any kind imposed by any jurisdiction on amounts payable under
this Section 2.12, imposed on or paid by such Lender Party or the Administrative
Agent (as the case may be) and any liability (including penalties, additions to
tax, interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be
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made within 30 days from the date such Lender Party or the Administrative Agent
(as the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Parent Guarantor or the Borrower, as the case may be, shall furnish to the
Administrative Agent, at its address referred to in Section 9.02, the original
or a certified copy of a receipt evidencing such payment, to the extent such a
receipt is issued therefor, or other written proof of payment thereof that is
reasonably satisfactory to the Administrative Agent. In the case of any payment
hereunder or under the Notes by or on behalf of the Parent Guarantor or the
Borrower through an account or branch outside the United States or by or on
behalf of the Parent Guarantor or the Borrower by a payor that is not a United
States person, if the Parent Guarantor or the Borrower determines that no Taxes
are payable in respect thereof, the Parent Guarantor or the Borrower shall
furnish, or shall cause such payor to furnish, to the Administrative Agent, at
its address referred to in Section 9.02, an opinion of counsel acceptable to the
Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a
jurisdiction outside the United States shall, on or prior to the date of its
execution and delivery of this Agreement in the case of each Initial Lender or
the Initial Issuing Bank, as the case may be, and on the date of the Assignment
and Acceptance pursuant to which it becomes a Lender Party in the case of each
other Lender Party, and from time to time thereafter as requested in writing by
the Parent Guarantor (but only so long thereafter as such Lender Party remains
lawfully able to do so), provide each of the Administrative Agent and the Parent
Guarantor with two original Internal Revenue Service forms 1001 or 4224 or (in
the case of a Lender Party that has certified in writing to the Administrative
Agent that it is not a "bank" as defined in Section 881(c)(3)(A) of the Internal
Revenue Code) form W-8 (and, if such Lender Party delivers a form W-8, a
certificate representing that such Lender Party is not a "bank" for purposes of
Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder
(within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the
Parent Guarantor or the Borrower and is not a controlled foreign corporation
related to the Parent Guarantor or the Borrower (within the meaning of Section
864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or
other form prescribed by the Internal Revenue Service, certifying that such
Lender Party is exempt from or entitled to a reduced rate of United States
withholding tax on payments pursuant to this Agreement or the Notes or, in the
case of a Lender Party providing a form W-8, certifying that such Lender Party
is a foreign corporation, partnership, estate or trust. If the forms provided by
a Lender Party at the time such Lender Party first becomes a party to this
Agreement indicate a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from Taxes
unless and until such Lender Party provides the appropriate form certifying that
a lesser rate applies, whereupon withholding tax at such lesser rate only shall
be considered excluded from Taxes for periods governed by such form; provided,
however, that, if at the date of the Assignment and Acceptance pursuant to
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which a Lender Party becomes a party to this Agreement, the Lender Party
assignor was entitled to payments under subsection (a) in respect of United
States withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include (in addition to withholding taxes that may
be imposed in the future or other amounts otherwise includable in Taxes) United
States withholding tax, if any, applicable with respect to the Lender Party
assignee on such date. If any form or document referred to in this subsection
(e) requires the disclosure of information, other than information necessary to
compute the tax payable and information required on the date hereof by Internal
Revenue Service form 1001 or, 4224 or W-8 (or the related certificate described
above), that the Lender Party reasonably considers to be confidential, the
Lender Party shall give notice thereof to the Parent Guarantor and shall not be
obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Lender Party has
failed to provide the Parent Guarantor with the appropriate form described in
subsection (e) above (other than if such failure is due to a change in law
occurring after the date on which a form originally was required to be provided
or if such form otherwise is not required under subsection (e) above), such
Lender Party shall not be entitled to indemnification under subsection (a) or
(c) with respect to Taxes imposed by the United States by reason of such
failure; provided, however, that should a Lender Party become subject to Taxes
because of its failure to deliver a form required hereunder, the Parent
Guarantor and/or the Borrower shall take such steps as such Lender Party shall
reasonably request to assist such Lender Party to recover such Taxes.
(g) Any Lender Party claiming any additional amounts payable
pursuant to this Section 2.12 agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Eurodollar Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable judgment of such
Lender Party, be otherwise disadvantageous to such Lender Party.
SECTION 2.13. Sharing of Payments, Etc. If any Lender Party
shall obtain at any time any payment, whether voluntary, involuntary, through
the exercise of any right of set-off, or otherwise (other than pursuant to
Section 2.10, 2.12, 9.04 or 9.07), (a) on account of Obligations due and payable
to such Lender Party hereunder and under the Notes at such time in excess of its
ratable share (according to the proportion of (i) the amount of such Obligations
due and payable to such Lender Party at such time (other than pursuant to
Section 2.10, 2.12, 9.04 or 9.07) to (ii) the aggregate amount of the
Obligations due and payable to all Lender Parties hereunder and under the Notes
at such time) of payments on account of the Obligations due and payable to all
Lender Parties hereunder and under the Notes at such time obtained by all the
Lender Parties at such time or (b) on account of Obligations owing (but not due
and payable) to such Lender Party hereunder and under the Notes at such time
(other than pursuant to Section 2.10, 2.12, 9.04 or 9.07) in excess of its
ratable share (according to the proportion of (i) the amount of such Obligations
owing to such Lender Party at such time (other than pursuant to Section 2.10,
2.12, 9.04 or 9.07) to (ii) the aggregate amount of the Obligations owing (but
not
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due and payable) to all Lender Parties hereunder and under the Notes at such
time) of payments on account of the Obligations owing (but not due and payable)
to all Lender Parties hereunder and under the Notes at such time obtained by all
of the Lender Parties at such time, such Lender Party shall forthwith purchase
from the other Lender Parties such participations in the Obligations due and
payable or owing to them, as the case may be, as shall be necessary to cause
such purchasing Lender Party to share the excess payment ratably with each of
them; provided, however, that, if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender Party, such purchase from each
other Lender Party shall be rescinded and such other Lender Party shall repay to
the purchasing Lender Party the purchase price to the extent of such Lender
Party's ratable share (according to the proportion of (i) the purchase price
paid to such Lender Party to (ii) the aggregate purchase price paid to all
Lender Parties) of such recovery together with an amount equal to such Lender
Party's ratable share (according to the proportion of (i) the amount of such
other Lender Party's required repayment to (ii) the total amount so recovered
from the purchasing Lender Party) of any interest or other amount paid or
payable by the purchasing Lender Party in respect of the total amount so
recovered. The Borrower agrees that any Lender Party so purchasing a
participation from another Lender Party pursuant to this Section 2.13 may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender Party were the direct creditor of the Borrower in the amount of
such participation.
SECTION 2.14. Use of Proceeds. (a) The proceeds of the
Advances (other than the Acquisition Advances) and issuances of Letters of
Credit shall be available (and the Borrower agrees that it shall use such
proceeds and Letters of Credit) solely (i) to finance in part the
Recapitalization, (ii) to pay fees and expenses incurred in connection
therewith, (iii) to refinance all of the Debt of the Borrower in existence on
the date of the Initial Extension of Credit (other than the Surviving Debt of
the Borrower) and (iv) from time to time, to provide working capital and for
other general corporate purposes of the Parent Guarantor and its Subsidiaries.
(b) The proceeds of the Acquisition Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely to
finance all or a portion of the purchase price of the Investments permitted
pursuant to the provisions of Section 5.02(e)(viii).
SECTION 2.15. Defaulting Lenders. (a) In the event that, at
any time, (i) any Lender Party shall be a Defaulting Lender, (ii) such
Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the
Borrower shall be required to make any payment hereunder or under any other Loan
Document to or for the account of such Defaulting Lender, then the Borrower may,
so long as no Default shall occur or be continuing at such time and to the
fullest extent permitted by applicable law, set off and otherwise apply the
Obligation of the Borrower to make such payment to or for the account of such
Defaulting Lender against the obligation of such Defaulting Lender to make such
Defaulted Advance. In the event that, on any date, the Borrower shall so set off
and otherwise apply its obligation to make any such payment against the
obligation of such Defaulting Lender to make any such Defaulted Advance on or
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prior to such date, the amount so set off and otherwise applied by the Borrower
shall constitute for all purposes of this Agreement and the other Loan Documents
an Advance by such Defaulting Lender made on the date under the Facility
pursuant to which such Defaulted Advance was originally required to have been
made pursuant to Section 2.01. Such Advance shall be a Alternate Base Rate
Advance and shall be considered, for all purposes of this Agreement, to comprise
part of the Borrowing in connection with which such Defaulted Advance was
originally required to have been made pursuant to Section 2.01, even if the
other Advances comprising such Borrowing shall be Eurodollar Rate Advances on
the date such Advance is deemed to be made pursuant to this subsection (a). The
Borrower shall notify the Administrative Agent at any time the Borrower
exercises its right of set-off pursuant to this subsection (a) and shall set
forth in such notice (A) the name of the Defaulting Lender and the Defaulted
Advance required to be made by such Defaulting Lender and (B) the amount set off
and otherwise applied in respect of such Defaulted Advance pursuant to this
subsection (a). Any portion of such payment otherwise required to be made by the
Borrower to or for the account of such Defaulting Lender which is paid by the
Borrower, after giving effect to the amount set off and otherwise applied by the
Borrower pursuant to this subsection (a), shall be applied by the Administrative
Agent as specified in subsection (b) or (c) of this Section 2.15.
(b) In the event that, at any time, (i) any Lender Party shall
be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount
to the Administrative Agent or any of the other Lender Parties and (iii) the
Borrower shall make any payment hereunder or under any other Loan Document to
the Administrative Agent for the account of such Defaulting Lender, then the
Administrative Agent may, on its behalf or on behalf of such other Lender
Parties and to the fullest extent permitted by applicable law, apply at such
time the amount so paid by the Borrower to or for the account of such Defaulting
Lender to the payment of each such Defaulted Amount to the extent required to
pay such Defaulted Amount. In the event that the Administrative Agent shall so
apply any such amount to the payment of any such Defaulted Amount on any date,
the amount so applied by the Administrative Agent shall constitute for all
purposes of this Agreement and the other Loan Documents payment, to such extent,
of such Defaulted Amount on such date. Any such amount so applied by the
Administrative Agent shall be retained by the Administrative Agent or
distributed by the Administrative Agent to such other Lender Parties, ratably in
accordance with the respective portions of such Defaulted Amounts payable at
such time to the Administrative Agent and such other Lender Parties and, if the
amount of such payment made by the Borrower shall at such time be insufficient
to pay all Defaulted Amounts owing at such time to the Administrative Agent and
the other Lender Parties, in the following order of priority:
(i) first, to the Administrative Agent for any Defaulted
Amount then owing to the Administrative Agent; and
(ii) second, to any other Lender Parties for any Defaulted
Amounts then owing to such other Lender Parties, ratably in accordance with such
respective Defaulted Amounts then owing to such other Lender Parties.
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Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
(c) In the event that, at any time, (i) any Lender Party shall
be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted
Advance or a Defaulted Amount and (iii) the Borrower, the Administrative Agent
or any other Lender Party shall be required to pay or distribute any amount
hereunder or under any other Loan Document to or for the account of such
Defaulting Lender, then the Borrower or such other Lender Party shall pay such
amount to the Administrative Agent to be held by the Administrative Agent, to
the fullest extent permitted by applicable law, in escrow or the Administrative
Agent shall, to the fullest extent permitted by applicable law, hold in escrow
such amount otherwise held by it. Any funds held by the Administrative Agent in
escrow under this subsection (c) shall be deposited by the Administrative Agent
in an account with NationsBank, in the name and under the control of the
Administrative Agent, but subject to the provisions of this subsection (c). The
terms applicable to such account, including the rate of interest payable with
respect to the credit balance of such account from time to time, shall be
NationsBank's standard terms applicable to escrow accounts maintained with it.
Any interest credited to such account from time to time shall be held by the
Administrative Agent in escrow under, and applied by the Administrative Agent
from time to time in accordance with the provisions of, this subsection (c). The
Administrative Agent shall, to the fullest extent permitted by applicable law,
apply all funds so held in escrow from time to time to the extent necessary to
make any Advances required to be made by such Defaulting Lender and to pay any
amount payable by such Defaulting Lender hereunder and under the other Loan
Documents to the Administrative Agent or any other Lender Party, as and when
such Advances or amounts are required to be made or paid and, if the amount so
held in escrow shall at any time be insufficient to make and pay all such
Advances and amounts required to be made or paid at such time, in the following
order of priority:
(i) first, to the Administrative Agent for any amount then due
and payable by such Defaulting Lender to the Administrative Agent hereunder;
(ii) second, to any other Lender Parties for any amount then
due and payable by such Defaulting Lender to such other Lender Parties
hereunder, ratably in accordance with such respective amounts then due and
payable to such other Lender Parties; and
(iii) third, to the Borrower for any Advance then required to
be made by such Defaulting Lender pursuant to a Commitment of such Defaulting
Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such
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time under this Agreement and the other Loan Documents ratably in accordance
with the respective amounts of such Obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under
this Section 2.15 are in addition to other rights and remedies that the Borrower
may have against such Defaulting Lender with respect to any Defaulted Advance
and that the Administrative Agent or any Lender Party may have against such
Defaulting Lender with respect to any Defaulted Amount.
SECTION 2.16. Removal of Lender. In the event that any Lender
Party demands payment of costs or additional amounts pursuant to Section 2.10 or
Section 2.12 or asserts, pursuant to Section 2.10(d) that it is unlawful for
such Lender Party to make Eurodollar Rate Advances, then (subject to such Lender
Party's right to rescind such demand or assertion within 10 days after the
notice from the Borrower referred to below) the Borrower may, upon 20 days'
prior written notice to such Lender Party and the Administrative Agent, elect to
cause such Lender Party to assign its Advances and Commitments in full to one or
more Persons selected by the Borrower so long as (a) each such Person satisfies
criteria of an Eligible Assignee and is reasonably satisfactory to the
Administrative Agent, (b) such Lender Party receives payment in full in cash of
the outstanding principal amount of all Advances made by it and all accrued and
unpaid interest thereon and all other amounts due and payable to such Lender
Party as of the date of such assignment (including without limitation amounts
owing pursuant to Sections 2.10, 2.12, 2.15 and 9.04), and (c) such Lender Party
agrees to make such assignment, and each such Lender Party assignee agrees to
accept such assignment and to assume all obligations of such Lender Party
hereunder, in accordance with Section 9.07.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Extension of
Credit. The obligation of each Lender to make an Advance or of the Issuing Bank
to issue a Letter of Credit on the occasion of the Initial Extension of Credit
hereunder is subject to the satisfaction of the following conditions precedent
before or concurrently with the Initial Extension of Credit:
(a) The Recapitalization shall have been consummated strictly in
accordance with the terms of the Recapitalization Agreement, without any waiver
or amendment not consented to by the Lender Parties of any term, provision or
condition set forth therein, and in compliance with all applicable laws; the
aggregate purchase price for the Recapitalization, together with the amounts
necessary to (i) repay in full all of the Debt of the Borrower in existence on
the date of the Initial Extension of Credit (other than the Surviving Debt) and
(ii) pay all fees and expenses related to the Recapitalization, shall not exceed
$338,500,000.
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(b) The Recapitalization Agreement shall be in full force and effect.
(c) The Lender Parties shall be satisfied with the corporate and legal
structure and capitalization of each Loan Party and each of its Subsidiaries,
including the terms and conditions of the charter, bylaws and each class of
capital stock of each Loan Party and each such Subsidiary and of each agreement
or instrument relating to such structure or capitalization.
(d) The Parent Guarantor shall have received at least $91,415,000 in
gross cash proceeds from the sale of the Parent Guarantor Stock to the Equity
Investors, consisting of at least $73,815,000 from the issuance and sale of the
Parent Guarantor Common Stock and $17,600,000 from the issuance and sale of the
Parent Guarantor Preferred Stock; and the Lender Parties shall be satisfied with
the terms and conditions of all of the foregoing, including the certificate of
designation for the Parent Guarantor Preferred Stock.
(e) The Borrower shall have received at least $130,000,000 in gross
cash proceeds from the sale of the Subordinated Notes, and the Lender Parties
shall be satisfied with the terms and conditions of the Subordinated Note
Documents.
(f) The Lender Parties shall be satisfied that all of the Debt of the
Parent Guarantor and its Subsidiaries in existence on the date of the Initial
Extension of Credit, other than the Debt identified on Schedule 4.01(hh) hereto
(the "Surviving Debt"), has been or concurrently with the Initial Extension of
Credit hereunder will be prepaid, redeemed or defeased in full or otherwise
satisfied and extinguished and that all of the Surviving Debt shall be on terms
and conditions satisfactory to the Lender Parties.
(g) Before giving effect to the Recapitalization and the other
transactions contemplated by this Agreement, there shall have occurred no
Material Adverse Change since February 28, 1997.
(h) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i) could be
reasonably likely to have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of the Recapitalization, this
Agreement, any Note, any other Loan Document, any Related Document or the
consummation of the transactions contemplated hereby.
(i) The Borrower shall have paid all accrued fees and expenses of the
Administrative Agent and the Lender Parties (including the accrued fees and
expenses of counsel to the Administrative Agent and local counsel to the Lender
Parties).
(j) The Administrative Agent shall have received on or before the day
of the Initial Extension of Credit the following, each dated such day (unless
otherwise specified), in form and
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substance satisfactory to the Administrative Agent and the Lender Parties
(unless otherwise specified) and (except for the Notes) in sufficient copies for
each Lender Party:
(i) The Notes payable to the order of the Lenders.
(ii) Certified copies of the resolutions of the Board
of Directors of the Borrower, the Parent Guarantor and each other Loan Party
approving the Recapitalization, this Agreement, the Notes, each other Loan
Document and each Related Document to which it is or is to be a party, and of
all documents evidencing other necessary corporate action and governmental and
other third party approvals and consents, if any, with respect to the
Recapitalization, this Agreement, the Notes, each other Loan Document and each
Related Document.
(iii) A copy of the charter of the Borrower, the
Parent Guarantor and each other Loan Party and each amendment thereto, certified
(as of a date reasonably near the date of the Initial Extension of Credit) by
the Secretary of State of the jurisdiction of its incorporation thereof as being
a true and correct copy thereof.
(iv) A copy of a certificate of the Secretary of
State of the jurisdiction of incorporation of the Borrower, the Parent Guarantor
and each of the Loan Parties, dated reasonably near the date of the Initial
Extension of Credit, listing the certificate or articles of incorporation of
such Person and each amendment thereto on file in the office of such Secretary
of State and certifying that (A) such amendments are the only amendments to such
Person's certificate or articles of incorporation on file in its office, (B)
such Person has paid all franchise taxes (or the equivalent thereof) to the date
of such certificate and (C) such Person is duly organized and is in good
standing under the laws of the jurisdiction of its incorporation.
(v) A copy of the certificate of the Secretary of
State of each jurisdiction in which the Borrower, the Parent Guarantor or any of
the Loan Parties is qualified or licensed as a foreign corporation, except where
the failure to so qualify or be licensed, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect,
in each case dated reasonably near the date of the Initial Extension of Credit
and stating that such Person is duly qualified and in good standing as a foreign
corporation in such jurisdiction and has filed all annual reports required to be
filed, and has paid all franchise taxes (or the equivalent thereof) required to
be paid, in such jurisdiction to the date of such certificate.
(vi) A certificate of the Borrower, the Parent
Guarantor and each other Loan Party, signed on behalf of the Borrower, the
Parent Guarantor or such other Loan Party by its President or a Vice President
and its Secretary or any Assistant Secretary, dated the date of the Initial
Extension of Credit (the statements made in which certificate shall be true on
and as of the date of the Initial Extension of Credit), certifying as to (A) the
absence of any amendments to the charter of the Borrower, the Parent Guarantor
or such other Loan Party since the date of the Secretary of State's certificate
referred to in Section 3.01(j)(iv), or any steps taken by the
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board of directors (or persons performing similar functions) or the shareholders
of the Borrower, the Parent Guarantor or such other Loan Party to effect or
authorize any further amendment, supplement or other modification thereto; (B)
the accuracy and completeness of the bylaws of the Borrower, the Parent
Guarantor or such other Loan Party as in effect on the date on which the
resolutions of the board of directors (or persons performing similar functions)
of such Person referred to in clause (ii) of this Section 3.01(j) were adopted
and on the date of the Initial Extension of Credit (a copy of which shall be
attached to such certificate); (C) the due incorporation and good standing of
the Borrower, the Parent Guarantor or such other Loan Party as a Person
organized under the laws of the jurisdiction of its incorporation, and the
absence of any proceeding (either pending or contemplated) for the dissolution,
liquidation or other termination of the existence of such Person or any of their
respective Subsidiaries; (D) the absence of any change in the jurisdiction of
incorporation of the Borrower, the Parent Guarantor or such other Loan Party or,
except as part of the Recapitalization, (i) any merger, consolidation or other
similar transaction directly or indirectly involving the Borrower, the Parent
Guarantor or such other Loan Party or (ii) any issuance or sale of any shares of
capital stock of (or other ownership or profit interests in) the Borrower, the
Parent Guarantor or such other Loan Party, in each case since February 28, 1997;
(E) the accuracy in all material respects of the representations and warranties
made by the Borrower, the Parent Guarantor or such other Loan Party in the Loan
Documents to which it is or is to be a party as though made on and as of the
date of the Initial Extension of Credit, before and after giving effect to all
of the Borrowings and the issuance of all of the Letters of Credit to be made on
such date and to the application of proceeds, if any, therefrom; and (F) the
absence of any event occurring and continuing, or resulting from any of the
Borrowings or the issuance of any of the Letters of Credit to be made on the
date of the Initial Extension of Credit or the application of proceeds, if any,
therefrom, that would constitute a Default.
(vii) A certificate of the Secretary or an Assistant
Secretary of the Borrower, the Parent Guarantor and each other Loan Party
certifying the names and true signatures of the officers of the Borrower, the
Parent Guarantor or such other Loan Party authorized to sign this Agreement, the
Notes, each other Loan Document and each Related Document to which they are or
are to be parties and the other documents to be delivered hereunder and
thereunder.
(viii) A security agreement, in substantially the
form of Exhibit D hereto (together with each other security agreement delivered
pursuant to Section 5.01(o), in each case as amended, supplemented or otherwise
modified from time to time in accordance with its terms, the "Security
Agreement"), duly executed by the Parent Guarantor and the Borrower, together
with:
(A) certificates representing the Initial
Pledged Shares referred to therein, accompanied by undated stock powers, duly
executed in blank, and instruments evidencing the Initial Pledged Debt referred
to therein, duly indorsed in blank,
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(B) proper termination statements (Form
UCC-3 or a comparable form) under the Uniform Commercial Code of all
jurisdictions that the Administrative Agent may deem necessary or desirable in
order to terminate or amend existing liens on and security interests in the
Collateral described in the Security Agreement, in each case completed in a
manner satisfactory to the Lender Parties and duly executed by the appropriate
secured party,
(C) proper financing statements (Form UCC-1
or a comparable form) under the Uniform Commercial Code of all jurisdictions
that the Administrative Agent may deem necessary or desirable in order to
perfect and protect the liens and security interests created or purported to be
created under the Security Agreement, covering the Collateral described in the
Security Agreement, in each case completed in a manner satisfactory to the
Lender Parties and duly executed by the Parent Guarantor or the Borrower, as
applicable,
(D) completed requests for information,
dated on or before the date of the Initial Extension of Credit, listing all
effective financing statements filed in the jurisdictions referred to in clause
(C) above that name the Parent Guarantor or the Borrower as debtor, together
with copies of such
other financing statements,
(E) evidence of the insurance required by
the terms of the Security Agreement, and
(F) evidence that all of the other actions
(including, without limitation, the completion of all other recordings and
filings of or with respect to the Security Agreement) that the Administrative
Agent may deem necessary or desirable in order to perfect and protect the liens
and security interests created under the Security Agreement have been taken or
will be taken in accordance with the terms of the Loan Documents.
(ix) An intellectual property security agreement, in
substantially the form of Exhibit E hereto (together with each other
intellectual property security agreement delivered pursuant to Section 5.01(o),
in each case as amended, supplemented or otherwise modified from time to time in
accordance with its terms, the "Intellectual Property Security Agreement"), duly
executed by the Parent Guarantor and the Borrower, together with evidence that
all actions that the Administrative Agent may deem necessary or desirable in
order to perfect and protect the first priority liens and security interests
created under the Intellectual Property Security Agreement have been taken or
will be taken in accordance with the terms of the Loan Documents.
(x) Deeds of trust, trust deeds, mortgages, leasehold
mortgages and leasehold deeds of trust, in substantially the form of Exhibit F
hereto, covering the properties listed on Schedule 3.01(j)(x) (together with
each other mortgage delivered pursuant to Section 5.01(o), in each case as
amended, supplemented or otherwise modified from time to time in accordance with
their terms, the "Mortgages"), in each case duly executed by the Borrower,
together with:
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(A) evidence that counterparts of the
Mortgages have been duly recorded on or before the day of the Initial Extension
of Credit in all filing or recording offices that the Administrative Agent may
deem necessary or desirable in order to create a valid first and subsisting Lien
on the property described therein in favor of the Secured Parties and that all
filing and recording taxes and fees have been paid (or arrangements have been
made for the payment thereof promptly following the Initial Extension of Credit
in a manner satisfactory to the Administrative Agent),
(B) fully paid American Land Title
Association Lender's Extended Coverage title insurance policies (the "Mortgage
Policies") in form and substance, with endorsements and in amount acceptable to
the Administrative Agent, issued, coinsured and reinsured by title insurers
acceptable to the Administrative Agent, insuring the Mortgages to be valid first
and subsisting Liens on the property described therein, free and clear of all
defects (including, but not limited to, mechanics' and materialmen's Liens) and
encumbrances, other than Permitted Encumbrances, and providing for such other
affirmative insurance (including endorsements for future advances under the Loan
Documents and for mechanics' and materialmen's Liens) and such coinsurance and
direct access reinsurance as the Administrative Agent may deem necessary or
desirable,
(C) such consents and agreements of lessors
and other third parties, and such estoppel letters and other confirmations, as
the Administrative Agent may deem necessary or desirable,
(D) evidence of the insurance required by
the terms of the Mortgages, and
(E) evidence that all other action that the
Administrative Agent may deem necessary or desirable in order to create valid
first and subsisting Liens on the property described in the Mortgages has been
taken.
(xi) Certified copies of each of the Related
Documents, duly executed by the parties thereto and in form and substance
satisfactory to the Lender Parties, together with all agreements, instruments
and other documents delivered in connection therewith.
(xii) Such financial, business and other information
regarding each Loan Party and its Subsidiaries as the Lender Parties shall have
requested, including, without limitation, information as to possible contingent
liabilities, tax matters, environmental matters, obligations under Plans,
Multiemployer Plans and Welfare Plans, collective bargaining agreements and
other arrangements with employees, audited Consolidated financial statements of
the Parent Guarantor and its Subsidiaries as of, and for the period ended,
February 28, 1997, interim Consolidated financial statements of the Parent
Guarantor and its Subsidiaries as of, and for the period ended, October 4, 1997,
pro forma Consolidated financial statements of the Parent Guarantor and its
Subsidiaries (which, among other things, reflect estimated purchase price
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accounting adjustments in regard to the Recapitalization) and projections
prepared by management of the Parent Guarantor, in form and substance
satisfactory to the Lender Parties, of income statements and cash flow
statements on a monthly basis through February 28, 1998 and on an annual basis
for each year thereafter until the Term B Termination Date.
(xiii) Letters and certificates, in substantially the
form of Exhibit G-1, G-2 and G-3 hereto, attesting to the Solvency of the Parent
Guarantor and the Borrower, in the case of such certificates, individually, and,
in each case, together with its Subsidiaries, taken as a whole, immediately
before and immediately after giving effect to the Recapitalization and the other
transactions contemplated hereby, from the chief financial officer (or person
performing similar functions) of each of the Parent Guarantor and the Borrower
and from Appraisal Economics.
(xiv) An environmental assessment report, in form and
substance reasonably satisfactory to the Lender Parties, from EMG Inc., as to
any hazards, costs or liabilities under Environmental Laws to which any Loan
Party or any of its Subsidiaries may be subject, the amount and nature of which
and the Borrower's plans with respect to which shall be reasonably acceptable to
the Lender Parties, together with evidence, in form and substance reasonably
satisfactory to the Lender Parties, that all applicable Environmental Laws in
connection with the Recapitalization shall have been complied with.
(xv) A letter, in form and substance satisfactory to
the Administrative Agent, from the Parent Guarantor and the Borrower to Ernst &
Young LLP, its independent certified public accountants, advising such
accountants that the Administrative Agent and the Lender Parties have been
authorized to exercise all rights of the Parent Guarantor and the Borrower to
require such accountants to disclose any and all financial statements and any
other information of any kind that they may have with respect to the Parent
Guarantor and its Subsidiaries and directing such accountants to comply with any
reasonable request of the Administrative Agent or any Lender Party for such
information.
(xvi) Evidence of insurance naming the Administrative
Agent as insured and loss payee with such responsible and reputable insurance
companies or associations, and in such amounts and covering such risks, as is
satisfactory to the Lender Parties, including, without limitation, product
liability and business interruption insurance.
(xvii) Certified copies of each employment agreement
and other compensation arrangement with each executive officer of any Loan Party
or any of its Subsidiaries.
(xviii) A Borrowing Base Certificate.
(xix) One or more Notices of Borrowing for each
Borrowing to be made, and/or one or more Notices of Issuance for each Letter of
Credit to be issued, on the date of the Initial Extension of Credit.
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(xx) (A) A favorable opinion of Sullivan & Worcester,
counsel for the Parent Guarantor and the Borrower, in substantially the form of
Exhibit I-1 hereto, and addressing such other matters as any Lender Party
through the Administrative Agent may reasonably request, and (B) a letter from
Sullivan & Worcester, counsel for the Parent Guarantor and the Borrower,
addressed to the Administrative Agent and each of the Lender Parties and
otherwise in form and substance reasonably satisfactory to the Administrative
Agent, stating that the Administrative Agent and each such Lender Party may rely
upon the favorable opinion of such counsel being delivered in connection with
the issuance and sale of the Subordinated Notes, together with a copy of such
opinion (which shall be in form and substance satisfactory to the Lender
Parties).
(xxi) A favorable opinion of (A) Thrailkill, Harris &
Wood, PLC, local counsel to the Lender Parties in Tennessee, in substantially
the form of Exhibit I-2 hereto, and (B) Brown, Todd & Hayburn, local counsel to
the Lender Parties in Kentucky, in substantially the form of Exhibit I-3 hereto,
and, in either case, addressing such other matters as any Lender Party through
the Administrative Agent may reasonably request.
(xxii) A letter from Weil, Gotshal & Manges, special
counsel for the Parent Guarantor and the Borrower, addressed to the
Administrative Agent and each of the Lender Parties and otherwise in form and
substance reasonably satisfactory to the Administrative Agent, stating that the
Administrative Agent and each such Lender Party may rely upon the favorable
opinion of such counsel being delivered in connection with the issuance and sale
of the Subordinated Notes, together with a copy of such opinion (which shall be
in form and substance satisfactory to the Lender Parties).
(xxiii) A favorable opinion of Pennie & Edmonds LLP,
intellectual property counsel to the Lender Parties, in substantially the form
of Exhibit I-4 hereto, and addressing such other matters as any Lender Party
through the Administrative Agent may reasonably request.
(xxiv) A favorable opinion of Shearman & Sterling,
counsel for the Administrative Agent, in form and substance satisfactory to the
Administrative Agent.
SECTION 3.02. Conditions Precedent to Each Borrowing and
Issuance. The obligation of each Appropriate Lender to make an Advance (other
than a Letter of Credit Advance made by the Issuing Bank or a Working Capital
Lender pursuant to Section 2.03(c) and a Swing Line Advance made by a Working
Capital Lender pursuant to Section 2.02(b)) on the occasion of each Borrowing
(including the Initial Extension of Credit), and the obligation of the Issuing
Bank to issue a Letter of Credit (including the initial issuance of a Letter of
Credit hereunder) or to renew a Letter of Credit and the right of the Borrower
to request a Swing Line Borrowing, shall be subject to the further conditions
precedent that on the date of such Borrowing, issuance or renewal (a) the
following statements shall be true (and each of the giving of the applicable
Notice of Borrowing, Notice of Swing Line Borrowing, Notice of Issuance or
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Notice of Renewal and the acceptance by the Borrower of the proceeds of such
Borrowing or the issuance or renewal of such Letter of Credit, as the case may
be, shall constitute a representation and warranty by the Borrower that both on
the date of such notice and on the date of such Borrowing, issuance or renewal
such statements are true):
(i) the representations and warranties contained in each Loan Document
are correct in all material respects on and as of such date, before and after
giving effect to such Borrowing, issuance or renewal and to the application of
the proceeds therefrom, as though made on and as of such date, other than any
such representations or warranties that, by their terms, refer to a specific
date other than the date of such Borrowing, issuance or renewal, in which case
as of such specific date;
(ii) no event has occurred and is continuing, or would result from such
Borrowing, issuance or renewal or from the application of the proceeds, if any,
therefrom, that constitutes a Default; and
(iii) for each Working Capital Advance or Swing Line Advance made by
the Swing Line Bank or issuance or renewal of any Letter of Credit, the
aggregate Loan Values of all Eligible Collateral exceeds the aggregate principal
amount of (A) the Working Capital Advances, the Swing Line Advances and Letter
of Credit Advances to be outstanding plus (B) the aggregate Available Amount of
all Letters of Credit to be outstanding, after giving effect to such Advance,
issuance or renewal, respectively; and (b) the Administrative Agent shall have
received such other approvals, opinions or documents as any Appropriate Lender
through the Administrative Agent may reasonably request.
SECTION 3.03. Additional Conditions to Each Acquisition
Borrowing. The obligation of each Acquisition Lender to make an Acquisition
Advance on the occasion of each Acquisition Borrowing is, in addition to the
conditions set forth in Section 3.02, subject to the satisfaction of the
following conditions precedent that on the date of such Borrowing:
(a) the Administrative Agent shall have received a certificate of the
Borrower, signed by its president or chief financial officer (or person
performing similar functions) and dated the date of the Notice of Borrowing with
respect to the proposed Acquisition Borrowing, setting forth in reasonable
detail the proposed use of the proceeds of such Acquisition Borrowing;
(b) the Administrative Agent shall have received a certificate of the
chief financial officer (or person performing similar functions) or the
president of the Borrower, in form and substance satisfactory to the
Administrative Agent, certifying that after giving effect to such Acquisition
Borrowing, (i) the Borrower is Solvent and (ii) the Borrower is in compliance
with Section 5.02(e)(viii) (together with a schedule in form satisfactory to the
Administrative Agent of the computations used by the Borrower in determining
compliance therewith); and
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(c) the Administrative Agent shall have received on or before the day
of such Acquisition Borrowing evidence that all actions that the Administrative
Agent may deem necessary or desirable in order to perfect and protect the Liens
created under the Collateral Documents has been taken.
SECTION 3.04. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender Party shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lender Parties unless an
officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
Party prior to the Initial Extension of Credit specifying its objection thereto,
and if the Initial Extension of Credit consists of a Borrowing, such Lender
Party shall not have made available to the Administrative Agent such Lender
Party's ratable portion of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Parent
Guarantor and the Borrower. Each of the Parent Guarantor and the Borrower
represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed,
except where the failure to so qualify or be licensed is not reasonably likely
to have a Material Adverse Effect, and (iii) has all requisite corporate power
and authority (including, without limitation, all governmental licenses, permits
and other approvals) to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted. All of the
outstanding capital stock of the Borrower and Parent Guarantor has been validly
issued, is fully paid and non-assessable and is owned by the Parent Guarantor,
in the case of the Borrower, and by the Persons listed on Schedule II hereto in
the amounts specified on Schedule II hereto, in the case of the Parent
Guarantor, free and clear of all Liens, except those created under the
Collateral Documents.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Subsidiaries of each Loan Party, showing as of the date hereof (as
to each such Subsidiary) the jurisdiction of its incorporation, the number of
shares of each class of capital stock authorized, and the number outstanding, on
the date hereof and the percentage of the outstanding shares of each such class
owned (directly or indirectly) by such Loan Party and the number of shares
covered by all outstanding options, warrants, rights of conversion or purchase
and similar rights
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at the date hereof. All of the outstanding capital stock of all of such
Subsidiaries has been validly issued, is fully paid and non-assessable and is
owned by such Loan Party or one or more of its Subsidiaries free and clear of
all Liens, except those created under the Loan Documents or as disclosed in such
Schedule. Each such Subsidiary (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed,
except where the failure to so qualify or be licensed is not reasonably likely
to have a Material Adverse Effect, and (iii) has all requisite corporate power
and authority (including, without limitation, all governmental licenses, permits
and other approvals) to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted.
(c) The execution, delivery and performance by each Loan Party of this
Agreement, the Notes, each other Loan Document and each Related Document to
which it is or is to be a party, and the consummation of the Recapitalization
and the other transactions contemplated hereby, are within such Loan Party's
corporate powers, have been duly authorized by all necessary corporate action,
and do not (i) contravene such Loan Party's charter or bylaws, (ii) violate any
law (including, without limitation, the Securities Exchange Act of 1934), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award, (iii) conflict with or result in the breach of,
or constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting any
Loan Party, any of its Subsidiaries or any of their properties or (iv) except
for the Liens created under the Loan Documents, result in or require the
creation or imposition of any Lien upon or with respect to any of the properties
of any Loan Party or any of its Subsidiaries. No Loan Party or any of its
Subsidiaries is in violation of any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which is reasonably likely to have a
Material Adverse Effect.
(d) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for (i) the due execution, delivery, recordation, filing or
performance by any Loan Party of this Agreement, the Notes, any other Loan
Document or any Related Document to which it is or is to be a party, or for the
consummation of the Recapitalization or the other transactions contemplated
hereby, (ii) the grant by any Loan Party of the Liens granted by it pursuant to
the Collateral Documents, (iii) the perfection or maintenance of the Liens
created under the Collateral Documents (including the first priority nature
thereof) or (iv) the exercise by the Administrative Agent or any Lender Party of
its rights under the Loan Documents or the remedies in respect of the Collateral
pursuant to the Collateral Documents, except for the authorizations, approvals,
actions, notices and filings listed on Schedule 4.01(d), all those set forth on
Part A of Schedule 4.01(d) of which have been duly obtained, taken, given or
made and are in full force and effect or will be duly
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obtained, taken, given or made in accordance with the terms of such Schedule
and, thereafter, will be in full force and effect. All applicable waiting
periods in connection with the Recapitalization and the other transactions
contemplated hereby have expired without any action having been taken by any
competent authority restraining, preventing or imposing materially adverse
conditions upon the Recapitalization or the rights of the Loan Parties or their
Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien
on, any properties now owned or hereafter acquired by any of them.
(e) This Agreement has been, and each of the Notes, each other Loan
Document and each Related Document when delivered hereunder will have been, duly
executed and delivered by each Loan Party party thereto. This Agreement is, and
each of the Notes, each other Loan Document and each Related Document when
delivered hereunder will be, the legal, valid and binding obligation of each
Loan Party party thereto, enforceable against such Loan Party in accordance with
its terms.
(f) The Consolidated balance sheet of the Parent Guarantor and its
Subsidiaries as at February 28, 1997, and the related Consolidated statements of
income and cash flows of the Parent Guarantor and its Subsidiaries for the
Fiscal Year then ended, accompanied by an opinion of Ernst & Young LLP,
independent public accountants of the Parent Guarantor, and the interim
Consolidated balance sheet of the Parent Guarantor and its Subsidiaries as at
October 4, 1997, and the related Consolidated statements of income and cash
flows of the Parent Guarantor and its Subsidiaries for the seven months then
ended, duly certified by the chief financial officer (or person performing
similar functions) of the Parent Guarantor, copies of which have been furnished
to each Lender Party, fairly present, subject, in the case of said balance sheet
as at October 4, 1997, and said statements of income and cash flows for the
seven months then ended, to normal year-end audit adjustments, the Consolidated
financial condition of the Parent Guarantor and its Subsidiaries as at such
dates and the Consolidated results of the operations of the Parent Guarantor and
its Subsidiaries for the periods ended on such dates, all in accordance with
generally accepted accounting principles applied on a consistent basis. Since
February 28, 1997, there has been no Material Adverse Change.
(g) The pro forma Consolidated balance sheet of the Parent Guarantor
and its Subsidiaries as at October 4, 1997, and the related pro forma
Consolidated statements of income and cash flows of the Parent Guarantor and its
Subsidiaries for the seven months then ended, duly certified by the chief
financial officer (or person performing similar functions) of the Parent
Guarantor, copies of which have been furnished to each Lender Party, fairly
present the pro forma Consolidated financial condition of the Parent Guarantor
and its Subsidiaries as at such date and the pro forma Consolidated results of
operations of the Parent Guarantor and its Subsidiaries for the period ended on
such date, in each case giving effect to the Recapitalization and the other
transactions contemplated hereby.
(h) The projected Consolidated balance sheets, income statements and
cash flows statements of the Parent Guarantor and its Subsidiaries delivered to
the Lender Parties pursuant
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to Section 3.01(j)(xii) or 5.03(e) were prepared in good faith on the basis of
the assumptions stated therein, which assumptions were fair in the light of
conditions existing at the time of delivery of such projections, and
represented, at the time of delivery, each of the Parent Guarantor's and the
Borrower's best estimate of its future financial performance.
(i) Neither the Information Memorandum nor any other information,
exhibit or report furnished by or on behalf of any Loan Party to the
Administrative Agent or any Lender Party in connection with the negotiation of
the Loan Documents or pursuant to the terms of the Loan Documents contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements made therein, in light of the circumstances in
which any such statements were made, not misleading.
(j) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries, including any Environmental
Action, pending or threatened before any court, governmental agency or
arbitrator that (i) is reasonably likely to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of the
Recapitalization, this Agreement, any Note, any other Loan Document or any
Related Document or the consummation of the transactions contemplated hereby.
(k) No proceeds of any Advance or drawings under any Letter of Credit
will be used to acquire any equity security of a class that is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
(l) The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying Margin Stock, and no proceeds of any
Advance or any drawing under any Letter of Credit will be used to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
(m) Following application of the proceeds of each Advance or drawing
under each Letter of Credit, not more than 25% of the value of the assets
(either of the Borrower only or of the Borrower and its Subsidiaries on a
Consolidated basis) subject to the provisions of Section 5.02(a) or 5.02(d) or
subject to any restriction contained in any agreement or instrument between the
Borrower and any Lender Party or any Affiliate of any Lender Party relating to
Debt and within the scope of Section 6.01(e) will be Margin Stock.
(n) Set forth on Schedule 4.01(n) hereto is a complete and accurate
list of all Plans, Multiemployer Plans and Welfare Plans.
(o) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan that has resulted in or is reasonably expected to result in
a material liability of any Loan Party or any ERISA Affiliate.
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(p) As of the last annual actuarial valuation date, the funded current
liability percentage, as defined in Section 302(d)(8) of ERISA, of each Plan
exceeds 90%, and there has been no material adverse change in the funding status
of any such Plan since such date.
(q) Schedule B (Actuarial Information) to the most recent annual report
(Form 5500 Series) for each Plan, copies of which have been filed with the
Internal Revenue Service and furnished to the Lender Parties, is complete and
accurate and fairly presents the funding status of such Plan and, since the date
of such Schedule B, there has been no material adverse change in such funding
status.
(r) Neither any Loan Party nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan
that could reasonably be expected to result in any material liability of any
Loan Party or any ERISA Affiliates.
(s) Neither any Loan Party nor any ERISA Affiliate has been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of ERISA,
and no such Multiemployer Plan is reasonably expected to be in reorganization or
to be terminated, within the meaning of Title IV of ERISA.
(t) Neither the business nor the properties of any Loan Party or any of
its Subsidiaries are affected by any fire, explosion, accident, strike, lockout
or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or
of the public enemy or other casualty (whether or not covered by insurance) that
would be reasonably likely to have a Material Adverse Effect.
(u) Except as set forth on Schedule 4.01(u), the operations and
properties of each Loan Party and each of its Subsidiaries comply with all
applicable Environmental Laws and Environmental Permits except for
non-compliance that would not be reasonably likely to have a Material Adverse
Effect, all past non-compliance with such Environmental Laws and Environmental
Permits has been resolved without material ongoing obligations or costs, and, to
the knowledge of the Loan Parties after reasonable inquiry, no circumstances
exist that would be reasonably likely to (i) form the basis of an Environmental
Action against any Loan Party or any of its Subsidiaries or any of their
properties that could have a Material Adverse Effect or (ii) cause any such
property to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law that could have a Material Adverse
Effect.
(v) Except as set forth on Schedule 4.01(v), none of the properties
currently or formerly owned or operated by any Loan Party or any of its
Subsidiaries is listed or, to the knowledge of the Loan Parties after reasonable
inquiry, proposed for listing on the NPL or on the CERCLIS or any analogous
foreign, state or local list or, to the knowledge of the Loan Parties after
reasonable inquiry, is adjacent to any such property; to the knowledge of the
Loan Parties after reasonable inquiry, there are no and never have been any
underground or
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aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps
or lagoons in which Hazardous Materials are being or have been treated, stored
or disposed on any property currently owned or operated by any Loan Party or any
of its Subsidiaries or, on any property formerly owned or operated by any Loan
Party or any of its Subsidiaries during the time such property was owned or
operated by such Loan Party or Subsidiary; there is no asbestos or
asbestos-containing material on any property currently owned or operated by any
Loan Party or any of its Subsidiaries in a quantity or condition that would
reasonably be likely to result in a Material Adverse Effect; and Hazardous
Materials have not been released, discharged or disposed of on any property
currently owned or operated by any Loan Party or any of its Subsidiaries, or on
any property formerly owned or operated by any Loan Party or any of its
Subsidiaries during the time such property was owned or operated by such Loan
Party or Subsidiary, except releases, discharges or disposals that would not be
reasonably likely to result in a Material Adverse Effect.
(w) Neither any Loan Party nor any of its Subsidiaries is undertaking,
and has not completed, either individually or together with other potentially
responsible parties, any investigation or assessment or remedial or response
action relating to any actual or threatened release, discharge or disposal of
Hazardous Materials at any site, location or operation, either voluntarily or
pursuant to the order of any governmental or regulatory authority or the
requirements of any Environmental Law; and all Hazardous Materials generated,
used, treated, handled or stored at, or transported to or from, any property
currently or formerly owned or operated by any Loan Party or any of its
Subsidiaries which have been disposed of have been done so in a manner not
reasonably expected to result in a Material Adverse Effect.
(x) Neither any Loan Party nor any of its Subsidiaries is a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction that would be
reasonably likely to have a Material Adverse Effect.
(y) The Collateral Documents create a valid and perfected first
priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly taken. The Loan
Parties are the legal and beneficial owners of the Collateral free and clear of
any Lien, except for the liens and security interests created or permitted under
the Loan Documents.
(z) Each Loan Party and each of its Subsidiaries and Affiliates has
filed, has caused to be filed or has been included in all federal and state tax
returns and all other material tax returns (local, foreign or otherwise)
required to be filed and has paid all taxes, assessments, levies, fees and other
charges shown thereon (or on any assessments received by any such Person or of
which any such Person has been notified) to be due and payable, together with
applicable interest and penalties, except for any such taxes, assessments,
levies, fees and other charges the amount, applicability or validity of which is
being contested in good faith and by appropriate
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proceedings diligently conducted and with respect to which such Loan Party or
such Subsidiary, as the case may be, has established appropriate and adequate
reserves in accordance with GAAP.
(aa) Set forth on Schedule 4.01(aa) hereto is a complete and accurate
list, as of the date hereof, of each taxable year of each Loan Party and each of
its Subsidiaries and Affiliates for which federal income tax returns have been
filed and for which the expiration of the applicable statute of limitations for
assessment or collection has not occurred by reason of extension or otherwise
(each, an "Open Year").
(bb) As of the date hereof, no issues have been raised by the Internal
Revenue Service in any manner whatsoever, whether by proposed adjustment or
otherwise, with respect to the federal income tax liability of the Loan Parties
or any of their respective Subsidiaries and Affiliates for any Open Years. No
issues have been raised by the Internal Revenue Service in respect of Open Years
that, in the aggregate, would be reasonably likely to have a Material Adverse
Effect.
(cc) As of the date hereof, no issues have been raised by any state,
local or foreign taxing authority in any manner whatsoever, whether by proposed
adjustment or otherwise, with respect to the state, local and foreign tax
liability of the Loan Parties or any of their respective Subsidiaries and
Affiliates. No issues have been raised by such taxing authorities that, in the
aggregate, would be reasonably likely to have a Material Adverse Effect.
(dd) No "ownership change" as defined in Section 382(g) of the Internal
Revenue Code, and no event that would result in the application of the "separate
return limitation year" or "consolidated return change of ownership" limitations
under the federal income tax consolidated return regulations, has occurred with
respect to the Parent Guarantor or the Borrower since December 1, 1992, except
for the Recapitalization.
(ee) Neither any Loan Party nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended. Neither the making of any Advances,
nor the issuance of any Letters of Credit, nor the application of the proceeds
or repayment thereof by the Borrower, nor the consummation of the other
transactions contemplated hereby, will violate any provision of such Act or any
rule, regulation or order of the Securities and Exchange Commission thereunder.
(ff) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(gg) Set forth on Schedule 4.01(gg) hereto is a complete and accurate
list of all Debt of the Parent Guarantor and its Subsidiaries in existence on
the date of the Initial Extension of Credit (other than Surviving Debt), showing
as of the date hereof the principal amount outstanding thereunder.
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(hh) Set forth on Schedule 4.01(hh) hereto is a complete and accurate
list as of the date hereof of all Surviving Debt, showing, as of such date, each
Loan Party and/or each of its Subsidiaries party thereto, the principal amount
outstanding thereunder, the interest rate, if any, thereon, the scheduled
maturity date thereof and the amortization schedule, if any, therefor.
(ii) Set forth on Schedule 4.01(ii) hereto is a complete and accurate
list as of the date hereof of all real property owned by any Loan Party or any
of its Subsidiaries, showing, as of such date, the street address, county or
other relevant jurisdiction, state and record owner thereof. Each Loan Party or
such Subsidiary has good, marketable and insurable fee simple title to such real
property, free and clear of all Liens, other than Liens created or permitted by
the Loan Documents.
(jj) Set forth on Schedule 4.01(jj) hereto is a complete and accurate
list as of the date hereof of all leases of real property under which any Loan
Party or any of its Subsidiaries is the lessee, showing, as of such date, the
street address, county or other relevant jurisdiction, state, lessor and lessee.
Each such lease is, to the knowledge of such Loan Party, the legal, valid and
binding obligation of the lessor thereof, enforceable in accordance with its
terms.
(kk) Set forth on Schedule 4.01(kk) hereto is a complete and accurate
list as of the date hereof of all Investments (other than Investments in Cash
Equivalents) held by any Loan Party or any of its Subsidiaries, showing, as of
such date, the amount, obligor or issuer and maturity, if any, thereof.
(ll) Set forth on Schedule 4.01(ll) hereto is a complete and accurate
list as of the date hereof of all patents, trademarks, trade names, service
marks and copyrights, and all applications therefor and licenses thereof, of
each Loan Party or any of its Subsidiaries, showing, as of such date, the
jurisdiction in which registered, the registration number, the date of
registration and the expiration date.
(mm) All of the Subsidiaries of the Parent Guarantor constitute
"Restricted Subsidiaries" (as defined in the indenture for the Subordinated
Notes) for all purposes of the Subordinated Note Documents.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, each of the Parent Guarantor and the
Borrower will:
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(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property; provided, however, that neither the Parent
Guarantor nor any of its Subsidiaries shall be required to pay or discharge any
such tax, assessment, charge or claim that is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being maintained
in accordance with GAAP, unless and until any Lien resulting therefrom attaches
to its property and collection, execution, levy or foreclosure proceedings shall
have been commenced with respect thereto.
(c) Compliance with Environmental Laws. Comply, and cause each of its
Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew, and cause each
of its Subsidiaries to obtain and renew, all Environmental Permits material to
its operations and properties; and conduct, and cause each of its Subsidiaries
to conduct, any investigation, study, sampling and testing, and undertake any
cleanup, removal, remedial or other action necessary to remove and clean up all
Hazardous Materials from any of its properties, in accordance with (but only to
the extent required by) the requirements of all Environmental Laws; provided,
however, that neither the Parent Guarantor nor any of its Subsidiaries shall be
required to undertake any such cleanup, removal, remedial or other action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained in accordance
with GAAP with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Parent Guarantor or such Subsidiary
operates.
(e) Preservation of Corporate Existence, Etc. Preserve and maintain,
and cause each of its Subsidiaries to preserve and maintain, its existence,
legal structure, legal name, rights (charter and statutory), permits, licenses,
approvals, privileges and franchises; provided, however, that the Parent
Guarantor and its Subsidiaries may consummate any merger or consolidation
otherwise permitted under Section 5.02(c); and provided further, however, that
neither the Parent Guarantor nor any of its Subsidiaries shall be required to
preserve any right, permit, license, approval, privilege or franchise if the
board of directors of the Parent Guarantor or such Subsidiary shall determine in
good faith that the preservation thereof is no longer desirable in the conduct
of the business of the Parent Guarantor or such Subsidiary, as the case
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may be, and that the loss thereof could not reasonably be expected to have a
Material Adverse Effect.
(f) Visitation Rights. At any reasonable time and from time to time,
permit the Administrative Agent or any of the Lender Parties or any agents or
representatives thereof, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Parent
Guarantor and any of its Subsidiaries, and to discuss the affairs, finances and
accounts of the Parent Guarantor and any of its Subsidiaries with any of their
officers or directors and with their independent public accountants; provided
that, so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default
has occurred and is continuing, the Administrative Agent or such Lender Party
shall give the Borrower prior notice of its discussions with such independent
public accountants and the opportunity, at its option, to participate in such
discussions.
(g) Preparation of Environmental Reports. At the request of the
Administrative Agent from time to time but in any event not more than once in
any two-year period for any real property or any leasehold interest in real
property of the Borrower or any of its Subsidiaries following:
(i) the acquisition or proposed acquisition of such real property
interest (whether fee or leasehold);
(ii) the occurrence of any event or circumstance that causes the
Administrative Agent or any of the Lender Parties to reasonably believe that
Hazardous Materials may be present on such real property in any manner or
quantity that, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect; or
(iii) the occurrence and during the continuance of an Event of Default,
provide to the Lenders within 60 days after such request, at the expense of the
Borrower, an environmental site assessment report for each of the real
properties of the Borrower or any of its Subsidiaries described in such request,
prepared by an environmental consulting firm reasonably acceptable to the
Administrative Agent, indicating the presence or absence of Hazardous Materials
and the estimated cost of any compliance, removal or remedial action in
connection with any Hazardous Materials on such real properties. Without
limiting the generality of the immediately preceding sentence, if the
Administrative Agent determines at any time that a material risk exists that any
such report will not be provided within the time referred to above, the
Administrative Agent may retain, upon at least three Business Days' prior
written notice to the Borrower, an environmental consulting firm to prepare such
report at the reasonable expense of the Borrower, and the Borrower hereby
grants, and agrees to cause each of its Subsidiaries that owns any of the real
property described in such request to grant, at the time of such request, to the
Administrative Agent, the Lender Parties, such firm and any agents or
representatives
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thereof an irrevocable nonexclusive license, subject to the rights of tenants,
to enter onto any such real property to undertake such an assessment.
(h) Keeping of Books. Keep, and cause each of its Subsidiaries to keep,
proper books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of the Parent
Guarantor and each such Subsidiary in accordance with generally accepted
accounting principles in effect from time to time.
(i) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties that
are used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
(j) Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all obligations in respect of all leases of real property to
which the Borrower or any of its Subsidiaries is a party, keep such leases in
full force and effect and not allow such leases to lapse or be terminated or any
rights to renew such leases to be forfeited or cancelled, notify the
Administrative Agent of any default by any party with respect to any such leases
of which the Borrower or any such Subsidiary has knowledge and cooperate with
the Administrative Agent in all respects to cure any such default, and cause
each of its Subsidiaries to do so except, in any case, where the failure to do
so, either individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect.
(k) Performance of Related Documents. Perform and observe all of the
terms and provisions of each Related Document to be performed or observed by it,
maintain each such Related Document in full force and effect, enforce such
Related Document in accordance with its terms, take all such action to such end
as may be from time to time reasonably requested by the Administrative Agent
and, upon request of the Administrative Agent, make to each other party to each
such Related Document such demands and requests for information and reports or
for action as the Borrower is entitled to make under such Related Document.
(l) Transactions with Affiliates. Conduct, and cause each of its
Subsidiaries to conduct, all transactions otherwise permitted under the Loan
Documents with any of their Affiliates on terms that are fair and reasonable and
no less favorable to the Parent Guarantor or such Subsidiary than it would
obtain in a comparable arm's-length transaction with a Person not an Affiliate,
other than so long as no Default under Section 5.04, 6.01(a) or 6.01(f) has
occurred and is continuing, aggregate fees of up to $240,000 in any calendar
year payable in accordance with the terms of the Management Agreements, as in
effect on the date of this Agreement.
(m) Conditions Subsequent to the Date of the Initial Extension of
Credit. (i) As promptly as practicable after the date of the Initial Extension
of Credit, furnish to the Administrative Agent, acknowledgment copies or stamped
receipt copies of all of the Uniform Commercial Code termination statements or
the equivalent thereof referred to in Section 3.01(j)(viii)(B) and of all of the
Uniform Commercial Code financing statements or the equivalent thereof referred
to in Sections 3.01(j)(viii)(C).
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(ii) As promptly as practicable and in any event on or prior to January
21, 1998, (A) establish and thereafter maintain, and cause each of its
Subsidiaries party to (or required to be party to) any of the Collateral
Documents, if any, to establish and thereafter maintain, one or more Blocked
Accounts with NationsBank or one or more other banks selected by the Borrower or
the applicable Subsidiary and reasonably acceptable to the Administrative Agent
which have accepted the assignment of the Blocked Accounts maintained thereby to
the Administrative Agent pursuant to the terms of the Security Agreement and the
respective Blocked Account Letters referred to therein; and (B) on and after
January 21, 1998, cause all of the proceeds of the Collateral (including,
without limitation, all proceeds of Receivables) to be deposited directly into
one of the Blocked Accounts.
