<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPINCYCLE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7215 41-1821793
(STATE OF OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES R. PUCKETT
CHIEF FINANCIAL OFFICER
15990 NORTH GREENWAY/HAYDEN LOOP
SCOTTSDALE, ARIZONA 85260
TELEPHONE (602) 707-9999
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SUSAN M. HERMANN
PEDERSEN & HOUPT, P.C.
161 N. CLARK STREET, SUITE 3100
CHICAGO, ILLINOIS 60601
TELEPHONE (312) 641-6888
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4 Senior Discount Notes
Due 2005.................... $144,990,000 65.1% $94,376,053 $27,841
==============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
[SPINCYCLE LOGO]
SUBJECT TO COMPLETION, DATED JUNE 26, 1998
PRELIMINARY PROSPECTUS
SPINCYCLE, INC.
OFFER TO EXCHANGE 12 3/4% SENIOR DISCOUNT NOTES
DUE 2005, WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING 12 3/4% SENIOR
DISCOUNT NOTES DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN DAYLIGHT TIME, ON
, 1998 UNLESS EXTENDED.
------------------------
SpinCycle, Inc. ("SpinCycle" or the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and accompanying letters
of transmittal (each a "Letter of Transmittal," collectively the "Letters of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange its 12 3/4% Senior Discount Notes Due 2005 (the "New Notes") which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which this Prospectus is a part,
for an equal principal amount of its outstanding 12 3/4% Senior Discount Notes
Due 2005 (the "Old Notes" and, together with the New Notes, the "Notes"), of
which, as of the date of this Prospectus, there was outstanding $144,990,000
aggregate principal amount at maturity. The sale of the Old Notes is referred to
herein as the "Private Placement."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., Eastern Daylight Time, on
the date the Exchange Offer expires (the "Expiration Date"), which will be
, 1998 (30 days following the commencement of the Exchange Offer),
unless the Exchange Offer is extended. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. See "The Exchange Offer."
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Old Notes and will be entitled to the benefits of the same
Indenture (as defined), which governs both the Old Notes and the New Notes. The
form and terms of the New Notes are substantially identical to the form and
terms of the Old Notes, except that the New Notes are registered under the
Securities Act and, therefore, the New Notes will not bear legends restricting
the transfer thereof. See "Description of the New Notes."
The New Notes will be issued at a substantial original issue discount ("OID"),
and the holders of the New Notes will be required to include such OID in gross
income for U.S. federal income tax purposes on a constant yield to maturity
basis, in advance of the receipt of the cash payments to which such income is
attributable. See "Certain United States Federal Income Tax Consequences." The
price to investors for the New Notes shown below represents a yield to maturity
of 12 3/4% per annum (computed on a semiannual bond equivalent basis). The New
Notes will begin to accrue cash interest at the rate of 12 3/4% per annum on May
1, 2001, and interest will be payable thereafter on November 1 and May 1 of each
year. The Notes will be redeemable at the option of the Company, in whole or in
part, on or after May 1, 2002, at the redemption prices set forth herein. In
addition, at any time and from time to time prior to May 1, 2001, the Company
may redeem in the aggregate up to 35% of the Accreted Value (as defined) of the
Notes with the proceeds of one or more Public Equity Offerings (as defined)
following which there is a Public Market (as defined), at a redemption price of
112.75% of the Accreted Value to the date of redemption; provided, however, that
at least $94.2 million of the aggregate principal amount of the Notes at
maturity remain outstanding after any such redemption. Upon a Change of Control
(as defined), each holder of the Notes (a "Holder") will have the right to
require the Company to purchase all or any part of such Holder's Notes at a
purchase price equal to 101% of the Accreted Value thereof, plus accrued and
unpaid interest, if any, to the date of purchase.
(continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NEW NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 14.
THE NEW NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated , 1998.
<PAGE> 3
(continued from previous page)
The New Notes will be senior, unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company (including the Old Notes) and
will rank senior to all future subordinated debt of the Company. The New Notes
will be effectively subordinated to all Secured Indebtedness (as defined) of the
Company, if any, to the extent of the value of the assets securing such
indebtedness and to all indebtedness and other obligations (including trade
payables) of the Company's future subsidiaries, if any. As of March 22, 1998, on
a pro forma basis after giving effect to the Private Placement, the Company
would have had outstanding approximately $94.4 million of total indebtedness.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated April
29, 1998, among the Company and the other signatories thereto (the
"Registration Rights Agreement"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "SEC"), as set forth in no-action
letters issued to third parties, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by Holders thereof (other than any Holder that is an
"affiliate" of the Company as defined under Rule 405 of the Securities Act),
provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders are not engaged in, and do not intend
to engage in, a distribution of such New Notes and have no arrangement
with any person to participate in the distribution of such New Notes.
However, the staff of the SEC has not considered the Exchange Offer in
the context of a no-action letter and there can be no assurance that the
staff of the SEC would make a similar determination with respect to the
Exchange Offer as in such other circumstances. By tendering the Old
Notes in exchange for the New Notes, each Holder, other than a
broker-dealer, will represent to the Company that (i) it is not an
affiliate of the Company (as defined in Rule 405 of the Securities
Act), (ii) any New Notes to be received by it were acquired in its
ordinary business and (iii) it is not engaged in, and does not intend
to engage in, a distribution of such New Notes and has no arrangement
or understanding to participate in a distribution of the New Notes.
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. The Letter of Transmittal states that by so acknowledging
and by delivering a Prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received 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. The Company has agreed that, for a period of
180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any
such resale. Each broker-dealer that acquired Old Notes directly
from the Company, and not as a result of market-making or
trading activities, must, in the absence of an exemption,
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the
secondary resale of the New Notes and cannot rely on the
position of the staff of the SEC enunciated in no-action
letters issued to third parties. In addition, until
, 1998 (90 days after the date of this Prospectus),
all dealers effecting transactions in the New Notes may be
required to deliver a Prospectus. See "Plan of
Distribution."
Prior to this Exchange Offer, there has been no public market for the Old Notes
or the New Notes. If such a market were to develop, the New Notes could trade at
prices that may be higher or lower than their principal amount or liquidation
preference, respectively. The Company does not intend to apply for listing or
quotation of the New Notes on any securities exchange or stock market.
Therefore, there can be no assurance as to the liquidity of any trading market
for the New Notes or that an active public market for the New Notes will
develop. See "Risk Factors -- Lack of Public Market."
Credit Suisse First Boston Corporation (the "Initial Purchaser") has agreed to
act as a market-maker for the New Notes. However, the Initial Purchaser is not
obligated to so act and it may discontinue any such market-making at any time
without notice. The Company will not receive any proceeds from the Exchange
Offer. The Company will pay all the expenses incident to the Exchange Offer.
<PAGE> 4
------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE U.S. SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "RISK FACTORS,"
"THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY
CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "EXPECT," "INTEND," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR "CONTINUE"
OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH
THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE AT THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN
CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND
UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this Prospectus. Certain capitalized terms used but not defined in
this summary are used herein as defined elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to "SpinCycle" or the "Company"
are to SpinCycle, Inc., a Delaware corporation, and its predecessor Spincycle,
Inc., a Minnesota corporation. As of December 1, 1997, the Company adopted a
fiscal year comprised of 13 four week periods (each, a "period"), with each four
week period comprised of four Monday through Sunday weeks. All references herein
to periods shall refer to such periods unless the context otherwise requires.
Unless otherwise indicated, all financial and store data provided in this
Prospectus are as of March 22, 1998, the end of the Company's first fiscal
quarter in 1998.
THE COMPANY
The Company was founded in October 1995 to develop and implement
SpinCycle's unique concept of a national chain of branded coin-operated
laundromats and to serve as a platform for a nationwide consolidation in the
coin-operated laundromat industry. The Company's goal is to become the leading
operator of high quality coin-operated laundromats in the United States by
establishing SpinCycle as a national brand, providing a superior level of
customer service and by exercising disciplined management control in its
expansion and business plan. In sharp contrast to many existing laundromats, a
SpinCycle laundromat is an inviting, spacious and well-equipped facility that is
conveniently located, clean and well-lighted. Since April 1996, the Company has
opened a total of 95 stores in 20 markets, 60 of which it developed and 35 of
which it acquired. SpinCycle stores are located in densely populated urban
markets, including Chicago, Cleveland, Albuquerque, Houston, Los Angeles,
Philadelphia, Detroit, Miami, Atlanta and Dallas.
The Company plans to rapidly expand primarily within its existing markets
during the balance of 1998 and to enter additional urban markets in 1999. The
Company plans to expand by selectively developing new SpinCycle stores and
acquiring existing laundromats to be converted to the SpinCycle format. By year
end 1998, management believes that there will be approximately 225 SpinCycle
stores which management expects will generate, in the aggregate, once such units
have become mature stores (each store which has been open, whether or not
operated by the Company, for at least one year, is referred to herein as a
"Mature Store"), approximately $79.8 million of revenue and $25.0 million of
Store EBITDA (as defined). As of March 22, 1998, the Company's 48 Mature Stores
exceeded, on average, such stores' budgeted performance.
Management believes its equipment configuration and store design is unique
and maximizes customer convenience and in-store experience. As evidence of its
superior concept, Company compiled data shows that SpinCycle retains over 90% of
its customers. SpinCycle's typical store is between 3,500 and 5,500 square feet,
significantly larger than the 1,500 to 2,500 square feet of a typical
laundromat, and contains 50 washers of varied capacities and 54 large capacity
dryers. The Company installs a computer board in each washer and dryer which
allows daily monitoring of machine utilization and superior cash control. Each
store is staffed during operating hours by at least one customer service
representative who assists customers and maintains the facility. Customers can
sort and fold laundry while watching color television with cable programming at
12 to 14 folding stations and purchase food, beverages and laundry supplies from
vending machines. As a result of its superior store design and management
controls, the Company has achieved levels of store revenues and Store EBITDA
that management believes are among the highest in the industry.
MARKET OPPORTUNITY
The retail coin-operated laundromat industry began more than 50 years ago
and has been characterized by steady, non-cyclical demand. Management believes
the coin-operated laundromat industry, unlike other retail concepts, is
virtually unaffected by consumer fads and technological change, as laundry
represents a basic consumer necessity. In a 1997 report (the "1997 Laundry
Report"), the Coin Laundry Association estimated that retail coin-operated
laundromats comprise a $4 billion industry with approximately 30,000 laundromats
nationwide, 89% of which are operated by owners of only one or two stores and
only 4% of which
4
<PAGE> 6
are operated by owners of more than five stores. Today, the industry is
characterized by (i) fragmented store ownership, (ii) small, unattractive stores
and (iii) limited customer service. The Company's research indicates that
typical laundromats generally contain poorly maintained, aging equipment and are
often dirty and considered unsafe by their customers. Management therefore
believes that the typical laundromat user is significantly underserved. Further,
because management believes its targeted consumer group is growing in size and
market power, management believes that the coin-operated laundromat industry
presents favorable growth opportunities.
Management believes that by combining superior store design and site
selection, disciplined professional management and financial resources,
SpinCycle will be able to successfully consolidate a highly fragmented industry
while delivering a superior product to consumers. SpinCycle designs its stores
to provide an inviting atmosphere focused on customer convenience and
satisfaction. Unlike many of its competitors, SpinCycle also staffs its
locations during operating hours and installs security devices to promote
safety. Management believes that its innovative format can transform the retail
laundromat industry just as nationally branded video stores, such as Blockbuster
Video, changed the "mom and pop" video rental industry.
BUSINESS STRATEGY
Continue Rapid Growth in Existing and New Markets. The Company's strategy
is to maintain and build upon its leading position in the national retail
coin-operated laundromat industry by consolidating its position in existing
markets and rapidly developing a strong presence in new markets. Management
focuses its efforts on rolling out stores in markets with sufficient population
density to allow SpinCycle to achieve targeted store economics in a large number
of stores within each market over a short period of time. SpinCycle utilizes two
primary methods to roll out its concept: (i) developing retail locations
("Developed Stores") and (ii) acquiring and converting existing laundromats
("Acquired Stores"). During 1998, management expects to add a total of
approximately 155 stores, through a balance of Developed Stores and Acquired
Stores, for a year end total of approximately 225 stores, primarily in its 20
existing markets. In the first three periods of 1998, the Company opened 24
stores. As of March 22, 1998, the Company had 77 stores in its developmental
pipeline comprised of 12 stores under construction, 17 leases signed, 31 leases
in negotiation and 17 sites for which letters of intent had been executed.
Further, the Company had 37 stores in its acquisition pipeline, comprised of
nine existing laundromats for which it was negotiating purchase agreements and
28 existing laundromats for which it was negotiating letters of intent. In
addition, the Company maintains a dynamic database of approximately 200
potential acquisition targets. For 1999 and beyond, the Company plans to open
approximately 150 stores per year primarily in new markets. Management believes
it will achieve its near and long term expansion plans.
Continue Superior Site Selection. Based upon management's knowledge and
experience in site selection for Midas Muffler, Dunkin' Donuts, Blockbuster
Video, Boston Market and Einstein Bros. Bagels, as well as their experience in
opening the first 95 SpinCycle stores, management believes that operating from
superior real estate is an essential element in SpinCycle's ability to generate
revenue in excess of industry averages and gain and maintain market share. The
Company identifies both development sites and acquisition targets using a
systematic market analysis and a "Main and Main" strategy, whereby it seeks to
locate stores near intersections of major thoroughfares in high profile
neighborhood shopping centers or freestanding buildings in order to maximize
customer traffic and brand exposure. The Company's real estate and acquisitions
departments will continue to employ disciplined criteria in order to ensure that
SpinCycle secures the best available locations in each of its markets.
Maintain Focus on Target Markets. SpinCycle's market strategy is to
rapidly develop a "critical mass" of stores in its targeted markets by opening
stores in Company-defined trade areas that contain at least 15,000 households of
over two occupants with median household incomes between $25,000 and $35,000 and
in which at least 50% of such households rent their homes or apartments.
SpinCycle's primary customer is a working mother or female head of household
living in an apartment complex or other multi-unit housing that lacks adequate
on-site laundry facilities. Management believes this demographic is
substantially underserved and possesses growing market power, and thus affords
an attractive long-term opportunity for the Company's core
5
<PAGE> 7
services as well as an opportunity to strategically expand into additional
service and product offerings. Procter & Gamble ("P&G") has recognized SpinCycle
as a national service provider to such underserved market segments and has
entered into a strategic relationship with the Company to better understand such
consumers' buying behavior and to collaborate on joint product offerings. The
Company intends to pursue this and similar strategic alliances to leverage its
knowledge base and brand strength in its target markets.
COMPETITIVE STRENGTHS
Management believes SpinCycle is the leading owner-operator of nationally
branded coin-operated laundromats. The Company's management believes it has the
following competitive strengths:
Superior Facility and Customer Service. SpinCycle stores have high
visibility to traffic, bright, colorful exteriors and signage and are finished
with large windows to optimize visibility into the store while providing a
bright and secure interior. SpinCycle stores are designed with a unique
equipment mix to optimize customer convenience and satisfaction and to maximize
profitability. The Company's stores are always staffed with at least one
customer service representative trained to follow the SpinCycle-prescribed
operations program, which emphasizes cleanliness, customer responsiveness and
equipment maintenance. SpinCycle stores are air conditioned and have multiple
color televisions with cable programming and numerous folding stations, as well
as children's play areas, bathrooms, pay telephones and snack, beverage and
laundry supply vending machines. Company compiled data indicates the Company
retains over 90% of the customers who visit its stores, a statistic that
management believes is the direct result of its superior facilities and customer
service. This data also indicates that more than 20% of SpinCycle customers have
laundry equipment in their homes, which management believes indicates that the
SpinCycle concept has increased the number of potential customers rather than
merely capturing market share from existing laundromats. In addition, management
anticipates providing value-added services such as drop off "fluff and fold"
laundry service at selected stores to further enhance customer satisfaction and
generate incremental store revenue.
Industry Leader. Management believes SpinCycle is the first owner-operator
to launch a disciplined national consolidation in the retail coin-operated
laundromat industry and has gained valuable experience in opening its first 95
stores. By being the first nationally branded operator of superior laundromat
facilities, and by effectively promoting and clustering stores in prime
locations in its targeted markets, the Company expects to rapidly achieve market
leading positions in each of its markets. Management expects the creation and
ongoing support of this leading national brand to drive significant additional
revenue and store profit as SpinCycle increasingly becomes the laundromat of
choice for consumers. In addition, the Company has already begun to experience a
dramatic shift in landlord receptivity to the SpinCycle concept. Initially,
landlords (and other retail tenants), wary of the image of a typical laundromat,
were reluctant to have SpinCycle as a tenant in desirable neighborhood shopping
centers. More recently, however, landlords (and other retail tenants) have begun
to actively encourage SpinCycle to become a tenant because of direct and
observed experiences that SpinCycle stores can increase customer traffic as its
customers typically spend two hours in and around the store while doing their
laundry. As the Company has grown, it has begun to experience benefits in
sourcing acquisition opportunities and to realize purchasing economies on
equipment and supplies.
Attractive Store Economics. Management believes that a Developed Store
becomes a Mature Store after approximately one year of operation. Typically, new
Developed Stores ramp up very quickly, generating approximately 45% of per
period Mature Store net revenue during their first period of operation, and
becoming Store EBITDA positive after only three periods. The Company expects an
average 4,000 square foot Developed Store, once it has become a Mature Store, to
generate approximately $382,000 in annual revenue and approximately $130,000 in
annual Store EBITDA, resulting in a margin of approximately 34.0%. As of March
22, 1998, the average cost to develop its last 20 Developed Stores was
approximately $617,000 per unit, of which approximately $300,000 is attributable
to laundry and ancillary equipment. The Company expects its average Acquired
Store to generate approximately $306,000 in annual revenue and $105,000 in
annual Store EBITDA and to cost approximately $420,000, representing
approximately 4.0x to 5.0x Store EBITDA, pro
6
<PAGE> 8
forma for the Company's anticipated level of store operating expenses (or 3.0x
to 4.0x historical Store EBITDA), plus approximately $40,000 of conversion
expenses.
Advanced Systems and Controls. SpinCycle brings superior management
information systems ("MIS") and cash controls to a highly fragmented,
unprofessionally managed industry. SpinCycle's advanced systems allow the
Company to monitor daily revenue and machine utilization in each of its stores,
exercise centralized cash and management control and compile and analyze
critical marketing and operations data. For example, the Company has refined the
mix of machines in its stores based on data gathered from existing stores and
expects to customize its systems to enable the implementation of variable
pricing to boost off-peak customer traffic, revenues and profitability. The
Company's MIS also allow management to reconcile each machine activation to cash
collected, identify non-performing machines and coordinate efficient machine
maintenance. Additionally, Brinks Incorporated and other service companies work
in concert with the Company to further mitigate the risk inherent in a cash
business. As a result of its superior controls, the Company has experienced
annual shrinkage of less than 0.50%.
Experienced Management. The Company has achieved its leadership position
and established a national presence by hiring a management team with experience
in finance, development, operations and multi-unit rollouts on a national scale.
SpinCycle is professionally managed as four integrated business segments: (i)
real estate, (ii) operations, (iii) MIS and (iv) acquisitions. Members of
management have significant expertise in all of these disciplines. The Company's
real estate/acquisitions department includes professionals with significant site
selection experience at several other multi-unit concepts including Midas
Muffler, Dunkin' Donuts, Blockbuster Video and Boston Chicken and includes
professionals seasoned in corporate and real estate finance. The operations
department includes senior management from Long John Silver's and Rent-A-Center,
a rent-to-own multi-unit operation whose target customer closely mirrors
SpinCycle's target customer. The Company's MIS department includes several
professionals with extensive experience in building a "hub and spoke" wide area
network and in developing computer systems for operations. Management believes
this experience affords the Company a competitive advantage in rolling out and
managing a nationwide chain.
RECENT EVENTS
For the three periods ended March 22, 1998, the Company's revenue and Store
EBITDA were approximately $5.3 million and $945,000, respectively. For the 14
stores open during the first three periods of 1998 and the comparable period in
1997, same store sales in the first three periods of 1998 were approximately
$1.2 million, representing an increase of $200,000 over the year earlier period,
or approximately 20%. In addition, the Company opened 24 new stores during the
first three periods of 1998. On March 11, 1998 the Company closed a $15 million
secured revolving credit facility with LaSalle National Bank (the "LaSalle
Facility"). On April 14, 1998, the Company closed its most recent private equity
offering in which it raised approximately $16 million. On April 29, 1998, the
Company closed the Private Placement, which included the sale of warrants to
purchase 26,661 shares of common stock, $.01 par value per share ("Common
Stock"), at an exercise price of $.01 per share. The proceeds from the Private
Placement were used to repay the approximately $3.3 million outstanding on the
LaSalle Facility and the approximately $42.7 million outstanding under the
Company's former equipment and acquisition financing facility with Raytheon
Commercial Laundry, LLC (the "Senior Credit Facility"). Concurrently with the
closing of the Private Placement, the Company closed on a senior secured credit
facility of up to $40 million provided by Heller Financial, Inc. ("Heller").
COMPANY HISTORY
The Company was founded in October 1995 to develop and implement the unique
SpinCycle business plan and to serve as a platform for a nationwide
consolidation in the coin-operated laundromat industry. The Company opened its
first store in Chicago in April 1996, and, in three rounds of equity financings
which closed in January 1997, April 1997 and April 1998, raised a total of
approximately $50 million from various individuals and entities. As of March 22,
1998, the Company had opened 95 stores, 79 of which have opened since the
closing of the April 1997 equity financing. On April 4, 1997 the Company's
predecessor, a Minnesota
7
<PAGE> 9
corporation, was merged into the Company with the Company as the surviving
entity. Originally located in Minnesota, the Company's headquarters is now
located at 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale, Arizona
85260. The Company's telephone number is 602-707-9999.
THE EXCHANGE OFFER
Registration Agreement........The Old Notes were sold by the Company on April
29, 1998 (the "Issue Date"), to the Initial
Purchaser which placed such Old Notes with
institutional investors. In connection therewith,
the Company executed and delivered for the benefit
of the Holders of the Old Notes the Registration
Rights Agreement obligating the Company to file
with the SEC within 60 days after the date of
issuance of the Old Notes, a registration
statement under the Securities Act relating to an
exchange offer for the Old Notes and to use its
best efforts to cause such registration statement
to become effective within 150 days after the
Issue Date.
The Exchange Offer............New Notes are being offered in exchange for an
equal principal amount at maturity of Old Notes.
As of the date hereof, Old Notes with an aggregate
principal amount at maturity of $144,990,000 were
outstanding. Because the New Notes will be
recorded in the Company's accounting records at
the same carrying value as the Old Notes, no gain
or loss will be recognized by the Company upon the
consummation of the Exchange Offer. See "The
Exchange Offer -- Accounting Treatment." Holders
of the Old Notes do not have appraisal or
dissenter's rights in connection with the Exchange
Offer under the General Corporation Law of the
State of Delaware, the governing law of the state
of incorporation of the Company.
Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third
parties, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise
transferred by Holders thereof (other than any
Holder who 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, however, that such New Notes are
acquired in the ordinary course of the Holders'
business and such Holders are not engaged in, and
do not intend to engage in, a distribution of such
New Notes and have no arrangement with any person
to participate in a distribution of such New
Notes. The staff of the SEC has not considered the
Exchange Offer in the context of a no-action
letter and there can be no assurance that the
staff of the SEC would make a similar
determination with respect to the Exchange Offer.
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. See "Plan of Distribution." To
comply with the securities laws of certain
jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering
or selling such New Notes. The Company has agreed,
pursuant to the Registration
8
<PAGE> 10
Rights Agreement and subject to certain specified
limitations therein, to register or qualify the
New Notes for offer or sale under the securities
or "blue sky" laws of such jurisdictions as may be
necessary to permit the Holders of New Notes to
trade such New Notes without any restrictions or
limitations under the securities laws of the
several states of the United States. If a Holder
of Old Notes does not exchange such Old Notes for
New Notes pursuant to the Exchange Offer, such Old
Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be
offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. See "Risk Factors -- Consequences of Failure
to Exchange."
Expiration Date...............5:00 p.m. Eastern Daylight Time, on
, 1998 (30 days following the
commencement of the Exchange Offer), unless the
Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time
to which the Exchange Offer is extended.
Conditions to the Exchange
Offer.........................The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company.
See "The Exchange Offer -- Conditions." Except for
the requirements of applicable federal and state
securities laws, there are no federal or state
regulatory requirements to be complied with or
obtained by the Company in connection with the
Exchange Offer. NO VOTE OF THE COMPANY'S SECURITY
HOLDERS IS REQUIRED TO EFFECT THE EXCHANGE OFFER
AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Procedures for Tendering Old
Notes.........................Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date a
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation to the Exchange Agent (as
defined) at the address set forth herein and
therein. See "The Exchange Offer -- Procedures for
Tendering."
Withdrawal Rights.............Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., Eastern Daylight Time, on the
Expiration Date. To withdraw a tender of Old
Notes, a written or facsimile transmission notice
of withdrawal must be received by the Exchange
Agent at its address set forth below under
"Exchange Agent" prior to 5:00 p.m., Eastern
Daylight Time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes.........Subject to certain conditions, the Company will
accept for exchange any and all Old Notes which
are properly tendered in the Exchange Offer prior
to 5:00 p.m., Eastern Daylight Time, on the
Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of Exchange Offer."
9
<PAGE> 11
Exchange Agent................Norwest Bank Minnesota, N.A. is serving as
exchange agent (the "Exchange Agent") in
connection with the Exchange Offer.
Use of Proceeds...............There will be no proceeds to the Company from the
Exchange Offer. The net proceeds to the Company
from the Private Placement were approximately
$96,301,017 (after deduction of discounts and
estimated offering expenses). The Company will
continue using such proceeds to fund development
and acquisition of laundromats through 1998 and
for general corporate purposes.
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of Old Notes for an equal
principal amount at maturity of New Notes. The New Notes will be obligations of
the Company evidencing the same indebtedness as the Old Notes and will be
entitled to the benefits of the same Indenture (as defined), which governs both
the Old Notes and the New Notes. The form and terms of the New Notes are
substantially identical to the form and terms of the Old Notes, except that the
offer of the New Notes will have been registered under the Securities Act and,
therefore, the New Notes will not bear legends restricting the transfer thereof.
COMPARISON WITH OLD NOTES
Freely Transferable...........Generally, the New Notes will be freely
transferable under the Securities Act by Holders
who are not affiliates of the Company. The New
Notes otherwise will be substantially identical in
all material respects to the Old Notes. See "The
Exchange Offer -- Terms of Exchange Offer."
Registration Rights...........The Holders of Old Notes currently are entitled to
certain registration rights pursuant to a
registration rights agreement (the "Registration
Rights Agreement") dated as of April 29, 1998,
between the Company and the Initial Purchaser.
However, upon consummation of the Exchange Offer,
subject to certain exceptions, Holders of Old
Notes who do not exchange their Old Notes for New
Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be
able to offer or sell their Old Notes, unless such
Old Notes are subsequently registered under the
Securities Act (which, subject to certain limited
exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk
Factors -- Consequences of Failure to Exchange."
TERMS OF THE NEW NOTES
Notes Offered.................$144,990,000 aggregate principal amount at
maturity of 12 3/4% Senior Discount Notes due
2005.
Maturity Date.................May 1, 2005.
Yield and Interest............12 3/4% per annum (computed on a semi-annual bond
equivalent basis). Except as described herein, no
cash interest will accrue on the New Notes prior
to May 1, 2001. The New Notes will begin to accrue
cash interest on May 1, 2001, and cash interest
will be payable thereafter on May 1 and November 1
of each year, commencing November 1, 2001.
10
<PAGE> 12
Sinking Fund..................None.
Original Issue Discount.......The New Notes will bear original issue discount
("OID") and the Holders of the New Notes will be
required to include such OID in gross income for
U.S. federal income tax purposes in advance of the
receipt of the cash payments to which such income
is attributable. See "Certain Federal Income Tax
Consequences."
Optional Redemption...........The New Notes will be redeemable at the option of
the Company on or after May 1, 2002, at the
redemption prices set forth herein. In addition,
at any time and from time to time prior to May 1,
2001, the Company may redeem in the aggregate up
to 35% of the Accreted Value of the New Notes with
the proceeds of one or more Public Equity
Offerings following which there is a Public
Market, at a redemption price of 112.75% of the
Accreted Value to the date of redemption;
provided, however, that at least $94.2 million of
the aggregate principal amount at maturity of the
New Notes remains outstanding after any such
redemption.
Change of Control.............Upon a Change of Control, each Holder shall have
the right to require that the Company purchase
such Holder's New Notes at a purchase price in
cash equal to 101% of the Accreted Value thereof,
plus accrued and unpaid interest, if any, to the
date of purchase.
Ranking.......................The New Notes will be senior, unsecured
obligations of the Company ranking pari passu in
right of payment of principal and interest with
all other existing and future senior unsecured
obligations of the Company and will rank senior to
all future subordinated debt of the Company. The
New Notes will be effectively subordinated to all
Secured Indebtedness of the Company, if any, to
the extent of the value of the assets securing
such indebtedness and to all indebtedness and
other obligations (including trade payables) of
the Company's future subsidiaries, if any.
Certain Covenants.............The Indenture contains certain covenants that
will, among other things, limit the ability of the
Company and its subsidiaries to incur additional
indebtedness, make investments and certain other
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, incur liens, impose restrictions on
the ability of a subsidiary to make certain
payments to the Company and its subsidiaries, or
merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets
of the Company.
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under "Risk Factors," beginning on page 14, for a discussion
of certain risks involved with an investment in the Notes.
For additional information regarding the New Notes, see "Description of the
New Notes."
11
<PAGE> 13
SUMMARY HISTORICAL FINANCIAL AND CERTAIN OTHER DATA
The following table reflects summary historical consolidated financial and
certain other data with respect to the Company for the periods indicated and
should be read in conjunction with the Company's Consolidated Financial
Statements, including the related notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The Company's 1995 fiscal year is for the period
from October 10, 1995 (inception) through December 31, 1995. On December 1,
1997, the Company changed its financial reporting to a 13 period fiscal year,
comprised of 13 four week periods. The Company's 1997 fiscal year was the period
from January 1, 1997 through December 28, 1997. The following summary historical
statement of operations data, insofar as it relates to each of the years 1995-
1997, has been derived from audited annual consolidated financial statements
included elsewhere in this Prospectus.
The summary financial and other data as of and for the three months ended
March 31, 1997 and for the three periods ended March 22, 1998 have been derived
from the unaudited financial statements of the Company and, in the opinion of
the Company, include all adjustments necessary for a fair presentation of such
information. These adjustments are of a normal and recurring nature. Operating
results for the three periods ended March 22, 1998 are not necessarily
indicative of the results that may be expected for the entire year. For a
discussion of factors affecting the comparability of this data, see "Selected
Financial and Other Data."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL QUARTER ENDED
------------------------------------------ ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 28, MARCH 31, MARCH 22,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ -- $ 1,015 $ 8,653 $ 1,154 $ 5,271
---------- -------- -------- ------- --------
Operating income (loss)............... (5) (3,873) (13,337) (2,155) (2,503)
---------- -------- -------- ------- --------
Net income (loss)..................... (5) (3,894) (13,796) (2,249) (3,223)
========== ======== ======== ======= ========
Accretion of mandatorily redeemable
preferred stock..................... -- -- (1,941) (215) (529)
---------- -------- -------- ------- --------
Net income (loss) applicable to
holders of common stock............. $ (5) $ (3,894) $(15,737) $(2,464) $ (3,752)
========== ======== ======== ======= ========
PRO FORMA DATA(1):
Interest expense, net................. (2,999)(2)
Net income (loss)..................... (4,639)(3)
Deficiency of earnings to fixed
charges............................. (4,726)(4)
SELECTED OPERATING DATA:
EBITDA(5)(6).......................... (5) (3,305) (10,516) (1,804) (1,229)
Store EBITDA(7)....................... -- (651) 213 (232) 945
Depreciation and amortization......... -- 568 2,341 351 1,274
Capital expenditures(8)............... 18 13,391 53,892 785 11,512
Stores open at end of period.......... -- 14 71 14 95
Net loss per common share............. $(1,362.75) $(117.42) $(412.76) $(66.53) $(111.82)
========== ======== ======== ======= ========
Weighted average number of common
shares outstanding.................. 4 33,162 38,127 37,038 33,553
========== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 28, MARCH 22,
1995 1996 1997 1998
------------ ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property and equipment......................... $18 $12,841 $ 53,969 $ 58,524
Total assets................................... 55 13,809 75,496 82,973
Total debt..................................... -- 4,592 35,926 44,492
Total liabilities.............................. 60 10,890 46,330 54,326
Mandatorily Redeemable Preferred Stock......... -- 6,810 48,793 52,226(9)
Shareholders' equity (deficit)................. (5) (3,891) (19,627) (23,579)
</TABLE>
- ---------------
12
<PAGE> 14
(1) The pro forma data for the quarter ended March 22, 1998 gives effect to the
issuance of the Old Notes and the application of the net proceeds therefrom
as if such transactions had occurred on December 29, 1997.
(2) On a pro forma basis, interest expense, net includes amortization of
deferred financing costs (which includes underwriting discount and related
fees and expenses) as well as amortization of the original issue discount on
the Notes. It does not include historical interest expense on the Senior
Credit Facility and the LaSalle Facility borrowings.
(3) On a pro forma basis, the Company's net loss for the quarter ended March 22,
1998, includes the extraordinary loss associated with the writeoff of
approximately $369 of unamortized deferred financing costs related to the
Senior Credit Facility and the LaSalle Facility.
(4) For purposes of computing the deficiency of earnings to fixed charges, fixed
charges consists of interest expense on total debt and that portion of
rental expense that the Company believes to be representative of interest
(one-third of total rental expense). Earnings is defined as the Company's
net loss before fixed charges. On a pro forma basis during the quarter ended
March 22, 1998, earnings were insufficient to cover fixed charges by
approximately $4,700.
(5) EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization. EBITDA is presented because management believes it is a
widely accepted financial indicator of an entity's ability to incur and
service debt. While EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and should
not be considered as an indicator of operating performance or an alternative
to cash flow (as measured by generally accepted accounting principles) as a
measure of liquidity, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements.
(6) EBITDA for the fiscal year ended December 28, 1997, excludes the loss on
disposal of property and equipment of $480.
(7) Store EBITDA is EBITDA before allocation of any selling, general and
administrative expenses ("Store EBITDA").
(8) Capital expenditures includes the purchase of laundromat equipment pursuant
to an existing supply agreement and financed with borrowings in connection
with the Senior Credit Facility of approximately $31,358 and $4,887 in
fiscal 1997 and 1996, respectively, and approximately $1,329 and $785 in
fiscal first quarter 1998 and 1997, respectively. The capital expenditures
for 1997 include approximately $11,485 of laundromat equipment for use in
stores to be opened in 1998 and approximately $4,120 for land acquired and
held for sale-leaseback transactions. Capital expenditures also includes the
cash outlay to acquire new businesses (net of cash acquired). Such outlays
totaled approximately $12,100 and $5,000 for the year ended December 28,
1997 and for the first fiscal quarter ended March 22, 1998, respectively.
(9) Concurrently with the closing of the Private Placement, the put rights
previously associated with the preferred stock were terminated and
therefore, the preferred stock is no longer mandatorily redeemable.
13
<PAGE> 15
RISK FACTORS
Holders of Old Notes should carefully consider the risk factors set forth
below, as well as the other information appearing in this Prospectus, before
tendering the Old Notes in the Exchange Offer. The risk factors below (other
than "Consequences of Failure to Exchange") are generally applicable to the Old
Notes as well as the New Notes (together, the "Notes"). This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the following risk factors.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered and the tendered but unaccepted Old Notes could be adversely
affected. Based on interpretations by the staff of the SEC, as set forth in
no-action letters to third parties, the Company believes that the New Notes
issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold or otherwise transferred by the Holders thereof
(other than any such Holder that is an "affiliate" of the issuer 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 are not engaged in, and do not intend to engage in, a
distribution of such New Notes. The staff of the SEC has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer. 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. The
Letters of Transmittal state that by so acknowledging and by delivering a
Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received 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. The Company has agreed that, for a
period of 60 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. Each
broker-dealer that acquired Old Notes directly from the Company, and not as a
result of market-making or trading activities, must, in the absence of an
exemption, comply with the registration and prospectus delivery requirements of
the Securities Act in connection with the secondary resale of the New Notes and
cannot rely on the position of the staff of the SEC enunciated in no-action
letters issued to third parties. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdictions or an exemption for registration or qualification
is available and is complied with.
UNCERTAIN ABILITY TO ACHIEVE AND MANAGE PLANNED GROWTH
The Company's future success and continued growth will depend on its
ability to open and operate its stores profitably. The Company plans to have
approximately 225 stores open by December 27, 1998. The Company currently has 95
stores opened, of which 35 stores were acquired and 60 were developed, and
intends to open another approximately 130 stores, approximately half of which it
expects to develop and half of which it expects to acquire. The Company's
expansion is dependent upon a number of factors, including its ability to hire,
train, retain and assimilate competent management and store-level employees, the
adequacy of the
14
<PAGE> 16
Company's financial resources, the Company's ability to identify new markets in
which it can successfully compete, the ability to locate suitable sites and
negotiate acceptable lease terms and to adopt purchasing and MIS and other
systems to accommodate expanded operations. The Company intends to enter into
new markets in which it has no prior operating experience. The Company's
expansion is also dependent on timely fulfillment by landlords and others of
their contractual obligations to the Company, the maintenance of construction
schedules and the speed with which local zoning and construction permits can be
obtained. No assurance can be given that the Company will be able to achieve its
planned expansion or that such expansion will be profitable. The Company's
planned expansion will place increasing pressure on the Company's management
controls. A failure to successfully manage its planned expansion would adversely
affect the Company's business. No assurance can be given that the Company's new
stores will achieve sales and profitability comparable to the Company's existing
stores or to its strategic plan. If the Company achieves its plans for growth
over the next five years, no Company executive will have had significant
experience operating a company as large, in terms of stores or annual sales, as
the Company.
The Company's growth strategy includes opportunistic acquisitions
consistent with the Company's strategic plan. No assurance can be given that the
Company will successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired operations into its existing operations or
expand to new markets through acquisitions. No assurance can be given that
future acquisitions will not have a material adverse effect upon the Company's
operating results while the operations of the Acquired Stores are being
integrated into the Company's operations. Notwithstanding its own due diligence
investigation, management will have limited knowledge about the specific
operating history, trends and customer buying patterns of laundromats acquired.
Furthermore, the cost of acquiring or developing stores may increase from the
levels the Company has experienced and may make additional acquisitions or
developments difficult or impractical. Consequently, no assurance can be given
that the Company will be able to make future acquisitions at favorable prices,
that Acquired Stores will perform as well as they have performed historically or
as budgeted to perform or that the Company will have sufficient information to
analyze accurately the markets in which it elects to make acquisitions. The
price paid and financing for the laundromats acquired or developed by the
Company could have a material adverse effect on the Company's financial
condition and results of operations. Although the Company will endeavor to
integrate and assimilate the operations of any Acquired Stores in an effective
and timely manner, no assurance can be given that the Company will be successful
in such integration attempts. Further, no assurance can be given that the
Company will successfully integrate its future acquired businesses into the
Company's purchasing, marketing and management information systems.
NEW CONCEPT AND LACK OF EXPERIENCE IN THE LAUNDRY INDUSTRY
A national concept has not, to the knowledge of the Company, been attempted
in the retail coin-operated laundromat industry. There can be no assurance that
the Company can successfully apply its concept to the coin-operated laundromat
industry. In addition, prior to joining the Company, none of the officers or
directors of the Company had experience in laundromat operations or management.
HISTORICAL AND ANTICIPATED LOSSES AND NEGATIVE CASH FLOW
The Company has never been profitable and has incurred significant net
operating losses and negative cash flow from operations to date in connection
with developing, owning and operating laundromats. For the year ended December
28, 1997, the Company had a net loss of approximately $13.8 million. For the
quarter ended March 22, 1998, the Company had a net loss of approximately $3.2
million. See "Selected Financial and Other Data." Losses and negative cash flow
from operations will continue until the Company has established a sufficient
revenue-generating base of laundromats, if ever. There can be no assurance that
an adequate revenue base will be established or that the Company will generate
positive cash flow from operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
15
<PAGE> 17
SUBSTANTIAL LEVERAGE; DEBT SERVICE REQUIREMENTS
The Company is highly leveraged with indebtedness that is substantial in
relation to its stockholders' equity. After giving effect to the Private
Placement on a pro forma basis as of March 22, 1998, the Company would have had
total outstanding indebtedness of approximately $94.4 million, all of which
relates to the Notes, and the Company would have had total stockholders' equity
of $33.9 million (including the carrying value of mandatorily redeemable
preferred stock). On a pro forma basis, after giving effect to the Private
Placement as if the Private Placement had occurred on December 29, 1997, for the
quarter ended March 22, 1998, the Company's earnings would have been
insufficient to cover fixed charges by approximately $4.7 million.
The Company's high degree of leverage could have important consequences to
Holders of the Notes, including that (i) a substantial portion of the Company's
cash flow from operations, if any, after May 1, 2001, will be required to be
dedicated to the Company's interest expense obligations and will not be
available to the Company for its operations, working capital, capital
expenditures or other purposes, (ii) the Company's ability to obtain financing
in the future may be limited, (iii) the Company's flexibility to adjust to
changing market conditions and ability to withstand competitive pressures as
compared to less highly-leveraged competitors could be limited (including by
reason of the covenants contained in the Indenture) and (iv) the Company may be
more vulnerable to downturns in general economic conditions or in its business
or be unable to undertake capital expenditures that are important for its growth
strategy, any of which could have a material adverse effect on the Company and
its ability to make payments of principal of, and interest on, the Notes.
Since inception, the Company has not generated positive cash flow from
operations. As a result, the Company has been required to pay its fixed charges
(including interest on existing indebtedness) and operating expenses with the
proceeds from sales of its equity securities, loans from stockholders and other
credit arrangements. With the issuance of the Notes, as of November 1, 2001, the
Company will be required to satisfy substantially higher periodic cash debt
service obligations. Commencing November 1, 2001, cash interest on the Notes
will be payable semi-annually at the rate of 12 3/4% per annum (approximately
$18.5 million per year). The full accreted principal amount at maturity of the
Notes of approximately $145.0 million will become due on May 1, 2005.
The Company's ability to make scheduled payments or to refinance its
obligations with respect to the Notes (including its obligation to purchase the
Notes at 101% of the Accreted Value plus accrued and unpaid interest, if any, at
the time of a Change of Control (each as defined in the Indenture)) and its
other indebtedness will ultimately depend on its financial and operating
performance, which in turn is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors that may be
beyond its control, including operating difficulties, increased operating costs,
prices it can charge its customers, the response of competitors and delays in
implementing its strategy. The Company's ability to meet its debt service and
other obligations will depend largely on the extent to which the Company can
successfully implement its business strategy and manage its operations. There
can be no assurance that the Company will be able to implement fully its
strategy or that the anticipated results of its strategy will be realized. There
can be no assurance that the Company will be able to generate sufficient cash
flow or otherwise obtain funds in the future to cover interest and principal
payments associated with the Notes and any other debt of the Company and its
subsidiaries. See "Business -- Business Strategy."
In the event the Company is unable to meet its obligations with respect to
its existing indebtedness, it may be required to reduce or delay capital
expenditures, refinance or restructure all or a portion of its indebtedness,
sell material assets or operations or seek to raise additional debt or equity
capital. There can be no assurance that the Company will be able to effect any
such refinancing or restructuring or sell assets or obtain any such additional
capital on satisfactory terms or at all, or that the Company's cash flow and
capital resources will be sufficient for payment of interest on and principal of
its indebtedness in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of the New Notes -- Certain Covenants."
16
<PAGE> 18
RANKING OF NOTES
The Notes are not secured and, therefore, will be effectively subordinated
to all existing and future secured indebtedness of the Company to the extent of
the value of the assets securing such indebtedness. As of March 22, 1998, the
Company had approximately $44.5 million of secured indebtedness outstanding.
Such amounts were repaid with the net proceeds from the Private Placement.