(n) Covenant to Give Security. Upon the request of the Administrative
Agent following the occurrence and during the continuance of a Default, and at
the expense of the Borrower, (i) within 10 days after such request, furnish to
the Administrative Agent a description of the real and personal properties of
the Borrower and its Subsidiaries in detail satisfactory to the Administrative
Agent, (ii) within 15 days after such request, duly execute and deliver to the
Administrative Agent mortgages, pledges, assignments and other security
agreements, as specified by and in form and substance satisfactory to the
Administrative Agent, securing payment of all the Obligations of the Borrower
under the Loan Documents and constituting Liens on all such properties, (iii)
within 30 days after such request, take whatever action (including, without
limitation, the recording of mortgages, the filing of Uniform Commercial Code
financing statements, the giving of notices and the endorsement of notices on
title documents) may be necessary or advisable in the reasonable opinion of the
Administrative Agent to vest in the Administrative Agent (or in any
representative of the Administrative Agent designated by it) valid and
subsisting Liens on the properties purported to be subject to the mortgages,
pledges, assignments and other security agreements delivered pursuant to this
Section 5.01(n), enforceable against all third parties in accordance with their
terms, (iv) within 60 days after such request, deliver to the Administrative
Agent a signed copy of a favorable opinion, addressed to the Administrative
Agent, of counsel for the Borrower acceptable to the Administrative Agent as to
the matters contained in clauses (i), (ii) and (iii) above, as to such
mortgages, pledges, assignments and other security agreements being legal, valid
and binding obligations of the Borrower and its Subsidiaries, enforceable in
accordance with their terms, and as to such other matters as the Administrative
Agent may reasonably request, (v) as promptly as practicable after such request,
deliver to the Administrative Agent Mortgage Policies as to each parcel of real
property subject to such request and (vi) at any time and from time to time,
promptly execute and deliver any and all further instruments and documents and
take all such other action as the Administrative Agent may deem desirable in
obtaining the full benefits of, or in preserving the Liens of, such security
agreements.
(o) Additional Loan Parties. Cause each newly organized or acquired
Subsidiary of the Parent Guarantor (whether direct or indirect), prior to or
concurrently with any Investment by any of the Loan Parties or any of their
Subsidiaries therein:
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(i) to execute and deliver to the Administrative Agent, on behalf of
the Secured Parties, (A) if such Subsidiary is a wholly owned U.S. Subsidiary or
wholly owned Foreign Subsidiary (other than a Foreign Corporation) of one or
more of the Loan Parties and their Subsidiaries, (1) a Security Agreement
Supplement, an IP Security Agreement Supplement and/or, if necessary or in the
reasonable opinion of the Administrative Agent desirable (and requested thereby)
to properly create and perfect a lien and security interest in the capital stock
(or other ownership or profit interests) in, or the property and assets of, such
Subsidiary, one or more other mortgages, security agreements or pledge
agreements (or other similar documents), in form and substance reasonably
satisfactory to the Lender Parties, and (2) a guaranty, in substantially the
form of Exhibit I hereto (as amended, supplemented or otherwise modified from
time to time in accordance with its terms, a "Subsidiary Guaranty"), (B) if such
Subsidiary is a Foreign Corporation or a non-wholly owned Subsidiary thereof,
such documentation as may be necessary or in the reasonable opinion of the
Administrative Agent desirable (and requested thereby) to properly create and
perfect a lien and security interest in the capital stock (or other ownership or
profit interests) in such Subsidiary as required under clause (iii) of this
Section 5.01(o) and (C) in each case, such other agreements, instruments,
certificates or documents as the Administrative Agent may reasonably request, in
each case in form and substance reasonably satisfactory to the Lender Parties;
(ii) if such Subsidiary is a wholly owned U.S. Subsidiary or wholly
owned Foreign Subsidiary (other than a Foreign Corporation) of one or more of
the Loan Parties and their Subsidiaries, such Subsidiary and the owners of all
of the capital stock (or other ownership or profit interests) therein shall have
taken or shall take all of the other actions that may be necessary or that the
Administrative Agent may reasonably deem desirable in order (A) to perfect and
protect any Liens granted under the Collateral Documents, the Security Agreement
Supplement, the IP Security Agreement Supplement and, if applicable, the other
mortgages, security agreements and pledge agreements referred to in clause (i)
of this Section 5.01(o) and (B) to enable the Administrative Agent and the
Lender Parties to exercise and enforce their rights and remedies under the Loan
Documents;
(iii) if such Subsidiary is a Foreign Corporation or a non-wholly owned
Subsidiary thereof, such Subsidiary and each of the Loan Parties that owns any
of the capital stock (or other ownership or profit interests) therein shall have
taken or shall take all of the other actions that may be necessary or that the
Administrative Agent may reasonably deem desirable and may request in order to
perfect and protect any Liens granted or intended to be granted under the
Collateral Documents in (A) if such Subsidiary is a Foreign Corporation, 66% of
the capital stock (or other ownership or profit interests) in such Subsidiary
entitled to vote (within the meaning of Treasury Regulation Section
1.956-2(c)(2) promulgated under the Internal Revenue Code) (the "Voting Equity
Interests") (on a fully diluted basis) or, if less, all of the Voting Equity
Interests in such Subsidiary owned by the Loan Parties, and all of the capital
stock (or other ownership or profit interests) in such Subsidiary not entitled
to vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2)
promulgated under the Internal Revenue Code) now or hereafter owned by the Loan
Parties; provided, however, that, if, as a result of any changes in
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the tax laws of the United States after the date of this Agreement, the pledge
by any of the Loan Parties of any additional capital stock (or other ownership
or profit interests) in such Foreign Corporation to the Administrative Agent, on
behalf of itself and the other Secured Parties, would not result in an increase
in the aggregate net consolidated tax liabilities of the Parent Guarantor and
its Subsidiaries, then, promptly after the changes in such laws, all such
additional capital stock (or other ownership or profit interests) therein shall
be pledged to the Administrative Agent, on behalf of the Secured Parties,
pursuant to the terms and conditions of the Collateral Documents and/or one or
more additional pledge agreements (or other similar documents), in form and
substance reasonably acceptable to the Lenders and (B) if such Subsidiary is a
non-wholly owned Subsidiary of one or more of the Loan Parties, all of the
capital stock (or other ownership or profit interests) therein owned by one or
more of the Loan Parties; and
(iv) upon the reasonable request of the Administrative Agent, signed
copies of one or more favorable opinions of special and appropriate local and/or
foreign counsel for such Subsidiary and, if appropriate, counsel for each of the
owners of the capital stock (or other ownership or profit interests) therein as
the Administrative Agent shall reasonably request, addressed to the
Administrative Agent, on behalf of the Secured Parties, and reasonably
acceptable to the Administrative Agent and each of the other Secured Parties, as
to the Subsidiary Guaranty, the Security Agreement Supplement, the IP Security
Agreement Supplement, the mortgages, the security agreements and/or the pledge
agreements (or other similar documents) referred to in clause (i) of this
Section 5.01(o) being the legal, valid and binding obligations of such
Subsidiary or such owners of the capital stock (or other ownership or profit
interests) therein, as the case may be, enforceable against such Subsidiary or
each such owner in accordance with their respective terms, as to the creation,
perfection and priority of the liens and security interests created or purported
to be created therein and as such other matters as the Administrative Agent, or
any of the Lender Parties through the Administrative Agent, may reasonably
request.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid, any Letter of Credit shall be outstanding or any Lender Party
shall have any Commitment hereunder, neither the Parent Guarantor nor the
Borrower will, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any
of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or
with respect to any of its properties of any character (including, without
limitation, accounts) whether now owned or hereafter acquired, or sign or file
or suffer to exist, or permit any of its Subsidiaries to sign or file or suffer
to exist, under the Uniform Commercial Code (or any similar law) of any
jurisdiction, a financing statement (or the equivalent thereof) that names the
Parent Guarantor or any of its Subsidiaries as debtor, or sign or suffer to
exist, or permit any of its Subsidiaries to sign or suffer to exist, any
security agreement authorizing any secured party thereunder to file any such
financing statement, or assign, or permit any of its Subsidiaries to assign, any
accounts or other right to receive income, excluding, however, from the
operation of the foregoing restrictions the following:
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(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) in the case of the Borrower and its
Subsidiaries, Liens existing on the date hereof and described on Schedule
5.02(a)(iii) hereto;
(iv) purchase money Liens upon or in real property or
equipment acquired or held by the Borrower or any of its Subsidiaries in the
ordinary course of business to secure the purchase price of such property or
equipment or to secure Debt incurred solely for the purpose of financing the
acquisition, construction or improvement of any such property or equipment to be
subject to such Liens, or Liens existing on any such property or equipment at
the time of its acquisition (other than any such Liens created in contemplation
of such acquisition that do not secure the purchase price of such real property
or equipment), or extensions, renewals or replacements of any of the foregoing
for the same or a lesser amount; provided, however, that no such Lien shall
extend to or cover any property other than the real property or equipment being
acquired, constructed or improved, and no such extension, renewal or replacement
shall extend to or cover any real property or equipment not theretofore subject
to the Lien being extended, renewed or replaced; and provided further that the
aggregate principal amount of the Debt secured by Liens permitted by this clause
(iv) shall not exceed the amount permitted under Section 5.02(b)(iv)(B) at any
time outstanding and that any such Debt shall not otherwise be prohibited by the
terms of the Loan Documents;
(v) Liens arising in connection with Capitalized
Leases permitted under Section 5.02(b)(iv)(C) and not otherwise prohibited by
the terms of the Loan Documents; provided that no such Lien shall extend to or
cover any property or assets other than the property and assets subject to such
Capitalized Leases;
(vi) Liens upon any of the property and assets (other
than any capital stock (or other ownership or profit interests) in any Person)
existing at the time such property or asset is purchased or otherwise acquired
by the Parent Guarantor or any of its Subsidiaries; provided that any such Lien
was not created in contemplation of such purchase or other acquisition and does
not extend to or cover any property or assets other than the property or asset
being so purchased or otherwise acquired; and provided further that any Debt or
other Obligations secured by such Liens shall otherwise be expressly permitted
under Section 5.02(b)(iv)(E) and shall not otherwise be prohibited under the
terms of the Loan Documents; and
(vii) Liens upon any of the property and assets
(other than any capital stock (or other ownership or profit interests) in any
Person) of a Person and its Subsidiaries existing at the time such Person is
merged into or consolidated with any of the Subsidiaries of the Parent
Guarantor, or becomes a Subsidiary of the Parent Guarantor, in accordance with
the terms of the Loan Documents; provided that such Lien was not created in
contemplation of such merger, consolidation or acquisition and does not extend
to or cover any property or assets other than
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property and assets of the Person and its Subsidiaries being so merged into or
consolidated with such Subsidiary or being acquired by the Parent Guarantor or
such Subsidiary, as the case may be; and provided further that any Debt or other
Obligations secured by such Lien shall otherwise be expressly permitted under
Section 5.02(b)(iv)(E) and shall not otherwise be prohibited under the terms of
the Loan Documents.
(b) Debt. Create, incur, assume or suffer to exist, or permit any of
its Subsidiaries to create, incur, assume or suffer to exist, directly or
indirectly, any Debt other than:
(i) in the case of the Parent Guarantor,
(A) Debt under the Loan Documents,
(B) Debt evidenced by the Parent Guarantor
Preferred Stock,
(C) the guarantee of the Subordinated Notes,
as in effect on the date of this Agreement,
(D) Debt evidenced by the Junior Exchange
Notes, and
(E) unsecured Debt to one or more sellers of
property and assets acquired by the Borrower or any of its Subsidiaries pursuant
to Section 5.02(e)(viii) in an aggregate principal amount not to exceed
$2,500,000 at any time outstanding, provided that, with respect to any such Debt
issued or incurred pursuant to this subclause (i)(E), (v) such Debt shall have a
stated maturity or redemption date that is at least one year after the scheduled
Term B Termination Date, (w) such Debt shall not be guaranteed or otherwise
supported by any of the other Loan Parties or any of their respective
Subsidiaries, (x) such Debt shall be subordinated to all of the Obligations of
the Parent Guarantor under or in respect of the Loan Documents to at least the
same extent as the Junior Exchange Notes, (y) the other terms and conditions of
such Debt (and of any agreement entered into and of any instrument issued in
connection therewith) shall be no less favorable to the Parent Guarantor or any
of its Subsidiaries or to the Administrative Agent and Lender Parties than the
terms of the Loan Documents and (z) immediately before and immediately after
giving pro forma effect to such Debt, no Default shall have occurred and be
continuing;
(ii) in the case of the Borrower,
(A) Debt under the Subordinated Notes in an
aggregate principal amount not to exceed $130,000,000; provided, however, that
the terms and conditions of any Subordinated Note Documents entered into after
the Initial Extension of Credit shall be reasonably satisfactory to the Required
Lenders, and
(B) Debt in respect of interest rate Hedge
Agreements entered into from time to time by the Borrower with counterparties
that are Lender Parties or Affiliates of any of the Lender
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Parties at the time any such interest rate Hedge Agreement is entered into in an
aggregate notional amount not to exceed (A) 50% of the aggregate Commitments
under the Term Facilities at the time any such interest rate Hedge Agreement is
entered into less (B) the aggregate notional amount of all interest rate Hedge
Agreements that constitute Investments made under Section 5.02(e)(v) at such
time, provided that all such interest rate Hedge Agreements shall be
nonspeculative in nature (including, without limitation, with respect to the
term and purpose thereof);
(iii) Debt owed to the Borrower by any Subsidiary of
the Borrower or Debt owed to a wholly owned U.S. Subsidiary of the Borrower by
the Borrower or any of its Subsidiaries, provided that any such Debt shall be
(A) evidenced by a promissory note, (B) pledged to the Administrative Agent, on
behalf of the Secured Parties, pursuant to the terms of the Security Agreement,
(C) subject to the applicable requirements of Section 5.02(e) and (D) in the
case of any such Debt owed by the Borrower, subordinated to all of the
Obligations of the Borrower under or in respect of the Loan Documents on terms
reasonably satisfactory to the Lender Parties; and
(iv) in the case of the Borrower and any of its
Subsidiaries,
(A) Debt under the Loan Documents,
(B) Debt secured by Liens permitted by
Section 5.02(a)(iv) in an aggregate principal amount not to exceed, when
aggregated with the principal amount of all Debt incurred under subclauses
(iv)(C) and (iv)(E) of this Section 5.02(b), $7,500,000 at any time outstanding,
(C) Capitalized Leases in an aggregate
principal amount not to exceed, when aggregated with the principal amount of all
Debt incurred under subclauses (iv)(B) and (iv)(E) of this Section 5.02(b),
$7,500,000 at any time outstanding,
(D) the Surviving Debt,
(E) Debt existing at the time that any
property or asset is purchased or otherwise acquired by the Borrower or any of
its Subsidiaries and secured solely by such property or asset, or that any
Person (other than Parent Guarantor or any of its Subsidiaries) is merged into
or consolidated with any of the Subsidiaries of the Parent Guarantor, or becomes
a Subsidiary of the Parent Guarantor, in accordance with the terms of the Loan
Documents, in an aggregate principal amount not to exceed the lesser of (1) the
amount of the aggregate Unused Acquisition Commitments at the time any such Debt
is incurred and (2) when aggregated with the principal amount of all Debt
incurred under subclauses (iv)(B) and (iv)(C) of this Section 5.02(b),
$7,500,000, provided that (x) no such Debt shall be incurred in contemplation of
any such purchase or other acquisition or any such merger, consolidation or
acquisition and (y) immediately before and immediately after giving pro forma
effect to such Debt, no Default shall have occurred and be continuing,
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(F) unsecured Debt not otherwise permitted
under this Section 5.02(b) incurred in the ordinary course of business and in an
aggregate amount not to exceed $5,000,000 at any time outstanding,
(G) unsecured Debt in respect of financing
provided to the Borrower by its insurance brokers solely for the purpose of
funding the insurance premiums of the Borrower and its Subsidiaries, provided,
however, that the aggregate amount of such Debt at any time outstanding shall
not exceed the amount of insurance premiums refundable upon termination of any
insurance premiums so financed,
(H) guarantees by the wholly owned
Subsidiaries of the Borrower of the Subordinated Notes, so long as (1) each such
Subsidiary is party to a Subsidiary Guaranty at or prior to the date on which it
enters into such guarantee and (2) the Obligations of such Subsidiary under such
guarantee are subordinated to the Obligations of such Subsidiary under the
applicable Subsidiary Guaranty to at least the same extent as the Obligations of
the Borrower under the Subordinated Note Documents are subordinated to the
Obligations of the Borrower under the Loan Documents, and
(I) indorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
(c) Merger, Etc. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so, except
that any Subsidiary of the Borrower may merge into or consolidate with any other
Subsidiary of the Borrower, provided that, in the case of any such merger or
consolidation, the Person formed by such merger or consolidation shall be a
wholly owned Subsidiary of the Borrower and immediately after giving effect
thereto, no event shall occur and be continuing that constitutes a Default.
(d) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose
of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
dispose of, any assets, or grant any option or other right to purchase, lease or
otherwise acquire any assets, except:
(i) in the case of the Borrower and its Subsidiaries, sales of
Inventory, and the licensing of patents and trademarks of the Borrower and its
Subsidiaries to manufacturers of their Inventory, in each case in the ordinary
course of its business;
(ii) in the case of the Borrower and its Subsidiaries, sales
or other disposals of obsolete or worn-out equipment or other assets in the
ordinary course of business;
(iii) in the case of the Borrower and its Subsidiaries, in a
transaction otherwise permitted under Section 5.02(c);
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(iv) sales of assets by the Borrower or any of its
Subsidiaries for cash and for fair value in an aggregate amount not to exceed
$2,500,000 in any Fiscal Year, provided that the Borrower shall, on the third
Business Day following the date of the receipt by the Borrower or any of its
Subsidiaries of the Net Cash Proceeds from such sale, prepay the Advances
pursuant to, and in the amount and order of priority set forth in, Section
2.06(b)(ii), and provided further that immediately before and immediately after
giving pro forma effect to any such sale, no Default shall have occurred and be
continuing; and
(v) sales or other transfers of assets from the Borrower or
any of its Subsidiaries to the Borrower or a wholly owned domestic Subsidiary of
the Borrower, provided that, prior to such sale or other transfer, such wholly
owned domestic Subsidiary shall be or shall become a party to the Security
Agreement and shall have executed and delivered to the Administrative Agent a
Subsidiary Guaranty.
(e) Investments in Other Persons. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments by the Parent Guarantor in the Borrower;
(ii) Investments by the Borrower and its Subsidiaries
outstanding on the date hereof and described on Schedule 4.01(kk) hereto;
(iii) loans and advances to employees in the ordinary course
of the business of the Borrower and its Subsidiaries as presently conducted in
an aggregate principal amount not to exceed $100,000 at any time outstanding;
(iv) Investments by the Borrower and its Subsidiaries in Cash
Equivalents;
(v) in the case of the Borrower, Investments in respect of
interest rate Hedge Agreements entered into from time to time by the Borrower
with one or more counterparties that are Lender Parties or Affiliates of any of
the Lender Parties at the time any such interest rate Hedge Agreement is entered
into in an aggregate notional amount not to exceed (A) 50% of the aggregate
Commitments under the Term Facilities at the time any such interest rate Hedge
Agreement is entered into less (B) the aggregate notional amount of any interest
rate Hedge Agreements that constitute Debt incurred under Section 5.02(b)(ii)(B)
at such time; provided that all such interest rate Hedge Agreements shall be
nonspeculative in nature (including, without limitation, with respect to the
term and purpose thereof);
(vi) Investments by (A) the Borrower in any of its wholly
owned U.S. Subsidiaries, (B) any of the wholly owned U.S. Subsidiaries of the
Borrower in the Borrower or any other wholly owned U.S. Subsidiary of the
Borrower or (C) the Borrower or any of its wholly owned U.S. Subsidiaries in one
or more non-wholly owned U.S. Subsidiaries of the
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Borrower or Foreign Subsidiaries in an aggregate amount for all such Investments
not to exceed $1,000,000 at any time;
(vii) Investments by the Borrower or any of its Subsidiaries
in their respective customers or suppliers in an aggregate amount for all such
Investments not to exceed $1,000,000 at any time;
(viii) Investments by the Borrower and its wholly owned U.S.
Subsidiaries in one or more newly acquired or created wholly owned U.S.
Subsidiaries thereof with the proceeds of the Acquisition Advances or capital
contributions made by, or the proceeds received from issuance and sale of
additional Parent Guarantor Stock to, one or more of the Equity Investors,
provided that, with respect to any such Investment made pursuant to this clause
(viii):
(1) any such newly acquired or created wholly owned
U.S. Subsidiary of the Borrower shall comply with all of the applicable
requirements of Section 5.01(o);
(2) any business acquired or invested in shall be in
the specialty tool business, the home heating and cooling products business, the
home security products business, the shed manufacturing business and/or the home
comfort products business;
(3) such newly acquired or created wholly owned U.S.
Subsidiary of the Borrower shall not have any material contingent liabilities
(as determined in good faith by the board of directors of the Borrower); and
(4) (x) immediately before and after giving pro forma
effect to such Investment, no Default shall have occurred and be continuing and
(y) immediately after giving effect to such Investment, the Parent Guarantor and
its Subsidiaries shall be in pro forma compliance with all of the covenants set
forth in Section 5.04, such compliance to be determined after giving effect to
all pro forma cost savings of the Parent Guarantor and its Subsidiaries to be
recognized as a result of such Investment and on the basis of the Consolidated
financial statements of the Parent Guarantor and its Subsidiaries most recently
delivered to the Lender Parties pursuant to Section 5.03(c) or 5.03(d) as though
such Investment had been made as of the beginning of the fiscal period covered
thereby, and all of the requirements set forth in this subclause (4) shall be
certified by the chief financial officer (or person performing similar
functions) of the Borrower in a certificate, in form and substance reasonably
satisfactory to the Administrative Agent, and delivered to the Administrative
Agent, on behalf of the Lender Parties, prior to making such Investment; and
(ix) the acceptance of promissory notes received as payment, in whole
or in part, of the purchase price of shares of the Parent Guarantor Common Stock
sold to officers, directors
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and employees of the Parent Guarantor and its Subsidiaries pursuant to Section
5.02(f)((i)(B) in an aggregate principal amount not to exceed $500,000 at any
time.
(f) Dividends, Etc. Declare or pay any dividends, or purchase, redeem,
retire, defease or otherwise acquire for value any of its capital stock or any
warrants, rights or options to acquire such capital stock, now or hereafter
outstanding, return any capital to its stockholders as such, make any
distribution of assets, capital stock, warrants, rights, options, obligations or
securities to its stockholders as such or issue or sell any capital stock or any
warrants, rights or options to acquire such capital stock, or permit any of its
Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to
purchase, redeem, retire, defease or otherwise acquire for value any capital
stock of the Parent Guarantor or any warrants, rights or options to acquire such
capital stock or to issue or sell any capital stock or any warrants, rights or
options to acquire such capital stock, except that, so long as no Default shall
have occurred and be continuing at the time of any action described in clauses
(i) through (iii) below or would result therefrom, (i) the Parent Guarantor may
(A) declare and pay dividends and distributions payable only in Parent Guarantor
Common Stock, (B) issue and sell shares of the Parent Guarantor Common Stock to
officers, directors and employees of the Parent Guarantor and its Subsidiaries
so long as (1) the gross proceeds received from any such issuance and sale are
at least equal to the fair market value of the shares being so issued and sold,
determined at the time of such issuance and sale, (2) all of the consideration
received from any such issuance and sale shall be in cash or in promissory notes
otherwise permitted to be accepted under Section 5.02(e)(ix), (3) such issuance
and sale would not result in a Change of Control and (4) the Borrower shall, on
the date of receipt of the Net Cash Proceeds from any such issuance and sale,
prepay the Advances pursuant to, and in the order or priority set forth in,
Section 2.06(b)(ii), (C) issue and sell additional shares of the Parent
Guarantor Stock so long as (1) the gross proceeds received from any such
issuance and sale are at least equal to the fair market value of the shares
being so issued and sold, determined at the time of such issuance and sale, (2)
all of the consideration received from any such issuance and sale shall be in
cash, (3) such issuance and sale would not result in a Change of Control and (4)
the Borrower shall, on the date of receipt of the Net Cash Proceeds from any
such issuance and sale, prepay the Advances pursuant to, and in the order or
priority set forth in, Section 2.06(b)(ii) and (D) repurchase shares of Parent
Guarantor Common Stock from its employees and former employees in an aggregate
amount not to exceed $500,000 in any Fiscal Year and (ii) the Borrower may
declare and pay dividends and distributions to the Parent Guarantor (A) in order
to permit the consummation of the Recapitalization, (B) to permit the repurchase
of shares referred to in the foregoing subclause (i)(C) in an aggregate amount
not to exceed $500,000 in any Fiscal Year and (C) for operating expenses in any
aggregate amount not to exceed $100,000 in any Fiscal Year and (iii) any
Subsidiary of the Borrower may (A) declare and pay cash dividends to the
Borrower and (B) declare and pay cash dividends to any other wholly owned
Subsidiary of the Borrower of which it is a Subsidiary.
(g) Change in Nature of Business. (i) In the case of the Parent
Guarantor, engage in any business or activity other than (A) holding the capital
stock of the Borrower and (B) entering into, and performing its obligations
under, the Loan Documents and the Related Documents and
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(ii) in the case of the Borrower and its Subsidiaries, engage in, or permit any
of its Subsidiaries to engage in, any business other than the specialty tool
business, the home heating and cooling products business, the home security
products business, the shed manufacturing business and/or the home comfort
products business.
(h) Charter Amendments. Amend, or permit any of its Subsidiaries to
amend, its certificate of incorporation or bylaws.
(i) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in (i) accounting policies or
reporting practices, except as required or permitted by generally accepted
accounting principles or (ii) Fiscal Year.
(j) Prepayments, Etc. of Debt. (i) Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or make
any payment in violation of any subordination terms of, any Debt, other than (A)
the prepayment of the Advances in accordance with the terms of this Agreement,
(B) so long as no Default shall have occurred and be continuing or shall occur
as a result thereof, the prepayment, redemption, purchase, defeasance or other
satisfaction of Debt of any Person existing at the time such Person is being
acquired by the Borrower or any of its Subsidiaries to the extent that such
prepayment, redemption, purchase, defeasance or other satisfaction is required
by the terms of such Debt; provided that the acquisition of such Person is
otherwise expressly permitted under the terms of the Loan Documents, and (C) so
long as no Default shall have occurred and be continuing or shall occur as a
result thereof, any regularly scheduled or required repayments or redemptions of
Surviving Debt; (ii) amend, modify or change in any manner any term or condition
of any Surviving Debt; or (iii) permit any of its Subsidiaries to do any of the
foregoing other than to prepay any Debt payable to the Borrower.
(k) Amendment, Etc. of Related Documents. Cancel or terminate any
Related Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any manner any term or condition of any
Related Document or give any consent, waiver or approval thereunder, waive any
default under or any breach of any term or condition of any Related Document,
agree in any manner to any other amendment, modification or change of any term
or condition of any Related Document or take any other action in connection with
any Related Document, in any such case, that would be materially more onerous to
the Parent Guarantor or the Borrower thereunder or that would impair the rights
or interests of the Administrative Agent or any Lender Party, or permit any of
its Subsidiaries to do any of the foregoing.
(l) Negative Pledge. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or
conditioning the creation or assumption of any Lien upon any of its property or
assets other than (i) in favor of the Secured Parties, (ii) in connection with
the Debt outstanding under the Subordinated Note Documents and (iii) any Debt
outstanding on the date any Person first becomes a Subsidiary of the
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Borrower; provided that such agreement was not created in contemplation of the
acquisition of such Person and does not extend to or cover any property or
assets other than property and assets of the Person becoming such Subsidiary.
(m) Partnerships, Etc. Become a general partner in any general or
limited partnership or joint venture, or permit any of its Subsidiaries to do
so, other than any Subsidiary the sole assets of which consist of its interest
in such partnership or joint venture.
(n) Speculative Transactions. Engage, or permit any of its Subsidiaries
to engage, in any transaction involving commodity options or futures contracts
or any similar speculative transactions (including, without limitation,
take-or-pay contracts) except for (i) the interest rate Hedge Agreement existing
on the date of this Agreement and set forth on Schedule 4.01(kk) hereto and (ii)
interest rate Hedge Agreements permitted under Section 5.02(b)(ii)(B) or
5.02(e)(v).
(o) Capital Expenditures. Make, or permit any of its Subsidiaries to
make, any Capital Expenditures that would cause the aggregate of all such
Capital Expenditures made by the Borrower and its Subsidiaries in any Fiscal
Year set forth below to exceed the sum of (i) the amount of Excess Cash Flow for
the immediately preceding Fiscal Year not required to be applied to the
prepayment of Advances under Section 2.06(b)(i) and (ii) the amount set forth
below for such Fiscal Year.
Fiscal Year Ending In Amount
--------------------- ------
1999 $4,000,000
2000 4,000,000
2001 4,000,000
2002 4,000,000
2003 4,000,000
2004 4,000,000
In addition to the amounts set forth in clauses (i) and (ii) above, if, at the
end of any Fiscal Year set forth above, the amount specified above for such
Fiscal Year exceeds the amount of Capital Expenditures made by the Borrower and
its Subsidiaries during such Fiscal Year (the amount of such excess being the
"Excess Amount"), the Borrower and its Subsidiaries shall be entitled to make
additional Capital Expenditures in the succeeding Fiscal Year in an amount equal
to the lesser of (i) the Excess Amount and (ii) the amount specified in clause
(ii) above for such prior Fiscal Year.
SECTION 5.03. Reporting Requirements. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any
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Commitment hereunder, the Parent Guarantor and/or Borrower will furnish to the
Lender Parties:
(a) Default Notice. As soon as possible and in any event within two
Business Days after any Loan Party or any senior officer thereof has knowledge
of the occurrence of each Default or any event, development or occurrence
reasonably likely to have a Material Adverse Effect continuing on the date of
such statement, a statement of the chief financial officer (or person performing
similar functions) of the Borrower setting forth details of such Default and the
action that the Borrower has taken and proposes to take with respect thereto.
(b) Monthly Financials. As soon as available and in any event within 30
days after the end of each month, a Consolidated balance sheet of the Parent
Guarantor and its Subsidiaries as of the end of such month, and Consolidated
statements of income and cash flows of the Parent Guarantor and its Subsidiaries
for the period commencing at the end of the previous month and ending with the
end of such month, and Consolidated statements and cash flows of the Parent
Guarantor and its Subsidiaries for the period commencing at the end of the
previous Fiscal Year and ending with the end of such month, setting forth in
each case in comparative form the corresponding figures for the corresponding
month of the immediately preceding Fiscal Year, all in reasonable detail and
duly certified by the chief financial officer (or person performing similar
functions) of the Parent Guarantor.
(c) Quarterly Financials. As soon as available and in any event within
45 days after the end of each of the first three quarters of each Fiscal Year, a
Consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of
the end of such quarter, and Consolidated statements of income and cash flows of
the Parent Guarantor and its Subsidiaries for the period commencing at the end
of the previous quarter and ending with the end of such quarter, and
Consolidated statements of income cash flows of the Parent Guarantor and its
Subsidiaries for the period commencing at the end of the previous Fiscal Year
and ending with the end of such quarter, setting forth in each case in
comparative form the corresponding figures for the corresponding period of the
immediately preceding Fiscal Year, all in reasonable detail and duly certified
(subject to normal year-end audit adjustments) by the chief financial officer
(or person performing similar functions) of the Parent Guarantor as having been
prepared in accordance with GAAP, together with (i) a certificate of said
officer stating that no Default has occurred and is continuing or, if a Default
has occurred and is continuing, a statement as to the nature thereof and the
action that the Parent Guarantor or the Borrower, as the case may be, has taken
and proposes to take with respect thereto and (ii) a schedule in form
satisfactory to the Administrative Agent of the computations used by the Parent
Guarantor and the Borrower in determining compliance with the covenants
contained in Sections 5.02(o) and 5.04, provided that, in the event of any
change in GAAP used in the preparation of such financial statements, the Parent
Guarantor shall also provide, if necessary for the determination of compliance
with Section 5.02(o) and/or 5.04, a statement of reconciliation conforming such
financial statements to GAAP.
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(d) Annual Financials. As soon as available and in any event within 90
days after the end of each Fiscal Year, a copy of the annual audit report for
such year for the Parent Guarantor and its Subsidiaries, including therein a
Consolidated balance sheet of the Parent Guarantor and its Subsidiaries as of
the end of such Fiscal Year and Consolidated statements of income and cash flows
of the Parent Guarantor and its Subsidiaries for such Fiscal Year, in each case
accompanied by an opinion acceptable to the Required Lenders of Ernst & Young
LLP or other independent public accountants of recognized national standing or
otherwise acceptable to the Required Lenders, together with (i) a schedule in
form satisfactory to the Administrative Agent of the computations used by such
accountants in determining, as of the end of such Fiscal Year, compliance with
the covenants contained in Sections 5.02(o) and 5.04, provided that, in the
event of any change in GAAP used in the preparation of such financial
statements, the Parent Guarantor shall also provide, if necessary for the
determination of compliance with Section 5.02(o) or 5.04, a statement of
reconciliation conforming such financial statements to GAAP and (iii) a
certificate of the chief financial officer (or person performing similar
functions) of the Parent Guarantor stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a statement as to
the nature thereof and the action that the Parent Guarantor or the Borrower, as
the case may be, has taken and proposes to take with respect thereto.
(e) Annual Projections. As soon as available and in any event no later
than 30 days after the end of each Fiscal Year, projections prepared by
management of the Parent Guarantor, in form satisfactory to the Administrative
Agent, of balance sheets, income statements and cash flow statements on a
monthly basis for the Fiscal Year following such Fiscal Year then ended and on
an annual basis for each Fiscal Year thereafter until the Term B Termination
Date.
(f) ERISA Events and ERISA Reports. Promptly and in any event within 10
days after any Loan Party or any ERISA Affiliate knows or has reason to know
that any ERISA Event has occurred, a statement of the chief financial officer
(or person performing similar functions) of the Parent Guarantor or Borrower
describing such ERISA Event and the action, if any, that such Loan Party or such
ERISA Affiliate has taken and proposes to take with respect thereto and (ii) on
the date any records, documents or other information must be furnished to the
PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such
records, documents and information.
(g) Plan Terminations. Promptly and in any event within two Business
Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of
each notice from the PBGC stating its intention to terminate any Plan or to have
a trustee appointed to administer any Plan.
(h) Actuarial Reports. Promptly upon receipt thereof by any Loan Party
or any ERISA Affiliate, a copy of the annual actuarial valuation report for each
Plan the funded current liability percentage (as defined in Section 302(d)(8) of
ERISA) of which is less than 90% or the unfunded current liability of which
exceeds $5,000,000.
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(i) Multiemployer Plan Notices. Promptly and in any event within five
Business Days after receipt thereof by any Loan Party or any ERISA Affiliate
from the sponsor of a Multiemployer Plan, copies of each notice concerning (i)
the imposition of Withdrawal Liability by any such Multiemployer Plan, (ii) the
reorganization or termination, within the meaning of Title IV of ERISA, of any
such Multiemployer Plan or (iii) the amount of liability incurred, or that may
be incurred, by such Loan Party or any ERISA Affiliate in connection with any
event described in clause (i) or (ii) above.
(j) Litigation. Promptly after the commencement thereof, notice of all
actions, suits, investigations, litigation and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the
type described in Section 3.01(h).
(k) Securities Reports. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports that any Loan
Party or any of its Subsidiaries sends to its public stockholders, copies of all
regular, periodic and special reports, and all registration statements, that any
Loan Party or any of its Subsidiaries files with the Securities and Exchange
Commission or any governmental authority that may be substituted therefor, or
with any national securities exchange, and copies of all private placement or
offering memoranda pursuant to which securities of any Loan Party or any of its
Subsidiaries that are exempt from registration under the Securities Act are
proposed to be issued and sold thereby.
(l) Creditor Reports. Promptly after the furnishing or receipt thereof,
copies of any statement or report furnished to or received by any other holder
of the securities of any Loan Party or any of its Subsidiaries pursuant to the
terms of any indenture, loan or credit or similar agreement with amounts
outstanding or having commitments to extend credit in an aggregate principal
amount of at least $1,000,000 (including, without limitation, any amendments,
waivers or consents given or requested in respect thereof, any notices of
default, acceleration or redemption delivered thereunder, any designations of
Subsidiaries thereof as "Unrestricted Subsidiaries" or the equivalent thereof
under the terms thereof, and any compliance certificates or fairness opinions
delivered in connection therewith) and not otherwise required to be furnished to
the Lender Parties pursuant to any other clause of this Section 5.03.
(m) Agreement Notices. Promptly upon the furnishing or receipt thereof,
copies of all notices, requests and other documents received by any Loan Party
or any of its Subsidiaries under or pursuant to any Related Document related to
any breach or default by any party thereto or any other event that could
reasonably be expected to have a Material Adverse Effect, and copies of any
amendment, modification or waiver of any provision of any Related Document and,
from time to time upon request by the Administrative Agent, such information and
reports regarding the Related Documents as the Administrative Agent may
reasonably request.
(n) Revenue Agent Reports. Within 10 days after receipt thereof, copies
of all Revenue Agent Reports (Internal Revenue Service Form 886), or other
written proposals of the
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Internal Revenue Service, that propose, determine or otherwise set forth
positive adjustments to the federal income tax liability of the affiliated group
(within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which
the Parent Guarantor or the Borrower is a member aggregating $2,500,000 or more.
(o) Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
non-compliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit that could reasonably be expected to
(i) have a Material Adverse Effect or (ii) cause any property described in the
Mortgages to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law that could reasonably be expected to
have a Material Adverse Effect.
(p) Real Property. As soon as available and in any event within 30 days
after the end of each Fiscal Year, a report supplementing Schedules 4.01(ii) and
4.01(jj) hereto, including an identification of all real and leased property
disposed of by the Borrower or any of its Subsidiaries during such Fiscal Year,
a list and description (including the street address, county or other relevant
jurisdiction, state, record owner and book value thereof, and in the case of
leases of property, lessor and lessee thereof) of all real property acquired or
leased by the Borrower or any of its Subsidiaries during such Fiscal Year and a
description of such other changes in the information included in such Schedules
as may be necessary for such Schedules to be accurate and complete.
(q) Insurance. As soon as available and in any event within 30 days
after the end of each Fiscal Year, a report summarizing the insurance coverage
(specifying type, amount and carrier) in effect for the Borrower and its
Subsidiaries and containing such additional information as any Lender Party
(through the Administrative Agent) may reasonably specify.
(r) Borrowing Base Certificate. As soon as available and in any event
within 15 days after the end of each fiscal month, a Borrowing Base Certificate,
as at the end of the previous month (or the previous week, if furnished more
often than monthly), certified by the chief financial officer (or person
performing similar functions) of the Borrower; provided, however, that for the
months of June, July, August and September in each year, a Borrowing Base
Certificate may be delivered on a weekly basis.
(s) Other Information. Such other information respecting the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Loan Party or any of its Subsidiaries as any Lender Party
(through the Administrative Agent) may from time to time reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
Party shall have any Commitment hereunder, the Parent Guarantor will:
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(a) Total Leverage Ratio. Maintain a Total Leverage Ratio as of the
last day of each Measurement Period of not more than the amount set forth below
for each Measurement Period set forth below:
Measurement Period
Ending In Ratio
- - - - --------- -----
February 1998 6.25:1
May 1998 6.25:1
August 1998 6.25:1
November 1998 6.25:1
February 1999 6.00:1
May 1999 5.85:1
August 1999 5.85:1
November 1999 5.85:1
February 2000 5.25:1
May 2000 5.25:1
August 2000 5.25:1
November 2000 5.25:1
February 2001 4.50:1
May 2001 4.50:1
August 2001 4.50:1
November 2001 4.50:1
February 2002 and 4.25:1
thereafter
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(b) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio
as of the last day of each Measurement Period of not less than the amount set
forth below for each Measurement Period set forth below:
Measurement Period
Ending In Ratio
- - - - --------- -----
February 1998 1.25:1
May 1998 1.25:1
August 1998 1.25:1
November 1998 1.25:1
February 1999 1.25:1
May 1999 1.25:1
August 1999 1.25:1
November 1999 1.25:1
February 2000 1.25:1
May 2000 and 1.30:1
thereafter
(c) Interest Coverage Ratio. Maintain an Interest Coverage Ratio as of
the last day of each Measurement Period of not less than the amount set forth
below for each Measurement Period set forth below:
Measurement Period
Ending In Ratio
February 1998 1.75:1
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May 1998 1.75:1
August 1998 1.75:1
November 1998 1.75:1
February 1999 1.75:1
May 1999 1.85:1
August 1999 1.85:1
November 1999 2.00:1
February 2000 2.00:1
May 2000 2.25:1
August 2000 2.25:1
November 2000 and 2.50:1
thereafter
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) (i) the Borrower shall fail to pay any principal of any Advance
when the same shall become due and payable or (ii) the Borrower shall fail to
pay any interest on any Advance, or any Loan Party shall fail to make any other
payment under any Loan Document, in each case under this clause (ii) within
three Business Days after the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to have
been incorrect in any material respect when made; or
(c) any Loan Party shall fail to perform or observe any term, covenant
or agreement contained in Section 2.14, 5.01(e), 5.01(f), 5.01(g), 5.01(l),
5.01(m), 5.01(n) or 5.01(o), 5.02, 5.03 or 5.04; or
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(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or observed
if such failure shall remain unremedied for 30 days; or
(e) (i) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect of
one or more items of Debt of the Loan Parties and their Subsidiaries (excluding
Debt outstanding hereunder) that is outstanding in an aggregate principal or
notional amount of at least $3,500,000 when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreements or instruments relating to all such Debt; or
(ii) any other event shall occur or condition shall exist under the agreements
or instruments relating to one or more items of Debt of the Loan Parties and
their Subsidiaries (excluding Debt outstanding hereunder) that is outstanding in
an aggregate principal or notional amount of at least $3,500,000, and such other
event or condition shall continue after the applicable grace period, if any,
specified in all such agreements or instruments, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt or otherwise to cause, or to permit the holder thereof to cause, such
Debt to mature; or (iii) one or more items of Debt of the Loan Parties and their
Subsidiaries (excluding Debt outstanding hereunder) that is outstanding in an
aggregate principal or notional amount of at least $3,500,000 shall be declared
to be due and payable or required to be prepaid or redeemed (other than by a
regularly scheduled or required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be
required to be made, in each case prior to the stated maturity thereof; or
(f) any Loan Party or any of the Material Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against any
Loan Party or any of the Material Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it) that is being diligently contested by it in good
faith, either such proceeding shall remain undismissed or unstayed for a period
of 45 days or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or any
substantial part of its property) shall occur; or any Loan Party or any of the
Material Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (f); or
(g) one or more judgments or orders for the payment of money in excess
of $3,500,000 shall be rendered against any Loan Party or any of its
Subsidiaries and either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or
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order or (ii) there shall be any period of 15 consecutive days during which a
stay of enforcement of any such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect; or
(h) one or more nonmonetary judgments or orders shall be rendered
against any Loan Party or any of its Subsidiaries that is reasonably likely to
have a Material Adverse Effect, and there shall be any period of 10 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(i) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 or 5.01(o) shall for any reason cease to be valid and binding on
or enforceable against any Loan Party intended to be a party to it, or any such
Loan Party shall so state in writing; or
(j) any Collateral Document after delivery thereof pursuant to Section
3.01 or 5.01(o) shall for any reason (other than pursuant to the terms thereof)
cease to create a valid and perfected first priority lien on and security
interest in the Collateral purported to be covered thereby; or
(k) (i) the Childs Investors shall at any time for any reason cease to
be the record and beneficial owner of the number of shares of Voting Stock
representing at least 40% of the combined voting power of all of the Voting
Stock of the Parent Guarantor (on a fully diluted basis); (ii) any "person" or
"group" (each as used in Section 13(d)(3) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of (A) Voting
Stock in the Parent Guarantor (including through securities convertible into or
exchangeable for such Voting Stock) representing a percentage of the combined
voting power of all of the Voting Stock in the Parent Guarantor (on a fully
diluted basis) that is equal to or greater than the percentage of such combined
voting power legally and beneficially owned by the Childs Investors (on a fully
diluted basis) or (B) shares of capital stock (or other ownership or profit
interests) in the Parent Guarantor representing a percentage of the capital
stock (or other ownership or profit interests) in the Parent Guarantor (on a
fully diluted basis) outstanding at such time that is equal to or greater than
the aggregate shares of capital stock (or other ownership or profit interests)
in the Parent Guarantor legally and beneficially owned by the Childs Investors
(on a fully diluted basis) at such time; (iii) any Person or two or more Persons
acting in concert other than the Childs Investors shall have acquired by
contract or otherwise, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or their acquisition of the power to
exercise, directly or indirectly, a controlling influence over the management or
policies of the Parent Guarantor; (iv) (A) Childs shall cease to have the
ability to appoint at least one-half of the members of the board of directors of
the Parent Guarantor or (ii) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) other
than Childs shall otherwise acquire the ability, directly or indirectly, to
elect a majority of the board of directors of the Parent Guarantor; or (v) with
respect to any pledge or other security agreement covering all or any portion of
the shares of capital stock of (or other
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ownership or profit interests in) the Parent Guarantor that are owned
beneficially and of record by any of the Equity Investors or their nominees
(other than up to 40% of the issued and outstanding capital stock of (or other
ownership or profit interests in) the Parent Guarantor (on a fully diluted
basis)), any secured party or pledgee thereunder shall become the holder of
record of any such shares (except in the case of a registration of the pledge of
such shares (or other interests) to such secured party or pledgee solely in its
capacity as a pledgee) or shall receive dividends or other cash or cash
equivalent distributions (including, without limitation, stock repurchases) in
respect thereof, or shall proceed to exercise voting or other consensual rights
in respect thereof (whether by proxy, voting or other similar arrangement or
otherwise), or shall otherwise commence to realize upon such shares (or other
interests); or
(l) the Parent Guarantor shall fail to own 100% of the capital stock of
the Borrower; or
(m) any ERISA Event shall have occurred with respect to a Plan and the
sum (determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans with
respect to which an ERISA Event shall have occurred and then exist (or the
liability of the Loan Parties and the ERISA Affiliates related to such ERISA
Event) exceeds $3,500,000; or
(n) any Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to
such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Loan Parties and the
ERISA Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $3,500,000 or requires payments exceeding $1,000,000 per
annum; or
(o) any Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
and as a result of such reorganization or termination the aggregate annual
contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan year in which
such reorganization or termination occurs by an amount exceeding $1,000,000;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the obligation of each Appropriate Lender to make Advances (other than
Letter of Credit Advances by the Issuing Bank or a Working Capital Lender
pursuant to Section 2.03(c) and Swing Line Advances by a Working Capital Lender
pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit
to be terminated, whereupon the same shall forthwith terminate, and (ii) shall
at the request, or may with the consent, of the Required Lenders, by notice to
the Borrower, declare the
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Notes, all interest thereon and all other amounts payable under this Agreement
and the other Loan Documents to be forthwith due and payable, whereupon the
Notes, all such interest and all such amounts shall become and be forthwith due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Borrower; provided, however,
that, in the event of an actual or deemed entry of an order for relief with
respect to the Borrower under the Federal Bankruptcy Code, (x) the obligation of
each Lender to make Advances (other than Letter of Credit Advances by the
Issuing Bank or a Working Capital Lender pursuant to Section 2.03(c) and Swing
Line Advances by a Working Capital Lender pursuant to Section 2.02(b)) and of
the Issuing Bank to issue Letters of Credit shall automatically be terminated
and (y) the Notes, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon
Default. If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Administrative Agent on behalf of the
Lender Parties in same day funds at the Administrative Agent's office designated
in such demand, for deposit in the L/C Cash Collateral Account, an amount equal
to the aggregate Available Amount of all Letters of Credit then outstanding. If
at any time the Administrative Agent determines that any funds held in the L/C
Cash Collateral Account are subject to any right or claim of any Person other
than the Administrative Agent and the Lender Parties or that the total amount of
such funds is less than the aggregate Available Amount of all Letters of Credit,
the Borrower will, forthwith upon demand by the Administrative Agent, pay to the
Administrative Agent, as additional funds to be deposited and held in the L/C
Cash Collateral Account, an amount equal to the excess of (a) such aggregate
Available Amount over (b) the total amount of funds, if any, then held in the
L/C Cash Collateral Account that the Administrative Agent determines to be free
and clear of any such right and claim.
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender Party (in
its capacities as a Lender, the Swing Line Bank (if applicable), the Issuing
Bank (if applicable) and a potential Hedge Bank) hereby irrevocably appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion 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 and discretion as are reasonably
incidental thereto. The Administrative Agent, its affiliates and its or its
affiliates' directors, officers, agents or employees shall not have any duties
or responsibilities, except those expressly set forth in this
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Agreement and shall not be a trustee or fiduciary for any Lender Party. As to
any matters not expressly provided for by the Loan Documents (including, without
limitation, enforcement or collection of the Notes), the Administrative Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding upon all Lender Parties and all holders
of Notes; provided, however, that the Administrative Agent shall not be required
to take any action that exposes the Administrative Agent to personal liability
or that is contrary to this Agreement, any Loan Document or applicable law or
unless the Administrative Agent shall first be indemnified to its satisfaction
by the Lender Parties against any and all liability and expense which may be
incurred by the Administrative Agent by reason of taking any such action. Each
Lender Party (in its capacities as a Lender, the Swing Line Bank (if
applicable), the Issuing Bank (if applicable) and a potential Hedge Bank) hereby
agrees that none of the Agents other than the Administrative Agent shall have
any duties under this Agreement. The Administrative Agent agrees to give to each
Lender Party prompt notice of each notice given to it by the Parent Guarantor or
the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. None of
the Administrative Agent, its affiliates, nor any of its or its affiliates'
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Administrative Agent:
(a) may treat the payee of any Note as the holder thereof until the
Administrative Agent receives and accepts an Assignment and Acceptance entered
into by the Lender that is the payee of such Note, as assignor, and an Eligible
Assignee, as assignee, as provided in Section 8.07; (b) may consult with and
rely upon legal counsel (including counsel for any Loan Party), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender Party and shall not be responsible to any Lender
Party for any recitals, statements, warranties or representations (whether
written or oral) made in or in connection with the Loan Documents or any
certificate or other document referred to or provided for in, or received by any
of them under, any Loan Document; (d) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of any Loan Document on the part of any Loan Party or to inspect the
property (including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; (f) shall not be required to initiate or
conduct any litigation or collection proceedings under any Loan Document; (g)
shall be entitled to rely upon any certification, notice, instrument, writing or
other communication (including, without limitation, any thereof by telephone or
telecopy) believed by it to be genuine and correct and to have been signed, sent
or made by or on behalf of the proper
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Person or Persons; and (h) shall incur no liability under or in respect of any
Loan Document by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telegram, telecopy or telex) believed by
it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. NationsBank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, NationsBank
shall have the same rights and powers under the Loan Documents as any other
Lender Party and may exercise the same as though it were not the Administrative
Agent; and the term "Lender Party" or "Lender Parties" shall, unless otherwise
expressly indicated, include NationsBank in its individual capacity. NationsBank
(and any successor acting as Administrative Agent) and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from, accept fees and other consideration from,
and generally engage in any kind of business with, any Loan Party, any of its
Subsidiaries and any Person who may do business with or own securities of any
Loan Party or any such Subsidiary, all as if NationsBank were not the
Administrative Agent and without any duty to account therefor to the Lender
Parties.
SECTION 7.04. Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon any Agent or
any other Lender Party and based on the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and the Loan Documents. Each Lender Party also acknowledges that it
will, independently and without reliance upon any Agent or any other Lender
Party 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 and the Loan Documents. Except for notices, reports
and other documents and information expressly required to be furnished to the
Lender Parties by the Administrative Agent hereunder, none of the Agents shall
have any duty or responsibility to provide any Lender Party with any credit or
other information concerning the affairs, financial condition or business of any
Loan Party or any of its Subsidiaries or Affiliates that may come into the
possession of such Agent or any of its affiliates.
SECTION 7.05. Indemnification. (a) Each Lender Party severally
agrees to indemnify the Administrative Agent (to the extent not promptly
reimbursed by the Borrower) from and against such Lender Party's ratable share
(determined as provided below) of any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against the Administrative Agent in any way relating to or arising out
of the Loan Documents or any action taken or omitted by the Administrative Agent
under the Loan Documents (including any of the foregoing arising from the
negligence of the Administrative Agent) (collectively, the "Lender/Agent
Indemnified Costs"); provided, however, that no Lender Party shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct as determined in a
final, nonappealable judgment by a court of competent
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jurisdiction. In the case of any claim, investigation, litigation or proceeding
giving rise to any Lender/Agent Indemnified Costs, the indemnification provided
by the Lender Parties under this Section 7.05(a) shall apply whether or not any
such claim, investigation, litigation or proceeding is brought by the
Administrative Agent, any of the other Agents, any of the other Lender Parties
or a third party. Without limitation of the foregoing, each Lender Party agrees
to reimburse the Administrative Agent promptly upon demand for its ratable share
of any costs and expenses (including, without limitation, fees and expenses of
counsel) payable by the Borrower under Section 9.04, to the extent that the
Administrative Agent is not promptly reimbursed for such costs and expenses by
the Borrower. For purposes of this Section 7.05(a), the Lender Parties'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (a) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lender Parties, (b) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters of
Credit outstanding at such time, (c) the aggregate unused portions of their
respective Acquisition Commitments, Term A Commitments and Term B Commitments at
such time and (d) their respective Unused Working Capital Commitments at such
time; provided that the aggregate principal amount of Swing Line Advances owing
to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing
Bank shall be considered to be owed to the Working Capital Lenders ratably in
accordance with their respective Working Capital Commitments. In the event that
any Defaulted Advance shall be owing by any Defaulting Lender at any time, such
Lender Party's Commitment with respect to the Facility under which such
Defaulted Advance was required to have been made shall be considered to be
unused for purposes of this Section 7.05(a) to the extent of the amount of such
Defaulted Advance. The failure of any Lender Party to reimburse the
Administrative Agent promptly upon demand for its ratable share of any amount
required to be paid by the Lender Party to the Administrative Agent as provided
herein shall not relieve any other Lender Party of its obligation hereunder to
reimburse the Administrative Agent for its ratable share of such amount, but no
Lender Party shall be responsible for the failure of any other Lender Party to
reimburse the Administrative Agent for such other Lender Party's ratable share
of such amount. Without prejudice to the survival of any other agreement of any
Lender Party hereunder, the agreement and obligations of each Lender Party
contained in this Section 7.05(a) shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the other
Loan Documents.
(b) Each Lender Party severally agrees to indemnify the
Issuing Bank (to the extent not promptly reimbursed by the Borrower) from and
against such Lender Party's ratable share (determined as provided below) of any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against the Issuing
Bank in any way relating to or arising out of the Loan Documents or any action
taken or omitted by the Issuing Bank under the Loan Documents (including any of
the foregoing arising from the negligence of the Issuing Bank) (collectively,
the "Lender/Issuing Bank Indemnified Costs"); provided, however, that no Lender
Party shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Issuing Bank's gross negligence or willful misconduct. In the
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case of any claim, investigation, litigation or proceeding giving rise to any
Lender/Issuing Bank Indemnified Costs, the indemnification provided by the
Lender Parties under this Section 7.05(b) shall apply whether or not any such
claim, investigation, litigation or proceeding is brought by the Administrative
Agent, any of the other Agents, any of the other Lender Parties or a third
party. Without limitation of the foregoing, each Lender Party agrees to
reimburse the Issuing Bank promptly upon demand for its ratable share of any
costs and expenses (including, without limitation, fees and expenses of counsel)
payable by the Borrower under Section 9.04, to the extent that the Issuing Bank
is not promptly reimbursed for such costs and expenses by the Borrower. For
purposes of this Section 7.05(b), the Lender Parties' respective ratable shares
of any amount shall be determined, at any time, according to the sum of (a) the
aggregate principal amount of the Advances outstanding at such time and owing to
the respective Lender Parties, (b) their respective Pro Rata Shares of the
aggregate Available Amount of all Letters of Credit outstanding at such time,
(c) the Unused Acquisition Commitment, Term A Commitments and Term B Commitments
at such time plus (d) their respective Unused Working Capital Commitments at
such time; provided that the aggregate principal amount of Swing Line Advances
owing to the Swing Line Bank and of Letter of Credit Advances owing to the
Issuing Bank shall be considered to be owed to the Working Capital Lenders
ratably in accordance with their respective Working Capital Commitments. In the
event that any Defaulted Advance shall be owing by any Defaulting Lender at any
time, such Lender Party's Commitment with respect to the Facility under which
such Defaulted Advance was required to have been made shall be considered to be
unused for purposes of this Section 7.05(b) to the extent of the amount of such
Defaulted Advance. The failure of any Lender Party to reimburse the Issuing Bank
promptly upon demand for its ratable share of any amount required to be paid by
the Lender Parties to the Issuing Bank as provided herein shall not relieve any
other Lender Party of its obligation hereunder to reimburse the Issuing Bank for
its ratable share of such amount, but no Lender Party shall be responsible for
the failure of any other Lender Party to reimburse the Issuing Bank for such
other Lender Party's ratable share of such amount. Without prejudice to the
survival of any other agreement of any Lender Party hereunder, the agreement and
obligations of each Lender Party contained in this Section 7.05(b) shall survive
the payment in full of principal, interest and all other amounts payable
hereunder and under the other Loan Documents.
SECTION 7.06. Successor Administrative Agent. The
Administrative Agent may resign as to any or all of the Facilities at any time
by giving written notice thereof to the Lender Parties and the Borrower and may
be removed as to all of the Facilities at any time with or without cause by the
Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Administrative Agent as to such of
the Facilities as to which the Administrative Agent has resigned or been
removed. If no successor Administrative Agent shall have been so appointed by
the Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Administrative Agent's giving of notice of resignation or the
Required Lenders' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Lender Parties, appoint a
successor Administrative Agent, which shall be a commercial bank organized under
the laws of the United States or of any state thereof and having a combined
capital and surplus of at least $250,000,000.