Subject to certain conditions specified therein, the Indenture permits the
Company to incur additional indebtedness, including capital lease obligations
and secured indebtedness, which obligations and secured indebtedness would rank
senior to the Notes to the extent of the assets subject thereto. See
"Description of the New Notes."
COMPETITION
SpinCycle faces considerable competition from many local and regional
operators in all of its markets. These operators typically operate their
facilities with a lower cost structure than SpinCycle, typically employing fewer
people and offering less service. These operators often own the real estate
where they are located and have the ability to lower prices significantly in
order to compete. In addition to the local and regional operators, a number of
national laundromat chains have recently been formed and the Company anticipates
more competition from these and future national laundromat chains in the future.
In addition, the Company competes with route service operators, who provide
coin-operated laundry facilities in multi-unit apartment complexes. There are
two publicly traded companies currently consolidating the route business. Both
of these entities have substantially greater resources than the Company and
could enter the Company's business at any time. There can be no assurance that
the Company will be able to compete effectively with current or future
competitors or that, when faced with such competitive pressures, the Company
will be able to generate sufficient cash flow or otherwise obtain funds in the
future to cover interest and principal payments associated with the Notes and
any other debt of the Company and its subsidiaries. See
"Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the
continued contributions of key members of management. The loss of the services
of any of these employees could have a material adverse effect on the Company.
The Company's future growth and profitability also depends on its ability to
attract, motivate and retain other management personnel. No assurance can be
given that the Company will be successful in attracting, motivating and
retaining such personnel. The Company has no employment agreements with its
officers or key personnel other than with Messrs. Ax and Lombardi. See
"Management."
SUBSTANTIAL RESTRICTIONS AND COVENANTS
The Indenture contains numerous financial and operating covenants,
including, but not limited to, restrictions on the Company's ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in certain
mergers and acquisitions, make investments and enter into new lines of business.
Such covenants could materially limit or exclude potentially profitable
activities in which the Company might otherwise engage. The ability of the
Company to comply with the covenants and other terms of the Indenture, to make
cash payments with respect to the Notes and to satisfy its other debt
obligations will depend on the future performance of the Company. In addition,
in the event of a Change of Control, the Company will be required, subject to
certain conditions, to offer to purchase all outstanding Notes at a price equal
to 101% of the Accreted Value of the Notes at such time plus accrued interest,
if any. There can be no assurance that the Company would be able to raise
sufficient funds to meet this obligation. In the event the Company fails to
comply with the various covenants contained in the Indenture, it would be in
default thereunder and the maturity of substantially all of its long-term debt
(including the Notes) could be accelerated. See "Description of the New
Notes -- Defaults."
17
<PAGE> 19
SEASONALITY
The coin-operated laundromat industry may be subject to seasonal
fluctuations in quarterly results of operations. As a result, the Company's
results of operations during periods including the warmer spring and summer
months may be lower than its operating results during the balance of the year.
Management believes this decrease may result from the fact that customers are
wearing lighter weight clothing during those periods and changing less often due
to school being out of session. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality and Inflation."
DEPENDENCE ON EQUIPMENT SUPPLIER
To date, the Company has acquired substantially all of its equipment from
Raytheon Commercial Laundry, LLC ("Raytheon") pursuant to a supply agreement
entered into between Raytheon and the Company in connection with the Company's
former Senior Credit Facility with Raytheon. While the Company repaid the Senior
Credit Facility with some of the proceeds of the Private Placement, the Company
will continue to be obligated to purchase substantially all of its equipment
from Raytheon until February 18, 2001 and thus will be dependent on Raytheon
until such time to provide it with commercial laundry equipment to successfully
complete its planned rollout. Any disruptions in the supply of commercial
laundry equipment to the Company would have a material adverse effect on the
Company's business, financial condition and results of operations.
FINANCIAL PROJECTIONS
Financial and other projections included in this Prospectus are based upon
certain assumptions, not all of which are stated herein, and any or all of which
may not materialize. In particular, there can be no assurance that statements
regarding the future results of the Company's current stores and the stores the
Company expects to develop or acquire and the Store EBITDA the Company has
budgeted for or projected, including the assumption that any or all such stores
may become Mature Stores, will prove to have been correct or that the actual
results will not differ materially from what such statements contemplate.
Unanticipated events, over some or all of which the Company may not have any
control, are likely to occur as the Company develops its business. Such events
may well affect the Company at the dates and during the periods covered by the
projections, with the result that the actual financial condition, financial
results and cash flow of the Company may vary from the projections. Such
variations may be material. Consequently, prospective investors in the Company
are cautioned not to base their investment decisions on the projections. The
Company does not intend to update or otherwise revise the projections to reflect
events occurring or circumstances existing after the date of this Prospectus. No
independent accountants have examined or compiled the projections and are not
associated with the projections in any manner whatsoever.
NEED FOR ADDITIONAL FINANCING
The Company used a portion of the net proceeds of the Private Placement to
pay down existing indebtedness, and is using the balance to fund its expansion
plan, operating expenses and such capital expenditures not funded by other
sources, and for general corporate purposes, including working capital. In
addition to the net proceeds of the Private Placement, the Company has obtained
a $40 million secured credit facility with Heller which, in addition to cash
from operations, is expected to provide sufficient funds to carry out the
Company's business plan through April 1999. See "Description of the Heller
Facility." Thereafter, the Company will require additional capital to finance
its current business plan and, accordingly, the Company will be required to
raise additional funds through public and private financings, including equity
financing, or through collaborative arrangements. There can be no assurances
that additional financing will be available on favorable terms, or at all. Any
collaborative arrangements may require the Company to operate subject to
additional restrictions. If funding is not available when needed, or on
acceptable terms, the Company may be forced to curtail its operations
significantly or cease operations and abandon its business entirely. In such
event, investors may lose their entire investment.
18
<PAGE> 20
ORIGINAL ISSUE DISCOUNT
The New Notes will be issued at a substantial discount from their stated
principal amount at maturity. Consequently, although cash interest on the New
Notes will generally not be payable prior to November 1, 2001, OID will be
includable in the gross income of a Holder of the New Notes, for U.S. federal
income tax purposes, in advance of the receipt of such cash payments on the New
Notes. Since a portion of the issue price of the Units will be allocated for
U.S. federal income tax purposes to the Warrants, the amount of OID will be
greater than the difference between the principal amount at maturity of the New
Notes and the purchase price of the Units. See "Certain Federal Income Tax
Consequences" for a more detailed discussion of the U.S. federal income tax
consequences of the purchase, ownership and disposition of the New Notes.
If a case is commenced by or against the Company under federal bankruptcy
law after the issuance of the New Notes, the claim of a Holder of a New Note
with respect to the principal amount at maturity thereof may be limited to an
amount equal to the sum of (i) the imputed initial offering price of such New
Note and (ii) that portion of the OID that is not deemed to constitute
"unmatured interest" for purposes of federal bankruptcy law. Any OID that was
not amortized as of any such bankruptcy filing would constitute "unmatured
interest."
POTENTIAL LOSS OF NOLS
As of December 28, 1997, the Company had net operating loss carryforwards
("NOLs") of approximately $17.6 million for U.S. federal income tax purposes.
These NOLs, if not utilized to offset taxable income in future periods, will
begin to expire in 2011. Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder, impose limitations
on the ability of corporations to use NOLs, if the corporation experiences a
more than 50% change in ownership during any three-year period. It is possible
that the Company has experienced one or more ownership changes in 1996 and 1997
as a result of the Company raising various rounds of private equity or that such
an ownership change may have occurred or be deemed to have occurred due to
events beyond the control of the Company (such as transfers of Common Stock by
certain stockholders or the exercise or treatment of warrants, conversion rights
or stock options issued by the Company). There can also be no assurance that the
Company will not take additional actions, such as the issuance of additional
stock, that would cause an ownership change to occur. In addition, the NOLs are
subject to examination by the Internal Revenue Service (the "IRS"), and are thus
subject to adjustment or disallowance resulting from any such IRS examination.
Accordingly, prospective purchasers of the Notes should not assume the
unrestricted availability of the Company's currently existing or future NOLs, if
any, in making their investment decisions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Potential Loss of NOLs."
SECURITY OF STORES
Because individual stores operate in large urban centers and involve public
access and cash on the premises, there is a material risk of robbery and other
crimes. Although the Company has attempted to address this by investing in
systems and procedures to enhance security for its employees and customers,
there can be no assurance that the Company will not experience security problems
in its stores.
NEED TO OBTAIN PERMITS AND CONSENTS
The Company is required to obtain permits, approvals and licenses from
appropriate governmental authorities in order to open additional stores. The
Company is required to obtain the landlord's approval of construction plans in
order to construct the leasehold improvements for each facility. Although the
Company has significant expertise in building out multi-unit enterprises,
obtaining these permits and approvals can be subject to delays which could
ultimately affect the new store rollout schedule.
ENVIRONMENTAL LIABILITY
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state laws, impose
strict, joint and several liability on current and former
19
<PAGE> 21
owners and operators of facilities from which releases of hazardous substances
have occurred and on generators and transporters of the hazardous substances
that come to be located at such facilities. Responsible parties may be liable
for substantial waste site investigation and clean-up costs and natural resource
damages, regardless of whether they exercised due care and complied with
applicable laws and regulations. If the Company was found to be a responsible
party for a particular site, it could be required to pay the entire cost of
waste site investigation and clean-up costs. There can be no assurance that the
Company will not face claims under CERCLA or similar state laws, or under other
laws, resulting in a substantial liability for which the Company is unable to
obtain contribution from other responsible parties and for which the Company is
uninsured or only partially insured. The Company's pollution liability insurance
excludes liabilities under CERCLA. The Company may experience difficulty in
obtaining adequate insurance coverage on acceptable terms. A successful claim
against the Company for which it is uninsured or only partially insured, and for
which it is unable to obtain contribution from other responsible parties, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ABSENCE OF PUBLIC TRADING MARKET FOR NOTES; RESTRICTIONS ON RESALE
The New Notes are new issues of securities for which there is currently no
established market. There can be no assurance as to (i) the liquidity of any
such market that may develop, (ii) the ability of the Holders of Notes to sell
any of their Notes or (iii) the price at which the Holders of Notes would be
able to sell any of their Notes. The Company does not presently intend to apply
for listing of any of the Notes on any national securities exchange or on The
Nasdaq Stock Market, Inc. It is expected that the Notes will be made eligible
for trading in PORTAL. The Initial Purchaser has advised the Company that it
presently intends to make a market in the Old Notes and the New Notes. The
Initial Purchaser is not obligated, however, to make a market in any of the
Notes, and any such market making may be discontinued at any time at the sole
discretion of the Initial Purchaser and without notice. Accordingly, no
assurance can be given as to the development or liquidity of any market for any
of the Notes. If a market for any of the Notes were to develop, such Notes could
trade at prices that may be higher or lower than reflected by their initial
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities.
Historically, the market for securities such as the Notes has been subject to
disruptions that have caused substantial volatility in the prices of similar
securities. There can be no assurance that, if a market for any of the Notes
were to develop, such a market would not be subject to similar disruptions.
The Old Notes were sold pursuant to an exemption from registration under
the Securities Act and applicable state securities law and may not be resold by
purchasers thereof unless such Old Notes are subsequently registered under the
Securities Act or an exemption from such registration requirements is available,
and such resales are otherwise in compliance with applicable state securities
law. See "Transfer Restrictions."
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE
The Company depends on its MIS to monitor daily revenue and machine
utilization in each of its stores, exercise centralized cash and management
control and compile and analyze critical marketing and operations data. Any
disruption in the operation of the Company's MIS, the loss of employees
knowledgeable about such systems or the Company's failure to continue to
effectively modify such systems as its business expands would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competitive Strengths."
Certain of the Company's MIS use two digit data fields which recognize
dates using the assumption that the first two digits are "19" (i.e., the number
97 is recognized as the year 1997). Therefore, the Company's date critical
functions relating to the year 2000 and beyond may be adversely affected unless
changes are made to these computer systems. The Company does not expect that
costs resulting from upgrades to its MIS to accommodate the year 2000 problem
will be material. However, no assurance can be given that these issues can be
resolved in a cost-effective or timely manner or that the Company will not incur
significantly greater expense in resolving these issues.
20
<PAGE> 22
USE OF PROCEEDS
No proceeds will be received by the Company from the Exchange Offer.
Management believes the net proceeds from the Private Placement, together with
existing liquidity, will be sufficient to fund the 1998 expansion plan. The
proceeds of the Heller Facility (as defined) together with funds from operations
are expected to fund the Company's expansion through April 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Risk Factors -- Need for
Additional Financing."
CAPITALIZATION
The following table sets forth at March 22, 1998, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect the sale of the Old Notes and the application of the net
proceeds therefrom. See "Recent Events."
<TABLE>
<CAPTION>
AT MARCH 22, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................... $ 4,393 $ 55,901(1)
======== ========
Senior Credit Facility and the LaSalle
Facility(2)...................................... 44,492 --
Notes............................................... -- 94,376(3)
-------- --------
Total long-term debt........................ 44,492 94,376
-------- --------
Mandatorily redeemable preferred stock.............. 52,226 52,226(4)
Shareholders' equity:
Common stock..................................... -- --
Additional paid-in-capital....................... -- --
Common stock warrants............................ -- 5,625(5)
Accumulated deficit.............................. (23,579) (23,948)(6)
-------- --------
Mandatorily redeemable preferred stock and
total shareholders' equity.................. 28,647 33,903
-------- --------
Total capitalization........................ $ 73,139 $128,279
======== ========
</TABLE>
- ---------------
(1) Reflects net proceeds from the Private Placement after deducting
underwriting discount and related fees and expenses, as well as the
repayment of the Senior Credit Facility and the LaSalle Facility.
(2) As of March 22, 1998, the Company's long-term debt, including the current
portion thereof, was approximately $44,500, comprised of approximately
$42,200 outstanding under the Senior Credit Facility and $2,300 under the
LaSalle Facility.
(3) Reflects the gross proceeds ascribed to the Notes net of the value ascribed
to the Warrants (as defined).
(4) Concurrently with the closing of the Private Placement, the put rights
previously associated with the preferred stock were terminated and
therefore, the preferred stock is no longer mandatorily redeemable.
(5) Reflects the gross proceeds ascribed to the Warrants from the sale of the
Units.
(6) Reflects the extraordinary loss associated with the write-off of
approximately $369 of unamortized deferred financing costs related to the
Senior Credit Facility and the LaSalle Facility.
21
<PAGE> 23
SELECTED FINANCIAL AND OTHER DATA
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" have been derived from the
historical consolidated financial statements of the Company. The Company's 1995
fiscal year is for the period from October 10, 1995 (inception) through December
31, 1995. On December 1, 1997, the Company changed its financial reporting to a
13 period fiscal year, comprised of 13 four week periods. The Company's 1997
fiscal year was the period January 1, 1997 through December 28, 1997. The "Pro
Forma Data" presented below give effect to the Private Placement and the
application of the net proceeds therefrom and certain pro forma adjustments as
described in the accompanying footnotes. Such data do not purport to represent
what the Company's results of operations or financial position would have been
had the Private Placement been consummated on the date specified or to project
the Company's results of operations or financial position for any future period
or date. The summary financial and other data as of and for the three months
ended March 31, 1997 and for the three periods ended March 22, 1998 have been
derived from the unaudited financial statements of the Company and, in the
opinion of the Company, include all adjustments necessary for a fair
presentation of such information. These adjustments are of a normal and
recurring nature. Furthermore, operating results for the three periods ended
March 22, 1998 are not necessarily indicative of the results that may be
expected for the entire year or for any future period. The selected financial
data should be read in conjunction with "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>
FISCAL YEAR ENDED FISCAL QUARTER ENDED
------------------------------------------ ---------------------
DECEMBER 31, DECEMBER 31, DECEMBER 28, MARCH 31, MARCH 22,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ -- $ 1,015 $ 8,653 $ 1,154 $ 5,271
Store operating expenses, excluding
depreciation and amortization....... -- 1,193 7,983 1,294 4,235
---------- -------- -------- ------- --------
Gross operating profit (loss)......... -- (178) 670 (140) 1,036
Preopening costs...................... -- 473 457 92 91
Depreciation and amortization......... -- 568 2,341 351 1,274
Selling, general and administrative
expenses............................ 5 2,654 10,729 1,572 2,174
Loss on disposal of property and
equipment........................... -- -- 480 -- --
---------- -------- -------- ------- --------
Operating income (loss)............... (5) (3,873) (13,337) (2,155) (2,503)
Interest income....................... -- 29 433 15 126
Interest expense, net................. -- (50) (892) (109) (846)
---------- -------- -------- ------- --------
Net income (loss)..................... (5) (3,894) (13,796) (2,249) (3,223)
Accretion of mandatorily redeemable
preferred stock..................... -- -- (1,941) (215) (529)
---------- -------- -------- ------- --------
Net income (loss) applicable to
holders of common stock............. $ (5) $ (3,894) $(15,737) $(2,464) $ (3,752)
========== ======== ======== ======= ========
PRO FORMA DATA:(1)
Interest expense, net................. (2,999)(2)
Net income (loss)..................... (4,639)(3)
Deficiency of earnings to fixed
charges............................. (4,726)(4)
SELECTED OPERATING DATA:
EBITDA(5)(6).......................... (5) (3,305) (10,516) (1,804) (1,229)
Store EBITDA(7)....................... -- (651) 213 (232) 945
Capital expenditures(8)............... 18 13,391 53,892 785 11,512
Deficiency of earnings to fixed
charges(4).......................... -- (3,894) (14,124) (2,249) (3,310)
Stores open at end of period.......... -- 14 71 14 95
Net loss per common share............. $(1,362.75) $(117.42) $(412.76) $(66.53) $(111.82)
========== ======== ======== ======= ========
Weighted average number of common
shares outstanding.................. 4 33,162 38,127 37,038 33,553
========== ======== ======== ======= ========
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 28, MARCH 22,
1995 1996 1997 1998
------------ ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property and equipment............. $18 $12,841 $ 53,969 $ 58,524
Total assets....................... 55 13,809 75,496 82,973
Total debt......................... -- 4,592 35,926 44,492
Total liabilities.................. 60 10,890 46,330 54,326
Mandatorily Redeemable Preferred
Stock............................ -- 6,810 48,793 52,226(9)
Shareholders' equity (deficit)..... (5) (3,891) (19,627) (23,579)
</TABLE>
- ---------------
(1) The pro forma data for the quarter ended March 22, 1998 gives effect to the
issuance of the Old Notes and the application of the net proceeds therefrom
as if such transactions had occurred on December 29, 1997.
(2) On a pro forma basis, interest expense, net includes amortization of
deferred financing costs (which includes underwriting discount and related
fees and expenses) as well as amortization of the original issue discount on
the Notes. It does not include historical interest expense on the Senior
Credit Facility and the LaSalle Facility borrowings.
(3) On a pro forma basis, the Company's net loss for the quarter ended March 22,
1998, includes the extraordinary loss associated with the writeoff of
approximately $369 of unamortized deferred financing costs related to the
Senior Credit Facility and the LaSalle Facility.
(4) For purposes of computing the deficiency of earnings to fixed charges, fixed
charges consists of interest expense on total debt, and that portion of
rental expense that the Company believes to be representative of interest
(one-third of total rental expense). Earnings is defined as the Company's
net loss before fixed charges. On a historical basis, earnings were
insufficient to cover fixed charges by approximately $3,900 and $14,100 for
the fiscal years ended December 31, 1996 and December 28, 1997,
respectively, and by approximately $2,200 and $3,300 for the fiscal quarters
ended March 31, 1997 and March 22, 1998, respectively. On a pro forma basis
during the quarter ended March 22, 1998, earnings were insufficient to cover
fixed charges by approximately $4,700.
(5) EBITDA is defined as earnings before interest expense, taxes, depreciation
and amortization. EBITDA is presented because management believes it is a
widely accepted financial indicator of an entity's ability to incur and
service debt. While EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and should
not be considered as an indicator of operating performance or an alternative
to cash flow (as measured by generally accepted accounting principles) as a
measure of liquidity, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditures and working capital requirements.
(6) EBITDA for the fiscal year ended December 28, 1997, excludes the loss on
disposal of property and equipment of $480.
(7) Store EBITDA is EBITDA before allocation of any selling, general and
administrative expenses.
(8) Capital expenditures includes the purchase of laundromat equipment pursuant
to an existing supply agreement and financed with borrowings in connection
with the Senior Credit Facility of approximately $31,358 and $4,887 in
fiscal 1997 and 1996, respectively, and approximately $1,329 and $785 in
fiscal first quarter 1998 and 1997, respectively. The capital expenditures
for 1997 include approximately $11,485 of laundromat equipment for use in
stores to be opened in 1998 and approximately $4,120 for land acquired and
held for sale-leaseback transactions. Capital expenditures also includes the
cash outlay to acquire new businesses (net of cash acquired). Such outlays
totaled approximately $12,100 and $5,000 for the year ended December 28,
1997 and for the first fiscal quarter ended March 22, 1998, respectively.
(9) Concurrently with the closing of the Private Placement, the put rights
previously associated with the preferred stock were terminated and
therefore, the preferred stock is no longer mandatorily redeemable.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, all references to years in this section of the
Prospectus refer to the Company's fiscal years, which ran as follows: from
October 10, 1995 (inception) through December 31, 1995, January 1, 1996 through
December 31, 1996 and January 1, 1997 through December 28, 1997. As of December
1, 1997, the Company adopted a fiscal year comprised of 13 four week periods,
each four week period comprised of four Monday through Sunday weeks. All
references herein to periods shall refer to such periods unless the context
otherwise requires. Unless otherwise indicated, all financial and store data
provided in this Prospectus are as of March 22, 1998, the end of the Company's
first quarter in 1998.
OVERVIEW
SpinCycle, Inc. was founded in October 1995 to initiate a nationwide
consolidation in the retail coin-operated laundromat industry. Recognizing
significant deficiencies in the approximately $4.0 billion industry, the Company
opened its first spacious, attractive, well-equipped and attended facility in
Chicago, Illinois in April 1996. By the year ended December 31, 1996, SpinCycle
had opened 14 stores and had two under construction. Such stores formed the
platform for the Company's rapid expansion by providing valuable information on
a number of variables, including optimum store size, combination and count of
laundry equipment, equipment utilization, staffing levels and customer service.
Because of the significant capital required to develop and acquire
coin-operated laundromats, the Company's rollout rate has generally increased
after the Company raised each round of capital. In November 1996, the Company
procured the first $20.0 million of its Senior Credit Facility. Borrowings under
this facility allowed the Company to significantly accelerate its plans to
develop and acquire additional stores. In January 1997, SpinCycle closed its
first round of equity financing with proceeds of approximately $9.6 million.
Such funds were utilized primarily for the payment of construction costs for
newly developed stores. By April 30, 1997, the Company had opened a total of 19
stores.
In April 1997, the Company closed a second round of equity financing,
raising $25.0 million, which allowed the Company to again significantly
accelerate its development and consolidation efforts. Thereafter, SpinCycle
developed the corporate infrastructure to achieve and accommodate a national
rollout and consolidation. Specifically, the Company hired additional
professionals to provide for nationwide operations and real estate development
and to establish a dedicated acquisitions department. Further, the Company added
support in the areas of accounting, MIS and administration. In 1997, the Company
increased the maximum amount of its Senior Credit Facility by $15.0 million to
$35.0 million. With the corporate infrastructure in place and increased
availability under the Senior Credit Facility, between May 1, 1997 and December
31, 1997, the Company opened 52 stores (25 Developed Stores and 27 Acquired
Stores) finishing fiscal 1997 with 71 stores. By December 1997, the Company was
opening and acquiring stores at the rate of approximately 11 per period.
As the Company has continued to opportunistically raise capital and develop
the corporate infrastructure to manage its growth, the Company has, through a
careful analysis of its targeted markets, embarked upon a development and
acquisition plan to add approximately 155 additional stores during 1998. In
February 1998, the Company procured a $10.0 million increase in its Senior
Credit Facility for a total facility of $45.0 million, and on April 14, 1998
closed its most recent private equity offering in which it raised approximately
$16.0 million to accommodate such expansion plans. On April 29, 1998, the
Company closed the Private Placement. The net proceeds of that offering were
used to repay substantially all of the Company's $46.9 million of indebtedness
and the balance for pursuit of the Company's business plan. Management believes
the net proceeds from its recent private equity offering and the Private
Placement, together with existing liquidity, will be sufficient to fund the 1998
expansion plan. Amounts remaining available under the Heller Facility, together
with cash flow from operations, are expected to provide sufficient liquidity for
the Company's operations, development and acquisition requirements through April
1999.
During the latter portion of the Company's first quarter and continuing
until the closing of the Private Placement, the Company continued to actively
identify acquisition candidates and development sites, but did
24
<PAGE> 26
not execute leases or asset purchase agreements until the Company had the
capital required to complete such transactions. As such, the Company acquired
and opened an aggregate of nine stores in the two periods ended May 17, 1998.
While this is less than the anticipated number of openings per period, the
Company's development and acquisition pipeline currently includes approximately
57 developed stores and 32 acquisition candidates which the Company has
identified and anticipates closing prior to year end 1998. The Company expects
the additional approximately 30 stores required to reach its anticipated
year-end store count to be acquisitions identified and closed by year end 1998.
In order to facilitate such acquisition and development rollout, the
Company has merged the functions of the acquisition and real estate departments
under the Chief Development Officer. This organizational structure should enable
the regional real estate professionals, located in the five regions, to identify
and negotiate both newly developed sites as well as strategic acquisition
candidates within their respective markets. Management expects that this will
facilitate and expedite the process of identifying and closing acquisitions by
leveraging the experience and market-specific knowledge of the real estate
professionals.
Coin-operated laundromat industry data indicates that a slight reduction in
revenue, and therefore Store EBITDA for the Company, may occur during the later
spring and summer seasons. This seasonality, anticipated to be between 5% and
10%, is a result of the reduced volume of heavier clothing worn during the
spring and summer months, which results in lower laundry machine usage. In an
attempt to offset the effect of this seasonality, through substantially all of
its second fiscal quarter, SpinCycle conducted a marketing/ promotional effort
in 52 of its stores. Based upon Company compiled data, the Company retains over
90% of the customers who visit its stores. The Company expects that these
marketing/promotional efforts should result in increased store trial, and,
therefore, customer retention and increased revenue and store EBITDA. The
Company anticipates benefits of such promotions to materialize during the
quarters following the periods in which the promotions were conducted.
During the two periods since March 22, 1998, the Company had an additional
three Developed Stores and one Acquired Store become Mature Stores, bringing the
Company's Mature Store count to 52 as of May 17, 1998. As of May 17, 1998, such
Mature Stores performed at approximately 94% of budgeted revenue and 97% of
budgeted Store EBITDA. The 52 Mature Stores consist of 19 Developed Stores and
33 Acquired Stores. The 19 Developed Stores achieved approximately 93% and 94%
of projected average Developed Store performance, once such store becomes a
Mature Store, of $382,000 revenue and $130,000 EBITDA, respectively, pro forma
for the Company's projected store level operating expenses. The 33 Acquired
Stores were, on average, purchased within the Company's targeted 4.0x to 5.0x
multiple of Store EBITDA, pro forma for the Company's projected store level
operating expenses.
RESULTS OF OPERATIONS
As of December 1, 1997, SpinCycle changed its basis of fiscal year
reporting from 12 calendar months to 13 periods per annum. This change allows
the Company to report and compare results on 13 equivalent periods, with each
period containing four Monday through Sunday weeks. The Company's first quarter
included 12 weeks in 1998 and 13 weeks in 1997.
Three Periods Ended March 22, 1998 Compared with Three Months Ended March 31,
1997
Revenues. The Company's revenues were approximately $5.3 million for the
first quarter 1998, an increase of approximately $4.1 million from approximately
$1.2 million in the corresponding period in 1997. This growth in revenue was
primarily attributable to the addition of 79 stores since the end of the first
quarter of 1997 coupled with an increase of approximately 20% in comparable
store sales. Continued maturation of certain developed stores plus the 27 stores
acquired during fiscal 1997 contributed substantial incremental revenue to the
first quarter of 1998.
Store Operating Expenses, excluding depreciation and amortization. Store
operating expenses, excluding depreciation and amortization ("store operating
expenses") were approximately $4.2 million in the first quarter 1998, an
increase of approximately $2.9 million from approximately $1.3 million in the
corresponding period in 1997. The increase in store operating expenses was
primarily attributable to the addition of 79 stores
25
<PAGE> 27
since the end of the first quarter of 1997. First quarter 1997 store operating
expenses as a percentage of revenues was approximately 112%. For the first
quarter 1998, this ratio decreased to approximately 80%, which is a result of
the continued maturation of the Developed Stores and the implementation of
initiatives designed to reduce store operating expenses, particularly labor
expense.
Gross Operating Profit (Loss). Gross operating profit was approximately
$1.0 million in the first quarter of 1998, an increase of approximately $1.2
million from a loss of approximately $140,000 in the corresponding period in
1997. This increase was primarily attributable to the aforementioned increase in
revenues during the period and initiatives to reduce store operating expenses,
particularly labor expenses.
Preopening Costs. Preopening costs were approximately $91,000 in the first
quarter of 1998, compared to approximately $92,000 in the corresponding period
in 1997. The Company expenses preopening costs as incurred. During the first
quarter of 1997 the Company opened two stores and had four stores in the
construction phase of development. During the first quarter of 1998 the Company
opened 24 stores and had 17 stores in the construction phase of development.
1997 first quarter preopening costs included $43,000 of preopening rent costs
due to the fact that initial lease payments came due prior to the actual opening
of stores, while no such costs were incurred during the first quarter of 1998.
Store EBITDA. Store EBITDA was approximately $945,000 in the first quarter
of 1998, an increase of approximately $1.2 million from the loss of $231,000 for
the corresponding period in 1997. This increase was primarily attributable to
increased revenue from maturation of stores and a reduction in store operating
expenses.
Depreciation and Amortization. Depreciation and amortization expense was
approximately $1.3 million in the first quarter of 1998, compared to
approximately $350,000 for the corresponding period in 1997. This increase of
approximately $950,000 was principally due to property and equipment acquired in
connection with the Company's expansion.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $2.2 million in the first quarter of
1998, an increase of approximately $600,000 from approximately $1.6 million in
the corresponding period of 1997. This increase is primarily attributable to the
Company building its corporate infrastructure in order to allow the Company to
manage its anticipated nationwide expansion. Specifically, the Company hired
additional professionals to provide for nationwide operations and real estate
development and to establish a dedicated acquisitions department. First quarter
1998 selling, general and administrative expenses actually decreased as a
percentage of revenues from 136% to 41% due to the maturation of stores opened
in 1997 and the implementation of certain initiatives to reduce these costs.
EBITDA. EBITDA in the first quarter of 1998 was a loss of approximately
$1.2 million, an improvement of $600,000 from the loss of approximately $1.8
million for the corresponding period in 1997. This increase was primarily
attributable to increased revenue from the maturation of stores, partially
offset by the increase in selling, general and administrative expenses discussed
above.
Interest Income and Interest Expense, net. Interest income increased to
approximately $126,000 in the first quarter of 1998 an increase of $111,000 from
approximately $15,000 in the first quarter of 1997. The increase in interest
income was primarily attributable to the investment of proceeds from equity
offerings ultimately used in operations or for capital investment. Interest
expense, net of capitalized interest was approximately $846,000 in the first
quarter of 1998, an increase of approximately $737,000 from approximately
$109,000 in the corresponding period in 1997. The increase in interest expense,
net was primarily attributable to additional borrowings under the Company's
credit facilities with Raytheon and LaSalle National Bank. All borrowings under
these credit facilities were repaid in full in April 1998 with the net proceeds
from the April 1998 offering of senior discount notes and warrants. The
outstanding borrowings under these facilities increased from approximately $6.0
million at the end of the 1997 first quarter to approximately $44.0 million at
the end of the 1998 first quarter.
Net Loss. The net loss recorded in the first quarter of 1998 was $3.2
million, an increase of approximately $1.0 million from the $2.2 million net
loss recorded in the corresponding period of 1997. The
26
<PAGE> 28
increased loss was primarily attributable to depreciation and amortization
associated with the number of new stores both acquired and developed since the
end of the first quarter of 1997 and the increase in selling, general and
administrative expenses discussed above.
Year Ended December 28, 1997 Compared with Year Ended December 31, 1996
Revenues. The Company's revenues were approximately $8.6 million in fiscal
1997, an increase of approximately $7.6 million from approximately $1.0 million
in fiscal 1996. This growth in revenue was primarily attributable to an increase
in the number of stores from 14 at fiscal year end 1996 to 71 at fiscal year end
1997, and the continued maturation of certain Developed Stores. Specifically,
the 27 stores acquired during fiscal 1997, 24 of which were acquired after
September 1, 1997, contributed incremental revenue of approximately $2.0 million
to fiscal 1997 revenues. The remaining increase in revenue of approximately $5.6
million in fiscal 1997 is primarily attributable to revenue generated from the
opening of Developed Stores and the continued maturation of such existing
stores. Sixteen of the Company's Developed Stores were mature as of fiscal year
end 1997.
Store Operating Expenses, excluding depreciation and amortization. Store
operating expenses, excluding depreciation and amortization ("store operating
expenses") were approximately $8.0 million in fiscal 1997, an increase of
approximately $6.8 million from approximately $1.2 million in fiscal 1996. The
increase in store operating expenses was primarily attributable to the opening
of an additional 57 stores during fiscal 1997. For fiscal 1996, store operating
expenses as a percentage of revenues was approximately 120.0%. For fiscal year
1997, this ratio decreased to approximately 92%, which is a result of maturation
at certain stores and the implementation of initiatives designed to reduce store
level expenses.
Gross Operating Profit (Loss). Gross operating profit was approximately
$670,000 in fiscal 1997, an increase of approximately $849,000 from a loss of
approximately $179,000 in fiscal 1996. This increase was primarily attributable
to the increase in revenues during the period and initiatives to reduce store
level expenses.
Preopening Costs. Preopening costs were approximately $457,000 in fiscal
1997, a decrease of approximately $16,000 from approximately $473,000 in fiscal
1996. The Company expenses preopening costs as incurred. The decrease in
preopening costs was the result of management efforts to control these expenses.
During fiscal 1996 the Company opened 14 stores and had two stores under
development at fiscal year end 1996. During fiscal 1997 the Company opened 30
developed stores and had 24 stores under construction at fiscal year end 1997.
Store EBITDA. Store EBITDA was approximately $213,000 in fiscal 1997, an
increase of approximately $864,000 from a loss of approximately $651,000 in
fiscal 1996. This increase was primarily attributable to increased revenue from
maturation of stores and a reduction in store expenses.
Depreciation and Amortization. Depreciation and amortization expense was
approximately $2.3 million in fiscal 1997, compared to approximately $568,000 in
fiscal 1996. This increase of approximately $1.7 million was principally due to
increased levels of property and equipment related to the Company's expansion.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $10.7 million in fiscal 1997, an
increase of approximately $8.1 million from approximately $2.6 million in fiscal
1996. This increase is primarily attributable to the Company building its
corporate infrastructure in order to allow the Company to manage its anticipated
nationwide expansion. Specifically, the Company hired additional professionals
to provide for nationwide operations and real estate development and to
establish a dedicated acquisitions department. During fiscal 1997, the Company's
general and administrative personnel, excluding store level personnel, increased
from 30 to 98 resulting in an increase in compensation costs of approximately
$2.7 million. The increase is also attributable in part to an increase in
advertising expenses of approximately $1.2 million, reflecting the Company's
efforts to create a leading national brand and an increased number of stores
during fiscal 1997. The selling, general and administrative expense also
reflects an increase in professional fees and travel costs of approximately
$888,000 and $1.2 million, respectively, over fiscal 1996 due to increased
acquisition and development activities.
27
<PAGE> 29
EBITDA. EBITDA in fiscal 1997 was a loss of $10.5 million, a decrease of
$7.2 million from approximately a loss of $3.3 million in fiscal 1996. This
decrease was primarily attributable to the increase in selling, general and
administrative expenses.
Interest Income and Interest Expense, net. Interest income increased to
approximately $433,000 in fiscal 1997, an increase of $404,000 from
approximately $29,000 in fiscal 1996. The increase in interest income was
primarily attributable to the investment of proceeds from equity offerings
pending ultimate use in operations or for capital investment. Interest expense,
net of capitalized interest was approximately $892,000 in fiscal 1997, an
increase of approximately $843,000 from approximately $49,000 in fiscal 1996.
The increase in interest expense, net was primarily attributable to additional
borrowings under the Senior Credit Facility, the outstanding balance of which
increased from approximately $4.6 million at fiscal year end 1996 to
approximately $35.9 million at fiscal year end 1997.
Net Loss. The net loss recorded in fiscal 1997 was $13.8 million, an
increased loss of approximately $9.9 million from the $3.9 million loss recorded
in fiscal 1996. The increased loss was primarily attributable to depreciation
and amortization associated with the number of new stores both acquired and
developed during the year and the increase in selling, general and
administrative expenses attributable to the building of the Company's corporate
infrastructure.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
The Company was formed in October 1995, and had no stores opened or under
construction as of fiscal year end 1995 and therefore no store level revenues or
store operating expenses were realized in fiscal 1995. During fiscal year 1996,
the Company generated approximately $1.0 million in store revenues and
approximately $1.2 million in store operating expenses. For fiscal 1996, store
operating losses totaled approximately $179,000 and depreciation and
amortization was approximately $568,000. These revenues, operating expenses,
operating losses, and depreciation and amortization were attributable entirely
to the 14 stores opened between April 1996 and fiscal year end 1996. Selling,
general and administrative expenses were approximately $2.6 million in fiscal
1996, compared to approximately $5,000 in fiscal 1995. The increase in selling,
general and administrative expenses was primarily attributable to development of
the Company's corporate infrastructure. Interest expense was approximately
$49,000 in fiscal 1996 compared to no interest expense in fiscal 1995. Interest
expense represented interest on the Company's outstanding balance under its
Senior Credit Facility, which totaled $4.6 million as of fiscal year end 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 22, 1998, the Company had total assets of approximately $83.0
million, including current assets of approximately $13.4 million. Cash and cash
equivalents were approximately $4.4 million.
Cash used in operations during the first quarter of 1998 was approximately
$4.9 million compared to cash used in operations during the corresponding period
in 1997 of approximately $5.1 million. The use of cash in each period was
primarily attributable to the use of working capital for the Company's store
rollout, as well as the payment of corporate expenses, while the 1998 first
quarter also included the effects of prepaid rent payments of $2.4 million in
connection with sale-leaseback transactions.
Cash used in investing activities was approximately $8.8 million compared
to no cash used in investing activities for the corresponding period in 1997.
The additional use of cash was primarily due to capital expenditures and
business acquisitions, partially offset by $1.5 million in net proceeds from
sale-leaseback transactions.
The Company made capital expenditures of approximately $11.5 million in the
first quarter of 1998 compared with capital expenditures of approximately
$800,000 in the 1997 corresponding period. The increase was primarily
attributable to an increased rate of expansion and laundry equipment purchased.
Capital expenditures for fiscal 1998 are expected to aggregate approximately
$72.0 million to fund the planned 1998 store rollout.
28
<PAGE> 30
Cash provided by financing activities was approximately $9.8 million during
the first quarter of 1998 compared to approximately $10.7 million provided by
financing activities during the corresponding period in 1997 arising principally
from the issuance of Series B Stock (as defined) in 1997 and borrowings under
the Company's Senior Credit Facility and the sale of Series C Stock (as defined)
in 1998.
On April 3, 1998, the Company commenced the Private Placement, an offering
of unsecured senior discount notes and an indeterminate number of warrants to
purchase Common Stock to "qualified institutional buyers" only as defined in
Rule 144A under the Securities Act. This offering was completed on April 29,
1998, with the Company selling $144,990,000 12 3/4% unsecured senior discount
notes and warrants to purchase 26,661 shares of the Company's Common Stock with
an exercise price of $0.01 per share for gross proceeds to the Company of
$100,001,053. The net proceeds of this offering of approximately $96.8 million
were used to pay the expenses of the offering, repay approximately $46.9 million
in existing indebtedness to Raytheon and LaSalle National Bank, and to provide
funds for investment in new stores and for general corporate purposes.
Prior to the closing of the Private Placement, the Company had in place the
Senior Credit Facility from Raytheon, one of the largest commercial laundry
equipment vendors, which provided for approximately $30.0 million of equipment
financing and $15.0 million of acquisition financing. This facility had provided
100% financing for commercial laundry equipment purchases (based upon list
prices) and store acquisitions. The Company also had procured the LaSalle Credit
Facility in March 1998, which provided up to $15.0 million of credit available
for acquisitions and general corporate purposes. The Company repaid all
indebtedness outstanding under these two facilities with the net proceeds from
the Private Placement and terminated the related loan agreements.
Concurrently with the closing of the Private Placement on April 29, 1998,
the Company also closed a secured credit facility in the maximum principal
amount of $40 million with Heller Financial, Inc. (the "Heller Facility"). The
Heller Facility consists of a revolving credit facility in an aggregate
principal amount of $40.0 million that will mature on April 28, 2002. The
Company will be entitled to draw amounts under this facility, subject to
availability pursuant to a borrowing base formula based upon income from store
operations and net book value of laundry equipment, in order to fund ongoing
working capital, capital expenditures and general corporate purposes. Interest
will accrue on the Heller Facility with reference to the base rate (the "Base
Rate") plus 0.50%. The Company may elect that all or a portion of the loans bear
interest at the LIBOR rate (the "LIBOR Rate") plus 2.75%. The Base Rate is
defined as, on any date, the "Bank Prime Loan" rate published by the Board of
Governors of the Federal Reserve System plus 0.50%. The LIBOR Rate is defined as
an amount equal to the rate posted on the Reuters Screen LIBO Page on the day
which is three business days prior to the first day of such interest period.
Coincident with the closing of the Private Placement, the put rights,
granted to all holders of all classes of the Company's preferred stock were
terminated. See "Description of Capital Stock."
The note receivable to the Company from SpinDevCo in the amount of
approximately $4.9 million (the "Original Note"), including principal and
accrued but unpaid interest, was due on April 30, 1998. As of April 30, 1998,
the Original Note was renegotiated to extend the maturity date through September
30, 1998 to allow SpinDevCo additional time to find a substitute source of
financing. In connection with the extension, the Company received $125,000 in
payment of accrued and unpaid interest due under the Original Note through May
30, 1998. Monthly payments of interest based upon the principal amount
outstanding at the end of each month are payable during the extension period.
To date, the Company has not generated positive cash flow from operations
and has historically funded its operations through sales of equity securities
and borrowings under its credit facilities. Management believes the net proceeds
from the Private Placement, the proceeds of the Heller Facility and existing
liquidity and cash flow from operations will be sufficient to fund its expansion
plan through April 1999.
POTENTIAL LOSS OF NOLS
As of December 28, 1997, the Company had NOLs of approximately $17.6
million for U.S. federal income tax purposes. These NOLs, if not utilized to
offset taxable income in future periods, will begin to
29
<PAGE> 31
expire in 2011. Section 382 of the Code, and regulations promulgated thereunder,
impose limitations on the ability of corporations to use NOLs, if the
corporation experiences a more than 50% change in ownership during any
three-year period. It is possible that the Company has experienced one or more
ownership changes in 1996 and 1997 as a result of the Company raising various
rounds of private equity or that such an ownership change may have occurred or
be deemed to have occurred due to events beyond the control of the Company (such
as transfers of Common Stock by certain stockholders or the exercise or
treatment of warrants, conversion rights or stock options issued by the
Company). There can also be no assurance that the Company will not take
additional actions, such as the issuance of additional stock, that would cause
an ownership change to occur. In addition, the NOLs are subject to examination
by the IRS, and are thus subject to adjustment or disallowance resulting from
any such IRS examination. Accordingly, prospective purchasers of the Notes
should not assume the unrestricted availability of the Company's currently
existing or future NOLs, if any, in making their investment decisions. See "Risk
Factors -- Potential Loss of NOLs."
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE
The Company depends on its MIS to monitor daily revenue and machine
utilization in each of its stores, exercise centralized cash and management
control and compile and analyze critical marketing and operations data. Any
disruption in the operation of the Company's MIS, the loss of employees
knowledgeable about such systems or the Company's failure to continue to
effectively modify such systems as its business expands would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competitive Strengths."
Certain of the Company's MIS use two digit data fields which recognize
dates using the assumption that the first two digits are "19" (i.e., the number
97 is recognized as the year 1997). Therefore, the Company's date critical
functions relating to the year 2000 and beyond may be adversely affected unless
changes are made to these computer systems. The Company does not expect that
costs resulting from upgrades to its MIS to accommodate the year 2000 problem
will be material. However, no assurance can be given that these issues can be
resolved in a cost-effective or timely manner or that the Company will not incur
significantly greater expense in resolving these issues.
SEASONALITY AND INFLATION
The Company's business may be subject to seasonal fluctuations in its
quarterly results of operations. The Company believes, however, that any
seasonality will not have a material adverse effect on its annual results of
operations. See "Risk Factors -- Seasonality."
Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe inflation is likely to have a material
adverse effect on its net sales or results of operations.
THE EXCHANGE OFFER
TERMS OF EXCHANGE OFFER
In connection with the sale of the Old Notes pursuant to a purchase
agreement dated as of April 24, 1998, between the Company and the Initial
Purchaser (the "Purchase Agreement"), the Company and the Initial Purchaser
entered into the Registration Rights Agreement for the benefit of the Initial
Purchaser and its assignees.
Under the Registration Rights Agreement, the Company is obligated to (i)
file the Registration Statement of which this Prospectus is a part for a
registered exchange offer with respect to an issue of New Notes with terms
substantially identical in all material respects to the Old Notes (except that
such New Notes will not contain terms with respect to transfer restrictions),
within 60 days after April 29, 1998, the date the Old Notes were originally
issued (the "Issue Date") and (ii) use its best efforts to cause the
Registration Statement to be declared effective within 150 days after the Issue
Date. For each Old Note surrendered pursuant to the Exchange Offer, the Holder
of such Old Note will receive a New Note having a principal
30
<PAGE> 32
amount at maturity equal to that of the surrendered Old Note. The Exchange Offer
being made hereby if commenced and consummated within such applicable time
periods will satisfy those requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letters of Transmittal (which together constitute the Exchange
Offer), the Company will accept for exchange all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date.
The Company will issue New Notes in exchange for an equal principal amount at
maturity of outstanding Old Notes accepted in the Exchange Offer. As of the date
of this Prospectus, Old Notes with an aggregate principal amount at maturity of
$144,990,000 were outstanding.
This Prospectus, together with the Letters of Transmittal, is being sent to
all registered Holders as of ,1998. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth herein under "-- Conditions."
The Company shall accept all Old Notes validly tendered and not withdrawn
pursuant to the Exchange Offer. The Exchange Agent will act as agent for the
tendering Holders of Old Notes for the purposes of receiving the New Notes from
the Company and delivering New Notes to such Holders.
In the event the Exchange Offer is consummated, subject to certain limited
exceptions, the Company will not be required to register the Old Notes. In such
event, Holders of Old Notes seeking liquidity in their investment would have to
rely on exemptions to registration requirements under the U.S. and state
securities laws. See "Risk Factors -- Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean , 1998 (30 days
following the commencement of the Exchange Offer), 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. The
Company will notify the Exchange Agent of any extension of the Expiration Date
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., Eastern Daylight 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.
Notwithstanding any extension of the Exchange Offer, if for any reason the
Exchange Offer is not consummated before October 27, 1998 (180 days following
the Issue Date), the Company will, at its own expense, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Old
Notes (a "Shelf Registration Statement"), (b) use its best efforts to cause a
Shelf Registration Statement to be declared effective under the Securities Act
and (c) keep the Shelf Registration Statement effective until the earlier of (i)
24 months from the date of its effectiveness, (ii) such time as all of the Old
Notes have been sold thereunder or (iii) such time as the Old Notes are no
longer restricted securities (as defined in Rule 144 under the Securities Act).
The Company will, in the event a Shelf Registration Statement is filed, among
other things, provide to each Holder for whom such Shelf Registration Statement
was filed copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such Holder when such Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A Holder selling such Old Notes pursuant
to the Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
Holder (including certain indemnification obligations).
The Company reserves the right (i) to delay accepting any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept Old
Notes not previously accepted if any of the conditions set forth herein under
"--Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the Holders of the Old
31
<PAGE> 33
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
and the Company will extend the Exchange Offer for a sufficient period of time,
depending upon the significance of the amendment and the manner of disclosure to
Holders of the Old Notes, that will allow the Holders of the Old Notes to
reassess the Exchange Offer.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED UNDER APPLICABLE LAW
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING
SOUGHT HEREBY.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer under the Delaware General Corporation Law,
the governing law of the state of incorporation of the Company.
EXCHANGE OFFER PROCEDURES
To tender in the Exchange Offer, a Holder must complete, sign and date a
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver a Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent, prior to 5:00 p.m. Eastern Daylight
Time, on the Expiration Date. In addition, either (i) certificates for such
tendered Old Notes must be received by the Exchange Agent along with a Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at the Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. To be tendered effectively, the Old Notes, a Letter of
Transmittal and all other required documents must be received by the Exchange
Agent prior to 5:00 p.m., Eastern Daylight Time, on the Expiration Date.
Delivery of all documents must be made to the Exchange Agent at the addresses
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
Holders.
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 therein and in the Letter of Transmittal.
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.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender shall contact such registered Holder promptly and instruct such
registered Holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing a Letter of Transmittal and delivering
32
<PAGE> 34
his Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such owner's name or obtain a properly completed bond power from
the registered Holder. The transfer of registered 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 any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
U.S. (an "Eligible Institution") 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. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by 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 bond powers and a proxy which authorizes such person
to tender the Old Notes on behalf of the registered Holder, in each case as the
name of the registered Holder or Holders appears on the Old Notes.
If the Letter of Transmittal, or any Old Notes, 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
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) 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 which, if accepted by the Company, would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the 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 Letters 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. None of the Company, the Exchange Agent or
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 an 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 to such Holder by the Exchange Agent to the
tendering Holders of such Old Notes, unless otherwise provided in the Letter of
Transmittal.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture and the Amended Articles, to (i) purchase or
make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date or, as set forth under "-- Conditions," to terminate the
Exchange Offer in accordance with the terms of the Registration Rights Agreement
and (ii) 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 purchase or offers could differ from the terms of the Exchange Offer.
By tendering, each Holder will represent to the Company that (i) it is not
an affiliate of the Company (as defined under Rule 405 of the Securities Act),
(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 was
not engaged in, and did not intend to engage in, a distribution of such New
Notes and had no arrangement or understanding with any person to participate in
a distribution (within the meaning of the Securities Act) of the New Notes. If a
Holder of Old Notes is an affiliate of the Company, and is engaged in or intends
to engage in a distribution of the New Notes or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder could not rely on the applicable
interpretations of the staff of the SEC and must comply with the registration
and prospectus delivery
33
<PAGE> 35
requirement of the Securities Act in connection with any secondary 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. Each broker-dealer that acquired Old Notes directly from the
Company, and not as a result of market-making or trading activities, must, in
the absence of an exemption, comply with the registration and prospectus
delivery requirements of the Securities Act in connection with the secondary
resale of the New Notes and cannot rely on the position of the staff of the SEC
enunciated in no-action letters issued to third parties. See "Plan of
Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Conditions" below. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes for exchange
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent.
For each Old Note tendered for exchange, the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note.
If (i) by June 29, 1998 (60 days after the Issue Date), neither the
Exchange Offer Registration Statement nor the Shelf Registration Statement has
been filed with the SEC, (ii) by October 27, 1998 (180 days after the Issue
Date), the Exchange Offer is not consummated and, if applicable, the Shelf
Registration Statement is not declared effective or (iii) after either the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Old Notes or New Notes in accordance with and during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (i)
through (iii) a "Registration Default"), additional interest or dividends, as
the case may be, will accrue or accumulate on the applicable Old Notes and New
Notes at the rate of 0.50% per annum from and including the date on which any
such Registration Default shall occur to, but excluding, the earlier of (i) the
date on which all Registration Defaults have been cured or (ii) the date on
which the Notes become freely transferable by Holders other than affiliates of
the Company without further registration under the Securities Act. Such interest
or dividends, as the case may be, will be payable in cash and will be in
addition to any other interest or dividends payable from time to time with
respect to the Old Notes and the New Notes.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount, than the
Holder desires to exchange, such unaccepted or nonexchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of Old
Notes tendered by book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained for the benefit
of the Holder with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-
34
<PAGE> 36
Entry Transfer Facility's procedures for transfer. However, although delivery of
Old Notes may be effected through book-entry transfer at the Book-Entry Transfer
Facility, 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 by the Exchange Agent at the address set forth below
under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes,
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
Holder of such Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form to transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent and (iii) the certificate for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.
Eastern Daylight Time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes) and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing Holder. If
certificates for the Old Notes have been delivered or otherwise identified to an
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedures of book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such 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 exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the Holder thereof without cost to such Holder (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility for the Old Notes) 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 under the "-- Procedures for Tendering" above at any
time on or prior to the Expiration Date.
35
<PAGE> 37
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to issue New Notes in exchange for, any
Old Notes and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Notes, if because of any changes in law, or
applicable interpretations thereof by the SEC, the Company determines that it is
not permitted to effect the Exchange Offer. In addition, the Company has no
obligation to, and will not knowingly, accept tenders of Old Notes from
affiliates of the Company (within the meaning of Rule 405 under the Securities
Act) or from any other Holder or Holders who are not eligible to participate in
the Exchange Offer under applicable law or interpretations thereof by the SEC,
or if the New Notes to be received by such Holder or Holders of Old Notes in the
Exchange Offer, upon receipt, will not be tradeable by such Holder without
restriction under the Securities Act and the Exchange Act and without material
restriction under the "blue sky" or securities law of substantially all of the
states.
EXCHANGE AGENT
Norwest Bank Minnesota, N.A. has been appointed as Exchange Agent in
connection with the Exchange Offer. Questions and requests for assistance in
connection with the Exchange Offer and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
P.O. Box 1517 Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55480-1517 Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Operations Attention: Corporate Trust Services
By Hand: By Facsimile (for Eligible Institutions Only):
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Northstar East Building (612) 667-9825
608 2nd Ave. S. Attention: Corporate Trust Services
12th Floor Confirm by Telephone: (617) 667-2344
Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Services
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tender pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
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 the Prospectus 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 will be
paid by the Company, including fees and expenses of the Exchange Agent, the
Trustee (as defined), the Transfer Agent (as defined) and accounting, legal
printing and related fees and expenses.
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 for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any
36
<PAGE> 38
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 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 in the Company's accounting records at the
same carrying values as the Old Notes 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 upon the consummation of the Exchange Offer. The
expense of the Exchange Offer will be amortized by the Company over the term of
the New Notes in accordance with generally accepted accounting principles.
37
<PAGE> 39
BUSINESS
THE COMPANY
The Company was founded in October 1995 to develop and implement
SpinCycle's unique concept of a national chain of branded coin-operated
laundromats and to serve as a platform for a nationwide consolidation in the
coin-operated laundromat industry. The Company's goal is to become the leading
operator of high quality coin-operated laundromats in the United States by
establishing SpinCycle as a national brand, providing a superior level of
customer service and by exercising disciplined management control in its
expansion and business plan. In sharp contrast to many existing laundromats, a
SpinCycle laundromat is an inviting, spacious and well-equipped facility that is
conveniently located, clean and well-lighted. Since April 1996, the Company has
opened a total of 95 stores in 20 markets, 60 of which it developed and 35 of
which it acquired. SpinCycle stores are located in densely populated urban
markets, including Chicago, Cleveland, Albuquerque, Houston, Los Angeles,
Philadelphia, Detroit, Miami, Atlanta and Dallas.
The Company plans to rapidly expand primarily within its existing markets
during the balance of 1998 and to enter additional urban markets in 1999. The
Company plans to expand by selectively developing new SpinCycle stores and
acquiring existing laundromats to be converted to the SpinCycle format. By year
end 1998, management believes that there will be approximately 225 SpinCycle
stores which management expects will generate, in the aggregate, once such units
have become Mature Stores, approximately $79.8 million of revenue and $25.0
million of Store EBITDA. As of March 22, 1998, the Company's 48 Mature Stores
exceeded, on average, such stores' budgeted performance.
Management believes its equipment configuration and store design is unique
and maximizes customer convenience and in-store experience. As evidence of its
superior concept, Company compiled data shows that SpinCycle retains over 90% of
its customers. SpinCycle's typical store is between 3,500 and 5,500 square feet,
significantly larger than the 1,500 to 2,500 square feet of a typical
laundromat, and contains 50 washers of varied capacities and 54 large capacity
dryers. The Company installs a computer board in each washer and dryer which
allows daily monitoring of machine utilization and superior cash control. Each
store is staffed during operating hours by at least one customer service
representative who assists customers and maintains the facility. Customers can
sort and fold laundry while watching color television with cable programming at
12 to 14 folding stations and purchase food, beverages and laundry supplies from
vending machines. As a result of its superior store design and management
controls, the Company has achieved levels of store revenues and Store EBITDA
that management believes are among the highest in the industry.
MARKET OPPORTUNITY
The retail coin-operated laundromat industry began more than 50 years ago
and has been characterized by steady, non-cyclical demand. Management believes
the coin-operated laundromat industry, unlike other retail concepts, is
virtually unaffected by consumer fads and technological change, as laundry
represents a basic consumer necessity. In the 1997 Laundry Report, the Coin
Laundry Association estimated that retail coin-operated laundromats comprise a
$4 billion industry with approximately 30,000 laundromats nationwide, 89% of
which are operated by owners of only one or two stores and only 4% of which are
operated by owners of more than five stores. Today, the industry is
characterized by (i) fragmented store ownership, (ii) small, unattractive stores
and (iii) limited customer service. The Company's research indicates that
typical laundromats generally contain poorly maintained, aging equipment and are
often dirty and considered unsafe by their customers. Management therefore
believes that the typical laundromat user is significantly underserved. Further,
because management believes its targeted consumer group is growing in size and
market power, management believes that the coin-operated laundromat industry
presents favorable growth opportunities.
Management believes that by combining superior store design and site
selection, disciplined professional management and financial resources,
SpinCycle will be able to successfully consolidate a highly fragmented industry
while delivering a superior product to consumers. SpinCycle designs its stores
to provide an inviting atmosphere focused on customer convenience and
satisfaction. Unlike many of its competitors, SpinCycle also
38
<PAGE> 40
staffs its locations during operating hours and installs security devices to
promote safety. Management believes that its innovative format can transform the
retail laundromat industry just as nationally branded video stores, such as
Blockbuster Video, changed the "mom and pop" video rental industry.
BUSINESS STRATEGY
Continue Rapid Growth in Existing and New Markets. The Company's strategy
is to maintain and build upon its leading position in the national retail
coin-operated laundromat industry by consolidating its position in existing
markets and rapidly developing a strong presence in new markets. Management
focuses its efforts on rolling out stores in markets with sufficient population
density to allow SpinCycle to achieve targeted store economics in a large number
of stores within each market over a short period of time. SpinCycle utilizes two
primary methods to roll out its concept: (i) developing retail locations and
(ii) acquiring and converting existing laundromats. During 1998, management
expects to add a total of approximately 155 stores, through a balance of
Developed Stores and Acquired Stores, for a year end total of approximately 225
stores, primarily in its 20 existing markets. In the first three periods of
1998, the Company opened 24 stores. As of March 22, 1998, the Company had 77
stores in its developmental pipeline comprised of 12 stores under construction,
17 leases signed, 31 leases in negotiation and 17 sites for which letters of
intent had been executed. Further, the Company had 37 stores in its acquisition
pipeline, comprised of nine existing laundromats for which it was negotiating
purchase agreements and 28 existing laundromats for which it was negotiating
letters of intent. In addition, the Company maintains a dynamic database of
approximately 200 potential acquisition targets. For 1999 and beyond, the
Company plans to open approximately 150 stores per year primarily in new
markets. Management believes it will achieve its near and long term expansion
plans.
Continue Superior Site Selection. Based upon management's knowledge and
experience in site selection for Midas Muffler, Dunkin' Donuts, Blockbuster
Video, Boston Market and Einstein Bros. Bagels, as well as their experience in
opening the first 95 SpinCycle stores, management believes that operating from
superior real estate is an essential element in SpinCycle's ability to generate
revenue in excess of industry averages and gain and maintain market share. The
Company identifies both development sites and acquisition targets using a
systematic market analysis and a "Main and Main" strategy, whereby it seeks to
locate stores near intersections of major thoroughfares in high profile
neighborhood shopping centers or freestanding buildings in order to maximize
customer traffic and brand exposure. The Company's real estate and acquisitions
departments will continue to employ disciplined criteria in order to ensure that
SpinCycle secures the best available locations in each of its markets.
Maintain Focus on Target Markets. SpinCycle's market strategy is to
rapidly develop a "critical mass" of stores in its targeted markets by opening
stores in Company-defined trade areas that contain at least 15,000 households of
over two occupants with median household incomes between $25,000 and $35,000 and
in which at least 50% of such households rent their homes or apartments.
SpinCycle's primary customer is a working mother or female head of household
living in an apartment complex or other multi-unit housing that lacks adequate
on-site laundry facilities. Management believes this demographic is
substantially underserved and possesses growing market power, and thus affords
an attractive long-term opportunity for the Company's core services as well as
an opportunity to strategically expand into additional service and product
offerings. P&G has recognized SpinCycle as a national service provider to such
underserved market segments and has entered into a strategic relationship with
the Company to better understand such consumers' buying behavior and to
collaborate on joint product offerings. P&G is working closely with the Company
because they view SpinCycle as a strategic partner able to provide a unique
opportunity to access an underserved market segment. The Company intends to
pursue this and similar strategic alliances to leverage its knowledge base and
brand strength in its target markets.
COMPETITIVE STRENGTHS
Management believes SpinCycle is the leading owner-operator of nationally
branded coin-operated laundromats. The Company's management believes it has the
following competitive strengths:
Superior Facility and Customer Service. SpinCycle stores have high
visibility to traffic, bright, colorful exteriors and signage and are finished
with large windows to optimize visibility into the store while providing a
39
<PAGE> 41
bright and secure interior. SpinCycle stores are designed with a unique
equipment mix to optimize customer convenience and satisfaction and to maximize
profitability. The Company's stores are always staffed with at least one
customer service representative trained to follow the SpinCycle-prescribed
operations program, which emphasizes cleanliness, customer responsiveness and
equipment maintenance. SpinCycle stores are air conditioned and have multiple
color televisions with cable programming and numerous folding stations, as well
as children's play areas, bathrooms, pay telephones and snack, beverage and
laundry supply vending machines. Company compiled data indicates the Company
retains over 90% of the customers who visit its stores, a statistic that
management believes is the direct result of its superior facilities and customer
service. This data also indicates that more than 20% of SpinCycle customers have
laundry equipment in their homes, which management believes indicates that the
SpinCycle concept has increased the number of potential customers rather than
merely capturing market share from existing laundromats. In addition, management
anticipates providing value-added services such as drop off "fluff and fold"
laundry service at selected stores to further enhance customer satisfaction and
generate incremental store revenue.
Industry Leader. Management believes SpinCycle is the first owner-operator
to launch a disciplined national consolidation in the retail coin-operated
laundromat industry and has gained valuable experience in opening its first 95
stores. By being the first nationally branded operator of superior laundromat
facilities, and by effectively promoting and clustering stores in prime
locations in its targeted markets, the Company expects to rapidly achieve market
leading positions in each of its markets. Management expects the creation and
ongoing support of this leading national brand to drive significant additional
revenue and store profit as SpinCycle increasingly becomes the laundromat of
choice for consumers. In addition, the Company has already begun to experience a
dramatic shift in landlord receptivity to the SpinCycle concept. Initially,
landlords (and other retail tenants), wary of the image of a typical laundromat,
were reluctant to have SpinCycle as a tenant in desirable neighborhood shopping
centers. More recently, however, landlords (and other retail tenants) have begun
to actively encourage SpinCycle to become a tenant because of direct and
observed experiences that SpinCycle stores can increase customer traffic as its
customers typically spend two hours in and around the store while doing their
laundry. As the Company has grown, it has begun to experience benefits in
sourcing acquisition opportunities and to realize purchasing economies on
equipment and supplies.
Attractive Store Economics. Management believes that a Developed Store
becomes a Mature Store after approximately one year of operation. Typically, new
Developed Stores ramp up very quickly, generating approximately 45% of per
period Mature Store net revenue during their first period of operation, and
becoming Store EBITDA positive after only three periods. The Company expects an
average 4,000 square foot Developed Store, once it has become a Mature Store, to
generate approximately $382,000 in annual revenue and approximately $130,000 in
annual Store EBITDA, resulting in a margin of approximately 34.0%. As of March
22, 1998, the average cost to develop its last 20 Developed Stores was
approximately $617,000 per unit, of which approximately $300,000 is attributable
to laundry and ancillary equipment. The Company expects its average Acquired
Store to generate approximately $306,000 in annual revenue and $105,000 in
annual Store EBITDA and to cost approximately $420,000, representing
approximately 4.0x to 5.0x Store EBITDA, pro forma for the Company's anticipated
level of store operating expenses (or 3.0x to 4.0x historical Store EBITDA) plus
approximately $40,000 of conversion expenses.
Advanced Systems and Controls. SpinCycle brings superior MIS and cash
controls to a highly fragmented, unprofessionally managed industry. SpinCycle's
advanced systems allow the Company to monitor daily revenue and machine
utilization in each of its stores, exercise centralized cash and management
control and compile and analyze critical marketing and operations data. For
example, the Company has refined the mix of machines in its stores based on data
gathered from existing stores and expects to customize its systems to enable the
implementation of variable pricing to boost off-peak customer traffic, revenues
and profitability. The Company's MIS also allow management to reconcile each
machine activation to cash collected, identify non-performing machines and
coordinate efficient machine maintenance. Additionally, Brinks Incorporated and
other service companies work in concert with the Company to further mitigate the
risk inherent in a cash business. As a result of its superior controls, the
Company has experienced annual shrinkage of less than 0.50%.
40
<PAGE> 42
Experienced Management. The Company has achieved its leadership position
and established a national presence by hiring a management team with experience
in finance, development, operations and multi-unit rollouts on a national scale.
SpinCycle is professionally managed as four integrated business segments: (i)
real estate, (ii) operations, (iii) MIS and (iv) acquisitions. Members of
management have significant expertise in all of these disciplines. The Company's
real estate/acquisitions department includes professionals with significant site
selection experience at several other multi-unit concepts including Midas
Muffler, Dunkin' Donuts, Blockbuster Video and Boston Chicken and includes
professionals seasoned in corporate and real estate finance. The operations
department includes senior management from Long John Silver's and Rent-A-
Center, a rent-to-own multi-unit operation whose target customer closely mirrors
SpinCycle's target customer. The Company's MIS department includes several
professionals with extensive experience in building a "hub and spoke" wide area
network and in developing computer systems for operations. Management believes
this experience affords the Company a competitive advantage in rolling out and
managing a nationwide chain.
SPINCYCLE CUSTOMERS
SpinCycle believes that identification and satisfaction of its customers is
paramount to its success. SpinCycle has devoted significant resources to the
identification of its core customer and has tailored its operations, store
construction and marketing to the needs of such customers. SpinCycle believes
that it is the first owner-operator of coin-operated laundromats which has
devoted such attention to the identification and satisfaction of its core
customer base. Specifically, SpinCycle has gathered data on its core customer
base through in-store customer surveys and focus group surveys of potential,
existing and previous SpinCycle customers. SpinCycle has utilized in-store
promotions to encourage participation in its surveys and has used nationally
recognized third-party consulting firms to assist in its focus group surveys.
Such studies have been undertaken in several of SpinCycle's existing markets
with the focus on identification of current and potential customers and the
ranking of their needs and preferences pertaining to coin-operated laundromat
usage.
A November 1997 analysis of approximately 21,000 SpinCycle customers
revealed the following characteristics about SpinCycle customers:
- Approximately 70% are female, many of which are the head of their
household
- Approximately 73% are between 18 and 39 years old
- Over 70% live in households that have more than two children
- Approximately 78% rent their dwellings
- Approximately 62% live in apartment units
- Approximately 20% own a washer and dryer
- On average, 61% reside within one mile and approximately 75% reside
within three miles of the SpinCycle store visited
- Average annual household incomes range between $25,000 and $35,000
- Visit a SpinCycle store for approximately two hours and approximately
every ten days
- Spend an average of approximately $10 per visit
SpinCycle's research regarding its existing customers, potential customers
and past customers is undertaken in order to allow the Company to continue to
deliver a superior facility and superior customer service. SpinCycle has also
used this information to tailor its store design and the services provided to
accommodate market specific needs of its customers. It is this attention to
customer needs that the Company believes results in the Company's ability to
retain 90% of its users.
INDUSTRY OVERVIEW
The retail coin-operated laundromat industry is over 50 years old and has
been characterized by steady, non-cyclical demand and a relatively minimal
degree of technological innovation. Today, the industry is characterized by (i)
fragmented store ownership, (ii) small, unattractive stores and (iii) limited
customer service. According to a 1997 Coin Laundry Association survey there are
approximately 30,000 laundromats nationwide, 89% of which are owned by owners of
fewer than three stores, and only 4% of which are owned by
41
<PAGE> 43
owners of more than five stores. Nationwide, over 84% of the coin-operated
laundromats are less than 4,000 square feet, with the average laundromat size
being approximately 2,480 square feet.
The average annual revenue generated by a laundromat in the United States
is $151,000 and only 6% of laundromats generate greater than $300,000 in annual
revenues. The average store has 33 washers and 19 dryers and the typical
equipment mix includes over 57% top load machines which have a significantly
shorter life and are less profitable to operate than front load machines.
The lack of any substantial owner-operators of coin-operated laundromats
has created an industry characterized by stores lacking in consistency,
security, cleanliness and service capability. Additionally, typical operators
rarely reinvest in their stores after making their initial investment, resulting
in a deteriorating stock of retail coin-operated laundromats.
CURRENT OPERATIONS AND PLANNED EXPANSION
The Company's current operations and its planned expansion focus on rapidly
achieving a "critical mass" of SpinCycle stores in its targeted markets.
Management's expertise has allowed, and is expected to continue to allow, the
Company to employ rigorous, standard criteria to development, acquisitions and
operations in order to achieve a steady, repeatable store performance. As of
March 22, 1998, the Company had opened 95 stores in 20 markets across the United
States. Of these 95 stores, the Company developed 60 stores and purchased 35
stores. During the balance of 1998, management expects to open approximately 130
additional stores, half of which it expects to develop and half of which it
expects to acquire. By the end of 2002, the Company expects to have
approximately 700 stores. Continuing its current expansion strategy, half of
this estimated growth is expected to be through acquisition and the other half
will be accomplished through developing new stores. The following map summarizes
the current states and markets in which the Company operates as well as the
states and markets which the Company intends to enter through 1999:
[SPIN CYCLE MAP]
SPINCYCLE ECONOMICS
Current Store Economics. As of March 22, 1998, the Company was operating
48 Mature Stores, 16 of which were Developed Stores and 32 of which were
Acquired Stores.
42
<PAGE> 44
For the period ended March 22, 1998, on average, the 16 Developed Stores
generated approximately $29,500 of net period revenue and approximately $9,400
of period Store EBITDA, for annualized net revenue and Store EBITDA of
approximately $384,000 and $123,000 per store, respectively. The average cost to
open such Developed Stores was approximately $800,000 per store with an average
store size of 5,680 square feet. As of March 22, 1998, the average cost to open
the last 20 Developed Stores, which average 4,338 square feet, was approximately
$617,000 per store.
For the period ended March 22, 1998, on average, the 32 Acquired Stores
generated approximately $22,200 of period net revenue and approximately $6,500
of period Store EBITDA, for annualized net revenue and Store EBITDA of
approximately $289,000 and $84,000 per store, respectively. The average cost to
acquire these stores was approximately $478,000 per store, including retrofit
and conversion expenses.
Projected Store Economics. The Company expects its projected Developed
Stores will average 4,000 square feet and will generate approximately $382,000
in annual net revenue and approximately $130,000 in annual Store EBITDA, once
such stores become Mature Stores. By reducing average store size the Company
expects to be able to reduce its annual rent expenses and increase Store EBITDA
by an average of approximately $10,000. The reduction in store size is not
expected to result in lower revenue because the Company's 4,000 square foot
store generally has substantially the same machine mix as its larger stores. The
Company expects its projected Developed Stores to cost approximately $607,000
per store.
The Company expects its average projected Acquired Store to generate
approximately $306,000 in annual net revenue and $105,000 in annual Store
EBITDA. The increase in projected Acquired Store net revenue and Store EBITDA
over current Acquired Store performance reflects actual Acquired Store
performance adjusted for the performance of three such stores that were
undergoing substantial renovation during the period ended March 22, 1998. The
Company projects that the average cost to acquire stores will be approximately
$460,000 per store, including retrofit expenditures.
If management achieves its 1998 expansion plans there will be over 225
SpinCycle stores operating at year end 1998 which management expects to generate
in the aggregate, once such units have become Mature Stores, approximately $79.8
million of revenue and $25.0 million of Store EBITDA.
Some of the Company's assumptions inevitably will not materialize, and
unanticipated events and circumstances may occur; therefore, actual results
achieved will vary from the results indicated. Such variations may be material.
The prospective financial information included in this Prospectus has been
prepared by, and is the responsibility of, the Company's management. Price
Waterhouse LLP has neither examined nor compiled the accompanying prospective
financial information and, accordingly, Price Waterhouse LLP does not express an
opinion or any other form of assurance with respect thereto. The Price
Waterhouse LLP report included in this Prospectus relates to the Company's
historical financial information. It does not extend to the prospective
financial information and should not be read to do so.
SPINCYCLE'S EXPANSION STRATEGY
Through 1998 and beyond, the Company intends to expand upon its leading
position in the national retail coin-operated laundromat industry through a
systematic two-pronged approach of opportunistic development and consolidation.
SpinCycle intends to continue to expand in 1998 primarily within its 20 existing
markets as well as in additional markets in 1999 and beyond.
SpinCycle approaches expansion methodically, utilizing its knowledge of the
SpinCycle customer as the basis for its growth. Whether acquiring or developing
locations within existing or new markets, the Company bases its expansion
decisions on a careful examination of the market. Based upon demographic studies
analyzing the concentration of the typical SpinCycle customer, the Company
determines its target markets and defined trade areas within these markets and
opportunistically develops or acquires stores that meet, or can be converted in
order to meet, SpinCycle's target store economics. Management believes such an
approach to expansion allows the Company to rapidly achieve a leading position
within markets that support the SpinCycle concept.
43
<PAGE> 45
Market Plan. SpinCycle considers its market plan the first step in its
expansion process. Based on management's understanding of its core customer,
SpinCycle identifies markets that contain a base of its target customers
sufficient to support a critical mass of SpinCycle stores. Once a market of such
size is identified, SpinCycle gathers detailed demographic information to define
individual trade areas that the Company believes encompass the majority of
potential SpinCycle customers in the overall market. Finally, SpinCycle
identifies all eligible development sites and acquisition candidates within
these defined trade areas that are best suited to service the trade area.
Markets are identified using detailed third party demographic information
including population density, median household income, average household size
and age, renter/owner ratios and annual laundromat spending densities.
SpinCycle considers a trade area sufficient if it has a population density
of at least 15,000 households with a median household income ranging from
$25,000 to $35,000 per year, average household size of greater than two
occupants, a renter-occupied housing percentage of at least 50% and annual
laundromat spending densities in excess of $1.0 million. The Company defines
trade areas by, among other criteria, six to seven minute average drive times to
the potential site, geographic barriers, traffic patterns and major
thoroughfares. Once the trade areas are defined, the Company's real estate
professionals, aided by local real estate brokers, gather information on
competition, traffic counts and patterns, locations of high traffic retailers
(such as discount stores and grocery stores) and the locations of retailers
which cater to a customer base similar to SpinCycle's (such as dollar stores,
rent-to-own stores and check-cashing stores). Such information is used to create
the real estate strategy for a particular trade area. After mapping this
information, the real estate professionals identify (i) key intersections for
potential SpinCycle locations and (ii) potential acquisition candidates within
the trade area.
Development. Once the market plan is complete and all trade areas are
defined, the Company's regional real estate professional develops a list of all
potential SpinCycle sites within the given trade areas. Key factors in
identifying potential SpinCycle sites are store visibility and profile, access,
size, signage, parking, location, economics, expected transaction timing and
estimated store volume. Several tours of the trade area are performed to ensure
that the Company evaluates all available sites. Concurrently, the real estate
team begins negotiations to lease desired space and to secure tenant improvement
contributions by the landlord and/or evaluate potential acquisitions. The
typical SpinCycle lease is for a ten year term with four five year renewal
options with 10-12% rent escalation every five years.
Once potential development sites are identified, the Company's regional
real estate professional and regional construction manager prepare a development
budget for each store at its particular site. If the store can be developed
within budgeted criteria, the site is submitted for final field approval by the
Chief Development Officer. Upon completion of field approval, a comprehensive
site evaluation package is submitted for approval by SpinCycle's senior
management.
Once a site is approved, the Company's nationwide network of general
contractors, design firms and architectural firms allows SpinCycle to quickly
and accurately customize it to the SpinCycle format while minimizing development
overrun costs. The Company typically requires a minimum of three bids for any
construction project. The Company's regional construction managers are usually
familiar with the work of the contractors they engage thus further helping to
ensure a timely, consistent and high quality build-out. By coordinating
construction efforts through Company construction professionals, management
believes it has been able to realize significant development cost savings
through on-going improvements in site design and engineering.
Acquisitions. SpinCycle targets the acquisition of existing laundromats
which (i) enhance SpinCycle's rapid achievement of critical mass in targeted
markets and allow strategic consolidation of local competitors, (ii) eliminate
duplicative development efforts, (iii) provide immediate mature cash flow and
(iv) can be easily converted to SpinCycle's store concept. SpinCycle sources
acquisitions through its regional real estate professionals, advertising in
industry trade journals, contacts provided by equipment manufacturers and
distributors and referrals from other sellers. Additionally, because the typical
laundromat owner has historically lacked an exit strategy, SpinCycle often
receives unsolicited inquiries from potential sellers.
44
<PAGE> 46
During 1997, SpinCycle acquired 27 laundromats in seven markets. As of March 22,
1998, the Company was negotiating the acquisition of nine laundromats and was
negotiating letters of intent to acquire 28 laundromats.
SpinCycle utilizes a proprietary financial model based on utility
consumption rates and machine mix to verify the historical revenue information
provided by a potential acquisition candidate. Additionally, a thorough analysis
of a potential acquisition candidate's competitive position within its trade
area helps to ensure the Company's ability to sustain such historical cash
flows. The Company has typically purchased stores at a 4.0x-5.0x Store EBITDA,
pro forma for the Company's anticipated expense levels (or 3.0x-4.0x historical
Store EBITDA), although from time to time the Company has acquired, and expects
that in the future it will acquire, existing laundromats based upon other
strategic considerations.
OPERATIONS
Once a store is opened, SpinCycle believes that its manner of operations
distinguishes it from its competition. Key components of SpinCycle's operating
strategy include (i) heavy emphasis on customer satisfaction and superior
facility maintenance, (ii) facility security and (iii) loss prevention through
management controls. SpinCycle considers customer satisfaction paramount in its
efforts to build a successful chain of branded coin-operated laundromats. To
ensure customer satisfaction, SpinCycle expends significant resources training
store employees to provide consistent and reliable store appearance,
extraordinary customer service and facility maintenance.
Customer Satisfaction and Facility Maintenance. SpinCycle has established
high quality standards in an industry characterized by its lack of attention to
customer service and satisfaction. Management believes its equipment
configuration and store design is unique and ensures customer satisfaction by
providing a pleasant in-store experience and minimizing the time necessary to
complete full laundry cycles. Stores generally are open from 7:00 a.m. to 10:00
p.m. daily, with some stores open for extended hours. Several Acquired Stores
are open 24 hours.
Facility cleanliness and customer service are hallmarks of the Company's
operations. Store employees regularly clean all elements of the facility.
Employees are trained according to the Company's prescribed program to execute
precisely a scheduled and highly structured daily cleaning program of the
machines and the entire physical plant and to provide superior levels of
customer service by assisting customers with all matters of machine usage and
laundry care, thus further enhancing the customer's satisfaction.
SpinCycle also strives to keep all of its equipment in good working order.
The Company's success in machine maintenance results from its insistence upon
purchasing high quality commercial washers and dryers and training in-store
staff to execute routine maintenance programs. Approximately 80% of the washers
in a SpinCycle store are front load washers, which management believes are more
durable and more efficient to operate than top loaders. Store employees are also
trained to troubleshoot machine problems before referring matters to service
technicians. The Company's next generation proprietary store control system is
currently under development and is expected to be site-tested in the second
quarter of 1998. Future enhancements include the ability to remotely monitor and
diagnose maintenance issues and to provide maintenance personnel access to the
maintenance history of each machine and an advance indication of the nature of a
problem in order to ensure that service technicians have the parts necessary to
complete a service call.
Facility Security. SpinCycle places significant emphasis on providing a
store that is safe and secure both for customers and employees. A substantial
component of SpinCycle's target customers -- women in urban neighborhoods --
have indicated that safety is a paramount concern. To provide a secure facility
and thereby promote employee and customer safety, the Company typically uses the
following precautionary measures: video surveillance and monitoring systems,
armored car services, panic buttons in every store, safety training and well
lighted interiors and exteriors. In addition, SpinCycle's store attendants
monitor the safety and security of the store.
Management Controls. SpinCycle installs a network interface card ("NIC")
in each of its washers and dryers. These cards are connected to a personal
computer in the store which polls the individual NIC's, creating a local area
network ("LAN"). The LAN in each store is linked via modem to the Company's
45
<PAGE> 47
headquarters enabling management to track daily performance of each machine at
each store and thereby constantly evaluate actual store performance versus
budgeted levels. Such tracking also enables the real estate and operations
departments to evaluate overall market strategy and make necessary adjustments
in the site criteria used to make future real estate decisions.
The store control system records each machine activation and downloads this
information to corporate headquarters nightly. Cash management involves a
process of daily coin collection by employees, who then deposit the cash into a
store safe. The cash is then collected by Brinks Incorporated or another armored
car service. The collected amount is reconciled against the Company's data
collected from the store control system. SpinCycle's cash handling procedures
are designed to minimize the risk to employees as well as the potential for
theft, as theft is detectable from the daily reconciliation reports. The
implementation of these cash handling procedures has allowed the Company to
maintain annual shrinkage of less than 0.50%. In addition to providing an
effective auditing mechanism, the system also assists management in making
staffing, operating and security decisions, as well as determining optimal
machine mix and configuration.
MARKETING
The Company believes that a significant amount of its per store customer
base is generated through brand identification and word of mouth, but SpinCycle
also actively markets to increase a store's market penetration. SpinCycle's
store marketing strategy typically includes a grand opening program, in-store
signage and ongoing promotions. A store's grand opening program generally
commences four weeks prior to opening a store and includes banners, facility
tours with community leaders and promotional partnerships with local businesses
and civic organizations, including the United Negro College Fund, the Boys and
Girls Club and community churches. A direct mail promotional incentive is
generally sent to potential customers to raise awareness and interest in the
SpinCycle concept. After a store has been operating for several months, the
Company may run additional promotions such as a "Half Off Wash" or "Free Dry" to
generate additional customer visits. The Company has found that such promotions
drive significant additional customer traffic and result in a permanent increase
in its customer base, thus increasing revenue following such promotions. The
Company uses in-store signage to teach its customers about the advantages of
SpinCycle's unique machine mix (e.g., using a double load front load washer
versus a single load top loader) and facility. Other marketing initiatives have
included focus groups, billboard advertising and community outreach programs.
SpinCycle actively promotes off-peak usage by offering mid-week specials
such as reduced wash or dry prices. SpinCycle's next generation store control
system is expected to allow for remote price changing, which is expected to
enable corporate management to run mid-week price reductions and other
promotions from SpinCycle headquarters. Management believes that this capability
should help the Company to substantially increase non-peak hour demand for its
equipment and generate significant incremental revenue.
COMPETITION
Although there is no single chain of laundromats with which the Company
competes on a national basis, the Company experiences significant competition in
all of its markets from local "mom and pop" operators and, in some markets, from
regional chains. For example, in Texas, the Company competes against KwikWash,
which is a chain of over 150 stores owned by Coinmach Corporation, a publicly
traded company. While Coinmach Corporation has substantially greater resources
than the Company, KwikWash stores are on average smaller and, management
believes, deliver significantly inferior service than the Company's prototype
store delivers. The Company also competes against other laundry services
available to potential customers, including laundry facilities available in
their homes or apartment buildings and independently owned neighborhood
coin-operated laundromats. Laundry facilities at apartment buildings are often
maintained by route operators whose resources are also often substantially
greater than the Company's.
Management believes that the principal competitive factors in the retail
coin laundry industry are convenient location, adequate parking, a varied
equipment mix, functioning machines, attended facilities and customer
satisfaction. Management believes it is superior to its competitors in each
regard. See "Risk Factors -- Competition."
46
<PAGE> 48
EMPLOYEES
As of March 22, 1998, the Company had 497 total employees of whom 314 are
full time and 183 are part-time. Each of the Company's full-time employees is
eligible for medical benefits, which management believes helps the Company hire
and retain the best available employees. The Company's part-time employees work
primarily in the Company's stores and are engaged primarily in customer service
functions.
FACILITIES
The Company leases its approximately 15,500 square foot corporate office in
Scottsdale, Arizona pursuant to a five year lease, expiring July 2002.
47
<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the age and position of the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Peter L. Ax.............................. 39 Chief Executive Officer and Chairman of the Board
Bruce D. Mosby........................... 48 Chief Operating Officer
Christopher A. Lombardi.................. 37 Chief Development Officer
James R. Puckett......................... 36 Chief Financial Officer
Chief Information Officer, Vice President,
Patrick H. Boyer......................... 35 Finance
Alfredo Brener........................... 46 Director
Dean Buntrock............................ 66 Director
James E. Hutton.......................... 59 Director
John H. Muehlstein....................... 42 Director
Peer Pedersen............................ 73 Director
John Wallace............................. 37 Director
</TABLE>
Peter L. Ax has been the Chief Executive Officer since January 1998 and the
Chairman of the Board since March 1998. From December 1996 to January 1998 Mr.
Ax was Chief Financial Officer and was Vice Chairman of the Board from December
1996 until March 1998. Mr. Ax also currently serves as a Director of Medgroup,
Inc., a privately held physician management company. From March 1995 to December
1996, Mr. Ax served as Head of the Private Equity Division and Senior Vice
President of Lehman Brothers. From March 1994 to March 1995, Mr. Ax was
responsible for the private placement of fixed income securities on the fixed
income syndicate desk at Lehman Brothers. From September 1991 to March 1994, Mr.
Ax served in the Investment Banking Division of PaineWebber, Inc. Mr. Ax has an
M.B.A. from The Wharton School at the University of Pennsylvania, a J.D. from
the University of Arizona and a B.S. from the University of Arizona and is a
C.P.A.
Bruce D. Mosby has been the Chief Operating Officer since December 1996.
From August 1993 to December 1996, Mr. Mosby was Senior Vice President of
Eastern Division Operations for Long John Silver's, Inc., where he was
responsible for 305 company-owned restaurants. From September 1991 to August
1993, Mr. Mosby served as Zone Vice President for Sbarro, Inc., where he was
responsible for operating 125 restaurants. Previously, Mr. Mosby had been
President and Chief Executive Officer of Diet Center, Inc., and was Vice
President of Franchising with Jenny Craig Weight Loss, Inc. Mr. Mosby has a B.S.
from Cornell University.
Christopher A. Lombardi has been the Chief Development Officer since March
1996. From May 1994 to March 1996, Mr. Lombardi served as Vice President of
Development of Northstar Restaurants, Inc., a franchise area developer for
Boston Chicken, Inc., where he coordinated and directed the real estate
selection and construction in developing 54 stores in 22 months. From May 1990
to May 1994, Mr. Lombardi served as Franchise Operations Manager for Blockbuster
Video, Inc. During his four years at Blockbuster, Mr. Lombardi's territory grew
from 29 to 79 stores in the midwestern United States and western Canada. Mr.