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Upon the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent as to all of the Facilities and upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such amendments or supplements to the Mortgages, and such other
instruments or notices, as may be necessary or desirable, or as the Required
Lenders may request, in order to continue the perfection of the Liens granted or
purported to be granted by the Collateral Documents, such successor
Administrative Agent shall succeed to and become vested with all the rights,
powers, discretion, privileges and duties of the retiring Administrative Agent,
and the retiring Administrative Agent shall be discharged from its duties and
obligations under the Loan Documents. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent as to less
than all of the Facilities and upon the execution and filing or recording of
such financing statements, or amendments thereto, and such amendments or
supplements to the Mortgages, and such other instruments or notices, as may be
necessary or desirable, or as the Required Lenders may request, in order to
continue the perfection of the Liens granted or purported to be granted by the
Collateral Documents, such successor Administrative Agent shall succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the retiring Administrative Agent as to such Facilities, other than with respect
to funds transfers and other similar aspects of the administration of Borrowings
under such Facilities, issuances of Letters of Credit (notwithstanding any
resignation as Administrative Agent with respect to the Letter of Credit
Facility) and payments by the Borrower in respect of such Facilities, and the
retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement as to such Facilities, other than as aforesaid.
After any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent as to all of the Facilities, the provisions of this Article
VII shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent as to any Facilities under this Agreement.
SECTION 7.07. Defaults. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of a Default unless the
Administrative Agent has received written notice from a Lender Party or the
Borrower specifying such Default and stating that such notice is a "Notice of
Default". In the event that the Administrative Agent receives such a Notice of
Default, the Administrative Agent shall give prompt notice thereof to the Lender
Parties. The Administrative Agent shall (subject to Article VI) take such action
with respect to such Default as shall reasonably be 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) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interest of the Lender
Parties.
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ARTICLE VIII
PARENT GUARANTY
SECTION 8.01. Parent Guaranty. The Parent Guarantor
unconditionally and irrevocably guarantees (the undertaking by the Parent
Guarantor under this Article VIII being the "Parent Guaranty") the punctual
payment when due, whether at scheduled maturity or at a date fixed for
prepayment or by acceleration, demand or otherwise, of all of the Obligations of
each of the other Loan Parties now or hereafter existing under or in respect of
the Loan Documents (including, without limitation, any extensions,
modifications, substitutions, amendments or renewals of any or all of the
foregoing Obligations), whether direct or indirect, absolute or contingent, and
whether for principal, interest, premium, fees, indemnification payments,
contract causes of action, costs, expenses or otherwise (such Obligations being
the "Guaranteed Obligations"), and agrees to pay any and all expenses
(including, without limitation, reasonable fees and expenses of counsel)
incurred by the Administrative Agent or any of the other Secured Parties in
enforcing any rights under this Parent Guaranty. Without limiting the generality
of the foregoing, the Parent Guarantor's liability shall extend to all amounts
that constitute part of the Guaranteed Obligations and would be owed by any of
the other Loan Parties to the Administrative Agent or any of the other Secured
Parties under or in respect of the Loan Documents but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such other Loan Party.
SECTION 8.02. Guaranty Absolute. The Parent Guarantor
guarantees that the Guaranteed 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 other Secured Party with respect
thereto. The Obligations of the Parent Guarantor under this Guaranty are
independent of the Guaranteed Obligations or any other Obligations of any Loan
Party under the Loan Documents, and a separate action or actions may be brought
and prosecuted against the Parent Guarantor to enforce this Parent Guaranty,
irrespective of whether any action is brought against any other Loan Party or
whether any other Loan Party is joined in any such action or actions. The
liability of the Parent Guarantor under this Parent Guaranty shall be absolute,
unconditional and irrevocable irrespective of, and the Parent Guarantor hereby
irrevocably waives any defenses it may now or hereafter have in any way relating
to, any and all of the following:
(a) any lack of validity or enforceability of any Loan Document 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 Guaranteed Obligations or any other Obligations
of any Loan Party under the Loan Documents, or any other amendment or waiver of
or any consent to departure from any Loan Document, including, without
limitation, any increase in the Guaranteed Obligations resulting from the
extension of additional credit to any Loan Party or any of its Subsidiaries or
otherwise;
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(c) any taking, exchange, release or nonperfection of any Collateral,
or any taking, release or amendment or waiver of or consent to departure from
any Subsidiary Guaranty or any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to
all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guaranteed Obligations or
any other Obligations of any Loan Party under the Loan Documents, or any other
property and assets of any other Loan Party or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate structure
or existence of any other Loan Party or any of its Subsidiaries;
(f) any failure of the Administrative Agent or any other Secured Party
to disclose to any Loan Party any information relating to the financial
condition, operations, properties or prospects of any other Loan Party now or
hereafter known to the Administrative Agent or such other Secured Party, as the
case may be (the Parent Guarantor waiving any duty on the part of the Secured
Parties to disclose such information);
(g) the failure of any other Subsidiary of the Parent Guarantor or any
other Person to execute a Subsidiary Guaranty or any other guarantee or
agreement of the release or reduction of the liability of any of the other Loan
Parties or any other guarantor or surety with respect to the Guaranteed
Obligations; or
(h) any other circumstance (including, without limitation, any statute
of limitations or any existence of or reliance on any representation by the
Administrative Agent or any other Secured Party) that might otherwise constitute
a defense available to, or a discharge of, the Parent Guarantor, any other Loan
Party or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Administrative Agent or any other Secured
Party or by any other Person upon the insolvency, bankruptcy or reorganization
of any other Loan Party or otherwise, all as though such payment had not been
made.
SECTION 8.03. Waivers and Acknowledgments. (a) The Parent
Guarantor hereby unconditionally and irrevocably waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Parent Guaranty, and any requirement that the
Administrative Agent or any other Secured Party protect, secure, perfect or
insure any Lien or any property or assets subject thereto or exhaust any right
or take any action against any other Loan Party or any other Person or any
Collateral.
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(b) The Parent Guarantor hereby unconditionally waives any right to
revoke this Parent Guaranty, and acknowledges that this Parent Guaranty is
continuing in nature and applies to all Guaranteed Obligations, whether existing
now or in the future.
(c) The Parent Guarantor hereby unconditionally and irrevocably waives
(i) any defense arising by reason of any claim or defense based upon an election
of remedies by the Secured Parties which in any manner impairs, reduces,
releases or otherwise adversely affects the subrogation, reimbursement,
exoneration, contribution or indemnification rights of the Parent Guarantor or
other rights to proceed against any of the other Loan Parties, any other
guarantor or any other Person or any Collateral, and (ii) any defense based on
any right of setoff or counterclaim against or in respect of the Parent
Guarantor's obligations hereunder.
(d) The Parent Guarantor acknowledges that the Administrative Agent
may, without notice to or demand upon the Parent Guarantor and without affecting
the liability of the Parent Guarantor under this Parent Guaranty, foreclose
under any Mortgage by nonjudicial sale, and the Parent Guarantor hereby waives
any defense to the recovery by the Administrative Agent and the other Secured
Parties against the Parent Guarantor of any deficiency after such nonjudicial
sale and any defense or benefits that may be afforded by applicable law.
(e) The Parent Guarantor acknowledges that it will receive substantial
direct and indirect benefits from the financing arrangements contemplated by the
Loan Documents and that the waivers set forth in Section 8.02 and this Section
8.03 are knowingly made in contemplation of such benefits.
SECTION 8.04. Subrogation. The Parent Guarantor hereby
unconditionally and irrevocably agrees not to exercise any rights that it may
now have or may hereafter acquire against any other Loan Party or any other
insider guarantor that arise from the existence, payment, performance or
enforcement of its Obligations under this Parent Guaranty or under any other
Loan Document, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Administrative Agent or any other
Secured Party against such other Loan Party or any other insider guarantor or
any Collateral, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, including, without limitation, the right
to take or receive from such other Loan Party or any other insider guarantor,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim, remedy or right, until
such time as all of the Guaranteed Obligations and all other amounts payable
under this Parent Guaranty shall have been paid in full in cash, all of the
Letters of Credit shall have expired, terminated or been cancelled and the
Commitments and all of the Bank Hedge Agreements shall have expired or
terminated. If any amount shall be paid to the Parent Guarantor in violation of
the immediately preceding sentence at any time prior to the latest of (a) the
payment in full in cash of all of the Guaranteed Obligations and all other
amounts payable under this Parent Guaranty, (b) the full drawing, termination,
expiration or cancellation of all Letters of Credit, (c) the expiration or
termination of all of the Bank Hedge
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Agreements and (d) the Term B Termination Date, such amount shall be held in
trust for the benefit of the Administrative Agent and the other Secured Parties
and shall forthwith be paid to the Administrative Agent to be credited and
applied to the Guaranteed Obligations and all other amounts payable under this
Parent Guaranty, whether matured or unmatured, in accordance with the terms of
the Loan Documents, or to be held as Collateral for any Guaranteed Obligations
or other amounts payable under this Parent Guaranty thereafter arising. If (i)
the Parent Guarantor shall pay to the Administrative Agent all or any part of
the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Parent Guaranty shall have been paid in full in cash,
(iii) all of the Letters of Credit shall have expired, terminated or been
cancelled, (iv) all of the Bank Hedge Agreements shall have expired or been
terminated and (v) the Term B Termination Date shall have occurred, the
Administrative Agent and the other Secured Parties will, at the Parent
Guarantor's request and expense, execute and deliver to the Parent Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer of subrogation to the Parent Guarantor of an
interest in the Guaranteed Obligations resulting from the payment made by the
Parent Guarantor.
SECTION 8.05. Continuing Guarantee; Assignments. This Parent
Guaranty is a continuing guaranty and shall (a) remain in full force and effect
until the latest of (i) the payment in full in cash of all of the Guaranteed
Obligations and all other amounts payable under this Guaranty, (ii) the full
drawing, termination, expiration or cancellation of all Letters of Credit, (iii)
the expiration or termination of all Bank Hedge Agreements and (iv) the Term B
Termination Date, (b) be binding upon the Parent Guarantor and its successors
and assigns and (c) inure to the benefit of, and be enforceable by, the
Administrative Agent and the other Secured Parties and their respective
successors, transferees and assigns. Without limiting the generality of clause
(c) of the immediately preceding sentence, any Lender Party may assign or
otherwise transfer all or any portion of its rights and obligations under this
Agreement (including, without limitation, all or any portion of its Commitment
or Commitments, the Advances owing to it and the Notes held by it) to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender Party under this Article VIII
or otherwise, in each case as provided in Section 9.07.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or any Notes or any other Loan Document, nor consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed (or, in the case of the
Collateral Documents, consented to) by the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that (a) no amendment,
waiver or consent shall, unless in writing and signed by all of the Lenders
(other than any Lender that is, at such time, a
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Defaulting Lender), do any of the following at any time: (i) waive any of the
conditions specified in Section 3.01 or, in the case of the Initial Extension of
Credit, Section 3.02, (ii) change the number of Lenders or the percentage of (x)
the Commitments, (y) the aggregate unpaid principal amount of the Advances or
(z) the aggregate Available Amount of outstanding Letters of Credit that, in
each case, shall be required for the Lenders or any of them to take any action
hereunder, (iii) release all or substantially all of the Collateral in any
transaction or series of related transactions or permit the creation,
incurrence, assumption or existence of any Lien on all or substantially all of
the Collateral in any transaction or series of related transactions to secure
any Obligations other than Obligations owing to the Secured Parties under the
Loan Documents, (iv) release or otherwise limit the liability of the Parent
Guarantor under Article VIII, or at any time after one or more Subsidiary
Guaranties are in effect, release or otherwise limit the liability of all or
substantially all of the Subsidiary Guarantors under the Subsidiary Guaranties,
or (v) amend this Section 9.01; and (b) no amendment, waiver or consent shall,
unless in writing and signed by the Required Lenders and each Lender that has a
Commitment under the Term A Facility, the Term B Facility, the Working Capital
Facility or the Acquisition Facility if affected by such amendment, waiver or
consent, (i) increase the Commitments of such Lender or subject such Lender to
any additional obligations, (ii) reduce the principal of, or interest on, the
Advances payable to such Lender or any fees or other amounts payable hereunder
to such Lender, (iii) postpone any date fixed for any payment of principal of,
or interest on, the Advances payable to such Lender or any fees or other amounts
payable hereunder to such Lender or (iv) change the order of application of any
prepayment set forth in Section 2.06 in any manner that materially affects such
Lender; provided further that no amendment, waiver or consent shall, unless in
writing and signed by the Swing Line Bank or the Issuing Bank, as the case may
be, in addition to the Lenders required above to take such action, affect the
rights or obligations of the Swing Line Bank or the Issuing Bank, as the case
may be, under this Agreement; and provided further that no amendment, waiver or
consent shall, unless in writing and signed by the Administrative Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Administrative Agent under this Agreement.
SECTION 9.02. Notices, Etc. (a) All notices and other
communications provided for hereunder shall be in writing (including telegraphic
or telecopy communication) and mailed, telegraphed, telecopied or delivered, if
to the Parent Guarantor or the Borrower, at its address c/o Desa International,
Inc., 2701 Industrial Drive, Bowling Green, Kentucky 42101, Attention:
President; if to any Initial Lender or the Initial Issuing Bank, at its Domestic
Lending Office or Applicable Lending Office, respectively, specified opposite
its name on Schedule I hereto; if to any other Lender Party, at its Domestic
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender Party; and if to the Administrative Agent, at its address at 100
North Tryon Street, Charlotte, North Carolina 28255, Attention: David Strickert;
or, as to the Borrower or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties and,
as to each other party, at such other address as shall be designated by such
party in a written notice to the Borrower and the Administrative Agent. All such
notices and communications shall, when mailed, telegraphed or telecopied, be
effective when deposited in the mails, delivered to the telegraph company or
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transmitted by telecopier, respectively, except that notices and communications
to the Administrative Agent pursuant to Article II, III or VII shall not be
effective until received by the Administrative Agent. Delivery by telecopier of
an executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.
(b) If any notice required under this Agreement or any of the
other Loan Documents is permitted to be made, and is made, by telephone, actions
taken or omitted to be taken in reliance thereon by the Administrative Agent or
any of the Lender Parties shall be binding upon the Borrower and each of the
other Loan Parties notwithstanding any inconsistency between the notice provided
by telephone and any subsequent writing in confirmation thereof provided to the
Administrative Agent or such Lender Party; provided that any such action taken
or omitted to be taken by the Administrative Agent or such Lender Party shall
have been in good faith and in accordance with the terms of this Agreement.
SECTION 9.03. No Waiver; Remedies. No failure on the part of
any Lender Party or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 9.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand (i) all costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without limitation,
(A) all due diligence, collateral review, syndication, transportation, computer,
duplication, appraisal, audit, insurance, consultant, search, filing and
recording fees and expenses and (B) the reasonable fees and expenses of counsel
for the Administrative Agent with respect thereto, with respect to advising the
Administrative Agent as to its rights and responsibilities, or the perfection,
protection or preservation of rights or interests, under the Loan Documents,
with respect to negotiations with any Loan Party or with other creditors of any
Loan Party or any of its Subsidiaries arising out of any Default or any events
or circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy, insolvency
or other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto) and (ii) all costs and expenses of the
Administrative Agent and the Lender Parties in connection with the enforcement
of the Loan Documents, whether in any action, suit or litigation, any
bankruptcy, insolvency or other similar proceeding affecting creditors' rights
generally (including, without limitation, the reasonable fees and expenses of
counsel for the Administrative Agent and each Lender Party with respect
thereto).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, each Lender Party and each of their Affiliates and their
officers, directors, trustees,
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employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation or proceeding or
preparation of a defense in connection therewith) (i) the Facilities, the actual
or proposed use of the proceeds of the Advances or the Letters of Credit, the
Loan Documents or any of the transactions contemplated thereby, including,
without limitation, any acquisition or proposed acquisition (including, without
limitation, the Recapitalization and any of the other transactions contemplated
hereby) by the Equity Investors or any of their Subsidiaries or Affiliates of
all or any portion of the stock or substantially all the assets of the Borrower
or any of its Subsidiaries or (ii) the actual or alleged presence of Hazardous
Materials on any property of any Loan Party or any of its Subsidiaries or any
Environmental Action relating in any way to any Loan Party or any of its
Subsidiaries, except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 9.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are consummated.
The Borrower also agrees not to assert any claim against the Administrative
Agent, any Lender Party or any of their Affiliates, or any of their respective
officers, directors, trustees, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Facilities, the actual or proposed use of the
proceeds of the Advances or the Letters of Credit, the Loan Documents or any of
the transactions contemplated thereby.
(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender Party other than on the last day of the Interest Period for such Advance,
as a result of a payment or Conversion pursuant to Section 2.09(b)(i) or
2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or
for any other reason, the Borrower shall pay to the Administrative Agent for
such Lender Party an amount equal to the present value (calculated in accordance
with this Section 9.04(c)) of interest for the remaining portion of the relevant
Interest Period on the amount of such Advance, at a rate per annum equal to the
excess of (a) the Eurodollar Rate that would have been in effect for such
Interest Period over (b) the Eurodollar Rate applicable on the date of
determination to a deemed Interest Period ending on the last day of such
Interest Period. The present value of such additional interest shall be
calculated by discounting the amount of such interest for each day in the
relevant Interest Period from such day to the date of such repayment or
termination at an interest rate per annum equal to the interest rate determined
pursuant to the immediately preceding sentence, and by adding all such amounts
for all such days during such period. The determination by the Administrative
Agent of such amount of interest shall be conclusive and binding, absent
manifest error.
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(d) If any Loan Party fails to pay when due any costs,
expenses or other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities, such amount
may be paid on behalf of such Loan Party by the Administrative Agent or any
Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement
of any Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section
9.04 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 9.05. Right of Set-off. Upon (a) the occurrence and
during the continuance of any Event of Default and (b) the making of the request
or the granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender Party and each of its respective
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender Party or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the Obligations of the Borrower now or hereafter existing under this
Agreement and the Note or Notes (if any) held by such Lender Party, irrespective
of whether such Lender Party shall have made any demand under this Agreement or
such Note or Notes and although such obligations may be unmatured. Each Lender
Party agrees promptly to notify the Borrower after any such set-off and
application; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
Party and its respective Affiliates under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that such Lender Party and its respective Affiliates may have.
SECTION 9.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Parent Guarantor, the Borrower
and the Administrative Agent and when the Administrative Agent shall have been
notified by each Initial Lender and the Initial Issuing Bank that such Initial
Lender and the Initial Issuing Bank has executed it and thereafter shall be
binding upon and inure to the benefit of the Parent Guarantor, the Borrower, the
Administrative Agent and each Lender Party and their respective successors and
assigns, except that neither the Parent Guarantor nor the Borrower shall have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lender Parties.
SECTION 9.07. Assignments and Participations. (a) Each Lender
may and, if demanded by the Borrower (following a demand to such Lender pursuant
to Section 2.16), will assign to one or more Eligible Assignees all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment or Commitments, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i) each
such
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assignment shall be of a uniform, and not a varying, percentage of all rights
and obligations under and in respect of one or more Facilities, (ii) except in
the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall in
no event be less than $5,000,000, (iii) each such assignment shall be to an
Eligible Assignee, (iv) each such assignment made as a result of a demand by the
Borrower pursuant to this Section 9.07(a) shall be arranged by the Borrower
after consultation with the Administrative Agent and shall be either an
assignment of all of the rights and obligations of the assigning Lender under
this Agreement or an assignment of a portion of such rights and obligations made
concurrently with another such assignment or other such assignments that
together cover all of the rights and obligations of the assigning Lender under
this Agreement, (v) no Lender shall be obligated to make any such assignment as
a result of a demand by the Borrower pursuant to this Section 9.07(a) unless and
until such Lender shall have received one or more payments from either the
Borrower or one or more Eligible Assignees in an aggregate amount at least equal
to the aggregate outstanding principal amount of the Advances owing to such
Lender, together with accrued interest thereon to the date of payment of such
principal amount and all other amounts payable to such Lender under this
Agreement and (vi) the parties to each such assignment shall execute and deliver
to the Administrative Agent, for its acceptance and recording in the Register,
an Assignment and Acceptance, together with any Note or Notes subject to such
assignment and a processing and recordation fee of $3,500.
(b) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(x) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender or
Issuing Bank, as the case may be, hereunder and (y) the Lender or Issuing Bank
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights (other than its rights under Sections 2.10, 2.12 and 9.04 (and other
similar provisions of the other Loan Documents that are specified under the
terms of such other Loan Documents to survive the payment in full of the
Obligations of the Loan Parties under or in respect of the Loan Documents) to
the extent any claim thereunder relates to an event arising prior to such
assignment) and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's or Issuing Bank's rights and obligations under this
Agreement, such Lender or Issuing Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance,
the Lender Party assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in
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connection with this Agreement or any other Loan Document or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, this Agreement or any other Loan
Document or any other instrument or document furnished pursuant hereto or
thereto; (ii) such assigning Lender Party makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any other Loan Party or the performance or observance by any Loan
Party of any of its obligations under any Loan Document or any other instrument
or document furnished pursuant thereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.01 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 assigning
Lender Party or any other Lender Party 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 and discretion under the Loan Documents as
are delegated to the Administrative Agent by the terms hereof, together with
such powers and discretion 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 or Issuing Bank, as the case may be.
(d) The Administrative Agent, acting for this purpose (but
only for this purpose) as the agent of the Borrower, shall maintain at its
address referred to in Section 9.02 a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the names
and addresses of the Lender Parties and the Commitment under each Facility of,
and principal amount of the Advances owing under each Facility to, each Lender
Party from time to time (the "Register"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lender Parties shall treat each
Person whose name is recorded in the Register as a Lender Party hereunder for
all purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender Party 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 Party and an assignee, together with any Note or Notes
subject to such assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrower. In the case of any assignment by a Lender, within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Note or Notes a new Note to the
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order of such Eligible Assignee in an amount equal to the Commitment assumed by
it under a Facility pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment hereunder under such Facility, a new
Note to the order of the assigning Lender in an amount equal to the Commitment
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 Exhibit A-1, A-2,
A-3 or A-4 hereto, as the case may be.
(f) The Issuing Bank may assign to an Eligible Assignee all
of its rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; provided, however, that (i) each such assignment shall
be to an Eligible Assignee and (ii) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with a
processing and recordation fee of $3,500.
(g) Each Lender Party may sell participations to one or more
Persons (other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such Lender
Party's obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the
other Lender Parties shall continue to deal solely and directly with such Lender
Party in connection with such Lender Party's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of any Loan Document,
or any consent to any departure by any Loan Party therefrom, except to the
extent that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, release or otherwise limit the liability of the Parent Guarantor
under Article VIII, or at any time after one or more Subsidiary Guaranties are
in effect, release or otherwise limit the liability of all or substantially all
of the Subsidiary Guarantors under the Subsidiary Guaranties, or release all or
substantially all of the Collateral.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower or any other Loan Party
furnished to such Lender Party by or on behalf of the Borrower.
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(i) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time create a security interest in all or
any portion of its rights under this Agreement (including, without limitation,
the Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System.
SECTION 9.08. Execution in 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 all of which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.09. No Liability of the Issuing Bank. The Borrower
assumes all risks of the acts or omissions of any beneficiary or transferee of
any Letter of Credit with respect to its use of such Letter of Credit. Neither
the Issuing Bank nor any of its officers or directors shall be liable or
responsible for: (a) the use that may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall
be liable to the Borrower, to the extent of any direct, but not consequential,
damages suffered by the Borrower that the Borrower proves were caused by (i) the
Issuing Bank's willful misconduct or gross negligence in determining whether
documents presented under any Letter of Credit comply with the terms of the
Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful
payment under a Letter of Credit after the presentation to it of a draft and
certificates strictly complying with the terms and conditions of the Letter of
Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
SECTION 9.10. Confidentiality. Neither the Administrative
Agent nor any Lender Party shall disclose any Confidential Information to any
Person without the consent of the Borrower, other than (a) to the Administrative
Agent's or such Lender Party's Affiliates and their officers, directors,
employees, agents and advisors and to actual or prospective Eligible Assignees
and participants, and then only on a confidential basis, (b) as required by any
law, rule or regulation or judicial process and (c) as requested or required by
any state, federal or foreign authority or examiner regulating banks or banking.
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SECTION 9.11. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which it is a
party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any New York State or federal
court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
SECTION 9.12. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.
[The remainder of this page left intentionally blank]
-122-
<PAGE>
SECTION 9.13. Waiver of Jury Trial. Each of the Parent
Guarantor, the Borrower, the Administrative Agent and the Lender Parties
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to any of the Loan Documents, the Advances or the actions of the
Administrative Agent or any Lender Party in the negotiation, administration,
performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
The Borrower
DESA INTERNATIONAL, INC.
By
Name:
Title:
The Parent Guarantor
DESA HOLDINGS CORPORATION
By
Name:
Title:
The Agents
NATIONSBANK, N.A., as
Administrative Agent
By
Name:
Title:
-123-
<PAGE>
NATIONSBANC MONTGOMERY
SECURITIES, INC., as Co-Arranger and
Syndication Agent
By
Name:
Title:
UBS SECURITIES LLC, as Co-Arranger
and Documentation Agent
By
Name:
Title:
By
Name:
Title:
The Initial Lenders
NATIONSBANK, N.A.
By
Name:
Title:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By
Name:
Title:
By
Name:
Title:
-124-
<PAGE>
HELLER FINANCIAL, INC.
By
Name:
Title:
IMPERIAL BANK, CALIFORNIA
BANKING CORPORATION
By
Name:
Title:
BANKBOSTON, N.A.
By
Name:
Title:
DRESDNER BANK AG NEW YORK
AND GRAND CAYMAN BRANCHES
By
Name:
Title:
By
Name:
Title:
FIRST SOURCE FINANCIAL LLP
BY FIRST SOURCE FINANCIAL, INC.
By
Name:
Title:
-125-
<PAGE>
FLEET NATIONAL BANK
By
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By
Name:
Title:
NATIONAL CITY BANK
By
Name:
Title:
SANWA BUSINESS CREDIT
CORPORATION
By
Name:
Title:
-126-
<PAGE>
COMERICA BANK
By
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By
Name:
Title:
PRIME INCOME TRUST
By
Name:
Title:
PILGRIM AMERICA PRIME RATE
TRUST
By
Name:
Title:
BOEING CAPITAL CORPORATION
By
Name:
Title:
CITIBANK, N.A.
By
Name:
Title:
-127-
<PAGE>
BANK POLSKA KASA OPIEKI S.A. -
PEKAO S.A. GROUP, NEW YORK BRANCH
By
Name:
Title:
PARIBAS CAPITAL FUNDING LLC
By
Name:
Title:
-128-
<PAGE>
EXECUTION COPY
$195,000,000
CREDIT AGREEMENT
Dated as of November 26, 1997
Among
DESA INTERNATIONAL, INC.
as Borrower
and
DESA HOLDINGS CORPORATION
as Parent Guarantor
and
NATIONSBANK, N.A.
as Initial Issuing Bank, Swing Line Bank and Administrative Agent
and
UBS SECURITIES LLC
as Co-Arranger and Documentation Agent
and
NATIONSBANC MONTGOMERY SECURITIES, INC.
as Co-Arranger and Syndication Agent
<PAGE>
<TABLE>
<CAPTION>
T A B L E O F C O N T E N T S
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C> <C>
1.01. Certain Defined Terms 2
1.02. Computation of Time Periods 36
1.03. Accounting Terms 36
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
2.01. The Advances 36
2.02. Making the Advances 39
2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit 42
2.04. Repayment of Advances 44
2.05. Termination or Reduction of the Commitments 48
2.06. Prepayments 49
2.07. Interest 54
2.08. Fees 54
2.09. Conversion of Advances 55
2.10. Increased Costs, Etc. 56
2.11. Payments and Computations 58
2.12. Taxes 60
2.13. Sharing of Payments, Etc. 62
2.14. Use of Proceeds 63
2.15. Defaulting Lenders 63
2.16. Removal of Lender 66
ARTICLE III
CONDITIONS OF LENDING
3.01. Conditions Precedent to Initial Extension of Credit 67
3.02. Conditions Precedent to Each Borrowing and Issuance 75
3.03. Additional Conditions to Each Acquisition Borrowing 76
3.04. Determinations Under Section 3.01 77
-ii-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Parent Guarantor and the Borrower 77
ARTICLE V
COVENANTS OF THE BORROWER
5.01. Affirmative Covenants 85
5.02. Negative Covenants 92
5.03. Reporting Requirements 102
5.04. Financial Covenants 107
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default 109
6.02. Actions in Respect of the Letters of Credit upon Default 113
ARTICLE VII
THE AGENTS
7.01. Authorization and Action 114
7.02. Administrative Agent's Reliance, Etc. 114
7.03. NationsBank and Affiliates 115
7.04. Lender Party Credit Decision 116
7.05. Indemnification 116
7.06. Successor Administrative Agent 118
7.07. Defaults 119
ARTICLE VIII
PARENT GUARANTY
8.01. Parent Guaranty 119
8.02. Guaranty Absolute 120
8.03. Waivers and Acknowledgments 121
8.04. Subrogation 122
8.05. Continuing Guarantee; Assignments 123
-iii-
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.01. Amendments, Etc. 124
9.02. Notices, Etc. 125
9.03. No Waiver; Remedies 126
9.05. Right of Set-off 128
9.06. Binding Effect 128
9.07. Assignments and Participations 128
9.08. Execution in Counterparts 132
9.09. No Liability of the Issuing Bank 132
9.10. Confidentiality 133
9.11. Jurisdiction, Etc. 133
9.12. Governing Law 134
9.13. Waiver of Jury Trial 135
</TABLE>
-iv-
<PAGE>
SCHEDULES
Schedule I - Commitments and Applicable Lending Offices
Schedule II - Equity Investors
Schedule 3.01(j)(x) - Property Covered by Mortgage
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Governmental Approvals
Schedule 4.01(n) - Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(u) - Environmental Laws and Environmental Permits
Schedule 4.01(v) - Hazardous Materials, Etc.
Schedule 4.01(aa) - Open Years
Schedule 4.01(gg) - Existing Debt
Schedule 4.01(hh) - Surviving Debt
Schedule 4.01(ii) - Real Property Owned
Schedule 4.01(jj) - Real Property Leased
Schedule 4.01(kk) - Existing Investments
Schedule 4.01(ll) - Intellectual Property
Schedule 5.02(a)(iii) - Existing Liens
-v-
<PAGE>
EXHIBITS
Exhibit A-1 - Form of Acquisition Note
Exhibit A-2 - Form of Term A Note
Exhibit A-3 - Form of Term B Note
Exhibit A-4 - Form of Working Capital Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Security Agreement
Exhibit E - Form of Intellectual Property Security Agreement
Exhibit F - Form of Mortgage
Exhibit G-1 - Form of Solvency Certificate of the Parent Guarantor
Exhibit G-2 - Form of Solvency Certificate of the Borrower
Exhibit G-3 - Form of Solvency Opinion of Appraisal Economics
Exhibit H - Form of Borrowing Base Certificate
Exhibit I-1 - Form of Opinion of Borrower's Counsel
Exhibit I-2 - Form of Opinion of Kentucky Local Counsel
Exhibit I-3 - Form of Opinion of Tennessee Local Counsel
Exhibit I-4 - Form of Opinion of Intellectual Property Counsel
Exhibit J - Form of Subsidiary Guaranty
-vi-
EXHBIIT 10.2
DESA INTERNATIONAL, INC.
MANAGEMENT INCENTIVE PLAN
March 1, 1997
<PAGE>
DESA INTERNATIONAL, INC.
MANAGEMENT INCENTIVE PLAN
Section 1. Definitions
a. "Base Salary" means the regular basic compensation paid for
the twelve (12) month period preceding the end of each "Plan;
Year."
b. "Board of Directors" means the Board of Directors of the
Company.
c. "Company" means DESA International, Inc.
d. "Key Employee" meas a salaried employee of the Company
designated as a Key Employee by the Company, as approved by
the Board of Directors.
e. "Key Objectives" means the set of standards established as the
basis for awards under this program. Key objectives shall be
established for each Plan Year by Company management and
approved by the Board of Directors and still pertain to that
Plan Year only.
f. "Participant" is a Key Employee eligible for membership in
this Plan in accordance with Section 3.
g. "Plan" or "Management Incentive Plan" means the DESA
International, Inc. Management Incentive Plan, as described in
this document.
h. "Plan Year" means the twelve-month period from March 1 to the
last day of the next following February.
Section 2. Purpose
The Management Incentive Plan is intended to provide a program
for rewarding Key Employees in the attainment of the Company's
business objectives. It is believed that the Plan will"
(a) focus management attention on improving the business
profitability, cash flow and return on investment;
(b) encourage teamwork in the accomplishment of common
goals and objectives;
(c) provide incentives for such employees to put forth
maximum effort in achieving key business goals and
objectives; and
(d) assist in retention and motivation of key employees.
<PAGE>
Page 2
Section 3. Participants
a. Participants are selected from the group of key employees on
the basis of:
(a) Contribution;
(b) Performance; and
(c) Attitude.
Participants are recommended by management and elected to the
Plan by the Board of Directors. Such election will pertain to
each Plan Year Separately, subject to another election for
each subsequent Play Year.
b. Upon election to participation in the Plan, a Participant will
be notified of:
(a) that election to participation,
(b) the provisions of the Plan,
(c) the level to which he has been assigned, and
(d) the Key Objectives for the Plan Year.
Section 4. Plan Description and Formula
a. The Plan is predicated on the attainment of the Key
Objectives.
b. The determination of the attainment of a certain level of
Performance will be made by Company management and the
decision reached as to the level of performance will be
conclusive in all cases.
c. Subject to the determination of the level of performance
indicated in Section 4b, your award will be between zero and
12 percent of Base Salary.
d. The Board of Directors, in its sole discretion, will determine
the award for employees based upon the individual's
contribution to the attainment of both the corporate and
individual business objectives, as contained herein.
e. No award shall be payable under the Plan if the Participant is
discharged for cause.
Section 5. Time and Method of Payment
a. The award, if any, determined under this Plan for a Plan Year
will be paid in cash as soon as practicable after the close of
the Plan Year. The timing is meant to allow for a
determination by management of the attainment of the Key
Objectives.
b. In order to receive an award, if any, under this Plan for a
particular Plan Year, a participant must be an active employee
on the last day of the Play Year or have
<PAGE>
Page 3
retired under a Company retirement plan, or have died or
become disabled during that Plan Year. In the latter event,
the award will be calculated based on the Base Salary for the
part of the Plan Year while the Participant was an active
employee of the Company.
Section 6. Amendment and Termination
The company may modify, amend, or terminate the Plan at any
time by action of the Board of Directors, but any such
modification, amendment, or termination shall not, without his
written consent, affect any Participant's rights hereunder
arising prior to such modification, amendment or termination.
Executed this 18th day of April, 1997, effective as of March 1, 1997.
DESA INTERNATIONAL, INC.
By: ___________________________________
Robert H. Elman, Chairman
<PAGE>
Page 4
DESA INTERNATIONAL, INC.
MIC PLAN
FY 1998 OBJECTIVES
OBJECTIVE DESIGNATED WEIGHT
--------- -----------------
Increase operating income by $3 million 35%
Reduce debt (net of case) by $11 million 20%
Successfully introduce new products 10%
Achieve profit plan annualized cost reduction goal of $8 10%
million and FY 1998 savings of $6 million
Improve Home Depot and Lowe's customer service to 10%
98% per level per their measurement
Reduce warranty from 1.4% to 1.1% of sales 10%
Reduce year-end inventory by $2.7 million and achieve 5%
---
inventory turns of 6.1
TOTAL 100%
3/14/97
<PAGE>
Page 5
APPENDIX A
MIC PARTICIPANTS - FY 1998
LEVEL TOW PARTICIPANTS
Scott Nehm
Ed Patrick
Jerry Pfister
Ralph Pratt
Doug Rohrer
LEVEL THREE PARTICIPANTS
Dennis Cornett
Tracy Hann
George Johnson
David Keown
Joe Lee
Steve Marcum
Jake Miller
Grover Mollineaux
Marty Mozingo
Marilyn Parrigin
Ed Plott
Gary Sanders
Sam Scarborough
Doug Schneider
Scott Slater
Dave Troscinski
Tim Tupa
Richard Willey
LEVEL FOUR PARTICIPANTS
John Barrett
J. J. Chambers
Fred DeHoag
Mike Head
Steve Manning
Todd Matthews
Sarah Perry
Ivan Shelburne
Doug Smith
Duval Tabor
Kirk Weber
EXHIBIT 10.3
BLAINE CHICKERING
FY98 - INCENTIVE COMPENSATION PLAN
ITEM 1 MEET SALES QUOTA OF $43,356,000 65 PTS
ITEM 2 MEET CONTRIBUTION MARGIN OBJECTIVE OF $12,696,000 40 PTS
ITEM 3 MEET PFA PLAN UNIT VOLUME OBJECTIVE OF 84,000 15 PTS
UNITS
ITEM 4 MEET GAS LOG OBJECTIVE OF 32,000 UNITS 15 PTS
ITEM 5 MEET SALES OF COMPACT FIREPLACES OR LOGMATES 10 PTS
OF AT LEAST 11,500 UNITS
ITEM 6 ACHIEVE LOWES END OF SEASON INVENTORY TO 5% 10
TOTAL POINTS 155 PTS
EACH POINT IS WORTH $450.00
<PAGE>
FISCAL 1998 INCENTIVE COMPENSATION PROGRAM
BLAINE CHICKERING
1. 65 points for achieving U.S. total sales of $43,356,000. For each 1.0%
increase or decrease from this projection, 1 point is added or
subtracted.
2. Contribution margin objective is based on plan margin, less plan
controllable expenses. The total is $12,696,000 and 29% of sales. For
each 1% improvement or decline in the contribution margin, 1/2 point is
added or subtracted.
<PAGE>
JEFF POLOFSKY
FY98 - INCENTIVE COMPENSATION PLAN
ITEM 1 MEET SALES QUOTA OF $34,301,000 50 PTS
ITEM 2 MEET CONTRIBUTION MARGIN OBJECTIVE OF $6,976,000 40 PTS
AND/OR 20.3%
ITEM 3 MEET FY97 CABLE TACKER UNIT PLAN OF $747,000 5 PTS
ITEM 4 MEET NAILGUN PLAN OF $1,550,000 5 PTS
ITEM 5 ESTABLISH NEW BUSINESS WORTH AT LEAST $100,000 5 PTS
(EACH ACCOUNT WORTH 2 POINTS)
ITEM 6 IDENTIFY AND BE READY TO INTRODUCE INTO FY99 10 PTS
TWO NEW PRODUCTS WITH PLAN SALES OPPORTUNITIES
OF AT LEAST $500,000 EACH IN THE FIRST TWELVE
MONTHS OF IMPLEMENTATION
ITEM 7 MEET AVERAGE PLAN INVENTORY LEVELS 10 PTS
ITEM 8 ASSIST DESA CANADA IN MEETING PLAN SALES, 20 PTS
MARGIN AND EXPENSE LEVELS
ITEM 9 MEET REMINGTON ELECTRIC CHAIN SAW GROSS 5 PTS
MARGIN OF 22.1%
ITEM 10 MEET CUSTOMER SERVICE LEVELS 99% ON TIME/FILL 15 PTS
RATES/DOLLARS
TOTAL POINTS 165 PTS
EACH POINT IS WORTH $412.00
<PAGE>
FISCAL 1998 INCENTIVE COMPENSATION PROGRAM
JEFF POLOFSKY
1. 40 points for achieving U.S. total sales of $34,301,000. For each 1.0%
increase or decrease from this projection, 1 point is added or
subtracted.
2. Contribution margin objective is based on plan margin, less plan
controllable expenses. The total is $6,976,000 and/or 20.3% of sales.
For each 1% improvement or decline in the contribution margin, 2 points
are added or subtracted.
<PAGE>
SUE WALKER
FY98 - INCENTIVE COMPENSATION PLAN
ITEM 1 MEET SALES QUOTA OF $40,040,000 110 PTS
ITEM 2 MEET CONTRIBUTION MARGIN OBJECTIVE OF $12,060,000 90 PTS
ITEM 3 MEET INDOOR HEATING SALES OF $14,630,000 20 PTS
ITEM 4 REMAIN ACTIVE GAMA REPRESENTATIVE FOR DESA 30 PTS
INTERNATIONAL AND ASSIST ON REGULATORY ISSUES
ITEM 5 DEVELOP NEW STRATEGIC PRODUCT/BUSINESS PLAN 15 PTS
FOR VANGUARD GROUP
ITEM 6 MEET AVERAGE INVENTORY OBJECTIVE FOR FY98 15 PTS
ITEM 7 MEET NUTEC STOVE SALES OBJECTIVE OF 6,000 UNITS 20 PTS
AND KINGSMAN STOVE PLAN OF 2,000 UNITS
TOTAL POINTS 300 PTS
EACH POINT IS WORTH $200.00
<PAGE>
FISCAL 1998 INCENTIVE COMPENSATION PROGRAM
SUE WALKER
1. 90 points for achieving U.S. total sales of $40,040,000. For each 1.0%
increase or decrease from this projection, 1 point is added or
subtracted.
2. Contribution margin objective is based on plan margin, less plan
controllable expenses. The total is $12,060,000. For each 1%
improvement or decline in the contribution margin, 1 point is added or
subtracted.
EXHIBIT 10.4
AGREEMENT TO PROVIDE SERVICES
This Agreement to Provide Services (the "Agreement"), is made and entered into
effective this 8th day of July, 1997, by and between DESA International, Inc.,
2701 Industrial Drive, P.O. Box 90004, Bowing Green, Kentucky 42102-9004,
(hereafter referred to as "Company"), and The Hamilton Ryker Company, located at
P.O. Box 1068, Martin, Tennessee 38237, (hereinafter referred to as "Supplier").
WITNESSETH:
WHEREAS, Company desires to lease Supplier's employees to supplement its work
force in the operation of its manufacturing process at its plant(s) located at:
Shelbyville and Manchester, Tennessee, (herein referred to as the "Plant"); and
WHEREAS, Supplier is ready, willing, and able to provide personnel in sufficient
quantities to work in Company's manufacturing process at the Plant (herein
referred to as "Services").
NOW, THEREFORE, in consideration of the above recitals, terms, and covenants of
this Agreement, and other valuable consideration, the receipt of which is
acknowledged, the parties agree to follows:
1. SERVICES. Supplier agrees to supply Company with Supplier's employees to
provide Services at the Company's Plant in such quantities as may be deemed
necessary by Company for its manufacturing process at the Plant. Supplier agrees
to have a sufficient number of employees qualified and able to report for work
at the Plant upon notice from Company that such Services are required. Supplier
agrees that in the event it becomes unable for any reason to supply Company with
a sufficient number of employees to satisfy Company's labor requirements or
qualifications that it will contract with other similar leasing companies to
supply Company with qualified workers in quantities required by Company. If
Supplier contracts with other leasing companies to supply Services under this
Agreement, such Services will be provided under the same terms and conditions
set forth in this Agreement. Nothing in this Agreement shall be construed to
limit Company's right to contract with third parties as may be necessary from
time to time during the term of this Agreement to ensure that it has a
sufficient number of workers for manufacturing purposes at its Plant.
2. SUPPLIER AS EMPLOYER (A) Both parties agree that the personnel provided to
Company under and pursuant to this Agreement are employees of Supplier to the
fullest extent allowed by applicable law. Supplier agrees that it has the sole
legal responsibility for the prompt payment of all wages, unemployment
compensation taxes, maintaining adequate workers' compensation insurance, the
payment of all employment taxes including F.I.C.A. and Medicare taxes, the
payment of all employee health and pension benefits, and the payment of any
other fringe benefits provided to its employees. Supplier's employees shall not
be entitled to, nor eligible for, and shall not participate in any of the
Company's pension, health, or other fringe benefit plans is limited solely to
the Company's employees. Supplier
<PAGE>
-2-
agrees that at all times material to this Agreement it shall use due diligence
to ensure that it is fully complying with all labor laws and laws regarding
equal employment opportunities, whether Federal, state or local, including but
not limited to, all immigration laws, the Occupational Safety and Health Act
("OSHA"), all wage and hour laws, collective bargaining obligations, the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act
("FMLA"), and workers' compensation laws.
(B) Supplier's employees providing Services to Company's Plant shall remain
employees of Supplier throughout their assignment at Company, and shall not be
considered employees of Company. Company shall have no responsibilities
associated with that of an employer as it relates to Supplier's employees. In
order to carry out its obligations hereunder, Supplier shall designated one or
more "on-site supervisors" from among the personnel assigned to the Plant. The
on-site supervisors shall oversee administrative and managerial matters relating
to Supplier's employees and shall be under the direct supervision of Supplier's
management team. The on-site supervisor with cooperation from Company's
management team shall determine the policies and procedures to be followed by
Supplier's employees regarding the time and performance of their duties.
3. WORK ENVIRONMENT. Company shall take all reasonable steps to ensure that the
work environment provided to Supplier's employees is in compliance with all
applicable Federal, state and local law governing the workplace, but by so doing
shall not be considered the employer of Supplier's employees who work at
Company's Plant.
4. TRADE SECRETS. In Company's sole discretion, Supplier's employees may be
required to enter into trade secrecy agreements with Company to protect
Company's proprietary trade secrets, in a form acceptable to the Company.
Company shall take reasonable steps to protect confidential information, cash on
hand, and inventory; however, Supplier shall be liable to Company for Supplier's
employee theft of Company property. Supplier may at its own expense bond
Supplier's employees providing Services to Company.
5. QUANTITY OF SERVICE. Supplier agrees that Services are to be provided to
Company on an as needed basis, based on the demand for Company's product.
6. LICENSES. In providing Services to Company, Supplier shall be responsible for
the cost of any special licenses required by Supplier's employees to perform the
Services.
7. COMPENSATION. Company agrees to pay Supplier in a timely manner for the
Services rendered hereunder in accordance with the labor classification and
hourly rate structure and pricing structure set forth on Exhibit "B", which may
be revised from time to time by mutual written agreement of the parties. Exhibit
"B" is attached hereto, and incorporated herein by reference to this Agreement.
8. DOCUMENTATION OF EARNINGS. Supplier's employees performing Services for
Company pursuant to this Agreement shall be bound by the provisions of this
Agreement. Company shall maintain, and furnish to Supplier, records reflecting
actual hours worked by Supplier's employees at its Plant. Supplier shall be
responsible for maintaining and verifying any earnings reported and paid to the
Supplier's employees.
<PAGE>
-3-
9. WORK INJURIES. Any Supplier employee sustaining any known work related to
injury or occupational disease or illness shall report same immediately to
Supplier. Supplier agrees to notify Company of any injury, occupational disease
or illness reported by its employees within 24 hours from the time any such
injury is reported by its employees assigned to the Plant. Supplier agrees to
indemnify and hold Company harmless from any claim by Supplier's employees for
workers' compensation benefits including the cost of defense, attorney's fees,
penalties, fines, judgments, or awards of benefits.
10. INDEMNIFICATION. Supplier agrees to indemnify and hold Company, its
officers, directors, agents, and employees harmless from and against all
liabilities, penalties, fines, judgments and decrees, damages, losses, actions,
or causes of action, costs, and expenses (including attorney's fees), caused, in
whole or in part, by either of the following:
A. Supplier's violation or non compliance with any Federal, state or
local labor laws and laws regarding equal employment opportunities
including, but not limited to the following: unemployment compensation,
workers' compensation insurance, employment taxes including F.I.C.A.
and Medicare taxes, immigration laws, OSHA, wage and hour laws,
collective bargaining obligations, the Americans with Disabilities Act
of 1990, the FMLA, any laws which prohibit discrimination on the basis
of national origin, race, color, religion, age or sex, wrongful
discharge laws, and health and pension benefits laws; or
B. Supplier's employees' act or omissions resulting in personal injury,
death, or property damage to:
(1) Themselves or their own property; (2) Other employees or
the property of other employees; (3) Third persons or the
property of third persons; or (4) The Company's property
11. INDEPENDENT CONTRACTOR. The status of Supplier is that of an independent
contractor and not of an agent or employee of Company and as such, Supplier
shall not have the right or power to enter into any contracts, agreement, or
other commitments on behalf of Company.
12. INSURANCE. Supplier shall maintain in full force and effect the following
insurance coverage, and provide Company with a "Certificate of Insurance" naming
Company as Certificate Holder;
A. Comprehensive general liability insurance in the minimum amount of
$1,000,000 combined singled limit that will cover all losses Company's
property, property of third parties, or personal injuries caused, in
whole or in part, by Supplier's employees.
B. Employer liability insurance in the minimum amount of $1,000,000.
C. Workers' compensation insurance in accordance with the laws of all
states in which Supplier's employees provide Services to Company.
<PAGE>
-4-
D. Automobile liability insurance related to the use of automobiles by
Supplier's employees while on the job.
Each such policy shall be on an "occurrence" basis. However, if an "occurrence"
policy is not available, Supplier shall maintain an equivalent "claims made"
policy until the expiration of all statutes of limitation applicable to any
claim that could arise under this Agreement by virtue of the acts or omissions
of Supplier's employees. Company shall be named as an additional insured on all
such policies of insurance. All such policies shall require the insurer to
provide company with notice of impending cancellation, in the same manner as it
si required to provide such notice to Supplier. If Supplier shall fail to pay
premium when due, Company, in its sole discretion, may pay the same and Supplier
shall reimburse Company for the full amount of such premium within five (5)
business days after Company's payment. If reimbursement is not made within such
period, Company may deduct the full amount from the payments Company is required
to make to Supplier under paragraph 7 of this Agreement.
12. TERM. The term of this Agreement shall commence on the date the Agreement is
signed by the second party to sign the Agreement, and shall continue until
either party gives written notice to the other party of its intent to terminate
the Agreement. This agreement may be terminated upon giving the following
notices:
A. By Company, at any time, upon thirty (30) days prior written
notice; or
B. By Supplier, at any time, upon sixty (60) days prior written
notice.
13. NOTICES. Any notice provided for or concerning this Agreement shall be in
writing and be deemed sufficiently given when sent by certified or registered
mail, if sent to the respective address of each party as set forth below:
If to the Company: DESA International, Inc.
Attention: Scott Slater
2701 Industrial Drive
P.O. Box 90004
Bowling Green, Kentucky 42102
Facsimile Number: 502/745-7750
If to the Supplier: The Hamilton Ryker Company, Inc.
Att: Wayne McCreight
947 E. Main Street
P.O. 1068
Martin, TN 38237
Fax: 901-587-3195
14. ENTIRE AGREEMENT. This Agreement shall constitute the entire Agreement
between the parties, and any prior understanding or representation of any kind
preceding the date of this Agreement shall not be binding upon either party
except to the extent incorporated in this Agreement.
<PAGE>
-5-
15. CHOICE OF LAW. It is agreed that as to any controversy regarding the
construction and performance of this Agreement between the parties such shall be
construed according to the laws of the Commonwealth of Kentucky, with the
Commonwealth of Kentucky being the venue of any litigation between the parties.
16. AMENDMENTS. Any modification of this Agreement or additional obligation
assumed by either party in connection with this Agreement shall be binding only
if evidenced in writing signed by each party or an authorized representative of
each party.
17. WAIVER OF BREACH. The waiver of a breach of any provision of this Agreement
by either party shall not operate or be construed as a waiver of any subsequent
breach by either party. No waiver shall be valid unless it is in writing and
signed by an authorized officer of the party granting the waiver.
18. HEADINGS. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
19. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
20. MUTUAL NEGOTIATION. This Agreement, and the language contained herein have
been arrived at by mutual negotiation of the parties, accordingly, no provision
shall be construed against one party or in favor of another party merely by
reason of draftsmanship.
21. ATTORNEY'S FEE. In any action to enforce any provision of this Agreement,
the party seeking to enforce this Agreement shall be entitled to recover the
costs and expenses of any such litigation, including reasonable attorney's fees,
in addition to all rights and remedies of law.
22. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in the City of Bowling Green,
Kentucky, in accordance with the then governing rules of the American
Arbitration Association. Judgment upon the award rendered may be entered and
enforced in any court of competent jurisdiction.
23. SEVERABILITY. If any provision, paragraph, or subparagraph of this Agreement
is adjusted by any court of law to be void or unenforceable, in whole or in
part, such adjudication shall not be deemed to affect the validity of the
remainder of the Agreement, including any other provision, paragraph, and
subparagraph. Each provision, paragraph, and subparagraph of this Agreement is
declared to be separable from every other provision, paragraph, and subparagraph
and constitutes a separate and distinct covenant.
<PAGE>
-6-
IN TESTIMONY WHEREOF, the parties hereto have executed this Agreement
on this day and date first above written:
DESA INTERNATIONAL, INC. _____________________________________
BY:______________________ BY:_________________________________
TITLE:__________________ TITLE:______________________________
<PAGE>
EXHIBIT "A"
Supplier's employees shall not be entitled to, nor eligible for, and shall not
participate in any of the Company's pension, health, or other fringe benefit
plans which are listed below. Such participation in Company's fringe benefit
plans is limited solely to the Company's employees.
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
<PAGE>
EXHIBIT "B"
Company agrees to pay Supplier in a timely manner for the Services rendered
under the Agreement in accordance with the labor classification and hourly rate
structure and pricing structure set forth below.
LEASED WORKER ACKNOWLEDGMENT FORM
PLEASE READ THIS ACKNOWLEDGMENT FORM CAREFULLY BEFORE
SIGNING BELOW.
This will confirm my understanding of my assignment as a leased worker at DESA
International, Inc. ("DESA").
I understand that I am an employee of _______________________________ (the
"Supplier') and not of DESA International, Inc. I further understand that this
Supplier and not DESA will be responsible for paying may salary, withholding
from my salary income, social security, Medicare, and unemployment taxes, and
paying workers' compensation benefits on my behalf.
I also acknowledge and agree that as an employee of the Supplier, I am not
eligible to participate in any of DESA's employee benefit programs listed below,
nor will I be eligible to participate in these programs in the future unless I
apply for, am offered, and accept employment with DESA in a class, category, or
capacity that makes me eligible to participate in these programs.
I understand and agree that should I ever apply for and accept an offer of
employment with DESA, I would become eligible to participate in DESA's employee
benefit programs at the time, in accordance with the terms of each plan and
DESA's policies and procedures.
EMPLOYEE BENEFITS
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------------ ----------
Leased Supplier Employee's Signature Date
- - - - --------------------------------------
Print Name of Leased Supplier Employee
- - - - ------------------------------- ----------
Witness Date
<PAGE>
EXHIBIT "A"
Supplier's employees shall not be entitled to, nor eligible for, and shall not
participate in any of the Company's pension, health, or other fringe benefit
plans is limited solely to the Company's employees.
Rate: 43% mark-up over hourly pay
Rate is effective through Marcy 31, 1998, except for cost increases for health
insurance. If minimum wage and/or federal, state, or local taxes change or
federal, state or locally mandated benefits should increase within this period,
we reserve the right to adjust our bill rates accordingly with thirty (30) days
written notice.
This agreement insures both training time agreement and a guarantee of 1.5
percent return of Hamilton-Ryker invoices for months with no OSHA recordable
incidents. Payout for month with no recordable incidents will be sixty days
after accident free month due to Tennessee Workers Compensation Law that states
employee has thirty days to report incident.
Bill rate includes cost of on-site facilities manager. Bill rate includes cost
of five (5) days risk management training annually.
EXHIBIT 10.5
AGREEMENT TO PROVIDE SERVICES
This Agreement to Provide Services (the "Agreement"), is made and entered into
effective this 7th day of July, 1997, by and between DESA International, Inc.,
2701 Industrial Drive, P.O. Box 90004, Bowing Green, Kentucky 42102-9004,
(hereafter referred to as "Company"), and Manpower of Indiana Limited
Partnership (d/b/a MANPOWER Temporary Services), located at 1945 Scottsville
Road Suite 112, Bowling Green, KY 42104, (hereinafter referred to as
"Supplier").
WITNESSETH:
WHEREAS, Company desires to lease Supplier's employees to supplement its work
force in the operation of its manufacturing process at its plant(s) located at:
Bowling Green, Kentucky, (herein referred to as the "Plant"); and
WHEREAS, Supplier is ready, willing, and able to provide personnel in sufficient
quantities to work in Company's manufacturing process at the Plant (herein
referred to as "Services").
NOW, THEREFORE, in consideration of the above recitals, terms, and covenants of
this Agreement, and other valuable consideration, the receipt of which is
acknowledged, the parties agree to follows:
1. SERVICES. Supplier agrees to supply Company with Supplier's employees to
provide Services at the Company's Plant in such quantities as may be deemed
necessary by Company for its manufacturing process at the Plant. Supplier agrees
to have a sufficient number of employees qualified and able to report for work
at the Plant upon notice from Company that such Services are required. Supplier
agrees that in the event it becomes unable for any reason to supply Company with
a sufficient number of employees to satisfy Company's labor requirements or
qualifications that it will contract with other similar leasing companies to
supply Company with qualified workers in quantities required by Company. If
Supplier contracts with other leasing companies to supply Services under this
Agreement, such Services will be provided under the same terms and conditions
set forth in this Agreement. Nothing in this Agreement shall be construed to
limit Company's right to contract with third parties as may be necessary from
time to time during the term of this Agreement to ensure that it has a
sufficient number of workers for manufacturing purposes at its Plant.
2. SUPPLIER AS EMPLOYER (A) Both parties agree that the personnel provided to
Company under and pursuant to this Agreement are employees of Supplier to the
fullest extent allowed by applicable law. Supplier agrees that it has the sole
legal responsibility for the prompt payment of all wages, unemployment
compensation taxes, maintaining adequate workers' compensation insurance, the
payment of all employment taxes including F.I.C.A. and Medicare taxes, the
payment of all employee health and pension benefits, and the payment of any
other fringe benefits provided to its employees. Supplier's employees shall not
be entitled to, nor eligible for, and shall not participate in any of the
Company's pension,
<PAGE>
health, or other fringe benefit plans is limited solely to the Company's
employees. Supplier agrees that at all times material to this Agreement it shall
use due diligence to ensure that it is fully complying with all labor laws and
laws regarding equal employment opportunities, whether Federal, state or local,
including but not limited to, all immigration laws, the Occupational Safety and
Health Act ("OSHA"), all wage and hour laws, collective bargaining obligations,
the Americans with Disabilities Act of 1990, the Family and Medical Leave Act
("FMLA"), and workers' compensation laws.