Lombardi has a B.A. from the University of Chicago.
James R. Puckett has been the Chief Financial Officer since May 1998.
Previously he was Vice President of Corporate Development from May 1997 to May
1998. From June 1995 to May 1997, Mr. Puckett was a senior member of the Real
Estate Finance Group in the Fixed Income Division of Donaldson, Lufkin &
Jenrette, Inc. where he was responsible for underwriting debt securities. From
July 1990 to May 1997, Mr. Puckett served in the Investment Banking Division of
PaineWebber, Inc. Previously, Mr. Puckett served in the Corporate Finance
Department of Drexel Burnham Lambert Incorporated where he was responsible for
underwriting equity and debt securities and merger and advisory assignments. Mr.
Puckett has a B.A. from the University of New Mexico.
48
<PAGE> 50
Patrick H. Boyer has been the Chief Information Officer and Vice President,
Finance since May 1998, He was Chief Financial Officer from March 1998 to May
1998. Previously, Mr. Boyer was the Chief Information Officer from March 1996
until March 1998 and was the Vice President of Finance from March 1996 to August
1997. From July 1994 to March 1996, Mr. Boyer was President of Portable Systems
Solutions, Inc., a management information systems consulting firm. From August
1992 to June 1994, Mr. Boyer was National Sales Manager for Lisa Frank, Inc., a
stationery and school supply manufacturer. Previously, Mr. Boyer had been
Controller at Hogue Printing, Inc. and worked at Arthur Andersen and Co. and
Andersen Consulting. Mr. Boyer has an M.B.A. from the University of Missouri and
a B.A. from Trinity University.
Alfredo Brener has been a Director since June 1996. Since 1987 Mr. Brener
has been President and Chief Executive Officer of American Breco Corporation
Texas, Inc., a Houston-based diversified holding company. Mr. Brener is the
former Chairman of the Board of Boys Market, Inc., a Los Angeles-based
supermarket chain; Grupo Mexicano de Video, S.A. de C.V., the Blockbuster Mexico
franchisee; Discovery Zone de Mexico, S.A. de C.V., the Discovery Zone Mexico
franchisee; and a director of Fiesta Mart Supermarket, a Houston-based
supermarket chain. Mr. Brener is also a director of E-Stamp Corp. and Super
Stand Entertainment Co.
Dean Buntrock has been a Director since January 1998. Mr. Buntrock was the
founder and Chairman of the Board of Waste Management, Inc. from 1968 to July
1997 and was its Chief Executive Officer from 1968 until June 1996 and from
February 1997 until July 1997. Mr. Buntrock was Chairman of the Board of
Wheelabrator Technologies, Inc. from March 1997 until April 1998. Mr. Buntrock
was also a director of Boston Chicken, Inc., WM International, First National
Bank of Chicago and Stone Container Corp.
James E. Hutton has been a Director since April 1996. Since June 1993 Mr.
Hutton has been Vice President of Operations for Burrel Professional Labs, Inc.
Mr. Hutton serves on the boards of Indiana Federal Savings Bank; North Coast
Distributing Company, a Miller Beer distributor; and T. P. Orthodontics, a
manufacturer of orthodontic prosthesis devices. From 1973 to 1993 Mr. Hutton was
a tax partner with Geo. S. Olive & Co., a public accounting firm. Previously,
Mr. Hutton was with the accounting firm of Dogan, Roby & Company. Mr. Hutton is
a C.P.A.
John H. Muehlstein has been a Director since April 1997. Since 1986, Mr.
Muehlstein has been a Partner of Pedersen & Houpt, P.C., Chicago, Illinois,
counsel to the Company. Mr. Muehlstein's practice focuses on private capital
transactions and corporate finance. Mr. Muehlstein is a director of Blue Rhino
Corporation and Einstein/Noah Bagel Corp. Mr. Muehlstein is a nephew of Mr.
Pedersen, another director of the Company.
Peer Pedersen has been a Director since November 1997. Mr. Pedersen has
been a partner of the law firm Pedersen & Houpt, P.C. for the past 40 years and
is its Chairman and Managing Partner. Mr. Pedersen is also a director of Boston
Chicken, Inc., Latin American Growth Fund, Tennis Corporation of America,
Extended Stay America, Inc. and Waste Management, Inc. where he is a member of
the Compensation Committee. Mr. Pedersen is an uncle of Mr. Muehlstein, another
director of the Company.
John Wallace has been a Director since June 1996. From June 1996 to
September 1997, Mr. Wallace was a Regional Vice President -- Real Estate for the
Company. From March 1994 to March 1996, Mr. Wallace served as a Director in the
Corporate Finance/Merchant Banking Department at First Southwest Company. In
1986 Mr. Wallace founded and, from 1986 to 1989, he served as the President of
Houston Video Enterprises, which had the rights to Blockbuster Video franchises
for the Houston area. During this period Mr. Wallace assisted with the opening
of 12 company-owned video superstores and 40 additional franchise stores. In
1990, Mr. Wallace and several equity partners formed Grupo Mexicano de Video,
S.A. de C.V. which held the franchise rights to Blockbuster Video in Mexico. Mr.
Wallace served as the General Director from 1990 through 1993, during which time
Grupo Mexicano de Video opened in excess of 80 stores throughout Mexico.
49
<PAGE> 51
DIRECTOR COMPENSATION
Currently, the Company's directors receive no cash compensation for serving
on the Board of Directors. They do, however, receive reimbursement for expenses
reasonably incurred in connection with their service to the Company as
directors. There is also a Non-Employee Director Stock Option Plan pursuant to
which as of July 1 of each year each non-employee director is entitled to a
grant of an option to purchase 20 shares of Common Stock which vest over three
years on each anniversary of the grant date. The initial grants under the plan
vested immediately. To date, options to purchase 100 shares have been granted to
the directors under the Non-Employee Director Stock Option Plan, all of which
were vested.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee (the "Audit Committee"), a
Compensation and Organization Committee (the "Compensation Committee") and a
Finance Committee (the "Finance Committee"). The Audit Committee is composed of
Messrs. Hutton and Brener. The Audit Committee is responsible for reviewing the
scope of the independent auditors' examinations of the Company's financial
statements and receiving and reviewing their reports. The Audit Committee also
meets with the independent auditors, receives recommendations or suggestions for
changes in accounting procedures and initiates or supervises any special
investigations it may choose to undertake. The Compensation Committee is
composed of Messrs. Buntrock, Muehlstein and Pedersen. Messrs. Muehlstein and
Pedersen are members of the law firm of Pedersen & Houpt, P.C. which serves as
counsel to the Company. See "Certain Transactions." The Compensation Committee
determines the Company's policies with respect to the nature and amount of all
compensation of the Company's executive officers and administers the Company's
employee option plans. The Finance Committee is composed of Messrs. Buntrock,
Pedersen and Wallace. The Finance Committee is responsible for overseeing the
Company's borrowing and capital raising activities.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation paid by the Company during the year ended December 28, 1997 to the
Company's Chief Executive Officer and its four other executive officers with
annual compensation of $100,000 or more (collectively, the "Named Executive
Officers"). The Company did not grant stock appreciation rights or stock options
to any Named Executive Officer during the year ended December 28, 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------
------------------------------- SECURITIES
OTHER UNDERLYING
ANNUAL STOCK ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (#) ($)
- --------------------------- ------ ------ ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Patrick A. Clifton.............. 1997 200,000 44,167 36,900 -- --
Chief Executive Officer 1996 158,027 --
and Chairman(3) 1995 -- --
Peter L. Ax..................... 1997 150,000 450,000(4) --(5) 8,038(6)(7) --
Chief Financial Officer 1996 -- --
and Vice Chairman(8) 1995 -- --
Bruce D. Mosby.................. 1997 200,000 -- 33,300 4,038(7) --
Chief Operating Officer 1996 -- 40,000
1995 -- --
Christopher A. Lombardi......... 1997 110,640 25,000 32,300 2,038(7) --
Chief Development Officer 1996 79,414 20,000
1995 -- --
Patrick H. Boyer................ 1997 86,650 25,000 40,700 2,038(7) --
Chief Information Officer 1996 67,965 16,875
1995 -- --
</TABLE>
50
<PAGE> 52
- ---------------
(1) As of year end 1997, the Company accrued $338,754 for bonuses for all
employees for fiscal 1997. In May 1998, the Compensation Committee agreed to
pay cash bonuses to the senior executive officers as follows: Mr. Ax,
$50,000; Mr. Lombardi, $25,000; and Mr. Boyer, $25,000 (of which $22,800 was
guaranteed). Mr. Clifton's bonus has been paid and is not part of the
accrual.
(2) The amounts presented for each of the Named Executive Officers are comprised
primarily of relocation compensation related to the Company's move to
Arizona and automobile allowances.
(3) Mr. Clifton was Chief Executive Officer of the Company until his resignation
on January 21, 1998; he was Chairman of the Board of Directors until his
resignation on February 27, 1998. The Company has agreed to pay Mr. Clifton
$200,000 in annual compensation plus medical benefits for him and his
immediate family through February 2001 pursuant to a severance agreement
dated February 27, 1998.
(4) In April 1997, the Company paid Mr. Ax $400,000 for services rendered prior
to joining the Company in connection with the private offer and sale of the
Company's Series B Stock. Mr. Ax was engaged by the Company in lieu of
engaging an investment bank as placement agent.
(5) Mr. Ax received perquisites and other personal benefits in addition to
salary, cash bonuses and other annual compensation. The amounts of such
perquisites and other personal benefits are not shown because the aggregate
amount of such compensation, if any, for Mr. Ax during the 1997 fiscal year
did not exceed the lesser of $50,000 or 10% of total salary and bonus
reported for such executive officer.
(6) As a founder of the Company, Mr. Ax was granted an option to purchase 8,000
shares of Common Stock at $125.00 per share. These options vest over time
upon attaining certain performance goals, provided, however, that if such
goals are not attained by December 15, 2001 such options shall be fully
vested. Mr. Clifton waived his rights to similar options in his severance
agreement dated February 27, 1998.
(7) Each of Messrs. Ax, Mosby, Lombardi and Boyer were granted fully vested
options to purchase 38 shares of Common Stock in connection with their
respective agreements to relocate to Arizona.
(8) Effective January 21, 1998, Mr. Ax became Chief Executive Officer of the
Company. Effective March 4, 1998, Mr. Ax became Chairman of the Company.
OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information with respect to the
value of the stock options held by the Named Executive Officers at December 28,
1997. No Named Executive Officer exercised any stock options or stock
appreciation rights during the year ended December 28, 1997 or had any stock
appreciation rights outstanding at December 28, 1997.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 28, AT DECEMBER 28,
1997(#)(1) 1997($)(2)
-------------------- --------------------
VESTED UNVESTED VESTED UNVESTED
------ -------- ------ --------
<S> <C> <C> <C> <C>
Patrick A. Clifton.................................... -- -- -- --
Peter L. Ax........................................... 38 8,000(3) -- 600,000
Bruce D. Mosby........................................ 838 3,200 60,000 240,000
Christopher A. Lombardi............................... 438 1,600 30,000 120,000
Patrick H. Boyer...................................... 438 1,600 30,000 120,000
</TABLE>
- ---------------
(1) All of the options granted to the Named Executive Officers were granted
under the 1995 Option Plan (as defined). The options granted were for shares
of the Company's Common Stock. Unless otherwise noted, the options granted
to the Named Executive Officers vest 20% on each anniversary of the grant.
51
<PAGE> 53
(2) With the exception of the vested options for 38 shares of Common Stock
granted to Messrs. Ax, Mosby, Lombardi and Boyer with an exercise price of
$200.00 per share, each of the options granted to the Named Executive
Officers is exercisable at a price of $125.00 per share of Common Stock.
(3) Mr. Ax's options vest upon attainment of certain performance goals,
provided, however that if such goals are not attained by December 15, 2001,
such options shall be fully vested.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs. Ax
and Lombardi. Mr. Ax's agreement, effective as of December 1, 1996 has a term of
four years with automatic one year extensions thereafter, subject to the
provision of at least six months written notice by either party. The agreement
includes a one year post-termination non-competition clause. If Mr. Ax is
terminated by the Company for any other reason except for "cause" as defined in
the agreement, Mr. Ax is entitled to salary and benefits for the remainder of
the term of the agreement, including any bonuses accrued but unpaid as of the
date of termination. In the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, or a reorganization or
recapitalization pursuant to which at least a majority of the equity investment
and voting control is the same as the Company's, the Company may assign its
obligations under the agreement to the surviving or purchasing entity. The terms
of the employment agreement between the Company and Mr. Lombardi is
substantially the same as with Mr. Ax.
1995 AMENDED AND RESTATED STOCK OPTION PLAN
The Company adopted a stock option plan in 1995, which was amended and
restated in 1997 (the "1995 Option Plan") to attract, retain and motivate
selected employees and officers of the Company. The 1995 Option Plan was
approved by the stockholders of the Company in June 1997. Pursuant to the 1995
Option Plan, options to purchase up to 42,724 shares of the Company's Common
Stock may be granted to employees or consultants to the Company. The 1995 Option
Plan is administered by the Compensation Committee which determines the persons
who are to receive options and the number of shares subject to each option. As
of the consummation of the Private Placement, options covering an aggregate of
25,573 shares of Common Stock were outstanding, of which 6,785 were vested and
none had been exercised.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In 1997, the Company adopted a non-employee director stock option plan (the
"Director Option Plan") to attract and compensate non-employee directors of the
Company. The Director Option Plan was approved by the stockholders of the
Company in June 1997. The Company has reserved 2,000 shares of Common Stock for
issuance under the Director Option Plan effective upon the consummation of the
Private Placement. Pursuant to the plan, all non-employee directors as of the
effective date of the Director Option Plan (July 1, 1997) and as of the first
board meeting after the annual stockholders meeting of each year beginning in
1998 are entitled to a grant of options to purchase 20 shares of Common Stock at
a price per share equal to the fair market value per share of the Common Stock
as of the grant date. The initial grants under the plan vested immediately;
subsequent grants vest over three years on each anniversary of the grant dates.
As of April 1, 1998, options to purchase 100 shares have been granted under the
Director Option Plan, all of which were vested. See "-- Director Compensation."
52
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the capital stock of the Company as of June 14, 1998 by (i) each
person known by the Company to own beneficially more than 5% of the Company's
capital stock; (ii) each director of the Company; (iii) each Named Executive
Officer; and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CAPITAL STOCK
BENEFICIALLY PERCENT OF
NAME OWNED(1) VOTING RIGHTS
- ---- ---------------- -------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Dean Buntrock(2)............................................ 25,675 8.26%
Peer Pedersen(3)............................................ 24,551 7.89
Peter L. Ax(4)(13).......................................... 8,655 2.78
John Wallace(5)............................................. 2,900 *
Patrick H. Boyer(6)(13)..................................... 2,038 *
Christopher A. Lombardi(7)(13).............................. 2,038 *
James R. Puckett(8)(13)..................................... 1,720 *
Bruce D. Mosby(9)(13)....................................... 1,638 *
James E. Hutton(10)......................................... 1,073 *
John H. Muehlstein(11)...................................... 804 *
Alfredo Brener(12).......................................... 20 *
------- -----
Total for Directors and Executive Officers........ 71,112 22.86%
======= =====
OTHER BENEFICIAL OWNERS:
Howard C. Warren(14)........................................ 23,681 7.61
William Farley(15).......................................... 18,730 6.02
------- -----
Total for All Beneficial Owners (13 persons)...... 113,523 36.50%
======= =====
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of Common Stock, Series A Stock, Series B Stock, Series C
Stock, vested options to purchase Common Stock and options to purchase
Common Stock which will vest within 60 days.
(2) Includes 4,319 shares of Series C Stock and 432 shares of Common Stock held
by Mr. Buntrock, 386 shares of Series A Stock and 2,421 shares of Series B
Stock held by Mr. Buntrock's wife, and 772 shares of Series A Stock, 4,842
shares of Series B Stock, 11,366 shares of Series C Stock and 1,137 shares
of Common Stock held by The Butterfield Group L.L.C., of which Mr.
Buntrock's wife is the manager. The business address of Mr. Buntrock is 300
East Eighth Street, Hinsdale, Illinois 60521.
(3) Includes 4,352 shares of Series A Stock, 9,684 shares of Series B Stock,
9,559 shares of Series C Stock and 956 shares of Common Stock. The business
address of Mr. Pedersen is 161 North Clark Street, Suite 3100, Chicago,
Illinois 60601.
(4) Includes 450 shares of Series C Stock, 8,167 shares of Common Stock and
vested options to purchase 38 shares of Common Stock held by Mr. Ax.
(5) Includes 2,880 shares of Series A Stock and vested options to purchase 20
shares of Common Stock held by Mr. Wallace. The business address of Mr.
Wallace is 3542 Ella Lee Lane, Houston, Texas 77027.
(6) Includes 1,200 shares of Common Stock and vested options to purchase 838
shares of Common Stock held by Mr. Boyer.
(7) Includes 1,200 shares of Common Stock and vested options to purchase 838
shares of Common Stock held by Mr. Lombardi.
(8) Includes vested options to purchase 1,720 shares of Common Stock held by Mr.
Puckett.
53
<PAGE> 55
(9) Includes 800 shares of Common Stock and vested options to purchase 838
shares of Common Stock held by Mr. Mosby.
(10) Includes 800 shares of Series A Stock, 230 shares of Series C Stock, 23
shares of Common Stock and vested options to purchase 20 shares of Common
Stock held by Mr. Hutton. The business address of Mr. Hutton is 1311
Merrilville Road, Crown Point, Indiana 46307.
(11) Includes 484 shares of Series B Stock, 273 shares of Series C Stock and 27
shares of Common Stock held jointly by Mr. Muehlstein and his wife. Mr.
Muehlstein also has vested options to purchase 20 shares of Common Stock.
Mr. Muehlstein's business address is 161 North Clark Street, Suite 3100,
Chicago, Illinois 60601.
(12) Includes vested options to purchase 20 shares of Common Stock held by Mr.
Brener. The business address of Mr. Brener is 5 Post Oak Park, Suite 2560,
Houston, Texas 77027.
(13) The address of each such person is 15990 N. Greenway/Hayden Loop, Suite
400, Scottsdale, Arizona 85260.
(14) Includes 4,351 shares of Series A Stock, 9,684 shares of Series B Stock,
8,769 shares of Series C Stock and 877 shares of Common Stock. Mr. Warren's
business address is 420 Green Bay Road, Suite 103, Kenilworth, Illinois
60043.
(15) Includes 579 shares of Series A Stock, 3,632 shares of Series B Stock,
1,136 shares of Series C Stock and 114 shares of Common Stock held by the
Fruit of the Loom, Inc. Senior Executive Officer Deferred Compensation
Trust of which Mr. Farley is the sole member of the Pension Investment
Committee of the Board of Directors of Fruit of the Loom, Inc., which
maintains sole voting power and investment power over these shares; 386
shares of Series A Stock and 2,421 shares of Series B Stock held by
Retirement Program of Farley Inc. of which Mr. Farley is the sole member of
the Pension Investment Committee; 579 shares of Series A Stock and 3,632
shares of Series B Stock held by Farley Inc. of which Mr. Farley is the
sole owner; 3,410 shares of Series C Stock and 341 shares of Common Stock
held by FTL Investments Inc. of which Mr. Farley is the Chairman and Chief
Executive Officer; and 2,273 Shares of Series C Stock and 227 shares of
Common Stock held by the Fruit of the Loom Pension Trust of which Mr.
Farley is the sole member of each Pension Investment Committee that has
sole voting power and investment power over these shares. Mr. Farley's
business address is 233 South Wacker Drive, Chicago, Illinois 60606.
CERTAIN TRANSACTIONS
In April 1997, the Company paid Mr. Ax, Chairman and Chief Executive
Officer of the Company, a fee in the amount of $400,000 for services rendered
prior to joining the Company in connection with the private offer and sale of
the Company's Series B Stock. Mr. Ax was engaged by the Company in lieu of
engaging an investment bank as placement agent.
In March 1997, Mr. Pedersen, a director of the Company, executed a personal
guarantee on behalf of the Company in favor of Associated Bank in connection
with an $8.0 million loan by Associated Bank to the Company. The loan was repaid
in April 1997 and Mr. Pedersen's guarantee was released. Mr. Pedersen did not
receive any consideration for executing the guarantee.
In April 1997, Messrs. Buntrock and Pedersen, directors of the Company,
either directly or through their affiliates, each purchased $1,936,816 of Series
B Stock from the Company. Messrs. Buntrock and Pedersen purchased these shares
on the same terms and conditions as all other purchasers of Series B Stock.
In April 1998, Messrs. Buntrock and Pedersen, either directly or through
their affiliates, purchased $1,950,300 and $2,000,020 of Series C Units,
comprised of Series C Stock and shares of Common Stock.
Messrs. Muehlstein and Pedersen are partners and members of the management
committee of the law firm of Pedersen & Houpt, P.C., which has served as counsel
to the Company since March 1997. In that connection, the firm has been paid fees
for services rendered.
54
<PAGE> 56
DESCRIPTION OF THE HELLER FACILITY
GENERAL
Concurrently with the closing of the Private Placement, the Company entered
into the Heller Facility with Heller as agent. The Heller Facility consists of a
revolving credit facility in an aggregate principal amount of $40.0 million that
will mature on April 28, 2002.
Indebtedness under the Heller Facility is secured by a first priority
security interest upon (i) all of the Company's now owned and hereafter acquired
real and personal property and all proceeds thereof and (ii) all general
intangibles and other intangible assets (including, without limitation,
trademarks and trade names) of the Company, if any, and proceeds thereof.
REVOLVING CREDIT FACILITY
The Heller Facility consists of a revolving credit facility in an aggregate
principal amount of $40.0 million. The Company will be entitled to draw amounts
under the Heller Facility, subject to availability pursuant to a borrowing base
formula based upon income from store operations and net book value of laundry
equipment, in order to fund ongoing working capital, capital expenditures and
general corporate purposes.
INTEREST RATES
Interest will accrue on the loans with reference to the base rate (the
"Base Rate") plus 0.50%. The Company may elect that all or a portion of the
loans bear interest at the LIBOR rate (the "LIBOR Rate") plus 2.75%. The Base
Rate is defined as, on any date, the "Bank Prime Loan" rate published by the
Board of Governors of the Federal Reserve System plus 0.50%. The LIBOR Rate is
defined as an amount equal to the rate posted on the Reuters Screen LIBO Page on
the day which is three business days prior to the first day of such interest
period.
COVENANTS
The Heller Facility contains certain covenants and other requirements of
the Company. In general, the affirmative covenants provide for mandatory
reporting by the Company of financial and other information to the agent and
notice by the Company to the agent upon the occurrence of certain events.
The Heller Facility also contains certain negative covenants and
restrictions on actions by the Company including, without limitation,
restrictions on indebtedness, liens, guarantee obligations, mergers, asset
dispositions, certain payments, transactions with affiliates, entering other
lines of business and amendments of the terms of other indebtedness. The Heller
Facility requires the Company to meet certain financial covenants including a
fixed charge coverage ratio subject to availability dropping below a certain
threshold and covenants requiring maintenance of average Mature Store EBITDA,
minimum Mature Store EBITDA and minimum unused availability.
EVENTS OF DEFAULT
The Heller Facility specifies certain customary events of default
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities and
unenforceability of certain documents under the Heller Facility. The events of
default under the Heller Facility are substantially similar to the events of
default under the Indenture with certain exceptions.
The description of the Heller Facility set forth above is qualified in its
entirety by the complete text of the documents entered into therewith.
55
<PAGE> 57
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes have been, and the New Notes will be issued under an
Indenture, dated as of April 29, 1998 (the "Indenture"), between the Company and
Norwest Bank Minnesota, N.A., as Trustee (the "Trustee"). The form and terms of
the Old Notes are substantially identical to the form and terms of the New Notes
described herein, except that the offer of the New Notes will have been
registered under the Securities Act and, therefore, the New Notes will not bear
legends restricting the transfer thereof.
The following is a summary of certain provisions of the Indenture and the
New Notes, a copy of which Indenture and the form of New Notes is available upon
request to the Company at the address set forth under "Available Information."
The following summary of certain provisions of the Indenture and the New Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, and those terms
made a part thereof by reference to the Trust Indenture Act, and the New Notes,
including the definitions of certain terms therein.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 principal amount at maturity and any
integral multiple of $1,000. See "Book Entry, Delivery and Form." No service
charge shall be made for any registration of transfer or exchange of New Notes,
but the Company may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith.
TERMS OF THE NEW NOTES
The Notes are unsecured senior obligations of the Company, limited to
$144,990,000 aggregate principal amount at maturity, and will mature on May 1,
2005. Except as described below, no cash interest will accrue on the New Notes
prior to May 1, 2001, although for U.S. federal income tax purposes a
significant amount of original issue discount, taxable as ordinary income, will
be recognized by a Holder as such discount accrues from the Issue Date through
May 1, 2005. Cash interest will accrue on the New Notes at the rate per annum
shown on the cover page hereof from May 1, 2001 or from the most recent date to
which interest has been paid or provided for, payable semi-annually to Holders
of record at the close of business on the April 15 or October 15 immediately
preceding the interest payment date on May 1 and November 1 of each year,
commencing November 1, 2001. Interest will be calculated on the basis of a
360-day year consisting of twelve 30-day months. The Company will pay interest
on overdue principal at 1% per annum in excess of such rate, and it will pay
interest on overdue installments of cash interest at such higher rate to the
extent lawful. If, after this Registration Statement is declared effective, such
Registration Statement ceases to be effective or usable in certain
circumstances, cash interest may accrue on the New Notes.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the New Notes will not be
redeemable at the option of the Company prior to May 1, 2002. Thereafter, the
New Notes will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on May 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2002....................................................... 106.375%
2003....................................................... 103.188
2004 and thereafter........................................ 100.000
</TABLE>
56
<PAGE> 58
In addition, at any time and from time to time prior to May 1, 2001, the
Company may redeem in the aggregate up to 35% of the Accreted Value of the Notes
with the proceeds of one or more Public Equity Offerings following which there
is a Public Market, at a redemption price of 112.750% of the Accreted Value to
the date of redemption; provided, however, that at least $94.2 million of the
aggregate principal amount at maturity of the Notes must remain outstanding
after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in principal amount at maturity or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating 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.
RANKING
The indebtedness evidenced by the New Notes will be senior unsecured
obligations of the Company ranking pari passu in right of payment with all other
senior unsecured Indebtedness of the Company (including the Old Notes, if any)
and senior to all Subordinated Obligations. The Notes will be effectively
subordinated to all Secured Indebtedness of the Company, if any, to the extent
of the value of the assets securing such Indebtedness and to all Indebtedness
and other obligations (including trade payables) of the Company's future
Subsidiaries, if any.
As of March 22, 1998, after giving effect to the issuance of the Notes and
the application of the proceeds therefrom, the Company's unsecured Indebtedness
would have been approximately $94.4 million. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company may incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Secured Indebtedness or Indebtedness
of the Company's future Subsidiaries, if any. See "-- Certain
Covenants -- Limitation on Indebtedness" and "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's New Notes at a purchase price in cash equal to 101% of
the Accreted Value thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the then outstanding Voting Stock of the Company;
provided, however, that for purposes of this clause (i), the Permitted
Holders shall be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation") so long as one or more of the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate
a majority of the voting power of the Voting Stock of the parent
corporation;
(ii) during any period of two consecutive years after the Company's
initial Public Equity Offering, individuals who at the beginning of such
period constituted the Board of Directors (together with any new directors
whose election by such Board of Directors or whose nomination for election
by the stockholders of the Company was approved by a vote of 66 2/3% of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office; or
57
<PAGE> 59
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (in each case other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of the Company that are outstanding immediately prior to
such transaction and which represent 100% of the aggregate voting power of
the Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation or a parent corporation that owns
all of the capital stock of such corporation that represent immediately
after such transaction, at least a majority of the aggregate voting power
of the Voting Stock of the surviving corporation or such parent
corporation, as the case may be.
Within 30 days following any Change of Control, unless notice of redemption
of the New Notes has been given pursuant to the provisions of the Indenture
described under "-- Optional Redemption" above, the Company shall mail a notice
to the Trustee and to each Holder stating: (1) that a Change of Control has
occurred and that such Holder has the right to require the Company to purchase
such Holder's New Notes at a purchase price in cash equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control; (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its New Notes purchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of New Notes pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness"
and "-- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries." Such restrictions can only be waived with the consent of the
Holders of a majority in principal amount at maturity of the Notes then
outstanding. Except for the limitations contained in such covenants, however,
the Indenture will not contain any covenants or provisions that may afford
Holders protection in the event of a highly leveraged transaction.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be delivered by Holders seeking to accept the Change of
Control offer. The failure of the Company to make or consummate the Change of
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "-- Defaults."
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Heller Credit Agreement contains, and future indebtedness of the
Company may contain, prohibitions on the occurrence of certain events that would
constitute a Change of Control or require such indebtedness to be repaid or
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
58
<PAGE> 60
their right to require the Company to repurchase the Notes could cause a default
under such indebtedness, even if the Change of Control itself does not, due to
the financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders following the occurrence of a Change of
Control may be limited by the Company's then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. The provisions under the Indenture relating to
the Company's obligation to make an offer to repurchase the Notes as a result of
a Change of Control may be waived or modified with the written consent of the
Holders of a majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not incur, directly
or indirectly, any Indebtedness unless, on the date of such incurrence and
after giving effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to
1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur
any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Heller Credit Agreement
or any other credit or loan agreement in an aggregate principal amount
which, when taken together with all letters of credit and the principal
amount of all other Indebtedness Incurred pursuant to this clause (1)
and then outstanding, does not exceed $40.0 million;
(2) Indebtedness owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to another Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness
by the Company;
(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or (3) of this covenant);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (4) or this
clause (5) or pursuant to the covenant described under "-- Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries" below;
(6) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
pursuant to the Indenture;
(7) Indebtedness of the Company consisting of obligations in
respect of purchase price adjustments in connection with the acquisition
or disposition of assets by the Company or any Restricted Subsidiary
permitted under the Indenture;
(8) Capital Lease Obligations and Attributable Debt of the Company
with respect to Sale/Leaseback Transactions in an aggregate principal
amount not exceeding $10.0 million at any one time outstanding; and
(9) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of
such Incurrence (other than Indebtedness permitted by clauses (1)
through (8) above or paragraph (a)), does not exceed $20.0 million at
any one time outstanding.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds
thereof are used, directly or indirectly, to Refinance any
59
<PAGE> 61
Subordinated Obligations unless such Indebtedness shall be subordinated to
the Notes to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the covenant entitled
"-- Limitation on Indebtedness," (i) in the event that an item of
Indebtedness meets the criteria of more than one of the types of
Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii)
an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Company shall not permit any Restricted Subsidiary to
Incur, directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the
Company or a Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in
any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of such Indebtedness or Preferred Stock
(other than to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the issuance of such Indebtedness or
Preferred Stock by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than
Indebtedness or Preferred Stock Incurred in connection with, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant
to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company); provided, however, that on the date of
such acquisition and after giving effect thereto, the Company would have
been able to Incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of the covenant described under "-- Limitation on
Indebtedness";
(c) Indebtedness or Preferred Stock outstanding on the Issue Date
(other than Indebtedness or Preferred Stock described in clauses (a) or
(b) of this paragraph);
(d) Indebtedness of any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with
the acquisition or disposition of assets by the Company or any
Restricted Subsidiary permitted under the Indenture;
(e) Preferred Stock which is not Disqualified Stock; provided,
however, that such Restricted Subsidiary shall not pay cash dividends on
such Preferred Stock; and
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in clauses (b) or (c) of this paragraph or
this clause (f); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Restricted Subsidiary described in clause (b), such
Refinancing Indebtedness shall be Incurred only by such Restricted
Subsidiary.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist
any Lien upon any of its property or assets, now owned or hereafter
acquired, securing any obligation unless concurrently with the creation of
such Lien effective provision is made to secure the Notes equally and
ratably with such obligation for so long as such obligation is so secured;
provided, that, if such obligation is a Subordinated Obligation, the Lien
securing such obligation shall be subordinated and junior to the Lien
securing the Notes with the same or lesser relative priority as such
Subordinated Obligation shall have been with respect to the Notes. The
preceding restriction shall not require the Company or any Restricted
Subsidiary to secure the New Notes if the Lien consists of the following:
(a) Liens created by the Indenture, Liens under the Heller Credit
Agreement and Liens existing as of the Issue Date;
60
<PAGE> 62
(b) Permitted Liens;
(c) Liens to secure Indebtedness issued by the Company for the
purpose of financing all or a part of the purchase price of assets or
property acquired or constructed in the ordinary course of business
after the Issue Date; provided, however, that (a) the aggregate
principal amount (or accreted value in the case of Indebtedness issued
at a discount) of Indebtedness so issued shall not exceed the lesser of
the cost or fair market value, as determined in good faith by the Board
of Directors, of the assets or property so acquired or constructed, (b)
the Indebtedness secured by such Liens shall have been permitted to be
Incurred under the "-- Limitation on Indebtedness" covenant and (c) such
Liens shall not encumber any other assets or property of the Company or
any of its Restricted Subsidiaries other than such assets or property or
any improvement on such assets or property and shall attach to such
assets or property within 90 days of the construction or acquisition of
such assets or property;
(d) Liens on the assets or property of a Restricted Subsidiary
existing at the time such Restricted Subsidiary becomes a Restricted
Subsidiary and not issued as a result of (or in connection with or in
anticipation of) such Restricted Subsidiary becoming a Restricted
Subsidiary; provided, however, that such Liens do not extend to or cover
any other property or assets of the Company or any of its other
Restricted Subsidiaries;
(e) Liens securing Capital Lease Obligations Incurred in accordance
with the "-- Limitation on Indebtedness" covenant;
(f) Liens with respect to Sale/Leaseback Transactions permitted by
clause (b)(8) of the "-- Limitation on Indebtedness" covenant;
(g) Liens securing Indebtedness issued to Refinance Indebtedness
which has been secured by a Lien permitted under the Indenture and is
permitted to be Refinanced under the Indenture; provided, however, that
such Liens do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; or
(h) Liens on assets of the Company or any of its Restricted
Subsidiaries securing Indebtedness in an aggregate principal amount not
to exceed $10.0 million.
Limitation on Sale/Leaseback Transactions. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (i) the
Company or such Restricted Subsidiary would be (A) in compliance with the
covenants described under "-- Limitation on Indebtedness" or "Limitation on
Indebtedness and Preferred Stock of Restricted Subsidiaries" immediately
after giving effect to such Sale/Leaseback Transaction and (B) entitled to
create a Lien on such property securing the Attributable Debt with respect
to such Sale/Leaseback Transaction without securing the New Notes pursuant
to the covenant described under "-- Limitation on Liens," (ii) the net
proceeds received by the Company or any Restricted Subsidiary in connection
with such Sale/Leaseback Transaction are at least equal to the fair market
value (as determined by the Board of Directors) of such property and (iii)
the Company or such Restricted Subsidiary applies the proceeds of such
transaction in compliance with the covenant described under "-- Limitation
on Sales of Assets and Subsidiary Stock."
Limitation on Restricted Payments. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, make
a Restricted Payment if at the time the Company or such Restricted
Subsidiary makes, and after giving effect to, the proposed Restricted
Payment: (i) a Default shall have occurred and be continuing (or would
result therefrom); (ii) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "-- Limitation on Indebtedness"; or (iii) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue
Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during
61
<PAGE> 63
which the Notes were originally issued to the end of the most recently
ended fiscal quarter for which financial statements are available at the
time of such Restricted Payment (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
capital contributions or the issuance or sale of its Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of
its employees);
(C) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the Issue Date, of any
Indebtedness of the Company for Capital Stock (other than Disqualified
Stock) of the Company (less the amount of any cash, or the fair value of
any other property, distributed by the Company upon such conversion or
exchange), whether pursuant to the terms of such Indebtedness or
pursuant to an agreement with a creditor to engage in an equity for debt
exchange; and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however,
that the foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated as a
Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary subsequent to the Issue Date.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds
of the substantially concurrent sale of, Capital Stock of the Company
(other than (A) Disqualified Stock or (B) Capital Stock issued or sold
to a Subsidiary of the Company or other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of its employees) or out of
the proceeds of a substantially concurrent capital contribution to the
Company; provided, however, that (x) such purchase, capital contribution
or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (y) the Net Cash Proceeds from such sale of
Capital Stock or capital contribution shall be excluded from clause
(iii)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations in whole
or in part (including premium, if any, and accrued and unpaid interest)
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to the covenant described under "-- Limitation on
Indebtedness"; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted
Payments; and
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions
on its Capital Stock to the Company or a Restricted Subsidiary,
62
<PAGE> 64
(b) pay any Indebtedness owed to the Company, (c) make any loans or
advances to the Company or (d) transfer any of its property or assets to
the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by
the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this covenant or this
clause (iii) or contained in any amendment to an agreement referred to
in clause (i) or (ii) of this covenant or this clause (iii); provided,
however, that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in
such agreements;
(iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases to the extent such provisions
restrict the transfer of the lease or sublease or the property leased or
subleased thereunder or in purchase money financings;
(v) in the case of clause (d) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(vi) encumbrances or restrictions imposed by operation of
applicable law; and
(vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, consummate any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including the value of
all non-cash consideration), as determined in good faith by the Board of
Directors, of the shares and assets subject to such Asset Disposition, and
at least 75% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents and (ii)
an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be) (A) first, to the extent the Company elects in its sole
discretion (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase (and permanently reduce the commitments under)
Indebtedness under the Heller Credit Agreement or that is otherwise secured
by its assets subject to such Asset Disposition within one year from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash (the "Receipt Date"); (B) second, to the extent of the
balance of such Net Available Cash after application in accordance with
clause (A), to the extent the Company elects in its sole discretion, to
acquire Additional Assets; provided, however, that the Company shall be
required to commit such Net Available Cash to the acquisition of Additional
Assets within one year from the later of the date of such Asset Disposition
or the Receipt Date and shall be required to consummate the acquisition of
such Additional Assets within 18 months from the Receipt Date; (C) third,
to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to make an offer pursuant to
paragraph (b) below to the Holders to purchase Notes pursuant to and
subject to the conditions contained in the Indenture; and (D) fourth, to
the extent of the
63
<PAGE> 65
balance of such Net Available Cash after application in accordance with
clauses (A), (B) and (C) to any other application or use not prohibited by
the Indenture. Notwithstanding the foregoing provisions of this paragraph,
the Company and the Restricted Subsidiaries shall not be required to apply
the Net Available Cash in accordance with this paragraph except to the
extent that the aggregate Net Available Cash from all Asset Dispositions
which is not applied in accordance with this paragraph exceeds $5 million
(at which time, the entire unutilized Net Available Cash, and not just the
amount in excess of $5 million, shall be applied pursuant to this
paragraph). Pending application of Net Available Cash pursuant to this
covenant, such Net Available Cash shall be invested in Permitted
Investments.
For the purposes of this covenant, the following are deemed to be cash
or cash equivalents: (x) the express assumption of Indebtedness of the
Company or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition, (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are converted by the Company
or such Restricted Subsidiary into cash within 90 days of closing the
transaction and (z) Temporary Cash Investments.
(b) In the event of an Asset Disposition that requires the purchase of
the Notes pursuant to clause (a)(ii)(C) above, the Company will be required
to purchase Notes tendered pursuant to an offer by the Company for the
Notes at a purchase price of 100% of their Accreted Value plus accrued but
unpaid interest in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes tendered pursuant to such offer is less than the
Net Available Cash allotted to the purchase thereof, the Company will be
required to apply the remaining Net Available Cash in accordance with
clause (a)(ii)(D) above. The Company shall not be required to make such an
offer to purchase Notes pursuant to this covenant if the Net Available Cash
available therefor is less than $5 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is
required with respect to any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Notes pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this clause by virtue
thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms thereof (1) are no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in a comparable transaction in arm's length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $1.0 million, (i) are set forth
in writing and (ii) have been approved by a majority of the members of the
Board of Directors having no material personal financial stake in such
Affiliate Transaction and (3) if such Affiliate Transaction involves an
amount in excess of $5.0 million, have been determined by a nationally
recognized investment banking firm or other qualified appraiser under the
relevant circumstances to be fair, from a financial standpoint, to the
Company or its Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Permitted Investment or Restricted Payment permitted to be made
pursuant to the covenant described under "-- Limitation on Restricted
Payments," or any payment or transaction specifically excepted from the
definition of Restricted Payment, (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or
the funding of, employment arrangements, stock options and stock ownership
plans or any other similar arrangement heretofore or hereafter entered into
in the ordinary course of business or consistent with past practice, (iii)
the grant of stock options or similar rights to employees and directors
pursuant to plans approved by the Board of Directors or the board of
directors of the relevant Restricted Subsidiary, (iv) loans or advances to
officers, directors or employees in the ordinary course of
64
<PAGE> 66
business, (v) the payment of reasonable fees to directors of the Company
and its Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries, (vi) any Affiliate Transaction between the Company
and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vii)
the purchase of or the payment of Indebtedness of or monies owed by the
Company or any of its Restricted Subsidiaries for goods or materials
purchased, or services received, in the ordinary course of business or
(viii) any transaction pursuant to an agreement or arrangement in effect on
the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary, and shall not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell or
otherwise dispose of any shares of its Capital Stock except (i) to the
Company or a Wholly Owned Subsidiary or (ii) if, immediately after giving
effect to such issuance, sale or other disposition, such Restricted
Subsidiary remains a Restricted Subsidiary; provided, however, that in
connection with any such sale or disposition of Capital Stock the Company
or any such Restricted Subsidiary complies with the covenant described
under "-- Limitation on Sales of Assets and Subsidiary Stock."
Merger and Consolidation. The Company shall not consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, its assets substantially as an entirety to, any
Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) shall expressly
assume, by an indenture supplemental thereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture; (ii) immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Subsidiary as a result of such
transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default shall have occurred
and be continuing; (iii) immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "-- Limitation on Indebtedness"; (iv) immediately after giving effect
to such transaction, the Successor Company shall have Consolidated Net
Worth in an amount that is not less than the Consolidated Net Worth of the
Company prior to such transaction minus any costs incurred in connection
with such transaction; and (v) the Company shall have delivered to the
Trustee an officer's certificate and an opinion of counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture
(if any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power
of, the Company under the Indenture, but the predecessor company, only in
the case of a conveyance, transfer or lease, shall not be released from the
obligation to pay the principal of and interest on the New Notes.
SEC Reports. Notwithstanding that the Company may not be or required
to remain subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall file with the SEC and provide within 15
days of filing therewith to the Trustee and Noteholders such annual reports
and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and other
reports to be so filed and provided at the times specified for the filing
of such information, documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as
(i) a default in the payment of interest on the Notes when due,
continued for 30 days;
(ii) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
acceleration or otherwise;
65
<PAGE> 67
(iii) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above;
(iv) the failure by the Company to comply for 30 days after notice
with any of its obligations in the covenants described above under "Change
of Control" (other than a failure to purchase Notes) or under "-- Certain
Covenants -- Limitation on Indebtedness," "-- Limitation on Indebtedness
and Preferred Stock of Restricted Subsidiaries," "-- Limitation on
Restricted Payments," "-- Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "-- Limitation on Sales of Assets and Subsidiary
Stock," "-- Limitation on Affiliate Transactions," "-- Limitation on the
Sale or Issuance of Capital Stock of Restricted Subsidiaries," or "-- SEC
Reports;"
(v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture;
(vi) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the Holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million and
such non-payment continues or such acceleration is not rescinded within ten
days after notice thereof (the "cross acceleration provision");
(vii) certain events of bankruptcy, insolvency or reorganization of
the Company or any Significant Subsidiary (the "bankruptcy provisions"); or
(viii) any judgment or decree (not covered by insurance or an
indemnity by a person other than the Company or a Restricted Subsidiary,
which indemnitor is solvent) for the payment of money in excess of $10.0
million is entered against the Company or any Significant Subsidiary,
remains outstanding for a period of 60 days following such judgment and is
not discharged, waived or stayed within 30 days after notice (the "judgment
default provision").
However, a default under clause (iv), (v), (vi) or (viii) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount at maturity of the outstanding Notes notify the Company of the
default and the Company does not cure such default within the time specified
after receipt of such notice.
If an Event of Default (other than the bankruptcy provisions relating to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount at maturity of the outstanding Notes may declare the
Accreted Value of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to the bankruptcy
provisions relating to the Company occurs and is continuing, the principal of
and interest on all the Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders. Under certain circumstances, the Holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a New Note may
pursue any remedy with respect to the Indenture or the New Notes unless (i) such
Holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) Holders of at least 25% in principal amount at maturity of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
Holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the Holders of a majority in principal amount at maturity of the
outstanding Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period. Subject to certain restrictions, the Holders
of a majority in principal amount at maturity of the outstanding Notes are given
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or of
66
<PAGE> 68
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as the board of directors, the executive committee or a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the Holders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount at maturity of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange for the Old Notes) and any past default or compliance with any
provisions may also be waived with the consent of the Holders of a majority in
principal amount at maturity of the Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal or Accreted Value of or extend the Stated
Maturity of any Note, (iv) reduce the premium payable upon the redemption of any
Note or change the time at which any Note may be redeemed as described under "--
Optional Redemption" above, (v) make any Note payable in money other than that
stated in the Note, (vi) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes, (vii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions or
(viii) affect the ranking of the Notes in any material respect.
Without the consent of any Holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
A Holder may transfer or exchange the New Notes in accordance with the
Exchange Offer and the Indenture. The Company, the Registrar and the Trustee may
require a Holder, among other things, to furnish
67
<PAGE> 69
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.
DEFEASANCE
The Company at its option at any time may terminate all of its obligations
under the New Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the New Notes, to replace mutilated,
destroyed, lost or stolen New Notes and to maintain a registrar and paying agent
in respect of the New Notes. In addition, the Company at its option at any time
may terminate its obligations under "Change of Control" and under the covenants
described under "-- Certain Covenants" (other than the covenant described under
"-- Merger and Consolidation") (and any omission to comply with such obligations
shall not constitute a Default or Event of Default with respect to the New
Notes), the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under "-- Defaults" above and the limitations contained in
clauses (iii) and (iv) of the first paragraph under "-- Certain Covenants --
Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the New Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the New Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries) or (viii) under "-- Defaults" above or
because of the failure of the Company to comply with clause (iii) or (iv) of the
first paragraph under "-- Certain Covenants -- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the New
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of an opinion of
counsel to the effect that Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the IRS or other change in applicable federal
income tax law).
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when: (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of deposit; (ii) the
Company has paid or caused to be paid all other sums payable under the Indenture
by the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator,
68
<PAGE> 70
stockholder, officer, director, employee or controlling person of the Company or
any successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the SEC that
such waiver is against public policy.
CONCERNING THE TRUSTEE
Norwest Bank Minnesota, N.A. is the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
New Notes. Such bank may also act as a depository of funds for, or make loans to
and perform other services for, the Company or its affiliates in the ordinary
course of business in the future. The corporate trust office of the Trustee is
located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479-
0067.
The Holders of a majority in principal amount at maturity of the
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 if an Event of
Default occurs (and is not cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent person 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 New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the Indenture. The
Trustee may resign at any time or may be removed by the Company. If the Trustee
resigns, is removed or becomes incapable of acting as Trustee or if a vacancy
occurs in the office of the Trustee for any cause, a successor Trustee shall be
appointed in accordance with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates (each,
a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
- ------------------------ --------------
<S> <C>
November 1, 1998............................................ $ 734.18
May 1, 1999................................................. 780.98
November 1, 1999............................................ 830.77
May 1, 2000................................................. 883.73
November 1, 2000............................................ 940.07
May 1, 2001................................................. 1,000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (a) the original issue price
of a Unit and (b) an amount equal to the product of (1) the Accreted Value
for the first Semi-Annual Accrual Date less such original issue price
multiplied by (2) a
69
<PAGE> 71
fraction, the numerator of which is the number of days from the Issue Date
to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is the number of days elapsed from the Issue Date
to the first Semi-Annual Accrual Date, using a 360-day year of twelve
30-day months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(b) an amount equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (2) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (ii) all
or substantially all the assets of any division or line of business of the
Company or any Restricted Subsidiary, or (iii) any other assets of the Company
or any Restricted Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and
(iii) above, (x) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary and (y) for
purposes of the covenant described under "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a
Restricted Payment permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or a disposition specifically
excepted from the definition of Restricted Payment); provided, however, that
Asset Disposition shall not include (a) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration less than or equal to $1.0 million or (b) the sale,
lease, conveyance, disposition or other transfer of all or substantially all of
the assets of the Company as permitted under "Certain Covenants -- Merger,
Consolidation and Sale of Assets."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
70
<PAGE> 72
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) 200% of the aggregate amount of EBITDA for the period of the most
recent two consecutive fiscal quarters ending at least 45 days prior to the date
of such determination to (ii) Consolidated Interest Expense for the four most
recent fiscal quarters ending at least 45 days prior to the date of such
determination; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period, (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, if pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, then the pro
forma calculations shall be determined in good faith by a responsible financial
or accounting officer of the Company.
71
<PAGE> 73
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, then the interest on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries without duplication, (i)
interest expense attributable to Capital Lease Obligations and one-third of the
rental expense attributable to operating leases, (ii) amortization of debt
discount and debt issuance costs, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, (vi) net
costs associated with Hedging Obligations (including amortization of fees),
(vii) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Wholly Owned Subsidiary, (viii) interest
incurred in connection with Investments in discontinued operations, and (ix)
interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by the Company or any Restricted Subsidiary;
provided, however, that there shall not be included in Consolidated Interest
Expense (y) a proportional amount of any of the foregoing items or other
interest expense incurred by a Restricted Subsidiary in such period to the
extent the net income of such Restricted Subsidiary is excluded in the
calculation of Consolidated Net Income pursuant to clause (iii) of the
definition thereof and (z) any fees or debt issuance costs (and any amortization
thereof) payable in connection with the sale of the Notes and the Units on the
Issue Date.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated Net
Income; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a
change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which financial statements are available, as
(i) the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
72
<PAGE> 74
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which 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 (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock, or
(iii) is redeemable at the option of the Holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving Holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are not more favorable to the holders of such Capital Stock than the provisions
described under "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Stock" and "-- Certain Covenants -- Change of Control."
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense, and (d) all other
non-cash items reducing such Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of, or reserve for, cash
disbursement for any subsequent period) less all non-cash items increasing such
Consolidated Net Income (such amount calculated pursuant to this clause (d) not
to be less than zero), in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be paid as a dividend to the Company 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 such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The
73
<PAGE> 75
term "Guarantee" used as a verb (and the participle formed therefrom) shall have
a correlative meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Heller Credit Agreement" means the Credit Agreement, dated as of April 29,
1998, between the Company, Heller Financial, Inc., as agent, and the lenders
party thereto, as such agreement, in whole or in part, may be amended, renewed,
extended, increased (but only so long as such increase is permitted under the
terms of the Indenture), substituted, refinanced, restructured, replaced
(including, without limitation, any successive renewals, extensions, increases,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing).
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for Indebtedness; provided, however, that any Indebtedness of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" shall have a correlative
meaning. The accretion of principal of a non-interest bearing or other discount
security shall be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business); (iv) all obligations of such Person
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations described in
clauses (i) through (iii) above) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not drawn upon, or, if
and to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or
74
<PAGE> 76
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that if such
designation is made in connection with the acquisition of such Subsidiary or the
assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be
deemed to be the consideration paid in connection with such acquisition;
provided further, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation, and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date of original issuance of the Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severance
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition or made in order to
obtain a necessary consent to such Asset Disposition or to comply with
applicable law, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Disposition. Further,
with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned
Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the
equity of such Subsidiary which is not owned by the Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
75
<PAGE> 77
"Permitted Business" means the acquisition, construction, development and
operation of laundromat facilities.
"Permitted Holders" means all executive officers of the Company as of the
Issue Date and each of their Affiliates as well as Dean L. Buntrock, William
Farley, Peer Pedersen and Howard C. Warren and each of their Affiliates.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business; (ii)
another Person, if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; provided, however, that such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
commissions, payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business; (vi)
loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; and (viii) any Person, to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to the covenant described under
"--Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock."
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; (c)
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review or time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings; (e) Liens in favor of issuers of surety bonds or letters of credit
and banker's acceptances issued pursuant to the request of and for the account
of such Person in the ordinary course of its business; provided, however, that
such letters of credit and banker's acceptances do not constitute Indebtedness;
(f) survey exceptions, encumbrances, easements or reservations of or rights of
others for licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (g) Liens securing an Interest
Rate Agreement so long as the related Indebtedness is, and is permitted to be
under the Indenture, secured by a Lien on the same property securing the
Interest Rate Agreement; and (h) leases and subleases of real property which do
not interfere with the ordinary conduct of the business of such Person, and
which are made on customary and usual terms applicable to similar properties.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
76
<PAGE> 78
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided, further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that Refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
of a sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of acquisition), or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
77
<PAGE> 79
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02(w) under
Regulation S-X promulgated by the SEC.
"S&P" means Standard & Poor's Ratings Service.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) 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 (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person, or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P, (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's and (vi) investments in money market funds
that make investments in instruments of the type described in clauses (i)
through (v) above in accordance with the regulations of the SEC under the
Investment Company Act of 1940, as amended.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless
78
<PAGE> 80
such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "--Certain Covenants -- Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) if such Unrestricted Subsidiary at such time has
Indebtedness, the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-- Certain Covenants --
Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced by
the Company to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
DESCRIPTION OF CAPITAL STOCK
As of June 14, 1998, there were 27,763 shares of Common Stock, 76,974
shares of Series A Convertible Preferred Stock, $.01 par value ("Series A
Stock"), 125,498 shares of Series B Convertible Preferred Stock, $.01 par value
("Series B Stock") and 72,930 shares of Series C Convertible Preferred Stock,
$.01 par value ("Series C Stock") outstanding, held of record by 178 holders. As
of such date, no shares of capital stock were held in the treasury of the
Company. In addition, as of June 14, 1998, the Company had outstanding option
grants exercisable for 25,683 shares of Common Stock. The following summary of
certain provisions of the Company's capital stock describes all material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, the Company's certificate of incorporation, as
amended to date, by-laws and by the provisions of applicable law.
COMMON STOCK
As of June 14, 1998, the Company was authorized to issue up to 630,000
shares of Common Stock, $.01 par value. Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. Holders of Common Stock are entitled
to receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive
79
<PAGE> 81
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are, and
the shares subject to Warrants sold by the Company in the Private Placement will
be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of Series A Stock,
Series B Stock, and Series C Stock and any series of Preferred Stock which the
Company may designate and issue in the future.
The shares of Common Stock held by current and former members of management
are subject to a stock transfer restriction agreement pursuant to which the
Company has a right of first refusal to purchase any such shares which a holder
desires to transfer before such shares may be transferred to any other person.
PREFERRED STOCK
The Company is authorized to issue up to 100,000 shares of Series A Stock,
150,000 shares of Series B Stock and 120,000 shares of Series C Stock. Holders
of Preferred Stock are entitled to one vote for each share held on all matters
and do not have cumulative voting rights. Accordingly, holders of a majority of
the shares of Preferred Stock entitled to vote in any election of directors may
elect a majority of the directors standing for election.
Series A Convertible Preferred Stock. The Company has 76,974 shares of
Series A Stock outstanding. Holders of Series A Stock are entitled, along with
the holders of the Series B Stock, to vote as a class to elect one person to the
Board of Directors. The Series A Stock is convertible into shares of Common
Stock on a one-for-one basis and will be converted into Common Stock
concurrently with a qualified public offering of the Company's Common Stock.
Holders of Series A Stock have preemptive rights with respect to the issuance of
any equity securities of the Company. Concurrently with the closing of the
Private Placement, the put rights of holders of Series A Stock were terminated.
The shares of Series A Stock are fully paid and nonassessable.
Series B Convertible Preferred Stock. The Company has 125,498 shares of
Series B Stock outstanding. Holders of Series B Stock are entitled, along with
the holders of the Series A Stock, to vote as a class to elect one person to the
Board of Directors. The Series B Stock is convertible into shares of Common
Stock on a one-for-one basis and will be converted into Common Stock
concurrently with a qualified public offering of the Company's Common Stock.
Holders of Series B Stock have preemptive rights with respect to the issuance of
any equity securities of the Company. Concurrently with the closing of the
Private Placement, the put rights of holders of Series B Stock were terminated.
The shares of Series B Stock are fully paid and nonassessable.
Series C Convertible Preferred Stock. The Company has 72,930 shares of
Series C Stock outstanding. Holders of Series C Stock are entitled to vote as a
class to elect one person to the Board of Directors. The Series C Stock is
convertible into shares of Common Stock on a one-for-one basis and will be
converted into Common Stock concurrently with a qualified public offering of the
Company's Common Stock. Holders of Series C Stock have preemptive rights with
respect to the issuance of any equity securities of the Company. Concurrently
with the closing of the Private Placement, the put rights of holders of Series C
Stock were terminated. The shares of Series C Stock are fully paid and
nonassessable. The shares of Series A Stock, Series B Stock and Series C Stock
are pari passu with respect to liquidation preference.
REGISTRATION RIGHTS
The holders of Series A Stock, Series B Stock and Series C Stock have both
demand and "piggyback" registration rights. At any time after the earlier to
occur of (i) May 1, 1998 or (ii) the expiration of any lock up period in
connection with an initial public offering by the Company, the holders of 51% of
the shares of Preferred Stock outstanding may demand that the Company use its
best efforts to register their shares at the Company's expense. The preferred
stockholders may make up to three such demands upon the Company. The preferred
stockholders also have "piggyback" registration rights pursuant to which they
have the right to participate in any registration other than a registration on
Form S-8 (or similar form), subject to typical underwriter reductions in shares
permitted to be sold.
80
<PAGE> 82
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware. In general, this statute prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transactions in which the person becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the prior three years did own) 15% or more of the corporation's voting
stock.
The Company has included in its certificate of incorporation provisions to
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Delaware
General Corporation Law and to indemnify its directors and officers to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's capital stock is Norwest
Bank Minnesota, N.A., Minneapolis, Minnesota.
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
The New Notes will be issued in the form of one or more fully registered
New Notes in global form ("Global Notes"). The Regulation S Notes will be issued
in fully registered, certificated form (the "Restricted Certificated Notes").
Upon issuance of the Global Notes, the Depositary or its nominee will
credit, on its book-entry registration and transfer system, the number of New
Notes represented by such Global Notes to the accounts of institutions that have
accounts with the Depositary or its nominee ("participants"). The accounts to be
credited shall be designated by the Initial Purchaser. Ownership of beneficial
interests in the Global Notes will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interest in
such Global Notes will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary or its nominee (with
respect to participants' interests) for such Global Notes, or by participants or
persons that hold interests through participants (with respect to beneficial
interests of persons other than participants). The laws of some jurisdictions
may require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in the Global Notes.
The Restricted Certificated Securities, upon transfer to a QIB in reliance
on Rule 144A, will, unless the Global Securities have previously been exchanged
for Certificated Securities (as defined), be exchanged for an interest in the
Global Securities representing the number of Units, principal amount of Notes or
number of Warrants being transferred. For a description of the restrictions on
transfer of Restricted Certificated Securities, see "Transfer Restrictions." Any
such transfers will generally require the delivery by the transferee of a
transfer certificate in the form set forth in the Indenture or Warrant
Agreement, as applicable.
So long as the Depositary, or its nominee, is the registered Holder of any
Global Notes, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and Holder of such New Notes represented by such
Global Notes for all purposes under the Indenture and the New Notes. Except as
set forth below, owners of beneficial interests in Global Notes will not be
entitled to have such Global Notes or any New Notes represented thereby
registered in their names, will not receive or be entitled to receive physical
delivery or certificated securities in exchange therefor and will not be
considered to be the owners or Holders of such Global Notes or any New Notes
represented thereby for any purpose under the New Notes or the Indenture. The
Company understands that under existing industry practice, in the event an owner
of a beneficial interest in a Global Note desires to take any action that the
Depositary, as the Holder of such Global Note, is entitled to take, the
Depositary would authorize the participants to take such action, and that
81
<PAGE> 83
the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Any payment of principal or interest due on the New Notes on any interest
payment date or at maturity will be made available by the Company to the Trustee
by such date. As soon as possible thereafter, the Trustee will make such
payments to the Depositary or its nominee, as the case may be, as the registered
owner of the Global Notes representing such New Notes in accordance with
existing arrangements between the Trustee and the Depositary.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of the Global Notes, will credit
immediately the accounts of the related participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown on the records of the Depositary. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
None of the Company, the Trustee or any payment agent for the Global Notes
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in any of the
Global Notes or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests or for other aspects of the relationship
between the Depositary and its participants or the relationship between such
participants and the owners or beneficial interests in the Global Notes owning
through such participants.
As long as the New Notes are represented by a Global Note, the Depositary's
nominee will be the Holder of the New Notes and therefore will be the only
entity that can exercise a right to repayment or of repurchase of the New Notes.
See "Description of the New Notes -- Change of Control" and "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock." Notice by
participants or by owners of beneficial interests in a Global Note held through
such participants of the exercise of the option to elect repayment of beneficial
interests in New Notes represented by a Global Note must be transmitted to the
Depositary in accordance with its procedures on a form required by the
Depositary and provided to participants. In order to ensure that the
Depositary's nominee will timely exercise a right to repayment with respect to a
particular New Note, the beneficial owner of such New Note must instruct the
broker or other participant to exercise a right to repayment. Different firms
have different cut-off times for accepting instructions from their customers
and, accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a New Note in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to the Depositary. The Company will not be
liable for any delay in delivery of notices of the exercise of the option to
elect repayment.
Unless and until exchanged in whole or in part for New Notes in definitive
form in accordance with the terms of the New Notes, the Global Notes 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 of any such nominee to a successor of the
Depositary or a nominee of each successor.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations. The
Company and the Trustee may conclusively rely on, and shall be protected in
relying on, instructions from the Depositary for all purposes.
82
<PAGE> 84
CERTIFICATED SECURITIES
Global Notes shall be exchangeable for corresponding certificated
securities registered in the name of persons other than the Depositary or its
nominee ("Certificated Securities") only if (i) the Depositary (A) notifies the
Company that it is unwilling or unable to continue as Depositary for any of the
Global Notes or (B) at any time ceases to be a clearing agency registered under
the Exchange Act, (ii) there shall have occurred and be continuing an Event of
Default (as defined in the Indenture) with respect to the New Notes or (iii) the
Company executes and delivers to the Trustee or the Warrant Agent, as
appropriate, an order that the Global Notes shall be so exchangeable. Any
certificated securities will be issued only in fully registered form, and in the
case of certificated New Notes, shall be issued without coupons in denominations
of $1,000 and integral multiples thereof. Any certificated securities so issued
will be registered in such names and in such denominations as the Depositary
shall request.
THE CLEARING SYSTEM
The Depositary has advised the Company as follows: the Depositary is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (which may
include the Initial Purchaser), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depositary's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income tax
considerations applicable to initial Holders of the New Notes. This summary is
based upon provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations (including temporary and proposed regulation),
rulings and decisions currently in effect, all of which are subject to change
(possibly with retroactive effect). The discussion does not purport to deal with
all aspects of federal taxation that may be relevant to particular investors in
light of their personal investment circumstances (for example, to persons
holding New Notes as part of a conversion transaction or as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes), nor does
it discuss federal income tax considerations applicable to certain types of
investors subject to special treatment under the federal income tax laws (for
example, life insurance companies, tax-exempt organizations and financial
institutions). In addition, the discussion does not consider the effect of any
foreign, state, local, gift, estate or other tax laws that may be applicable to
a particular investor. The discussion assumes that investors will hold the New
Notes as capital assets within the meaning of Section 1221 of the Code. A
prospective Holder is strongly urged to consult his, her or its tax advisor
regarding the particular tax consequences to such prospective purchaser of
purchasing, holding and disposing of the New Notes.
As used herein, a "U.S. Holder" means a beneficial owner of the New Notes
who or that is (i) a citizen or resident of the United States, (ii) a
corporation or other entity created or organized in or under the laws of the
United States or a political subdivision thereof, (iii) an estate the income of
which is subject to U.S. federal income taxation regardless of its source, (iv)
a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have authority to
control all substantial decisions of the trust or (v) otherwise subject to U.S.
federal income taxation on a net income basis in respect of the New Notes. As
used herein, a "Non-U.S. Holder" means a Holder that is not a U.S. Holder.
83
<PAGE> 85
TAX TREATMENT OF NEW NOTES
The Exchange. The exchange of Old Notes for New Notes will not be treated
as an exchange for federal income tax purposes because the New Notes will not
differ materially in kind or extent from the Old Notes and because the exchange
will occur by operation of the original terms of the Old Notes. As a result,
U.S. Holders who exchange their Old Notes for New Notes will not recognize any
income, gain or loss for federal income tax purposes. A U.S. Holder will have
the same adjusted issue price, adjusted basis and holding period in the New
Notes immediately after the exchange as it had in the Old Notes immediately
before the exchange.
Status as Debt. The Company intends to treat the New Notes as indebtedness
and not as equity for federal income tax purposes, and the federal income tax
consequences described below are based on that characterization. Such treatment,
however, is not binding on the IRS (or the courts), and there can be no
assurance that the IRS would not argue (or that a court would not hold) that all
or some portion of the New Notes should be treated as equity for federal income
tax purposes. Among other consequences, treatment as equity would result in all
or some portion of the interest payments and/or original issue discount on the
New Notes being treated as distributions with respect to stock which would not
be deductible by the Company.
Interest and Original Issue Discount. The Company anticipates that the New
Notes will be considered as having been issued with more than de minimis amount
of original issue discount for federal income tax purposes. In general, original
issue discount on the New Notes, defined as the excess of the New Notes' "stated
redemption price at maturity" over their "issue price," must be included in a
U.S. Holder's gross taxable income in advance of the receipt of cash
representing that income, and such amounts will increase periodically over the
life of the New Notes.
The issue price of the New Notes will be the amount allocated to the New
Notes as described above. Under the Treasury Regulations, a debt instrument's
stated redemption price at maturity is the sum of all payments provided by the
instrument other than payments of "qualified stated interest," which is defined
as stated interest that is unconditionally payable at least annually at a single
fixed rate. The Company believes that no part of the stated interest on the New
Notes will be qualified stated interest, and therefore that the stated
redemption price at maturity of the New Notes will equal their principal amount
at maturity plus all stated interest. Thus, each New Note will bear original
issue discount in an amount equal to the excess of (i) the sum of its principal
amount at maturity plus all stated interest payments over (ii) its issue price.
A U.S. Holder generally will be required to include in gross income the
original issue discount attributable to the New Notes over their term and before
receipt of the cash attributable to such income under a method embodying an
economic accrual of such discount and calculated on the basis of a constant
yield to maturity. The amount of original issue discount to be included in
income will be an amount equal to the sum of the daily portions of original
issue discount for each day during the taxable year in which the New Note is
held. The daily portions of original issue discount are determined by allocating
to each day in an accrual period (which may be of any length and may vary over
the term of the New Notes, at the option of the Holder, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest on the New Notes occurs on the first or last day of an
accrual period) the pro rata portion of the original issue discount allocable to
the accrual period. The amount of original issue discount that is allocable to
an accrual period generally will be the excess of the product of the adjusted
issue price of the New Note at the beginning of the accrual period (the issue
price of the New Notes generally increased by all prior accruals of original
issue discount and decreased by the amount of any payments made on the New
Notes, other than payments of qualified stated interest) and the yield to
maturity of the New Note over the stated interest paid during the accrual period
or on the first day of the succeeding accrual period. Any amount of original
issue discount included in income will increase a U.S. Holder's basis in the New
Notes.
The Company is required to furnish certain information to the IRS, and will
furnish annually to the record Holders of New Notes information with respect to
original issue discount accruing during the calendar year. That information will
be based upon the adjusted issue price of the New Note as if the Holder were the
original holder of the New Note.
84
<PAGE> 86
Optional Redemption. In determining the yield and maturity of a debt
instrument which contains a call option, such as the New Notes, the Company will
be presumed to exercise the call option if, by utilizing the date of exercise of
the call option as the maturity date and the redemption price as the stated
redemption price at maturity, the exercise of such option minimizes the yield on
the debt instrument. See "Description of the New Notes -- Optional Redemption."
If the New Note is not in fact called on the presumed exercise date, then, for
purposes of the accrual of original issue discount, the yield and maturity of
the New Note are redetermined by treating the New Note as reissued on that date
for an amount equal to its adjusted issue price (generally the original issue
price increased by the aggregate amount of previously accrued original issue
discount less payments other than qualified stated interest) on that date.
Applicable High Yield Discount Obligation. The original issue discount on
any obligation that constitutes an "applicable high yield discount obligation"
is not deductible by the issuer thereof until paid. An "applicable high yield
discount obligation" is any debt instrument that (i) has a maturity date which
is more than five years from the date of issue, (ii) has a yield to maturity
which equals or exceeds the applicable federal rate (as set forth in Section
1274(d) of the Code) for the calendar month in which the obligation is issued
plus five percentage points and (iii) has "significant original issue discount."
A debt instrument generally has "significant original issue discount" if the
aggregate amount of interest (including original issue discount) that would be
includible in gross income with respect to the debt instrument for periods
before the close of any accrual period that ends more than five years after the
date of issue exceeds the sum of (i) the aggregate amount of interest to be paid
on the instrument before the close of such accrual period and (ii) the product
of the issue price of the instrument and its yield to maturity. Moreover, if the
debt instrument's yield to maturity exceeds the applicable federal rate plus six
percentage points, a ratable portion of the issuing corporation's deduction for
original issue discount (the "Disqualified OID") will be permanently denied. In
the case of a corporate Holder of such debt instrument, the Disqualified OID
will be treated, when accrued, as a dividend to the extent of the issuing
corporation's current or accumulated earnings and profits for purposes of the
dividends received deduction provisions in the Code.
The Company expects that the New Notes will constitute applicable high
yield discount obligations and a portion of the original issue discount on the
New Notes will be treated as Disqualified OID. As a result, the Company will not
be allowed a deduction for the accrual of original issue discount on the New
Notes until such interest is actually paid, and the Company will not be allowed
a deduction for the accrual or payment of the portion of the original issue
discount that constitutes Disqualified OID. Subject to otherwise applicable
limitations, corporate Holders of the New Notes generally should be allowed a
dividends received deduction with respect to the accrual of the Disqualified OID
so long as the Company has sufficient current or accumulated earnings and
profits.
Sale or Redemption. A U.S. Holder generally will recognize taxable gain or
loss on the sale or redemption of the New Notes equal to the difference between
the amount realized from such sale or redemption and his or her adjusted tax
basis for such New Notes. Such gain or loss generally will be capital gain or
loss and will be classified as mid-term or long-term capital gain or loss if the
holding period for such New Notes is more than 12 months or 18 months,
respectively. A U.S. Holder's adjusted tax basis in a New Note is generally
equal to the amount paid therefor, increased by original issue discount
previously included in such Holder's gross income with respect to the New Note,
and decreased by payments on the New Note other than payments of qualified
stated interest.
A U.S. Holder generally will not recognize any taxable gain or loss on the
exchange of New Notes for the Old Notes with no material modifications pursuant
to the Registered Exchange Offer.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will make annual reports to the IRS and U.S. Holders of the New
Notes regarding the amount of original issue discount and actual and
constructive dividends with respect to such securities paid or accrued during
the year, to the extent required by law.
Under federal income tax law, a U.S. Holder of New Notes may, under certain
circumstances, be subject to "backup withholding" unless such U.S. Holder (i) is
a corporation, or is otherwise exempt and, when
85
<PAGE> 87
required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. The withholding rate is 31% of "reportable payments," which
include interest (including original issue discount), proceeds from sale or
redemption and, under certain circumstances, principal payments.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN HOLDERS
The following discussion summarizes certain United States federal income
tax consequences generally applicable to the ownership and disposition of the
New Notes by a Non-U.S. Holder. This discussion does not purport to deal with
all aspects of United States federal income taxation that may be relevant to a
Non-U.S. Holder and does not describe any tax consequences arising out of the
laws of any state, locality or foreign jurisdiction or out of United States
federal estate and gift tax laws. NON-U.S. HOLDERS ARE ADVISED TO CONSULT THEIR
TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THEIR PARTICIPATION IN THIS OFFERING.
Interest and Original Issue Discount. Interest paid by the Company to a
Non-U.S. Holder that is not effectively connected with the conduct of a trade or
business within the United States by such Holder generally will not be subject
to United States withholding tax if (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company, (ii) the Non-U.S. Holder is not a controlled foreign corporation
with respect to which the Company is a "related person" within the meaning of
the Code and (iii) the beneficial owner, under penalty of perjury, certifies
that the beneficial owner is not a United States person and provides the
beneficial owner's name and address on U.S. Treasury Form W-8 (or a suitable
substitute form). A Non-U.S. Holder that does not qualify for exemption from
withholding under the preceding sentence generally will be subject to United
States withholding tax at the rate of 30% (or a lower applicable treaty rate) on
interest payments.
Interest paid by the Company to a Non-U.S. Holder that is effectively
connected with the conduct of a trade or business within the United States by
such Holder generally will be subject to the United States federal income tax on
net income that applies to United States persons generally (and, with respect to
corporate Holders under certain circumstances, the branch profits tax).
Original issue discount that accrues while a New Note is held by a Non-U.S.
Holder is generally treated in the same manner as interest described above.
Withholding attributable to original issue discount, where required, is made at
the time a payment of interest or principal on the New Note is made or, to the
extent such original issue discount was not previously taxed, at the time the
New Note is sold, exchanged or redeemed.
Gain on Disposition. A Non-U.S. Holder generally will not be subject to
United States federal income tax (subject to the discussion under "Information
Reporting and Backup Withholding" below) on gain realized on a sale or other
disposition (including a redemption) of New Notes unless (i) the gain is
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder or (ii) in the case of a Non-U.S. Holder who is a
nonresident alien individual and holds the New Notes as a capital asset, such
Holder is present in the U.S. for 183 or more days in the taxable year of the
sale or disposition.
Information Reporting and Backup Withholding. In the case of payments of
interest to Non-U.S. Holders, Treasury Regulations provide that the 31% backup
withholding and other reporting will not apply to such payments with respect to
which either the requisite certification, as described above, has been received
or an exemption has otherwise been established (provided that neither the
Company nor its paying agent has actual knowledge that the Holder is a United
States person or the conditions of any other exemption are not in fact
satisfied). Under Treasury Regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
foreign person upon the disposition of the New Notes by or through a United
States office of a United States or foreign broker, unless the Holder certifies
to the broker under penalties of perjury as to its name, address and status as a
foreign person or the Holder otherwise establishes an exemption. Information
reporting requirements (but not backup withholding) will also apply to a payment
of the proceeds of a disposition of the New Notes by or through a foreign office
of (i) a United
86
<PAGE> 88
States broker, (ii) a foreign broker 50% or more of whose gross income for
certain periods is effectively connected with the conduct of a trade or business
in the United States or (iii) a foreign broker that is a "controlled foreign
corporation", unless the broker has documentary evidence in its records that the
Holder is a Non-U.S. Holder and certain other conditions are met, or the Holder
otherwise establishes an exemption. Neither information reporting nor backup
withholding will generally apply to a payment of the proceeds of a disposition
of the New Notes by or through a foreign office of a foreign broker not subject
to the preceding sentence.
REFUNDS
Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a refund or a credit against such Holder's United
States federal income tax liability, provided that the required information is
furnished to the IRS.
OTHER TAX CONSIDERATIONS
There may be other federal, state, local or foreign tax considerations
applicable to the circumstances of a particular Holder of New Notes.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT HIS, HER OR ITS
TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH PROSPECTIVE HOLDER OF
EXCHANGING OLD NOTES FOR NEW NOTES AND OF HOLDING AND DISPOSING OF NEW NOTES.
PLAN OF DISTRIBUTION
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. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions in the
New Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incurred in connection with its obligations to conduct the Exchange Offer
(including the reasonable expenses of one counsel for the Holders of the Notes)
and will indemnify the Holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
87
<PAGE> 89
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Holders are advised to seek legal advice prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each Holder of Notes in Canada who receives a purchase confirmation will be
deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such Holder is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws. Following a
decision of the U.S. Supreme Court, it is possible that Ontario purchasers will
not be able to rely upon the remedies set out in Section 12(2) of the United
States Securities Act of 1933 where securities are being offered under a U.S.
prospectus such as this document.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Notes in
their particular circumstances and with respect to the eligibility of the Notes
for investment by the purchaser under relevant Canadian legislation.
88
<PAGE> 90
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Pedersen & Houpt, P.C., Chicago, Illinois. Peer Pedersen and John H.
Muehlstein, directors of the Company, are also stockholders of Pedersen & Houpt,
P.C.
EXPERTS
The consolidated financial statements of the Company and its subsidiary as
of December 28, 1997 and December 31, 1996, and for the years then ended, and as
of December 31, 1995 and for the period from October 10, 1995 (inception) to
December 31, 1995, included in this Prospectus, have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-4 (including all
amendments thereto, the "Registration Statement") under the Securities Act of
1933, with respect to the New Notes offered in connection with the Exchange
Offer. As permitted by the rules and regulations of the SEC, this Prospectus
omits certain information contained in the Registration Statement. For further
information with respect to the Company and the New Notes offered in connection
with the Exchange Offer, reference is made to the Registration Statement and the
exhibits and schedules filed therewith. Statements contained in this Prospectus
concerning the contents of any contract or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibits.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from such office after payment
of fees prescribed by the SEC. The SEC also maintains a Web site that contains
reports, proxy statements and other information regarding registrants, including
the Company, that file such information electronically with the SEC. The address
of the SEC's Web site is http://www.sec.gov.
89
<PAGE> 91
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SPINCYCLE, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet as of December 28, 1997, December
31, 1996 and December 31, 1995............................ F-3
Consolidated Statement of Operations for the Years Ended
December 28, 1997 and December 31, 1996 and for the period
from October 10, 1995 (inception) to December 31, 1995.... F-4
Consolidated Statement of Mandatorily Redeemable Preferred
Stock and Shareholders' Equity (Deficit) for the Years
Ended December 28, 1997 and December 31, 1996 and for the
period from October 10, 1995 (inception) to December 31,
1995...................................................... F-5
Consolidated Statement of Cash Flows for the Years Ended
December 28, 1997 and December 31, 1996 and for the period
from October 10, 1995 (inception) to December 31, 1995.... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 22, 1998 and December
28, 1997.................................................. F-17
Consolidated Statement of Operations for the Quarters Ended
March 22, 1998 and March 31, 1997......................... F-18
Consolidated Statement of Cash Flows for the Quarters Ended
March 22, 1998 and March 31, 1997......................... F-19
Notes to Unaudited Consolidated Financial Statements........ F-20
</TABLE>
F-1
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
SpinCycle, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, mandatorily redeemable preferred stock
and shareholders' equity (deficit) and cash flows present fairly, in all
material respects, the financial position of SpinCycle, Inc. and its subsidiary
at December 28, 1997, December 31, 1996 and December 31, 1995, and the results
of their operations and their cash flows for the years ended December 28, 1997
and December 31, 1996 and for the period from October 10, 1995 (inception) to
December 31, 1995, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Phoenix, Arizona
March 13, 1998
F-2
<PAGE> 93
SPINCYCLE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 8,249,161 $ 360,006 $ 5,001
Landlord allowances.............................. 1,081,396 170,000 --
Prepaid expenses................................. 483,828 201,435 20,000
Inventory........................................ 71,517 49,209 --
Land held for sale-leaseback..................... 4,120,039 -- --
Other current assets............................. 952,881 40,062 4,223
------------ ----------- -------
Total current assets.......................... 14,958,822 820,712 29,224
Property and equipment, net........................ 53,969,382 12,840,712 18,130
Goodwill, net...................................... 6,150,839 -- --
Other assets....................................... 417,123 147,923 7,433
------------ ----------- -------
Total assets............................. $ 75,496,166 $13,809,347 $54,787
============ =========== =======
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 5,950,086 $ 4,820,207 $ 3,837
Construction payables............................ 951,242 762,847 --
Accrued utilities................................ 616,779 8,841 --
Accrued expenses................................. 1,453,455 422,446 --
Advances from shareholder........................ -- 150,000 56,400
Current portion of long-term debt................ 578,360 -- --
------------ ----------- -------
Total current liabilities..................... 9,549,922 6,164,341 60,237
Long-term debt..................................... 35,347,428 4,591,844 --
Deferred rent...................................... 1,225,728 134,266 --
Other liabilities.................................. 207,386 -- --
------------ ----------- -------
Total liabilities........................ 46,330,464 10,890,451 60,237
------------ ----------- -------
Commitments and Contingencies
Series A, Series B and Series C mandatorily
redeemable preferred stock, $.01 par value,
370,000 shares authorized, 262,213, 54,478 and 0
shares issued and outstanding, respectively...... 48,792,805 6,809,700 --
------------ ----------- -------
Shareholders' equity (deficit):
Common stock, $.01 par value, 630,000 shares
authorized, 38,487, 34,280 and 4 shares issued
and outstanding, respectively................. 385 343 1
Additional paid-in capital....................... 9,273 8,227 --
Accumulated deficit.............................. (19,636,761) (3,899,374) (5,451)
------------ ----------- -------
Total shareholders' equity (deficit)............. (19,627,103) (3,890,804) (5,450)
------------ ----------- -------
Total liabilities, mandatorily redeemable
preferred stock and shareholders' equity
(deficit)..................................... $ 75,496,166 $13,809,347 $54,787
============ =========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 94
SPINCYCLE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED OCTOBER 10, 1995
-------------------------------------- (INCEPTION) TO
DECEMBER 28, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues............................................ $ 8,652,888 $ 1,014,516 $ --
Cost of revenues -- store operating expenses,
excluding depreciation and amortization........... 7,982,566 1,193,020 --
------------ ----------- ----------
Gross operating profit (loss)..................... 670,322 (178,504) --
Preopening costs.................................... 456,920 472,811 --
Depreciation and amortization....................... 2,340,647 568,280 --
Selling, general and administrative expenses........ 10,729,663 2,653,698 5,451
Loss on disposal of property and equipment.......... 479,500 -- --
------------ ----------- ----------
Operating loss.................................... (13,336,408) (3,873,293) (5,451)
Interest income..................................... 432,812 28,741 --
Interest expense, net of amount capitalized of
$327,727 in 1997.................................. (891,913) (49,371) --
------------ ----------- ----------
Net loss.......................................... (13,795,509) (3,893,923) (5,451)
Accretion of redeemable preferred stock............. (1,941,878) -- --
------------ ----------- ----------
Net loss applicable to holders of common stock.... $(15,737,387) $(3,893,923) $ (5,451)
============ =========== ==========
Net loss per common share......................... $(412.76) $(117.42) $(1,362.75)
============ =========== ==========
Weighted average number of common shares
outstanding....................................... 38,127 33,162 4
============ =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 95
SPINCYCLE, INC.
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE
PREFERRED STOCK STOCK COMMON STOCK ADDITIONAL
--------------------- SUBSCRIPTIONS --------------- PAID-IN ACCUMULATED
SHARES AMOUNT RECEIVABLE SHARES AMOUNT CAPITAL DEFICIT
------- ----------- ------------- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
October 10, 1995 (inception).............. -- $ -- $ -- 4 $ 1 $ -- $ --
Net loss.................................. (5,451)
------- ----------- ------------ ------ ---- ------ ------------
Balance at December 31, 1995.............. -- -- -- 4 1 -- (5,451)
Issuance of Series A Redeemable
Preferred Stock....................... 53,960 6,745,000 (6,745,000)
Issuance of Series A Redeemable
Preferred Stock for services.......... 518 64,700
Issuance of Common Stock for services... 34,276 342 8,227
Payment of stock subscriptions.......... 6,745,000
Net loss................................ (3,893,923)
------- ----------- ------------ ------ ---- ------ ------------
Balance at December 31, 1996.............. 54,478 6,809,700 -- 34,280 343 8,227 (3,899,374)
Issuance of Series A Redeemable
Preferred Stock, net.................. 21,350 2,598,750 (2,668,750)
Issuance of Series A Redeemable
Preferred Stock for services.......... 1,146 143,300
Issuance of Series B Redeemable
Preferred Stock, net.................. 125,498 24,382,912 (24,999,912)
Issuance of Common Stock for services... 4,207 42 1,046
Accretion of Series A and Series B
Redeemable Preferred Stock............ 1,941,878 (1,941,878)
Issuance of Series C Redeemable
Preferred Stock, net.................. 59,741 12,916,265 (13,272,265)
Payments of stock subscriptions......... 40,940,927
Net loss................................ (13,795,509)
------- ----------- ------------ ------ ---- ------ ------------
Balance at December 28, 1997.............. 262,213 $48,792,805 $ -- 38,487 $385 $9,273 $(19,636,761)
======= =========== ============ ====== ==== ====== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 96
SPINCYCLE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED OCTOBER 10, 1995
------------------------------------- (INCEPTION) TO
DECEMBER 28, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss............................................... $(13,795,509) $(3,893,923) $(5,451)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 2,340,647 568,280 --
Loss on disposal of property and equipment............. 479,500 -- --
Issuance of stock for services......................... 144,388 73,269 1
Changes in assets and liabilities:
Landlord allowances................................. (911,396) (170,000) --
Prepaid expenses.................................... (282,393) (181,435) (20,000)
Inventory........................................... (22,308) (49,209) --
Other current assets................................ (912,819) (35,839) (4,223)
Other assets........................................ (269,200) (75,490) (7,433)
Accounts payable.................................... 1,129,879 4,816,370 3,837
Construction payables............................... 188,395 762,847 --
Accrued utilities................................... 607,938 8,841 --
Accrued expenses.................................... 1,031,009 422,446 --
Deferred rent....................................... 1,091,462 134,266 --
Other liabilities................................... 207,386 -- --
------------ ----------- -------
Net cash provided by (used in) operating
activities........................................ (8,973,021) 2,380,423 (33,269)
------------ ----------- -------
Cash flows used in investing activities:
Purchase of fixed assets............................... (6,350,490) (8,504,045) (18,130)
Land held for sale-leaseback........................... (4,120,039) -- --
Acquisition of businesses, net of cash acquired........ (12,063,521) -- --
Capitalized interest................................... (327,727) -- --
------------ ----------- -------
Net cash used in investing activities............... (22,861,777) (8,504,045) (18,130)
------------ ----------- -------
Cash flows provided by financing activities:
Advances from shareholder.............................. (150,000) 93,600 56,400
Payments on notes payable.............................. (23,974) (294,973) --
Debt issuance costs paid............................... -- (65,000) --
Proceeds from notes payable............................ -- -- --
Proceeds from stock subscriptions, net................. 39,897,927 6,745,000 --
------------ ----------- -------
Net cash provided by financing activities........... 39,723,953 6,478,627 56,400
------------ ----------- -------
Net increase in cash and cash equivalents................ 7,889,155 355,005 5,001
Cash and cash equivalents, beginning of year............. 360,006 5,001 --
------------ ----------- -------
Cash and cash equivalents, end of year................... $ 8,249,161 $ 360,006 $ 5,001
============ =========== =======
Supplemental disclosure of non-cash financing activities:
Stock subscriptions for issuance of Redeemable
Preferred Stock..................................... $ 40,940,927 $ 6,745,000
Equipment financed with long-term debt................. $ 31,357,918 $ 4,886,817
Interest paid.......................................... $ 1,173,236 $ 49,371
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 97
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
SpinCycle, Inc. (the Company) is a specialty retailing company engaged in
the coin laundry business. The Company was incorporated under the laws of the
state of Minnesota on October 10, 1995 and subsequently reincorporated under the
laws of the State of Delaware. The Company was in the developmental stage from
October 10, 1995 (inception) to June 30, 1996. On October 1, 1997, the Company
dissolved its wholly-owned subsidiary, Pinnacle Financial, Inc., a commercial
equipment leasing company. This dissolution had no effect on the Company's
consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All intercompany balances and transactions have
been eliminated in consolidation.