(B) Supplier's employees providing Services to Company's Plant shall remain
employees of Supplier throughout their assignment at Company, and shall not be
considered employees of Company. Company shall have no responsibilities
associated with that of an employer as it relates to Supplier's employees. In
order to carry out its obligations hereunder, Supplier shall designated one or
more "on-site supervisors" from among the personnel assigned to the Plant. The
on-site supervisors shall oversee administrative and managerial matters relating
to Supplier's employees and shall be under the direct supervision of Supplier's
management team. The on-site supervisor with cooperation from Company's
management team shall determine the policies and procedures to be followed by
Supplier's employees regarding the time and performance of their duties.
3. WORK ENVIRONMENT. Company shall take all reasonable steps to ensure that the
work environment provided to Supplier's employees is in compliance with all
applicable Federal, state and local law governing the workplace, but by so doing
shall not be considered the employer of Supplier's employees who work at
Company's Plant.
4. TRADE SECRETS. In Company's sole discretion, Supplier's employees may be
required to enter into trade secrecy agreements with Company to protect
Company's proprietary trade secrets, in a form acceptable to the Company.
Company shall take reasonable steps to protect confidential information, cash on
hand, and inventory; however, Supplier shall be liable to Company for Supplier's
employee theft of Company property. Supplier may at its own expense bond
Supplier's employees providing Services to Company.
5. QUANTITY OF SERVICE. Supplier agrees that Services are to be provided to
Company on an as needed basis, based on the demand for Company's product.
6. LICENSES. In providing Services to Company, Supplier shall be responsible for
the cost of any special licenses required by Supplier's employees to perform the
Services.
7. COMPENSATION. Company agrees to pay Supplier in a timely manner for the
Services rendered hereunder in accordance with the labor classification and
hourly rate structure and pricing structure set forth on Exhibit "B", which may
be revised from time to time by mutual written agreement of the parties. Exhibit
"B" is attached hereto, and incorporated herein by reference to this Agreement.
8. DOCUMENTATION OF EARNINGS. Supplier's employees performing Services for
Company pursuant to this Agreement shall be bound by the provisions of this
Agreement. Company shall maintain, and furnish to Supplier, records reflecting
actual hours worked by
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<PAGE>
Supplier's employees at its Plant. Supplier shall be responsible for maintaining
and verifying any earnings reported and paid to the Supplier's employees.
9. WORK INJURIES. Any Supplier employee sustaining any known work related to
injury or occupational disease or illness shall report same immediately to
Supplier. Supplier agrees to notify Company of any injury, occupational disease
or illness reported by its employees within 24 hours from the time any such
injury is reported by its employees assigned to the Plant. Supplier agrees to
indemnify and hold Company harmless from any claim by Supplier's employees for
workers' compensation benefits including the cost of defense, attorney's fees,
penalties, fines, judgments, or awards of benefits.
10. INDEMNIFICATION. Supplier agrees to indemnify and hold Company, its
officers, directors, agents, and employees harmless from and against all
liabilities, penalties, fines, judgments and decrees, damages, losses, actions,
or causes of action, costs, and expenses (including attorney's fees), caused, in
whole or in part, by either of the following:
A. Supplier's violation or non compliance with any Federal, state or
local labor laws and laws regarding equal employment opportunities
including, but not limited to the following: unemployment compensation,
workers' compensation insurance, employment taxes including F.I.C.A.
and Medicare taxes, immigration laws, OSHA, wage and hour laws,
collective bargaining obligations, the Americans with Disabilities Act
of 1990, the FMLA, any laws which prohibit discrimination on the basis
of national origin, race, color, religion, age or sex, wrongful
discharge laws, and health and pension benefits laws; or
B. Supplier's employees' act or omissions resulting in personal injury,
death, or property damage to:
(1) Themselves or their own property; (2) Other employees or
the property of other employees; (3) Third persons or the
property of third persons; or (4) The Company's property
11. INDEPENDENT CONTRACTOR. The status of Supplier is that of an independent
contractor and not of an agent or employee of Company and as such, Supplier
shall not have the right or power to enter into any contracts, agreement, or
other commitments on behalf of Company.
12. INSURANCE. Supplier shall maintain in full force and effect the following
insurance coverage, and provide Company with a "Certificate of Insurance" naming
Company as Certificate Holder;
A. Comprehensive general liability insurance in the minimum amount of
$1,000,000 combined singled limit that will cover all losses Company's
property, property of third parties, or personal injuries caused, in
whole or in part, by Supplier's employees.
-3-
<PAGE>
B. Employer liability insurance in the minimum amount of $1,000,000.
C. Workers' compensation insurance in accordance with the laws of all
states in which Supplier's employees provide Services to Company.
D. Automobile liability insurance related to the use of automobiles by
Supplier's employees while on the job.
Each such policy shall be on an "occurrence" basis. However, if an "occurrence"
policy is not available, Supplier shall maintain an equivalent "claims made"
policy until the expiration of all statutes of limitation applicable to any
claim that could arise under this Agreement by virtue of the acts or omissions
of Supplier's employees. Company shall be named as an additional insured on all
such policies of insurance. All such policies shall require the insurer to
provide company with notice of impending cancellation, in the same manner as it
si required to provide such notice to Supplier. If Supplier shall fail to pay
premium when due, Company, in its sole discretion, may pay the same and Supplier
shall reimburse Company for the full amount of such premium within five (5)
business days after Company's payment. If reimbursement is not made within such
period, Company may deduct the full amount from the payments Company is required
to make to Supplier under paragraph 7 of this Agreement.
12. TERM. The term of this Agreement shall commence on the date the Agreement is
signed by the second party to sign the Agreement, and shall continue until
either party gives written notice to the other party of its intent to terminate
the Agreement. This agreement may be terminated upon giving the following
notices:
A. By Company, at any time, upon thirty (30) days prior written notice;
or
B. By Supplier, at any time, upon sixty (60) days prior written notice.
13. NOTICES. Any notice provided for or concerning this Agreement shall be in
writing and be deemed sufficiently given when sent by certified or registered
mail, if sent to the respective address of each party as set forth below:
If to the Company: DESA International, Inc.
Attention: Scott Slater
2701 Industrial Drive
P.O. Box 90004
Bowling Green, Kentucky 42102
Facsimile Number: 502/745-7750
If to the Supplier: MAN POWER TEMPORARY SERVICES
Att: Todd Lafond
1945 Scottsville Road, Suite 112
Bowling Green, KY 42104
Fax: 502-843-6252
-4-
<PAGE>
14. ENTIRE AGREEMENT. This Agreement shall constitute the entire Agreement
between the parties, and any prior understanding or representation of any kind
preceding the date of this Agreement shall not be binding upon either party
except to the extent incorporated in this Agreement.
15. CHOICE OF LAW. It is agreed that as to any controversy regarding the
construction and performance of this Agreement between the parties such shall be
construed according to the laws of the Commonwealth of Kentucky, with the
Commonwealth of Kentucky being the venue of any litigation between the parties.
16. AMENDMENTS. Any modification of this Agreement or additional obligation
assumed by either party in connection with this Agreement shall be binding only
if evidenced in writing signed by each party or an authorized representative of
each party.
17. WAIVER OF BREACH. The waiver of a breach of any provision of this Agreement
by either party shall not operate or be construed as a waiver of any subsequent
breach by either party. No waiver shall be valid unless it is in writing and
signed by an authorized officer of the party granting the waiver.
18. HEADINGS. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
19. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
20. MUTUAL NEGOTIATION. This Agreement, and the language contained herein have
been arrived at by mutual negotiation of the parties, accordingly, no provision
shall be construed against one party or in favor of another party merely by
reason of draftsmanship.
21. ATTORNEY'S FEE. In any action to enforce any provision of this Agreement,
the party seeking to enforce this Agreement shall be entitled to recover the
costs and expenses of any such litigation, including reasonable attorney's fees,
in addition to all rights and remedies of law.
22. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in the City of Bowling Green,
Kentucky, in accordance with the then governing rules of the American
Arbitration Association. Judgment upon the award rendered may be entered and
enforced in any court of competent jurisdiction.
23. SEVERABILITY. If any provision, paragraph, or subparagraph of this Agreement
is adjusted by any court of law to be void or unenforceable, in whole or in
part, such adjudication shall not be deemed to affect the validity of the
remainder of the Agreement, including any other provision, paragraph, and
subparagraph. Each provision, paragraph, and subparagraph of this Agreement is
declared to be separable from every other provision, paragraph, and subparagraph
and constitutes a separate and distinct covenant.
-5-
<PAGE>
IN TESTIMONY WHEREOF, the parties hereto have executed this Agreement
on this day and date first above written:
DESA INTERNATIONAL, INC. Manpower of Indiana Limited Partnership
(d/b/a MANPOWER TEMPORARY SERVICES)
BY:______________________ BY:_________________________________
TITLE:__________________ TITLE:______________________________
-6-
<PAGE>
EXHIBIT "A"
Supplier's employees shall not be entitled to, nor eligible for, and shall not
participate in any of the Company's pension, health, or other fringe benefit
plans which are listed below. Such participation in Company's fringe benefit
plans is limited solely to the Company's employees.
Health Care Benefit Plans Worker's Compensation Coverage
Life Insurance Benefit Plan Unemployment Insurance Benefit Coverage
AD & D Insurance Benefit Plan
Accident & Sickness Benefit Plan
DESA Industrial Hourly Pension Plan
EXHIBIT "B"
Company agrees to pay Supplier in a timely manner for the Services rendered
under the Agreement in accordance with the labor classification and hourly rate
structure and pricing structure set forth below.
LABOR GRADE IV (General Production Laborer) -
1st Shift ... $6.50/hr. x 1.34 = $8.71/hr.
2nd Shift ... $6.65/hr. x 1.34 = $8.91/hr.
3rd Shift ... $6.68/hr. x 1.34 = $8.95/hr.
-7-
<PAGE>
ADDENDUM TO AGREEMENT
Supplier acknowledges Company is a party to a collective bargaining agreement at
its Bowling Green, Kentucky Plant that requires all production laborers to
become members of the local union on the 61st day following the beginning of
their work at the Bowling Green Plant. Accordingly, Supplier agrees that any
Supplier employee whose employment extends to 60 or more consecutive calendar
days at the Bowling Green, Kentucky Plant shall become an employee of Company
beginning on the 61st day of their assignment to work at Company's Bowling
Green, Kentucky Plant, and be required to join the local union as a condition of
becoming a Company employee at the Bowling Green, Kentucky Plant.
IN TESTIMONY WHEREOF, the parties hereby have executed this ADDENDUM TO
AGREEMENT on this the 7th day of July, 1997.
DESA INTERNATIONAL, INC. Manpower of Indiana Limited Partnership
d/b/a MANPOWER TEMPORARY SERVICES
BY:____________________________ BY:________________________________
TITLE:_________________________ TITLE:_____________________________
-8-
<PAGE>
LEASED WORKER ACKNOWLEDGMENT FORM
PLEASE READ THIS ACKNOWLEDGMENT FORM CAREFULLY BEFORE SIGNING BELOW.
This will confirm my understanding of my assignment as a leased worker at DESA
International, Inc. ("DESA").
I understand that I am an employee of MANPOWER TEMPORARY SERVICES (the
"Supplier') and not of DESA International, Inc. I further understand that this
Supplier and not DESA will be responsible for paying may salary, withholding
from my salary income, social security, Medicare, and unemployment taxes, and
paying workers' compensation benefits on my behalf.
I also acknowledge and agree that as an employee of the Supplier, I am not
eligible to participate in any of DESA's employee benefit programs listed below,
nor will I be eligible to participate in these programs in the future unless I
apply for, am offered, and accept employment with DESA in a class, category, or
capacity that makes me eligible to participate in these programs.
I understand and agree that should I ever apply for and accept an offer of
employment with DESA, I would become eligible to participate in DESA's employee
benefit programs at the time, in accordance with the terms of each plan and
DESA's policies and procedures.
EMPLOYEE BENEFITS
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- -------------------------------
- - - - ------------------------------- ----------
Leased Supplier Employee's Signature Date
- - - - -------------------------------
Print Name of Leased Supplier Employee
- - - - ------------------------------- ----------
Witness Date
-9-
<PAGE>
EXHIBIT "A"
Supplier's employees shall not be entitled to, nor eligible for, and shall not
participate in any of the Company's pension, health, or other fringe benefit
plans is limited solely to the Company's employees.
Rate: 43% mark-up over hourly pay
Rate is effective through Marcy 31, 1998, except for cost increases for health
insurance. If minimum wage and/or federal, state, or local taxes change or
federal, state or locally mandated benefits should increase within this period,
we reserve the right to adjust our bill rates accordingly with thirty (30) days
written notice.
This agreement insures both training time agreement and a guarantee of 1.5
percent return of Hamilton-Ryker invoices for months with no OSHA recordable
incidents. Payout for month with no recordable incidents will be sixty days
after accident free month due to Tennessee Workers Compensation Law that states
employee has thirty days to report incident.
Bill rate includes cost of on-site facilities manager. Bill rate includes cost
of five (5) days risk management training annually.
-10-
EXHIBIT 10.6
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 3rd day of March, 1996, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Sales & Marketing Specialists
ADDRESS: 6116A Highway 9
CITY: Parkville, MO 64152
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Reddy Heater.
Comfort Glow and Remington Heating Products.
Remington Powder Actuated Tools, Pins and Loads.
PowerFast Fastening Products
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that
-2-
<PAGE>
originate in Area of Responsibility which are solicited by
Representative and accepted by Manufacturer and are shipped and
invoiced during the period that Representative is operating under the
terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: States of: Missouri, Kansas and Nebraska
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types:
All consumer accounts for above noted product lines.
Central Tractor, Des Moines, Iowa for Remington Tools, Pins and Loads,
PowerFast Products.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility.
Catalog Accounts. Wheatbelt Mdse. Group, orders shipping to
Wisconsin,Minnesota, North Dakota, and South Dakota for all product
lines. Payless Cashways for all heating products.
NOTE: Manufacturer may sell or lease products of its manufacture
covered by this Agreement direct to governmental agencies and
subdivisions thereof, and to non-retail buyers without obligation to
Representative.
-3-
<PAGE>
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D.
-5-
<PAGE>
Upon termination of this Agreement, Representative shall return unpaid samples,
all remaining promotional material, catalogs, price lists, bulletins, owner's
manual and current advertising material and other literature which was furnished
to Representative by Manufacturer.
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to
-6-
<PAGE>
Manufacturer any written or printed matter or any other document furnished by
Manufacturer, and all copies thereof, in Representative's possession or control.
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement.
-7-
<PAGE>
DATE May 3, 1996 DATE June 24, 1996
DESA INTERNATIONAL Sales and Marketing Specialists
MANUFACTURER REPRESENTATIVE
BY____________________________ _______________________________
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-8-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 4% of shipments of Remington
Tools, Pins and Loads.
2. Commissions will be paid on the basis of 3.5% of shipments of PowerFast
Products.*
* Commissions will be paid on the basis of 5% of shipments of
PowerFast Cable Tackers and Cable Tacker Staples.
3. Commissions will be paid on the basis of 5% of shipments for Heating
Products with the following exceptions:
a. 3.5% on all kerosene 35,000 BTU heating product units.
b. 3.0% on Reddy Heater Heat Demon Tank Top Heating Products
units, (UT) and Comfort Glow Vent-Free Plaque Heaters (UV).
4. Commission will be paid on the basis of 1.5% of shipments to Blish Mize
for Remington Tools, Pins and Loads.
5. Central Tractor: PAT - 3.5%
Heating - 2.0%
6. Commissions will be paid on the basis of 2.5% for all heating units for
Cimarron Lumber. (UH, UU, U4, UV, US, UTT, UMH, UGL, UUF, UGV and UDV).
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.7
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 1st day of June, 1997, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: The Upper Midwest Group Inc.
ADDRESS: 14631 Martin Drive
CITY: Eden Prairie, MN 55344
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Reddy Heater,
Remington and Comfort Glow Heating Products. Remington Powder Actuated
Tools, Pins and Loads. PowerFast Fastening Products
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that originate in Area of Responsibility which
are solicited by Representative and accepted
-2-
<PAGE>
by Manufacturer and are shipped and invoiced during the period that
Representative is operating under the terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies:
States of: Wisconsin, Minnesota, North Dakota, South Dakota and Iowa.
Wheatbelt Mdse. Group orders shipping to dealers in above states.
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types:
All consumer accounts for above noted product lines.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility.
Catalog Accounts. Northern Hydraulics and Coast to Coast for Heating
only. NOTE: Manufacturer may sell or lease products of its manufacture
covered by this Agreement direct to governmental agencies and
subdivisions thereof, and to non-retail buyers without obligation to
Representative.
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts
-3-
<PAGE>
shall become effective unless and until that order is formally accepted by
written notice to the customer from Manufacturer, and Manufacturer, in its sole
discretion, may refuse to accept any order. Manufacturer reserves the right to
condition shipments, upon agreement of satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D. Upon termination of this
Agreement, Representative shall return unpaid samples, all remaining promotional
material, catalogs, price lists, bulletins, owner's manual and current
advertising material and other literature which was furnished to Representative
by Manufacturer.
-5-
<PAGE>
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to Manufacturer
any written or printed matter or any other document furnished by Manufacturer,
and all copies thereof, in Representative's possession or control.
-6-
<PAGE>
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement.
DATE June 9, 1997 DATE June 24, 1997
DESA INTERNATIONAL Upper Midwest Group, Inc.
MANUFACTURER REPRESENTATIVE
BY____________________________ Midwest Group, Inc.
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-7-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 5% of shipments of Heating
Products, with the following exceptions:
a. 3.5% on all kerosene 35,000 BTU heating product units.
b. 3% on Reddy Heater Heat Demon Tank Top Heating Products units
(category UTT).
c. 4% on all heater accessories (product codes AV, AGV, AGW, ADV,
AGL, AUF, UUF, AH and AU).
d. 2% of shipments of heating products to Menards (400090),
product codes UH, UU, UUC, UVU, USU, UGR, UMM, UMB, UFB, UFP,
UCF, ULM, UFS, U4, UTT, UV, US, UMH, UGL, UGV and UUF, up to
$4 million. For shipments beyond $4 million, 1.5% commission
will be paid for the above categories.
e. Commissions for Blain Supply (4000390) and Mills Fleet Farm
(4001860) will be paid as follows:
3.5% paid for UH and UU, UUC
3.0% paid for UV, US, UMH, UGL, UUF, UVU, USU, UGR,
UMM, UMB, UFP, UFB, UCF, ULM, UFS.
2. Commissions will be paid on the basis of 4% of shipments for Remington
Tools, Pins and Loads.
3. Commissions will be paid on the basis of 3.5% of shipments for
PowerFast Products.*
* Commissions will be paid on the basis of 5% of shipments for
PowerFast Cable Tackers and Cable Tackers Staples.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.8
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this __ day of ________________, 199_, between DESA
International, Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Marketing Consultants Inc.
ADDRESS: 19 East St. Charles Road
CITY: Lombard, IL 60148
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Reddy Heater.
Comfort Glow and Remington Heating Products.
Remington Powder Actuated Tools, Pins and Loads.
Remington Electric Chain Saws
PowerFast Fastening Products
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established
-2-
<PAGE>
accounts in Representative's Area of Responsibility and orders from new
accounts that originate in Area of Responsibility which are solicited
by Representative and accepted by Manufacturer and are shipped and
invoiced during the period that Representative is operating under the
terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: State of Illinois
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types:
All consumer accounts for above noted product lines.
Montgomery Wards
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility.
Catalog Accounts, Sears, W. W. Grainger, McMaster-Carr, Joseph T.
Ryrson & Son. NOTE: Manufacturer may sell or lease products of its
manufacture covered by this Agreement direct to governmental agencies
and subdivisions thereof, and to non-retail buyers without obligation
to Representative.
-3-
<PAGE>
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation. SECTION 6 LIABILITY FOR DELAYS No liability shall be
attached to Manufacturer for direct, indirect incidental or consequential
damages or expenses due to loss, damage, detention, or delay in delivery of
Products resulting from acts or delays beyond its control. SECTION 7 USE OF
NAMES, TRADE NAMES, AND TRADEMARKS
-4-
<PAGE>
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D. Upon termination of this
Agreement, Representative shall return unpaid samples, all remaining promotional
material, catalogs, price lists, bulletins, owner's manual and current
advertising material and other literature which was furnished to Representative
by Manufacturer.
-5-
<PAGE>
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to Manufacturer
any written or printed matter or any other document furnished by Manufacturer,
and all copies thereof, in Representative's possession or control.
-6-
<PAGE>
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement. DATE _______________ 19__ DATE _________________ 19__
- - - - ------------------------------ ------------------------------
MANUFACTURER REPRESENTATIVE
BY____________________________ _______________________________
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-7-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
<PAGE>
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 3.5% of shipments of Remington
Chain Saws.
2. Commissions will be paid on the basis of 3.5% of shipments of PowerFast
products.*
3. Commissions will be paid on the basis of 4% of shipments of Remington
CPAT products.
* Commissions will be paid on the basis of 5% of shipments for
PowerFast Cable Tackers and Cable Tacker Staples.
4. Commissions will be paid on the basis of 3.5% of shipments for heating
products with the following exceptions:
a. 2.5% on Reddy Heater Heat Demon Tank Top heaters (UTT).
b. 4.0% on all heater accessories-AH, AU, AV, AGV, AGW, ADV, AGL,
AUF, ATT, AT, AWW
c. 5.0% on vent-free gas log heaters (UGL), vent-free gas
fireplaces (UUF) and radiant flame fireplaces (UMH).
d. Commissions for heating products will be paid for the accounts
listed below as follows:
Account Customer Number
Farm King Supply, Macomb, IL 4001740
Mattoon Rural King Supply, Mattoon, IL 4048610
Quincy Farm Supply, Quincy, IL 4045310
Olney Rural King Supply, Olney, IL 4046950
<PAGE>
Springfield Farm & Home, Springfield, IL 4033080
Watseka Rural King, Watseka, IL 4001270
5.0% for all heating products with the following exceptions:
a. 2.5% for Reddy Heater Heat Demon Tank Top Heaters (UTT).
b. 3.5% for Comfort Glow Plaque Heaters (UV) and 35,000 BTU
kerosene products.
c. 4.0% for all heater accessories (AH, AU, AV, AGV, AGW, ADV,
AGL, AUF, ATT, AT AND AWW.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.9
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 3rd day of March, 1996, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Belmont Enterprises, Inc.
ADDRESS: 731 Lingco Drive, Suite 101
CITY: Richardson, TX 75081
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Reddy Heater,
Comfort Glow and Remington Heating Products. Remington Powder Actuated
Tools, Pins and Loads. PowerFast Fastening Products
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that originate in Area of Responsibility which
are solicited by Representative and accepted
-2-
<PAGE>
by Manufacturer and are shipped and invoiced during the period that
Representative is operating under the terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: States of: Arkansas, Louisiana, Oklahoma and Texas.
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types: All consumer
accounts for above noted product lines. J.C. Penney Company for all
products listed.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility. El Paso County, Texas; Sams
Wholesale, Wal-Mart, Catalog Accounts, Albertsons. NOTE: Manufacturer
may sell or lease products of its manufacture covered by this Agreement
direct to governmental agencies and subdivisions thereof, and to
non-retail buyers without obligation to Representative.
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts
-3-
<PAGE>
shall become effective unless and until that order is formally accepted by
written notice to the customer from Manufacturer, and Manufacturer, in its sole
discretion, may refuse to accept any order. Manufacturer reserves the right to
condition shipments, upon agreement of satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D. Upon termination of this
Agreement, Representative shall return unpaid samples, all remaining promotional
material, catalogs, price lists, bulletins, owner's manual and current
advertising material and other literature which was furnished to Representative
by Manufacturer.
-5-
<PAGE>
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to Manufacturer
any written or printed matter or any other document furnished by Manufacturer,
and all copies thereof, in Representative's possession or control.
-6-
<PAGE>
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement. DATE March 21, 1996
DATE March 29, 1996
DESA INTERNATIONAL
MANUFACTURER REPRESENTATIVE
BY____________________________
OFFICER d/b/a
`
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-7-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 5% of shipments of Heating
Products with the following exceptions:
a. 3.5% on all kerosene 35,000 BTU heating product units.
b. 3% on Reddy Heater Heat Demon Tank Top Heating Products units
(UTT) and Comfort Glow Vent-Free Plaque Heaters (UV).
2. Commissions will be paid on the basis of 4% of shipments for Remington
Tools, Pins and Loads.
3. Commissions will be paid on the basis of 3.5% of shipments for
PowerFast Products.*
4. Commissions will be paid on the basis of 3% of shipments of Remington
CPAT and Chain Saws to J.C. Penney Company.
5. Commissions will be paid on the basis of 5% of shipments for heating
products to J.C. Penney Company (se la).
6. Commissions will be paid as follows on the following Distribution
American member shipments of CPAT products for Builders Square.
a. L.G. Cook: 2.5%
b. Orgill Brothers: 2.3%
c. Emery Waterhouse: 2.5%
d. Blish Mize: 2.5%
e. Jensen Dist.: 1.3%
* Commissions will be paid on the basis of 5% of shipments for
PowerFast Cable Tackers and Cable Tackers Staples.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.10
DESA INTERNATIONAL AGREEREEMENT
MANUFACTURER'S REPRESENTATIVE AENT
Agreement made on this 3rd day of March, 1996, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Kitchin & Son, Inc.
ADDRESS: 2901 East Main Street
CITY: Richmond, IN 47275
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Reddy Heater,
Comfort Glow and Remington Heating Products. Remington Powder Actuated
Tools, Pins and Loads. PowerFast Fastening Products. Remington Electric
Chain Saws**
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that
-2-
<PAGE>
originate in Area of Responsibility which are solicited by
Representative and accepted by Manufacturer and are shipped and
invoiced during the period that Representative is operating under the
terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: States of: Indiana, Michigan, Ohio, West Virginia, Kentucky
and Tennessee. State of Pennsylvania westward from and including
counties of: Potter, Clinton, Centre, Huntingdon and Fulton.
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types:
All consumer accounts for above noted product lines.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility. Tractor Supply Company and
Catalog Accounts for all products. NOTE: Manufacturer may sell or lease
products of its manufacture covered by this Agreement direct to
governmental agencies and subdivisions thereof, and to non-retail
buyers without obligation to Representative.
-3-
<PAGE>
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D.
-5-
<PAGE>
Upon termination of this Agreement, Representative shall return unpaid samples,
all remaining promotional material, catalogs, price lists, bulletins, owner's
manual and current advertising material and other literature which was furnished
to Representative by Manufacturer.
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to
-6-
<PAGE>
Manufacturer any written or printed matter or any other document furnished by
Manufacturer, and all copies thereof, in Representative's possession or control.
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement.
-7-
<PAGE>
DATE March 21, 1996 DATE May 6, 1996
DESA INTERNATIONAL KITCHIN & SONS, INC.
MANUFACTURER REPRESENTATIVE
BY____________________________ KITCHEN & SONS, INC.
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-8-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 3.5% of shipments of PowerFast
Products.*
2. Commissions will be paid on the basis of 4% of shipments for Remington
Tools, Pins and Loads.
3. Commissions will be paid on the basis of 5% of shipments for Heating
Products, with the following exceptions:
a. 3.5% on all kerosene 35,000 BTU heating product units.
b. 2.5% on Reddy Heater Heat Demon Tank Top Heating units.
c. 4% on all PFA and GFA product units.
d. 3% on Comfort Imported three plaque and five plaque Heating
units.
4. Commissions will be paid for CPAT product shipments to the following
Distribution
America members as follows:
a. L.G. Cook: 1.5%
b. Orgill Bros.: 1.7%
5. Commissions will be paid to Coast to Coast as follows:
a. CPAT shipments @ 2.5%
b. PFST shipments @ 2.5%.
6. Commission will be paid to ServiStar Corp. as follows: a. CPAT
shipments @ 2.5% b. PFST shipments @ 2.5%
7. Commissions will be paid on the basis of 0% of shipments for Remington
Chain Saws.
* Commissions will be paid on the basis of 5% for PowerFast
Cable Tackers and Cable Tackers Staples.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.11
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 3rd day of March, 1996, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Hurley Marketing Services
ADDRESS: 615 Stoddard Avenue
CITY: Wheaton, IL 60189
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Remington Tools,
Pins and Loads. PowerFast Fastening Products. Portable Forced-Air
Heaters, Gas Residential Heaters and Gas Forced-Air Heaters.
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that originate in Area of Responsibility which
are solicited by Representative and accepted
-2-
<PAGE>
by Manufacturer and are shipped and invoiced during the period that
Representative is operating under the terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: All of USA - Sears Retail/Catalog
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types: Sears Retail
and Sears Catalog
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility.
------------------------------------
------------------------------------
NOTE: Manufacturer may sell or lease products of its manufacture
covered by this Agreement direct to governmental agencies and
subdivisions thereof, and to non-retail buyers without obligation to
Representative.
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts
-3-
<PAGE>
shall become effective unless and until that order is formally accepted by
written notice to the customer from Manufacturer, and Manufacturer, in its sole
discretion, may refuse to accept any order. Manufacturer reserves the right to
condition shipments, upon agreement of satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D. Upon termination of this
Agreement, Representative shall return unpaid samples, all remaining promotional
material, catalogs, price lists, bulletins, owner's manual and current
advertising material and other literature which was furnished to Representative
by Manufacturer.
-5-
<PAGE>
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to Manufacturer
any written or printed matter or any other document furnished by Manufacturer,
and all copies thereof, in Representative's possession or control.
-6-
<PAGE>
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDIT
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement.
DATE March 27, 1996 DATE March 30, 1996
DESA INTERNATIONAL HURLEY MARKETING SERVICES
MANUFACTURER REPRESENTATIVE
BY____________________________
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-7-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 3.5% of shipments of PowerFast
Products.
2. Commissions will be paid on the basis of 3.5% of shipments of Remington
Tools, Pins and Loads.
3. Commissions will be paid on the basis of 2% of shipments for heating
products.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.12
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 3rd day of March, 1996, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Marketing Services Group, Inc.
ADDRESS: P.O. Box 20312
CITY: Bowling Green, KY 42102-6312
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Electric Chain
Saws for W.W. Grainger account only. PFA and Gas Oil Fired Heaters.
Unvented Gas Heaters and all parts and accessories thereof. Powder
Actuated Tools and accessories. PowerFast Fastening Products.
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that
-2-
<PAGE>
originate in Area of Responsibility which are solicited by
Representative and accepted by Manufacturer and are shipped and
invoiced during the period that Representative is operating under the
terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: W.W. Grainger Co., McMaster Carr, Chicago, IL, C&H Distrs.,
Milwaukee, WI, Global Equip. Co., Mitchfield, NY, Specialized Mail
Order accounts, Joseph T. Ryerson & Son, Chicago, IL
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types:
As noted previously.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility. All other accounts. NOTE: Manufacturer
may sell or lease products of its manufacture covered by this Agreement direct
to governmental agencies and subdivisions thereof, and to non-retail buyers
without obligation to Representative.
-3-
<PAGE>
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D.
-5-
<PAGE>
Upon termination of this Agreement, Representative shall return unpaid samples,
all remaining promotional material, catalogs, price lists, bulletins, owner's
manual and current advertising material and other literature which was furnished
to Representative by Manufacturer.
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to
-6-
<PAGE>
Manufacturer any written or printed matter or any other document furnished by
Manufacturer, and all copies thereof, in Representative's possession or control.
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed,
enforced and performed in accordance with the laws of the State of Kentucky. All
provisions of this Agreement are severable and any provision determined to be
invalid under the applicable laws of any jurisdiction shall be deemed
inoperative as to such jurisdiction to the extent of such invalidity. without
invalidating any of the other provisions of this Agreement.
-7-
<PAGE>
DATE March 27, 1996 DATE November 5, 1996
DESA INTERNATIONAL Kevin E. Thomas
MANUFACTURER REPRESENTATIVE
BY____________________________ Marketing Services Group, Inc.
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-8-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 2.5% of shipments for W.W.
Grainger for ALL product lines with the following exceptions:
a. Commissions will be paid on the basis of 5% for Grainger Chain
Saw shipments.
b. Commissions will be paid on the basis of 2.5% for Grainger
Generator shipments.
2. All Other Accounts:
a. 3.5% for Chain Saws
b. 3.5% for PowerFast products
c. 5% for Remington CPAT
d. 5% for Heating Products with the following exceptions:
a. 3.5% for all kerosene 35,000 BTU heating product
units.
b. 3% on Reddy Heater Heat Demon Tank Top Heating Units.
3. Parts: Commissions will be paid on the basis of 5% of replacement parts
to any authorized account.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.13
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 17th day of July, 1997, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Sales Managers, Inc.
ADDRESS: 3865 Holcomb Bridge Road
CITY: Norcross, GA 30092
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Reddy Heater,
Remington and Comfort Glow Heating Products. Remington Powder Actuated
Tools, Pins and Loads. PowerFast Fastening Products. Remington Electric
Chain Saws for Home Depot only.
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established
-2-
<PAGE>
accounts in Representative's Area of Responsibility and orders from new
accounts that originate in Area of Responsibility which are solicited
by Representative and accepted by Manufacturer and are shipped and
invoiced during the period that Representative is operating under the
terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies: States of: Alabama, Florida, Georgia, Mississippi, North
Carolina, South Carolina and Virginia.
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types: All consumer
accounts for above mentioned product lines. Hardware Home Center and
Mass Merchants.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility. Catalog Accounts. Lowe's
Companies, North Wilkesboro. Nelson Roanoke, Roanoke, VA for Powder
Actuated Tools, Pins and Loads and PowerFast Fastening Products. Home
Depot - West Coast Markets.
-3-
<PAGE>
NOTE: Manufacturer may sell or lease products of its manufacture
covered by this Agreement direct to governmental agencies and
subdivisions thereof, and to non-retail buyers without obligation to
Representative.
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
-4-
<PAGE>
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
-5-
<PAGE>
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D. Upon termination of this
Agreement, Representative shall return unpaid samples, all remaining promotional
material, catalogs, price lists, bulletins, owner's manual and current
advertising material and other literature which was furnished to Representative
by Manufacturer.
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or
-6-
<PAGE>
disclosure thereof, both during and after the terms of this Agreement, except as
authorized by Manufacturer. Upon termination of this Agreement, Representative
agrees to return to Manufacturer any written or printed matter or any other
document furnished by Manufacturer, and all copies thereof, in Representative's
possession or control.
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed
-7-
<PAGE>
inoperative as to such jurisdiction to the extent of such invalidity. without
invalidating any of the other provisions of this Agreement.
DATE July 25, 1997 DATE September 3, 1997
DESA INTERNATIONAL Sales Managers, Inc.
MANUFACTURER REPRESENTATIVE
BY____________________________
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-8-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. There will be no regular holdback of commission to cover bad debts.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
<PAGE>
APPENDIX A
FEE
1. Commissions will be paid on the basis of 4% of shipments of Heating
Products, with the following exceptions:
a. 3.5% for all kerosene 35,000 BTU heating product units.
b. 2.5% on Reddy Heater Heat Demon Tank Top Heating Units.
c. Commissions will be paid on the basis of 3% on new Comfort
Glow Radiant Heater line.
d. Commissions will be paid on the basis of 5% of shipment for
DESA produced Comfort Glow Gas Residential Heaters.
2. Commissions will be paid on the basis of 3.5% of shipment of PowerFast
Products.*
* Commissions will be paid on the basis of 5% of shipments of
PowerFast Cable Tackers and Cable Tacker Staples.
3. Commissions will be paid on the basis of 5% of shipments for Remington
Tools, Pins and Loads.
4. Commissions will be paid on the basis of 1% of shipments for Home Depot
on Electric Chain Saws.
From time to time, the Manufacturer may require a modification to the current
commission rate in order to meet market conditions and competitive issues. If a
revised rate is required, you will be notified prior to the finalization of the
business with the customer.
EXHIBIT 10.14
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 5th day of June, 1991, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Manufacturers Products, Inc.
ADDRESS: 342 N. County Rd. 400 East
CITY: Valparaiso, IN 46383
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below: Generators -
Pincor or Master Label
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that originate in Area of Responsibility which
are solicited by Representative and accepted
-2-
<PAGE>
by Manufacturer and are shipped and invoiced during the period that
Representative is operating under the terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies:
States of: Illinois, Ohio, Indiana
Wisconsin- All counties east of and including Lafayette, Iowa,
Richland, Vernon, Monroe, Wood, Jackson, Portage, Waupaca,
Shawano and Oconto.
Michigan - Excluding upper peninsula.
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types: Rental,
Construction/Industrial Supply and STAFDA type accounts, Hardware Home
Center, Mass Merchandising, Hardware Wholesalers and Co-operatives.
(C) EXCLUSIONS
The following accounts, markets, boundaries, etc. are excluded from the
Representative's Area of Responsibility.
Electrical distributors and HVAC accounts.
NOTE: Manufacturer may sell or lease products of its manufacture
covered by this Agreement direct to governmental agencies and
subdivisions thereof, and to non-retail buyers without obligation to
Representative.
-3-
<PAGE>
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
-4-
<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D.
-5-
<PAGE>
Upon termination of this Agreement, Representative shall return unpaid samples,
all remaining promotional material, catalogs, price lists, bulletins, owner's
manual and current advertising material and other literature which was furnished
to Representative by Manufacturer.
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to
-6-
<PAGE>
Manufacturer any written or printed matter or any other document furnished by
Manufacturer, and all copies thereof, in Representative's possession or control.
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement.
-7-
<PAGE>
DATE August 6, 1991 DATE June 24, 1991
DESA INTERNATIONAL Manufacturers Products, Inc.
MANUFACTURER REPRESENTATIVE
BY____________________________
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
-8-
<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. The monthly holdback from your commission will be discontinued at the
end of December. Reconciliation of the holdback will begin shortly
thereafter.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by Accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
NOTE: Upon implementation of this procedure, the five percent (5%)
holdback policy will be discontinued.
<PAGE>
ATTACHMENT 3
COMMISSION RATE
Seven percent (7%) commission will be paid on portable generators sold
on the standard program. All portable generators sold off the standard
program will be at five percent (5%) commission.
All PTO and standby units will be paid at five percent (5%) commission
rate.
<PAGE>
DESA INTERNATIONAL
MANUFACTURER'S REPRESENTATIVE AGREEMENT
Agreement made on this 4th day of August, 1991, between DESA International,
Bowling Green, Kentucky herein termed "Manufacturer" and:
NAME: Manufacturers Products, Inc.
ADDRESS: 432 N. County Rd. 400 East
CITY: Valparaiso, IN 46383
herein termed "Representative."
SECTION 1 RESPONSIBILITIES OF REPRESENTATIVE
Manufacturer grants Representative the right to solicit orders for the purchase
of Manufacturer's products (as listed in Section 2C) within Representative's
Area of Responsibility (Section 3). Representative agrees to extend best efforts
to achieve the Company's sales objectives for its products within
Representative's Area of Responsibility and to assist Manufacturer establish and
develop customer accounts in accordance with Manufacturer's policies.
Representative will search for qualified customer accounts, follow-up on
prospect leads furnished by Manufacturer, assist Manufacturer in developing
adequate parts and service support, execute an annual Customer Performance
Review on each account with Representative's Area of Responsibility, cooperate
with Manufacturer in developing territorial analysis and territorial objectives,
attend trade and dealer shows, conventions and sales meetings as directed by
Manufacturer. In addition to the foregoing, Manufacturer and Representative
shall have mutual responsibility for the communication and administration of
pricing adjustments, as they may occur.
SECTION 2 COMPENSATION, PAYMENT, PRODUCT & QUALIFYING ORDERS
<PAGE>
(A) FEE - Manufacturer agrees to pay Representative in accordance with the
fee scale outlined in Appendix A of this document. The commission shall
be calculated based upon the stated sales price to the customer as of
the date the actual order is placed with the Manufacturer. Eligibility
for fee payment shall commence upon the effective date of this
agreement and continue through the last day that this agreement is in
effect. (There is not vested interest on the part of the Representative
in any unshipped order or orders.)
(B) PAYMENT - Manufacturer will pay Representative earned fees on a monthly
basis as orders are shipped. Should purchaser fail to pay for any part
of the invoice for any reason, the fee received by Representative for
the unpaid portion of the invoice shall be deducted from future fees
earned. (See Attachment 1). Manufacturer reserves the right to defer
payment of earned fees or a portion thereof to cover contingencies such
as uncollectible receivables, returns, samples, memo billed to
Representative, etc. Manufacturer will credit Representative with the
accumulated deferred earned fees to the extent of that not offset by
those contingencies listed above. Payment of accumulated, deferred fees
will be made during the month of March of each year.
(C) PRODUCT LIST - The term "Products" includes all current products,
including options and accessories as described below:
Master Portable Heating Products & Accessories
Commission Rate: Oil - 5%
Propane - 7%
Remington Fastening Systems & Accessories
Commission Rate: 5%
(D) QUALIFYING ORDER - The term "Qualifying Order" applies to any order for
Manufacturer's Product accepted by Manufacturer that originates with
established accounts in Representative's Area of Responsibility and
orders from new accounts that originate in Area of Responsibility which
are solicited by Representative and accepted
-2-
<PAGE>
by Manufacturer and are shipped and invoiced during the period that
Representative is operating under the terms of this agreement.
SECTION 3 REPRESENTATIVE'S ARE OF RESPONSIBILITY
(A) Manufacturer grants Representative the right to solicit orders for
Manufacturer's Products within the following geographic/customer
boundaries in accordance with Manufacturer's distribution and marketing
policies:
States of: Illinois, Ohio, Indiana
Michigan - Excluding Upper Peninsula
Wisconsin- All counties east of Lafayette, Iowa, Richland, Vernon,
Monroe, Wood, Jackson, Portage, Waupaca, Shawano and Oconto.
(B) MARKETS
Representative understands that Manufacturer expects Representative to
solicit orders from the following primary account types: All rental,
STAFDA, Industrial/Construction Supply type accounts.
(C) EXCLUSIONS
The following accounts, markets, boundar es, etc. are excluded from the
Representative's Area of Responsibility. Electrical, HVAC, Hardware
Home Center, Mass Merchandising, Hardware Wholesalers and Co-operative
type accounts.
-3-
<PAGE>
SECTION 4 ORDERING AND CANCELLATION POLICIES
Manufacturer has issued and shall continue to issue to Representative, from time
to time, price lists and sales bulletins. No order submitted to Manufacturer
through Representative's efforts shall become effective unless and until that
order is formally accepted by written notice to the customer from Manufacturer,
and Manufacturer, in its sole discretion, may refuse to accept any order.
Manufacturer reserves the right to condition shipments, upon agreement of
satisfactory arrangements for payment.
SECTION 5 WARRANTY BY MANUFACTURER
Representative understands and agrees that the only warranties which
Manufacturer extends to customers of Manufacturer's Products are Manufacturer's
standard Warranty against defective material and workmanship, as defined within
Manufacturer's written warranty statement and which is in effect at the time of
delivery to the first user. If Representative makes any other warranty (such as
by enlarging the scope or period of warranty or undertaking a warranty of
merchantability or fitness for any particular purpose) or any other obligation
whatsoever, Representative shall: (1) be solely responsible therefore; (2) have
no recourse against Manufacturer; and (3) defend, indemnify and hold
Manufacturer harmless against any claim of cause of action whatsoever arising
out of, or occasioned by, the Representative's extension of said additional
warranty or obligation.
SECTION 6 LIABILITY FOR DELAYS
No liability shall be attached to Manufacturer for direct, indirect incidental
or consequential damages or expenses due to loss, damage, detention, or delay in
delivery of Products resulting from acts or delays beyond its control.
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<PAGE>
SECTION 7 USE OF NAMES, TRADE NAMES, AND TRADEMARKS
Representative agrees not to use Manufacturer's names including the name "DESA
or SWINGLINE" or any trademarks used in connection with Products, as part of the
corporate or business name of Representative, or in any manner which
Manufacturer considers improper, misleading or detrimental to Manufacturer's
interest. Upon termination of this Agreement, Representative shall cease to
operate as, or represent that Representative is, an authorized Representative of
Manufacturer and will refrain from any and all actions which would associate
Representative with Manufacturer. In addition, upon termination of this
Agreement, Representative will promptly remove all signs and other advertising
material or identifying marks that bear the name DESA or any other trade names
or trademarks of DESA International or any of its divisions or affiliate
companies from Representative's place of business, and thereafter Representative
shall not use such names and trademarks in any manner whatsoever, provided,
however, if Representative continues to be a Representative agreement, nothing
contained herein to the contrary shall prohibit Representative from exercising
any of his rights granted in such separate agreement.
SECTION 8 TERMINATION
This Agreement may be terminated by either party upon thirty (30) days prior
written notification sent to the other party or immediately by mutual consent.
Termination of this Agreement shall not release either party from payment of any
sum then owing to the other party at time of written notification of
termination, except as noted in Section 2A and 2D.
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<PAGE>
Upon termination of this Agreement, Representative shall return unpaid samples,
all remaining promotional material, catalogs, price lists, bulletins, owner's
manual and current advertising material and other literature which was furnished
to Representative by Manufacturer.
SECTION 9 REPRESENTATIVE NOT AN AGENT
Nothing contained herein shall be construed as designating Representative as an
employee, agent or legal representative of Manufacturer. Representative is not
granted any authority to create an obligation or responsibility on behalf of
Manufacturer, or to bind Manufacturer in any manner whatsoever. Representative
shall be at all times an independent contractor.
SECTION 10 NO OTHER AGREEMENTS
This nonassignable Agreement supersedes any agreement existing at any time
between the parties and there are no agreements or understanding, either oral or
written, which conflict with, alter or enlarge, and the express terms hereof
control both course of dealing and usage of trade. Any modifications of this
Agreement must be in writing and approved by a duly authorized employee of
Manufacturer.
SECTION 11 CONFIDENTIAL INFORMATION
Representative understands that Manufacturer may, from time to time, disclose to
Representative certain confidential technical or business information relating
to the subject matter of this Agreement. Representative agrees to hold such
information in confidence and make no use or disclosure thereof, both during and
after the terms of this Agreement, except as authorized by Manufacturer. Upon
termination of this Agreement, Representative agrees to return to
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<PAGE>
Manufacturer any written or printed matter or any other document furnished by
Manufacturer, and all copies thereof, in Representative's possession or control.
SECTION 12 DISCONTINUANCE AND MODIFICATION
Manufacturer may discontinue the manufacture of any product and make changes and
improvements at any time in the specifications, construction or design, of
Products without incurring any obligations to Representative.
SECTION 13 PERFORMANCE
No failure of Manufacturer to insist upon strict compliance with any provision
of this Manufacturer's Representative Agreement shall constitute waiver thereof
for the future, and all provisions herein shall remain in full force and effect.
The Representative will be given a performance evaluation every March on his
past performance. Measure of evaluation will be based on performance towards the
goals and objectives provided by the Manufacturer and agreed upon by the
Representative each January for the following year. An unsatisfactory
performance review can result in cancellation of this Agreement or the
Representative being retained on a probationary period for one year.
SECTION 14 APPLICABLE LAW AND INVALIDITY
This Agreement shall be construed, enforced and performed in accordance with the
laws of the State of Kentucky. All provisions of this Agreement are severable
and any provision determined to be invalid under the applicable laws of any
jurisdiction shall be deemed inoperative as to such jurisdiction to the extent
of such invalidity. without invalidating any of the other provisions of this
Agreement.
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<PAGE>
DATE August 26, 1991 DATE August 12, 1991
DESA INTERNATIONAL Manufacturers Products, Inc.
MANUFACTURER REPRESENTATIVE
BY____________________________
OFFICER d/b/a
BY_______________________
AUTHORIZED SIGNATURE
---------------------------
Title, if any, specify
Proprietorship, Partnership
Corporation
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<PAGE>
ATTACHMENT 1
BAD DEBT COMMISSION/HOLDBACK COMMISSION
I. The monthly holdback from your commission will be discontinued at the
end of December. Reconciliation of the holdback will begin shortly
thereafter.
II. Commission is processed to the sales agency at the time of invoicing.
Therefore, commission is paid prior to collection of the Accounts
Receivable.
III. If an account is classified as a Bad Debt, whether the action is
initiated by DESA with collection or legal proceedings, or an act by an
Account of filing Bankruptcy, a reversal of the commission paid to the
sales agency, as related to the outstanding obligation, will be made to
the extent the Accounts Receivable is deemed uncollectible. Through the
proceedings of collection of a Bad Debt, where payments are recovered,
the appropriate rate of commission will be reinstated to the sales
agency on the net proceeds.
<PAGE>
ATTACHMENT 2
PROCEDURE FOR BAD/DEBT COMMISSION
Commission is accrued and paid to the representative organizations at the time
of the invoicing process. If an account is classified as a bad debt, whether the
action is initiated by DESA with collection or legal proceedings or an act by
the account of filing bankruptcy, a reversal of the commission paid to the
representative organization as related to the outstanding obligation will be
made.
I. BAD DEBT
Classification of bad debt by DESA International.
* Account balances of $5,000 or less requires approval of the
Director of Credit.
* Account balances in excess of $5,000 requires approval of the
Director of Credit and Vice President of Finance.
Bankruptcy filings by an account
* Automatic classification to bad debt.
II. COMMISSION
In the month an account is classified as a bad debt:
1. A form will be generated by the Credit Department itemizing
the obligation and the corresponding amount of the
representatives commission.
2. All deductions of commission require approval of the Director
of Credit and the Vice President of Sales or his chosen
designate.
3. Any commission that has been rejected as a deduction requires
a written explanation approved by the Vice President of Sales
and Vice President of Finance.
4. The form once approved will be forwarded to Accounting to be
processed as a deduction to commission.
<PAGE>
5. The appropriate journal entry to reverse the commission
expense will be made by Accounting.
6. The representing organization is to receive a copy of the bad
debt commission form with their commission check.
III. PAYMENTS ON BAD DEBT ACCOUNTS
Through the proceedings of collection, legal or bankruptcy where
payments are recovered for the benefit of DESA International, the
appropriate rate of commission will be reinstated to the representative
agency on the net proceeds.
1. It is the responsibility of the Credit Department to document
the recovery and commission payable from the recovery.
2. Documentation to be forwarded to the Accounting Department for
journal entries to accrue and expense the commission.
3. The representative organization is to receive a copy of the
documentation of recovery with their commission check.
NOTE: Upon implementation of this procedure, the five percent (5%)
holdback policy will be discontinued.
<PAGE>
ATTACHMENT 4
SAMPLE ACCOUNTS
Requests for merchandise will be identified as an expense item or a billing
item.
EXPENSE ITEMS --- Any item classified as a cost of doing business by
the Sales Department that will not be returned or
paid for. An invoice will be generated reflecting
zero dollars and charging the appropriate expense.
This procedure requires approval by a Sales
Manager.
BILLING ITEMS --- Any item purchased is to be paid for or returned
in a specified period of time. An invoice will be
generated with terms of sale being "Net 180 Days"
to the individual's Sample Account. At the end of
the 180 day period, you will be contacted to
determine the status of the product. At this time
you have 30 days to sell, return or pay for the
sample. At the end of this 30 day period, if the
invoice remains open, it will be deducted against
commissions payable.
EXHIBIT 10.15
AGREEMENT FOR THE EXPLOITATION OF JOINT INVENTION
THIS AGREEMENT FOR THE EXPLOITATION OF JOINT INVENTION (this
"Agreement") is made and entered into as of the __ day of _________, 1996, by
and between WORGAS BRUCIATORI SRL, an Italian company having its registered
office at Via Coppi 17, 41043 Formigine (Modena), Italy ("WORGAS") and DESA
INTERNATIONAL, a Delaware, U.S.A. corporation having its registered office at
2701 Industrial Drive, Bowling Green, Kentucky 42102-9004, U.S.A., ("DESA").
WHEREAS, the method of preventing log impingement of yellow
flames in a vent-free artificial gas log set more fully described in Exhibit A
hereto, (the "Invention") was invented jointly by Gunther Berthold ("Berthold"),
an employee of WORGAS, and by John S.
Thomas ("Thomas"), an employee of DESA; and
WHEREAS, the parties acknowledge and agree that all rights to
exploit the Invention and/or the innovative concepts underlying the Invention
belong to WORGAS and DESA equally and that any exploitation of the Invention
and/or of said underlying concepts shall require the consent in writing of both
parties; and
WHEREAS, WORGAS and DESA intend, as soon as possible, to apply
together for one or more patents (the "Patents") covering the Invention in
various countries; and
WHEREAS, WORGAS and DESA wish to exploit commercially the
Patents, the Invention and the innovative concepts underlying the Invention in a
manner advantageous to both parties;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. For the term of this Agreement and subject to the
conditions hereof, WORGAS authorizes DESA to manufacture and sell products based
on the Invention and/or on any or all of the innovative concepts underlying the
Invention and products involving use of the Invention and/or of said underlying
innovative concepts (collectively, the "Products") and DESA agrees to exercise
its best efforts to maximize Product sales.
2. For the term of this Agreement, DESA agrees to purchase
exclusively from WORGAS the gas burners used in practicing the Invention and
used in manufacturing the Products, at the prices in effect at the time WORGAS
receives DESA'S written purchase order for said burners, as determined in
accordance with Exhibit B hereto, and subject to the general conditions of sale
in effect at said time. Any revisions to the general conditions of sale during
the term hereof must be mutually agreeable between DESA and WORGAS. Unless
otherwise agreed in writing by the parties, said revised general conditions of
sale shall be deemed effective thirty (30) days following mutual acceptance.
3. For the term of this Agreement, WORGAS agrees to sell
exclusively to DESA and to no other parties gas burners used in the practice of
the Invention (the "Product Burners") which WORGAS knows or reasonably should
know will be used in the practice of the Invention. Nothing herein shall
preclude WORGAS from selling Product Burners in the United
<PAGE>
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States or any other country for applications other than the Products. On an
exception basis during the term hereof, WORGAS and DESA may mutually agree in
writing to authorize WORGAS to sell the Product Burners to third parties for the
manufacture and sale of the Products in clearly specified parts of the world.
Except as otherwise agreed in writing by WORGAS and DESA, any such agreement
with third parties shall provide that (a) the third party must purchase from
WORGAS all said burners, at WORGAS's list prices plus an applicable mark-up
agreeable between WORGAS and DESA at the time WORGAS receives the third party's
written order for said burners and (b) any mark-up paid by the third party shall
be divided equally between WORGAS and DESA. In addition, from time to time
during the term hereof, WORGAS and DESA may agree in writing to grant to third
parties royalty-bearing, non-exclusive licenses to manufacture and sell some or
all of the Products in clearly specified parts of the world. Except as otherwise
agreed in writing by WORGAS and DESA, any such license agreement shall provide
that (a) the licensee must purchase from WORGAS all gas burners used in
manufacturing the licensed Products, at WORGAS's applicable list prices in
effect at the time WORGAS receives the licensee's written order for said burners
and (b) any royalty paid by the Licensee shall be divided equally between WORGAS
and DESA.
4. This Agreement shall enter into force and effect as of the
date first set forth above and shall remain in effect for a minimum seven (7)
year period from said date, provided however, that, if at the expiration of said
seven (7) year period, the parties have previously obtained a United States
Patent covering the Invention (the "Issued U. S. Patent"), or have a United
States patent application pending with one or more claims covering the
Invention, the Agreement shall terminate either (1) when such Issued U.S. Patent
or a United States Patent issuing from such pending United States application,
has expired or has been held by a court or tribunal of competent jurisdiction to
be invalid or unenforceable in a judgment or decision from which no appeal is or
can be taken, or has had all of its claims cancelled by Reexamination, or (2)
when such application becomes abandoned, whichever occurs first. Either party
shall be entitled to terminate this Agreement with immediate effect at any time
in the event of a material breach by the other party of any obligation of said
other party hereunder, which breach is not cured within ninety (90) days
following the receipt by the breaching party of written notice of breach. In the
event of such termination, the breaching party shall have no rights under the
Invention or the Patents in any country of the world, and any application filed
by the breaching party, solely or jointly, or any Patent obtained by the
breaching party, solely or jointly, under the provisions of paragraphs 6A or 6B
below, shall become the property of the other party upon the date of such
termination.
5. If at any time during the term of this Agreement, DESA
ceases to engage in the manufacturing of the Products or WORGAS ceases to engage
in the manufacturing of gas burners ( the Discontinuing Party"), the other party
shall be immediately notified in writing and this Agreement shall terminate upon
the date of such written notice. The parties hereby agree that, from said
termination date forward, all rights to exploit the Invention and/or the
innovative concepts underlying the Invention shall belong exclusively to the
party which has not ceased to engage, respectively, in the manufacturing of the
Products or of gas burners (the "Continuing Party"), and any application filed
by the parties, or any Patent obtained by the parties, under the provisions of
paragraphs 6A or 6B, shall become the property of the Continuing Party upon the
date of such written notice. The parties further agree that the Continuing Party
shall have no obligation to compensate the other party for loss of said
exploitation rights.
<PAGE>
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6A. DESA shall have the responsibility for filing and
prosecuting an application for Patent covering the Invention in the United
States Patent and Trademark Office (PTO) and for maintaining any resulting
patent. The application, any continuations or divisions thereof, and any
resulting Patent or Patents shall be owned equally by DESA and WORGAS; DESA and
WORGAS shall share equally all costs and expenses involved in preparing and
prosecuting the application or applications and in maintaining any resulting
Patent or Patents. If all claims of the United States application are finally
rejected by the PTO, either party may notify the other party in writing of its
intention to discontinue participating in the prosecution of the application
and, in that event, the costs and expenses of any continued prosecution of the
application shall be borne entirely by the other party. Any party deciding to
discontinue participating in the prosecution of a U.S. Patent application which
has been finally rejected by the PTO will have no rights under any patent
finally obtained. Further, any party deciding to discontinue the payment of
maintenance fees for any U.S. Patent shall thereafter have no right under any
such U.S. Patent. WORGAS agrees to use its best efforts to have Berthold sign
any and all papers as may be necessary to assist DESA in obtaining such Patent
or Patents. DESA agrees to use its best efforts to have Thomas sign any and all
papers as may be necessary to assist DESA in obtaining such Patent or Patents.
6B. If either of the parties hereto desires to obtain a Patent
covering the Invention in any country other than the United States as provided
for in paragraph 6A above, such party shall advise the other party in writing.
The party receiving such notice may, within ninety (90) days from receipt of
such notice, advise the other party in writing of its intention to join the
notifying party in filing an application to obtain such Patent in which case the
notifying party shall be responsible for preparing and prosecuting the
application and maintaining any resulting Patent, provided however, that the
parties shall equally share all expenses incurred in preparing and prosecuting
the application and maintaining any resulting Patent. If the receiving party
does not so notify the other party within the aforesaid ninety (90) day period,
the receiving party shall have no rights under any Patent obtained in accordance
with this paragraph. Any party deciding to discontinue participating in the
prosecution and/or maintenance of an application or patent in countries, other
than the United States, shall have no rights under any such application or
patent.
6C. As to any jointly-owned Patent obtained under the
provisions of paragraphs 6A or 6B, either party desiring to enforce such
jointly-owned Patent by litigation or license shall notify the other party in
writing. The other party may advise the notifying party within ninety (90) days
of such notice of its intention to join the notifying party in such enforcement
in which all expenses incurred in such enforcement and all recovery by way of
damages or royalties shall be equally shared. If the receiving party does not so
reply within said ninety (90) day period, the notifying party may-proceed by
suit or otherwise in the names of both parties, but the receiving party shall
have no rights to any recovery by way of damages or royalties.
6D. DESA will pay all costs and expenses associated with the
patent prosecution and maintenance fees, and will invoice Worgas for 1/2 of
these expenses.
7. Each of the parties agrees to use the confidential
information received by it from the other party and relating to the Invention,
the Products and/or Product components (the "Confidential Information") solely
for the purposes described herein and to keep said Confidential Information in
the strictest confidence. Said confidentiality obligation shall not apply to
that information and those documents which:
(a) are publicly available at the time of their
disclosure;
<PAGE>
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(b) following their disclosure become publicly available
through no fault of the receiving party;
(c) the receiving party can prove to have had in its
possession prior to the date of disclosure;
(d) the receiving party can prove to have obtained or
developed independently;
(e) or are required to be released by order of any
competent court or governmental authority.
8. The recitals hereto and the following exhibits constitute
integral parts of this Agreement:
Exhibit A: The Invention
Exhibit B: Product Component Prices
9. This Agreement constitutes the entire agreement of the
parties hereto and supersedes any and all prior agreements between the parties,
whether oral or in writing, with respect to the subject matter hereof. Any
amendment hereto shall be valid only if made in writing and signed by the
authorized representatives of both parties.
10. Neither party may assign its rights and/or delegate its
duties hereunder absent the prior written consent of the other party.
11. Any dispute arising out of or relating to this Agreement
shall be resolved exclusively by the court of competent jurisdiction for the
place in which the defendant's principal place of business is located, and the
applicable law shall be the law of the country or state in which such court is
located.
12. All notices provided for herein shall be sent by
facsimile, and confirmation by first class, registered mail, addressed as
follows:
(a) As to DESA:
President
DESA International
2701 Industrial Drive
Bowling Green, Kentucky 42102
USA
(502) 781-5705 (facsimile)
(b) As to WORGAS;
President
Worgas Bruciatori SRL
Via Coppi 17
41043 Formigine (Modena)
Italy
01139 59 557 640 (facsimile)
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the date
first written above.
WORGAS BRUCIATORI SRL DESA INTERNATIONAL
BY:__________________________ BY:___________________________
TITLE:_______________________ TITLE:________________________
<PAGE>
Exhibit A
The Invention
METHOD AND APPARATUS FOR PREVENTING IMPINGEMENT OF
YELLOW FLAMES ON AN ARTIFICIAL LOG(S) IN A GAS LOG OR GAS
HEATER APPLICATION
Description Of The Invention
The present invention resides in a configuration of gas burner
ports in a vent-free log heater that will allow yellow flames to be in closer
proximity to an artificial log than current art, resulting in a more realistic
wood fire appearance. Avoidance of impingement of yellow flames with any
material object, including an artificial log, is necessary to prevent excessive
undesirable emissions in an unvented application.
A second set of ports located between the ports of the yellow
flames and the artificial log can be used to eject blue flames. These blue
flames will act as a blanket separating the yellow flames from the log surface
thus preventing impingement of yellow flames with the log. Alternately, the
function of the second set of middle ports can be achieved by ducting or routing
exhaust gases from any other source.
Locating yellow flames in very close proximity to the
artificial log is not currently achievable in current art due to the likely
problem of undesirable emissions due to impingement. However, such a close
arrangement of yellow flames and artificial logs results in a more
realistic-looking fireplace log fire, making such a heater more desirable in the
marketplace.
Blue flame impingement upon a properly designed artificial
ceramic fiber log has been available for years in the vent-free heater industry
and is desirable because the surface of the log can be made to glow red by the
blue flames. This has proven to be an aesthetically preferred appearance for
such a log heater.
The middle flame set in the preferred configuration, if of
blue flames, can thus be used to create a glowing log, which would be visible
through the front yellow flames. Alternately, a gas control system can be used
which can shut-off the front yellow flames, so that a glowing log alone can be
the only heat source in that area of the log set.
Referring to FIGURE 1, an artificial log 10 of a gas log set
is made of a suitable ceramic material well known to those skilled in the art.
Of course, log 10 may be associated
<PAGE>
with one or more other logs of the same material. A burner tube, generally
designated 12, includes a plurality of longitudinally arranged parts 14. These
ports are in communication with a gas source for producing yellow flames 16.
A separate burner tube 8 also having longitudinally arranged
ports 18 is in communication with a source of gas for producing a middle set of
blue flames 20. Alternatively, a single burner tube using a longitudinally
extending separate set of ports, and venturi tubes, and a gas supply source
which is internally separated, can be provided for combining burner tube 8 and
burner tube 12 to produce both blue and yellow flames.
The blue flames 20 act as a barrier between the log and the
yellow flames 16 thereby preventing undesirable emissions. The blue flames 20
permit the yellow flames 16 to be positioned as close as possible to the log 10
without creating the undesirable emissions referred to above. The provision of
allowing the yellow flames to be in close proximity to the artificial log 10
results in a more realisticlooking wood fire.
Using a conventional dual-circuit gas control, the vent-free
artificial gas log set may be operated in two modes. In the first mode, the
yellow and blue flames are emitted thereby producing the glowing log and the
yellow flames simulating to the extent possible a wood burning fireplace. In the
second mode, only the blue flames 20 will be provided for producing a glowing
log.
Referring now to the embodiment of FIGURE 2, ports 24 produce
a yellow flame 26. Flue gases 28 are ducted or channeled between the log 10 and
the yellow flame 26. The provision of the flue gases 28 permits the yellow
flames to be located as close as possible to the log without forming undesirable
emissions. The flue gases 28 act as a barrier between the log 10 and the yellow
flames 26 but nevertheless permit the flames 26 to be emitted in close proximity
to the log for providing a more realistic-looking wood fire flame.
Using a conventional manual or thermostatic gas control, the
vent-free artificial gas log set may be operated in an on-off mode, with both
blue and yellow flames being either "on" or "off'.
<PAGE>
Exhibit B
Product Component Prices
For the first twelve months of the term of the Agreement, the
ex works prices for the Product components manufactured by WORGAS as of the
effective date of the Agreement including packaging in cardboard boxes measuring
(1100 x 850 x 1050h) and on wooden pallets (the "Prices") shall be as follows:
Product Component Price
Once during each twelve-month period thereafter, WORGAS shall
be entitled to increase the Prices to account for increases in the cost of
materials used in manufacturing the Product components and/or in relevant labor
costs. DESA shall be entitled to submit to WORGAS written summaries of United
States market conditions and market pricing changes affecting the Products at
the time said summaries are submitted to WORGAS, along with documentary evidence
supporting the statements made in said summaries, and WORGAS agrees to consider
any such summaries in its possession prior to increasing the Prices. It is
understood, however, that at no time shall WORGAS be required to reduce or to
consider reducing the then current prices of the products supplied by it to
DESA, except in the event that the cost of materials used in manufacturing the
Product components and/or relevant labor costs have decreased during the
twelve-month period in question, in which case WORGAS shall reduce the then
current prices of the Product components to account for said decrease. WORGAS
shall provide DESA with a list of the prices as revised from time to time in
accordance with the terms hereof. Unless otherwise agreed in writing by the
parties, said revised Prices shall be deemed effective 30 (thirty) days
following receipt thereof by DESA.
Should WORGAS commence manufacturing any Product components
not manufactured by WORGAS as of the effective date of the Agreement, the
parties shall agree on the initial prices to be paid by DESA to WORGAS for said
components and, thereafter, the price increase mechanism described in this
Exhibit B shall apply to those components as well.
EXHIBIT 10.16
SETTLEMENT AND LICENSE AGREEMENT
This agreement is made and entered into this 21st day of May,
1996, by and between DESA International, Inc., a Delaware corporation
("Licensor"), and Valor Limited ("Valor"), a corporation of the United Kingdom
("Licensee").
WHEREAS, DESA owns the entire right, title and interest in and to the
following U.S. Patent:
U.S. Patent No. 5,470,018 for an invention in a
Thermostatically Controlled Gas Heater (the "'018 Patent").
WHEREAS, Valor has manufactured, used and sold or otherwise
transferred in the United States, certain heaters designated as Valor Series 271
and 272 (collectively, the "Valor Heaters");
WHEREAS, there is pending in the United States District Court
for the Western District of Kentucky, Bowling Green Division, a civil action
captioned DESA International, Inc. v. Valor Limited, Civil Action No. 1:95
CV-171-R (the "District Court Action"), in which Licensor alleges that certain
heaters manufactured and sold by Valor in the United States including Valor
series 271 and 272, infringe the '018 Patent, and in which Licensee alleges that
the '018 Patent is invalid and that none of its products infringe the '018
Patent;
WHEREAS, without admitting the allegations of the other, the
parties hereto have agreed to settle the District Court Action and to enter into
this Settlement and License Agreement;
NOW, THEREFORE, in consideration of the mutual undertakings
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. LICENSE GRANT.
1.1 Grant. Licensor hereby grants to Licensee a non-exclusive,
irrevocable license under the '018 Patent, and any and all reissues and
reexaminations thereof, for the term of this Agreement, to make, have made, use,
and sell, heaters having a plurality of independently operable heating elements,
a thermostatically operative valve serving as the sole means for supplying gas
to the heating elements, the thermostatically operative valve having a
non-electrically operated temperature sensitive operating element, and a manual
control for selecting one or more heating elements to be operated. The liquid
propane gas and natural gas heaters sold as the Valor Series 271 and 272 are
included by way of illustration and not by way of limitation, within the
foregoing. All heaters included within the foregoing are referred to as
"Licensed Heaters".
1.2 No sublicenses. Licensee shall not have the right to grant
sublicenses hereunder.
<PAGE>
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2. PAYMENTS.
2.1 Royalty. Licensee shall pay Licensor a royalty of four
dollars ($4.00 U.S.) for each of the Licensed Heaters sold or in any other way
transferred or disposed of within or from the United States during the three
year period commencing January 1, 1996 and ending December 31, 1998. Licensee
shall pay to Licensor the royalties due hereunder on a semi-annual basis
throughout the three year period described above with payments due on or before
each July 31 for the preceding period January through June, and on or before
each January 31 for the preceding period July through December.
2.2 Royalty Report. Licensee shall provide confidential
written reports to Licensor with each royalty payment required under Paragraph
2.1 hereof, stating in each such report the total of Licensed Heaters sold or
otherwise transferred or disposed of during the preceding semi-annual period,
and upon which royalty is payable. The first such report shall include all such
licensed heaters sold or otherwise transferred or disposed of prior to the date
of such report. Licensee shall retain invoices and other original records
documenting the sales of Licensed Heaters for a period of three years, to
facilitate any audit by Licensor.
2.3 Audit Rights. Licensee agrees to keep records showing the
sales of devices sold under this Settlement and License Agreement in sufficient
detail to enable the royalties payable hereunder by Licensee to be determined,
and further agrees to permit its books and records to be examined not more than
twice per year during regular business hours at Licensee's offices or
facilities, and only upon reasonable notice, to the extent necessary to verify
the reports provided for in Paragraph 2.2. Such examination is to be made, at
the expense of the Licensor, by an independent certified public accountant
appointed by the Licensor who shall report to the Licensor only the amount of
royalty payable for the period under audit and maintain the confidentiality of
all information obtained or provided. In the event that the Licensor's audit
indicates that Licensee has not fully complied with the terms of this Settlement
and License Agreement, then Licensee shall pay to Licensor the full amount of
any royalty owed within thirty (30) days of the accountant's report. If the
audit shows an underpayment of royalties by an amount which exceeds the cost of
the audit, then in addition to payment of any royalty owed, Licensee shall
compensate Licensor in full for the cost of the audit in an amount not to exceed
Five Thousand Dollars ($5,000).
2.4 It is understood and agreed that royalties and royalty
reports under paragraphs 2.1 and 2.2 above shall not be due for Licensed Heaters
manufactured or sold by Valor after December 31, 1998.
3. RELEASES.
Each party for itself, and for its successors and assigns,
hereby releases the other party and its past and present agents, employees,
officers, directors, insurers and representatives from all claims or
counterclaims arising out of or which could have been brought in the District
Court Action including, without limitation, any claim for attorneys' fees, costs
or expenses.
<PAGE>
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4. TERM AND TERMINATION.
4.1 Term. This Agreement shall continue in full force and
effect until the expiration of the '018 Patent, including any reissue or
reexamination thereof, unless earlier terminated, in whole or in part, as
provided for herein.
4.2 Termination. This Agreement may be terminated upon the
occurrence of any of the following:
(a) If Licensee fails to pay royalties in accordance with
the terms of this Agreement, or shall otherwise fail
to comply with the terms of this Agreement, Licensor
shall have the right to issue a Notice of
Termination. If Licensee fails to pay all royalties
in arrears, or otherwise fail to comply with the
terms of this Agreement within the 30-day period
following issuance of the Notice of Termination,
Licensor shall have the right to terminate this
Agreement, in whole or in part, as it shall
determine. The decision by Licensor not to terminate
this Agreement, in whole or in part, shall not create
a waiver of any of Licensor's rights hereunder, and
shall not be used as a defense by Licensee to any
subsequent claim of noncompliance or infringement
made by Licensor.
(b) Licensor has the right to terminate this Agreement,
in whole or in part, as it shall determine, if
Licensee becomes insolvent, or if Licensee makes any
assignment for the benefit of creditors.
(c) Regardless of the cause of termination, no
termination of this Agreement shall relieve Licensee
of its obligation to pay to Licensor all royalties
accrued or due up to the time of termination.
5. DISPOSITION OF DISTRICT COURT ACTION.
The parties hereto, through their respective counsel, shall
execute and file a Stipulation and Order of Dismissal substantially of the form
attached hereto as Exhibit A, and otherwise use best efforts to have the
District Court Action dismissed.
6. MISCELLANEOUS.
6.1 Entire Agreement. This Agreement constitutes the entire
agreement between Licensor and Licensee, integrates any and all prior
understandings and agreements, and may not be altered or amended except by a
written agreement signed by both of the parties.
6.2 Choice of Law. This Agreement shall be construed,
interpreted and applied in accordance with the laws of the State of Kentucky.
6.3 Assignment. This Settlement and License Agreement is made
for the sole benefit of and is binding upon the parties hereto, and it shall not
be assignable by Licensee.
<PAGE>
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6.4 Notices. All demands and notices under this Agreement
shall be served by first class certified mail, return receipt requested, as
follows:
Licensor: DESA International, Inc.
2701 Industrial Drive, P.O. Box 900004
Bowling Green, Kentucky 42102-9004
Attention: Terry Scariot
Licensee: Valor Limited
Wood Lane
Erdington, Birmingham
B24 9QP
United Kingdom
Attention: Graham Leeke
Managing Director
6.5 Each Provision Valid. Each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law to the
fullest extent possible. In the event that any provision of this Agreement shall
itself or in connection with any other provision be found invalid or
unenforceable, the remaining provisions of this Agreement shall not be affected
thereby, and this Agreement shall be construed and interpreted as if each
invalid or unenforceable provision were never a part hereof in order to effect
the purposes of this Agreement and the intentions of the parties hereto.
6.6 Originals. Two or more duplicate originals of this
Agreement may be signed by the parties hereto, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
6.7 Publicity. No public statement respecting the terms or
circumstances of this Settlement and License Agreement shall be made by either
party. Each of the parties shall brief its staff that there shall be no public
statement made to anyone, including but not limited to customers and/or
competitors regarding the terms and circumstances of this Settlement and License
Agreement. Further, each of the parties shall brief its staff and employees
internally that the terms and circumstances of the Settlement and License
Agreement are that "the two companies have reached a mutually satisfactory
agreement on the use by Valor of DESA's Infrastat Patent."
6.8 Time. The parties agree that time is of the essence with
respect to performance of obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized representatives.
DESA INTERNATIONAL, INC.
By:________________________________
Its:_______________________________
Dated:_____________________________
VALOR LIMITED
By:________________________________
Its:_______________________________
Dated:_____________________________
EXHIBIT 10.17
PURCHASE AND SALE AGREEMENT
Remington Arms Company, Inc.
to
Desa Industries, Inc.
Subject: Remington's Power Tool Business
<PAGE>
INDEX*
ARTICLE I - SALE AND PURCHASE
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF REMINGTON
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF DESA
ARTICLE IV - COVENANT NOT TO MAKE OR SELL
ARTICLE V - PRODUCT SUPPLY AND EXPORT SALES AGREEMENTS
ARTICLE VI - HARD COATED SAW CHAIN DEVELOPMENT
ARTICLE VII - USE OF EXISTING SUPPLIES
ARTICLE VIII - PERSONNEL
ARTICLE IX - USE OF TRADEMARKS AND TRADENAMES
ARTICLE X - RECORDS AND WITNESSES
ARTICLE XI - CONDITIONS PRECEDENT TO CLOSING
ARTICLE XII - PAYMENT OF COSTS
ARTICLE XIII - WAIVER OF CONDITIONS
ARTICLE XIV - CONFIRMING DOCUMENTS
ARTICLE XV - DAMAGE, DELAY OR DESTRUCTION BEFORE CLOSING
ARTICLE XVI - ASSIGNMENT BY DESA
ARTICLE XVII - SURVIVAL, MODIFICATION AND ENTIRETY
ARTICLE XVIII - NOTICE
ARTICLE XIX - MULTIPLE ORIGINALS
- - - - --------
* The captions set forth below are for convenience only and are not to be
considered in the construction of any provisions of this Agreement.
<PAGE>
SCHEDULE A-1 THRU A-2 - REAL PROPERTIES AND BUILDINGS
SCHEDULE B-1 THRU B-4 - PERSONAL PROPERTIES
SCHEDULE C-1 THRU C-11 - PROPRIETARY RIGHTS
SCHEDULE D - PROPERTIES AND ASSETS NOT A PART OF
SUBJECT ASSETS
SCHEDULE E - PRODUCTS SUBJECT TO REMINGTON'S
COVENANT NOT TO MAKE OR SELL
EXHIBIT A - NOTE
EXHIBIT B - PRODUCT SUPPLY AGREEMENT
EXHIBIT C - PERSONNEL PROCEDURES
-ii-
<PAGE>
United States
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, made and entered into as of this 18th day of July,
1969, by and between REMINGTON ARMS COMPANY, INC., a Delaware corporation
("Remington"), and DESA INDUSTRIES, INC., a Delaware corporation ("Desa"),
W I T N E S S E T H:
WHEREAS, Remington, through its Power Tool Department, has been and is
engaged in the business of manufacturing certain products at a plant located at
Park Forest, Illinois; and
WHEREAS, Remington desires to sell and Desa is willing to purchase the
business and certain properties and assets of Remington's Power Tool Department
(the "Department") located in or relating to the business of the Department in
the United States, in consideration of the payment of the purchase price
hereinafter referred to, all upon the terms and conditions set forth in this
Agreement; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, Remington Arms of Canada, Limited, a Canadian corporation, and Desa
are entering into an agreement for the sale by Remington Arms of Canada, Limited
and the purchase by Desa of the business and certain properties and assets of
Remington Arms of Canada, Limited's Power Tool Department located in or relating
to the business of such Department in Canada;
NOW, THEREFORE, Remington and Desa agree as follows:
ARTICLE I - SALE AND PURCHASE
1. Subject to the terms, provisions and conditions contained in this
Agreement, and on the basis of the representations, warranties, covenants and
agreements hereinafter set
<PAGE>
forth, Remington agrees to sell, assign, transfer and deliver to Desa on the
Closing Date (as hereinafter defined), and Desa agrees to purchase and accept
the assignment, transfer and delivery from Remington on the Closing Date, by
appropriate instruments and documents of transfer, all of the following defined
properties and assets relating to or used in the business of the Department in
the United States as of May 31, 1969, which properties and assets, together with
additions thereto and deletions therefrom from and after May 31, 1969 to and
including the Closing Date not inconsistent with this Agreement, are hereinafter
called the "Subject Assets";
(A) All right, title and interest in and to the "Real
Properties and Buildings" (as hereinafter defined);
(B) All right, title and interest in and to the "Personal
Properties" (as hereinafter defined); and
(C) All right, title and interest in and to the "Proprietary
Rights" (as hereinafter defined).
The term "Real Properties and Buildings" as used in this Agreement
shall mean all land, buildings and improvements located at the Park Forest plant
site of Remington, as described or listed in the following schedules attached to
this Agreement;
Schedule A-1 - Description of Land to be conveyed by Remington
to Desa, and
Schedule A-2 - Description of Buildings and Improvements to be
Conveyed by Remington to Desa.
The term "Personal Properties" as used in this Agreement shall mean all
of the
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following assets:
(1) equipment and machinery, inventories (raw material,
work-in-process and finished goods), supplies, accounts and
notes receivable, prepaid items, deposits, books and records,
customer lists, tools, jigs, patterns, fixtures, dies,
vehicles, furniture, and all contracts and contractual rights
of any kind or description relating to, or used in the
business of, the Department, regardless of whether reflected
in the financial statements or shown on the books of
Remington, as described or listed in the following schedules.
Schedules B-1, B-2, B-3 and B-4 have been furnished to Desa.
Schedule B-1 - List of Equipment, including
manufacturing equipment, technical equipment, furniture and
fixtures, and transportation equipment, as shown on IBM
printouts for period ending May 31, 1969,
Schedule B-1 - List of inventories, including raw
materials, work-in-process and finished goods, as shown on IBM
printouts dated May 31, 1969,
Schedule B-3 - List of Other Assets, including
accounts and notes receivable, prepaid expenses, and cashier's
fund, and
Schedule B-4 - List of Contracts, customers and
suppliers.
(2) all other properties and assets (including, but without
limitation, cash generated and not expended from and after May
31, 1969 to and including the Closing Date, and customers
lists), which are not Proprietary Rights, primarily relating
to, or used in the business of, the Department at the Park
Forest, Illinois plant site, regardless of whether reflected
in the financial statements or shown on the books of
Remington, and which are not listed on Schedules A-1 and A-2
or B-1 through B-4 to this Agreement.
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<PAGE>
The term "Proprietary Rights" as used in this Agreement shall mean all
designs, drawings, patents, trademarks, trade names, trade secrets, copyrights,
and applications, registrations and licenses with respect thereto, relating
primarily to, or used in the business of, the Department, regardless of whether
reflected in the financial statements or shown on the books of Remington. All
such patents, trademarks, applications, registrations and licenses are listed in
the following schedules, which schedules have been furnished to Desa:
C-1 Patents to be Assigned to Desa by Remington,
C-2 Patents to be Assigned to Desa, with Remington Reserving
Non-exclusive License,
C-3 Patents to be Retained by Remington, Subject to Non-exclusive
License to Desa,
C-4 Patent Agreements Under Which Royalties Are due Remington to
be Assigned to Desa,
C-5 Patent Agreements Under Which Remington Is Obligated to Pay
Royalties to be Assigned to Desa,
C-6 Miscellaneous Patent and Trademark Agreements to be Assigned
to Desa,
C-7 Trademark Applications for "REMINGTON" to be Assigned to Desa,
C-8 Trademark Registrations for "REMINGTON" to be Assigned to
Desa,
C-9 Miscellaneous Trademark Registrations to be Assigned to Desa,
C-10 Foreign Trademark Registrations to be Licensed to Desa, and
C-11 Foreign Trademark Registrations to be Assigned to Desa.
-4-
<PAGE>
There have been delivered to Desa copies of the patent and trademark
agreements identified in Schedules C-4, C-5 and C-6 and of the trademark
application identified in Schedule C-7, and Desa acknowledges receipt thereof.
Notwithstanding any provision of this Agreement, the Subject Assets
shall not include (i) any properties and assets relating to, or used in the
business of, the Power Tool Department of Remington Arms of Canada, Limited,
(ii) any right or claim of Remington to any refund of taxes or insurance paid in
respect of any period ending on or prior to May 31, 1969, and (iii) any
properties and assets relating to abrasive products, power loads, industrial
shells, or other products as described or listed in Schedule D attached to this
Agreement, other than inventory of the Department of power loads and industrial
shells.
2. For the purpose of determining the purchase price to be paid by or
on behalf of Desa for the Subject Assets to be sold, assigned, transferred and
delivered by Remington hereunder,
(A) A physical inventory of the inventory classifications
listed on Schedule B-2 was conducted as of the close of business on May
31, 1969 by Remington (and observed by Price Waterhouse & Co.,
independent accounts for Remington), and Remington has prepared and
delivered to Desa a report (the "Department's Report") which states
separately by class or category of assets the gross book value of the
Subject Assets on the Department's books as of the close of business on
May 31, 1969, less, by each such class or category, any and all
allowances for doubtful accounts, inventory reserves, writeoffs and
writedowns (if any), reserves for depreciation and amortization, and
the amount of any liens, mortgages or other
-5-
<PAGE>
encumbrances (the "Department's Agreed Book Value"). The Department's
Report has been prepared, and all figures therein determined, in
accordance with those accounting principles customarily employed by
Remington in the keeping and maintenance of the books and records of
the Department and on a consistent basis with those applied in the
preparation of the unaudited financial statements referred to in
Article II, Section 6 and related data delivered to or to be delivered
by Remington to Desa under this Agreement; all determinations of
inventories have been based upon the physical inventory taken as of May
31, 1969; and depreciation and amortization have been computed on the
same basis and at the same rates as those employed in the preparation
of the unaudited financial statements and related data delivered to or
to be delivered by Remington to Desa pursuant to this Agreement; and
(B) Price Waterhouse & Co., independent accountants for
Remington, will prepare and deliver to Remington and Desa on or before
August 15, 1969, a report (the "Accountants' Report") which states
separately by class or category of assets the gross book value of the
Subject Assets as of the close of business on May 31, 1969, less, by
each such class or category, any and all allowances for doubtful
accounts, inventory reserves, writeoffs and writedowns (if any),
reserves for depreciation and amortization, and the amount of any
liens, mortgages or other encumbrances (the "Accountants' Agreed Book
Value"). The Accountants' Report will be prepared, and all figures
therein determined, in accordance with generally accepted accounting
principles applied on a consistent basis with those applied and to be
applied in the preparation of the audited financial statements and
related data to be delivered to Desa
-6-
<PAGE>
pursuant to this Agreement, accompanied by an opinion of Price
Waterhouse & Co. to the foregoing effect and additionally to the effect
that the Accountants' Report fairly represents the information
purported to be shown thereby as of the close of business on May 31,
1969; all determinations of inventories have been based upon the
physical inventory taken as of May 31, 1969; and depreciation and
amortization have been computed on the same basis and at the same rates
as those employed and to be employed in the preparation of the
foregoing audited financial statements and related data to be delivered
to Desa.
(C) It is agreed that the foregoing valuations of the Subject
Assets are for the purpose of determining the overall purchase price to
be paid for all of the Subject Assets; and such valuations do not
necessarily reflect or indicate the price to be paid for each
individual Subject Asset. 3. The purchase price to be paid by or on
behalf of Desa to Remington for the
Subject Assets shall be $7,144,166.44 unless such amount is more than the
Accountants' Agreed Book Value, in which case such purchase price shall be the
Accountants' Agreed Book Value. Of such purchase price, $2,150,000 shall be paid
on the Closing Date by means of Desa's Subordinated Note due August 31, 1975 in
such amount (the "Note"), in the form and with the terms substantially as set
forth as Exhibit A to this Agreement, and the balance of the purchase price
shall be paid on the Closing Date by certified or official bank check or checks
payable to the order of Remington.
4. The sale, assignment, transfer and delivery and the purchase and
acceptance of the Subject Assets (such sale and purchase being herein called the
"Closing") shall take place
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<PAGE>
as of the close of business on August 29, 1969, or such other time and date
thereafter as shall be mutually agreed upon by the parties hereto (such date and
time shall herein be called the "Closing Date"), at the offices of Sullivan &
Cromwell, 48 Wall Street, New York, N.Y., or such other place as may be mutually
agreed on by the parties hereto. At the Closing Desa will deliver or cause to be
delivered to Remington a Note and a check or checks in the respective amounts
provided in Section 3 of this Article I, against delivery by Remington to Desa
of such deeds, assignments, bills of sale and other instruments and documents of
transfer as are required by this Agreement or as may reasonably be requested by
Desa in order to deliver or cause to be delivered to Desa on the Closing Date
all of the Subject Assets to be sold, transferred and delivered hereunder.
5. On the Closing Date Desa shall, except to the extent otherwise
provided in this Agreement, and except to the extent satisfied between May 31,
1969 and the Closing Date by disbursement of the Department's funds, assume and
agree to pay, perform and discharge the following obligations, liabilities and
commitments and no others: (A) any and all obligations, liabilities and
commitments incurred by or on behalf of Desa or for the account of Desa after
May 31, 1969 to and including the Closing Date in connection with the conduct of
the business of the Department with respect to the Subject Assets subsequent to
May 31, 1969 in the ordinary course of business as heretofore conducted and
consistent with prior practice and not inconsistent with this Agreement, (B) all
obligations of Remington under the contracts, licenses and agreements described
or listed in Schedules B-4, C-4, C-5 and C-6, hereto and assigned by Remington
to Desa on the Closing Date, but only to the extent that such contracts,
licenses and agreements are assignable to Desa, are valid, subsisting and
-8-
<PAGE>
enforceable in accordance with their terms on the Closing Date, and only insofar
as any such obligations arise after May 31, 1969 and are not based on or do not
result from or relate to any default under such contracts, licenses and
agreements by Remington, (C) all obligations of Remington for merchandise and
supplies ordered prior to, but delivered after, May 31, 1969 to the extent
ordered in the ordinary course of the Department's business with respect to the
Subject Assets as heretofore conducted and consistent with prior practice and
permitted and not inconsistent with this Agreement, and (D) any other
obligations, liabilities or commitments of any kind, character or description
whatsoever, including, without limitation, personal injury or death, or property
damage claims of third parties, including employees, which obligations,
liabilities or commitments arise out of or result from an incident or occurrence
on or after the Closing Date in respect of the business acquired by Desa on the
Closing Date pursuant to this Agreement. Desa shall indemnify and hold harmless
Remington from any and all damages, claims, losses, liabilities and expenses
(including, but without limitation, legal and other expenses) which result from
or relate to any act, omission, default or arrearage by Desa with respect to
such obligations, liabilities and commitments so assumed by Desa under this
Agreement.
6. Remington hereby agrees to retain any and all obligations,
liabilities and commitments, whether known, unknown, contingent or otherwise,
not assumed by Desa under this Agreement and Remington hereby further agrees to
indemnify and hold harmless Desa against and in respect of all damages, claims,
losses, liabilities and expenses (including, but without limitation, legal fees
and expenses) which may result from or relate to any act, omission, default or
arrearage by Remington with respect to any and all such obligations, liabilities
and commitments not assumed by Desa under this Agreement.
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<PAGE>
7. On October 31, 1969 (the "Settlement Date") the following expenses
and obligations, to the extent not otherwise given effect to in determining the
Department's Agreed Book Value or to the extent appropriate in light of the
provisions of Sections 5, 8 and 9 of Article I, Section 2 of Article VIII,
Article XII, Section 2 of Article XIV and Exhibit C, shall be adjusted, prorated
and assumed as of May 31, 1969, and the net amount thereof (without duplication)
paid by or to Desa or Remington, as the case may be, including but not limited
to: (A) all charges for rent, utilities and other charges under leases,
subleases and licenses assumed by Desa, (B) all real estate and personal
property taxes, on the basis of prior years' real estate and personal property
taxes, taking into consideration discounts, if any, and (C) all payments under
contracts described or listed in Schedules B-4, C-4 and C-5 to this Agreement.
8. In the event that the Closing shall take place as hereinabove
provided, the transactions contemplated by this Agreement, being the sale by
Remington and the purchase by Desa of the Subject Assets, shall, to the extent
permitted by law, be deemed to have taken place as of the close of business on
May 31, 1969; and, to the extent permitted by law, since May 31, 1969 to the
date hereof and from and after the date hereof to the Closing Date Remington has
conducted and shall conduct the business of the Department, and the operations
thereof shall be, for the account of Desa as if Desa were the legal owner
thereof.
9. Any state income taxes, state franchise taxes or Federal income
taxes arising out of or in connection with the operation of the Department's
business as contemplated by and consistent with this Agreement during the period
from and after May 31, 1969 to and
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<PAGE>
including the Closing Date, shall be deducted by Remington from the operative
earnings (profits before such taxes) of the business during such period, state
income taxes being deducted at an effective rate of 4%, state franchise taxes at
their respective effective rates, Federal income taxes at the statutory rate of
52.8% of the earnings after such state taxes. If the operation of the
Department's business during such period should be unprofitable, then the amount
of the tax benefit to Remington from such unprofitable operations shall be paid
by or on behalf of Remington to Desa. In order to determine the payments, if
any, due under this Section 9, Remington shall prepare a statement of operations
of the Department for the period in question, which statement shall be submitted
to Desa for its review not later than 15 days prior to the Settlement Date,
together with a statement of the amount payable, if any, under this Section and
the party to which any such payment is to be made. Desa shall have the right to
review such statement of operations and all data, books and records used by
Remington in connection with the preparation thereof, and upon agreement among
the parties with respect to the subject matter thereof, the payments, if any, to
be made pursuant to such statement (or otherwise as may be determined in a
manner binding the parties) shall be made on the Settlement Date.
10. Since May 31, 1969 to the date hereof and from and after the date
hereof to and including the Closing Date Remington has maintained and shall
maintain separate books, records and data with respect to the Department, its
operations, and the Subject Assets, and Remington personnel (who may be assisted
and observed by representatives of Desa) shall record therein any and all
transactions in the normal course of business, or otherwise, relating to the
operations of the Department after May 31, 1969 to the Closing Date. As
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<PAGE>
provided in Section 15 of Article II of this Agreement, such books, records and
data, and all facilities of the Department and the Subject Assets, shall be
available for inspection at all times during normal business hours by
representatives of Desa.
ARTICLE II - REPRESENTATION AND
WARRANTIES OF REMINGTON
Remington represents and warrants to and agrees with Desa as follows:
1. Remington is now and on the Closing Date will be a corporation duly
organized and validly existing under the laws of the State of Delaware, with
full power and authority (corporate and other) to own and hold its properties
and to carry on its business in the manner in which now conducted, and to enter
into, and carry out the transactions contemplated by, this Agreement.
2. The execution and delivery of this Agreement and the performance of
and compliance with the terms and conditions hereof have been duly authorized by
the Remington Board of Directors (stockholder approval not being required) and
do not and will not violate any provisions of applicable law or the articles of
incorporation or the by-laws of Remington, and do not and will not conflict with
or result in any breach of any of the terms or conditions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the Subject Assets pursuant to any agreement,
instrument, order or decree to which Remington is a party, by which it is bound,
or of which it or any of the Subject Assets are the subject; and, except as may
be set forth in this Agreement or any of the Exhibits or Schedules attached or
delivered to Desa pursuant hereto, to the knowledge of Remington, the
Department, through Remington, is not now and on the Closing Date will not be a
party to, or bound by any agreement, instrument, decree, order or undertaking
which
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<PAGE>
materially and adversely affects its business, properties, assets, operations or
condition, financial or otherwise.
3. No subsidiary of Remington owns or is the lessee of any of the
Subject Assets which are to be sold and transferred pursuant to the terms of
this Agreement.
4. Remington will cooperate with Desa and exercise Remington's best
efforts to obtain the transfer to Desa of licenses, permits, authorizations and
approvals from federal, state and local governmental regulatory bodies, as are
necessary to carry on the Department's business as now conducted.
5. There has been delivered to Desa the Department's Report which
fairly presents the information contained therein as at May 31, 1969, and has
been prepared in accordance with the accounting principles customarily employed
by the Department in keeping its books and records and applied on a consistent
basis with those principles employed in preparing the unaudited statement of
assets as at December 31, 1968, which has been furnished to Desa by Remington.
6. There have been delivered to Desa copies of the Department's
consolidated and unconsolidated unaudited statement of assets as at December 31,
1968, and the related consolidated and unconsolidated statements of operations
for the five years ended December 31, 1968, and for the five-month period ended
May 31, 1969, including the related notes and schedules thereto. Such financial
statements and related notes and schedules have been prepared in accordance with
the accounting principles customarily employed by the Department in keeping its
books and records and applied on a consistent basis throughout the periods
involved. For the purposes of this Section 6 and Section 8 below, unconsolidated
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<PAGE>
financial statements are statements of the Department only; and consolidated
statements are the combined statements of the Department and of Remington Arms
of Canada, Limited relating to the businesses, Subject Assets and properties and
assets to be acquired by Desa and its subsidiaries from the Department and
Remington Arms of Canada, Limited (after elimination of inter-company accounts
and transactions).
7. There will be delivered to Desa and Remington the Accountants'
Report which will fairly present the information contained therein as at May 31,
1969, and will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis with those applied in the preparation
of the consolidated balance sheet at December 31, 1968 to be delivered to Desa
pursuant to Section 8 below.
8. (a) There will be delivered to Desa not less than 15 days prior to
the Closing Date a consolidated balance sheet of the Department as at December
31, 1968, and related consolidated statements of operations for the five years
then ended, including the related notes and schedules thereto, together with the
opinions thereon of Price Waterhouse & Co., independent accountants for
Remington, as to such balance sheet and as to such statements of operations for
at least the three years ended December 31, 1968. Such financial statements and
the related notes and schedules, when prepared and delivered, will fairly
present the consolidated financial position of the Department as at December 31,
1968, and the consolidated results of its operations for the five years then
ended, will have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved and on
a consistent basis with the Accountants' Report, and will comply as to form in
all material respects with the requirements of the Securities Act of
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1933 and the rules and regulations of the Securities and Exchange Commission
with respect to the preparation and certification of financial statements; and
the opinions of Price Waterhouse & Co. with respect to such financial statements
examined by them shall be to such effect.
(b) There will be delivered to Desa prior to the Settlement Date an
unaudited consolidated statement of operations for the eight months ended August
31, 1969 and the eight months ended August 31, 1968, including the related notes
and schedules thereto. Such financial statements and the related notes and
schedules, when prepared and delivered, will fairly present the financial
position of the Department as at August 31, 1969 and the results of its
operations for the eight months then ended and ended August 31, 1968, and will
have been prepared in accordance with the accounting principles customarily
employed by the Department in keeping its books and records applied on a
consistent basis throughout the periods involved. such financial statements and
the related notes and schedules, when prepared and delivered, will comply as to
form in all material respects with the requirements of the Securities Act of
1933 and the rules and regulations of the Securities and Exchange Commission
with respect to the preparation of financial statements.
9. Remington has not acquired or disposed of any Real Properties or
Buildings relating to the Department since May 31, 1969, nor has it contracted
to do so. The Real Properties and Buildings of Remington relating to the
Department are insurable as to title by a reputable title insurer at premiums
which are reasonable in relation to premiums charged for property of a similar
character, size and location.
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10. The Real Properties and Buildings of Remington reflected on
Schedules A-1 and A-2 will be duly conveyed, by special warranty deed in the
form set forth in Schedule A-1, to Desa on the Closing Date. Remington
represents that it has not done or suffered to be done anything whereby the
title to the same Real Properties and Buildings has become impaired or
encumbered, except as described in Schedules A-1 and A-2 hereto. Each lease of
Remington referred to in Schedule B-4 hereto will be duly assigned to Desa on
the Closing Date by an assignment, satisfactory in form and substance to Desa
and its counsel, and upon such assignment, Desa will acquire all of Remington's
right, title and interest in and to each such lease. Each such lease is
assignable by Remington to Desa without the consent of any person or, with
respect to any such lease which may not be so assigned without any such consent,
Remington has duly obtained, or will duly obtain prior to the Closing Date, all
such consents to such assignments. Except as set forth on a Schedule to this
Agreement, Remington is not in default or in arrears in the performance of any
term or condition on its part to be performed under any such lease, and except
as may have been disclosed in writing to Desa, Remington has not received notice
that the buildings, plants and improvements owned by, or leased to, Remington
relating to the Department and the use thereof fail to comply with all zoning
laws, ordinances and regulations of governmental authorities having jurisdiction
thereof.
11. Remington has and on the Closing Date will have good and marketable
title, free and clear of all mortgages, liens, encumbrances, to all Subject
Assets (other than the Real Properties and Buildings referred to above)
reflected on the Department's Report and to all such assets acquired after May
31, 1969 to and including the date hereof, except for assets disposed of after
May 31, 1969 in the ordinary course of business and as not
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inconsistent with the terms of this Agreement, or except as otherwise disclosed
in Schedules B-1 and B-2; and the properties and assets listed on Schedules B-1
and B-2 are not subject to any conditional sales or title retention agreements.
12. All furniture, fixtures, vehicles, equipment and other assets
reflected on the Department's Report or acquired since the respective dates
thereof (to the extent not disposed of as aforesaid), including leasehold
improvements, are now and on the Closing Date will be well maintained and in
good repair and operating conditions; all items of inventory so reflected or so
to be reflected are now and on the Closing Date will be, in the case of raw
materials, of a quality conforming to the Department's usual standards and in
the case of work-in-process and finished goods, of merchantable quality,
workmanship and material. Products considered obsolete and quantities considered
excess have been and will be written off and the value thereof has not and will
not be reflected in the inventory. The values at which inventories are reflected
on the Department's Report are in accordance with Remington's normal inventory
valuation method with respect to the Department.
13. The sale, assignment, transfer and delivery of the personal
Properties and the Proprietary Rights (other than leaseholds referred to in
Schedule B-4 of this Agreement) owned or held by Remington relating to the
Department to Desa shall be by appropriate general warranty bulk bills of sale
and assignments, in form and substance satisfactory to Desa and its counsel,
together with such other appropriate instruments of transfer of title as may be
required by law for the full legal protection of the right, title and interest
of Desa or as may be reasonably requested by or on behalf of Desa. Upon the
sale, assignment, transfer and delivery of the Personal Properties and the
Proprietary Rights owned or held by
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Remington relating to the Department to Desa, there will be vested in Desa good
and marketable title thereto, free and clear of all mortgages, liens and
encumbrances, except as disclosed in Schedules B-1 through B-4 and C-1 through
C-11.
14. Since May 31, 1969 to and including the date hereof and from and
after the date of this Agreement to and including the Closing Date, Remington
has and will (A) not merge or consolidate with or into any corporation, or sell
or otherwise dispose of, or purchase or acquire, any assets inconsistent with
the provisions of this Agreement, (B) not make, accrue, or become labile in any
way for any bonus, profit-sharing, pension or incentive compensation payments to
any employee in the Department other than under presently existing arrangements
and in conformity therewith, (C) not make any changes in rates of wages or
salaries or in any employment benefits of any of its employees in the Department
except under existing and normally scheduled wage and salary progressions, (D)
carry on the business of the Department in the same manner as heretofore
conducted and will not take any other action other than in conformity with prior
practice in the ordinary and regular course of business as heretofore conducted,
(E) not create, assume or guarantee any indebtedness for money borrowed on
behalf of the Department, (F) use its best efforts to maintain and preserve the
Department's business intact and to maintain its relationships with suppliers
and customers and others having business relationships with the Department, and
(G) use its best efforts to persuade the employees of the Department to become
employees of Desa to the extent and as provided in Article VIII.
15. Remington will give to Laird Incorporated, Desa, and their
representatives, and their banks and lending institutions, full access to the
Subject Assets, books, contracts
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agreements, purchase and sale orders, invoices, records and all other data
(financial or otherwise) relating to the Department and the Subject Assets at
all reasonable times. Remington will furnish to such persons copies of all such
documents and all such financial and operating data and information with respect
to the Department's business, affairs and Subject Assets as any such person all
reasonably request from time to time or at any time. Remington acknowledges and
agrees that the information referred to in this Section 15 may be disclosed
privately or publicly, orally or in writing, by Laird Incorporated, Desa and
their representatives to others in connection with the transactions contemplated
by this Agreement, including, but without limitation, the financing thereof. To
the extent that any such information and access has been granted or permitted
prior to the date hereof, the same is hereby ratified and approved.
16. All negotiations relating to this Agreement and transactions set
forth herein or contemplated hereby have been and will be carried on by
Remington and the duly authorized representatives of Remington directly with
Laird Incorporated, Desa, and their representatives without the intervention of
any person as a result of any act or omission of Remington, or any of their
representatives, in such a manner as to give rise to any claim against Laird
Incorporated or Desa for any brokerage commissions, finders' fees or other like
payments, and Remington hereby agrees that it will indemnify and hold harmless
Laird Incorporated and Desa against any and all such claims resulting from any
acts or omissions of Remington, including but without limitation, legal and
other expenses.
17. Remington agrees to furnish Desa on or before August 1, 1969 a list
of the insurance policies concerning the Subject Assets, indicating extent and
type of coverage and carrier.
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18. There are no collective bargaining agreements in effect between
Remington and the employees at the Department.
19. Except as otherwise stated in this Agreement, each of the
Representations and warranties of Remington contained in this Agreement shall be
true, correct and complete on and as of the Closing Date with the same effect as
if made on and as of such date.
20. It is agreed that Remington makes no representations or warranties
concerning the willingness of any person or organization with which Remington
stands in contractual relationship to honor the transfer hereunder of any
contract, orders, licenses, patents, trademarks or other commitments; provided,
however, that Remington will cooperate with Desa and exercise Remington's best
efforts to obtain all necessary consents from such persons and/or organizations.
21. Remington makes no representations or warranties and assumes no
liability to Desa, in connection with the making, using or selling of the
Department's products, as to freedom from infringement of the patents,
trademarks, trade names or copyrights of third parties, except that, other than
as disclosed in writing to Desa, it has not been notified that it is so
infringing.
22. Remington makes no representations or warranties as to the future
relations of Desa with third parties or as to the success or profitability of
future use or operation of the Subject Assets.
23. Remington will acquire the Note for its own account for investment
without any intent to sell, transfer, or otherwise distribute or dispose of the
same and that, upon
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receipt of the Note, such representation shall be deemed to be reaffirmed as of
such date. Remington acknowledges that the Note (including any Notes issued in
substitution or exchange therefor) may bear the following legend:
"This Note is subject to certain restrictions and limitations on the
sale, transfer and disposition as contained in a Purchase and Sale
Agreement dated as of July 18, 1969 between the Remington Arms Company,
Inc., and Desa Industries, Inc., a copy of which Agreement is on file
at the principal offices of Desa Industries, Inc., and Remington Arms
Company, Inc."
ARTICLE III - REPRESENTATIONS AND
WARRANTIES OF DESA
Desa represents and warrants to, and agrees with, Remington as follows:
1. Desa is now and on the Closing Date will be a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware. No provision of the Certificate of Incorporation or By-Laws of Desa
has been or will be violated by the execution and delivery of this Agreement, or
by the performance or satisfaction of any agreement, covenant or condition
herein contained upon Desa's part to be performed or satisfied, and all
requisite corporate action and other authorizations, including but without
limitation, consents and waivers under any agreement or instrument to which Desa
is a party or by which it is or may be bound, have been or will have been duly
obtained prior to the Closing.
2. The Board of Directors of Desa has duly authorized and approved the
execution and delivery of this Agreement and the Note and approved the
transactions contemplated hereby; this Agreement has been duly authorized,
executed and delivered and
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constitutes a legal, valid and binding obligation of Desa in accordance with its
terms; and upon the execution and delivery of the Note, such Note will be a
legal, valid and binding obligation of Desa in accordance with its terms. No
authorization or approval of this Agreement, the Note or the transactions
contemplated hereby by the stockholders of Desa is required.
3. All negotiations relating to this Agreement and the transactions set
forth herein or contemplated hereby have been and will be carried on by Laird
Incorporated and Desa and their duly authorized representatives with Remington
and their representatives without the introduction or intervention of any person
not a party to this Agreement as a result of any act or omission of Laird
Incorporated or Desa, or any of their representatives, in such a manner as to
give rise to any claim by any such person against Remington for any brokerage
commissions, finders' fees or other like payments, and Desa hereby agrees that
it shall indemnify and hold harmless Remington against any and all such claims
by any such person including, but without limitation, legal and other expenses.
4. Except as otherwise stated in this Agreement, each of the
representations, warranties, covenants and agreements of Desa contained in this
Agreement shall be true, correct and complete on and as of the Closing Date with
the same effect as if made on such date.
ARTICLE IV - COVENANT NOT TO
MAKE OR SELL
For a period of at least five years from and after the Closing Date
neither Remington nor any of its subsidiaries will manufacture, market or
distribute any oft he products shown on Schedule E attached to this Agreement.
Other than as ste forth on such Schedule E, there
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are now, and on the Closing Date there will be, no other products manufactured,
marketed or distributed by the Department which are a part of the business and
the Subject Assets being purchased and intended to be purchased by Desa
hereunder.
ARTICLE V - PRODUCT SUPPLY AND
EXPORT SALES AGREEMENTS
1. On or prior to the Closing Date, the parties will execute and
deliver the Product Supply Agreement in the form attached hereto as Exhibit B.
2. On or prior to the Closing Date, Remington and Desa will negotiate,
execute and deliver an agreement satisfactory in form and substance to both
parties relating to the export sale of 8 gauge industrial kiln guns and shells
therefor.
ARTICLE VI - HARD COATED SAW
CHAIN DEVELOPMENT
Remington has undertaken limited development effort regarding the
application of hard, wear resistant and/or abrasive coatings to saw chain teeth
for chain saws. If Remington, either with or without the participation of Desa
in a development program, should develop a commercially feasible process for
applying the above coatings, Remington agrees not to perform such coating work
for third parties or to license third parties to perform such coating work for a
period of three years from the date of this Agreement, without the prior written
consent of Desa. If Remington should perform such coating work for third parties
or should license third parties to perform such coating work at any time,
whether with or without the prior consent of Desa, Remington will offer to
perform such coating work for Desa, and will offer a license to Desa, on most
favored terms as the same shall exist from time to time.
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ARTICLE VII- USE OF EXISTING SUPPLIES
Desa, its subsidiaries and affiliates shall have the right from and
after the Closing Date to use all existing inventory and all equipment,
materials or manufacturing supplies marked with Remington's name and/or
trademarks, trade names or otherwise (except that such markings on trucks and
other public vehicles shall be changed by Desa as soon as practicable after the
Closing Date); and for a period of six months from and after the Closing Date to
use all existing advertising, packaging or assets not heretofore covered in this
Article marked with Remington's name and/or trademarks, trade names or otherwise
(and after such six months period if such items are identified as being
associated with Desa), except letterheads, purchase order forms, invoices and
other such printed paper supplies which shall not be used by Desa after the
Closing Date.
ARTICLE VIII - PERSONNEL
1. Prior to but as of August 31, 1969, the employment of substantially
all employees in the Department will be terminated by Remington. Remington
agrees to encourage all terminated personnel to accept employment by Desa. Desa
agrees to offer employment to all such personnel acceptable to it.
2. Remington will pay vacation pay of employees in+ the Department in
respect to 1969 vacations and carryover from prior years, as follows: (A) To
wage roll employees for all vacation taken prior to the Closing Date, and pay in
lieu of vacation for all unused vacation to which they were eligible as of the
Closing Date and (B) to salary roll employees for all vacation taken prior to
June 1, 1969, and pay in lieu of vacation for all unused vacation to which they
were eligible as of August 31, 1969.
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3. Prior to the Closing Date, Remington will offer to all employees of
the Department to be terminated the options set forth in paragraph 2 of
"Personnel Procedures" attached hereto as Exhibit C with respect to termination
of their employment with Remington, and any costs and expenses in respect of
such employees incurred in connection therewith shall be for the account of and
shall be paid by Remington except to the extent expressly assumed by Desa.
4. Promptly after the Closing Date, Desa will adopt, subject to any
required approvals, a pension plan and other employee benefits (with retroactive
effect to August 31, 1969 in the case of all employees of the Department
becoming employees of Desa) substantially the same as the pension plans and
employee benefit plans of Remington as set forth in paragraph 1 of Exhibit C
hereto. Copies of the plans listed in paragraph 1 of Exhibit C have been
furnished Desa, and Desa acknowledges receipt thereof. As for Remington's other
employee benefits existing on the date of this Agreement, Desa will continue
such other benefits on and after the closing date with a view to reviewing them
and, where deemed appropriate or practicable by Desa, continuing them or
establishing comparable or substitute benefits.
5. Desa agrees to accept responsibility for employing all employees of
the Department who are on military leave as of August 31, 1969, to the extent
that such employees elect employment with Desa.
ARTICLE IX - USE OF TRADEMARKS
AND TRADE NAMES
1. Without the prior consent of Remington, Desa will not (A) change its
corporate name to include the word "Remington"; (B) incorporate a subsidiary
under such
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name; (C) permit any subsidiary to change its name to include the word
"Remington"; and (D) will not permit any department, division or other
organizational structure to include in its name the word "Remington".
2. Desa agrees that, except as contemplated by Article IX, it will use
the trademark "Remington" only in simple block letter form on the products
presently produced by Remington at the Park Forest Plant, certain of said
products being set forth in Schedule E. The trademark "Remington" in simple
block letter form may, with the consent of Remington, be used by Desa on
products previously produced at the Park Forest Plant.
3. Desa will indemnify and hold harmless Remington against and in
respect of any and all damages, claims, losses, liabilities and expenses
(including legal and other expenses) which may arise out of or be in respect of
the use by Desa, its subsidiaries and affiliates of the trademarks assigned or
licensed on Schedules C-6 through C-11.
ARTICLE X - RECORDS AND WITNESSES
For a period of ten years after the Closing Date:
1. Desa will give to Remington and its duly authorized representatives
at all reasonable times during normal business hours to the extent not
disruptive of the conduct of Desa's business, access to the Subject Assets,
including but not limited to books, contracts, agreements, purchase and sales
orders, invoices and financial records for use by Remington in connection with
its commitments, obligations and responsibilities under this Agreement or for
use by Remington for any lawful and reasonable purposes.
2. Desa agrees to make available at reasonable times and places
personnel which Remington might need as expert witnesses in connection with
product liability litigation
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involving products marketed by the Department. Remington agrees to pay Desa
reasonable compensation for the services of such expert witnesses.
ARTICLE XI - CONDITIONS
PRECEDENT TO CLOSING
1. The obligation of Desa to purchase and accept delivery of the
Subject Assets to be sold, assigned, transferred and delivered at the Closing
shall be subject to the satisfaction on or prior to the Closing Date of the
following conditions, the compliance with or occurrence of which may be waived
in writing by Desa:
A. The representations and warranties of Remington
contained in this Agreement shall be true and correct on and
as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of the
Closing Date; Remington shall have performed, complied with or
satisfied all agreements, covenants and conditions required by
this Agreement to be performed, complied with or satisfied by
it at or prior to the Closing Date; and there shall have been
delivered to Desa on the Closing Date such certificates and
other documents with respect to the foregoing and in
compliance with this Agreement as Desa may reasonably request.
B. No action or proceeding shall be pending or
threatened at any time prior to or at the Closing Date before
any court or governmental body by any person not a party to
this Agreement or any public agency or authority seeking to
restrain, enjoin or prohibit, or damages or other relief in
connection with the execution and delivery of this Agreement
or the sale, assignment, transfer or delivery or the purchase
hereunder.
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C. Remington shall have delivered or caused to be
delivered to Desa such deeds, bills of sale, assignments and
other documents of transfer as required to transfer all its
right, title and interest to all the Subject Assets and the
business of the Department to be sold to Desa pursuant to this
Agreement, such deeds, bills of sale, assignments and other
documents of transfer to be satisfactory in form and substance
to Desa and its counsel and to be in compliance with this
Agreement.
D. There shall have been no material adverse change
in the Subject Assets taken as a whole, or in the business,
general affairs, condition (financial or otherwise),
management, financial position or results of operations of the
Department from that set forth on the financial statements as
at December 31, 1968 and May 31, 1969.