Fiscal year change
Effective December 1997, the Company changed its fiscal year previously
ended December 31 to a thirteen period fiscal year, comprised of thirteen four
week periods. This change in fiscal year-end had an immaterial effect on the
Company's 1997 results of operations and financial condition.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying value
of cash equivalents approximates fair value. At December 28, 1997, $213,117 of
time deposits was pledged as collateral on outstanding letters of credit related
to agreements in place with suppliers and as collateral for the Company's
corporate office lease agreement.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, landlord allowances,
accounts payable and accrued expenses reported in the Company's balance sheet
approximate fair value because of the short maturity of those instruments. The
carrying amount of debt also approximates fair value as stated interest rates
approximate market interest rates for debt of same remaining maturities.
Concentration of risk
The Company places its cash with high credit quality institutions. At
times, cash balances may be in excess of the FDIC insurance limit. The Company
has not experienced any losses on its cash balances.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Landlord allowances and deferred rent
Landlord allowances represent incentives received by the Company on certain
of its store leases. Deferred rent represents the related unearned incentive
recorded at lease inception and is amortized as a reduction to rent expense over
the term of the related leases.
F-7
<PAGE> 98
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventory
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) basis.
Property and equipment
Property and equipment are stated at cost. Capitalized amounts include
expenditures which materially extend the useful lives of existing facilities and
equipment. Expenditures for repairs and maintenance which do not materially
extend the useful lives of the related assets are charged to expense as
incurred.
Depreciation and amortization
Depreciation is provided principally on the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Laundry equipment............................... 10
Leasehold improvements.......................... Shorter of economic life or lease term.
Computer and office equipment................... 5
Store equipment................................. 5
</TABLE>
Goodwill
Goodwill represents the excess of cost over the net tangible and
identifiable intangible assets of acquired businesses. Goodwill is stated at
cost and is amortized on a straight-line basis over fifteen years. Pursuant to
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Company evaluates the recoverability
of goodwill and its other long-lived assets whenever a significant change in the
business environment indicates that expected future net cash flows (undiscounted
and without interest) would become less than the carrying amount of the asset.
Accumulated amortization of goodwill amounted to $30,000 at December 28, 1997.
Revenue recognition
The Company recognizes revenue upon performance of services.
Stock compensation
The Company measures compensation cost related to employee stock options
using the intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
Income taxes
The Company accounts for income taxes under the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using currently enacted tax rates.
As a result of the current uncertainty as to the future realizability of
the tax benefits associated with approximately $17,550,000 of net operating
losses incurred to date, no income tax benefit has been recorded in the
financial statements.
F-8
<PAGE> 99
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising costs
The Company expenses advertising costs as incurred. The Company incurred
$1,574,839 and $364,831 in advertising costs for the years ended December 28,
1997 and December 31, 1996, respectively.
Preopening costs
The Company expenses preopening costs as incurred. The Company incurred
$456,920 and $472,811 in preopening costs during the years ended December 28,
1997 and December 31, 1996, respectively.
Capital stock
As more fully discussed in Note 7, in June 1997, the Company effected a
one-for-twenty-five reverse stock split of preferred and common stock. Per share
par value did not change as a result of this event. Share amounts presented in
these financial statements have been adjusted to reflect the stock split on a
retroactive basis.
Earnings per Share
The Company applies the principles of SFAS No. 128, "Earnings per Share,"
to calculate, present and disclose earnings per share. Basic earnings per share
is computed by dividing the net loss applicable to holders of common stock ("the
net loss") by the weighted average number of common shares outstanding during
each period. Diluted earnings per share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the period
adjusted for dilutive stock options and dilutive common shares assumed to be
issued on conversion of Preferred Stock to common stock. Diluted earnings per
share has not been presented as the computation is anti-dilutive due to the
Company's net loss in each period.
Liquidity
During fiscal 1997, the Company experienced a net loss of $13,795,509 and
at December 28, 1997 had an accumulated deficit of $19,636,761. During the first
quarter of fiscal 1998, the Company raised approximately $3 million through the
issuance of its Series C Convertible Preferred Stock. The Company's management
believes that the proceeds from this offering, the availability of funds from
the LaSalle Credit Facility (see Note 9), the measures it has initiated to
control operating and development costs, as well as the availability of
additional capital in anticipated future offerings, will enable the Company to
maintain operations for the foreseeable future.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Leasehold improvements.............................. $20,187,979 $ 6,736,192 $ --
Laundry equipment................................... 27,474,138 4,053,454 --
Construction in progress............................ 4,694,175 1,303,320 --
Store equipment..................................... 1,906,795 689,408 --
Computer and office equipment....................... 2,584,918 626,618 18,130
----------- ----------- -------
56,848,005 13,408,992 18,130
Less: Accumulated depreciation and amortization..... (2,878,623) (568,280) --
----------- ----------- -------
$53,969,382 $12,840,712 $18,130
=========== =========== =======
</TABLE>
F-9
<PAGE> 100
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS
During the year ended December 28, 1997, the Company acquired several
existing coin laundry businesses for a total cash outlay of $12,063,521, net of
cash acquired. These acquisitions were accounted for under the purchase method
of accounting. In connection with these acquisitions, the Company recorded
goodwill of $6,180,839 and did not assume any liabilities of the sellers.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired coin laundry
businesses as if the acquisitions had occurred January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 28, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Net Sales................................................... $ 14,315,787 $ 8,633,567
Net loss.................................................... $(13,970,392) $(4,355,223)
Net loss per common share................................... $ (417.35) $ (131.33)
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets, and
increased interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect on January 1, 1996 or of future results of
operations of the consolidated entities.
5. LONG-TERM DEBT
On November 22, 1996, the Company entered into a loan agreement with an
equipment manufacturer which provided for borrowings up to an initial maximum
amount of $20 million to finance the purchase and installation of new
coin-operated laundromat equipment. This agreement was amended to provide for
borrowings up to a maximum amount of $35 million and then $45 million in July
1997 and February 1998, respectively. Of the $45.0 million in place, $30.0
million is available for equipment financing and $15.0 million is available for
acquisition financing. Borrowings under the agreement, which aggregated
$35,925,788 at December 28, 1997, bear interest at prime plus 1.875% (10.375% at
December 28, 1997) and require interest only payments for a period of 12 months
following the date of the borrowings with principal and interest payments due
thereafter in 72 monthly installments. To enter into the agreement, the Company
paid a facility fee of $65,000 which is being amortized over the term of the
agreement. Borrowings under the agreement are secured by the related equipment
with a net book value of $49,996,357 at December 28, 1997. This security
collateral is shared equally pursuant to an inter-creditor agreement with
LaSalle National Bank (see Note 9) which was entered into in March 1998. At
December 28, 1997, the Company was not in compliance with its financial
covenants related to maintaining certain leverage and operating income ratios.
Accordingly, the Company obtained waivers from its lender with respect to such
covenants at December 28, 1997.
Long-term debt is scheduled to mature during future fiscal years as
follows:
<TABLE>
<S> <C>
1998................................................... $ 578,360
1999................................................... 2,198,154
2000................................................... 2,437,376
2001................................................... 2,702,632
2002................................................... 2,996,756
Thereafter............................................. 25,012,510
-----------
$35,925,788
===========
</TABLE>
F-10
<PAGE> 101
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Deferred income tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 7,019,952 $ 1,509,331 $--
Other.......................................... 313,111 49,397 --
----------- ----------- ---
7,333,063 1,558,728
----------- ----------- ---
Deferred tax liabilities:
Depreciation................................... (257,969) (9,746) --
Other.......................................... (37,673) (1,217) --
----------- ----------- ---
(295,642) (10,963) --
----------- ----------- ---
Net deferred tax asset........................... 7,037,421 1,547,765 --
Less: valuation allowance........................ (7,037,421) (1,547,765) --
=========== =========== ===
$ -- $ -- $--
=========== =========== ===
</TABLE>
In assessing the realizability of its deferred tax assets, the Company
considers whether it is more likely than not that some or all of such assets
will be realized. As a result of historical operating losses, the Company has
fully reserved its net deferred tax assets as of December 28, 1997. The Company
will consider release of the valuation allowance once profitable operations have
been sustained.
As of December 28, 1997, the Company had net operating loss carryforwards
of approximately $17,550,000 which will begin to expire in 2011. In the event of
a change in ownership as defined by section 382 of the Internal Revenue Code, a
significant limitation may be imposed on the availability of the Company's net
operating loss carryforwards. It is possible that the Company has experienced
one or more ownership changes in 1996 and 1997 as a result of the Company
raising various rounds of private equity or that such an ownership change may
have occurred or be deemed to have occurred.
7. MANDATORILY REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Mandatorily Redeemable Preferred Stock
The Company has issued nonvoting, Series A, Series B and Series C
Redeemable Preferred Stock (collectively, the Preferred Stock). Dividends are
payable only when declared by the Board of Directors and are noncumulative. Each
share of the Preferred Stock is mandatorily convertible into one share of common
stock prior to the closing of the first underwritten public offering pursuant to
a registration statement on Form S-1 in which the proceeds to the Company are at
least $5,000,000. The Company has reserved common shares equivalent to the
outstanding preferred shares. Holders of all three series of the Preferred Stock
have substantially the same rights except that holders of Series C stock were
granted the right to elect one member to the Company's Board of Directors. In
connection with the issuance of the Preferred Stock, the Company incurred
approximately $1,043,000 of issuance costs.
The Preferred Stock has a liquidating preference over the common stock. In
the event of liquidation, the holders of Preferred Stock are entitled to receive
an amount equal to the price paid for the shares to the Company and participate
on a pro rata basis with common stock shareholders for the remaining assets of
the Company. Holders of the Preferred Stock have the right to require the
Company to purchase all of the Preferred Stock at any time after June 1, 2001 at
a redemption price equal to the greater of the purchase price of the shares plus
accrued but unpaid dividends or the appraised value of the shares. Redemption of
such shares is further subject to the terms and conditions set forth in the Put
Agreement between the Company and
F-11
<PAGE> 102
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the holders of the Preferred Stock. At December 28, 1997, the accreted value of
the Preferred Stock is approximately $48,793,000.
As of March 13, 1998, the Series C Redeemable Preferred Stock offering had
not yet been terminated. The Company has received approximately $16 million in
aggregate cash proceeds for this offering through March 13, 1998.
Stock Split
On June 30, 1997, the Company effected a one-for-twenty-five reverse stock
split of its preferred and common stock. Per share par value did not change as a
result of this event. Accordingly, all references to shares issued and
outstanding in the financial statements have been retroactively restated to give
effect to this stock split.
Employee Stock Option Plan
The SpinCycle, Inc. 1995 Amended and Restated Stock Option Plan (the Plan)
provides for the issuance of employee stock options. Under the provisions of the
Plan, the Compensation and Organization Committee (the Committee), which is
appointed by the Board of Directors of the Company has the discretion to
determine, among other things, the employees to whom options may be granted; the
number of options to be granted; the vesting period assigned to the options; and
such other terms and conditions, consistent with the terms of the Plan, as the
Committee deems appropriate. Substantially all options currently outstanding at
December 28, 1997 vest ratably over a five year period from the date granted.
The Committee also has the discretion to determine whether options granted shall
be Incentive Stock Options (ISOs) within the meaning of section 411 (a) of the
Internal Revenue Code or non-qualified stock options. The Company has reserved
32,000 shares of its common stock for issuance in connection with the Plan.
During 1997, the Company's Board of Directors approved a similar stock
option plan for Directors and certain non-employees. Through March 13, 1998, 80
options have been granted under this new plan. The Company has reserved 2,000
shares of its common stock for issuance in connection with this plan.
The option price for all non-qualified stock options is also determined by
the Committee, provided that in no event shall it be less than 85% of the fair
market value of the stock at the time the option is granted. The option price
for each option which is intended to qualify as an ISO shall be 100% of the fair
market value of the stock at the time the option is granted (110% if the
participant owns at least 10% of the stock immediately before the ISO is
granted). A summary of option activity under the Plan for each of the two years
in the period ended December 28, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION SHARES EXERCISE PRICE
------------- --------------
<S> <C> <C>
Outstanding at December 31, 1995............................ -- $ --
Granted................................................... 10,616 125.00
Exercised................................................. -- --
Expired/terminated........................................ -- --
Outstanding at December 31, 1996............................ 10,616 125.00
Granted................................................... 18,979 154.37
Exercised................................................. -- --
Expired/terminated........................................ -- --
Outstanding at December 28, 1997............................ 29,595 $143.84
------ -------
Exercisable at December 28, 1997............................ 3,815 $159.21
Weighted average fair value of options granted during fiscal
1997...................................................... 18,979 $ 39.72
Weighted average fair value of options granted during fiscal
1996...................................................... 10,616 $ 19.83
</TABLE>
F-12
<PAGE> 103
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost has been recognized for the
stock option agreements. Had compensation cost for the Company's agreements been
determined based on the fair value at the grant date for awards in 1997 and 1996
consistent with the provisions of SFAS No. 123, the Company's net loss and net
loss per common share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net loss -- as reported..................................... $13,795,509 $3,893,923
Net loss -- pro forma....................................... 13,924,560 3,928,908
Net loss per common share -- as reported.................... $ (412.76) $ (117.42)
Net loss per common share -- pro forma...................... $ (416.15) $ (118.48)
</TABLE>
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option-pricing model applying the following assumptions:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Expected dividend yield..................................... 0.00% 0.00%
Risk-free interest rate..................................... 6.16% 5.82%
Expected life of options.................................... 5 years 3 years
</TABLE>
8. COMMITMENTS
The Company leases substantially all of its stores and corporate offices
under noncancelable operating leases. The leases expire at various dates through
2012. The Company has the option to extend the terms of the leases for periods
ranging from five to twenty years. Certain leases require payment of property
taxes, utilities, common area maintenance costs and insurance. Minimum lease
payments due under the agreements for future fiscal years are as follows:
<TABLE>
<S> <C>
1998................................................... $ 3,126,841
1999................................................... 3,212,303
2000................................................... 3,226,981
2001................................................... 3,060,239
2002................................................... 2,588,435
Thereafter............................................. 12,038,865
-----------
$27,253,664
===========
</TABLE>
The above commitments include five operating leases signed prior to
December 28, 1997 with lease terms beginning subsequent to December 28, 1997.
Rent expense totaled $2,518,937 and $386,550 for the years ended December
28, 1997 and December 31, 1996, respectively.
9. SUBSEQUENT EVENTS
LaSalle Credit Facility
In March 1998, the Company entered into a revolving loan agreement with
LaSalle National Bank which provides for borrowings up to a maximum amount of
$15 million primarily to finance working capital requirements. Future borrowings
under this facility may constitute Base Rate Loans or Eurodollar loans. For
those borrowings that constitute Base Rate Loans, the applicable interest rate
will equal the sum of the Base Rate, defined as the bank's prime interest rate
then in effect or the Federal Funds Rate plus 0.50%, whichever
F-13
<PAGE> 104
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is higher, plus 1.25%. For those borrowings that constitute Eurodollar Loans,
the applicable interest rate will equal the Eurodollar Rate plus 3.0%. These
borrowings will be payable no later than March 2000. As discussed in Note 5, the
collateral securing these borrowings will be shared equally pursuant to an
inter-creditor agreement which was entered into in March 1998. The Company paid
an initial commitment fee of $272,000 to enter into the agreement that will be
amortized over the term of the agreement. The agreement also calls for an
ongoing commitment fee computed at an annual rate of one-half of one percent on
the average daily unused portion of the facility. The agreement also specifies
that the Company must comply with certain leverage and operating income ratios
and imposes a limitation on annual capital expenditures.
Sale-Leaseback Transactions
On December 31, 1997, the Company entered into a sale-leaseback transaction
with SpinDevCo., L.L.C. (SpinDevCo), a subsidiary of McMahon-Oliphant, Inc.
Eleven properties consisting of land of $2.5 million and improvements of $4.0
million thereon that were previously acquired by the Company were sold to
SpinDevCo for approximately $6.5 million, then leased back under an operating
lease of fifteen years. The Company received approximately $1.7 million in cash
and a note which is due and payable in April 1998, for the balance of the sales
price of $6.5 million. The note is secured by the properties. The transaction
also calls for the Company to contribute $2,450,000 in additional funds that
will be amortized to rent expense over the term of the related lease agreements.
The transaction qualifies for sale-leaseback accounting in accordance with
Statement of Financial Accounting Standards No. 98, "Accounting for
Leases -- Sale-Leaseback Transactions Involving Real Estate." No gain or loss
was recognized on the sale. As it is management's intent to sell remaining land
recorded on the balance sheet at December 28, 1997, under similar terms and
conditions, land of $4,120,039 has been reclassified to current assets.
10. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two of its key
executive officers. These agreements do not exceed four years in term, provide
for a covenant not to compete for a term of one year subsequent to termination
of the agreements, and provide for the payment of one year of base salary in the
event the employees are terminated for reasons other than for cause.
11. EXECUTIVE SEVERANCE AGREEMENT
As a result of the resignation of the Company's CEO and Chairman of the
Board of Directors, and in accordance with the terms of the related employment
agreement, the Company was obligated to pay this executive $400,000 over the
remaining two-year term of his employment agreement. This amount, including
related payroll taxes, was accrued at December 28, 1997. The current and
long-term portions of this liability are included in accrued expenses and other
liabilities, respectively, on the Company's balance sheet at December 28, 1997.
In addition, the Company forgave a loan outstanding to the executive of
$50,000, plus any interest accrued thereon. The expense associated with this
forgiveness of debt is included in general and administrative expenses in the
Company's statement of operations. This executive also relinquished rights to
any stock options previously granted to him by the Company.
In addition, subsequent to year-end, the Company agreed to repurchase
18,019 shares of common stock owned by this executive for a sum of $200,000.
F-14
<PAGE> 105
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
Board of Directors
Two directors of the Company are partners in a law firm which provides
legal services to the Company. The Company paid approximately $400,000 in legal
fees to this firm during 1997.
Advances from Shareholder
During 1996, the Company received an advance of $150,000 from one of the
Company's shareholders. This advance, which was non-interest bearing, was repaid
in full in 1997.
13. SUBSEQUENT EVENTS (UNAUDITED)
Senior Discount Notes Offering
On April 3, 1998, the Company commenced the offering (the Offering) of
unsecured senior discount notes and an indeterminate number of warrants to
purchase Common Stock to "qualified institutional buyers" only as defined in
Rule 144A under the Securities Act. The offering was completed on April 29,
1998, with the Company selling $144,990,000 of 12 3/4% unsecured senior discount
notes ($1,000 principal amount) (the Notes) and warrants (the Warrants) to
purchase 26,661 shares of the Company's Common Stock with an exercise price of
$0.01 per share for gross proceeds to the Company of $100,001,053. The net
proceeds from the offering of approximately $96.8 million were used principally
to pay certain expenses of the offering, repay approximately $46.9 million in
existing indebtedness, to provide funds for investment in new stores and for
general corporate purposes. The Notes will mature on May 1, 2005. No cash
interest will accrue on the Notes prior to May 1, 2001. The Notes will begin to
accrue cash interest at a rate of 12 3/4% per annum commencing May 1, 2001, and
cash interest will be payable thereafter on November 1 and May 1 of each year,
commencing November 1, 2001. The Notes will be redeemable at the option of the
Company, in whole or in part, on or after May 1, 2002, at the redemption prices
set forth in the Prospectus. In addition, at any time and from time to time
prior to May 1, 2001, the Company may redeem in the aggregate up to 35% of the
Accreted Value of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price of
112.75% of the Accreted Value to the date of redemption; provided, however, that
at least $94.2 million of the aggregate principal amount of the Notes at
maturity remain outstanding after any such redemption. Upon a Change of Control
(as defined in the Indenture), each holder of the Notes (a Holder) will have the
right to require the Company to purchase all or any part of such Holder's Notes
at a purchase price equal to 101% of the Accreted Value thereof, plus accrued
and unpaid interest, if any, to the date of purchase. All terms used herein to
describe the Offering shall have the meaning ascribed to them in the Prospectus
unless otherwise noted.
The Notes will be senior, unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company and will rank senior to all
future subordinated debt of the Company. The Notes will be effectively
subordinated to all Secured Indebtedness of the Company, if any, to the extent
of the value of the assets securing such indebtedness and to all indebtedness
and other obligations (including trade payables) of the Company's future
subsidiaries, if any. The Warrants will be exercisable at any time on or after
the earlier of April 29, 1999 or 60 days after the consummation of an initial
public offering of the Company's Common Stock, and will expire on May 1, 2005.
Prior to the Offering, the Company had in place a $45.0 million credit
facility from Raytheon Commercial Laundry, LLC (Raytheon), one of the largest
commercial laundry equipment vendors, which most recently provided the Company
with approximately $30.0 million of equipment financing and $15.0 million of
acquisition financing. This facility has provided 100% financing for commercial
laundry equipment purchases (based upon list prices) and store acquisitions. The
Company procured a bank credit facility with
F-15
<PAGE> 106
SPINCYCLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LaSalle National Bank in March 1998, which provided the Company with $15.0
million for acquisitions and general corporate purposes. On April 29, 1998, the
Company repaid all indebtedness outstanding under these two facilities with the
net proceeds from the Offering and terminated the related loan agreements.
On April 29, 1998, the Company also closed a secured revolving credit
facility in the maximum principal amount of $40 million with Heller Financial,
Inc. (the Heller Facility). The Heller Facility will mature on April 28, 2002.
The Company will be entitled to draw amounts under the Heller Facility, subject
to availability pursuant to a borrowing base formula based upon income from
store operations and net book value of laundry equipment, in order to fund
ongoing working capital, capital expenditures and general corporate purposes.
Interest will accrue on the Heller Facility with reference to the base rate (the
Base Rate) plus 0.50%. The Company may elect that all or a portion of the loans
bear interest at the LIBOR rate (the LIBOR Rate) plus 2.75%. The Base Rate is
defined as, on any date, the "Bank Prime Loan" rate published by the Board of
Governors of the Federal Reserve System plus 0.50%. The LIBOR Rate is defined as
an amount equal to the rate posted on the Reuters Screen LIBO Page on the day
which is three business days prior to the first day of such interest period.
Preferred Stock Put Agreements
In April 1998, the Company received consent of the holders of Preferred
Stock to terminate their put rights subject to the closing of the Company's $100
million bond offering.
Series C Preferred Stock Repricing
In April 1998, the Company modified the price of its Series C Preferred
Stock. In connection with this repricing, holders of Series C Preferred Stock
were issued one share of Common Stock for every 10 shares of Series C Preferred
Stock purchased. A total of 7,295 shares of Common Stock were issued in
connection therewith.
Common Stock Reserved for Stock Option Plan
In April 1998, the Company's Board of Directors reserved, with the consent
of the stockholders, an additional 10,724 shares of the Company's Common Stock
for issuance pursuant to the Company's Amended and Restated Stock Option Plan.
F-16
<PAGE> 107
SPINCYCLE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 22, DECEMBER 28,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,392,800 $ 8,249,161
Landlord allowances....................................... 1,330,821 1,081,396
Prepaid expenses.......................................... 454,615 483,828
Inventory................................................. 83,713 71,517
Note receivable, principal and interest................... 4,930,381 --
Land held for sale-leaseback.............................. 1,666,521 4,120,039
Other current assets...................................... 540,319 952,881
----------- -----------
Total current assets................................... 13,399,170 14,958,822
Property and equipment, net................................. 58,523,848 53,969,382
Goodwill, net............................................... 8,041,312 6,150,839
Prepaid rent -- long-term portion........................... 2,302,564 --
Other assets................................................ 706,102 417,123
----------- -----------
Total assets...................................... $82,972,996 $75,496,166
=========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 2,797,632 $ 5,950,086
Construction payables..................................... 2,553,512 951,242
Accrued utilities......................................... 513,599 616,779
Accrued expenses.......................................... 1,475,422 1,453,455
Current portion of long-term debt......................... 3,105,251 578,360
----------- -----------
Total current liabilities.............................. 10,445,416 9,549,922
Long-term debt.............................................. 41,386,475 35,347,428
Deferred rent............................................... 2,086,523 1,225,728
Other liabilities........................................... 407,386 207,386
----------- -----------
Total liabilities................................. 54,325,800 46,330,464
----------- -----------
Commitments and Contingencies
Series A, Series B and Series C mandatorily redeemable
preferred stock, $.01 par value, 370,000 shares
authorized, 275,402 and 262,213 shares issued and
outstanding, respectively................................. 52,226,272 48,792,805
----------- -----------
Shareholders' equity (deficit):
Common stock, $.01 par value, 630,000 shares authorized,
20,468 and 38,487 shares issued and outstanding,
respectively........................................... 205 385
Additional paid-in capital................................ -- 9,273
Accumulated deficit....................................... (23,579,281) (19,636,761)
----------- -----------
Total shareholders' equity (deficit)...................... (23,579,076) (19,627,103)
----------- -----------
Total liabilities, mandatorily redeemable preferred stock
and shareholders' equity (deficit)........................ $82,972,996 $75,496,166
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 108
SPINCYCLE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------
MARCH 22, MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 5,270,794 $ 1,153,778
Cost of revenues -- store operating expenses, excluding
depreciation and amortization............................. 4,235,014 1,293,631
----------- -----------
Gross operating profit (loss)............................. 1,035,780 (139,853)
Preopening costs............................................ 90,765 91,574
Depreciation and amortization............................... 1,274,070 351,358
Selling, general and administrative expenses................ 2,173,530 1,572,326
----------- -----------
Operating loss............................................ (2,502,585) (2,155,111)
Interest income............................................. 125,898 15,158
Interest expense, net of amount capitalized of $87,152 in
1998...................................................... (846,319) (108,707)
----------- -----------
Net loss.................................................. (3,223,006) (2,248,660)
Accretion of redeemable preferred stock..................... (528,967) (215,303)
----------- -----------
Net loss applicable to holders of common stock............ $(3,751,973) $(2,463,963)
=========== ===========
Net loss per common share................................. $ (111.82) $ (66.53)
=========== ===========
Weighted average number of common shares outstanding........ 33,553 37,038
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 109
SPINCYCLE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------
MARCH 22, MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss.................................................. $(3,223,006) $(2,248,660)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,274,070 351,358
Changes in assets and liabilities:
Landlord allowances.................................... (249,425) --
Prepaid expenses....................................... 29,213 (184,545)
Inventory.............................................. (12,196) (2,986)
Other current assets................................... 412,562 (392,370)
Prepaid rent........................................... (2,302,564) --
Other assets........................................... (35,966) 34,995
Accounts payable....................................... (3,152,454) (4,003,808)
Construction payables.................................. 1,602,270 (514,259)
Accrued utilities...................................... (103,180) 174,730
Accrued expenses....................................... 21,967 1,723,995
Deferred rent.......................................... 860,795 --
----------- -----------
Net cash used in operating activities.................. (4,877,914) (5,061,550)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (5,148,652) --
Proceeds from sale-leaseback transactions................. 1,457,542 --
Acquisition of businesses, net of cash acquired........... (5,036,300) --
Capitalized interest...................................... (87,152) --
----------- -----------
Net cash used in investing activities.................. (8,814,562) --
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Payments on notes payable................................. (93,344) --
Debt issuance costs paid.................................. (306,447) --
Proceeds from notes payable............................... 7,331,406 8,431,122
Proceeds from stock subscriptions......................... 2,904,500 2,317,050
----------- -----------
Net cash provided by financing activities.............. 9,836,115 10,748,172
----------- -----------
Net increase (decrease) in cash and cash equivalents...... (3,856,361) 5,686,622
Cash and cash equivalents, beginning of year.............. 8,249,161 360,006
----------- -----------
Cash and cash equivalents, end of period.................. $ 4,392,800 $ 6,046,628
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Stock subscriptions for issuance of Redeemable Preferred
Stock.................................................. $ 2,904,500 $ 2,317,050
Equipment financed with long-term debt.................... $ 1,327,876 $ 784,780
Sale-leaseback financed with note receivable.............. $ 4,930,381 $ --
Interest paid............................................. $ 620,838 $ 108,707
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 110
SPINCYCLE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION -- BASIS OF PRESENTATION
The unaudited financial information presented herein has been prepared in
accordance with the instructions to Form 10-Q and Regulation S-X and does not
include all of the information and note disclosures required by generally
accepted accounting principles. Therefore, this information should be read in
conjunction with the audited financial statements for the year ended December
28, 1997 and notes thereto included elsewhere in this Prospectus. This
information reflects all adjustments that are, in the opinion of management,
necessary for a fair statement of the results for the interim periods reported.
These adjustments are of a normal and recurring nature.
Basic earnings per share are computed by dividing the net loss applicable
to holders of common stock by the weighted average number of common shares
outstanding during each period. Earnings per share assuming dilution are
computed by dividing the net loss by the weighted average number of common
shares outstanding during the period adjusted for dilutive stock options and
dilutive common shares assumed to be issued on conversion of Preferred Stock to
common stock. Earnings per share assuming dilution has not been presented as the
computation is anti-dilutive due to the Company's net loss in each period. As
discussed in Note 10(A) the number of common shares outstanding increased by
7,295 shares in April 1998 as a result of a repricing of the Series C Preferred
Stock.
2. UNAUDITED INTERIM RESULTS OF OPERATIONS
The results of operations for the periods ended March 22, 1998 and March
31, 1997 are not necessarily indicative of the results to be expected for a full
fiscal year.
3. FISCAL YEAR
As of December 1, 1997, the Company changed its basis of reporting from 12
calendar months to 13 periods per annum. This change allows the Company to
report and compare results on 13 equivalent periods, with each period containing
four Monday through Sunday weeks. The Company's fiscal year ends on the last
Sunday in December. The fiscal year ended December 27, 1998 will include 52
weeks divided into quarters as follows:
1st Quarter: Three four week periods
2nd Quarter: Three four week periods
3rd Quarter: Three four week periods
4th Quarter: Four four week periods
4. COMPANY EXPANSION
During the quarter ended March 22, 1998, the Company opened 24 stores in 13
cities, eight of which were acquired stores. As of March 22, 1998 the Company
had opened or acquired 95 stores in 20 markets throughout the United States and
had approximately 17 stores under construction.
5. SALE-LEASEBACK TRANSACTION
On December 31, 1997, the Company entered into a sale-leaseback transaction
with SpinDevCo, L.L.C. (SpinDevCo), a subsidiary of McMahon-Oliphant, Inc.
Eleven properties consisting of land of $2.4 million and improvements of $4.0
million thereon that were previously acquired by the Company were sold to
SpinDevCo for approximately $6.4 million, then leased back under an operating
lease with a 15 year term. The Company received approximately $1.5 million in
cash and a note in the principal amount of approximately $4.9 million, which is
due and payable in April 1998. The note is secured by mortgages on the
properties (see note 10). The transaction also calls for the Company to
contribute $2,450,000 in additional funds that will be amortized to rent expense
over the terms of the related lease agreements. The transaction qualifies for
sale-
F-20
<PAGE> 111
SPINCYCLE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
leaseback accounting in accordance with Statement of Financial Accounting
Standards (SFAS) No. 98, "Accounting for Leases -- Sale-Leaseback Transactions
Involving Real Estate." No gain or loss was recognized on the sale.
6. SENIOR DISCOUNT NOTES OFFERING
On April 3, 1998, the Company commenced the offering of unsecured senior
discount notes and an indeterminate number of warrants to purchase Common Stock
to "qualified institutional buyers" only as defined in Rule 144A under the
Securities Act. The offering was completed on April 29, 1998, with the Company
selling $144,990,000 of 12 3/4% unsecured senior discount notes ($1,000
principal amount) (the Notes) and warrants (the Warrants) to purchase 26,661
shares of the Company's Common Stock with an exercise price of $0.01 per share
for gross proceeds to the Company of $100,001,053. The net proceeds from the
offering of approximately $96.8 million were used principally to pay certain
expenses of the offering, repay approximately $46.9 million in existing
indebtedness, to provide funds for investment in new stores and for general
corporate purposes. The Notes will mature on May 1, 2005. No cash interest will
accrue on the Notes prior to May 1, 2001. The Notes will begin to accrue cash
interest at a rate of 12 3/4% per annum commencing May 1, 2001, and cash
interest will be payable thereafter on November 1 and May 1 of each year,
commencing November 1, 2001. The Notes will be redeemable at the option of the
Company, in whole or in part, on or after May 1, 2002, at the redemption prices
set forth in the Prospectus. In addition, at any time and from time to time
prior to May 1, 2001, the Company may redeem in the aggregate up to 35% of the
Accreted Value of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price of
112.75% of the Accreted Value to the date of redemption; provided, however, that
at least $94.2 million of the aggregate principal amount of the Notes at
maturity remain outstanding after any such redemption. Upon a Change of Control
(as defined in the Prospectus), each holder of the Notes (a Holder) will have
the right to require the Company to purchase all or any part of such Holder's
Notes at a purchase price equal to 101% of the Accreted Value thereof, plus
accrued and unpaid interest, if any, to the date of purchase. All terms used
herein to describe the Private Placement shall have the meaning ascribed to them
in the Prospectus unless otherwise noted.
The Notes will be senior, unsecured obligations of the Company ranking pari
passu in right of payment of principal and interest with all other existing and
future senior unsecured obligations of the Company and will rank senior to all
future subordinated debt of the Company. The Notes will be effectively
subordinated to all Secured Indebtedness of the Company, if any, to the extent
of the value of the assets securing such indebtedness and to all indebtedness
and other obligations (including trade payables) of the Company's future
subsidiaries, if any. The Warrants will be exercisable at any time on or after
the earlier of April 29, 1999 or 60 days after the consummation of an initial
public offering of the Company's Common Stock, and will expire on May 1, 2005.
Prior to the Private Placement, the Company had in place a $45.0 million
credit facility from Raytheon Commercial Laundry, LLC (Raytheon), one of the
largest commercial laundry equipment vendors, which most recently provided the
Company with approximately $30.0 million of equipment financing and $15.0
million of acquisition financing. This facility has provided 100% financing for
commercial laundry equipment purchases (based upon list prices) and store
acquisitions. The Company procured a bank credit facility with LaSalle National
Bank in March 1998, which provided the Company with $15.0 million for
acquisitions and general corporate purposes. On April 29, 1998, the Company
repaid all indebtedness outstanding under these two facilities with the net
proceeds from the Private Placement and terminated the related loan agreements.
On April 29, 1998, the Company also closed a secured revolving credit
facility in the maximum principal amount of $40 million with Heller Financial,
Inc. (the Heller Facility). The Heller Facility will mature on April 28, 2002.
The Company will be entitled to draw amounts under the Heller Facility, subject
to availability pursuant to a borrowing base formula based upon income from
store operations and net book value of laundry
F-21
<PAGE> 112
SPINCYCLE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment, in order to fund ongoing working capital, capital expenditures and
general corporate purposes. Interest will accrue on the Heller Facility with
reference to the base rate (the Base Rate) plus 0.50%. The Company may elect
that all or a portion of the loans bear interest at the LIBOR rate (the LIBOR
Rate) plus 2.75%. The Base Rate is defined as, on any date, the "Bank Prime
Loan" rate published by the Board of Governors of the Federal Reserve System
plus 0.50%. The LIBOR Rate is defined as an amount equal to the rate posted on
the Reuters Screen LIBO Page on the day which is three business days prior to
the first day of such interest period.
7. ACQUISITIONS
During the year ended December 28, 1997, the Company acquired 27 existing
coin laundry businesses for a total cash outlay of $12,063,521, net of cash
acquired. These acquisitions were accounted for under the purchase method of
accounting. In connection with these acquisitions, the Company recorded goodwill
of $6,180,839 and did not assume any liabilities of the sellers.
During the first quarter ended March 22, 1998, the Company acquired eight
existing coin laundry businesses for a total cash outlay of $5,036,300, all of
which were financed, net of cash acquired. These acquisitions were accounted for
under the purchase method of accounting. In connection with these acquisitions,
the Company recorded goodwill of $1,943,500 and did not assume any liabilities
of the sellers. Goodwill is amortized on a straight-line basis over 15 years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the acquired coin laundry
businesses as if the acquisitions had occurred January 1, 1997.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales................................................. $ 5,645,416 $ 3,698,717
Net loss.................................................. $(3,250,553) $(2,473,981)
Net loss per common share................................. $ (112.64) $ (69.88)
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional depreciation
expense as a result of a step-up in the basis of fixed assets, additional
amortization expense as a result of goodwill and other intangible assets, and an
increased interest expense on acquisition debt. They do not purport to be
indicative of the results of operations which actually would have resulted had
the combination been in effect on January 1, 1997 or of future results of
operations of the consolidated entities.
8. STOCK REPURCHASE
On February 27, 1998, the Company entered into an agreement with a former
senior executive of the Company pursuant to which the Company agreed to
repurchase from this former executive 18,019 shares of Common Stock for the sum
of $200,000 to be paid during the fiscal year ending December 31, 2000. This
amount was accrued at March 22, 1998 and is included in other liabilities on the
Company's balance sheet. The corresponding charge is reflected in common stock
and additional paid-in capital on the Company's balance sheet.
9. MANDATORILY REDEEMABLE PREFERRED STOCK
Prior to the termination of the related put rights as discussed in Note
10(D), each class of holders of the Series A, Series B and Series C Convertible
Preferred Stock (collectively, the Preferred Stock) had the right, upon the
demand of 51% of each of the classes, to require the Company to purchase all of
the Preferred Stock at any time after June 1, 2001, at a redemption price equal
to the greater of the purchase price of the
F-22
<PAGE> 113
SPINCYCLE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares plus accrued but unpaid dividends, if any, or, the appraised value of the
shares. The accreted value of all Preferred Stock at March 22, 1998 and December
28, 1997 was $52,226,272 and $48,792,805, respectively.
10. SUBSEQUENT EVENTS
Subsequent to the end of the first quarter of 1998, the following events
occurred:
A. On April 14, 1998, 7,295 shares of Common Stock previously held by a
former senior executive of the company were issued to Series C
shareholders in connection with the re-pricing of the Series C
Convertible Preferred Stock, originally priced at $220 per share.
Pursuant to a stockholder consent, the Series C offering was converted
to a unit offering, whereby each Series C unit offered is comprised of
10 shares of Series C Stock and 1 share of Common Stock for $2,200 per
unit.
B. 10,724 shares of Common Stock previously held by a former senior
executive of the Company were reserved for the 1995 Amended and
Restated Stock Option Plan (the Plan). This addition of shares was
approved by the stockholders as of April 14, 1998.
C. Holders of Preferred Stock were granted similar voting rights to those
held by holders of Common Stock pursuant to a stockholder consent. This
granting of voting rights was approved by the stockholders as of April
14, 1998. The Preferred shareholders retain their special voting rights
with respect to election of directors.
D. The put rights on the shares of the Preferred Stock were terminated
pursuant to stockholder consent as of April 14, 1998 contingent upon
the closing of the Private Placement.
E. The Company reserved 26,661 shares of Common Stock for issuance upon
exercise of the Warrants.
F. On April 16, 1998, the Compensation Committee of the Company's Board of
Directors granted a total of 1,148 stock options to various employees
under terms and conditions consistent with the Company's Plan.
G. The note receivable to the Company from SpinDevCo in the amount of
approximately $4.9 million, including principal and accrued but unpaid
interest, was due on April 30, 1998. SpinDevCo requested, and the
Company has agreed to provide, an extension of the maturity date of the
note through September 30, 1998. The purpose of this extension is to
allow SpinDevCo additional time to obtain the financing with which to
repay the note.
F-23
<PAGE> 114
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE. UNTIL , ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 14
Use of Proceeds....................... 21
Capitalization........................ 21
Selected Financial and Other Data..... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 38
Management............................ 48
Principal Stockholders................ 53
Certain Transactions.................. 54
Description of the Heller Facility.... 55
Description of the New Notes.......... 56
Description of Capital Stock.......... 79
Book-Entry; Delivery and Form......... 81
Certain Federal Income Tax
Consequences........................ 83
Plan of Distribution.................. 87
Notice to Canadian Residents.......... 88
Legal Matters......................... 89
Experts............................... 89
Available Information................. 89
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
[SPINCYCLE LOGO]
SPINCYCLE, INC.
OFFER TO EXCHANGE
12 3/4% SENIOR DISCOUNT NOTES
DUE 2005,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY
AND ALL OF ITS OUTSTANDING 12 3/4% SENIOR DISCOUNT NOTES DUE 2005
---------------------------------------------------
PRELIMINARY PROSPECTUS
---------------------------------------------------
======================================================
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "Delaware Act")
authorizes indemnification of directors, officers, employees and agents of the
Company; allows the advancement of costs of defending against litigation; and
permits companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees and agents against liabilities whether or not in
the circumstances such companies would have the power to indemnify against such
liabilities under the provisions of the statute.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides for indemnification of the Company's officers and
directors to the fullest extent permitted by Section 145 of the Delaware Act.
The Company intends to obtain directors and officers insurance covering its
executive officers and directors.
The Certificate eliminates, to the fullest extent permitted by Delaware
law, liability of a director to the Company of its stockholders for monetary
damages for a breach of such director's fiduciary duty of care except for
liability where a director: (a) breaches his or her duty of loyalty to the
Company or its stockholders; (b) fails to act in good faith or engages in
intentional misconduct or knowing violation of law; (c) authorizes payment of an
illegal dividend or stock repurchase; or (d) obtains an improper personal
benefit. While liability for monetary damages has been eliminated, equitable
remedies such as injunctive relief or rescission remain available. In addition,
a director is not relieved of his or her responsibilities under any other law,
including the federal securities laws.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits to the Registration Statement are listed in the Exhibit Index
which appears elsewhere in this Registration Statement and is incorporated
herein by this reference.
All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
consolidated financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate
II-1
<PAGE> 116
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted directors, officers and controlling persons
of the Company pursuant to the provisions described under Item 14 above or
otherwise, the Company has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted against the Company by such director,
officer or controlling person of the Company in the successful defense of
any action, suit or proceeding) is asserted against the Company by such
director, officer, or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(b) Not applicable.
(c) Not applicable.
II-2
<PAGE> 117
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, in the State
of Arizona, on June 26, 1998.
SPINCYCLE, INC.
By: /s/ PETER L. AX
------------------------------------
Peter L. Ax
Chairman and Chief Executive Officer
II-3
<PAGE> 118
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Peter L. Ax and James R. Puckett as his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to act, without the other, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or any of them, or their
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on June 24, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER L. AX Chairman and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
Peter L. Ax
/s/ JAMES R. PUCKETT Chief Financial Officer (Chief Accounting
- ----------------------------------------------------- Officer)
James R. Puckett
/s/ ALFREDO BRENER Director
- -----------------------------------------------------
Alfredo Brener
/s/ DEAN L. BUNTROCK Director
- -----------------------------------------------------
Dean L. Buntrock
/s/ JAMES E. HUTTON Director
- -----------------------------------------------------
James E. Hutton
/s/ JOHN H. MUEHLSTEIN Director
- -----------------------------------------------------
John H. Muehlstein
/s/ PEER PEDERSEN Director
- -----------------------------------------------------
Peer Pedersen
/s/ JOHN WALLACE Director
- -----------------------------------------------------
John Wallace
</TABLE>
II-4
<PAGE> 119
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
1.1 Purchase Agreement, dated April 24, 1998 between the Company
and Credit Suisse First Boston Corporation, as Initial
Purchaser
3.1 Amended and Restated Certificate of Incorporation of the
Company as filed on April 27, 1998
3.2 Bylaws of the Company
4.1 Indenture dated as of April 29, 1998 between the Company and
Norwest Bank Minnesota, N.A., as Trustee
4.2 Form of the 12 3/4 Senior Discount Notes due 2005
4.3 Registration Rights Agreement dated April 29, 1998 between
the Company and Credit Suisse First Boston Corporation, as
Initial Purchaser
5.1* Legal Opinion of Pedersen & Houpt, P.C.