E. Remington shall have furnished to Desa an opinion,
dated the Closing Date, of Richard H. Rea, General Counsel for
Remington, in form and substance satisfactory to Desa and its
counsel, to the effect that:
(1) Remington is a corporation duly organized and
validly existing in good standing under the laws of the State
of Delaware, with full corporate power and authority to own
and hold its properties and conduct its business as presently
operated, and to enter into, and carry out the transactions
contemplated by, this Agreement, the Product Supply Agreement
and the Export Sales Agreement;
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(2) Remington has taken all action (corporate and
other) necessary for the due authorization, execution,
delivery and performance of this Agreement, the Product Supply
Agreement and the Export Sales Agreement in accordance with
their terms, and this Agreement, the Product Supply Agreement,
and the Export Sales Agreement have each been duly authorized,
executed and delivered by Remington and each constitutes a
legal, valid and binding obligation of Remington in accordance
with its terms;
(3) Each deed and document of sale, assignment,
transfer or delivery delivered to Desa pursuant to the
Agreement has been duly authorized, executed and delivered by
Remington;
(4) The execution and delivery of this Agreement, the
Product Supply Agreement and the Export Sales Agreement, and
the performance of, and compliance with, the terms and
conditions thereof, have not and will not violate any
provision of applicable law or the Articles of Incorporation
or ByLaws of Remington and have not and will not conflict with
or result in any breach of any of the terms or conditions of,
or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon, any of the
Subject Assets pursuant to any agreement, instrument, decision
or order known to such counsel to which Remington is a party,
by which it is bound, or to which any of the Subject Assets
are subject;
(5) To the best of counsel's knowledge, there do not
exist any violations of, or defaults under, any agreement,
instrument, decision or order to which Remington is a party,
by which it is bound, or of which any of the Subject Assets
are subject; and
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(6) Remington has duly and validly sold, assigned,
transferred and delivered to Desa (by special warranty deeds
in the case of real property and appropriate instruments and
documents of transfer in the case of all other Subject Assets,
in proper form and duly executed and acknowledged) all its
right, title and interest in and to the Subject Assets.
F. All required authorizations, consents, and
approvals of any authority or person in respect of this
Agreement, the Product Supply Agreement and the Export Sales
Agreement and of the consummation of the transactions set
forth herein and therein and contemplated hereby and thereby
shall have been duly obtained.
G. The purchase and sale contemplated by the Canada
Purchase and Sale Agreement, dated as of July 18, 1969,
between Desa and Remington Arms of Canada, Limited shall have
been consummated.
H. Remington shall have delivered to Desa such
additional certificates, instruments and documents as Desa or
its counsel may reasonably request.
I. The validity of all transactions herein mentioned
as well as the form and substance of all opinions, deeds,
certificates, instruments and other documents to be delivered
by Remington hereunder, shall be satisfactory to Desa's
counsel, Messrs. Sullivan & Cromwell.
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J. A sufficient number of employees in the Department
at the Park Forest Plant shall have accepted employment by
Desa so that Desa may conduct the business of the Department
in substantially the manner and at substantially the levels
existing prior to the Closing Date.
K. The contract dated May 2, 1969, between Remington
and Montgomery Ward and Company shall have been assigned to
Desa and Montgomery Ward shall have consented to the
assignment.
L. There shall have been delivered to Desa
certificates for all of the outstanding capital stock of Mall
Tool Company, a Delaware corporation incorporated on November
24, 1958, duly endorsed in blank or with stock powers attached
and in negotiable form for transfer and with all transfer tax
stamps, if any, July affixed, together with all of the books
and records of such corporation; and Desa shall have received
a certificate of a Vice President and the Treasurer of
Remington to the effect that to the best of their knowledge,
as of the Closing Date, Mall Tool Company has no liabilities,
obligations or commitments of any kind and only such assets in
such amounts as may be set forth in such certificate.
M. The Accountant's Agreed Book Value shall not be
less than the Department's Agreed Book Value.
2. The obligations of Remington to sell, assign, transfer and deliver
the Subject Assets and the business of the Department at the Closing shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions, the compliance with or occurrence of which may be waived in writing
by Remington:
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A. The representations and warranties of Desa
contained in this Agreement shall be true and correct on and
as of the Closing Date, with the same effect as though such
representations and warranties had been made on and as of the
Closing Date; Desa shall have complied with or satisfied all
agreements, covenants and conditions required by this
Agreement to be performed, complied with or satisfied by them
at or prior to the Closing Date; and there shall have been
delivered to Remington on the Closing Date such certificates
and other documents with respect to the foregoing and in
compliance with this Agreement as Remington may reasonably
request.
B. Remington shall have received the Note and a check
or checks payable to its order pursuant to Section 3 of
Article I of this Agreement.
C. Desa shall have assumed by appropriate instruments
all obligations and liabilities to be assumed by it under this
Agreement (other than as provided in Section 2 of Article
XIV), which instruments shall provide that Desa will indemnify
and hold harmless Remington from any and all damages, claims,
losses, liabilities and expenses (including but without
limitation, legal and other expenses) which result from or
relate to any act, omission, default or arrearage by Desa from
and after May 31, 1969 with respect to such obligations and
liabilities so assumed as of such date, except that Desa shall
not assume any obligations or liabilities with respect to
product liability claims or litigation involving personal
injury or death arising prior to the Closing Date.
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D. Desa shall have furnished to Remington an opinion,
dated the Closing Date, of Sullivan & Cromwell, New York, New
York, in form and substance satisfactory to Remington and its
counsel to the effect that:
(1) Desa is a corporation duly organized and validly
existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to enter
into, and carry out the transactions contemplated by, this
Agreement, the Product Supply Agreement and the Export Sales
Agreement;
(2) This Agreement, the Product Supply Agreement and
the Export Sales Agreement have each been duly authorized,
executed and delivered by Desa and each constitutes a legal,
valid and binding obligation of Desa in accordance with its
terms;
(3) The Note has been duly and validly authorized and
issued and is a legal, valid and binding obligation of Desa in
accordance with its terms; and
(4) The instruments of assumption whereby Desa has
assumed certain obligations and liabilities of Remington to be
assumed by it under this Agreement have been duly authorized,
executed and delivered.
E. Desa shall have delivered to Remington such
additional certificates, instruments and documents as
Remington or its counsel may reasonably request.
F. The conditions set forth in Sections 1(B) and 1(G)
of this Article XI shall have been satisfied.
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ARTICLE XII - PAYMENT OF COSTS
Regardless of whether the transactions provided for herein are
consummated, Remington shall pay all costs and expenses (including, without
limitation, the payment of all fees and expenses of counsel and of Price
Waterhouse & Co. (except the Price Waterhouse & Co. fees and expenses referred
to below), and all obligations, liabilities and commitments not assumed by Desa
under this Agreement) incurred by it in carrying out this Agreement and the
transactions set forth herein and contemplated hereby, and any sales and other
transfer taxes (other than recording fees) and expenses with respect thereto.
Regardless of whether the transactions provided for herein are consummated, Desa
shall pay all costs and expenses (including, without limitation, all fees and
expenses of counsel and Arthur Young & Company, the fees and expenses of Price
Waterhouse & Co. incurred in the preparation of the audited financial statements
and data referred to in Article II of this Agreement (other than the
Accountants' Report), title insurance premiums, if any, and all obligations,
liabilities and commitments expressly assumed by it under this Agreement)
incurred by it in carrying out this Agreement and the transactions set forth
herein and contemplated hereby, including recording fees and expenses.
ARTICLE XIII - WAIVER OF CONDITIONS
In the event that either Desa or Remington expressly waives
any unsatisfied condition, representation, warranty, covenant or agreement (or
portion thereof) to its respective obligations to consummate the Closing on the
Closing Date, the waiving party shall thereafter be barred from recovering, and
thereafter shall not seek to recover, any damages, claims, losses, liabilities
or expenses (including, but without limitation, legal and
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<PAGE>
other expenses) from the other party to this Agreement in respect of the matter
or matters so waived.
ARTICLE XIV - CONFIRMING DOCUMENTS
1. At any time and from time to time after the Closing Date
Remington will execute and deliver or cause to be executed and delivered to Desa
such further instruments of title and other written assurances as Desa shall
reasonably request in order to vest, confirm and perfect in Desa title to the
Subject Assets and business of the Department to be and intended to be acquired
by Desa under this Agreement. The execution and delivery of this Agreement shall
not constitute an assignment of any claim, contract, interest, license, lease,
sublease, commitment or other document if an attempted assignment of any such
item without the consent of the other party thereto, or otherwise, would
constitute a breach thereof.
2. At any time and from time to time after the Closing Date Remington
and Desa will cooperate and use their best efforts to cause the transfer and the
assignment to Desa of all Remington's right, title and interest in and to
Government contracts involving products of the Department in the manner and as
provided by law, including, but without imitation, ASPR Part 16 (Novation
Agreements and Change of Name Agreements). A list of outstanding Government
contracts involving products of the Department has been furnished Desa. Subject
to and in connection with the foregoing, Remington agrees to execute and deliver
any and all instruments, documents, assignments, novations, agreements and other
instruments as may be required in order to vest, confirm and perfect in Desa all
Remington's right, title and interest in and to the foregoing Government
contracts to be and intended to be
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<PAGE>
transferred or assigned, subject to the requirements of applicable law, to Desa
under this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall not constitute an
assignment or transfer by Remington of any claim, contract, interest, or other
right with respect to any such Government contracts if any such attempted
assignment or transfer, or the consummation of the transactions contemplated
hereby, without the consent or the approval of the appropriate Government office
or body, would constitute a breach thereof or be otherwise prohibited by law.
Prior to the Closing Date Remington shall continue to perform
its obligations under such contracts in accordance with their terms, and, if the
Closing under this Agreement shall take place, for the account and at the risk
of Desa (as if it were an original contracting party) from and after May 31,
1969 to and including the Closing Date. From and after the Closing Date, Desa
agrees to perform all obligations of Remington under such contracts in
accordance with their terms. Payments made to Remington on account of such
Government contracts on or after the Closing Date shall be paid over to Desa by
Remington. In the event any such Government contracts are transferred and
assigned, Desa will pay for any performance bonds required.
ARTICLE XV - DAMAGE, DELAY OR
DESTRUCTION BEFORE CLOSING
1. If prior to the Closing Date, any material part of the Subject
Assets is destroyed or damaged by fire or other casualty (whether or not such
destruction or damage is covered by insurance), then either party may terminate
this Agreement and all the obligations of the parties hereunder upon written
notice of such termination to the other, without any liability of either party
to the other.
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<PAGE>
2. Except as otherwise provided in this Article, any delays or failures
by either party hereto in performance hereunder shall be excused if and to the
extent that such delays or failure are caused by occurrences beyond such party's
control, including but not limited to, acts of God, decrees or restraints of
Government, strikes or other labor disturbance, war, sabotage and any other
cause or causes, whether similar or dissimilar to those already specified, which
cannot be controlled by such party. Such performance shall be so excused during
the continuance of the inability of the party affected to perform but for no
longer period, and the cause thereof shall be remedied as far as possible with
all reasonable dispatch. In the event of any delay or failure excused under this
Section 2 which continues beyond October 31, 1969, then either party may
terminate this Agreement.
ARTICLE XVI - ASSIGNMENT BY DESA
Desa may assign its rights under this Agreement to a
subsidiary (whether now or hereafter existing), without the prior written
consent of Remington. Any other assignment by Desa prior to Closing requires the
prior written consent of Remington. Any such assignment to a subsidiary shall
not relieve Desa of its obligations under this Agreement and Desa shall retain a
primary obligation to Remington under this Agreement; in addition, any assignee
of Desa shall execute and deliver to Remington at the Closing an appropriate
document of assumption of all obligations, liabilities and indemnification
agreements assumed by Desa under this Agreement. Upon any such assignment by
Desa, there shall inure automatically to the benefit of Desa and its assignee
all representations, warranties, covenants and agreements of Remington made
herein, and all instruments and documents of transfer
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<PAGE>
and all certificates, opinions and other instruments provided for in this
Agreement shall be in the name of Desa or assignee, or both, as Desa shall
designate to Remington on not less than five days' notice prior to the Closing
Date.
ARTICLE XVII - SURVIVAL,
MODIFICATION AND ENTIRETY
All representations, warranties, covenants and agreements contained of
all parties shall survive the Closing Date and delivery against payment
hereunder regardless of any investigation made by or on behalf of any such
party. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. This Agreement
represents the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof, supersedes all prior negotiations and
writing between the parties; cannot be amended, supplemented or modified orally,
but only by an agreement in writing signed by the party against whom enforcement
of any such amendment, supplement or modification is sought; can be assigned by
Desa prior to Closing only in accordance with Article XVI; and can be assigned
by Remington only with the prior consent of Desa.
ARTICLE XVIII - NOTICE
Any notices or other communications permitted or required hereunder
shall be sufficiently given if sent by registered or certified mail, postage
prepaid, or by telegram, addressed as follows:
To Remington: Remington Arms Company, Inc.
939 Barnum Avenue
Bridgeport, Connecticut 06602
Attention: R. H. Coleman
President and General Manager
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<PAGE>
To Desa: c/o The President
Desa Industries, Inc.
c/o Laird Incorporated
280 Park Avenue
New York, New York 10017
(with a copy in each case to Sullivan & Cromwell, 48 Wall Street, New
York, New York 10005, and Laird Incorporated, 280 Park Avenue, New
York, New York 10017).
or to such other person or persons and/or at such other address or addresses as
shall be furnished in writing by any party hereto to the other parties. Any such
notice or communication required or permitted herein shall be deemed to have
been given as of the date so mailed or telegraphed, as evidenced by the postmark
on the envelope or the official notation of time and date on a telegram.
ARTICLE XIX - MULTIPLE ORIGINALS
This Agreement may be executed in any number of multiple originals,
each of which shall have the same form and effect as an original instrument, and
all of which taken together shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
REMINGTON ARMS COMPANY, INC.
Attest: By:______________________________
- - - - -----------------------------
DESA INDUSTRIES, INC.
Attest: By:_____________________________
- - - - -----------------------------
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EXHIBIT 10.18
AGREEMENT
THIS AGREEMENT, dated this __ day of January, 1988, by and
between REMINGTON ARMS COMPANY, INC., a corporation of the State of Delaware,
having its principal offices at 1007 Market Street, Wilmington, Delaware 19898
(hereinafter "REMINGTON"), and DESA INTERNATIONAL, INC., a corporation of the
State of Delaware, having its principal offices at 2701 Industrial Drive,
Bowling Green, Kentucky 42101 (hereinafter "DESA").
W I T N E S S E T H:
WHEREAS, in 1969 REMINGTON sold its power tools business to
DESA Industries, Inc. (DESA Industries), and in connection therewith REMINGTON
assigned to DESA Industries all rights, title and interest to the trademark
"Remington" as associated with products presently produced by REMINGTON at the
Park Forest Plant (being the products identified in Schedule E attached thereto,
a copy of which is attached to this Agreement, such products hereinafter called
the "Schedule E Products") provided that the assignee agree to use the mark only
in simple block letter form and only in connection with the Schedule E products;
WHEREAS, DESA has succeeded to certain interests of DESA
Industries, including the aforesaid rights, title and interest to the trademark
"Remington"; and DESA presently uses the trademark "Remington" with certain of
the Schedule E Products;
WHEREAS, DESA wishes to use the trademark "Remington" for
certain space heaters, as well as with Schedule E Products;
<PAGE>
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WHEREAS, REMINGTON has no objection to DESA's use of the
trademark "Remington" for this additional purpose, provided it is agreed that
this is not to be construed as a precedent for expansion into other uses of the
"Remington" mark by DESA; and DESA is willing to provide assurance of such an
agreement;
WHEREAS, DESA filed trademark application Serial No. 632528 on
November 26, 1986 in the United States Patent and Trademark Office to register
the mark "Remington" for fluid-fuel fired, fixed and mobile space heaters for
domestic and industrial use, and REMINGTON filed notice of opposition to such
application; and
WHEREAS, REMINGTON is willing not to oppose said application,
provided DESA amends the goods description thereof to "fluid-fuel fire, forced
air type portable horizontally disposed cylindrical space heaters, and propane
vapor-fired vertically disposed cylindrical convection-type space heaters of
35,000 B.T.U.'s per hour capacity or greater use primarily for industrial,
commercial and agricultural use" (hereinafter called "designated space
heaters"), and provided further that DESA agrees not to expand the use of the
"Remington" trademark for any purpose other than for Schedule E Products and for
designated space heaters;
NOW, THEREFORE, in view of the premises and of the mutual
covenants expressed hereinafter, it is hereby agreed by and between the parties
as follows:
1. REMINGTON has no objection to DESA's use of the trademark
"REMINGTON" in simple block letter form on Schedule E Products and on designated
space heaters.
2. DESA shall not use the trademark "REMINGTON" except on
Schedule E Products and on designated space heaters.
<PAGE>
-3-
3. DESA's use of the trademark "REMINGTON" on Schedule E
Products and on designated space heaters shall be only in simple block letter
form.
4. The aforesaid limitations and restrictions on DESA's use of
the trademark "Remington" shall be binding upon and inure to the benefit of any
successors and assigns of the parties
5. DESA, with the consent of Remington, shall amend the goods
description of application Serial No. 632528 to the description of designated
space heaters state herein.
6. Upon such amendment, REMINGTON shall not oppose trademark
application Serial No. 632528 filed by DESA.
7. The parties hereto agree that this Agreement shall be
construed consistent with and under the laws of the United States, the
constitution of the United States, and the constitution and laws of the State of
Delaware.
8. The parties hereto agree that this Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
set forth herein, and that no modifications, amendments, or supplements to this
Agreement shall be effective for any purposes unless in writing and signed by
the parties against whom such notification, amendment, or supplement is used.
IN WITNESS whereof this Agreement is duly signed by the
parties effective as of the date first above mentioned.
REMINGTON ARMS COMPANY, INC. DESA INTERNATIONAL, INC.
By: By:
Title: Title:
<PAGE>
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SCHEDULE E
PRODUCTS SUBJECT TO REMINGTON'S
COVENANT NOT TO MAKE OR SELL
1. Gasoline engine powered chain saws, concrete rubbing machines, concrete
vibrators, power trowels, concrete screeds, cutoff saws and rail
grinders.
2. Pneumatic motor powered chain saws, concrete vibrators, drills,
screwdrivers, nutsetters, impact wrenches, grinders, sanders and
circular saws.
3. Electric motor powered chain saws, concrete rubbing machines, concrete
vibrators, terrazzo grinders, flexible shaft grinders, sanders,
polishers, brushes and circular saws.
4. Parts, accessories, and attachments for tools listed in Paragraphs 1
through 3 above, including chain saw guide bars, chain saw sprockets,
saw chain, flexible shafts, spindles and electric motors, but not
including wheels, blades, discs and similar devices which are abrasive
coated.
5. Powder actuated stud drivers, hole punchers, livestock stunning tools
and 8 gauge industrial kiln guns.
6. Parts, accessories, and attachments for tools listed in Paragraph 5
above, including studs, pins and mechanically-held expansion bolts.
EXHIBIT 10.21
AGREEMENT
This Agreement is made and entered into as of the 24th day of October,
1995, between DESA International, Inc., a Delaware corporation, which has its
principal place of business located at 2701 Industrial Drive, Bowling Green,
Kentucky 42101 (hereinafter referred to as "DESA") and BYSE Electrodomesticos,
S.A., which has its principal place of business located at Calle Itaroa 1,
Huarte, Pamplona (Navarra), Spain 31620 (hereinafter referred to as "BYSE"):
WHEREAS, DESA and BYSE desire to enter into an agreement with
regard to a new line of 3 and 5 plaque vent free gas heaters
(hereinafter referred to as the "Products") per Attachment A, to be
manufactured by BYSE and introduced by DESA in the United States and
Canada in 1996. DESA and BYSE agree to the following terms and
conditions:
1. (a) The term of this Agreement will be from the execution date
of this Agreement and will continue until December 31, 1998.
(b) Neither DESA nor BYSE can renew the Agreement
unilaterally. Both companies must agree in writing for any
extension of the Agreement beyond the original three (3) year
period.
2. (a) As long as this Agreement remains in effect, DESA has
exclusive marketing rights for the Products to be sold into
the Hardware/Home Center, Hardware Distributor, Mass
Merchandiser and Hardware Cooperative channels of
distribution, directly or indirectly, under various brand
names designated by DESA.
(b) As long as this Agreement remains in effect, DESA shall
have the right to market the Products, as described above, in
the United States and Canada.
(c) In order to retain these exclusive marketing rights, DESA
must place minimum annual orders during each January through
December period of this Agreement based on the volumes
outlined in Attachment B.
(d) If BYSE markets or sells the Products itself or through
third parties, in no event will BYSE use or permit third
parties to use DESA's brand names.
(e) The "Products" refer to the models listed on Attachment C.
3. (a) On or before December 1 of each year, during the term of
this Agreement, BYSE will provide DESA with a price list
corresponding to the Products listed on Attachment C. This
price list will be for the period of the next calendar year
and will be denominated in US dollars.
(b) All Products sold to DESA hereunder shall be sold at the
prices established by the previous December 1.
(c) The prices confirmed in December shall be in effect for
twelve (12) calendar months subject only to a one time per
year adjustment based on the exchange rate between the dollar
and the peseta. For purposes of such
<PAGE>
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adjustment, the average exchange rate for the first week
(beginning Sunday) in December of each year shall be
determined by reference to the exchange rates published in the
Wall Street Journal and then compared to the average exchange
rate for the first week (beginning Sunday) in July of the next
year, also by reference to the Wall Street Journal. If the
value of the dollar has increased or decreased relative to the
peseta less than five (5) percent during that time period
there will be no adjustment made in pricing for that year. If
the relative values have changed more than five (5) percent in
that time period, then the prices for that year can be
adjusted by the difference between such percentage change and
five (5) percent. Any adjustment will not be retroactive, but
will be for pricing for orders placed from the point in time
of the adjustment through December 1 of that year. (d) In
addition to the above referenced pricing, see Attachment F for
Purchase Volume Rebates.
4. (a) BYSE will provide DESA's requirements of the Products
F.O.B. Bilbao, Spain or CIF East Coast port in the United
States (Charleston or Savannah), with Net 60 day payment terms
at the U.S. Dollar prices listed on Attachment C.
(b) Within ten (10) days of BYSE's advice of shipment and
invoice, DESA will secure one hundred (100) percent of each
payment with a straight Letter of Credit issued by a
commercial bank acceptable to BYSE.
(c) If DESA requires shipment to any located other than the
East Coast Port, BYSE will pay the amount it would have cost
to ship to the East Coast Port, and the difference between
such amount and the actual cost of freight to such other
location will be the responsibility of DESA.
(d) BYSE agrees to procure the insurance from an AAA rated
(highest rated) insurance company organized and operating
under the laws of the United States or Canada, and such
insurance shall provide for marine and war risk coverage and
name DESA as an additional insured.
(e) Title to and risk of loss of the Products purchased
hereunder by DESA shall pass to DESA upon delivery thereof to
the ocean carrier at the port in Spain selected by BYSE for
shipment.
(f) BYSE pricing to DESA will be equal to or less than BYSE
pricing on the Products (including but not limited to the
Corcho line) to all other BYSE customers (net of all rebates,
allowances, adjustments, etc.).
5. (a) DESA will provide annually by each December 15, a twelve
(12) month forecast for all models of Products and will
provide monthly a rolling four (4) month forecast.
(b) These forecasts will be nonbinding but consistent with the
volumes outlined in Attachment B.
6. (a) DESA will provide BYSE purchase orders based on ninety
(90) day lead times prior to shipment.
<PAGE>
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(b) BYSE will be under no obligation to sell Products to DESA
unless DESA places firm and noncancellable purchase orders not
less than ninety (90) days prior to shipping of each order for
Products.
7. In the event BYSE decides to cease producing the Products (in
which case BYSE will provide one (1) year prior written notice
to DESA) or in the event BYSE becomes bankrupt, DESA will have
the option to purchase at fair market value all machinery,
tooling and fixtures owned by BYSE used exclusively to
manufacture the Products. In such instance, DESA may
manufacture or alternate source the Products.
8. In the event DESA ceases marketing the Products due to the
inability of BYSE and DESA to agree on pricing issues and the
subsequent impact on projected volumes due to these pricing
issues is not acceptable to BYSE, DESA will provide BYSE six
(6) months written notice. At the end of DESA's six (6) month
notice period, BYSE may market the Products in the United
States and Canada, to the channels of distribution described
in paragraph 2, but in no event will BYSE use or allow third
parties to use DESA's brand names. DESA will comply with the
provisions of paragraph 2 of this Agreement during the six (6)
month notice period.
9. Both parties agree to work together cooperatively in order to
develop cost reductions and to further improve the performance
of the Products. DESA and BYSE will share equally in any cost
reductions regardless of the originator.
10. Product planning meetings will be held by the parties on at
least an annual basis at a time and place mutually agreed upon
by the parties.
11. The parties agree that this Agreement is not assignable and
may not be succeeded to by any third party without the express
written consent of both DESA and BYSE. Such consent will not
be unreasonably withheld.
12. The parties, in signing this Agreement, execute an
Indemnification Agreement in the form of Attachment D. BYSE
will provide liability insurance coverage of a minimum of $5
million per occurrence. BYSE will also provide annually a
Certificate of Insurance specifying: (a) a minimum of $5
million Product Liability Insurance by an insurer authorized
to write insurance in the United States; (b) DESA as an
additional name insured; (c) the applicable deductible to be
covered by BYSE; and (d) the name and address of an authorized
United States claim agent.
13. BYSE will provide complete indemnification to DESA for any and
all patent infringement liabilities that may occur from the
introduction of the Products into the United States and
Canada.
<PAGE>
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14. DESA and BYSE will mutually develop a quality level agreement
that will be employed by both companies for purposes of
establishing Product acceptance criteria at time of receipt of
Product by DESA. An Acceptable Quality Level (AQL) agreement
will be developed and signed by appropriate Quality Assurance
supervisory personnel, as well as by an officer, of both
companies.
15. BYSE shall, at its own cost, obtain and maintain the necessary
International Approval Services (IAS) certifications for the
Products for the United States and Canadian markets.
16. (a) BYSE will provide a two (2) year warranty on the Products.
The two (2) year period will begin three (3) months from the
date of customer shipment by DESA, or on the invoice date held
by the end user, whichever is later. Refer to Attachment E for
warranty language. (b) Termination of the Agreement will not
affect Warranty obligation.
17. (a) BYSE will provide DESA with a list of recommended service
parts for the Products.
(b) Pricing for parts will correspond to the same December 1
and adjustment guidelines outlined in paragraph 3.
(c) During the term of this Agreement and for a period of
three (3) years after BYSE's last shipment of Products to DESA
hereunder, DESA agrees to provide after sale service for the
Products in the territory marketed by DESA, and BYSE agrees to
supply DESA with a supply of replacement parts. DESA agrees to
purchase a reasonable supply of replacement parts for the
repair of Products under Warranty.
(d) DESA will balance parts inventories on an annual basis;
returning unused excess parts for a full refund of the
purchase price.
(e) Any parts purchased and found to be in excess at the end
of the three (3) year period can be returned by DESA to BYSE
for a full refund of the purchase price.
(f) If the Agreement is not renewed, DESA can return all
unused service parts for a full refund of the purchase price.
18. BYSE will indemnify DESA for the costs it incurs relating to
the following:
(a) catastrophic field failure and/or recall (defined as
greater than three (3) percent of the units sold in any year);
(b) required notification to the Consumer Product Safety
Commission (CPSC) under the 15b reporting requirements.
<PAGE>
-5-
19. BYSE shall, at its own cost, maintain all machinery, tooling
and equipment, used to manufacture the Products in good
working order.
Dated and agreed upon this 24th day of October, 1995.
DESA INTERNATIONAL, INC. BYSE ELECTRODOMESTICOS, S.A.
BY_________________________ BY__________________________
ITS________________________ ITS__________________________
WITNESSED BY: BY__________________________
___________________________ ITS__________________________
ITS________________________ WITNESS____________________
<PAGE>
ATTACHMENT A
PRODUCT DRAWINGS
Product drawings will be supplied by BYSE after further Product development and
will be attached to this Agreement as Attachment A. The absence of Product
drawings at the time of the signing of this document should in no way detract
from the meaning, terms or conditions of this Agreement.
<PAGE>
ATTACHMENT B
YEARLY VOLUMES
In order to maintain exclusive marketing rights, in the distribution channels
identified in this Agreement for the United States and Canadian markets, DESA
will comply with the provisions of paragraph 2 of this Agreement. That paragraph
refers to Attachment B and the minimum yearly order volumes outlined herein:
1st year: 20,000 Heaters
2nd year: 30,000 Heaters
3rd year: 40,000 Heaters
<PAGE>
ATTACHMENT C
PRODUCT AND PRICE LISTING
MODEL PRICE (US$)
CIF
FOB Bilbao East Coast
Three (3) Plaque Heater - Natural 97.65 102.00
Three (3) Plaque Heater - LP 96.35 100.70
Five (5) Plaque Heater - Natural 120.00 126.30
Five (5) Plaque Heater - LP 120.00 126.30
Above prices for calendar year 1996 are based upon an exchange rate of 126
pesetas per US dollar.
<PAGE>
ATTACHMENT D
INDEMNIFICATION AGREEMENT
This Agreement made and entered into this 24th day of October, 1995, by and
between DESA INTERNATIONAL, INC., with its principal place of business located
2701 Industrial Drive, Bowling Green, Kentucky, U.S.A. ("DESA") and BYSE
Electrodomesticos, S.A. ("Seller"), with its principal place of business located
at Calle Itaroa 1, Huarte, Pamplona, (Navarra), Spain.
NOW, THEREFORE, for good and valuable consideration, including the production
agreement executed by the parties on even date herewith and the mutual covenants
of the parties set forth herein, DESA and Seller agree as follows:
1. PRODUCT LIABILITY CLAIMS.
A. Seller shall indemnify, defend and hold DESA harmless from and
against any and all claims, losses, damages, judgments, costs and expenses,
including but not limited to reasonable attorney's fees, arising from,
associated with or relating to any Product or Products. This includes but is not
limited to claims involving allegations of negligence, defects in the design or
manufacture, and strict liability because a product is unreasonably dangerous.
In all events, the design, manufacture and information provided with the
Products shall be the sole responsibility of BYSE. Nothing, however, contained
herein, shall relieve DESA from responsibility for any claim, loss or damage
which is caused by any change, modification or remodeling which DESA makes in
the Product(s) without the knowledge or consent of Seller.
B. DESA shall notify Seller within fifteen (15) days of receiving
notice of a claim hereunder. Upon receipt of notice from DESA, Seller shall
assume responsibility for the claim, including any defense thereof, and DESA
shall reasonably cooperate with Seller in any defense of the claim.
C. Without limitation of its duty to indemnify DESA, Seller agrees to
maintain in force for the life of any Product produced by Seller hereunder,
products liability insurance coverage, including broad form vendor's coverage,
for property damage and bodily injury combined, naming DESA as an additional
insured. Seller shall supply DESA with a certificate of insurance evidencing
this coverage annually. Seller's insurance shall afford minimum coverage of
$5,000,000 per occurrence.
2. NOTICE. Any notice required or permitted under the terms of this
Agreement shall be in writing in English and shall be delivered by registered
air mail, with postage fully prepaid, or telex, telefacsimile or cable. If any
notice is made by telex, telefacsimile or by cable, it shall be confirmed by air
mail. All notices required hereunder shall be sent to the addresses written
below or such other addresses as shall be provided in writing. Notice made by
letter shall be deemed to have been given ten (10) days after the date of
mailing and notice by telex or cable shall be deemed to have been given when
received.
<PAGE>
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3. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Kentucky, United States of America. The parties
agree that the proper venue for any dispute arising under this agreement or the
production agreement of even date herewith shall be any federal district court
within the Western District of Kentucky.
4. BINDING EFFECT. This Agreement shall be binding upon properly
approved successors and assigns of the parties.
5. CAPTIONS. The captions of the sections of this Agreement are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation.
6. ENTIRE AGREEMENT. This Agreement represents the complete
understanding of the parties with respect to Seller's duty to indemnify DESA,
and it supersedes all prior agreements and understandings between the parties
with respect to the matters set forth herein. This Agreement may not be amended
except by a writing designated as such and signed by authorized representatives
of both parties.
<PAGE>
ATTACHMENT E
WARRANTY INFORMATION
KEEP THIS WARRANTY
Model
Serial No.
Date Purchased
Always specify model and serial numbers when communicating with the factor.
We reserve the right to amend these specifications at any time without notice.
The only warranty applicable is our standard written warranty. We make no other
warranty, expressed or implied.
LIMITED WARRANTY
VENT-FREE HEATERS
DESA International warrants this product to be free from defects in materials
and components for one (1) year from the date of first purchase, provided that
the product has been properly installed, operated and maintained in accordance
with all applicable instructions. To make a claim under this warranty the Bill
of Sale or canceled check must be presented.
This warranty is extended only to the original retail purchaser. This warranty
covers only the cost of part(s) required to restore this heater to proper
operating condition. Warranty part(s) MUST be obtained through authorized
dealers of this product and/or DESA International who will provide original
factory replacement parts. Failure to use original factory replacement parts
voids this warranty. The heater MUST be installed by a qualified installer in
accordance with all local codes and instructions furnished with the unit.
This warranty does not apply to parts that are not in original condition because
of normal wear and tear, or parts that fail or become damaged as a result of
misuse, accidents, lack of proper maintenance or defects caused by improper
installation. Travel, diagnostic cost, labor, transportation and any and all
such other costs related to repairing a defective heater will be the
responsibility of the owner.
TO THE FULL EXTENT ALLOWED BY THE LAW OF THE JURISDICTION THAT GOVERNS THE SALE
OF THE PRODUCT; THIS EXPRESS WARRANTY EXCLUDES ANY AND ALL OTHER EXPRESSED
WARRANTIES AND LIMITS THE DURATION OF ANY AND ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE TO ONE (1)
YEAR FROM THE DATE OF FIRST PURCHASE; AND DESA INTERNATIONAL'S
<PAGE>
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LIABILITY IS HEREBY LIMITED TO THE PURCHASE PRICE OF THE PRODUCT AND DESA
INTERNATIONAL SHALL NOT BE LIABLE FOR ANY OTHER DAMAGES WHATSOEVER INCLUDING
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
Some states do not allow a limitation on how long an implied warranty lasts or
an exclusion or limitation of incidental or consequential damages, so the above
limitation on implied warranties, or exclusion or limitation on damages may not
apply to you.
This warranty gives you specific legal rights, and you may also have other
rights that vary from state to state.
For information about this warranty write: DESA INTERNATIONAL
2701 Industrial Drive
P.O. Box 90004
Bowling Green, KY 42102-9004
<PAGE>
ATTACHMENT F
PURCHASE VOLUME REBATES
Should DESA issue purchase orders to BYSE for more than 20,000 units in calendar
year 1996, BYSE shall rebate to DESA the following percentages of the
incremental purchases. The rebates are always retroactive back to the 20,001
level when each successive level is attained.
Number of Units Percentage of Rebate
Up to 20,000 0
20,001 to 25,000 2
25,001 to 30,000 3
30,001 to 35,000 4
35,001 to 40,000 5
The rebate shall be paid by BYSE by February 1, 1997.
EXHIBIT 10.22
MEMORANDUM OF UNDERSTANDING
A. NU-TEC Incorporated (NU-TEC) has designed, manufactures and sells
Townsend, Amity, Brendan and Upland wood-burning stoves. NU-TEC
represents that it owns the unencumbered right, title and interest in
and to the cast-iron body designs that it sells. The design of the
Amity cast-iron stove and the Hepplewhite cast-iron stove are the sole
property of NU-TEC. NU-TEC will indemnify and defend DESA from any
claims or cost arising from breach of these warranties that would
prevent DESA from marketing these designs.
B. DESA desires to procure and market under the DESA Brands, such as
VANGUARD, the Amity (Federal) Gas Stove Body and Hepplewhite Gas stove
Body designs developed by NU-TEC. DESA promises not to procure any
cast-iron designs from other suppliers that are so similar to the
NU-TEC designs as to be construed by the consumer to possibly be NU-TEC
designs.
C. DESA will design and manufacture the log set or firebox to be inserted
into the cast-iron body. DESA accepts the responsibility for the safe
design, testing, and manufacture of the finished product - a ventless
heater. NU-TEC grants DESA the exclusive right and license to market
the Amity (Federal) Gas Stove Body and Hepplewhite Gas stove Body
designs in the United States.
D. NU-TEC will manage the acquisition of the Amity (Federal) Gas Stove
Body and Hepplewhite Gas stove Body designs from China on behalf of
DESA. NU-TEC will have personnel living in China to help fulfill this
function. NU-TEC will negotiate prices and other contractual terms with
the Chinese manufacturers, will do quality control inspections, and
will generally coordinate the activities relating to acquisition of
high quality, reasonably priced cast-iron stoves from China.
E. NU-TEC will be paid a management fee which will be calculated based on
DESA unit purchases of AMITY Gas Stove Bodies. The fee becomes owed
when a container clears customs. (Any subsequent rejects or claims do
not effect the management fee.) The fee for each painted stove body
will be $60.00 and for each enameled stove body $70.00. The management
fee is due 30 days from the time containers clear customs.
F. DESA will be responsible for all non-China purchases through their own
purchasing department. NU-TEC will continue to forward information that
may be helpful. NU-TEC may purchase items at DESA's request with the
understanding that DESA will reimburse NU-TEC immediately. NU-TEC will
not mark-up such purchases. (For example, DESA is responsible for the
Forest Paint to be shipped to China for the AMITY stoves.) NU-TEC will
purchase the paint per DESA's mix of color designation and invoice DESA
for the total cost, without mark-up.
G. The AMITY cast-iron body assembly will be shipped completely assembled,
except for legs and grill (packaged to avoid damage inside), and
palletized and boxed. The
<PAGE>
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cardboard outer box will be imprinted with the DESA name and VANGUARD
logo, if desired. The cardboard box and plastic bag will be designed to
be lifted off and the gas insert assembly will be inserted either at
the DESA factory or by the installer. A discreet line will be printed
on the carton that notes: "Body by NU-TEC". DESA will provide either
the camera ready artwork or labels containing bar codes, etc.
H. DESA promises not to do anything intentionally to hurt the NU-TEC name
or the brand recognition. NU-TEC will place its name 'discreetly on
each stove and it will appear on the gold foil (1/2" x 2") inspection
sticker that also serves to announce "Made in China". NU-TEC promises
not to do anything intentionally to hurt DESA's reputation or
distribution program.
I. DESA will immediately retain exclusive marketing license of the Amity
(Federal) Gas Stove Body and Hepplewhite Gas stove Body designs for
1997 and thereafter for so long as DESA's annual management fee payment
exceeds $120,000.00 for each unit. DESA may retain the exclusive
license, but take less stoves provided the fee is paid.
J. If DESA is unwilling or unable to fulfill the above requirements or
otherwise wishes to terminate this Agreement, DESA will be responsible
for payment for Amity (Federal) Gas Stove Bodies and Hepplewhite Gas
stove bodies on the orders that are completed within 30 days of written
notice. The remaining prepayment portion of the agreement will be
forfeited to the China manufacturers. DESA' s termination of this
Agreement must not leave NU-TEC with any financial obligations from
DESA authorized purchases (such as paint incurred on DESA's behalf.
Components or subassemblies that have been paid for but not taken to
completion will be turned over to NU-TEC at no charge.
K. NU-TEC will be able to purchase up to twenty of the AMITY Gas Stoves
from DESA at a price equal to DESA's lowest selling price to date
within the current recording year. NU-TEC may purchase at this price in
any quantity up to the twenty and will be afforded the standard payment
terms of a DESA distributor. NU-TEC will not resell these stoves as to
jeopardize DESA's current distribution.
L. Neither NU-TEC or any of its employees, including Peter S. Albertsen,
are to be held liable for problems with deliveries, prices, or quality
of items purchased from third parties. While DESA monies will be
directed through the NU-TEC banking account, it is understood that all
purchases are third party.
M. NU-TEC will use any funds that DESA provides only for the express
purpose of purchasing goods and services on behalf of DESA. Only the
Management Fee may be applied to NU-TEC's own expenditures and income.
N. DESA may send a representative at any time to review the operation in
China and inspect product. This is encouraged especially when we begin
shipping finished product. During these visits, the DESA representative
will be accompanied by a Rhode Island - based NU-TEC staff member and a
China based NU-TEC staff member to interpret. During these visits DESA
will be responsible for inland travel,
<PAGE>
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food and lodging expenses for the DESA representative and NU-TEC
personnel accompanying him. DESA will not be responsible for NU-TEC's
airfare to China unless a special unscheduled trip is requested by
DESA.
O. This Agreement is intended to obey the laws of Kentucky, Rhode Island,
the United States of America and the Peoples Republic of China. It will
be interpreted pursuant to Rhode Island law.
P. Any dispute that cannot be resolved by the parties to this Agreement is
agreed to be resolved by independent arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
("AAA"). It will be the obligation of the plaintiff to take his case to
the State of the other party. (DESA must take its complaint to the AAA
in Rhode Island and NU-TEC must take its complaint to the AAA located
in Kentucky.)
Q. This Agreement is not transferable without the written consent of both
parties, which consent will not be unreasonably withheld..
R. The terms and conditions of the Chinese Factories will be discussed
with DESA. Payment terms must be agreed upon by both the China
Factories and DESA. For the initial order of 2,000 Amity (Federal) Gas
Stove Body and 1,000 Hepplewhite Gas stove Body designs the following
payment schedule applies:
$25.00 Per Stove Prepayment - Deposit with order locks in your costs
for one year or as many stoves prepaid, whichever comes first. All of
these funds are wired to China and are applied towards the purchase of
materials. For 2000 stoves the prepayment is $50,000. NU-TEC will make
this prepayment on behalf of DESA in return for $6.00 added to the
Management Fee. $60.00 goes to $66.00. DESA is responsible to NU-TEC
for repayment of the prepayment if they cancel their order. DESA has
the option taking over the prepayment responsibility and thus
eliminating the $6.00 fee to NU-TEC by reimbursing NU-TEC for any
outstanding prepayment funds.
China Costs - Due upon clearance of the containers through U.S.
Customs. NU-TEC will invoice DESA for all of the China costs without
any mark-up. Generally the $25.00 prepayment would be deducted for each
stove. NU-TEC will take this credit if it makes the prepayment for
DESA. The terms are net. Payment should be sent via 2 day mail to
NU-TEC within a week from receiving the invoice. NU-TEC wires these
funds to China.
At the time of this writing, the cost for the painted Amity Stove Body
as detailed below. The Forrest Paint must be supplied to the China
factory. The current estimated landed cost per gallon is $24.00. The
estimated usage is 4 to 5 stoves per gallon. The screen and back panel,
if painted will push this number towards the 4 units per gallon. The
back panel is currently intended to be enameled to enhance the flame
view. If we need to cut back on costs we could settle on a painted back
panel.
The estimated cost for the enameled Amity Stove Body is $196.00, but
price and 1997 availability has not been firmed up yet.
<PAGE>
-4-
Ocean freight charges are currently running $2,620.00 (Savannah) or
$2,070 (San Francisco) plus $224.00 insurance. This equates to $13.50
to $16.73 per stove, assuming 170 stoves per container. We do not have
the inland freight costs yet, but we know H-N-G pays $1,200 total for a
container delivery to Savage, MN from Seattle. This equates to $7.05
per stove.
Revised Costs as of 2/20/97 Annuity
Summary $110.00 Painted Stove with drop floor, swing out bottom
door, expanded metal black painted steel screen,
black enameled 1.5mm thick back panel, on pallets
and in a cardboard box. (We used up the $10.00
contingency cushion we have used for preliminary
discussions.)
$ 6.00 Forrest Paint (assumes 4 stoves per gallon average)
$ 16.73 Ocean Freight (highest to East Coast)
$ 60.00 Management Fee (+ $6.00 Fin. Chg. not included)
-------
$192.73 Landed Stove Cost
$ 7.05 clearance and inland freight to DESA (should be less,
-------
600 miles Savannah to Bowling Green vs. +1,200
miles from Seattle to Savage, MN
$199.78 TOTAL LANDED
Estimated Maximum Landed Cost = $202.00.
Estimated Minimum Landed Cost = $197.00.
The largest variables are the freight.
Management Fee - The Management Fee is invoiced Net 30 at the same time
as the "China Costs" are invoiced. The Management Fee may not be
debited. Rejects are handled as credit memos applied to subsequent
"China Costs" Invoices or parts replacements as defined below.
The China factories have agreed that rejected units or components will be
replaced on subsequent full container shipments. There is no allowance for
freight or labor, only replacement of parts or the complete unit in an extreme
case. Enamel or cosmetic damage or rejects must be identified and documented at
the time that the stove body is received at DESA - otherwise it is assumed that
the damage happened in the United States. Cast-iron that fails in the field will
be replaced for up to three years. The enamel is not warranted against chips -
it is glass. If it delaminates or peels it will be replaced for up to three
years.
With the small number of rejected units we have had - approx. 20 in 4000, a
partial value (50%) credit memo was issued and the units were turned into spare
parts. Several units received full credit. China did not request that they be
shipped back.
S. The AMITY Gas Stove bodies will be the same basic components and of the
same typical quality as the sample units provided to DESA up to this
time. NU-TEC will continue to make refinements for the betterment of
the product.
<PAGE>
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Several product refinements will be made before initial shipment of the
Amity stove, including lowering the floor and adding a hinged door to
conceal the controls. A black paint screen will be installed behind the
front window. The ash lip will be removable for improved visual and
manual access to the controls.
T. This agreement runs by the calender year and will automatically be
renewed each year on November 30th unless written notice is provided by
certified mail before this date. In the event that DESA has not taken
all of the initial order 2000 Amity stoves, plus 1000 Hepplewhite by
the end of December 1997, the remaining balance may be applied to the
1998 agreement. In 1998 and thereafter, DESA agrees to order at least
2000 pieces of each model.
U. DESA will provide to American Credit Indemnity any financial
information necessary for NU-TEC to obtain Receivables Insurance.
NU-TEC Incorporated
Dated: February __, 1997 By_________________________
Peter S. Albertsen
President
DESA International
Dated: February __, 1997 By_________________________
John M. Kelly
President
EXHIBIT 10.23
P.A.T. PINS/FASTENERS
SUPPLY AGREEMENT
This AGREEMENT is made and entered into as of the 9th day of March,
1990 between International Pin, which has its principal place of business
located at 25000 South Western Avenue, Park Forest, Illinois, and DESA
International Inc., a Delaware corporation with its principal place of business
located at 2701 Industrial Drive, Bowling Green, Kentucky (referred to as DESA):
Because International Pin manufactures and desires to sell certain pins
or fasteners to DESA for distribution and sale in the United States, Canada and
Europe, and
Because, DESA desires to purchase certain pins or fasteners for
distribution and sale in the United States, Canada, and Europe, the parties
agree to the following terms and conditions with respect to these desires:
1) The term of this agreement will be for the period of April 1,
1990 through March 31, 1994.
2) DESA will purchase and International Pin will provide an
assorted pin volume of 40MM to 80MM annually during each year
of the term of this agreement.
3) DESA will provide annually each September a twelve (12) month
forecast for all styles of pins. DESA will provide monthly a
rolling six (6) month forecast.
4) DESA will provide firm releases of twelve (12) weeks for pin
production.
5) Pricing for pins as per the attached Schedule A.
6a) On April 1, 1990, and subsequently on each April 1 thereafter
during the term of this agreement, International Pin will
documents material price increases and decreased RHE, ASV for
pins which will be passed through to DESA as
<PAGE>
part of the price schedule found in 5. A review will be made
of the market impact of these increases at the product
planning meetings as discussed in 9.
6b) International Pin will provide to DESA a material cost content
data sheet for all pins covered by this agreement. Such data
sheet will be effective as of the first date of this agreement
(April 1, 1980) RHE, ASV and will be supplied to DESA no later
than one month following the date of agreement. The purpose of
the information provided will be to form the basis upon which
material cost adjustments will be administered as described in
6a above. In addition, a review will be made of the consumer
market pricing to determine if any labor cost increases may be
passed thru and justified for April 1, 1991
7) The payment terms will be 60 calendar days F.O.B. Park Forest.
8) The parties concur that this agreement is neither assignable
nor may it be succeeded to by any other party or entity
without the express written consent of both International Pin
and DESA. Such consent will not unreasonably be withheld.
9) Both parties agree:
o To share equally any cost reductions on pins that
DESA purchases regardless of the originator.
o To hold a bi-annual product planning meeting, one
such meeting at Park Forest and one such meeting at
Bowling Green.
10) International Pin agrees that, during the term of the
agreement, it will afford to DESA its most favorable economic
terms regarding pricing, terms, and delivery of product as
granted to other customers buying similar quantities of the
same mix.
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<PAGE>
11) The parties further agree that, during the term of the
agreement, DESA will possess a right of second refusal after
Gunnebo Corporation to acquire CMI's equity interest in the
International Pin joint venture or right of second refusal
after CMI to acquire Gunnebo Corporation's equity interest in
the International Pin joint venture.
Dated and agreed upon this 9th day of March, 1990.
DESA INTERNATIONAL, INC. INTERNATIONAL PIN
____________________________ _______________________________
Its_________________________ Its____________________________
____________________________ _______________________________
Its_________________________ Its___________________________
-3-
<PAGE>
PRICE SCHEDULE A:
April 1, 1990, Supply Agreement
Between
DESA International, Inc. and International Pin
Pin Pricing
- - - - -----------
Description Selling Price Selling Price
- - - - ---------------- Effective 4/1/90 Effective 4/1/91
---------------- ----------------
KP - 50 $10.14/M To Be
SP - 50 $ 6.28/M
SP - 75 $ 5.41/M Reviewed
SP - 100 $ 7.31/M
SP - 125 $ 9.56/M January, 1991
SP - 150 $10.63/M
SP - 200 $13.82/M
SP - 250 $15.97/M
SP - 300 $19.07/M
<PAGE>
INTERNATIONAL PIN
July 30, 1992
Mr. Robert H. Elman
Chairman
DESA International
2701 Industrial Drive
Bowling Green, KY 42102-9004
Dear Bob:
To facilitate the long-term agreement between International Pin and
DESA, we propose the following:
- Contract extended to April 1, 1997.
- Base price to remain, per existing agreement of April 1, 1992.
(Schedule A)
- DESA will receive the following volume rebate:
40MM Pins As Scheduled
50MM Pins 2.3%
60MM Pins 4.6%
70MM Pins 7.0%
80MM Pins 8.0%
90MM Pins 9.0%
100 MM Pins 10.0%
In order for DESA to qualify for 70MM or above rebate, DESA
will be required to purchase a minimum of 35MM 2" and above
pins.
If DESA is in agreement, please sign below.
Sincerely,
Robert s Kaminski
Operating Partner
RSK/ds
Agreed to and Accepted:
- - - - ------------------------
Robert H. Elman, Chairman
<PAGE>
Schedule A
L.V. PIN PRICING*
Base -7% -10% -15%
40MM 70MM 100MM 150MM
3/4% 5.41 5.03 4.87 4.60
1" 7.31 6.80 6.58 6.21
1 1/4% 9.56 8.89 8.60 8.13
1 1/2" 10.90 10.14 9.81 9.27
2" 13.82 12.85 12.44 11.75
2 1/2" 16.25 15.11 14.63 13.81
3" 19.07 17.74 17.16 16.21
A. Gottlieb
6/30/92
EXHIBIT 10.24
Revision 2/28/97
AGREEMENT
This agreement is entered into between "DESA" International of Bowling
Green, Kentucky, U.S.A. and Kingsman Industries, a Division of "R-Co", Inc., of
Winnipeg, Manitoba, Canada. This agreement is in regard to the manufacturing and
marketing of a Kingsman produced, vent-free stove cabinet (the "product") see
Exhibit I, by DESA International (DESA part number SVFBC). This agreement shall
be in effect for a period of one year, beginning with the date of signing of
this contract.
1. DESA will purchase the product, (DESA part number SVFBC) from R-CO, as a full
truck load shipment at pricing to be determined each November (see Exhibit II)
with products being delivered FOB to Bowling Green KY. Prices will be
reconfirmed or revised each November, during the renewal stage of the agreement.
These units will be packaged as "Vanguard" for DESA. All in transit freight,
insurance and other transportation costs are the responsibility of R-CO.
Invoices payable NET 30 DAYS, payment with purchase orders will receive an
additional 3% cash discount.
2. DESA agrees to provide R-CO with a minimum annual product volume of 2,000
units taken over the course of a year as agreed upon in paragraph 3.
3. During each year, DESA will purchase at least the minimum quantity of the
units as agreed in paragraph 2, in a forecasted percentage as listed below. A
three or four week lead time is needed on all orders.
CALENDAR % OF TOTAL MINIMUM UNITS
First Quarter (April to June) 30% 600
Second Quarter (July to Sept) 35% 700
Third Quarter (Oct to Dec) 20% 400
Fourth Quarter (Jan to Mar) 15% 300
4. All marketing expenses whatsoever including dies for printing, catalogs,
promotional, color separations and all regulatory body approvals whatsoever
shall be borne by DESA.
5. DESA shall purchase, at termination of this agreement, all materials related
to private label agreements (i.e. boxes, labels, and any other raw materials,
work in process, finished goods) not to exceed 10% of the DESA forecasted
amount. R-CO shall have service parts, agreed on by both parties, deemed needed
to support the field replacement part sale of these units, available for a five
year period following the termination of the contract. These will
<PAGE>
-2-
be available within a 45 day lead time. Replacement parts will be charged to
DESA at the best distributor price.
6. The warranty of the goods produced by R-CO will be equal to that of DESA
International's warranty of this product to their customers, which will be for a
period of three years following the date of sale. This warranty shall apply to
any part of this unit found to be defective in materials or workmanship.
Kingsman does not warranty paint from fading and/or discoloration. Other product
issues will be addressed jointly between the two parties. This product produced
by R-CO shall comply with DESA audit procedures - QA- 211-089, as mutually
agreed upon by both parties. (See Exhibit III)
7. If the agreement is terminated, DESA will accept and pay for all units at
contract prices, currently in production at R-CO and purchase any raw materials
committed for by R-CO for the purpose of building units for DESA. The finished
goods or raw materials shall not exceed by 10% more than the DESA open orders.
If the contract is terminated by R-CO, DESA reserves the right to place
additional order up to the last twelve (12) months purchases period.
8. This product will be solely produced for sales and distribution by DESA. R-CO
will not produce this product for any other parties for sales and distribution.
9. At the termination of the contract, a six-month grace period from the date of
last shipment of goods will be given before R-CO can sell the product to any
DESA customers.
10. Each party will provide the technical assistance to the other company as
reasonably required, with respect to the proper development in order to affect
this agreement.
- - - - ----------------------------- --------------------------------
DATE: ____________________ DATE: ________________________
KINGSMAN INDUSTRIES DESA INTERNATIONAL
Division of R-CO Inc. 2701 Industrial Drive
3 Winfield Way Bowling Green, KY 42101
Winnipeg, Manitoba R2R1V8 USA
<PAGE>
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Desa International Agreement with Kingsman Industries, a Division of "R-CO" Inc.
EXHIBIT I
Description of the "product", Vanguard Logmate, model SVFBC, vent-free gas stove
cabinet, for use with 18" Vanguard, vent-free, gas log heaters.
DESA ECN # __________________
<PAGE>
-4-
Desa International Agreement with Kingsman Industries, a Division of "R-CO" Inc.
EXHIBIT II
During the twelve month period from March 1, 1997 to March 1, 1998, DESA agrees
to pay $200 per unit for the "product".
<PAGE>
-5-
Desa International Agreement with Kingsman Industries, a Division of "R-CO" Inc.
EXHIBIT III
Quality Audit Agreement regarding the "product".
EXHIBIT 10.25
EXCLUSIVE SELLING RIGHTS AGREEMENT
THIS AGREEMENT is made on the ninth day of January, 1996.
The Undersigned:
1. The private company with limited liability "DESA EUROPE B.V.", with its
registered offices in Rotterdam, hereinafter referred to as "Desa", duly
represented by its director, Mr.
G. H. Salters;
and:
2. The company organized under foreign (Australian) laws "SEELEY INTERNATIONAL
PTY. LTD.", with its registered offices in Saint Marys (South Australia),
hereinafter referred to as "Seeley", duly represented by its director, Mr. R.A.
Arnold;
WHEREAS
1. Seeley produces portable evaporative coolers in different models and under
different brand names, hereinafter referred to as "the Products";
2. Seeley is owner of the exclusive rights, in particular intellectual property
rights and/or models and/or drawings thereto or thereof, and has had these
rights, where possible, filed or registered;
3. Pursuant to verbal Agreements with Seeley, Desa has had the sole agency of
the product on sections of the European market for a number of years;
4. Partly in view of the large increase and continuing increase in the trade
volume, both parties wish to record in writing, and where necessary to
supplement, the terms under which Desa will distribute the Products in future.
5. This written Agreement supersedes and replaces the previous verbal agreement.
NOW THEREFORE it is agreed as follows
1. Appointment of Distributor
1.1 Seeley appoints Desa its exclusive distributor of the Products in the
Territories defined in Clause 1.2 for a period of three years, with effect from
the date of signing of this Agreement ("Term").
Annually, by the 30th November Seeley and Desa will discuss and agree minimum
order quantities which should be based on past sales and future sales potential;
<PAGE>
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These quantities will not present a binding obligation to purchase, but failure
to do so, or sell in the various territories in accordance with the agreed
quantities, will be considered as a Breach of Contract under this Agreement.
Territory
1.2 The Territory is The Netherlands, Belgium, Luxembourg, Germany, Austria,
Denmark and Greece. In addition, Desa may sell, on a non-exclusive basis, in the
C.I.S. and in France and Italy.
1.3 If Seeley should grant Desa the exclusive distribution for countries other
than the aforementioned, Seeley shall confirm this to Desa in writing.
1.4 This Agreement supersedes and replaces absolutely any previous verbal
agreement between the parties. The parties acknowledge that their relationship
in relation to the distribution of the Products is exclusively governed by this
Agreement.
2. Renewal of the Term
Upon expiry of the Term, the Term will be automatically renewed on the same
terms as this Agreement, each time for a period of three years subject to the
termination or non-renewal of this Agreement in accordance with Clause 3.
3. Termination
3.1 This Agreement will not be renewed if either party for any reason gives the
other one year's notice prior to the end of the existing Term. The non-renewal
must be made by means of written notice addressed to the other party and sent by
registered mail.
3.2 A party may terminate this Agreement with immediate effect by giving notice
to the other party if;
3.2.1 that other party breaches any provision of this Agreement and fails to
remedy the breach within thirty (30) days after receiving notice requiring it to
do so;
3.2.2 that other party breaches a material provision of this Agreement where
that breach is not capable of remedy; or
3.2.3 any event referred to in Clause 3.3 happens to that other party.
3.3 Each party must notify the other party immediately if;
3.3.1 the party disposes of the whole or part of its assets, operations or
business other than in the ordinary course of business;
3.3.2 that party ceases to carry on business; or
<PAGE>
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3.3.3 that party ceases to be able to pay its debts as they become due.
4. Legal Relation's and Trade Marks
4.1 Desa acts in its own name and at its own expense. Desa is entitled to
describe itself as Seeley's distributor for the Products, but must not hold
itself out as Seeley's agent for sales of the Products or as being entitled to
bind Seeley in any way.
4.2 Desa is nevertheless entitled to use the trade name, the trade marks,
labels, copyrights, logos and other insignia ("Trade Marks") of Seeley, that are
listed in Item A of the Schedule (and any other trade marks that Seeley agrees
in writing to add to Item A of the Schedule) to promote the sale of the
Products.
5. Price
5.1 Desa may independently determine its price for the resale of the Products,
on the understanding that it must act each time in accordance with proper
business practices.
5.2 The prices for all products to be supplied by Seeley to Desa under this
Agreement will be at those levels agreed by the parties as follows;
5.2.1 At the end of the month of September of each year during the Term in
consultation with Desa, Seeley will discuss its prices for all products to be
supplied under this Agreement for the following twelve (12) month period;
5.2.2 Those prices will be fixed for the following (12) month period.
6. Exclusiveness and Territory
6.1 Seeley undertakes to only offer Desa the Products for resale in the
Territory during the Term.
6.2 Seeley undertakes that it shall not deliver the Product to other
distributors or end users in the Territory during the Term.
6.3 Seeley shall only actively promote the Product in the Territory by agreement
with Desa.
6.4 Desa must not sell the Products to any person outside of the Territory or to
any person it knows or suspects is likely to resell the Products outside of the
Territory.
7. Intellectual Property and Infringement
7.1 Desa acknowledges that while to the best of Seeley's knowledge the Products
and the Trade Marks will not infringe the rights of any third party, Seeley does
not warrant or guarantee to Desa that the Products or the Trade Marks will not
infringe the rights of any third party, Seeley does not warrant or guarantee to
Desa that the Products or the Trade Marks will not infringe the rights of any
third party.
<PAGE>
-4-
7.2 Desa acknowledges that Seeley has, where it considers it appropriate, sought
or obtained registration for Seeley's intellectual property rights in connection
with the Products and the Trade Marks, but does not warrant that all of its
intellectual property in connection with the Products and the Trade Marks is
registered or has been sought to be registered.
7.3 Desa undertakes to immediately notify Seeley of any infringement of the
intellectual property rights of Seeley in connection with the Products or the
Trade Marks, such as patent, trade name, trademark, designs or otherwise, in the
Territory.
7.4 Seeley shall in consultation with Desa if Seeley considers it appropriate in
its absolute discretion, to take such measures and action (and Desa acknowledges
that Seeley is not obliged to take such measures and action) against
infringement or threatened infringement of intellectual property in connection
with the Products or the Trade Marks. Desa must give reasonable assistance to
Seeley in relation to such action.
7.5 All intellectual property rights in connection with the Products and the
Trade Marks are the exclusive and absolute property of Seeley and Desa
acknowledges that it will not acquire any interest in such rights under this
Agreement.
8. Subdistribution
Desa may appoint sub-sales representatives and/or distributors, agents or other
middlemen without the prior written consent of Seeley.
9. Non Competition
Desa must not be concerned or interested, either directly or indirectly, in the
manufacture, distribution or retail sale in the Territory of evaporative coolers
or of any such products which compete or are substitutable for the Products
during the Term.
10. Instructions and Assistance
10.1 Seeley shall provide Desa with sufficient technical and other information
about the Products.
10.2 Seeley shall provide Desa at no cost with all documents, information,
samples and advertising material, reasonably required by Desa for the marketing
and sale of the Products, without charging any transport costs, unless otherwise
agreed.
10.3 Upon termination of this Agreement Desa must return all documents,
advertising material and samples made available to it free of charge to Seeley
and all other materials that utilize the Trade Marks.
10,.4 Desa must not make any modifications or additions to the Products or their
packaging or labeling without specific Seeley authority.
11. Sales Effort
<PAGE>
-5-
11.1 Desa must use its best endeavors to promote the sale of the Products in the
Territory and to promote the interests of Seeley with all due care and in
accordance with proper business practices, and it must in particular;
11.1.1 Actively work the Territory, to visit customers at regular intervals and
to try to canvass new customers;
11.1.2 Provide Seeley with all information about the progress of the sales of
the Products, the market position in the territory, technical developments and
prices of the Products;
11.1.3 Keep a stock which enables it to immediately meet the needs of its
customers. For this purpose, it shall order in advance sufficient quantities of
the Products from Seeley in accordance with clause 11.2.
11.2 By no later than 15th December of each year of the Term Desa order
quantities from Seeley seventy percent (70%) of its budgeted requirements for
the Products up until the end of the following European summer.
11.3 Seeley agrees to hold in Europe at its cost twenty percent (20%) of Desa
order quantities for the Products up until the 30th June for the purpose of
supplying these Products to Desa if ordered by Desa.
12. Warranty
12.1 Desa has undertaken to assume responsibility for all warranty costs in
return for a previously granted price reduction of 2%.
12.2 In the event of an epidemic failure, defined as a serious manufacturing
fault of more than 3%, Seeley is obliged to bear all costs involved in the
repair and/or replacement, expressly including the labor costs involved, and to
reimburse said costs to Desa.
13. Liability
13.1 Seeley undertakes to deliver the product which, in terms of form and
contents, conforms to the sample models supplied. These samples must fully
conform to the technical requirements (alternatively, the technical test
requirements per country) which are set for the product and the accompanying
specifications. Desa must keep Seeley informed of all labeling, marketing,
technical and any other applicable legal requirements in relating to the supply
and sale of the Products in the Territory.
13.2 Seeley undertakes to indemnify Desa against all claims made against the
latter due to a defect to or in the goods pursuant to the "Wet op de
aansprakelijkheid voor gebrekkige produkten" (Act relating to liability for
defective products) (product liability).
14. Product Modifications
If Seeley is considering making modifications to the Products, excluding minor
points, it will
<PAGE>
-6-
use its best endeavors to inform Desa not later than twelve months before
delivery of the modified Products.
15. Option Right
15.1 If Seeley is considering bringing replacement or new products onto the
market in the Territory, it will use its best endeavors to inform Desa thereof
in advance stating the probably price per quantity and offer Desa the option to
distribute those replacement or new products in accordance with this Agreement.
Desa is entitled to take a period of three months to consider this offer.
15.2 If Desa rejects the offer, Seeley is free to approach third parties.
However Seeley may not make this third party a more favorable offer without
allowing Desa to jointly compete for this offer.
15.2 If Desa rejects the offer, Seeley is free to approach third parties.
However Seeley may not make this third party a more favorable offer without
allowing Desa to jointly compete for this offer.
16. Confidential Information
16.1 For the purposes of this Agreement Confidential Information means all
information treated by Seeley as confidential and includes all information in
relation to the Products, Seeley, Seeley's business methods and products and
this Agreement.
16.2 Desa may use Confidential Information only for the purposes of performing
under this Agreement and may only disclose the Confidential Information if
strictly necessary for Desa to be able to perform under this Agreement or if
required by law.
16.3 On the termination or expiry of this Agreement Desa must immediately return
all Confidential Information (and copies or any other form of record of the
Confidential Information) to Seeley. Desa must not use or disclose the
Confidential Information for any purpose after the termination or expiry of this
Agreement for a period of one year.
17. Force Majeure
No party is liable for any failure to perform or delay in performing its
obligations under this Agreement if that failure or delay is due to anything
beyond that party's reasonable control.
18. End of Agreement
If this Agreement is ended by Seeley they shall buy back from Desa all products,
reserve parts and suchlike in good saleable condition at the price originally
invoiced.
19. Choice of Law
Both parties expressly declare that this Agreement shall be governed and
construed in accordance with the laws of The Netherlands.
<PAGE>
-7-
20. Assignment
Desa must not assign or otherwise deal with this Agreement or any right under
this Agreement without the proper written consent of Seeley.
21. Consent and Approvals
Any reference in this Agreement to the grant of a consent or approval means,
unless stated otherwise, a consent or approval to be granted in the relevant
person's absolute discretion.
This Agreement consists of eight pages.
EXECUTED as an Agreement
THE COMMON SEAL of )
DESA EUROPE B.V. )
was affixed in the presence of: )
Director
Secretary
THE COMMON SEAL of )
SEELEY INTERNATIONAL PTY. LTD. )
was affixed in the presence of: )
Director
Secretary
<PAGE>
SCHEDULE
Item A - Trade Marks (Clause 4.2)
CONVAIR
COOLMASTER
SEELAIR
EXHIBIT 10.26
SUPPLY AGREEMENT
DESA INDUSTRIES OF CANADA INC.
AND
H.D. HUDSON MANUFACTURING COMPANY
APPENDIX (I)
Exception to the "Direct Ship Commission" is Costco, for which a
commission on net sales of 6% is payable.
<PAGE>
H.D. HUDSON MANUFACTURING COMPANY
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made November 15, 1995 between H.D. Hudson
Manufacturing Company, incorporated under the laws of the State of Minnesota,
having its principal office at 500 North Michigan Avenue, Chicago, Illinois
60611 ("Manufacturer") and Desa Industries of Canada Inc., at 2220 Argentina
Road, Unit #3-4; Missasauga, Ontario, Canada L5N2K7 ("Master Distributor")
IT IS MUTUALLY AGREED THAT:
1. Purpose of Agreement
Manufacturer hereby appoints Master Distributor, and Master Distributor
hereby agrees to act for Manufacturer as its exclusive Master Distributor in the
Territory, to the Markets, for the Products, as hereinafter defined.
2. Statement of Relationship
a. It is understood that each party recognizes the other as
free and independent, and shall exercise no control over the other except as set
forth in this Agreement.
b. This Agreement may be amended, changed, or revised only in
writing by duly authorized officers of both parties hereto.
c. The Master Distributor shall call on, service, sell, and
collect payment from all distributors and dealers within the said territory and
markets.
d. The Manufacturer shall produce, or provide product to the
Master Distributor, in a timely manner as specified by the Master Distributor in
the periodic forecasts furnished by the Master Distributor.
3. Duration of Agreement
a. This Agreement shall remain in force until July 1, 1997.
Thereafter, it shall automatically renew for successive 1 year terms until
terminated by either party in accordance with Paragraph 8, "Termination."
4. Territory
The term "Territory as used in this Agreement is defined to mean The
entire country of Canada.
Manufacturer will resolve any questions regarding the
Territory.
-2-
<PAGE>
5. Market
a. The term "Exclusive Markets" as used in this Agreement is
defined to mean, in certain Exclusive Markets the Master Distributor will be the
only Master Distributor used by the Manufacturer for the resale of its products
within that market.
Manufacturer will resolve any questions regarding the Market.
6. Products
a. The term "Products" as used in this Agreement is defined to
mean all Hudson sprayer products listed in our catalog's price list #'s 80166DN,
and 80206DN.
b. The ownership of all Products will be transferred to the
Master Distributor upon shipment of the goods by the Manufacturer.
Manufacturer will resolve any questions regarding the
Products.
7. General provisions
a. Master Distributor shall maintain adequate facilities
within the Territory and shall provide competent personnel who will apply their
best effort to provide sales coverage and service satisfactory to the
Manufacturer.
b. It is understood that the Master Distributor represents
other Manufacturers. However, the Master Distributor will not represent any
other Company whose products the Manufacturer considers competitive with its
products, except by mutual agreement.
c. The Master Distributor shall pay all its expenses and be
solely responsible for the acts and expenses of its employees.
d. The Master Distributor shall have no authority to incur
debts, make purchases, or enter into contracts on behalf of the Manufacturer.
e. The Master Distributor shall provide Manufacturer with
periodic sales forecasts and other information required by the Manufacturer
relating to the sale of Products to Market within the Territory.
f. The Master Distributor shall not list the Manufacturer's
name or show the Manufacturer's name in any directory such as telephone, trade,
business or shoppers guide or in any other manner which could render the
Manufacturer liable for the Master Distributor's taxes, debts, or other
obligations.
g. The Manufacturer shall establish and have exclusive control
over all prices, discounts, allowances, specifications, and the terms governing
the sales of Products to the Master Distributor.
-3-
<PAGE>
h. All price discounts, allowances, specifications, and terms
are subject to change without notice, at the sole discretion of the
Manufacturer.
I. All credits and/or returns of product shall be according to
the Manufacturer's policies then in effect.
j. Full responsibility for credit risk and collections rest
with the Master Distributor.
k. The Manufacturer shall furnish the Master Distributor, cost
free, an amount of sales literature, demonstrator samples, catalog pages, and
other material which the Manufacturer, in its sole discretion, deems necessary
for promoting the sales of products. Such literature, samples, pages, and
material remains the property of the Manufacturer, and any and all that are
reusable shall be returned to the Manufacturer upon request. Demonstrator
samples shall be accounted for by the Master Distributor, and the Manufacturer
may, at its sole discretion, render invoices to the Master Distributor, and the
Master Distributor agrees to pay for lost, damages, or misused Demonstrator
samples.
8. Termination
a. Either party may terminate this Agreement for breach by the
other party by giving written Notice of Termination specifying such breach to
the other party at least fourteen (14) days prior to the effective date of
termination, provided that the breaching party fails to cure said breach within
fourteen (14) day period.
b. Either party may terminate this Agreement without cause by
electing not to renew it pursuant to paragraph 3, above, by giving written
Notice of Election Not to Renew to the other party at least ninety (90) days
prior to the end of the original, or any successive one (1) year, term.
c. Any partial termination of, or adjustment in, Territory,
Market, or Products shall be at the discretion of the Manufacturer, and shall be
subject to the same terms and conditions as if the entire Agreement were
terminated.
d. Any Notice shall be sent by Certified Mail. The day of
mailing shall be deemed the date notice is given. The effective date of
termination shall be specified in the Notice.
9. Laws Governing
a. The laws of the State of Minnesota shall apply and bind the
parties in any and all questions arising hereunder, regardless of the
jurisdiction in which any action or proceeding may be initiated or maintained.
However, if any of the provisions of this Agreement in any way violate or
contravene the laws of any state or territory, such provisions shall remain in
full force and effect.
-4-
<PAGE>
b. The failure of either party to enforce at any time, or for
any period of time, the provisions of this Agreement shall not be construed as a
waiver of such provisions, or of the right of such party thereafter to enforce
each and every such provision.
MANUFACTURER:
H.D. HUDSON MANUFACTURING
COMPANY, INC.
Dated:_____________, 199_ By
--------------------------------
Its
--------------------------------
MASTER DISTRIBUTOR
Desa Industries of Canada Inc.
Dated:_____________, 199_ By
-------------------------------
Its
-------------------------------
-5-
<PAGE>
H.D. HUDSON MANUFACTURING COMPANY
DISTRIBUTION AGREEMENT WITH MASTER DISTRIBUTOR
ADDENDUM TO DISTRIBUTION AGREEMENT
1. THE FOLLOWING PROVISIONS are hereby added to Paragraph 5 of the
Distribution Agreement (agreement):
a. The following markets listed in part (b) below, are each a
part of the Master Distributors Exclusive Market and Territory. Each and every
market segment is expected to be serviced per the terms of this contract. Any
market area not properly serviced could be deemed as breach of this contract.
b. The term "Market" as used in this Agreement is defined to
mean the channels of distribution characterized by the Standard Industrial
Classification (SIC):
Consumer Markets (SIC) codes: 5072-Hardware Wholesale; 5083-Farm &
Garden Wholesale; 5211-Lumber & Building Materials Resale; 5231-Paint,
Glass & Wallpaper Retail; 5251-Hardware Retail; 5261-Retail Nursery &
Garden; 5311- Department Stores; 5331-Variety Stores; 5399-Misc.
General Merchandise Stores, Grocery Stores.
Construction/Industrial Markets (SIC codes; 5039-Construction Materials
wholesale; 5081-Commercial equipment Wholesale; 5082-Construction and
Mining Machinery Wholesale; 5084-Industrial & Safety Machinery &
Equipment Wholesale; 5085- Industrial Supplies Wholesale;
5086-Professional Equipment Wholesale.
Janitorial & Sanitation Supply Markets (SIC) codes; 5087-Service
Establishment Equipment & Janitorial Supplies Wholesale; 7217-Carpet &
Upholstery Cleaning; 7349-Janitorial and Cleaning Services and
Supplies; 7342B-Deodorizing and Disinfecting Services.
c. The following market segments are excluded from the Master
Distributors market and territory:
Green Industry & Pest Control Markets (SIC) codes: 78204-Landscape
Contractors, 78302-Landscape Nursery, 18101 & 503924-Green House,
734201-Pest Control, 78209 & 72104-Lawn Spray, 78206-Lawn Maintenance,
78398, 78301 & 78205-Tree Care, 799706 & 799201-Golf Course, and
734208-Insect Spraying.
2. FREIGHT
a. The Master Distributor shall pay all freight costs incurred
from the purchase of Hudson products. Freight will be F.O.B. Hastings, MN.
<PAGE>
3. PAYMENT TERMS
a. The payment terms allowed on all Hudson products will be
Net 30 days from the date of invoice, F.O.B., Hastings, MN.
4. COMMISSIONS
a. Any distributor or dealer not wishing to do business with
the Master Distributor may at the disgression of the Manufacturer do business
directly with the Manufacturer. If this situation arises the Manufacturer will
pay the Master Distributor a commission on all sales to the distributor or
dealer in question. The commission payable to the Master Distributor shall be
mutually agreed upon by both the Manufacturer and the Master Distributor, and
will be paid on all Whole Goods, parts and accessors wold to the established
distributor or dealer in the Master Distributor's territory.
5. PRICING DISCOUNTS
a. Pricing to the Master Distributor is termed "Desa Transfer
Price" is furnished periodically by the Manufacturer. It then becomes a integral
party of this contract.
6. The MANUFACTURER reserves the right to directly solicit (not through
the Master Distributor) orders from Federal, State, and local governments,
agencies, and subdivisions.
MANUFACTURER:
H.D. HUDSON MANUFACTURING
COMPANY
Dated:____________, 199_ By
---------------------------------
Its
---------------------------------
MASTER DISTRIBUTOR:
Desa Industries of Canada, Inc.
Dated:_____________, 199_ By
---------------------------------
Its
---------------------------------
-2-
EXHIBIT 10.27
AGREEMENT
This Agreement is made and entered into as of the 15th day of December,
1997, between DESA International, Inc., a Delaware corporation, which has its
principal place of business located at 2701 Industrial Drive, Bowling Green,
Kentucky 42101 (hereinafter referred to as DESA) and Sengoku Works, Ltd., which
has its principal place of business located at 395 Bessho-cho, Kasai City, Hyogo
Pref., Japan (hereinafter referred to as Sengoku):
WHEREAS, DESA and Sengoku desire to enter into an agreement with regard
to vent free gas heaters (hereinafter referred to as the Products) per
Attachment A, to be manufactured by Sengoku and marketed by DESA. DESA
and Sengoku agree to the following terms and conditions:
1. (a) The term of this Agreement will be from the execution date
of this Agreement and will continue until December 31, 2008.
(b) Both companies must agree in writing for any extension of
the Agreement beyond the original ten (10) year period.
(c) DESA will arrange for Sengoku to purchase various
components direct from DESA's vendors at DESA's cost for use
only in DESA supplied Products. After termination of this
agreement, DESA's cost from DESA's vendors will no longer
apply to the various purchased components.
2. (a) As long as this Agreement remains in effect, DESA has
exclusive marketing rights for the Products to be sold into
the United States, Canada, Central and South American, Europe,
Middle East, and Australia directly or indirectly, under
various brand names designated by DESA.
(b) In order to retain these exclusive marketing rights, DESA
must place minimum annual orders during each January through
December period of this Agreement based on the volumes
outlined in Attachment B. If annual minimum orders are not met
in the first year, a charge of $4.20 USD will be levied for
each unit below the minimum. (See Attachment B).
(c) If Sengoku markets or sells the Products itself or through
third parties, as authorized by DESA, in no event will Sengoku
use or permit third parties to use DESA's brand names. The
heater design and trade dress are owned by DESA. Trade dress
includes color, packaging and graphic presentation that is
used by DESA brand labels.
(d) The Products refer to Attachment C.
3. (a) On or before December 15 of each year, during the term of
this Agreement, Sengoku will provide DESA with a price for the
Products. This price list will be for the period of the next
calendar year and will be denominated in US dollars, based on
our agreed currency band.
(b) All Products sold to DESA hereunder shall be sold at the
prices established by the previous December 15.
(c) In addition to the above referenced pricing, see
Attachment G for Purchase Volume Rebates to be effective years
two (2) and three (3) of this
<PAGE>
-2-
agreement. Specific rebate schedules for years four (4)
through ten (10) will be created.
4. (a) Sengoku will provide DESA's requirements of the products
F.O.B. Japan or China, with a Letter of Credit at sight plus
30 days based on U.S. Dollar prices listed on Attachment D.
Prices quoted are in U.S. dollars fixed for the first year of
the program. In years two (2) through ten (10) of the
agreement, product is anticipated to come from the Chinese
facility. Material currency fluctuations or political events
may have an impact on the cost of the product and Sengoku and
DESA agree to mutually renegotiate program costs if necessary.
(b) Sengoku agrees to procure the insurance from an AAA rated
(highest rated) insurance company organized and operating
under the laws of the United States or Canada, and such
insurance shall provide the risk coverage and name DESA as an
additional insured. (c) Title to and risk of loss of the
Products purchased hereunder by DESA shall pass to DESA upon
delivery thereof to the ocean carrier at the port selected by
Sengoku for shipment.
5. (a) DESA will provide annually, by each December 1, a twelve
(12) month forecast for all models of Products and will
provide monthly a rolling four (4) month forecast.
6. (a) DESA will provide Sengoku purchase orders based on one
hundred twenty (120) day lead times prior to shipment.
(b) Sengoku will be under no obligation to sell Products to
DESA unless DESA places firm and noncancelable purchase orders
not less than one hundred twenty (120) days prior to shipment
of each order for Products.
7. In the event Sengoku decides to cease producing the Products,
Sengoku will provide one (1) year prior written notice to
DESA. During this year, DESA can purchase tooling, fixtures
necessary for production at cost from Sengoku for manufacture
by DESA.
8. In the event DESA ceases marketing the Products, Sengoku
cannot establish new distribution to sell in markets described
in paragraph 2(a) until inventory in possession of DESA is
sold. This period is not to exceed one (1) year. DESA will
comply with the provisions of paragraph 2(a) of this Agreement
during this twelve (12) month notice period. DESA would allow
Sengoku to use heater design and tooling in the event this
agreement is canceled and all contract provisions have been
met. In no event will Sengoku use or allow third parties to
use DESA's brand names.
9. Both parties agree to work together cooperatively in order to
develop cost reductions and to further improve the performance
of the Products. DESA and Sengoku will share equally in any
cost reductions after the first year quotation regardless of
the originator.
<PAGE>
-3-
10. Product planning meetings will be held by the parties on at
least an annual basis at a time and place mutually agreed upon
by the parties.
11. The parties agree that this Agreement is not assignable and
may not be succeeded to by any third party without the express
written consent of both DESA and Sengoku. Such consent will
not be unreasonably withheld.
12. The parties, in signing this Agreement, execute an
Indemnification Agreement in the form of Attachment E. Sengoku
will provide liability insurance coverage of a minimum of $5
million per occurrence. Sengoku will also provide annually a
Certificate of Insurance specifying: (a) a minimum of $5
million Product Liability Insurance by an insurer authorized
to write insurance in the United States; (b) DESA as an
additional name insured; (c) the applicable deductible to be
covered by Sengoku; and (d) the name and address of an
authorized United States claim agent.
13. DESA will provide technical assistance where necessary and
appropriate, however, Sengoku will provide complete
indemnification to DESA for any and all patent infringement
liabilities that may occur from the introduction of the
products into the United States and Canada.
14. DESA and Sengoku will mutually develop a quality level
agreement that will be employed by both companies for purposes
of establishing Product Acceptance Criteria at time of receipt
of Products by DESA. An Acceptable Quality Level (AQL)
agreement will be developed and signed by appropriate Quality
Assurance supervisory personnel, as well as by an officer, of
both companies.
15. Sengoku shall, at its own cost, obtain and maintain the
necessary International Approval Services (IAS) certifications
for the Products for the United States.
16. (a) Sengoku will provide a two (2) year warranty on defective
Products only. The two (2) year period will begin on the
invoice date held by the end user. Refer to Attachment F for
warranty language.
(b) Termination of the Agreement will not affect Warranty
obligation.
17. (a) Sengoku will provide DESA with a list of recommended
service parts for the Products.
(b) Pricing for parts will correspond to the same December 15
and adjustment guidelines outlined in paragraph 3.
(c) During the term of this Agreement and for a period three
(3) years after Sengoku's last shipment of Products to DESA
hereunder, DESA agrees to provide after sale service for the
Products in the territories marketed by DESA, and Sengoku
agrees to supply DESA with a supply of replacement parts. DESA
agrees to purchase a reasonable supply of replacement parts
for the repair of products under Warranty.
(d) DESA can balance parts inventories on an annual basis.
<PAGE>
-4-
(e) If the Agreement is not renewed, DESA can return all
unused service parts for a full refund of the purchase price.
18. Sengoku will indemnify DESA for the costs it incurs relating
to the following:
(a) catastrophic field failure and/or recall (defect defined
as failure greater than three (3) percent of the units sold in
any year);
(b) required notification to the Consumer Product Safety
Commission (CPSC) under the 15b reporting requirements.
19. Sengoku shall, at its own cost, maintain all machinery,
tooling and equipment, used to manufacture the Products in
good working order.
Dated and agreed upon this 15th day of December, 1997.
DESA INTERNATIONAL, INC. SENGOKU WORKS, LTD.
BY__________________________ BY________________________
JOHN M. KELLY
ITS _________________________ ITS ______________________
WITNESSED BY: BY________________________
_____________________________ ITS_______________________
WITNESS___________________
<PAGE>
-5-
ATTACHMENT A
PRODUCT DRAWINGS
Product drawings will be supplied by Sengoku after further product development
and will be attached to this Agreement as Attachment A. The absence of Product
drawings at the time of the signing of this document should in no way detract
from the meaning, terms or conditions of this Agreement.
<PAGE>
-6-
ATTACHMENT B
YEARLY VOLUMES
In order to maintain exclusive marketing rights in the countries identified in
the Agreement, DESA will comply with the provisions of paragraph 2 of this
Agreement. That paragraph refers to Attachment B and the minimum yearly order
volumes outlined herein:
1st year: 20,000 Heaters
Annual volumes will adjust based on market conditions and direction.
<PAGE>
-7-
ATTACHMENT C
PRODUCTS
Products are referred to as vent free gas heaters manufactured by Sengoku, or
its subsidiaries. The program is not limited to technology or style.
Internal product packaging is to be comparable to current Comfort Glow gas
heaters. External packaging includes litho label on front of carton, supported
by flexo printing on balance of cartoning.
<PAGE>
-8-
ATTACHMENT D
PRICE LIST
Price schedule covering units and parts is based on projected competitive costs
for 1998 and may be adjusted to address market conditions.
U.S. DOLLARS
FOB CHINA/JAPAN
MODEL PROPANE AND NATURAL GAS
Three (3) Plaque Heater 64.00
Five (5) Plaque Heater 76.30
Three (3) Plaque Heater - Thermostat 84.40
Five (5) Plaque Heater - Thermostat 99.30
Prices above are for calendar year 1998. Future annual price increases will be
determined by market conditions.
<PAGE>
-9-
ATTACHMENT E
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into as of the 15th day of December, 1997,
between DESA International, Inc., a Delaware corporation, which has its
principal place of business located at 2701 Industrial Drive, Bowling Green
Kentucky 42101 and Sengoku Works, Ltd., which has its principal place of
business located at 395 Bessho-cho, Kasai City, Hyogo Pref., Japan.
NOW, THEREFORE, for good and valuable consideration, including the production
agreement executed by the parties on even date herewith and the mutual covenants
of the parties set forth herein, DESA and Seller agree as follows:
1. PRODUCT LIABILITY CLAIMS.
A. Seller shall indemnify, defend and hold DESA and its distributors
harmless from and against any and all claims, losses, damages, judgments, costs
and expenses, including but not limited to reasonable attorney's fees, arising
from, associated with or relating to any Product or Products. This includes but
is not limited to claims involving allegations of negligence, defects in the
design or manufacture, and strict liability because a product is unreasonable
dangerous. In all events, the design, manufacture and information provided with
the Products shall be the sole responsibility of Sengoku. Nothing, however,
contained herein, shall relieve DESA and its distributors from responsibility
for any claim, loss or damage which is caused by any change, modification or
remodeling which DESA or its distributors makes in the Products(s) without the
knowledge or consent of Seller.
B. DESA shall notify Seller within fifteen (15) days of receiving
notice of a claim hereunder. Upon receipt of notice from DESA, Seller shall
assume responsibility for the claim, including any defense thereof, and DESA
shall reasonably cooperate with Seller in any defense of the claim.
C. Without limitation of its duty to indemnify DESA and its
distributors, Seller agrees to maintain in force for the life of any Product
produced by Seller hereunder, products liability insurance coverage, including
broad form vendor's coverage, for property damage and bodily injury combined,
naming DESA and its distributors as an additional insured. Seller shall supply
DESA with a certificate of insurance evidencing this coverage annually. Seller's
insurance shall afford minimum coverage of $5,000,000 per occurrence.
2. NOTICE. Any notice required or permitted under the terms of this
Agreement shall be in writing in English and shall be delivered by registered
air mail, with postage fully prepaid, or telex, telefacsimile or cable. If any
notice is made by telex, telefacsimile or by cable, it shall be confirmed by air
mail. All notices required hereunder shall be sent to the addresses written
below ro such other address as shall be provided in writing. Notice made by
letter shall be deemed to have been given ten (10) days after the date of
mailing and notice by telex or cable shall be deemed to have been given when
received.
<PAGE>
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3. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Kentucky, United States of America. The parties
agree the proper venue for any dispute arising under this agreement or the
production agreement of even date herewith shall be an international arbitration
court.
4. BINDING EFFECT. This Agreement shall be binding upon properly
approved successors and assigns of the parties.
5. CAPTIONS. The captions of the sections of this Agreement are for
convenience only and shall not be considered or referred to in resolving
questions of interpretation.
6. ENTIRE AGREEMENT. This Agreement represents the complete
understanding of the parties with respect to Seller's duty to indemnify DESA and
its distributors, and it supersedes all prior agreements and understandings
between the parties with respect to the matters set forth herein. This Agreement
may not be amended except by a writing designated as such as signed by
authorized representatives of both parties.
<PAGE>
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ATTACHMENT F
WARRANTY INFORMATION
KEEP THIS WARRANTY
Model
Serial No.
Date Purchased
Always specify model and serial numbers when communicating with the factory.
We reserve the right to amend these specifications at any time without notice.
The only warranty applicable in our standard written warranty. We make no other
warranty, expressed or implied.
LIMITED WARRANTY
COMFORT GLOW VENT-FREE RESIDENTIAL GAS HEATERS
DESA International warrants this product to be free from defects in materials
and components for two (2) years from the date of first purchase, provided that
the product has been properly installed, operated and maintained in accordance
with all applicable instructions. To make a claim under this warranty the Bill
of Sale or cancelled check must be presented.
This warranty is extended only to the original retail purchaser. This warranty
covers only the cost of part(s) required to restore this heater to proper
operating condition. Warranty part(s) MUST be obtained through authorized
dealers of this product and/or DESA International who will provide original
factory replacement parts. Failure to use original factory replacement parts
voids this warranty. The heater MUST be installed by a qualified installer in
accordance with all local codes and instructions furnished with the unit.
This warranty does not apply to parts that are not in original condition because
of normal wear and tear, or parts that fail or become damaged as a result of
misuse, accidents, lack of proper maintenance or defects caused by improper
installation. Travel, diagnostic cost, labor, transportation and any and all
such other costs related to repairing a defective heater will be the
responsibility of the owner.
TO THE FULL EXTENT ALLOWED BY THE LAW OF THE JURISDICTION THAT GOVERNS THE SALE
OF THE PRODUCT; THIS EXPRESS WARRANTY EXCLUDES ANY AND ALL OTHER EXPRESSED
WARRANTIES AND LIMITS THE DURATION OF ANY AND ALL IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE TO TWO (2)
YEARS FROM THE DATE OF FIRST PURCHASE; AND DESA INTERNATIONAL'S
<PAGE>
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LIABILITY IS HEREBY LIMITED TO THE PURCHASE PRICE OF THE PRODUCT AND DESA
INTERNATIONAL SHALL NOT BE LIABLE FOR ANY OTHER DAMAGES WHATSOEVER INCLUDING
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
Some states do not allow a limitation on how long an implied warranty lasts or
an exclusion or limitation of incidental or consequential damages, so the above
limitation on implied warranties, or exclusion or limitation on damages may not
apply to you.
This warranty gives you specific legal rights, and you may also have other
rights that vary from state to state.
For information about this warranty write: DESA International
2701 Industrial Drive
P.O. Box 90004
Bowling Green, KY 42102-9004
<PAGE>
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ATTACHMENT G
PURCHASE VOLUME REBATES
If purchases exceed the forecast in years two (2) and three (3), the following
Volume Rebate Program is in effect.
Number of Units Percentage of Rebate
Year Two Purchases exceed 2% of purchases
40,000 Units over 40,000
Year Three Purchases exceed 2% of purchases
50,000 Units over 50,000
The rebate shall be paid by Sengoku to DESA by February 1, of each business
year.
EXHIBIT 10.28
Amended and Restated
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the 1st day of March,
1996 and amended and restated as of November 26, 1997 (the "Restatement Date"),
between Desa International, Inc. whose principal place of business is located at
2701 Industrial Drive, Bowling Green, Kentucky 42101 (hereinafter called the
"Corporation"), and ROBERT H. ELMAN (hereinafter called the "Employee"),
residing at 615 Westview, Nashville, Tennessee 37250.
W I T N E S S E T H
The Corporation, as directed by the Board of Directors,
desires to secure the services of the Employee in an executive capacity for a
period commencing on March 1, 1996 (the "Effective Date"), on the terms and
conditions and subject to the rights of earlier termination hereinafter set
forth, and the Employee is willing to accept employment on such terms and
conditions, thereby canceling and superseding any existing employment
agreements.
In consideration of the premises and of the mutual agreements
hereinafter set forth, the parties hereto have agreed and do hereby agree as
follows:
1. Employment. The Corporation hereby employs the Employee in
the capacity of Chairman and Chief Executive Officer (with the duties,
responsibilities and authority of such offices as exist on the date of this
Agreement and as further defined by the current ByLaws of the Corporation),
reporting only to the Board of Directors of the Corporation, and the Employee
hereby accepts and agrees to serve the Corporation, its divisions, and
subsidiaries, if any, on a full time basis, and to perform such duties of an
executive nature, including any reasonable business travel incident thereto, as
Employee has customarily performed to date for the Corporation at its principal
office in Bowling Green, Kentucky, for a period commencing on the Effective Date
and ending three (3) years after the Restatement Date (the "Employment Period"),
unless earlier terminated in accordance with Section 8 of this Agreement. Unless
the Board of Directors of the Corporation shall give written notice of
termination of the Agreement at least six (6) months prior to its termination,
this Agreement shall automatically renew for successive one year terms. Subject
to the authority of the Board of Directors, Employee shall have supervision and
control over, and responsibility for, the general management and operation of
the Corporation, and shall have such other powers and duties as may be from time
to time prescribed by the Board of Directors of the Corporation. Employee's
rights, duties and responsibilities shall
<PAGE>
be commensurate with his position. Employee agrees to serve without additional
compensation, if elected or appointed thereto, in one or more offices and as a
director of any of the Corporation's subsidiaries, provided, however, that the
Employee shall not be required to serve as an officer or director of any
subsidiary if such service would expose him to adverse financial, legal or other
consequences; and provided, further, that Employee acknowledges that the
Corporation shall not be deemed to be in breach of this Section 1 or of the
final sentence of Section 8 if Employee declines to serve as an officer or
director of any subsidiary.
Employee shall not be required to relocate his present home,
and the principal offices of the Corporation shall not be moved from Bowling
Green, Kentucky during the Employment Period.
2. Employment Service. During the Employment Period, the
Employee shall devote his business time, energy and skill (reasonable vacations
and reasonable absences because of sickness and other personal necessity
excepted) to render services for the Corporation or its divisions and
subsidiaries, if any, and in the promotion of their collective interests. During
the Employment Period, the Employee shall not engage in any other business
activities, duties, or pursuits which interfere with his employment hereunder or
detrimentally affect the performance of his employment services hereunder. Upon
the reasonable request of the Board of Directors of the Corporation, the
Employee shall cease any business, activities, duties or pursuits detrimentally
affecting the Employee's performance of his duties hereunder or interfering with
his employment hereunder. This provision shall not be deemed to prohibit the
Employee from engaging in a reasonable amount of activities in trade
associations and professional organizations or participating in private
investments provided such activities do not interfere with Employee's employment
hereunder or materially adversely affect the performance of Employee's duties
hereunder. During the Employment Period and subject to Section 11 hereof, the
Employee shall not own or hold any securities in, or be employed by or render
any consulting or similar services to, any company directly or indirectly
competing with the business of the Corporation or any division or subsidiary
thereof, as such business is constituted on the date of determination, in an
amount which, in the reasonable judgment of the Corporation, would result in a
conflict of interest. For purposes of this Section 2, Ownership of less than
five percent (5%) of the issued and outstanding stock of a
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<PAGE>
corporation, the securities of which are listed upon a national securities
exchange or regularly included in a national list of over-the-counter securities
as it may be from time to time published in a newspaper of general publication,
shall not be deemed to create a conflict of interest.
3. Compensation.
(a) From and after the Restatement Date, the Employee
shall be entitled to receive by way of remuneration for his services a salary of
not less than Six Hundred and Fifty Thousand Dollars ($650,000) per year,
payable in bi-monthly installments (hereinafter "Regular Remuneration"). Salary,
bonus and all other payments to Employee pursuant to the Agreement shall be
subject to withholding and other applicable taxes. Annual increases in Regular
Remuneration will be at the discretion of the Board of Directors of the
Corporation; provided, however, that in the absence of adverse factors,
circumstances or information relating to Employee's performance of his duties or
the Corporation, Employee shall receive an increase of no less than 8% of his
prior years salary effective on November 30 of each year (beginning November 30,
1998) during the Employment Period. In addition, the Board of Directors of the
Corporation shall review Employee's Regular Remuneration no less frequently than
annually, taking into account increases in the profitability of the Corporation
or increased responsibilities occasioned by growth in the size and complexity of
the Corporation's business, whether caused by growth in existing business
operations or by acquisition or creation of additional operations, and such
other factors as the Board of Directors deems appropriate, in order to determine
whether Employee's then-effective Regular Remuneration is adequate.
(b) (i) An executive bonus plan (the "EBP") will be
instituted for fiscal 1999, 2000, 2001, 2002 and 2003, containing substantially
the provisions set forth in Exhibit A-1 hereto. In the event that the
Corporation or its parent, DESA Holdings Corporation, disposes of a material
operating subsidiary or division or separately identifiable business unit, the
EBP shall be reviewed by the Board of Directors and revised to the extent
necessary to provide management, including Employee, with a bonus plan that is
substantially equivalent in format and provides a substantially equivalent
benefit in light of such disposition. Employee acknowledges that in the event of
such a disposition, the bonus payable under the EBP may decrease. (ii) In the
event that the Corporation or its parent, DESA Holdings Corporation, acquires,
directly or indirectly, the
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<PAGE>
stock or substantially all of the assets of another corporation or other entity,
or any division or separately identifiable business unit thereof, the EBP will
be amended by mutual agreement of the Participants (defined therein) and the
Corporation, as directed by the Board of Directors, to adjust the EBITDA targets
and Bonus Pools to reflect the effects of such transaction on the Corporation.
(iii) The Board of Directors shall determine the contents of the EBP, and the
method of determining any bonuses to be paid thereunder, for fiscal years 2004
and thereafter. In the event of the death or termination of employment of the
Employee during the term hereof, Employee's share of the EBP for such period in
which death or termination occurred shall be (i), if determined appropriate by
the Board of Directors, reserved for distribution to such Employee's successor
or (ii), if determined appropriate by the Board of Directors or if not committed
for distribution to such Employee's successor within six months thereafter,
allocated among the remaining Participants (as defined in the EBP) employed by
the Corporation, pro rata, in proportion to how the remaining Participants are
then sharing in the EBP. Except as provided herein, the EBP for fiscal years
1999 - 2003 as set forth on Exhibit A-1 hereto shall not be amended or modified
by the Corporation in a manner that reduces any benefit of Employee thereunder
during the Employment Period.
4. Expenses and Fringe Benefits.
(a) The Employee shall be reimbursed for the
reasonable authorized expenses incurred by the Employee in the performance of
his duties hereunder.
(b) The Employee shall also be entitled to receive
the Fringe Benefits set forth on Exhibit B hereto. The Corporation agrees that,
without the Employee's written consent, it will not make any material changes in
such benefits which would materially adversely affect the Employee's right to
receive or eligibility to participate in such benefit plans or the amounts,
timing or terms of such benefits; provided, however, the Corporation shall not
be in breach of this provision if it institutes an alternative benefits plan or
program with substantially equivalent benefits.
5. Trade Secrets and Confidentiality. The Employee agrees that
he will not at any time, either during the term of this Agreement or thereafter,
knowingly divulge to any person, firm or corporation any confidential or
privileged information received by him during the course
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<PAGE>
of his employment, or prior to the date hereof, with regard to the financial,
business or other affairs of the Corporation, its predecessors, its officers,
directors, or stockholders, or any subsidiary, customer or supplier of the
Corporation, and all such information shall be kept confidential and shall not,
in any manner be revealed to anyone except as may otherwise be required by law
and provided further that nothing herein shall be construed to prohibit the
Employee from divulging information in the ordinary course of the business of
the Corporation. The Employee further agrees that he will not knowingly divulge
to any person, firm or corporation, either during the term of this Agreement or
thereafter, or make known either directly or through another, to any person,
firm or corporation, any trade secret or confidential knowledge or privileged
procedures of the Corporation except as may be otherwise required by law and
provided further that nothing herein shall be construed to prohibit the Employee
from divulging (i) information in the ordinary course of the business of the
Corporation or (ii) information which was or has become or hereafter becomes
generally available to the public. Any breach of the terms of this paragraph or
of Section 9 hereof shall be a material breach of this Agreement.
6. Property of The Corporation. The Corporation shall be
entitled to the sole benefit and exclusive ownership of any trademarks, trade
names, marketing or advertising concept or strategy, any design patents, or any
inventions or improvements in plant, machinery, processes, or other things used
in the business of the Corporation that may be developed, made, or discovered by
the Employee while he is in the service of the Corporation, and the Employee
shall do all acts and things necessary or required to give the Corporation the
benefit of this Section. The Employee agrees that he will not use any property
of the Corporation except in furtherance of his duties hereunder.
7. Death or Disability. If the Employee dies during the
Employment Period, all obligations of the Corporation under this Agreement
(other than obligations for accrued Regular Remuneration hereunder) shall cease,
except that the Employee's estate shall be entitled to continue to receive the
Regular Remuneration set forth in Paragraph 3(a) hereof for a period of twelve
(12) months after death. If during the Employment Period, the Employee shall
become physically or mentally disabled to the extent that he is, in the
reasonable opinion of a recognized medical expert selected by the Corporation,
unable to continue the proper performance of his
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<PAGE>
duties hereunder for a continuous period of one hundred eighty (180) days, the
Employee's employment hereunder shall thereupon cease and terminate but the
Corporation's obligation under Paragraph 3(a) hereof with respect to Regular
Remuneration shall continue in full force and effect for twelve (12) months
after determination of disability; provided, however, that such remuneration
shall be offset by any amounts received by the Employee from insurance or other
benefits provided by the Corporation other than pursuant to this Agreement.
8. Termination of Services. The Board of Directors of the
Corporation shall have the right on behalf of the Corporation to terminate the
Employee's employment for Cause (as hereinafter defined in clauses (a) and (b)
of this sentence) during the Employment Period (a) immediately upon and the
Corporation shall have no further obligation hereunder after the conviction or
admission of Employee of a felony or a crime involving moral turpitude under the
laws of any state in the United States or the federal laws of the United States,
or fraud, misappropriation or embezzlement of the assets of the Corporation or
any subsidiary thereof; or (b) upon not less than thirty (30) days written
notice specifying in reasonable detail (i) any failure by Employee to fulfill
his duties and responsibilities set out in Sections 1 and 2 of this Agreement
(other than due to death or disability) which has not been cured within 30 days
after Employee's receipt of written notice of such failure; or (ii) the
intentional or knowing breach by Employee of his obligations under Sections 5,
6, or 11 of this Agreement. If Cause as defined in clause (b) of the preceding
sentence continues to exist thirty (30) days after written notice, Employee's
employment hereunder shall immediately cease and terminate, and the Corporation
shall have no further obligations hereunder. The Employee may voluntarily leave
the employ of the Corporation at any time, but the Corporation shall have no
further obligations hereunder. The Board of Directors of the Corporation shall
have the right to terminate the Employee's employment without Cause at any time,
effective immediately. If the Corporation terminates the Employee's employment
without Cause prior to expiration of the Employment Period, the Corporation
shall pay Employee (i) all installments due for Regular Remuneration through the
remaining term of the Employment Period, which shall continue to be payable in
installments in accordance with Section 3 hereof; (ii) all damages for loss of
Fringe Benefits or benefits under any "employee benefit plan" (as defined in
Section 3 of ERISA) sponsored by the Corporation which
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<PAGE>
the Employee would have received if the Corporation had not terminated the
Employee without Cause and had this Agreement continued for the remainder of the
Employment Period, provided, however, that in lieu thereof, the Corporation
shall have the right to continue providing Fringe Benefits (or substantially
equivalent benefits) to the Employee for the remaining term hereof, if
reasonably acceptable to Employee; (iii) legal fees and expenses, if any,
incurred as a result of such termination; and (iv) his share of the EBP for the
fiscal year in which such termination occurs as and when such bonus is otherwise
payable in accordance with the terms of the EBP. Employee shall not be required
to mitigate the amount of any payment due him under this Section by seeking
employment or otherwise; provided, however, that compensation and benefits
received by Employee after termination without Cause will offset Employee's
termination benefits and damages payable under this Section 8 on account of such
termination without Cause. The Corporation shall use its best efforts to
maintain all employee benefit plans and programs in which the Employee was
entitled to participate immediately prior to his termination without Cause. If
such participation cannot be maintained with the exercise of the Corporation's
best efforts, Employee shall be entitled to receive an amount necessary to
provide the Employee and his dependents equivalent benefits for the remainder of
the Employment Period. For purposes of this Section, termination without Cause
shall include, but not be limited to: (i) any material change in Employee's
duties as Chairman and Chief Executive Officer or assignment of the Employee to
duties materially inconsistent with the position of Chairman and Chief Executive
Officer; (ii) any removal of the Employee from or any failure to re-elect the
Employee to any of the positions indicated in Section 1 hereof; (iii) a
reduction in the Employee's salary or Fringe Benefits, or adverse change in the
terms of participation or benefits under the EBP provided, that no termination
without Cause shall be deemed to have occurred if the Corporation provides
benefits that are substantially equivalent to the Fringe Benefits provided at
the time of determination; or (iv) any breach of this Agreement by the
Corporation which is not cured by the Corporation within thirty (30) days after
receiving written notice of such breach.
9. Change in Control or Sale of the Corporation. If the
Corporation shall undergo a Change in Control (as hereinafter defined) or a Sale
of the Corporation (as hereinafter defined, and, in such event, the Corporation
fails to obtain the assumption of this Agreement by
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<PAGE>
any successor to the Corporation under Section 14 hereof prior to the date of
such succession) during the Employment Period, Employee shall be entitled to
receive for the remainder of the Employment Period or twelve (12) months which
ever shall be longer (i) all future installments due for Regular Remuneration,
which shall continue to be payable in installments in accordance with Section 3
hereof; (ii) all damages for loss of Fringe Benefits or benefits pursuant to any
employee benefit plan sponsored by the Corporation which the Employee would have
received if there had been no Change in Control or Sale of the Corporation, and
(iii) a share of the EBP for the fiscal year in which such Change in Control or
Sale of the Corporation occurs, as and when such bonus is otherwise payable in
accordance with the terms of the EBP, payable as follows: (i) if such Change in
Control or Sale of the Corporation occurs during the first quarter of the
Corporation's fiscal year, the Employee shall receive 25% of the bonus he would
otherwise have been entitled to for such fiscal year; (ii) if such Change in
Control or Sale of the Corporation occurs during the second quarter of the
Corporation's fiscal year, the Employee shall receive 50% of the bonus he would
otherwise have been entitled to for such fiscal year; and if such Change in
Control or Sale of the Corporation occurs during the third or fourth quarters of
the Corporation's fiscal year, the Employee shall receive 100% of the bonus he
would otherwise have been entitled to for such fiscal year. The obligations of
the Corporation in clauses (i) and (ii) of the first sentence of this paragraph
shall not apply to any Change in Control or Sale of the Corporation in which the
Employee receives a realized return on his investment in equity securities of
Holding equal to three times the cost of such investment. For purposes hereof, a
realized return shall mean the (i) cash, (ii) market value of registered,
publicly traded and tradeable securities not subject to transfer restrictions or
restrictions under Rule 144 under the Securities Act of 1933 , as amended,
and/or (iii) fair value (as determined by the Board of Directors of the
Corporation acting in good faith) of all other securities, in each case received
(or, in the case of a recapialization transaction, retained) by Employee in any
Change of Control or Sale of the Corporation transaction. Employee shall not be
required to perform further duties hereunder and shall not be required to
mitigate his damages in the event a Change in Control or Sale of the Corporation
shall occur during the Employment Period. A Change in Control shall be deemed to
have occurred if: (i) Desa Holdings Corporation ("Holding") shall own less than
90% of all the issued and
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<PAGE>
outstanding voting securities of the Corporation; or (ii) a sale of
substantially all the assets of the Corporation; provided, that no Change in
Control shall be deemed to have occurred in the event that, subsequent to such
transaction, Employee continues to be employed by the successor entity under
terms, conditions and for compensation substantially identical to the terms of
this Agreement. A "Sale of the Corporation" shall be deemed to have occurred if
(i) J.W. Childs Equity Partners, L.P. ("JWC") with its Affiliates (as
hereinafter defined, the "Control Group") shall cease to own of record and
beneficially an amount of Voting Securities of Holding equal to at least 50% of
the amount of Voting Securities (other than by virtue of a reverse stock split
of such Voting Securities) of Holding owned by the Control Group (excluding
securities held by JWC Equity Funding, Inc. as of the date hereof) of record and
beneficially as of the close of business on November 26, 1997; (ii) any Person
or related group (as defined in Rule 13(d) under the Exchange Act of 1934, as
amended (the "Exchange Act")), excluding the Control Group, shall be or become
the "beneficial owner" (as defined in Rules 12(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of a greater percentage of the
outstanding Voting Securities of Holding than is owned beneficially by the
Control Group and the Control Group no longer has the right to seat a majority
of the directors of Holding; (iii) all or substantially all of the assets of
Holding are sold or otherwise transferred for value, other than to a lender in a
secured transaction and other than in a transaction following which the Control
Group owns of record and beneficially at least 50% of the Voting Securities of
the acquiring Person; or (iv) (in the event of a merger or consolidation)
Holding is merged or consolidated with or into another entity and, as a result
thereof, the Control Group and the Management Holders (as defined in the
Stockholders Agreement dated as of November 26, 1997 by and among Holding and
the parties thereto) hold, beneficially and of record, less than 50% of the
Voting Securities of the surviving entity. As used herein, "Affiliate" means as
to any Person, any other Person which, directly or indirectly, is in control of,
is controlled by, or is under common control with, such Person; provided, that,
as to JWC, the term Affiliate shall include the partners, officers, directors
and employees of J.W. Childs Associates, L.P., their spouses, children, and
other members of their immediate family and trusts, family limited partnerships
and other estate planning vehicles created for the benefit of such persons. As
used in the preceding sentence, "control" of a Person means the power, directly
or indirectly,
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<PAGE>
either to (i) vote 51% or more of the Voting Securities of such Person or (ii)
direct or cause the direction of the management and policies of such Person,
whether by contract or otherwise. As used herein, "Person" means an individual,
partnership, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, or other entity of whatever nature. As used herein, "Voting
Securities" means common equity securities (or equivalent partnership or joint
venture interests) having the right to vote generally in matters coming before
common equity holders.
10. Coordination of Rights. In the event that Employee suffers
termination of Employment without Cause and a Change in Control or Sale of the
Corporation also occurs, Section 8 shall be disregarded and Section 9 shall
apply.
11. Covenant Not to Compete; Non-Solicitation, etc.
(a) While employed by the Corporation and for a
period of three years following termination of employment, the Employee will
not, directly or indirectly as an individual or as part of a partnership or
other business association, or otherwise, compete with the business of the
Corporation or its subsidiaries in North America or in any other jurisdiction in
which the Corporation or a subsidiary thereof conducts substantial business, nor
will he enter the employ of, or act as an agent for or as a director,
consultant, or officer of, any person, firm, partnership or corporation engaged
in a line of business in North America or in any other jurisdiction in which the
Corporation or a subsidiary thereof conducts substantial business that is
directly or indirectly in competition with the business of the Corporation or
its subsidiaries as the same is being conducted at such termination of
employment.
(b) The Employee further agrees that he will not, at
any time during or within three years after the termination of employment under
this Agreement, however caused, solicit, interfere with, employ, endeavor to
entice away from the Corporation, or any subsidiary of the Corporation, any
customer, supplier or employee.
(c) With respect to any issues as to the
enforceability of the foregoing provisions, the Employee agrees that the
foregoing are reasonable in terms of scope and duration
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<PAGE>
and both parties agree that a court making a determination on the issue of
validity, legality or enforceability of the foregoing, may modify the duration
or scope of the provisions of this Section 11 and/or delete or modify specific
words or phrases ("blue penciling"), and in its reduced or blue-penciled form,
the foregoing shall be enforceable and enforced. The Employee agrees that in the
event of a breach of the foregoing provisions of this Section 11 or the
provisions of Section 5, the remedy of damages would be inadequate and the
Corporation may apply to any court of competent jurisdiction to enjoin any
violation, as well as seek all other legal remedies available upon ten days
notice to Employee, provided that Employee shall not have cured such breach
within such ten day period.
12. Non-Waiver of Rights. The failure to enforce at any time
any of the provisions of this Agreement or to require at any time performance by
the other party of any of the provisions hereof shall in no way be construed to
be a waiver of such provisions or to affect the validity of this Agreement, or
any part hereof, or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
13. Invalidity of Provisions. 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 provisions were omitted.
14. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the Corporation and any successor to the Corporation
under the provisions of this Agreement. For the purpose of this Agreement the
term "successor" shall mean any person, firm, corporation, or other business
entity which at any time, whether by merger, purchase, liquidation or otherwise,
shall acquire all or substantially all of the assets or business of the
Corporation. This Agreement is personal to the Employee and is not assignable by
the Employee.
15. Choice of Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware.
Each party hereto hereby consents to service of process in the State of Delaware
as required pursuant to 6 Del. C. Section 2708(a).
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<PAGE>
16. Entire Agreement. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope, superseding
any and all prior agreements or understandings with respect to the subject
hereof and may be modified only in a writing signed by the party against whom
enforcement is sought. The headings contained in this Agreement have been
inserted solely for the convenience of the parties and shall be of no force or
effect in the construction or interpretation of the provisions of this
Agreement.
17. Notices. All notices required or made pursuant to this
Agreement shall be made, and shall be deemed to have been duly given when sent
by, certified mail, return receipt requested, to the addresses set forth above
or such other addresses later designated in writing by either of the parties.
IN WITNESS WHEREOF, the Corporation has caused this amended
and restated Agreement to be executed on its behalf by an officer of the
Corporation thereunto duly authorized, and the Employee has hereunto signed this
Agreement, all as of November 26, 1997.
DESA INTERNATIONAL, INC.
By:
Title:
EMPLOYEE
ROBERT H. ELMAN
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EXHIBIT A-1
TO EMPLOYMENT AGREEMENT
DESA INTERNATIONAL, INC.
EXECUTIVE BONUS PLAN
(for fiscal years 1999 - 2003)
November 26, 1997
1. Participants. The Participants in this Plan shall be Robert H. Elman,
John M. Kelly and Terry G. Scariot (each, a "Participant"). Each
Participant shall be entitled to participate in the Plan as long as he
is entitled to do so pursuant to the terms of his employment agreement
with DESA International, Inc. (the "Company") as amended and restated
as of the date hereof.
2. Share of Bonus Pool. Each Participant in this Plan shall be entitled to
participate in the Bonus Pool (defined below) as follows: Robert H.
Elman - 50%; John M. Kelly - 25%; and Terry G. Scariot - 25%. If a
Participant's employment with the Company shall terminate, his right to
participate in Bonus Pools under this Plan may be reallocated as
provided in his employment agreement.
3. EBITDA Targets. For purposes of this Plan, the target earnings before
interest, taxes, depreciation, amortization and bonus accruals under
this Plan ("EBITDA") of the Company for each fiscal year shall be as
follows:
EBITDA Target
Fiscal Year (in millions)
1999 $48.50
2000 $55.70
2001 $64.10
2002 $74.10
2003 $86.00
For purposes of this Plan, the actual EBITDA of the Company shall in
each fiscal be determined on a consolidated basis with its parent, DESA
Holdings, Inc., according to generally accepted accounting principles
consistently applied, and shall be derived from the audited,
consolidated financial statements of DESA Holdings, Inc. for such
fiscal year.
In the event that the Company or DESA Holdings, Inc. should make an
acquisition or disposition of a material business, this Plan may be
adjusted or revised, or a separate plan may be established for such
acquired business, all as provided in Participants' employment
agreements.