10.1 Loan and Security Agreement dated as of April 29, 1998 among
the Company, as Borrower, various financial institutions, as
Lenders, and Heller Financial, Inc., as Agent and as Lender
10.2 Collateral Assignment of Leases dated as of April 29, 1998
between the Company, as Borrower, and Heller Financial,
Inc., as Agent for the Lenders under the Loan and Security
Agreement
10.3 Assignment for Security of Patents, Trademarks and
Copyrights dated as of April 29, 1998 between the Company,
as Assignor, and Heller Financial, Inc., as Agent for the
Lenders under the Loan and Security Agreement
10.4 Amended and Restated Supply Agreement dated as of February
19, 1998 between the Company, as Buyer, and Raytheon
Commercial Laundry LLC, as Seller
10.5* Employment Agreement dated December 1, 1996 between the
Company and Peter Ax
10.6* Employment Agreement dated June 1, 1997 between the Company
and Chris Lombardi
11.1 Statement regarding Computation of Per Share Earnings
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of Price Waterhouse LLP
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
25.1 Statement of Eligibility of Norwest Bank Minnesota, N.A., as
Trustee
27.1* Financial Data Schedule
99.1* Form of Letter of Transmittal to 12 3/4% Senior Discount
Notes due 2005 of the Company
99.2* Form of Notice of Guarantee Delivery for 12 3/4% Senior
Discount Notes due 2005 of the Company
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees for 12 3/4% Senior Discount
Notes due 2005 of the Company
99.4* Form of Letter to Clients of Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees for 12 3/4% Senior
Discount Notes due 2005 of the Company
99.5* Form of Instruction from Owner of 12 3/4% Senior Discount
Notes due 2005 of the Company
</TABLE>
- ---------------
* To be filed by amendment.
II-5
<PAGE> 1
Exhibit 1.1
SPINCYCLE, INC.
144,990 UNITS CONSISTING OF
$144,990,000 AGGREGATE PRINCIPAL AMOUNT AT MATURITY
12 3/4% SENIOR DISCOUNT NOTES DUE 2005
AND
144,990 WARRANTS TO PURCHASE 26,661 SHARES OF COMMON STOCK
PURCHASE AGREEMENT
April 24, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. SpinCycle, Inc., a Delaware corporation (the
"Company") proposes, subject to the terms and conditions stated herein, to issue
and sell to you (the "Initial Purchaser") 144,990 Units (the "Units") each
consisting of $1000 principal amount at maturity 12 3/4% Senior Discount Notes
due 2005 (the "Notes") and one Warrant (the "Warrants") to purchase .1839 shares
of common stock, par value $.01 per share (the "Warrant Shares" and, together
with the Warrants, the Notes and the Units, the "Offered Securities"). The Notes
are to be issued under an indenture, dated as of April 29, 1998 (the
"Indenture"), between the Company and Norwest Bank Minnesota, N.A., as Trustee.
The Warrants are to be issued under a warrant agreement to be dated as of April
29, 1998 (the "Warrant Agreement") between the Company and Norwest Bank
Minnesota, N.A., as Warrant Agent (the "Warrant Agent"). The holders of Notes,
including the Initial Purchaser, will be entitled to the benefits of a
Registration Rights Agreement (the "Registration Rights Agreement") dated as of
April 29, 1998 between the Company and the Initial Purchaser. The holders of
Warrants and Warrant Shares, including the Initial Purchaser, will be entitled
to the benefits of the registration rights with respect thereto under the
Warrant Agreement. This agreement (the "Agreement" or the "Purchase Agreement"),
the Indenture, the Warrant Agreement and the Registration Rights Agreement are
referred to collectively as the " Operative Documents."
The Company hereby agrees with the Initial Purchaser as
follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Initial Purchaser that as of
the date hereof:
(a) A preliminary offering circular and an offering circular
relating to the Offered Securities have been prepared by the Company.
Such preliminary offering circular and offering circular, as
supplemented as of the date of this Agreement, are hereinafter
collectively referred to as the "Offering Document". On the date of
this Agreement, the Offering Document does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
information required to be delivered to holders and prospective
purchasers of the Offered Securities pursuant to Section 10.09 of the
Indenture in accordance with Rule 144A(d)(4) under the Securities Act
(the "Additional Issuer Information") will not include 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
circum-
<PAGE> 2
stances under which they were made, not misleading. The preceding two
sentences do not apply to statements in or omissions from the Offering
Document based upon written information furnished to the Company by the
Initial Purchaser specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b) hereof.
(b) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Offering Document; the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not be
expected, singly or in the aggregate, to have a material adverse effect
on the Company; and the Company has no subsidiaries.
(c) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Indenture. The Indenture meets the requirements for qualification under
the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture
and the Notes to be issued thereunder have been duly authorized by the
Company; when the Notes are issued and authenticated in accordance with
the terms of the Indenture and delivered and paid for pursuant to this
Agreement on the Closing Date, the Indenture will have been duly
executed and delivered and such Notes will have been duly executed,
authenticated, issued and delivered and the Indenture and such Notes
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(d) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Warrant Agreement; the Warrant Agreement, the Warrants and the Warrant
Shares have been duly authorized by the Company; when the Warrants are
issued and countersigned in accordance with the terms of the Warrant
Agreement and delivered and paid for pursuant to this Agreement on the
Closing Date, the Warrant Agreement will have been duly executed and
delivered and such Warrants will have been duly executed,
authenticated, issued and delivered and the Warrant Agreement and the
Warrants will constitute the valid and legally binding obligations of
the Company enforceable in accordance with their terms.
(e) When issued in accordance with the terms and conditions
contained in the Warrant Agreement upon exercise of the Warrants, the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar
rights. The Warrant Shares have been duly reserved for issuance in
accordance with the terms of the Warrants and the Warrant Agreement and
conform in all material respects to the description thereof in the
Offering Document.
(f) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has
been duly authorized by the Company, and when executed and delivered by
the Company on the Closing Date (as defined below), will have been duly
executed and delivered and will constitute a valid and legally binding
obligation of the Company, enforceable in accordance with its terms,
except as rights of indemnity or contribution, or both, may be limited
by state and federal securities laws or
2
<PAGE> 3
public policy underlying such laws, and subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(g) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or the
Initial Purchaser for a brokerage commission, finder's fee or other
like payment in connection with the issuance, purchase and sale of the
Offered Securities.
(h) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court or any third
party is required for the consummation of the transactions contemplated
by this Agreement in connection with the issuance and sale of the
Offered Securities by the Company, except (i) such as may be required
under state securities and Blue Sky laws and regulations or (ii) where
the failure to obtain such consents could not, individually or in the
aggregate, have a material adverse effect on the Company.
(i) The execution, delivery and performance of the Operative
Documents and the issuance and sale of the Offered Securities and
compliance with the terms and provisions thereof will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or order of
any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any of its properties, or any
agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is
subject, or the charter or bylaws of the Company, and the Company has
full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement, except for such
violations, breaches and defaults as could not, individually or in the
aggregate, have a material adverse effect on the Company.
(j) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and legally binding obligation of the
Company enforceable in accordance with its terms, except as rights of
indemnity or contribution or both may be limited by state and federal
securities laws or public policy underlying such laws and subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(k) Except as disclosed in the Offering Document, the Company
has good and marketable title to all real properties and all other
properties and assets owned by it and necessary to the operation of its
business, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with
the use made or to be made thereof by it; and except as disclosed in
the Offering Document, the Company holds any leased real or personal
property under valid and enforceable leases with no exceptions that
would materially interfere with the use made or to be made thereof by
it.
(l) Except as disclosed in the Offering Document, the Company
possesses adequate certificates, licenses, authorities, permits, or
other rights issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it except where the
failure to have such
3
<PAGE> 4
certificates, licenses, authorities, permits or other rights could not
be expected, singly or in the aggregate, to have a material adverse
effect on the Company. The Company has not received any notice of
proceedings relating to the revocation or modification of any such
certificate, license, authority, permit or right that, if determined
adversely to the Company, could be expected, individually or in the
aggregate, to have a material adverse effect on the Company.
(m) Except as described in the Offering Document, no labor
dispute with the employees of the Company exists or is imminent that
could be expected, individually or in the aggregate, to have a material
adverse effect on the Company.
(n) The Company owns, possesses or can acquire on reasonable
terms adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by it, or presently
employed by it with such exceptions as do not individually or in the
aggregate have a material adverse effect on the Company, and (except as
disclosed in the Offering Document) the Company has not received any
notice of infringement of or conflict with asserted rights of others
with respect to any intellectual property rights that is reasonably
likely individually or in the aggregate to have a material adverse
effect on the Company.
(o) Except as disclosed in the Offering Document, the Company
is not in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively, "environmental laws"); the Company does not own or
operate any real property that, is contaminated with any substance that
is subject to any environmental laws, and is not liable for any
off-site disposal or contamination pursuant to any environmental laws,
or subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate could reasonably be expected to have a material adverse
effect on the Company; and the Company is not aware of any pending
investigation which might lead to such a claim.
(p) Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings against or affecting the Company
or any of its properties that, if determined adversely to the Company,
would individually or in the aggregate, have a material adverse effect
on the condition (financial or other), business, properties or results
of operations of the Company, or would materially and adversely affect
the ability of the Company to perform its obligations under the
Indenture, the Warrant Agreement or this Agreement, or which are
otherwise material in the context of the sale of the Offered
Securities; and no such actions, suits or proceedings are threatened
or, to the Company's knowledge, contemplated.
(q) The financial statements of the Company and the related
notes thereto included in the Offering Document present fairly the
financial position of the Company as of the dates shown and the results
of operations and cash flows for the periods shown, and, except as
otherwise disclosed in the Offering Document, such financial statements
have been prepared in conformity with the generally accepted accounting
principles in the United States. The summary and selected financial and
statistical data included in the Offering Document present fairly in
all material respects the information shown therein and have been
prepared and applied on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein, and
comply as to form in all material
4
<PAGE> 5
respects with the applicable accounting requirements of the Securities
Act of 1933 (the "Securities Act") and the rules and regulations
thereunder.
(r) Except as disclosed in the Offering Document, since the
date of the latest audited financial statements included in the
Offering Document there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company, and, except as disclosed in or
contemplated by the Offering Document, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(s) Price Waterhouse LLP is an independent public accounting
firm as would be required by the Securities Act and the rules and
regulations thereunder with respect to a registration statement
covering the Offered Securities.
(t) Each of the Indenture, the Notes, the Registration Rights
Agreement, the Warrant Agreement and the Warrants conforms in all
material respects to the description thereof in the Offering Document.
(u) The Company is not an open-end investment company, unit
investment trust or face amount certificate company that is or is
required to be registered under Section 8 of the United States
Investment Company Act of 1940 (the "Investment Company Act"); and the
Company is not and, after giving effect to the offering and sale of the
Offered Securities and the application of the proceeds thereof as
described in the Offering Document, will not be an "investment company"
as defined in the Investment Company Act.
(v) No securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Offered Securities are
listed on any national securities exchange registered under Section 6
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or quoted in a U.S. automated inter-dealer quotation system. No holder
of securities of the Company (except as set forth in the Registration
Rights Agreement or the Warrant Agreement) will be entitled to have
such securities registered under the registration statements required
to be filed by the Company pursuant to the Registration Rights
Agreement or the Warrant Agreement other than as expressly permitted
thereby.
(w) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement will be exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof
and Regulation S thereunder; and it is not necessary to qualify an
indenture in respect of the Offered Securities under the TIA.
(x) Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf (i) has, within the six-month
period prior to the date hereof, offered or sold in the United States
or to any U.S. person (as such terms are defined in Regulation S
("Regulation S") under the Securities Act) the Offered Securities or
any security of the same class or series as the Offered Securities or
(ii) has offered or will offer or sell the Offered Securities (A) in
the United States by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the
Securities Act or (B) with respect to any such securities sold in
reliance on Rule 903 of Regulation S by means of any directed selling
efforts within the meaning of Rule 902(b) of Regulation S. The
5
<PAGE> 6
Company, its affiliates and any person acting on its or their behalf
have complied and will comply with the offering restrictions
requirement of Regulation S. The Company has not entered and will not
enter into any contractual arrangement with respect to the distribution
of the Offered Securities except for this Agreement.
(y) The Company has 303,165 total shares of capital stock
outstanding, consisting of 275,402 shares of preferred stock and 27,763
shares of common stock. The Company has granted 25,653 options
outstanding exercisable for 25,653 shares of common stock.
3. Purchase, Sale and Delivery of Offered Securities. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the
Company all of the Offered Securities, at a purchase price of $667.64 per Unit
plus the increase in accreted value, if any, on the Notes from April 29, 1998 to
the Closing Date (as hereinafter defined).
The Company will deliver against payment of the purchase price
the Offered Securities to be offered and sold by the Initial Purchaser in
reliance on Rule 144A under the Securities Act (the "Rule 144A Securities") in
the form of one or more permanent global securities in definitive form without
interest coupons (the "Restricted Global Securities") deposited with the Trustee
as custodian for DTC and registered in the name of Cede & Co., as nominee for
DTC. The Firm Restricted Global Securities shall include the legend regarding
restrictions on transfer set forth under "Transfer Restrictions" in the Offering
Document. Offered Securities sold in reliance on Regulation S (the "Regulation S
Securities") shall be issued in definitive, fully registered from, in such
denominations and registered in such names as the Initial Purchaser requests and
shall bear the legend relating thereto set forth under "Transfer Restrictions"
in the Offering Document.
Payment for the Offered Securities shall be made by the
Initial Purchaser in Federal (same day) funds by official check or checks or
wire transfer to an account at a bank acceptable to the Initial Purchaser drawn
to the order of the Company at the office of Cahill Gordon & Reindel, 80 Pine
Street, New York, NY at 9:00 A.M., (New York time), on April 29, 1998 or at such
other place or time not later than seven full business days thereafter as the
Initial Purchaser and the Company determine, such time being herein referred to
as the "Closing Date", against (i) delivery to the Trustee as custodian for DTC
of the Restricted Global Securities representing all the Rule 144A Securities
and (ii) delivery to the Initial Purchaser of definitive fully registered
certificates representing all of the Regulation S Securities. The Restricted
Global Securities and the Regulation S Securities will be made available for
checking at the above office of Cahill Gordon & Reindel at least 24 hours prior
to the Closing Date.
4. Representations by Initial Purchaser; Resale by Initial
Purchaser.
(a) The Initial Purchaser represents and warrants to the
Company that it is an "accredited investor" within the meaning of Regulation D
under the Securities Act.
(b) The Initial Purchaser acknowledges that the Offered
Securities have not been registered under 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 except in accordance with Regulation S or pursuant to an
exemption from the registration requirements of the Securities Act. The Initial
Purchaser represents and agrees that it has offered and sold the Offered
Securities, and will offer and sell the Offered Securities (i) as part of its
distribution at any time and (ii) otherwise until after the applicable
distribution compliance period only in accordance with Rule
6
<PAGE> 7
903 or Rule 144A under the Securities Act ("Rule 144A"). Accordingly, neither
the Initial Purchaser nor its affiliates, nor any persons acting on its or their
behalf, have engaged or will engage in any directed selling efforts with respect
to the Offered Securities, and the Initial Purchaser, its affiliates and all
persons acting on its or their behalf have complied and will comply with the
offering restrictions requirement of Regulation S. The Initial Purchaser agrees
that, at or prior to confirmation of sale of the Offered Securities, other than
a sale pursuant to Rule 144A, the Initial Purchaser will have sent to each
distributor, dealer or person receiving a selling concession, fee or other
renumeration that purchases the Offered 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 (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 their distribution at any time or (ii)
otherwise until after the applicable distribution compliance
period except in either case in accordance with Regulation S
(or Rule 144A if available) under the Securities Act. Terms
used above have the meanings given to them by Regulation S."
Terms used in this subsection (b) have the meanings given to them by Regulation
S.
(c) The Initial Purchaser agrees that it and each of its
affiliates has not entered and will not enter into any contractual arrangement
with respect to the distribution of the Offered Securities except with the prior
written consent of the Company.
(d) The Initial Purchaser agrees that it and each of its
affiliates has not and will not offer or sell the Offered Securities by means of
any form of general solicitation or general advertising within the meaning of
Rule 502(c) under the Securities Act, including, but not limited to (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. The Initial Purchaser agrees, with respect
to resales made in reliance on Rule 144A of any of the Offered Securities, to
deliver either with the confirmation of such resale or otherwise prior to
settlement of such resale a notice to the effect that the resale of such Offered
Securities has been made in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A.
(e) The Initial Purchaser represents and agrees that (i) it
has not offered or sold and prior to the date six months after the date of issue
of the Offered Securities will not offer or sell any Offered Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Offered Securities in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Offered Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisement) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
7
<PAGE> 8
5. Certain Agreements of the Company. The Company agrees with
the Initial Purchaser that:
(a) The Company will advise the Initial Purchaser promptly of
any proposal to amend or supplement the Offering Document and will not
effect such amendment or supplementation without the Initial
Purchaser's consent, which shall not be unreasonably withheld or
delayed. If, at any time prior to the completion of the resale of the
Offered Securities by the Initial Purchaser, any event occurs as a
result of which the Offering Document as then amended or supplemented
would include an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, the Company promptly will notify the Initial Purchaser of
such event and promptly will prepare, at its own expense, an amendment
or supplement which will correct such statement or omission. Neither
the Initial Purchaser's consent to, nor the Initial Purchaser's
delivery to offerees or investors of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6.
(b) The Company has furnished to the Initial Purchaser copies
of the preliminary offering circular, and will furnish to the Initial
Purchaser copies of the Offering Document and all amendments and
supplements to such documents, in each case as soon as available and in
such quantities as the Initial Purchaser reasonably requests, and the
Company will furnish to the Initial Purchaser on the date hereof two
copies of the Offering Document signed by a duly authorized officer of
the Company, one of which will include the independent accountants'
reports therein manually signed by such independent accountants. At any
time when the Company is not subject to Section 13 or 15(d) of the
Exchange Act, the Company will promptly furnish or cause to be
furnished to the Initial Purchaser and, upon request of holders and
prospective purchasers of the Offered Securities, to such holders and
purchasers, copies of the information required to be delivered to
holders and prospective purchasers of the Offered Securities pursuant
to Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto) in order to permit compliance with Rule 144A in connection
with resales by such holders of the Offered Securities. The Company
will pay the expenses of printing and distributing to the Initial
Purchaser all such documents.
(c) The Company will arrange for the qualification of the
Offered Securities for sale and the determination of their eligibility
for investment under the laws of such jurisdictions in the United
States and Canada as the Initial Purchaser reasonably designates and
will continue such qualifications in effect so long as required for the
resale of the Offered Securities by the Initial Purchaser, provided
that the Company will not be required to qualify as a foreign
corporation or to take any action that would subject it to service of
process or taxation in any such jurisdiction.
(d) For so long as the Offered Securities remain outstanding
the Company will furnish to the Initial Purchaser, as soon as
practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to
the Initial Purchaser (i) as soon as available, a copy of each report
and any definitive proxy statement of the Company filed with the
Securities and Exchange Commission (the "Commission") under the
Exchange Act or mailed to stockholders, and (ii) from time to time,
such other publicly available information concerning the Company as the
Initial Purchaser may reasonably request.
8
<PAGE> 9
(e) During the period of two years after the Closing Date, the
Company will, upon request, furnish to the Initial Purchaser and any
holder of Offered Securities information regarding the restrictions on
transfer applicable to the Offered Securities.
(f) During the period of two years after the Closing Date, the
Company will not, and will not permit any of its affiliates (as defined
in Rule 144 under the Securities Act) to, resell any of the Offered
Securities that have been reacquired by any of them.
(g) During the period of two years after the Closing Date, the
Company will not be or become, an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company
Act.
(h) The Company will pay all expenses incidental to the
performance of its obligations under this Agreement, the Indenture and
the Warrant Agreement, including (i) the fees and expenses of the
Trustee and the Warrant Agent and their respective professional
advisers; (ii) all expenses in connection with the execution, issue,
authentication, packaging and initial delivery of the Offered
Securities, the preparation and printing of this Agreement, the Offered
Securities, the Indenture, the Warrant Agreement, the Offering Document
and all amendments and supplements thereto, and any other document
relating to the issuance, offer, sale and delivery of the Offered
Securities; (iii) the cost of listing the Offered Securities and
qualifying the Offered Securities for trading in The Portal(SM) Market
("PORTAL") of The Nasdaq Stock Market, Inc. and any expenses incidental
thereto; (iv) the cost of any advertising approved by the Company in
connection with the issue of the Offered Securities; (v) for any
expenses (including reasonable fees and disbursements of counsel)
incurred in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions in the United States and
Canada as the Initial Purchaser reasonably designates and the printing
of memoranda relating thereto; (vi) for any fees charged by investment
rating agencies for the rating of the Offered Securities; and (vii) for
expenses incurred in distributing the Offering Document (including any
amendments and supplements thereto) to the Initial Purchaser. The
Company will also pay, or reimburse the Initial Purchaser, for one-half
of the cost of private, chartered air transportation for the Initial
Purchaser and the Company's officers and employees in connection with
attending meetings with prospective purchasers of the Offered
Securities.
(i) In connection with the offering, until the Initial
Purchaser shall have notified the Company of the completion of the
resale of the Offered Securities, neither the Company nor any of its
affiliates will, either alone or with one or more other persons, bid
for or purchase for any account in which it or any of its affiliates
has a beneficial interest any Offered Securities or attempt to induce
any person to purchase any Offered Securities; and neither it nor any
of its affiliates will make bids or purchases for the purpose of
creating actual, or apparent, active trading in, or of raising the
price of, the Offered Securities.
(j) For a period of 180 days after the date of the initial
offering of the Offered Securities by the Initial Purchaser, the
Company will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any United States
dollar-denominated debt securities issued or guaranteed by the Company
and having a maturity of more than one year from the date of issue, or
any shares of common stock of the Company or securities convertible
into or exchangeable or exercisable for shares of common stock of the
Company or warrants or other rights to purchase shares of common stock
of the Company, or publicly disclose the intention to make any such
offer, sale, pledge or
9
<PAGE> 10
disposition, without the prior written consent of the Initial
Purchaser. The Company will not at any time offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, pledge, contract
or disposition would cause the exemption afforded by Section 4(2) of
the Securities Act to cease to be applicable to the offer and sale of
the Offered Securities.
(k) The Company will apply the net proceeds from the sale of
the Offered Securities substantially as set forth under "Use of
Proceeds" in the Offering Document.
(l) The Company will cooperate with the Initial Purchaser to
effect the inclusion of the Offered Securities in PORTAL.
6. Conditions of the Obligations of the Initial Purchaser. The
obligations of the Initial Purchaser to purchase and pay for the Offered
Securities will be subject to the accuracy of the representations and warranties
on the part of the Company herein, to the accuracy of the statements of officers
of the Company made pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions
precedent:
(a) The Initial Purchaser shall have received a letter, dated
the date of this Agreement, of Price Waterhouse LLP, confirming that
they are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations
thereunder ("Rules and Regulations") and to the effect that:
(i) in their opinion the financial statements
examined by them and included in the Offering Document comply
as to form in all material respects with the applicable
accounting requirements of the Securities Act and the related
published Rules and Regulations.
(ii) on the basis of a reading of the latest
available interim financial statements of the Company,
inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them
to believe that:
(A) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt
of the Company and its consolidated subsidiaries or,
at the date of the latest available balance sheet
read by such accountants, there was any decrease in
consolidated net assets, as compared with amounts
shown on the latest balance sheet included in the
Offering Document; or
(B) for the period from the closing date of
the latest income statement included in the Offering
Document to the closing date of the latest available
income statement read by such accountants there were
any decreases, as compared with the corresponding
period of the previous year, in consolidated
revenues, net operating income, consolidated net
income or in the ratio of deficiency of earnings to
fixed charges;
10
<PAGE> 11
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Offering Document
discloses have occurred or may occur or which are described in
such letter; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Offering Document (in
each case to the extent that such dollar amounts, percentages
and other financial information are derived from the general
accounting records of the Company and its subsidiaries subject
to the internal controls of the Company's accounting system or
are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a
reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in
such letter.
(b) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) a change in U.S. or
international financial, political or economic conditions or currency
exchange rates or exchange controls as would, in the reasonable
judgment of the Initial Purchaser, be likely to prejudice materially
the success of the proposed issue, sale or distribution of the Offered
Securities, whether in the primary market or in respect of dealings in
the secondary market, or (ii) (A) any change, or any development or
event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company
which, in the judgment of the Initial Purchaser, is material and
adverse and makes it impractical or inadvisable to proceed with
completion of the offering or the sale of and payment for the Offered
Securities; (B) any downgrading in the rating of any debt securities of
the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the
Securities Act), or any public announcement that any such organization
has under surveillance or review its rating of any debt securities of
the Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of
such rating); (C) any suspension or limitation of trading in securities
generally on the New York Stock Exchange or any setting of minimum
prices for trading on such exchange, or any suspension of trading of
any securities of the Company on any exchange or in the
over-the-counter market; (D) any banking moratorium declared by U.S.
Federal or New York authorities; or (E) any outbreak or escalation of
major hostilities in which the United States is involved, any
declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of the Initial
Purchaser, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed
with completion of the offering or sale of and payment for the Offered
Securities.
(c) The Initial Purchaser shall have received an opinion dated
the Closing Date, of Pedersen & Houpt, counsel for the Company, that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of its
jurisdiction of incorporation, and has the corporate power and
authority to own its properties and conduct its business as
described in the Offering Document; the Company is duly
qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure to be so qualified
could not be
11
<PAGE> 12
expected, singly or in the aggregate, to have a material
adverse effect on the Company, and the Company has no
subsidiaries;
(ii) the Company has all requisite corporate power and
authority to execute, deliver and perform its obligations
under the Indenture. The Indenture meets the requirements for
qualification under the TIA. The Indenture and the Notes to be
issued thereunder have been duly authorized by the Company;
when the Notes are issued and authenticated in accordance with
the terms of the Indenture and delivered and paid for pursuant
to this Agreement on the Closing Date, the Indenture will have
been duly executed and delivered and such Notes will have been
duly executed, authenticated, issued and delivered and the
Indenture and such Notes will constitute valid and legally
binding obligations of the Company, enforceable in accordance
with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
(iii) the Company has all requisite corporate power and
authority to execute, deliver and perform its obligations
under the Warrant Agreement; the Warrant Agreement, the
Warrants and the Warrant Shares have been duly authorized by
the Company; when the Warrants are issued and countersigned in
accordance with the terms of the Warrant Agreement and
delivered and paid for pursuant to this Agreement on the
Closing Date, the Warrant Agreement will have been duly
executed and delivered and such Warrants will have been duly
executed, authenticated, issued and delivered and the Warrant
Agreement and the Warrants will constitute the valid and
legally binding obligations of the Company enforceable in
accordance with their terms;
(iv) when issued in accordance with the terms and
conditions contained in the Warrant Agreement upon exercise of
the Warrants, the Warrant Shares will be duly authorized,
validly issued, fully paid and nonassessable and will not be
subject to any preemptive or similar rights. The Warrant
Shares have been duly reserved for issuance in accordance with
the terms of the Warrants and the Warrant Agreement and
conform in all material respects to the description thereof in
the Offering Document;
(v) the Company has the corporate power and authority
to execute and deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights
Agreement has been duly authorized by all necessary action on
the part of the Company, has been duly executed and delivered
by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its
terms, except (a) as may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent or transfer conveyance
or other similar laws relating to or affecting the enforcement
of creditors' rights generally and (b) as the enforceability
thereof is subject to the application of general principles of
equity (whether considered in a proceeding at law or in
equity), including without limitation (1) the possible
unavailability of specific performance, injunctive relief or
any other equitable remedy and (2) concepts of materiality,
reasonableness, good faith and fair dealing;
(vi) the Company is not an open-end investment
company, unit investment trust or face amount certificate
company that is or is required to be registered under Section
8 of the
12
<PAGE> 13
Investment Company Act, and the Company is not and will not,
after giving effect to the offering and sale of the Offered
Securities and the application of the proceeds thereof as
described in the Offering Document, be an "investment company"
as defined in the Investment Company Act;
(vii) no consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court
is required on the part of the Company for the issuance or
sale of the Offered Securities by the Company, except such as
may be required under state securities laws;
(viii) the issue and sale of the Offered Securities
pursuant to this Agreement will not violate the provisions of
the certificate of incorporation or bylaws of the Company;
(ix) the Company has the corporate power and authority
to execute and deliver and perform its obligations under this
Agreement. This Agreement has been duly authorized, executed
and delivered by the Company;
(x) each of the Indenture, the Notes, the Registration
Rights Agreement, the Warrant Agreement and the Warrants
conforms in all material respects to the description thereof
in the Offering Document; and
(xi) to such counsel's knowledge, the execution,
delivery and performance by the Company of the Operative
Documents, and the consummation by the Company of the
transactions contemplated thereby, will not result in a breach
or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or
order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or
any of their properties, or any agreement or instrument to
which the Company is a party or by which the Company is bound
or to which any of the properties of the Company is subject
except for such breaches, violations or defaults that would
not individually or in the aggregate result in a material
adverse effect on the Company, or the charter or by-laws of
the Company and the Company has full power and authority to
authorize, issue and sell the Offered Securities as
contemplated by this Agreement; and
(xii) it is not necessary in connection with (i) the
offer, sale and delivery of the Offered Securities by the
Company to the Initial Purchaser pursuant to this Agreement or
(ii) the resales of the Offered Securities by the Initial
Purchaser in the manner contemplated by this Agreement, to
register the Offered Securities under the Securities Act or to
qualify the Indenture under the TIA.
Such counsel shall further state as part of the same
letter in which the foregoing opinions are expressed or by separate
letter addressed to the Initial Purchaser that in the course of the
Company's preparation of the Offering Document, such counsel has
participated in conferences with certain officers or employees of the
Company and with counsel and independent auditors for the Company and
with the Initial Purchaser and counsel for the Initial Purchaser and
reviewed certain corporate records, documents and proceedings of the
Company. Such counsel has not independently verified the accuracy,
completeness or fairness of the statements contained in the Offering
Document, and the limitations inherent in the examination made by such
counsel and the knowledge available to
13
<PAGE> 14
such counsel are such that such counsel is unable to assume, and such
counsel does not assume, any responsibility for the accuracy,
completeness or fairness of the statements contained in the Offering
Document. On the basis of the above-described procedures, however, such
counsel does not believe that the Offering Document, on the date
thereof or on the date of such letter, contains any untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such counsel
does not express any opinion or belief as to the financial statements
and other financial or statistical information included in the Offering
Document.
(d) The Initial Purchaser shall have received from Cahill
Gordon & Reindel, counsel for the Initial Purchaser, such opinion or
opinions, dated the Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities, the Offering
Document, the exemption from registration for the offer and sale of the
Offered Securities by the Company to the Initial Purchaser and the
resales by the Initial Purchaser as contemplated hereby and other
related matters as the Initial Purchaser may require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(e) The Offered Securities shall have been made eligible for
trading in PORTAL.
(f) The Initial Purchaser shall have received a certificate,
dated the Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that the representations and warranties of
the Company in this Agreement are true and correct, that
(i) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date; and
(ii) subsequent to the respective dates of the most
recent financial statements in the Offering Document there has
been no material adverse change, nor any development or event
involving a prospective material adverse change, in the
condition (financial or other), business, properties or
results of operations of the Company except as set forth in or
contemplated by the Offering Document.
(g) The Initial Purchaser shall have received a letter, dated
the Closing Date, of Price Waterhouse LLP which meets the requirements
of subsection (a) of this Section, except that the specified date
referred to in such subsection will be a date not more than three
business days prior to the Closing Date for the purposes of this
subsection.
(h) On the Closing Date, the Initial Purchaser shall have
received the Warrant Agreement and the Registration Rights Agreement
executed by the Company and the Warrants shall have been duly executed
by the Company and countersigned by the Warrant Agent and such
agreements shall be in full force and effect at all times from and
after the Closing Date.
(i) The Indenture shall have been duly executed and delivered
by the Company and the Trustee, the Notes shall have been duly executed
by the Company and the Notes shall have been duly authenticated by the
Trustee.
14
<PAGE> 15
(j) On or before the Closing Date, (i) the New Credit Facility
shall have been consummated, (ii) the Initial Purchaser and counsel for
the Initial Purchaser shall have received copies of the executed New
Credit Facility and such other documents, opinions and reliance letters
as they shall have reasonably requested and (iii) after giving effect
to the transactions contemplated by this Agreement) and the application
of the proceeds received by the Company from the sale of the Notes, no
condition that would constitute a default or event of default under the
New Credit Facility shall exist.
(k) On or before the Closing Date, the Initial Purchaser and
counsel for the Initial Purchaser shall have received such further
documents, certificates and schedules or instruments as they shall have
heretofore reasonably requested from the Company.
The Company will furnish the Initial Purchaser with such
conformed copies of such opinions, certificates, letters and documents as the
Initial Purchaser may reasonably request.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless the Initial
Purchaser against any losses, claims, damages or liabilities to which the
Initial Purchaser may become subject, under the Securities Act or the Exchange
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any breach of any of
the representations and warranties of the Company contained herein or any untrue
statement or alleged untrue statement of any material fact contained in the
Offering Document, or any amendment or supplement thereto, or any related
preliminary offering circular, or arise out of or are based upon the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and will reimburse the Initial Purchaser for any legal or
other expenses reasonably incurred by the Initial Purchaser in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by the Initial Purchaser specifically for use therein, it being
understood and agreed that the only such information consists of the information
described as such in subsection (b) below; and provided, further, that with
respect to any untrue statement or alleged untrue statement in or omission or
alleged omission from the preliminary offering circular the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of the Initial
Purchaser if the Initial Purchaser sold the Offered Securities concerned to the
person asserting any such losses, claims, damages or liabilities, to the extent
that such sale was an initial resale by the Initial Purchaser and any such loss,
claim, damage or liability of the Initial Purchaser results from the fact that
there was not sent or given to such person a copy of the Offering Document
(exclusive of any material included therein but not attached thereto) if the
Company had previously furnished copies thereof to the Initial Purchaser.
(b) The Initial Purchaser will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Securities Act or the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Offering Document, or any
amendment or supplement thereto, or any related preliminary offering circular,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they
15
<PAGE> 16
were made, not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchaser specifically for use therein,
and will reimburse any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by the Initial Purchaser
consists of the following information in the Offering Document: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Initial Purchaser, the legend concerning overallotments and stabilizing
on page (i) of the Offering Document and the third paragraph, the fourth
sentence of the seventh paragraph and the eighth paragraph under the caption
"Plan of Distribution."
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above, except to the extent that it
has been prejudiced in any material respect by such omission. In case any such
action is brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action 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 any claims
that are the subject matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above: (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Initial Purchaser on the other from the
offering of the Offered 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 on the one hand and the Initial
Purchaser on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Initial Purchaser on the other shall be deemed to be in
the same proportion as the total net proceeds from the Offered Securities
(before deducting expenses) received by the Company bear to the total discounts
and commissions received by the Initial Purchaser from the Company under this
Agreement. The relative fault 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 Initial Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party
16
<PAGE> 17
as a result of the losses, claims, damages or liabilities referred to in the
first sentence of this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), the
Initial Purchaser shall not be required to contribute any amount in excess of
the amount by which the total price at which the Offered Securities purchased by
it were resold exceeds the amount of any damages which the Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
the Initial Purchaser within the meaning of the Securities Act or the Exchange
Act; and the obligations of the Initial Purchaser under this Section shall be in
addition to any liability which the Initial Purchaser may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act.
8. Survival of Certain Representations and Obligations. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the Initial Purchaser set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made by
the Initial Purchaser, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If for any reason the purchase of the
Offered Securities by the Initial Purchaser is not consummated, the Company
shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company and the
Initial Purchaser pursuant to Section 7 shall remain in effect. If the purchase
of the Offered Securities by the Initial Purchaser is not consummated for any
reason other than solely because of the occurrence of any event specified in
clause (C), (D) or (E) of Section 6(b)(ii), the Company will reimburse the
Initial Purchaser for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by it in connection with the
offering of the Offered Securities.
9. Notices. All communications hereunder will be in writing
and, if sent to the Initial Purchaser will be mailed, delivered or telegraphed
and confirmed to the Initial Purchaser at Eleven Madison Avenue, New York, N.Y.
10010-3629, Attention: Investment Banking Department -- Transactions Advisory
Group, or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale,
Arizona 85260 Attention: Chief Executive Officer.
10. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
and third sentences of Section 5(b) hereof against the Company as if such
holders were parties thereto.
11. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
17
<PAGE> 18
12. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction
of the Federal and state courts in the Borough of Manhattan in The City of New
York in any suit or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
18
<PAGE> 19
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement among the Company and the Initial
Purchaser in accordance with its terms.
Very truly yours,
SPINCYCLE, INC.
By /s/ Patrick Boyer
---------------------------------
Name: Patrick Boyer
Title: Chief Financial Officer
The foregoing Purchase Agreement is hereby confirmed and accepted as of the date
first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By /s/ Jeffrey C. Howe
--------------------------------
Name: Jeffrey C. Howe
Title: Director
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SPINCYCLE, INC.
(a Delaware corporation)
*********
Adopted in accordance with the
provisions of Section 242 of the
General Corporation Law of the
State of Delaware
*********
Incorporated March 14, 1997
The undersigned, a natural person, hereby certifies that:
This Amended and Restated Certificate of Incorporation ("Amended and
Restated Certificate") of SpinCycle, Inc., originally incorporated on March 14,
1997 as SpinCycle Acquisition Corp., amends and restates the Restated
Certificate of Incorporation of SpinCycle, Inc. ("Certificate"). The Certificate
is hereby amended and restated to read in its entirety as follows:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is SpinCycle, Inc.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle; and
the name of the registered agent of the Corporation in the State of Delaware at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock (common and preferred)
which the Corporation shall have authority to issue is One Million (1,000,000)
shares with a par value of $0.01 per share; of which Six Hundred Thirty Thousand
(630,000) shares shall be of Common Stock ("Common Stock"); One Hundred Thousand
(100,000) shares shall be of Series A Convertible Preferred Stock ("Series A
Stock"); One Hundred Fifty Thousand (150,000) shares shall be of Series B
Convertible Preferred Stock ("Series B Stock"); and One Hundred Twenty Thousand
(120,000) shares shall be of Series C Convertible Preferred Stock ("Series C
Stock"). One vote shall be allowed for each share of common or preferred stock.
FIFTH: The Corporation is to have perpetual existence.
<PAGE> 2
SIXTH: 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
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
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the 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 a 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.
SEVENTH: 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 of
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 Bylaws.
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 Bylaws 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
Bylaws 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 Bylaw or in a Bylaw adopted by the stockholders of the
Corporation entitled to vote unless provisions for such classification
shall be set forth in this Amended and Restated Certificate.
- 2 -
<PAGE> 3
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 (2) of subsection (b) 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.
4. Rights and Preferences of Series A Stock:
A. Dividends shall be payable on the Series A Stock
out of funds legally available therefor only if and when declared by
the Board of Directors. In no event shall any dividend be paid or
declared (whether in cash, common stock or other securities or property
of the Corporation), nor shall any distribution be made, on the common
stock, unless holders of Series A Stock, Series B Stock and Series C
Stock shall participate in such dividend on a pro rata basis with the
holders of common stock, counting shares of Series A Stock, Series B
Stock and Series C Stock on an as-if-converted basis.
B. In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
assets of the Corporation shall be distributed to the holders of the
outstanding shares of capital stock of the Corporation in the following
priority: (i) the holders of the Series A Stock, Series B Stock and
Series C Stock then outstanding shall first be entitled to receive an
amount equal to the price paid the Corporation upon issuance for such
stock ("Initial Payments") by the holder thereof or the predecessors of
such holder (plus any declared but unpaid dividends); provided,
however, that if the assets of the Corporation are insufficient to pay
all such holders the amounts set forth in this section 4B, such holders
shall share such assets pro rata based upon their relative Initial
Payments; and (ii) the remainder shall be distributed pro rata to the
holders of the Series A Stock, Series B Stock, Series C Stock and
Common Stock, counting shares of Series A Stock, Series B Stock and
Series C Stock on an as-if-converted basis.
C. The holders of record of Series A Stock and Series
B Stock, voting as a single class, shall be entitled to elect one
director to the Board of Directors.
- 3 -
<PAGE> 4
D. Without the affirmative vote or consent of holders
of at least 76% of the Series A Stock at the time outstanding, voting
separately as a class, this Corporation in a single transaction or a
series of related transactions shall not sell all or substantially all
of its assets, or consolidate with or merge into any other corporation
or entity, or, engage in an exchange pursuant to which the holders of
Common Stock are entitled to receive stock, securities, cash or assets
(or a combination thereof) in exchange for such Common Stock, or
dissolve or liquidate assets, or permit any other corporation or entity
to consolidate or merge into it, except that any subsidiary of this
Corporation may merge into another subsidiary or into this Corporation
if this Corporation is the surviving entity of any such merger.
E. Each share of Series A Stock automatically shall
be converted into Common Stock pursuant to the provisions below
immediately prior to the closing of the first underwritten public
offering pursuant to a Registration Statement on Form S-1 (or any
successor form) by the Corporation of its Common Stock in which the
aggregate gross proceeds to the Corporation are at least $5,000,000.
The Corporation shall give notice to the holders of Series A Stock of
such automatic conversion and may require the surrender of certificates
representing Series A Stock before delivering certificates representing
the Common Stock issued in such conversion. Upon conversion of the
Series A Stock, any previously declared but unpaid dividends shall be
paid to the holders thereof. The Corporation shall pay any transfer tax
or fee applicable to conversion.
F. Each share of Series A Stock shall be convertible
initially into an equal number of shares of Common Stock (the
"Conversion Ratio"). The Conversion Ratio shall be the same for the
Series A Stock, Series B Stock and Series C Stock. The number of shares
of Common Stock to which a holder of the Series A Stock shall be
entitled upon conversion is subject to adjustment from time to time as
follows:
(i) In the event the Corporation shall (x) split or
subdivide its outstanding capital stock by reclassification or
otherwise, or (y) combine its outstanding capital stock into a
smaller number of shares of Common Stock by reclassification
or otherwise, then, in any such event, the Conversion Ratio
specified in this paragraph 4F(i) as in effect immediately
prior to such split, subdivision or combination shall be
adjusted so that the holder of any shares of Series A Stock,
upon subsequent conversion thereof, shall be entitled to
receive the number of shares of Common Stock which such holder
would have been entitled to receive immediately after the
happening of such event if such holder's shares of Series A
Stock had been converted into shares of Common Stock
immediately prior to the
- 4 -
<PAGE> 5
happening of such event and such holder had thereafter, during
the period from the date of such event to and including the
conversion date, retained such securities receivable by such
holder as aforesaid during such period, subject to all further
adjustments called for hereunder during such period. Such
adjustment shall be made, in the case of a split, subdivision
or combination, as of the effective date thereof.
(ii) If any capital reorganization or
reclassification of the capital stock of the Corporation or
consolidation, merger or sale of all or substantially all of
the assets of the Corporation shall be effected in such a way
that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for
shares of Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or
sale, lawful, adequate provision shall be made whereby the
holders of the Series A Stock shall thereafter have the right
to receive, upon the basis and upon the terms and conditions
specified in such reorganization, reclassification,
consolidation, sale or merger and in lieu of the shares of
Common Stock of the Corporation immediately theretofore
receivable upon the conversion of the Series A Stock, such
shares of stock, securities or assets as may be issuable or
payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of
shares of Common Stock immediately theretofore receivable upon
the conversion of the Series A Stock had such reorganization,
reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the holders
of the Series A Stock to the end that the provisions hereof
(including without limitation provisions for adjustments of
the Conversion Ratio for the Series A Stock and of the number
of shares receivable upon the conversion of the Series A
Stock) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets
thereafter receivable upon the conversion of the Series A
Stock. The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the
consummation thereof the surviving corporation (if other than
this Corporation) resulting from such consolidation or the
corporation purchasing such assets shall assume by written
instrument executed and mailed to the registered holders of
the Series A Stock at the last address of such holders
appearing on the books of the Corporation, the obligation to
deliver to such holders such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such
holders may be entitled to receive.
(iii) The adjustment provisions of this paragraph 4F
may be waived or modified by the affirmative vote of the
record holders (voting as
- 5 -
<PAGE> 6
a class) of at least eighty percent (80%) of the then
outstanding shares of Series A Stock.
G. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon conversion of the Series A Stock as herein provided, such
number of shares of Common Stock as shall be issuable upon the
conversion of all outstanding shares of Series A Stock.
H. Notices required or permitted to be given
hereunder shall be by mail, first class, postage prepaid, addressed:
(i) If to the Corporation, at its principal
executive offices; or
(ii) If to the record holders of Series A
Stock, at the addresses of such holders as shown on the books of the
Corporation.