<PAGE>
4. Bonus Pools. After the end of each fiscal year, the Company shall
establish a bonus pool (each, a "Bonus Pool") for the Participants as
follows:
a. If the actual EBITDA for such year is less than 95% of the
EBITDA target for such fiscal year, there shall be no Bonus
Pool for such year.
b. If the actual EBITDA for such year is greater than 95% and
less than or equal to 100% of the EBITDA target for such year,
the Bonus Pool for such year shall equal 20% of the Cap Number
for such year for each full percentage point by which the
actual EBITDA exceeds 95% of the target EBITDA, up to a
maximum of the Cap Number. For purposes hereof, the "Cap
Number" shall mean $500,000 in fiscal year 1999, and for each
fiscal year thereafter shall be equal to the Cap Number for
the prior fiscal year increased by a factor equal to the
positive growth rate in actual EBITDA for such fiscal year
over actual EBITDA for the prior fiscal year, if such growth
rate is in excess of 10%.
c. If the actual EBITDA for such year is greater than 100% and
less than or equal to 110% of the EBITDA target for such year,
the Bonus Pool for such year shall be the greater of (i) the
Cap Number for such year and (ii) 10% of the amount by which
the actual EBITDA for such year exceeds 95% of the EBITDA
target for such year.
d. If the actual EBITDA for such year is greater than 110% of the
EBITDA target for such year, the Bonus Pool for such year
shall equal (i) the amount specified in subparagraph c above
plus (ii) 15% of the amount by which the actual EBITDA for
such year exceeds 110% of the EBITDA target for such year.
5. Payment of Bonus. The calculation of the Bonus Pool for each fiscal
year shall be determined promptly after the delivery of the audited
financial statements of DESA Holdings, Inc. for such fiscal year, and
bonus payments under this Plan shall be paid as soon as practicable
after such determination.
<PAGE>
EXHIBIT B
TO EMPLOYMENT AGREEMENT
FRINGE BENEFITS FOR EXECUTIVES
The following fringe benefits as they exist and are administered on the
Restatement Date of this Agreement:
1. Medical Insurance
2. Vacations
3. Use of Company Car
4. Office Facilities and Secretarial Services
5. Travel and Entertainment
6. Group Life Insurance
7. Disability Insurance
8. Country Club Dues
9. Section 401(k) Plan
10. Defined Contribution Pension Plan Supplement
EXHIBIT 10.29
Amended and Restated
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the 1st day of March,
1996 and amended and restated as of November 26, 1997 (the "Restatement Date"),
between Desa International, Inc. whose principal place of business is located at
2701 Industrial Drive, Bowling Green, Kentucky 42101 (hereinafter called the
"Corporation"), and JOHN M. KELLY (hereinafter called the "Employee"), residing
at 1142 Grider Pond Road, Bowling Green, Kentucky 42104.
W I T N E S S E T H
The Corporation, as directed by the Board of Directors,
desires to secure the services of the Employee in an executive capacity for a
period commencing on March 1, 1996 (the "Effective Date"), on the terms and
conditions and subject to the rights of earlier termination hereinafter set
forth, and the Employee is willing to accept employment on such terms and
conditions, thereby canceling and superseding any existing employment
agreements.
In consideration of the premises and of the mutual agreements
hereinafter set forth, the parties hereto have agreed and do hereby agree as
follows:
1. Employment. The Corporation hereby employs the Employee in
the capacity of Executive Vice President (with the duties, responsibilities and
authority of such offices as exist on the date of this Agreement and as further
defined by the current By-Laws of the Corporation), reporting only to the
Chairman, President and the Board of Directors of the Corporation, and the
Employee hereby accepts and agrees to serve the Corporation, its divisions, and
subsidiaries, if any, on a full time basis, and to perform such duties of an
executive nature, including any reasonable business travel incident thereto, as
Employee is directed by the Chairman to perform on behalf of the Corporation at
its principal office in Bowling Green, Kentucky, for a period commencing on the
Effective Date and ending three (3) years after the Restatement Date (the
"Employment Period"), unless earlier terminated in accordance with Section 8 of
this Agreement. Unless the Chairman shall give written notice of termination of
the Agreement at least six (6) months prior to its termination, this Agreement
shall automatically renew for successive one year terms. Subject to the
authority of the Board of Directors, Employee shall have supervision and control
over, and responsibility for, sales, marketing and engineering for the
Corporation consistent with its long range business plan, and shall have such
<PAGE>
other powers and duties as may be from time to time prescribed by the Chairman
of the Corporation. Prior to the close of each fiscal year during the term
hereof, the Chairman shall establish and deliver to Employee written performance
goals for the Employee for the succeeding fiscal year (the "Performance Goals").
Employee's rights, duties and responsibilities shall be commensurate with his
position. Employee's performance of his duties hereunder, including the
determination of whether the Performance Goals have been achieved, shall be
subject to review only by the Chairman of the Corporation. Such a review shall
be conducted in good faith at least annually during the term of this Agreement
by the Chairman and shall bind both Employee and the Corporation in the absence
of wilful misconduct. Employee agrees to serve without additional compensation,
if elected or appointed thereto, in one or more offices and as a director of any
of the Corporation's subsidiaries, provided, however, that the Employee shall
not be required to serve as an officer or director of any subsidiary if such
service would expose him to adverse financial, legal or other consequences; and
provided, further, that Employee acknowledges that the Corporation shall not be
deemed to be in breach of this Section 1 or of the final sentence of Section 8
if Employee declines to serve as an officer or director of any subsidiary.
Employee shall not be required to relocate his present home,
and the principal offices of the Corporation shall not be moved from Bowling
Green, Kentucky during the Employment Period.
2. Employment Service. During the Employment Period, the
Employee shall devote his business time, energy and skill (reasonable vacations
and reasonable absences because of sickness and other personal necessity
excepted) to render services for the Corporation or its divisions and
subsidiaries, if any, and in the promotion of their collective interests. During
the Employment Period, the Employee shall not engage in any other business
activities, duties, or pursuits which interfere with his employment hereunder or
detrimentally affect the performance of his employment services hereunder. Upon
the reasonable request of the Corporation, the Employee shall cease any
business, activities, duties or pursuits detrimentally affecting the Employee's
performance of his duties hereunder or interfering with his employment
hereunder. This provision shall not be deemed to prohibit the Employee from
engaging in a reasonable
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amount of activities in trade associations and professional organizations or
participating in private investments provided such activities do not interfere
with Employee's employment hereunder or materially adversely affect the
performance of Employee's duties hereunder. During the Employment Period and
subject to Section 11 hereof, the Employee shall not own or hold any securities
in, or be employed by or render any consulting or similar services to, any
company directly or indirectly competing with the business of the Corporation or
any division or subsidiary thereof, as such business is constituted on the date
of determination, in an amount which, in the reasonable judgment of the
Corporation, would result in a conflict of interest. For purposes of this
Section 2, Ownership of less than five percent (5%) of the issued and
outstanding stock of a corporation, the securities of which are listed upon a
national securities exchange or regularly included in a national list of
over-the-counter securities as it may be from time to time published in a
newspaper of general publication, shall not be deemed to create a conflict of
interest.
3. Compensation.
(a) From and after the Restatement Date, the Employee
shall be entitled to receive by way of remuneration for his services a salary of
not less than Two Hundred and Ninety-Two Thousand Dollars ($292,000) per year,
payable in bi-monthly installments (hereinafter "Regular Remuneration"). Salary,
bonus and all other payments to Employee pursuant to the Agreement shall be
subject to withholding and other applicable taxes. Annual increases in Regular
Remuneration will be at the discretion of the Board of Directors of the
Corporation; provided, however, that in the absence of adverse factors,
circumstances or information relating to Employee's performance of his duties or
the Corporation, Employee shall receive an increase of no less than 8% of his
prior years salary effective on November 30 of each year (beginning November 30,
1998) during the Employment Period. In addition, the Board of Directors of the
Corporation shall review Employee's Regular Remuneration no less frequently than
annually, taking into account increases in the profitability of the Corporation
or increased responsibilities occasioned by growth in the size and complexity of
the Corporation's business, whether caused by growth in existing business
operations or by acquisition or creation of additional operations, and such
other factors as the Board of Directors deems appropriate, in order to determine
whether Employee's then-effective Regular Remuneration is adequate.
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(b) (i) An executive bonus plan (the "EBP") will be
instituted for fiscal 1999, 2000, 2001, 2002 and 2003, containing substantially
the provisions set forth in Exhibit A-1 hereto. In the event that the
Corporation or its parent, DESA Holdings Corporation, disposes of a material
operating subsidiary or division or separately identifiable business unit, the
EBP shall be reviewed by the Board of Directors and revised to the extent
necessary to provide management, including Employee, with a bonus plan that is
substantially equivalent in format and provides a substantially equivalent
benefit in light of such disposition. Employee acknowledges that in the event of
such a disposition, the bonus payable under the EBP may decrease. (ii) In the
event that the Corporation or its parent, DESA Holdings Corporation, acquires,
directly or indirectly, the stock or substantially all of the assets of another
corporation or other entity, or any division or separately identifiable business
unit thereof, the EBP will be amended by mutual agreement of the Participants
(defined therein) and the Corporation, as directed by the Board of Directors, to
adjust the EBITDA targets and Bonus Pools to reflect the effects of such
transaction on the Corporation. (iii) The Board of Directors shall determine the
contents of the EBP, and the method of determining any bonuses to be paid
thereunder, for fiscal years 2004 and thereafter. In the event of the death or
termination of employment of the Employee during the term hereof, Employee's
share of the EBP for such period in which death or termination occurred shall be
(i), if determined appropriate by the Board of Directors, reserved for
distribution to such Employee's successor or (ii), if determined appropriate by
the Board of Directors or if not committed for distribution to such Employee's
successor within six months thereafter, allocated among the remaining
Participants (as defined in the EBP) employed by the Corporation, pro rata, in
proportion to how the remaining Participants are then sharing in the EBP. Except
as provided herein, the EBP for fiscal years 1999 - 2003 as set forth on Exhibit
A-1 hereto shall not be amended or modified by the Corporation in a manner that
reduces any benefit of Employee thereunder during the Employment Period.
4. Expenses and Fringe Benefits.
(a) The Employee shall be reimbursed for the
reasonable authorized expenses incurred by the Employee in the performance of
his duties hereunder.
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(b) The Employee shall also be entitled to receive
the Fringe Benefits set forth on Exhibit B hereto. The Corporation agrees that,
without the Employee's written consent, it will not make any material changes in
such benefits which would materially adversely affect the Employee's right to
receive or eligibility to participate in such benefit plans or the amounts,
timing or terms of such benefits; provided, however, the Corporation shall not
be in breach of this provision if it institutes an alternative benefits plan or
program with substantially equivalent benefits.
5. Trade Secrets and Confidentiality. The Employee agrees that
he will not at any time, either during the term of this Agreement or thereafter,
knowingly divulge to any person, firm or corporation any confidential or
privileged information received by him during the course of his employment, or
prior to the date hereof, with regard to the financial, business or other
affairs of the Corporation, its predecessors, its officers, directors, or
stockholders, or any subsidiary, customer or supplier of the Corporation, and
all such information shall be kept confidential and shall not, in any manner be
revealed to anyone except as may otherwise be required by law and provided
further that nothing herein shall be construed to prohibit the Employee from
divulging information in the ordinary course of the business of the Corporation.
The Employee further agrees that he will not knowingly divulge to any person,
firm or corporation, either during the term of this Agreement or thereafter, or
make known either directly or through another, to any person, firm or
corporation, any trade secret or confidential knowledge or privileged procedures
of the Corporation except as may be otherwise required by law and provided
further that nothing herein shall be construed to prohibit the Employee from
divulging (i) information in the ordinary course of the business of the
Corporation or (ii) information which was or has become or hereafter becomes
generally available to the public. Any breach of the terms of this paragraph or
of Section 9 hereof shall be a material breach of this Agreement.
6. Property of The Corporation. The Corporation shall be
entitled to the sole benefit and exclusive ownership of any trademarks, trade
names, marketing or advertising concept or strategy, any design patents, or any
inventions or improvements in plant, machinery, processes, or other things used
in the business of the Corporation that may be developed, made, or discovered by
the Employee while he is in the service of the Corporation, and the Employee
shall
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<PAGE>
do all acts and things necessary or required to give the Corporation the benefit
of this Section. The Employee agrees that he will not use any property of the
Corporation except in furtherance of his duties hereunder.
7. Death or Disability. If the Employee dies during the
Employment Period, all obligations of the Corporation under this Agreement
(other than obligations for accrued Regular Remuneration hereunder) shall cease,
except that the Employee's estate shall be entitled to continue to receive the
Regular Remuneration set forth in Paragraph 3(a) hereof for a period of twelve
(12) months after death. If during the Employment Period, the Employee shall
become physically or mentally disabled to the extent that he is, in the
reasonable opinion of a recognized medical expert selected by the Corporation,
unable to continue the proper performance of his duties hereunder for a
continuous period of one hundred eighty (180) days, the Employee's employment
hereunder shall thereupon cease and terminate but the Corporation's obligation
under Paragraph 3(a) hereof with respect to Regular Remuneration shall continue
in full force and effect for twelve (12) months after determination of
disability; provided, however, that such remuneration shall be offset by any
amounts received by the Employee from insurance or other benefits provided by
the Corporation other than pursuant to this Agreement.
8. Termination of Services. The Board of Directors of the
Corporation shall have the right on behalf of the Corporation to terminate the
Employee's employment for Cause (as hereinafter defined in clauses (a) and (b)
of this sentence) during the Employment Period (a) immediately upon and the
Corporation shall have no further obligation hereunder after the conviction or
admission of Employee of a felony or a crime involving moral turpitude under the
laws of any state in the United States or the federal laws of the United States,
or fraud, misappropriation or embezzlement of the assets of the Corporation or
any subsidiary thereof; or (b) upon not less than thirty (30) days written
notice specifying in reasonable detail (i) any failure by Employee to fulfill
his duties and responsibilities set out in Sections 1 and 2 of this Agreement
(other than due to death or disability), or failure to perform in accordance
with the Performance Goals in any material respect as determined by the
Chairman, which has not been cured within 30 days after Employee's receipt of
written notice of such failure; or (ii) the intentional or knowing breach by
Employee of his obligations under Sections 5, 6, or 11 of this Agreement. If
Cause as
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<PAGE>
defined in clause (b) of the preceding sentence continues to exist thirty (30)
days after written notice, Employee's employment hereunder shall immediately
cease and terminate, and the Corporation shall have no further obligations
hereunder. The Employee may voluntarily leave the employ of the Corporation at
any time, but the Corporation shall have no further obligations hereunder. The
Board of Directors of the Corporation shall have the right to terminate the
Employee's employment without Cause at any time, effective immediately. If the
Corporation terminates the Employee's employment without Cause prior to
expiration of the Employment Period, the Corporation shall pay Employee (i) all
installments due for Regular Remuneration through the remaining term of the
Employment Period, which shall continue to be payable in installments in
accordance with Section 3 hereof; (ii) all damages for loss of Fringe Benefits
or benefits under any "employee benefit plan" (as defined in Section 3 of ERISA)
sponsored by the Corporation which the Employee would have received if the
Corporation had not terminated the Employee without Cause and had this Agreement
continued for the remainder of the Employment Period, provided, however, that in
lieu thereof, the Corporation shall have the right to continue providing Fringe
Benefits (or substantially equivalent benefits) to the Employee for the
remaining term hereof, if reasonably acceptable to Employee; (iii) legal fees
and expenses, if any, incurred as a result of such termination; and (iv) his
share of the EBP for the fiscal year in which such termination occurs as and
when such bonus is otherwise payable in accordance with the terms of the EBP.
Employee shall not be required to mitigate the amount of any payment due him
under this Section by seeking employment or otherwise; provided, however, that
compensation and benefits received by Employee after termination without Cause
will offset Employee's termination benefits and damages payable under this
Section 8 on account of such termination without Cause. The Corporation shall
use its best efforts to maintain all employee benefit plans and programs in
which the Employee was entitled to participate immediately prior to his
termination without Cause. If such participation cannot be maintained with the
exercise of the Corporation's best efforts, Employee shall be entitled to
receive an amount necessary to provide the Employee and his dependents
equivalent benefits for the remainder of the Employment Period. For purposes of
this Section, termination without Cause shall include, but not be limited to:
(i) any material change in Employee's duties as Executive Vice President or
assignment of the Employee to duties
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materially inconsistent with the position of Executive Vice President; (ii) any
removal of the Employee from or any failure to re-elect the Employee to any of
the positions indicated in Section 1 hereof; (iii) a reduction in the Employee's
salary or Fringe Benefits, or adverse change in the terms of participation or
benefits under the EBP provided, that no termination without Cause shall be
deemed to have occurred if the Corporation provides benefits that are
substantially equivalent to the Fringe Benefits provided at the time of
determination; or (iv) any breach of this Agreement by the Corporation which is
not cured by the Corporation within thirty (30) days after receiving written
notice of such breach.
9. Change in Control or Sale of the Corporation. If the
Corporation shall undergo a Change in Control (as hereinafter defined) or a Sale
of the Corporation (as hereinafter defined, and, in such event, the Corporation
fails to obtain the assumption of this Agreement by any successor to the
Corporation under Section 14 hereof prior to the date of such succession) during
the Employment Period, Employee shall be entitled to receive for the remainder
of the Employment Period or twelve (12) months which ever shall be longer (i)
all future installments due for Regular Remuneration, which shall continue to be
payable in installments in accordance with Section 3 hereof; (ii) all damages
for loss of Fringe Benefits or benefits pursuant to any employee benefit plan
sponsored by the Corporation which the Employee would have received if there had
been no Change in Control or Sale of the Corporation, and (iii) a share of the
EBP for the fiscal year in which such Change in Control or Sale of the
Corporation occurs, as and when such bonus is otherwise payable in accordance
with the terms of the EBP, payable as follows: (i) if such Change in Control or
Sale of the Corporation occurs during the first quarter of the Corporation's
fiscal year, the Employee shall receive 25% of the bonus he would otherwise have
been entitled to for such fiscal year; (ii) if such Change in Control or Sale of
the Corporation occurs during the second quarter of the Corporation's fiscal
year, the Employee shall receive 50% of the bonus he would otherwise have been
entitled to for such fiscal year; and if such Change in Control or Sale of the
Corporation occurs during the third or fourth quarters of the Corporation's
fiscal year, the Employee shall receive 100% of the bonus he would otherwise
have been entitled to for such fiscal year. The obligations of the Corporation
in the preceding sentence shall not apply to any Change in Control or Sale of
the Corporation in which the Employee receives a
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<PAGE>
realized return on his investment in equity securities of Holding equal to three
times the cost of such investment. For purposes hereof, a realized return shall
mean the (i) cash, (ii) market value of registered, publicly traded and
tradeable securities not subject to transfer restrictions or restrictions under
Rule 144 under the Securities Act of 1933 , as amended, and/or (iii) fair value
(as determined by the Board of Directors of the Corporation acting in good
faith) of all other securities, in each case received by Employee in any Change
of Control or Sale of the Corporation transaction. Employee shall not be
required to perform further duties hereunder and shall not be required to
mitigate his damages in the event a Change in Control or Sale of the Corporation
shall occur during the Employment Period. A Change in Control shall be deemed to
have occurred if: (i) Desa Holdings Corporation ("Holding") shall own less than
90% of all the issued and outstanding voting securities of the Corporation; or
(ii) a sale of substantially all the assets of the Corporation; provided, that
no Change in Control shall be deemed to have occurred in the event that,
subsequent to such transaction, Employee continues to be employed by the
successor entity under terms, conditions and for compensation substantially
identical to the terms of this Agreement. A "Sale of the Corporation" shall be
deemed to have occurred if (i) J.W. Childs Equity Partners, L.P. ("JWC") with
its Affiliates (as hereinafter defined, the "Control Group") shall cease to own
of record and beneficially an amount of Voting Securities of Holding equal to at
least 50% of the amount of Voting Securities (other than by virtue of a reverse
stock split of such Voting Securities) of Holding owned by the Control Group of
record and beneficially as of the close of business on November 26, 1997; (ii)
any Person or related group (as defined in Rule 13(d) under the Exchange Act of
1934, as amended (the "Exchange Act")), excluding the Control Group, shall be or
become the "beneficial owner" (as defined in Rules 12(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of a greater percentage of the
outstanding Voting Securities of Holding than is owned beneficially by the
Control Group and the Control Group no longer has the right to seat a majority
of the directors of Holding; (iii) all or substantially all of the assets of
Holding are sold or otherwise transferred for value, other than to a lender in a
secured transaction and other than in a transaction following which the Control
Group owns of record and beneficially at least 50% of the Voting Securities of
the acquiring Person; or (iv) (in the event of a merger or consolidation)
Holding is merged or consolidated with or into another entity and, as a
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result thereof, the Control Group and the Management Holders (as defined in the
Stockholders Agreement dated as of November 26, 1997 by and among Holding and
the parties thereto) hold, beneficially and of record, less than 50% of the
Voting Securities of the surviving entity. As used herein, "Affiliate" means as
to any Person, any other Person which, directly or indirectly, is in control of,
is controlled by, or is under common control with, such Person; provided, that,
as to JWC, the term Affiliate shall include the partners, officers, directors
and employees of J.W. Childs Associates, L.P., their spouses, children, and
other members of their immediate family and trusts, family limited partnerships
and other estate planning vehicles created for the benefit of such persons. As
used in the preceding sentence, "control" of a Person means the power, directly
or indirectly, either to (i) vote 51% or more of the Voting Securities of such
Person or (ii) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise. As used herein, "Person" means an
individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, or other entity of whatever nature. As used herein, "Voting
Securities" means common equity securities (or equivalent partnership or joint
venture interests) having the right to vote generally in matters coming before
common equity holders.
10. Coordination of Rights. In the event that Employee suffers
termination of Employment without Cause and a Change in Control or Sale of the
Corporation also occurs, Section 8 shall be disregarded and Section 9 shall
apply.
11. Covenant Not to Compete; Non-Solicitation, etc.
(a) While employed by the Corporation and for a
period of three years following termination of employment, the Employee will
not, directly or indirectly as an individual or as part of a partnership or
other business association, or otherwise, compete with the business of the
Corporation or its subsidiaries in North America or in any other jurisdiction in
which the Corporation or a subsidiary thereof conducts substantial business, nor
will he enter the employ of, or act as an agent for or as a director,
consultant, or officer of, any person, firm, partnership or corporation engaged
in a line of business in North America or in any other
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jurisdiction in which the Corporation or a subsidiary thereof conducts
substantial business that is directly or indirectly in competition with the
business of the Corporation or its subsidiaries as the same is being conducted
at such termination of employment.
(b) The Employee further agrees that he will not, at
any time during or within three years after the termination of employment under
this Agreement, however caused, solicit, interfere with, employ, endeavor to
entice away from the Corporation, or any subsidiary of the Corporation, any
customer, supplier or employee.
(c) With respect to any issues as to the
enforceability of the foregoing provisions, the Employee agrees that the
foregoing are reasonable in terms of scope and duration and both parties agree
that a court making a determination on the issue of validity, legality or
enforceability of the foregoing, may modify the duration or scope of the
provisions of this Section 11 and/or delete or modify specific words or phrases
("blue penciling"), and in its reduced or blue-penciled form, the foregoing
shall be enforceable and enforced. The Employee agrees that in the event of a
breach of the foregoing provisions of this Section 11 or the provisions of
Section 5, the remedy of damages would be inadequate and the Corporation may
apply to any court of competent jurisdiction to enjoin any violation, as well as
seek all other legal remedies available upon ten days notice to Employee,
provided that Employee shall not have cured such breach within such ten day
period.
12. Non-Waiver of Rights. The failure to enforce at any time
any of the provisions of this Agreement or to require at any time performance by
the other party of any of the provisions hereof shall in no way be construed to
be a waiver of such provisions or to affect the validity of this Agreement, or
any part hereof, or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
13. Invalidity of Provisions. 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 provisions were omitted.
14. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the Corporation and any successor to the Corporation
under the provisions of this
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Agreement. For the purpose of this Agreement the term "successor" shall mean any
person, firm, corporation, or other business entity which at any time, whether
by merger, purchase, liquidation or otherwise, shall acquire all or
substantially all of the assets or business of the Corporation. This Agreement
is personal to the Employee and is not assignable by the Employee.
15. Choice of Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware.
Each party hereto hereby consents to service of process in the State of Delaware
as required pursuant to 6 Del. C. Section 2708(a).
16. Entire Agreement. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope, superseding
any and all prior agreements or understandings with respect to the subject
hereof and may be modified only in a writing signed by the party against whom
enforcement is sought. The headings contained in this Agreement have been
inserted solely for the convenience of the parties and shall be of no force or
effect in the construction or interpretation of the provisions of this
Agreement.
17. Notices. All notices required or made pursuant to this
Agreement shall be made, and shall be deemed to have been duly given when sent
by, certified mail, return receipt requested, to the addresses set forth above
or such other addresses later designated in writing by either of the parties.
IN WITNESS WHEREOF, the Corporation has caused this amended
and restated Agreement to be executed on its behalf by an officer of the
Corporation thereunto duly authorized, and the Employee has hereunto signed this
Agreement, all as of November 26, 1997.
DESA INTERNATIONAL, INC.
By:
Title:
EMPLOYEE
JOHN M. KELLY
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EXHIBIT A-1
TO EMPLOYMENT AGREEMENT
DESA INTERNATIONAL, INC.
EXECUTIVE BONUS PLAN
(for fiscal years 1999 - 2003)
November 26, 1997
1. Participants. The Participants in this Plan shall be Robert H. Elman,
John M. Kelly and Terry G. Scariot (each, a "Participant"). Each
Participant shall be entitled to participate in the Plan as long as he
is entitled to do so pursuant to the terms of his employment agreement
with DESA International, Inc. (the "Company") as amended and restated
as of the date hereof.
2. Share of Bonus Pool. Each Participant in this Plan shall be entitled to
participate in the Bonus Pool (defined below) as follows: Robert H.
Elman - 50%; John M. Kelly - 25%; and Terry G. Scariot - 25%. If a
Participant's employment with the Company shall terminate, his right to
participate in Bonus Pools under this Plan may be reallocated as
provided in his employment agreement.
3. EBITDA Targets. For purposes of this Plan, the target earnings before
interest, taxes, depreciation, amortization and bonus accruals under
this Plan ("EBITDA") of the Company for each fiscal year shall be as
follows:
EBITDA Target
Fiscal Year (in millions)
1999 $48.50
2000 $55.70
2001 $64.10
2002 $74.10
2003 $86.00
For purposes of this Plan, the actual EBITDA of the Company shall in
each fiscal be determined on a consolidated basis with its parent, DESA
Holdings, Inc., according to generally accepted accounting principles
consistently applied, and shall be derived from the audited,
consolidated financial statements of DESA Holdings, Inc. for such
fiscal year.
In the event that the Company or DESA Holdings, Inc. should make an
acquisition or disposition of a material business, this Plan may be
adjusted or revised, or a separate plan may be established for such
acquired business, all as provided in Participants' employment
agreements.
<PAGE>
4. Bonus Pools. After the end of each fiscal year, the Company shall
establish a bonus pool (each, a "Bonus Pool") for the Participants as
follows:
a. If the actual EBITDA for such year is less than 95% of the
EBITDA target for such fiscal year, there shall be no Bonus
Pool for such year.
b. If the actual EBITDA for such year is greater than 95% and
less than or equal to 100% of the EBITDA target for such year,
the Bonus Pool for such year shall equal 20% of the Cap Number
for such year for each full percentage point by which the
actual EBITDA exceeds 95% of the target EBITDA, up to a
maximum of the Cap Number. For purposes hereof, the "Cap
Number" shall mean $500,000 in fiscal year 1999, and for each
fiscal year thereafter shall be equal to the Cap Number for
the prior fiscal year increased by a factor equal to the
positive growth rate in actual EBITDA for such fiscal year
over actual EBITDA for the prior fiscal year, if such growth
rate is in excess of 10%.
c. If the actual EBITDA for such year is greater than 100% and
less than or equal to 110% of the EBITDA target for such year,
the Bonus Pool for such year shall be the greater of (i) the
Cap Number for such year and (ii) 10% of the amount by which
the actual EBITDA for such year exceeds 95% of the EBITDA
target for such year.
d. If the actual EBITDA for such year is greater than 110% of the
EBITDA target for such year, the Bonus Pool for such year
shall equal (i) the amount specified in subparagraph c above
plus (ii) 15% of the amount by which the actual EBITDA for
such year exceeds 110% of the EBITDA target for such year.
5. Payment of Bonus. The calculation of the Bonus Pool for each fiscal
year shall be determined promptly after the delivery of the audited
financial statements of DESA Holdings, Inc. for such fiscal year, and
bonus payments under this Plan shall be paid as soon as practicable
after such determination.
<PAGE>
EXHIBIT B
TO EMPLOYMENT AGREEMENT
FRINGE BENEFITS FOR EXECUTIVES
The following fringe benefits as they exist and are administered on the
Restatement Date of this Agreement:
1. Medical Insurance
2. Vacations
3. Use of Company Car
4. Office Facilities and Secretarial Services
5. Travel and Entertainment
6. Group Life Insurance
7. Disability Insurance
8. Country Club Dues
9. Section 401(k) Plan
10. Defined Contribution Pension Plan Supplement
EXHIBIT 10.30
Amended and Restated
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the 1st day of March,
1996 and amended and restated as of November 26, 1997 (the "Restatement Date"),
between Desa International, Inc. whose principal place of business is located at
2701 Industrial Drive, Bowling Green, Kentucky 42101 (hereinafter called the
"Corporation"), and TERRY G. SCARIOT (hereinafter called the "Employee"),
residing at 161 Mooreborough, Bowling Green, Kentucky 42103.
W I T N E S S E T H
The Corporation, as directed by the Board of Directors,
desires to secure the services of the Employee in an executive capacity for a
period commencing on March 1, 1996 (the "Effective Date"), on the terms and
conditions and subject to the rights of earlier termination hereinafter set
forth, and the Employee is willing to accept employment on such terms and
conditions, thereby canceling and superseding any existing employment
agreements.
In consideration of the premises and of the mutual agreements
hereinafter set forth, the parties hereto have agreed and do hereby agree as
follows:
1. Employment. The Corporation hereby employs the Employee in
the capacity of President (with the duties, responsibilities and authority of
such offices as exist on the date of this Agreement and as further defined by
the current By-Laws of the Corporation), reporting only to the Chairman and the
Board of Directors of the Corporation, and the Employee hereby accepts and
agrees to serve the Corporation, its divisions, and subsidiaries, if any, on a
full time basis, and to perform such duties of an executive nature, including
any reasonable business travel incident thereto, as Employee is directed by the
Chairman to perform on behalf of the Corporation at its principal office in
Bowling Green, Kentucky, for a period commencing on the Effective Date and
ending three (3) years after the Restatement Date (the "Employment Period"),
unless earlier terminated in accordance with Section 8 of this Agreement. Unless
the Chairman shall give written notice of termination of the Agreement at least
six (6) months prior to its termination, this Agreement shall automatically
renew for successive one year terms. Subject to the authority of the Board of
Directors, Employee shall have such powers and duties as may be from time to
time prescribed by the Chairman of the Corporation. Employee's rights, duties
and responsibilities shall be commensurate with his position. Prior to the close
of each fiscal year
<PAGE>
during the term hereof, the Chairman shall establish and deliver to Employee
written performance goals for the Employee for the succeeding fiscal year (the
"Performance Goals"). Employee's performance of his duties hereunder, including
the determination of whether the Performance Goals have been achieved, shall be
subject to review only by the Chairman of the Corporation. Such a review shall
be conducted in good faith at least annually during the term of this Agreement
by the Chairman and shall bind both Employee and the Corporation in the absence
of wilful misconduct. Employee agrees to serve without additional compensation,
if elected or appointed thereto, in one or more offices and as a director of any
of the Corporation's subsidiaries, provided, however, that the Employee shall
not be required to serve as an officer or director of any subsidiary if such
service would expose him to adverse financial, legal or other consequences; and
provided, further, that Employee acknowledges that the Corporation shall not be
deemed to be in breach of this Section 1 or of the final sentence of Section 8
if Employee declines to serve as an officer or director of any subsidiary.
Employee shall not be required to relocate his present home,
and the principal offices of the Corporation shall not be moved from Bowling
Green, Kentucky during the Employment Period.
2. Employment Service. During the Employment Period, the
Employee shall devote his business time, energy and skill (reasonable vacations
and reasonable absences because of sickness and other personal necessity
excepted) to render services for the Corporation or its divisions and
subsidiaries, if any, and in the promotion of their collective interests. During
the Employment Period, the Employee shall not engage in any other business
activities, duties, or pursuits which interfere with his employment hereunder or
detrimentally affect the performance of his employment services hereunder. Upon
the reasonable request of the Corporation, the Employee shall cease any
business, activities, duties or pursuits detrimentally affecting the Employee's
performance of his duties hereunder or interfering with his employment
hereunder. This provision shall not be deemed to prohibit the Employee from
engaging in a reasonable amount of activities in trade associations and
professional organizations or participating in private investments provided such
activities do not interfere with Employee's employment hereunder or materially
adversely affect the performance of Employee's duties hereunder. During the
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Employment Period and subject to Section 11 hereof, the Employee shall not own
or hold any securities in, or be employed by or render any consulting or similar
services to, any company directly or indirectly competing with the business of
the Corporation or any division or subsidiary thereof, as such business is
constituted on the date of determination, in an amount which, in the reasonable
judgment of the Corporation, would result in a conflict of interest. For
purposes of this Section 2, Ownership of less than five percent (5%) of the
issued and outstanding stock of a corporation, the securities of which are
listed upon a national securities exchange or regularly included in a national
list of over-the-counter securities as it may be from time to time published in
a newspaper of general publication, shall not be deemed to create a conflict of
interest.
3. Compensation.
(a) From and after the Restatement Date, the Employee
shall be entitled to receive by way of remuneration for his services a salary of
not less than Two Hundred and Ninety-Two Thousand Dollars ($292,000) per year,
payable in bi-monthly installments (hereinafter "Regular Remuneration"). Salary,
bonus and all other payments to Employee pursuant to the Agreement shall be
subject to withholding and other applicable taxes. Annual increases in Regular
Remuneration will be at the discretion of the Board of Directors of the
Corporation; provided, however, that in the absence of adverse factors,
circumstances or information relating to Employee's performance of his duties or
the Corporation, Employee shall receive an increase of no less than 8% of his
prior years salary effective on November 30 of each year (beginning November 30,
1998) during the Employment Period. In addition, the Board of Directors of the
Corporation shall review Employee's Regular Remuneration no less frequently than
annually, taking into account increases in the profitability of the Corporation
or increased responsibilities occasioned by growth in the size and complexity of
the Corporation's business, whether caused by growth in existing business
operations or by acquisition or creation of additional operations, and such
other factors as the Board of Directors deems appropriate, in order to determine
whether Employee's then-effective Regular Remuneration is adequate.
(b) (i) An executive bonus plan (the "EBP") will be
instituted for fiscal 1999, 2000, 2001, 2002 and 2003, containing substantially
the provisions set forth in Exhibit A-1 hereto. In the event that the
Corporation or its parent, DESA Holdings Corporation, disposes of
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a material operating subsidiary or division or separately identifiable business
unit, the EBP shall be reviewed by the Board of Directors and revised to the
extent necessary to provide management, including Employee, with a bonus plan
that is substantially equivalent in format and provides a substantially
equivalent benefit in light of such disposition. Employee acknowledges that in
the event of such a disposition, the bonus payable under the EBP may decrease.
(ii) In the event that the Corporation or its parent, DESA Holdings Corporation,
acquires, directly or indirectly, the stock or substantially all of the assets
of another corporation or other entity, or any division or separately
identifiable business unit thereof, the EBP will be amended by mutual agreement
of the Participants (defined therein) and the Corporation, as directed by the
Board of Directors, to adjust the EBITDA targets and Bonus Pools to reflect the
effects of such transaction on the Corporation. (iii) The Board of Directors
shall determine the contents of the EBP, and the method of determining any
bonuses to be paid thereunder, for fiscal years 2004 and thereafter. In the
event of the death or termination of employment of the Employee during the term
hereof, Employee's share of the EBP for such period in which death or
termination occurred shall be (i), if determined appropriate by the Board of
Directors, reserved for distribution to such Employee's successor or (ii), if
determined appropriate by the Board of Directors or if not committed for
distribution to such Employee's successor within six months thereafter,
allocated among the remaining Participants (as defined in the EBP) employed by
the Corporation, pro rata, in proportion to how the remaining Participants are
then sharing in the EBP. Except as provided herein, the EBP for fiscal years
1999 - 2003 as set forth on Exhibit A-1 hereto shall not be amended or modified
by the Corporation in a manner that reduces any benefit of Employee thereunder
during the Employment Period.
4. Expenses and Fringe Benefits.
(a) The Employee shall be reimbursed for the
reasonable authorized expenses incurred by the Employee in the performance of
his duties hereunder.
(b) The Employee shall also be entitled to receive
the Fringe Benefits set forth on Exhibit B hereto. The Corporation agrees that,
without the Employee's written consent, it will not make any material changes in
such benefits which would materially adversely affect the Employee's right to
receive or eligibility to participate in such benefit plans or the
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amounts, timing or terms of such benefits; provided, however, the Corporation
shall not be in breach of this provision if it institutes an alternative
benefits plan or program with substantially equivalent benefits.
5. Trade Secrets and Confidentiality. The Employee agrees that
he will not at any time, either during the term of this Agreement or thereafter,
knowingly divulge to any person, firm or corporation any confidential or
privileged information received by him during the course of his employment, or
prior to the date hereof, with regard to the financial, business or other
affairs of the Corporation, its predecessors, its officers, directors, or
stockholders, or any subsidiary, customer or supplier of the Corporation, and
all such information shall be kept confidential and shall not, in any manner be
revealed to anyone except as may otherwise be required by law and provided
further that nothing herein shall be construed to prohibit the Employee from
divulging information in the ordinary course of the business of the Corporation.
The Employee further agrees that he will not knowingly divulge to any person,
firm or corporation, either during the term of this Agreement or thereafter, or
make known either directly or through another, to any person, firm or
corporation, any trade secret or confidential knowledge or privileged procedures
of the Corporation except as may be otherwise required by law and provided
further that nothing herein shall be construed to prohibit the Employee from
divulging (i) information in the ordinary course of the business of the
Corporation or (ii) information which was or has become or hereafter becomes
generally available to the public. Any breach of the terms of this paragraph or
of Section 9 hereof shall be a material breach of this Agreement.
6. Property of The Corporation. The Corporation shall be
entitled to the sole benefit and exclusive ownership of any trademarks, trade
names, marketing or advertising concept or strategy, any design patents, or any
inventions or improvements in plant, machinery, processes, or other things used
in the business of the Corporation that may be developed, made, or discovered by
the Employee while he is in the service of the Corporation, and the Employee
shall do all acts and things necessary or required to give the Corporation the
benefit of this Section. The Employee agrees that he will not use any property
of the Corporation except in furtherance of his duties hereunder.
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7. Death or Disability. If the Employee dies during the
Employment Period, all obligations of the Corporation under this Agreement
(other than obligations for accrued Regular Remuneration hereunder) shall cease,
except that the Employee's estate shall be entitled to continue to receive the
Regular Remuneration set forth in Paragraph 3(a) hereof for a period of twelve
(12) months after death. If during the Employment Period, the Employee shall
become physically or mentally disabled to the extent that he is, in the
reasonable opinion of a recognized medical expert selected by the Corporation,
unable to continue the proper performance of his duties hereunder for a
continuous period of one hundred eighty (180) days, the Employee's employment
hereunder shall thereupon cease and terminate but the Corporation's obligation
under Paragraph 3(a) hereof with respect to Regular Remuneration shall continue
in full force and effect for twelve (12) months after determination of
disability; provided, however, that such remuneration shall be offset by any
amounts received by the Employee from insurance or other benefits provided by
the Corporation other than pursuant to this Agreement.
8. Termination of Services. The Board of Directors of the
Corporation shall have the right on behalf of the Corporation to terminate the
Employee's employment for Cause (as hereinafter defined in clauses (a) and (b)
of this sentence) during the Employment Period (a) immediately upon and the
Corporation shall have no further obligation hereunder after the conviction or
admission of Employee of a felony or a crime involving moral turpitude under the
laws of any state in the United States or the federal laws of the United States,
or fraud, misappropriation or embezzlement of the assets of the Corporation or
any subsidiary thereof; or (b) upon not less than thirty (30) days written
notice specifying in reasonable detail (i) any failure by Employee to fulfill
his duties and responsibilities set out in Sections 1 and 2 of this Agreement
(other than due to death or disability), or failure to perform in accordance
with the Performance Goals in any material respect as determined by the
Chairman, which has not been cured within 30 days after Employee's receipt of
written notice of such failure; or (ii) the intentional or knowing breach by
Employee of his obligations under Sections 5, 6, or 11 of this Agreement. If
Cause as defined in clause (b) of the preceding sentence continues to exist
thirty (30) days after written notice, Employee's employment hereunder shall
immediately cease and terminate, and the Corporation shall have no further
obligations hereunder. The Employee may voluntarily leave the
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employ of the Corporation at any time, but the Corporation shall have no further
obligations hereunder. The Board of Directors of the Corporation shall have the
right to terminate the Employee's employment without Cause at any time,
effective immediately. If the Corporation terminates the Employee's employment
without Cause prior to expiration of the Employment Period, the Corporation
shall pay Employee (i) all installments due for Regular Remuneration through the
remaining term of the Employment Period, which shall continue to be payable in
installments in accordance with Section 3 hereof; (ii) all damages for loss of
Fringe Benefits or benefits under any "employee benefit plan" (as defined in
Section 3 of ERISA) sponsored by the Corporation which the Employee would have
received if the Corporation had not terminated the Employee without Cause and
had this Agreement continued for the remainder of the Employment Period,
provided, however, that in lieu thereof, the Corporation shall have the right to
continue providing Fringe Benefits (or substantially equivalent benefits) to the
Employee for the remaining term hereof, if reasonably acceptable to Employee;
(iii) legal fees and expenses, if any, incurred as a result of such termination;
and (iv) his share of the EBP for the fiscal year in which such termination
occurs as and when such bonus is otherwise payable in accordance with the terms
of the EBP. Employee shall not be required to mitigate the amount of any payment
due him under this Section by seeking employment or otherwise; provided,
however, that compensation and benefits received by Employee after termination
without Cause will offset Employee's termination benefits and damages payable
under this Section 8 on account of such termination without Cause. The
Corporation shall use its best efforts to maintain all employee benefit plans
and programs in which the Employee was entitled to participate immediately prior
to his termination without Cause. If such participation cannot be maintained
with the exercise of the Corporation's best efforts, Employee shall be entitled
to receive an amount necessary to provide the Employee and his dependents
equivalent benefits for the remainder of the Employment Period. For purposes of
this Section, termination without Cause shall include, but not be limited to:
(i) any material change in Employee's duties as President or assignment of the
Employee to duties materially inconsistent with the position of President; (ii)
any removal of the Employee from or any failure to re-elect the Employee to any
of the positions indicated in Section 1 hereof; (iii) a reduction in the
Employee's salary or Fringe Benefits, or adverse change in the terms of
participation or
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benefits under the EBP provided, that no termination without Cause shall be
deemed to have occurred if the Corporation provides benefits that are
substantially equivalent to the Fringe Benefits provided at the time of
determination; or (iv) any breach of this Agreement by the Corporation which is
not cured by the Corporation within thirty (30) days after receiving written
notice of such breach.
9. Change in Control or Sale of the Corporation. If the
Corporation shall undergo a Change in Control (as hereinafter defined) or a Sale
of the Corporation (as hereinafter defined, and, in such event, the Corporation
fails to obtain the assumption of this Agreement by any successor to the
Corporation under Section 14 hereof prior to the date of such succession) during
the Employment Period, Employee shall be entitled to receive for the remainder
of the Employment Period or twelve (12) months which ever shall be longer (i)
all future installments due for Regular Remuneration, which shall continue to be
payable in installments in accordance with Section 3 hereof; (ii) all damages
for loss of Fringe Benefits or benefits pursuant to any employee benefit plan
sponsored by the Corporation which the Employee would have received if there had
been no Change in Control or Sale of the Corporation, and (iii) a share of the
EBP for the fiscal year in which such Change in Control or Sale of the
Corporation occurs, as and when such bonus is otherwise payable in accordance
with the terms of the EBP, payable as follows: (i) if such Change in Control or
Sale of the Corporation occurs during the first quarter of the Corporation's
fiscal year, the Employee shall receive 25% of the bonus he would otherwise have
been entitled to for such fiscal year; (ii) if such Change in Control or Sale of
the Corporation occurs during the second quarter of the Corporation's fiscal
year, the Employee shall receive 50% of the bonus he would otherwise have been
entitled to for such fiscal year; and if such Change in Control or Sale of the
Corporation occurs during the third or fourth quarters of the Corporation's
fiscal year, the Employee shall receive 100% of the bonus he would otherwise
have been entitled to for such fiscal year. The obligations of the Corporation
in the preceding sentence shall not apply to any Change in Control or Sale of
the Corporation in which the Employee receives a realized return on his
investment in equity securities of Holding equal to three times the cost of such
investment. For purposes hereof, a realized return shall mean the (i) cash, (ii)
market value of registered, publicly traded and tradeable securities not subject
to transfer restrictions or
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restrictions under Rule 144 under the Securities Act of 1933 , as amended,
and/or (iii) fair value (as determined by the Board of Directors of the
Corporation acting in good faith) of all other securities, in each case received
by Employee in any Change of Control or Sale of the Corporation transaction.
Employee shall not be required to perform further duties hereunder and shall not
be required to mitigate his damages in the event a Change in Control or Sale of
the Corporation shall occur during the Employment Period. A Change in Control
shall be deemed to have occurred if: (i) Desa Holdings Corporation ("Holding")
shall own less than 90% of all the issued and outstanding voting securities of
the Corporation; or (ii) a sale of substantially all the assets of the
Corporation; provided, that no Change in Control shall be deemed to have
occurred in the event that, subsequent to such transaction, Employee continues
to be employed by the successor entity under terms, conditions and for
compensation substantially identical to the terms of this Agreement. A "Sale of
the Corporation" shall be deemed to have occurred if (i) J.W. Childs Equity
Partners, L.P. ("JWC") with its Affiliates (as hereinafter defined, the "Control
Group") shall cease to own of record and beneficially an amount of Voting
Securities of Holding equal to at least 50% of the amount of Voting Securities
(other than by virtue of a reverse stock split of such Voting Securities) of
Holding owned by the Control Group of record and beneficially as of the close of
business on November 26, 1997; (ii) any Person or related group (as defined in
Rule 13(d) under the Exchange Act of 1934, as amended (the "Exchange Act")),
excluding the Control Group, shall be or become the "beneficial owner" (as
defined in Rules 12(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of a greater percentage of the outstanding Voting Securities of
Holding than is owned beneficially by the Control Group and the Control Group no
longer has the right to seat a majority of the directors of Holding; (iii) all
or substantially all of the assets of Holding are sold or otherwise transferred
for value, other than to a lender in a secured transaction and other than in a
transaction following which the Control Group owns of record and beneficially at
least 50% of the Voting Securities of the acquiring Person; or (iv) (in the
event of a merger or consolidation) Holding is merged or consolidated with or
into another entity and, as a result thereof, the Control Group and the
Management Holders (as defined in the Stockholders Agreement dated as of
November 26, 1997 by and among Holding and the parties thereto) hold,
beneficially and of record, less than 50% of the Voting Securities of the
surviving entity. As used
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herein, "Affiliate" means as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person; provided, that, as to JWC, the term Affiliate shall include the
partners, officers, directors and employees of J.W. Childs Associates, L.P.,
their spouses, children, and other members of their immediate family and trusts,
family limited partnerships and other estate planning vehicles created for the
benefit of such persons. As used in the preceding sentence, "control" of a
Person means the power, directly or indirectly, either to (i) vote 51% or more
of the Voting Securities of such Person or (ii) direct or cause the direction of
the management and policies of such Person, whether by contract or otherwise. As
used herein, "Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
any nation or government, any state or other political subdivision thereof, any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, or other entity of whatever nature. As
used herein, "Voting Securities" means common equity securities (or equivalent
partnership or joint venture interests) having the right to vote generally in
matters coming before common equity holders.
10. Coordination of Rights. In the event that Employee suffers
termination of Employment without Cause and a Change in Control or Sale of the
Corporation also occurs, Section 8 shall be disregarded and Section 9 shall
apply.
11. Covenant Not to Compete; Non-Solicitation, etc.
(a) While employed by the Corporation and for a
period of three years following termination of employment, the Employee will
not, directly or indirectly as an individual or as part of a partnership or
other business association, or otherwise, compete with the business of the
Corporation or its subsidiaries in North America or in any other jurisdiction in
which the Corporation or a subsidiary thereof conducts substantial business, nor
will he enter the employ of, or act as an agent for or as a director,
consultant, or officer of, any person, firm, partnership or corporation engaged
in a line of business in North America or in any other jurisdiction in which the
Corporation or a subsidiary thereof conducts substantial business that is
directly or indirectly in competition with the business of the Corporation or
its subsidiaries as the same is being conducted at such termination of
employment.
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(b) The Employee further agrees that he will not, at
any time during or within three years after the termination of employment under
this Agreement, however caused, solicit, interfere with, employ, endeavor to
entice away from the Corporation, or any subsidiary of the Corporation, any
customer, supplier or employee.
(c) With respect to any issues as to the
enforceability of the foregoing provisions, the Employee agrees that the
foregoing are reasonable in terms of scope and duration and both parties agree
that a court making a determination on the issue of validity, legality or
enforceability of the foregoing, may modify the duration or scope of the
provisions of this Section 11 and/or delete or modify specific words or phrases
("blue penciling"), and in its reduced or blue-penciled form, the foregoing
shall be enforceable and enforced. The Employee agrees that in the event of a
breach of the foregoing provisions of this Section 11 or the provisions of
Section 5, the remedy of damages would be inadequate and the Corporation may
apply to any court of competent jurisdiction to enjoin any violation, as well as
seek all other legal remedies available upon ten days notice to Employee,
provided that Employee shall not have cured such breach within such ten day
period.
12. Non-Waiver of Rights. The failure to enforce at any time
any of the provisions of this Agreement or to require at any time performance by
the other party of any of the provisions hereof shall in no way be construed to
be a waiver of such provisions or to affect the validity of this Agreement, or
any part hereof, or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
13. Invalidity of Provisions. 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 provisions were omitted.
14. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the Corporation and any successor to the Corporation
under the provisions of this Agreement. For the purpose of this Agreement the
term "successor" shall mean any person, firm, corporation, or other business
entity which at any time, whether by merger, purchase, liquidation
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or otherwise, shall acquire all or substantially all of the assets or business
of the Corporation. This Agreement is personal to the Employee and is not
assignable by the Employee.
15. Choice of Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware.
Each party hereto hereby consents to service of process in the State of Delaware
as required pursuant to 6 Del. C. Section 2708(a).
16. Entire Agreement. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope, superseding
any and all prior agreements or understandings with respect to the subject
hereof and may be modified only in a writing signed by the party against whom
enforcement is sought. The headings contained in this Agreement have been
inserted solely for the convenience of the parties and shall be of no force or
effect in the construction or interpretation of the provisions of this
Agreement.
17. Notices. All notices required or made pursuant to this
Agreement shall be made, and shall be deemed to have been duly given when sent
by, certified mail, return receipt requested, to the addresses set forth above
or such other addresses later designated in writing by either of the parties.
IN WITNESS WHEREOF, the Corporation has caused this amended
and restated Agreement to be executed on its behalf by an officer of the
Corporation thereunto duly authorized, and the Employee has hereunto signed this
Agreement, all as of November 26, 1997.
DESA INTERNATIONAL, INC.
By:
Title:
EMPLOYEE
TERRY G. SCARIOT
-12-
<PAGE>
EXHIBIT A-1
TO EMPLOYMENT AGREEMENT
DESA INTERNATIONAL, INC.
EXECUTIVE BONUS PLAN
(for fiscal years 1999 - 2003)
November 26, 1997
1. Participants. The Participants in this Plan shall be Robert H. Elman,
John M. Kelly and Terry G. Scariot (each, a "Participant"). Each
Participant shall be entitled to participate in the Plan as long as he
is entitled to do so pursuant to the terms of his employment agreement
with DESA International, Inc. (the "Company") as amended and restated
as of the date hereof.
2. Share of Bonus Pool. Each Participant in this Plan shall be entitled to
participate in the Bonus Pool (defined below) as follows: Robert H.
Elman - 50%; John M. Kelly - 25%; and Terry G. Scariot - 25%. If a
Participant's employment with the Company shall terminate, his right to
participate in Bonus Pools under this Plan may be reallocated as
provided in his employment agreement.
3. EBITDA Targets. For purposes of this Plan, the target earnings before
interest, taxes, depreciation, amortization and bonus accruals under
this Plan ("EBITDA") of the Company for each fiscal year shall be as
follows:
EBITDA Target
Fiscal Year (in millions)
1999 $48.50
2000 $55.70
2001 $64.10
2002 $74.10
2003 $86.00
For purposes of this Plan, the actual EBITDA of the Company shall in
each fiscal be determined on a consolidated basis with its parent, DESA
Holdings, Inc., according to generally accepted accounting principles
consistently applied, and shall be derived from the audited,
consolidated financial statements of DESA Holdings, Inc. for such
fiscal year.
In the event that the Company or DESA Holdings, Inc. should make an
acquisition or disposition of a material business, this Plan may be
adjusted or revised, or a separate plan may be established for such
acquired business, all as provided in Participants' employment
agreements.
<PAGE>
4. Bonus Pools. After the end of each fiscal year, the Company shall
establish a bonus pool (each, a "Bonus Pool") for the Participants as
follows:
a. If the actual EBITDA for such year is less than 95% of the
EBITDA target for such fiscal year, there shall be no Bonus
Pool for such year.
b. If the actual EBITDA for such year is greater than 95% and
less than or equal to 100% of the EBITDA target for such year,
the Bonus Pool for such year shall equal 20% of the Cap Number
for such year for each full percentage point by which the
actual EBITDA exceeds 95% of the target EBITDA, up to a
maximum of the Cap Number. For purposes hereof, the "Cap
Number" shall mean $500,000 in fiscal year 1999, and for each
fiscal year thereafter shall be equal to the Cap Number for
the prior fiscal year increased by a factor equal to the
positive growth rate in actual EBITDA for such fiscal year
over actual EBITDA for the prior fiscal year, if such growth
rate is in excess of 10%.
c. If the actual EBITDA for such year is greater than 100% and
less than or equal to 110% of the EBITDA target for such year,
the Bonus Pool for such year shall be the greater of (i) the
Cap Number for such year and (ii) 10% of the amount by which
the actual EBITDA for such year exceeds 95% of the EBITDA
target for such year.
d. If the actual EBITDA for such year is greater than 110% of the
EBITDA target for such year, the Bonus Pool for such year
shall equal (i) the amount specified in subparagraph c above
plus (ii) 15% of the amount by which the actual EBITDA for
such year exceeds 110% of the EBITDA target for such year.
5. Payment of Bonus. The calculation of the Bonus Pool for each fiscal
year shall be determined promptly after the delivery of the audited
financial statements of DESA Holdings, Inc. for such fiscal year, and
bonus payments under this Plan shall be paid as soon as practicable
after such determination.
<PAGE>
EXHIBIT B
TO EMPLOYMENT AGREEMENT
FRINGE BENEFITS FOR EXECUTIVES
The following fringe benefits as they exist and are administered on the
Restatement Date of this Agreement:
1. Medical Insurance
2. Vacations
3. Use of Company Car
4. Office Facilities and Secretarial Services
5. Travel and Entertainment
6. Group Life Insurance
7. Disability Insurance
8. Country Club Dues
9. Section 401(k) Plan
10. Defined Contribution Pension Plan Supplement
Exhibit 21
<TABLE>
<CAPTION>
Subsidiaries of the Registrant
Subsidiary Jurisdiction of Incorporation d/b/a name
---------- ----------------------------- ----------
<S> <C> <C>
Desa Industries of Canada, Inc. Ontario Desa Industries of Canada, Inc.
Desa Industries of V.I., Ltd. Virgin Islands Desa Industries of V.I., Ltd.
Desa Europe B.V. Netherlands Desa Europe B.V.
Heath Holding Corp. Delaware Heath Holding Corp.
Heath Company Delaware Heath Company
Heath Company Limited Hong Kong Heath Company Limited
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Desa Holdings Corporation at and for the periods ended
March 1, 1997 and November 29, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-1-1997 FEB-28-1998
<PERIOD-START> MAR-1-1996 MAR-2-1997
<PERIOD-END> MAR-1-1997 NOV-29-1997
<CASH> 5,058,000 201,000
<SECURITIES> 0 0
<RECEIVABLES> 13,066,000 65,586,000
<ALLOWANCES> 936,000 1,005,000
<INVENTORY> 15,747,000 27,133,000
<CURRENT-ASSETS> 35,632,000 95,251,000
<PP&E> 30,219,000 33,909,000
<DEPRECIATION> (20,137,000) (22,500,000)
<TOTAL-ASSETS> 91,984,000 157,780,000
<CURRENT-LIABILITIES> 44,198,000 60,493,000
<BONDS> 146,950,000 262,855,000
0 17,600,000
0 0
<COMMON> 26,976,000 82,400,000
<OTHER-SE> (111,730,000) (245,255,000)
<TOTAL-LIABILITY-AND-EQUITY> 91,984,000 157,780,000
<SALES> 209,105,000 193,404,000
<TOTAL-REVENUES> 209,105,000 193,404,000
<CGS> 130,890,000 123,243,000
<TOTAL-COSTS> 173,546,000 158,720,000
<OTHER-EXPENSES> 2,601,000 2,082,000
<LOSS-PROVISION> (54,000) (87,000)
<INTEREST-EXPENSE> 14,509,000 11,321,000
<INCOME-PRETAX> 18,449,000 21,281,000
<INCOME-TAX> 7,733,000 8,769,000
<INCOME-CONTINUING> 10,716,000 12,512,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 7,797,000
<CHANGES> 0 0
<NET-INCOME> 10,716,000 4,715,000
<EPS-PRIMARY> .42 .37
<EPS-DILUTED> .42 .36
</TABLE>