5. Rights and Preferences of Series B Stock
A. Dividends shall be payable on the Series B Stock
out of funds legally available therefor only if and when declared by
the Board of Directors. In no event shall any dividend be paid or
declared (whether in cash, Common Stock or other securities or property
of the Corporation), nor shall any distribution be made, on the Common
Stock, unless holders of Series A Stock, Series B Stock and Series C
Stock shall participate in such dividend on a pro rata basis with the
holders of Common Stock, counting shares of Series A Stock, Series B
Stock and Series C Stock on an as-if-converted basis.
B. In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
assets of the Corporation shall be distributed to the holders of the
outstanding shares of capital stock of the Corporation in the following
priority: (i) the holders of the Series A Stock, Series B Stock and
Series C Stock then outstanding shall first be entitled to receive an
amount equal to the Initial Payments by the holder thereof or the
predecessors of such holder (plus any declared but unpaid dividends);
provided, however, that if the assets of the Corporation are
insufficient to pay all such holders the amounts set forth in this
section 5B, such holders shall share such assets pro rata based upon
their relative Initial Payments; and (ii) the remainder shall be
distributed pro rata to the holders of Series A Stock, Series B Stock
and Series C Stock and Common Stock, counting shares of Series A Stock,
Series B Stock and Series C on an as-if-converted basis.
- 6 -
<PAGE> 7
C. The holders of record of Series A Stock and Series
B Stock, voting as a single class, shall be entitled to elect one
director to the Board of Directors.
D. Without the affirmative vote or consent of holders
of at least 51% of the Series B Stock at the time outstanding, voting
separately as a class, this Corporation, in a single transaction or a
series of related transactions, shall not sell all or substantially all
of its assets, or consolidate with or merge into any other corporation
or entity or engage in an exchange pursuant to which the holders of
Common Stock are entitled to receive stock, securities, cash or assets
(or a combination thereof) in exchange for such Common Stock, or
dissolve or liquidate assets, or permit any other corporation or entity
to consolidate or merge into it, except that any subsidiary of this
Corporation may merge into another subsidiary or into this Corporation
if this Corporation is the surviving entity of any such merger.
E. Each share of Series B Stock automatically shall
be converted into Common Stock pursuant to the provisions below
immediately prior to the closing of the first underwritten public
offering pursuant to a Registration Statement on Form S-1 (or any
successor form) by the Corporation of its Common Stock in which the
aggregate gross proceeds to the Corporation are at least $5,000,000.
The Corporation shall give notice to the holders of Series B Stock of
such automatic conversion and may require the surrender of certificates
representing Series B Stock before delivering certificates representing
the Common Stock issued in such conversion. Upon conversion of the
Series B Stock, any previously declared but unpaid dividends shall be
paid to the holders thereof. The Corporation shall pay any transfer tax
or fee applicable to conversion.
F. Each share of Series B Stock shall be convertible
initially into an equal number of shares of Common Stock in accordance
with the Conversion Ratio. The number of shares of Common Stock to
which a holder of the Series B Stock shall be entitled upon conversion
is subject to adjustment from time to time as follows:
(i) In the event the Corporation shall (x)
split or subdivide its outstanding capital stock by reclassification or
otherwise, or (y) combine its outstanding capital stock into a smaller
number of shares of Common Stock by reclassification or otherwise,
then, in any such event, the Conversion Ratio specified in this
paragraph 5F(i) as in effect immediately prior to such split,
subdivision or combination shall be adjusted so that the holder of any
shares of Series B Stock, upon subsequent conversion thereof, shall be
entitled to receive the number of shares of Common Stock which such
holder would have been
- 7 -
<PAGE> 8
entitled to receive immediately after the happening of such event if such
holder's shares of Series B Stock had been converted into shares of Common Stock
immediately prior to the happening of such event and such holder had thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by such holder as aforesaid during
such period, subject to all further adjustments called for hereunder during such
period. Such adjustment shall be made, in the case of a split, subdivision or
combination, as of the effective date thereof.
(ii) If any capital reorganization or
reclassification of the capital stock of the Corporation or
consolidation, merger or sale of all or substantially all of the assets
of the Corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful, adequate provision shall be made whereby the
holders of the Series B Stock shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified in
such reorganization, reclassification, consolidation, sale or merger
and in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable upon the conversion of the Series B
Stock, such shares of stock, securities or assets as may be issuable or
payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore receivable upon the conversion of the Series B
Stock had such reorganization, reclassification, consolidation, merger
or sale not taken place, and in any such case appropriate provision
shall be made with respect to the rights and interests of the holders
of the Series B Stock to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Ratio
for the Series B Stock and of the number of shares receivable upon the
conversion of the Series B Stock) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or
assets thereafter receivable upon the conversion of the Series B Stock.
The Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the surviving
corporation (if other than this Corporation) resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument executed and mailed to the registered holders of the
Series B Stock at the last address of such holders appearing on the
books of the Corporation, the obligation to deliver to such holders
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders may be entitled to receive.
(iii) The adjustment provisions of this
paragraph 5F may be waived or modified by the affirmative vote of the
record holders (voting as a
- 8 -
<PAGE> 9
class) of at least fifty-one percent (51%) of the then outstanding
shares of Series B Stock.
G. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon conversion of the Series B Stock as herein provided, such
number of shares of Common Stock as shall be issuable upon the
conversion of all outstanding shares of Series B Stock.
H. Notices required or permitted to be given
hereunder shall be by mail, first class, postage prepaid, addressed:
(i) If to the Corporation, at its principal
executive offices; or
(ii) If to the record holders of Series B
Stock, at the addresses of such holders as shown on the books of the
Corporation.
6. Rights and Preferences of Series C Stock
A. Dividends shall be payable on the Series C Stock
out of funds legally available therefor only if and when declared by
the Board of Directors. In no event shall any dividend be paid or
declared (whether in cash, Common Stock or other securities or property
of the Corporation), nor shall any distribution be made, on the Common
Stock, unless holders of Series A Stock, Series B Stock and Series C
Stock shall participate in such dividend on a pro rata basis with the
holders of Common Stock, counting shares of Series A Stock, Series B
Stock and Series C Stock on an as-if-converted basis.
B. In the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
assets of the Corporation shall be distributed to the holders of the
outstanding shares of capital stock of the Corporation in the following
priority: (i) the holders of the Series A Stock, Series B Stock and
Series C Stock then outstanding shall first be entitled to receive an
amount equal to the Initial Payments by the holder thereof or the
predecessors of such holder (plus any declared but unpaid dividends);
provided, however, that if the assets of the Corporation are
insufficient to pay all such holders the amounts set forth in this
section 6B, such holders shall share such assets pro rata based upon
their relative Initial Payments; and (ii) the remainder shall be
distributed pro rata to the holders of Series A Stock, Series B Stock,
Series C Stock and Common Stock, counting shares of Series A Stock,
Series B Stock and Series C Stock on an as-if-converted basis.
- 9 -
<PAGE> 10
C. The holders of record of Series C Stock, voting as
a single class, shall be entitled to elect one director to the Board of
Directors.
D. Without the affirmative vote or consent of holders
of at least 51% of the Series C Stock at the time outstanding, voting
separately as a class, this Corporation, in a single transaction or a
series of related transactions, shall not sell all or substantially all
of its assets, or consolidate with or merge into any other corporation
or entity or engage in an exchange pursuant to which the holders of
Common Stock are entitled to receive stock, securities, cash or assets
(or a combination thereof) in exchange for such Common Stock, or
dissolve or liquidate assets, or permit any other corporation or entity
to consolidate or merge into it, except that any subsidiary of this
Corporation may merge into another subsidiary or into this Corporation
if this Corporation is the surviving entity of any such merger.
E. Each share of Series C Stock automatically shall
be converted into Common Stock pursuant to the provisions below
immediately prior to the closing of the first underwritten public
offering pursuant to a Registration Statement on Form S-1 (or any
successor form) by the Corporation of its Common Stock in which the
aggregate gross proceeds to the Corporation are at least $5,000,000.
The Corporation shall give notice to the holders of Series C Stock of
such automatic conversion and may require the surrender of certificates
representing Series C Stock before delivering certificates representing
the Common Stock issued in such conversion. Upon conversion of the
Series C Stock, any previously declared but unpaid dividends shall be
paid to the holders thereof. The Corporation shall pay any transfer tax
or fee applicable to conversion.
F. Each share of Series C Stock shall be convertible
initially into an equal number of shares of Common Stock in accordance
with the Conversion Ratio. The number of shares of Common Stock to
which a holder of the Series C Stock shall be entitled upon conversion
is subject to adjustment from time to time as follows:
(i) In the event the Corporation shall (x)
split or subdivide its outstanding capital stock by reclassification or
otherwise, or (y) combine its outstanding capital stock into a smaller
number of shares of Common Stock by reclassification or otherwise,
then, in any such event, the Conversion Ratio specified in this
paragraph 6F(i) as in effect immediately prior to such split,
subdivision or combination shall be adjusted so that the holder of any
shares of Series C Stock, upon subsequent conversion thereof, shall be
entitled to receive the number of shares of Common Stock which such
holder would have been entitled to receive immediately after the
happening of such event if such holder's
- 10 -
<PAGE> 11
shares of Series C Stock had been converted into shares of Common Stock
immediately prior to the happening of such event and such holder had
thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by
such holder as aforesaid during such period, subject to all further
adjustments called for hereunder during such period. Such adjustment
shall be made, in the case of a split, subdivision or combination, as
of the effective date thereof.
(ii) If any capital reorganization or
reclassification of the capital stock of the Corporation or
consolidation, merger or sale of all or substantially all of the assets
of the Corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful, adequate provision shall be made whereby the
holders of the Series C Stock shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified in
such reorganization, reclassification, consolidation, sale or merger
and in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable upon the conversion of the Series C
Stock, such shares of stock, securities or assets as may be issuable or
payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore receivable upon the conversion of the Series C
Stock had such reorganization, reclassification, consolidation, merger
or sale not taken place, and in any such case appropriate provision
shall be made with respect to the rights and interests of the holders
of the Series C Stock to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Ratio
for the Series C Stock and of the number of shares receivable upon the
conversion of the Series C Stock) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or
assets thereafter receivable upon the conversion of the Series C Stock.
The Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the surviving
corporation (if other than this Corporation) resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument executed and mailed to the registered holders of the
Series C Stock at the last address of such holders appearing on the
books of the Corporation, the obligation to deliver to such holders
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders may be entitled to receive.
(iii) The adjustment provisions of this
paragraph 6F may be waived or modified by the affirmative vote of the
record holders (voting as a class) of at least fifty-one percent (51%)
of the then outstanding shares of Series C Stock.
- 11 -
<PAGE> 12
G. The Corporation will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon conversion of the Series C Stock as herein provided, such
number of shares of Common Stock as shall be issuable upon the
conversion of all outstanding shares of Series C Stock.
H. Notices required or permitted to be given
hereunder shall be by mail, first class, postage prepaid, addressed:
(i) If to the Corporation, at its principal
executive offices; or
(ii) If to the record holders of Series C
Stock, at the addresses of such holders as shown on the books of the
Corporation.
EIGHTH: The personal liability of a director of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
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 Bylaw, 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 a 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 Amended and
Restated Certificate 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.
DATED: April 27, 1998
/s/ Susan M. Hermann
------------------------------------------
Susan M. Hermann, Assistant Secretary
- 12 -
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
SPINCYCLE, INC.
SHAREHOLDERS
Section 1.01 Place of Meetings. Each meeting of the shareholders shall
be held at the principal executive office of the Corporation or at such other
place as may be designated by the Board of Directors or the Chief Executive
Officer; provided, however, that any meeting called by or at the demand of a
shareholder or shareholders shall be held in the county where the principal
executive office of the Corporation is located.
Section 1.02 Regular Meetings. Regular meetings of the shareholders may
be held on an annual or other less frequent basis as determined by the Board of
Directors; provided, however, that if a regular meeting has not been held during
the immediately preceding 15 months, a shareholder or shareholders holding three
percent or more of the voting power of all shares entitled to vote may demand a
regular meeting of shareholders by written demand given to the Chief Executive
Officer or Chief Financial Officer of the Corporation. At each regular meeting
the shareholders shall elect qualified successors for directors who serve for an
indefinite term or whose terms have expired or are due to expire within six
months after the date of the meeting and may transact any other business,
provided, however, that no business with respect to which special notice is
required by law shall be transacted unless such notice shall have been given.
Section 1.03 Special Meetings. A special meeting of the shareholders
may be called for any purpose or purposes at any time by the Chief Executive
officer; by the Chief Financial Officer; by the Board of Directors or any two or
more members thereof; or by one or more shareholders holding not less than ten
percent of the voting power of all shares of the Corporation entitled to vote,
who shall demand such special meeting by written notice given to the Chief
Executive Officer or the Chief Financial Officer of the Corporation specifying
the purposes of such meeting.
Section 1.04 Meetings Held Upon Shareholder Demand. Within 30 days
after receipt of a demand by the Chief Executive Officer or the Chief Financial
Officer from any shareholder or shareholders entitled to call a meeting of the
shareholders, it shall be the duty of the Board of Directors of the Corporation
to cause a special or regular meeting of shareholders, as the case may be, to be
duly called and held on notice no later than 90 days after receipt of such
demand. If the Board fails to cause such a meeting to be called and held as
required by this Section, the shareholder or shareholders making the demand may
call the meeting by giving notice as provided in Section 1.06 hereof at the
expense of the Corporation.
Section 1.05 Adjournments. Any meeting of the shareholders may be
adjourned from time to time to another date, time and place. If any meeting of
the shareholders is so adjourned, no notice
<PAGE> 2
as to such adjourned meeting need be given if the date, time and place at which
the meeting will be reconvened are announced at the time of adjournment.
Section 1.06 Notice of Meetings. Unless otherwise required by law,
written notice of each meeting of the shareholders, stating the date, time and
place and, in the case of a special meeting, the purpose or purposes, shall be
given at least ten days and not more than 60 days prior to the meeting to every
holder of shares entitled to vote at such meeting except as specified in Section
1.05 or as otherwise permitted by law, The business transacted at a special
meeting of shareholders is limited to the purposes stated in the notice of the
meeting.
Section 1.07 Waiver of Notice. A shareholder may waive notice of the
date, time, place and purpose or purposes of a meeting of shareholders. A waiver
of notice by a shareholder entitled to notice is effective whether given before,
at or after the meeting, and whether given in writing, orally or by attendance.
Attendance by a shareholder at a meeting is a waiver of notice of that meeting,
unless the shareholder objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or convened,
or objects before a vote on an item of business because the item may not
lawfully be considered at that meeting and does not participate in the
consideration of the item at that meeting.
Section 1.08 Voting Rights.
Subdivision 1. A shareholder shall have one vote for each share held
which is entitled to vote. Except as otherwise required by law, a holder of
shares entitled to vote may vote any portion of the shares in any way the
shareholder chooses. If a shareholder votes without designating the proportion
or number of shares voted in a particular way, the shareholder is deemed to have
voted all of the shares in that way.
Subdivision 2. The Board of Directors may fix a date not more than 60
days before the date of a meeting of shareholders as the date for the
determination of the holders of shares entitled to notice of and entitled to
vote at the meeting. When a date is so fixed, only shareholders on that date are
entitled to notice of and permitted to vote at that meeting of shareholders.
Section 1.09 Proxies. A shareholder may cast or authorize the casting
of a vote by filing a written appointment of a proxy with an officer of the
Corporation at or before the meeting at which the appointment is to be
effective. The shareholder may sign or authorize the written appointment by
telegram, cablegram or other means of electronic transmission setting forth or
submitted with information sufficient to determine that the shareholder
authorized such transmission. Any copy, facsimile, telecommunication or other
reproduction of the original of either the writing or transmission may be used
in lieu of the original, provided that it is a complete and legible reproduction
of the entire original.
- 2 -
<PAGE> 3
Section 1.10 Quorum. The holders of a majority of the voting power of
the shares entitled to vote at a shareholders meeting are a quorum for the
transaction of business. If a quorum is present when a duly called or held
meeting is convened, the shareholders present may continue to transact business
until adjournment, even though the withdrawal of a number of the shareholders
originally present leaves less than the proportion or number otherwise required
for a quorum.
Section 1.11 Acts of Shareholders.
Subdivision 1. Except as otherwise required by law or specified in the
Articles of Incorporation of the Corporation, the shareholders shall take action
by the affirmative vote of the holders of the greater of (a) a majority of the
voting power of the shares present and entitled to vote on that item of business
or (b) a majority of the voting power of the minimum number of shares entitled
to vote that would constitute a quorum for the transaction of business at a duly
held meeting of shareholders.
Subdivision 2. A shareholder voting by proxy authorized to vote on less
than all items of business considered at the meeting shall be considered to be
present and entitled to vote only with respect to those items of business for
which the proxy has authority to vote. A proxy who is given authority by a
shareholder who abstains with respect to an item of business shall be considered
to have authority to vote on that item of business.
Section 1.12 Action Without a Meeting. Any action required or permitted
to be taken at a meeting of the shareholders of the Corporation may be taken
without a meeting by written action signed by all of the shareholders entitled
to vote on that action. The written action is effective when it has been signed
by all of those shareholders, unless a different effective time is provided in
the written action.
DIRECTORS
Section 2.01 Number; Qualifications. Except as authorized by the
shareholders pursuant to a shareholder control agreement or unanimous
affirmative vote, the business and affairs of the Corporation shall be managed
by or under the direction of a Board, of one or more directors. Directors shall
be natural persons. The shareholders at each regular meeting shall determine the
number of a Board directors to constitute the Board, provided that thereafter
the authorized number of directors may be increased by the shareholders or the
Board and decreased by the shareholders.
Directors need not be shareholders.
Section 2.02 Term. Each director shall serve for an indefinite term
that expires at the next regular meeting of the shareholders. A director shall
hold office until a successor is elected and has qualified or until the earlier
death, resignation, removal or disqualification of the director.
- 3 -
<PAGE> 4
Section 2.03 Vacancies. Vacancies on the Board of Directors resulting
from the death, resignation, removal or disqualification of a director may be
filled by the affirmative vote of a majority of the remaining members of the
Board, though less than a quorum. Vacancies on the Board resulting from newly
created directorships may be filled by the affirmative vote of a majority of the
directors serving at the time such directorships are created. Each person
elected to fill a vacancy shall hold office until a qualified successor is
elected by the shareholders at the next regular meeting or at any special
meeting duly called for that purpose.
Section 2.04 Place of Meetings. Each meeting of the Board of Directors
shall be held at the principal executive office of the Corporation or at such
other place as may be designated from time to time by a majority of the members
of the Board or by the Chief Executive Officer. A meeting may be held by
conference among the directors using any means of communication through which
the directors may simultaneously hear each other during the conference.
Section 2.05 Regular Meetings. Regular meetings of the Board of
Directors for the election of officers and the transaction of any other business
shall be held without notice at the place of and immediately after each regular
meeting of the shareholders.
Section 2.06 Special Meetings. A special meeting of the Board of
Directors may be called for any purpose or purposes at any time by any member of
the Board by giving not less than two days' notice to all directors of the date,
time and place of the meeting, provided that when notice is mailed, at least
four days' notice shall be given. The notice need not state the purpose of the
meeting.
Section 2.07 Waiver of Notice; Previously Scheduled Meetings.
Subdivision 1. A director of the Corporation may waive notice of the
date, time and place of a meeting of the Board. A waiver of notice by a director
entitled to notice is effective whether given before, at or after the meeting,
and whether given in writing, orally or by attendance. Attendance by a director
at a meeting is a waiver of notice of that meeting, unless the director objects
at the beginning of the meeting to the transaction of business because the
meeting is not lawfully called or convened and thereafter does not participate
in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting
have been provided herein or announced at a previous meeting of the Board, no
notice is required. Notice of an adjourned meeting need not be given other than
by announcement at the meeting at which adjournment is taken of the date, time
and place at which the meeting will be reconvened.
Section 2.08 Quorum. The presence in person of a majority of the
directors currently holding office shall be necessary to constitute a quorum for
the transaction of business. In the absence of a quorum, a majority of the
directors present may adjourn a meeting from time to time without further notice
until a quorum is present. If a quorum is present when a duly called or held
meeting is convened, the directors present may continue to transact business
until adjournment, even
- 4 -
<PAGE> 5
though the withdrawal of a number of the directors originally present leaves
less than the proportion or number otherwise required for a quorum.
Section 2.09 Acts of Board. Except as otherwise required by law or
specified in the Articles of Incorporation of the Corporation, the Board shall
take action by the affirmative vote of a majority of the directors present at a
duly held meeting.
Section 2.10 Participation by Electronic Communications. A director may
participate in a Board meeting by any means of communication through which the
director, other directors so participating and all directors physically present
at the meeting may simultaneously hear each other during the meeting. A director
so participating shall be deemed present in person at the meeting.
Section 2.11 Absent Directors. A director of the Corporation may give
advance written consent or opposition to a proposal to be acted on at a Board
meeting. If the director is not present at the meeting, consent or opposition to
a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 2.12 Action Without a Meeting. An action required or permitted
to be taken at a Board meeting may be taken without a meeting by written action
signed by all of the directors. Any action, other than an action requiring
shareholder approval, if the Articles of Incorporation so provide, may be taken
by written action signed by the number of directors that would be required to
take the same action at a meeting of the Board at which all directors were
present. The written action is effective when signed by the required number of
directors, unless a different effective time is provided in the written action.
When written action is permitted to be taken by less than all directors, all
directors shall be notified immediately of its text and effective date.
Section 2.13 Committees.
Subdivision 1. A resolution approved by the affirmative vote of a
majority of the Board may establish committees having the authority of the Board
in the management of the business of the Corporation only to the extent provided
in the resolution. Committees shall be subject at all times to the direction and
control of the Board, except as provided in Section 2.14.
Subdivision 2. A committee shall consist of one or more natural
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present at a duly held Board meeting.
Subdivision 3. Section 2.04 and Sections 2.06 and 2.12 hereof shall
apply to committees and members of committees to the same extent as those
sections apply to the Board and directors.
- 5 -
<PAGE> 6
Subdivision 4. Minutes, if any, of committee meetings shall be made
available upon request to members of the committee and to any director.
Section 2.14 Special Litigation Committee. Pursuant to the procedure
set forth in Section 2.13, the Board may establish a committee composed of one
or more independent directors or other independent persons to determine whether
it is in the best interests of the Corporation to pursue a particular legal
right or remedy of the Corporation and whether to cause, to the extent permitted
by law, the dismissal or discontinuance of a particular proceeding that seeks to
assert a right or remedy on behalf of the Corporation. The committee, once
established, is not subject to the direction or control of, or termination by
the Board. A vacancy on the committee may be filled by a majority vote of the
remaining committee members, The good faith determinations of the committee are
binding upon the Corporation and its directors, officers and shareholders to the
extent permitted by law. The committee terminates when it issues a written
report of its determinations to the Board.
Section 2.15 Compensation. The Board may fix the compensation, if any,
of directors.
OFFICERS
Section 3.01 Number and Designation. The Corporation shall have one or
more natural persons exercising the functions of the offices of Chief Executive
Officer and Chief Financial Officer. The Board of Directors may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the Corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall have the powers, rights, duties and
responsibilities set forth in these Bylaws unless otherwise determined by the
Board. Any of the offices or functions of those offices may be held by the same
person.
Section 3.02 Chief Executive Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Executive Officer (a)
shall have the general active management of the business of the Corporation; (b)
shall, when present, preside at all meetings of the shareholders and Board; (c)
shall see that all orders and resolutions of the Board are carried into effect;
(d) may maintain records of and certify proceedings of the Board and
shareholders; and (e) shall perform such other duties as may from time be
assigned by the Board.
Section 3.03 Chief Financial Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Financial Officer (a)
shall keep accurate financial records for the Corporation; (b) shall deposit all
monies, drafts and checks in the name of and to the credit of the Corporation in
such banks and depositories as the Board shall designate from time to time; (c)
shall endorse for deposit all notes, checks and drafts received by the
Corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
Corporation, as ordered by the Board; (e) shall render to the Chief Executive
Officer and the Board, whenever requested, an account of all of such officer's
transactions
- 6 -
<PAGE> 7
as Chief Financial Officer and of the financial condition of the Corporation;
and (f) shall perform such other duties as may be prescribed by the Board or the
Chief Executive officer from time to time.
Section 3.04 President. Unless otherwise determined by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation. If an officer other than the President is designated Chief
Executive Officer, the President shall perform such duties as may from time to
time be assigned by the Board.
Section 3.05 Vice Presidents. Any one or more Vice Presidents, if any,
may be designated by the Board of Directors as Executive Vice Presidents or
senior Vice Presidents. During the absence or disability of the President, it
shall be the duty of the highest ranking Executive Vice President, and, in the
absence of any such Vice President, it shall be the duty of the highest ranking
Senior Vice President or other Vice President, who shall be present at the time
and able to act, to perform the duties of the President. The determination of
who is the highest ranking of two or more persons holding the same office shall,
in the absence of specific designation of order of rank by the Board, be made on
the basis of the earliest date of appointment or election, or in the event of
simultaneous appointment or election, on the basis of the longest continuous
employment by the Corporation.
Section 3.06 Secretary. The Secretary, unless otherwise determined by
the Board of Directors, shall attend all meetings of the shareholders and all
meetings of the Board, shall record or cause to be recorded all proceedings
thereof in a book to be kept for that purpose, and may certify such proceedings.
Except as otherwise required or permitted by law or by these Bylaws, the
Secretary shall give or cause to be given notice of all meetings of the
shareholders and all meetings of the Board.
Section 3.07 Treasurer. Unless otherwise determined by the Board of
Directors, the Treasurer shall be the Chief Financial Officer of the
Corporation. If an officer other than the Treasurer is designated Chief
Financial officer, the Treasurer shall perform such duties as may from time to
time be assigned by the Board.
Section 3.08 Authority and Duties. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors.
Unless prohibited by a resolution approved by the affirmative vote of a majority
of the directors present, an officer elected or appointed by the Board may,
without the approval of the Board, delegate some or all of the duties and powers
of an office to other persons.
Section 3.09 Term.
Subdivision 1. All officers of the Corporation shall hold office until
their respective successors are chosen and have qualified or until their earlier
death, resignation or removal.
- 7 -
<PAGE> 8
Subdivision 2. An Officer may resign at any time by giving written
notice to the Corporation. The resignation is effective without acceptance when
the notice is given to the Corporation, unless a later effective date is
specified in the notice.
Subdivision 3. An officer may be removed at any time, with or without
cause, by a resolution approved by the affirmative vote of a majority of the
directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation,
removal, disqualification or other cause may, or in the case of a vacancy in the
office of Chief Executive Officer or Chief Financial Officer shall, be filled
for the unexpired portion of the term by the Board.
Section 3.10 Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors or by the Chief Executive Officer if
authorized by the Board.
INDEMNIFICATION
Section 4.01 Indemnification. The Corporation shall indemnify its
officers and directors for such expenses and liabilities, in such manner, under
such circumstances, and to such extent, as required or permitted by Minnesota
Statutes, Section 302A.521, as amended from time to time, or as required or
permitted by other provisions of law.
Section 4.02 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person in such persons official capacity against any
liability asserted against and incurred by such person in or arising from that
capacity, whether or not the Corporation would otherwise be required to
indemnify the person against the liability.
SHARES
Section 5.01 Certificated and Uncertificated Shares.
Subdivision 1. The shares of the Corporation shall be either
certificated shares or uncertificated shares. Each holder of duly issued
certificated shares is entitled to a certificate of shares.
Subdivision 2. Each certificate of shares of the Corporation shall bear
the corporate seal, if any, and shall be signed by the Chief Executive Officer,
or the President or any Vice President, and the Chief Financial Officer, or the
Secretary or any Assistant Secretary, but when a certificate is signed by a
transfer agent or a registrar, the signature of any such officer and the
corporate seal upon such certificate may be facsimiles, engraved or printed. If
a person signs or has a facsimile signature placed upon a certificate while an
officer, transfer agent or registrar of the Corporation, the certificate may be
issued by the Corporation, even if the person has ceased to serve in that
capacity before the certificate is issued, with the same effect as if the person
had that capacity at the date of its issue.
- 8 -
<PAGE> 9
Subdivision 3. A Certificate representing shares issued by the
Corporation shall, if the Corporation is authorized to issue shares of more than
one class or series, set forth upon the face or back of the certificate, or
shall state that the Corporation will furnish to any shareholder upon request
and without charge, a full statement of the designations, preferences,
limitations and relative rights of the shares of each class or series authorized
to be issued, so far as they have been determined, and the authority of the
Board to determine the relative rights and preferences of subsequent classes or
series.
Subdivision 4. A resolution approved by the affirmative vote of a
majority of the directors present at a duly held meeting of the Board may
provide that some or all of any or all classes and series of the shares of the
Corporation will be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until the certificate is surrendered to
the Corporation.
Section 5.02 Declaration of Dividends and Other Distributions. The
Board of Directors shall have the authority to declare dividends and other
distributions upon the shares of the Corporation to the extent permitted by law.
Section 5.03 Transfer of Shares. Shares of the Corporation may be
transferred only on the books of the Corporation by the holder thereof, in
person or by such person's attorney. In the case of certificated shares, shares
shall be transferred only upon surrender and cancellation of certificates for a
like number of shares. The Board of Directors, however, may appoint one or more
transfer agents and registrars to maintain the share records of the Corporation
and to effect transfers of shares.
Section 5.04 Record Date. The Board of Directors may fix a time, not
exceeding 60 days preceding the date fixed for the payment of any dividend or
other distribution, as a record date for the determination of the shareholders
entitled to receive payment of such dividend or other distribution, and in such
case only shareholders of record on the date so fixed shall be entitled to
receive payment of such dividend or other distribution, notwithstanding any
transfer of any shares on the books of the Corporation after any record date so
fixed.
MISCELLANEOUS
Section 6.01 Execution of Instruments.
Subdivision 1. All deeds, mortgages, bonds, checks, contracts and other
instruments pertaining to the business and affairs of the Corporation shall be
signed on behalf of the Corporation by the Chief Executive Officer, or the
President, or any Vice President, or by such other person or persons as may be
designated from time to time by the Board of Directors.
- 9 -
<PAGE> 10
Subdivision 2. If a document must be executed by persons holding
different offices or functions and one person holds such offices or exercises
such functions, that person may execute the document in more than one capacity
if the document indicates each such capacity.
Section 6.02 Advances. The Corporation may, without a vote of the
directors, advance money to its directors, officers or employees to cover
expenses that can reasonably be anticipated to be incurred by them in the
performance of their duties and for which they would be entitled to
reimbursement in the absence of an advance.
Section 6.03 Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.04 Amendments, The Board of Directors shall have the power to
adopt, amend or repeal the Bylaws of the Corporation, subject to the power of
the shareholders to change or repeal the same, provided, however, that the Board
shall not adopt, amend or repeal any Bylaw fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling vacancies
in the Board, or fixing the number of directors or their classifications,
qualifications or terms of office, but may adopt or amend a Bylaw that increases
the number of directors.
- 10 -
<PAGE> 1
Exhibit 4.1
SPINCYCLE, INC., as Issuer
and
NORWEST BANK MINNESOTA, N.A., as Trustee
---------------------
INDENTURE
Dated as of April 29, 1998
--------------------
$144,990,000 Principal Amount at Maturity
12-3/4% Senior Discount Notes due 2005, Series A
12-3/4% Senior Discount Notes due 2005, Series B
<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and this Indenture
<TABLE>
<S> <C>
Section 310 (a)(1)...................................... 6.05, 6.09
(a)(2)...................................... 6.05, 6.09
(a)(3)...................................... 6.05
(a)(4)...................................... 6.05
(b)......................................... 6.05, 6.08, 6.10
Section 311 (a)......................................... 6.07
(b)......................................... 6.07
(c)......................................... Not Applicable
Section 312 (a)......................................... 3.05, 7.01
(b)......................................... 7.02
(c)......................................... 7.02
Section 313 (a)......................................... 7.03
(b)......................................... 7.03
(c)......................................... 7.03
(d)......................................... 7.03
Section 314 (a)......................................... 7.04, 10.09
(b)......................................... Not Applicable
(c)(1)...................................... 1.04, 4.04, 12.01(c)
(c)(2)...................................... 1.04, 4.04, 12.01(c)
(c)(3)...................................... 13.03, 13.04
(d)......................................... Not Applicable
(e)......................................... 1.04
Section 315 (a)......................................... 6.01(a)
(b)......................................... 6.02
(c)......................................... 6.01(b)
(d)......................................... 6.01(c)
(e)......................................... 5.14
Section 316 (a) (last sentence) ........................ 3.14
(a)(1)(A)................................... 5.12
(a)(1)(B)................................... 5.13
(a)(2)...................................... Not Applicable
(b)......................................... 5.08
Section 317 (a)(1)...................................... 5.03
(a)(2)...................................... 5.04
(b)......................................... 10.03
Section 318 (a)......................................... 1.08
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
Exhibit A-1 - Form of Series A Note
Exhibit A-2 - Form of Series B Note
-i-
<PAGE> 4
INDENTURE, dated as of April 29, 1998, between SPINCYCLE, INC., a
corporation incorporated under the laws of the State of Delaware (the
"Company"), as issuer, and NORWEST BANK MINNESOTA, N.A., as trustee (the
"Trustee").
RECITALS
The Company has duly authorized the creation of an issue of (i)
12-3/4% Senior Discount Notes due 2005, Series A (the "Initial Notes"), and (ii)
12-3/4% Senior Discount Notes due 2005, Series B, to be issued in exchange for
the Initial Notes pursuant to the Registration Rights Agreement (the "Exchange
Notes" and, together with the Initial Notes, the "Notes", treated as a single
class of securities under this Indenture), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
All things necessary have been done to make the Notes, when executed
by the Company, and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of each of the Company and the Trustee in accordance with the terms
hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders (as hereinafter defined) of the
Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions
"Accreted Value" means, as of any date (the "Specified Date"), the
amount provided below for each $1,000 principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the following dates
(each, a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount
set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
- ------------------------ --------------
<S> <C>
November 1, 1998................ 734.18
May 1, 1999..................... 780.98
November 1, 1999................ 830.77
May 1, 2000..................... 883.73
November 1, 2000................ 940.07
May 1, 2001..................... $1000.00
</TABLE>
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the original issue
price of a Unit and (b) an amount equal to the product of (1) the Accreted Value
for the first Semi-Annual Accrual Date less such original issue price multiplied
by (2) a fraction, the numerator of which is the number of days from the Issue
Date to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is the number of days elapsed from the Issue Date to
the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day
months;
<PAGE> 5
-2-
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b) an
amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the immediately
preceding Semi-Annual Accrual Date multiplied by (2) a fraction, the numerator
of which is the number of days from the immediately preceding Semi-Annual
Accrual Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger or consolidation (each referred to for the purposes of this definition
as a "disposition"), of (i) any shares of Capital Stock of a Restricted
Subsidiary (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary), (ii) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary, or (iii) any other assets
of the Company or any Restricted Subsidiary outside of the ordinary course of
business of the Company or such Restricted Subsidiary (other than, in the case
of (i), (ii) and (iii) above, (x) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary and (y) for purposes of the covenant described under Section 10.15
only, a disposition that constitutes a Restricted Payment permitted by Section
10.13 or a disposition specifically excepted from the definition of Restricted
Payment); provided, however, that Asset Disposition shall not include (a) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration less than or equal to
$1.0 million or (b) the sale, lease, conveyance, disposition or other transfer
of all or substantially all of the assets of the Company as permitted under
Article Eight.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" means Title 11, United States Code or any similar
federal or state law relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or the law of
<PAGE> 6
-3-
any other jurisdiction relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or any amendment
to, succession to or change in any such law.
"Bankruptcy Order" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation,
receivership, winding-up, dissolution, reorganization, or appointing a Custodian
of a debtor or of all or any substantial part of a debtor's property, or
providing for the staying, arrangement, adjustment or composition of
indebtedness or other relief of a debtor.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Board" means the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to
be classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Cash Equivalents" means (i) any evidence of Indebtedness (with, for
purposes of Section 10.15 hereof only, a maturity of 365 days or less) issued or
directly and fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof or such Indebtedness constitutes a general
obligation of such country); (ii) deposits, certificates of deposit or
acceptances (with, for purposes of Section 10.15 hereof only, a maturity of 365
days or less) of any financial institution that is a member of the Federal
Reserve System, in each case having combined capital and surplus and undivided
profits (or any similar capital concept) of not less than $500.0 million and
whose senior unsecured debt is rated at least "A-1" by S&P or "P-1" by Moody's;
(iii) commercial paper with a maturity of 365 days or less issued by a
corporation (other than an Affiliate of the Company) organized under the laws of
the United States or any State thereof and rated at least "A-1" by S&P or "P-1"
by Moody's; (iv) repurchase agreements and reverse repurchase agreements
relating to 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 Government maturing within 365
days from the date of acquisition; and (v) money market funds which invest
substantially all of their assets in securities of the type described in the
preceding clauses (i) through (iv).
"Change of Control" has the meaning given such term in Section
10.10 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 7
-4-
"Company" means the person named as the "Company" in the first
paragraph of this Indenture, until a successor person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one of its Chairman of the Board,
its Vice-Chairman, its Chief Executive Officer, its President or a Vice
President, and by its Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and delivered to the Trustee.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) 200% of the aggregate amount of EBITDA for the period of the
most recent two consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for the four
most recent fiscal quarters ending at least 45 days prior to the date of such
determination; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period, (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period, (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, if pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, then the pro
forma calculations shall be determined in good faith by a responsible financial
or accounting officer of the Company. If any Indebtedness bears a floating rate
of interest and is being given pro forma effect, then the interest on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries without
duplication, (i) interest expense attributable to
<PAGE> 8
-5-
Capital Lease Obligations and one-third of the rental expense attributable to
operating leases, (ii) amortization of debt discount and debt issuance costs,
(iii) capitalized interest, (iv) non-cash interest expense, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with Investments
in discontinued operations, and (ix) interest accruing on any Indebtedness of
any other Person to the extent such Indebtedness is Guaranteed by the Company or
any Restricted Subsidiary; provided, however, that there shall not be included
in Consolidated Interest Expense (y) a proportional amount of any of the
foregoing items or other interest expense incurred by a Restricted Subsidiary in
such period to the extent the net income of such Restricted Subsidiary is
excluded in the calculation of Consolidated Net Income pursuant to clause (iii)
of the definition thereof and (z) any fees or debt issuance costs (and any
amortization thereof) payable in connection with the sale of the Notes and the
Units on the Issue Date.
"Consolidated Net Income" means, for any period, the net income of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated Net
Income; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a
change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which financial statements are available, as
(i) the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Consolidation" means, (i) with respect to the Company, the
consolidation of the accounts of the Restricted Subsidiaries with those of the
Company all in accordance with GAAP; provided that "consolidation" will not
include consolidation of the accounts of any Unrestricted Subsidiary or
Restricted Affiliate with the accounts of the Company and (ii) with respect to
any Restricted Affiliate, the consolidation of the accounts of the Subsidiaries
of such Restricted Affiliate with those of such Restricted Affiliate, all in
accordance with GAAP. The term "consolidated" has a correlative meaning to the
foregoing.
<PAGE> 9
-6-
"Corporate Trust Office" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
principally administered, which office at the date of execution of this
Indenture is located at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, Attention: Corporate Trust Services, or at any other time at
such other address as the Trustee may designate from time to time by notice to
the Noteholders.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"Custodian" means any receiver, interim receiver, receiver and
manager, receiver-manager, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law or any other law respecting secured
creditors and the enforcement of their security or any other person with like
powers whether appointed judicially or out of court and whether pursuant to an
interim or final appointment.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Default Amount" means the Accreted Value, premium, if any, and
accrued and unpaid interest in respect of the Notes.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of the Company other than
a director who (i) has any material direct or indirect financial interest in or
with respect to such transaction or series of related transactions or (ii) is an
employee or officer of the Company or an Affiliate that is itself a party to
such transaction or series of transactions or an Affiliate of a party to such
transaction or series of related transactions.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which 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
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock, or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes; provided, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under Sections 10.15 and 10.10.
"EBITDA" for any period means the sum of Consolidated Net Income
plus Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense, and (d) all other
non-cash items reducing such Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of, or reserve for, cash
disbursement for any subsequent period) less all non-cash items increasing such
Consolidated Net Income (such amount calculated pursuant to this clause (d) not
to be less than zero), in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be paid as a dividend to the Company by such
Subsidiary without prior approval (that has not been obtained), pursuant
<PAGE> 10
-7-
to the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the 12-3/4% Senior Discount Notes due 2005,
Series B, to be issued in exchange for the Initial Notes pursuant to the
Registration Rights Agreement.
"Exchange Offer" shall have the meaning specified in the
Registration Rights Agreement.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
(i) in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Global Notes" means a permanent global note in registered form
representing the aggregate principal amount of Notes sold in reliance on Rule
144A under the Securities Act.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposits in the ordinary course
of business. The term "Guarantee" used as a verb (and the participle formed
therefrom) shall have a correlative meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means a person in whose name a Note is
registered in the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for Indebtedness; provided, however, that any Indebtedness of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" shall have
a correlative meaning. The accretion of principal of a non-interest bearing or
other discount security shall be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such Person and all obligations of such Person
under any title retention agreement (but excluding trade accounts payable
arising in the
<PAGE> 11
-8-
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon, or, if and to
the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Indenture" means this instrument as originally executed (including
all exhibits and schedules hereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company under
this Indenture or under the Notes, to pay principal of, premium, if any, and
interest on the Notes when due and payable, whether at maturity, by
acceleration, call for redemption or repurchase or otherwise, and all other
amounts due or to become due under or in connection with this Indenture or the
Notes and the performance of all other obligations to the Trustee (including,
but not limited to, payment of all amounts due the Trustee under Section 6.07
hereof) and the Holders of the Notes under this Indenture and the Notes,
according to the terms thereof.
"Initial Notes" means the 12-3/4% Senior Discount Notes due 2005,
Series A, of the Company.
"Initial Purchaser" means Credit Suisse First Boston Corporation.
"interest," when used with respect to any Note, means the amount of
all interest accruing on such Note, including all additional interest payable on
the Notes pursuant to the Registration Rights Agreement and all applicable
Defaulted Interest pursuant to Section 3.07 hereof.
"Interest Payment Date" means, when used with respect to any Note,
the Stated Maturity of an installment of interest on such Note, as set forth in
such Note.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
solely to protect the Company or any Restricted Subsidiary against fluctuations
in interest rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the Person making
the advance or loan) or other extensions of credit (including by way of
Guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary," the definition of
"Restricted Payment" and Section 10.13, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any
<PAGE> 12
-9-
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that if such designation is made in
connection with the acquisition of such Subsidiary or the assets owned by such
Subsidiary, the "Investment" in such Subsidiary shall be deemed to be the
consideration paid in connection with such acquisition; provided further,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation, and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, charge, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Maturity Date" means, with respect to any Note, the date specified
in such Note as the fixed date on which the principal of such Note is due and
payable.
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, brokerage commissions, underwriting discounts or commissions or sales
commissions and other reasonable fees and expenses (including, without
limitation, fees and expenses of counsel, accountants and investment bankers)
related to such Asset Disposition or converting to cash any other proceeds
received, and any relocation and severance expenses as a result thereof, and all
Federal, state, provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition or made in order to obtain a necessary consent to such Asset
Disposition or to comply with applicable law, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts provided by the seller as a reserve, in accordance with GAAP, against
any liabilities associated with the property or other assets disposed of in such
Asset Disposition and retained by the Company or any Restricted Subsidiary after
such Asset Disposition, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Disposition. Further, with respect to an Asset Disposition by a
Subsidiary which is not a Wholly Owned Subsidiary, Net Available Cash shall be
reduced pro rata for the portion of the equity of such Subsidiary which is not
owned by the Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Agreement" means the Credit Agreement, dated as of April
29, 1998, between the Company, Heller Financial, as agent, and the lenders party
thereto, as such agreement, in whole or in part, may be amended, renewed,
extended, increased (but only so long as such increase is permitted under the
terms of this Indenture), substituted, refinanced, restructured, replaced
(including, without limitation, any successive renewals,
<PAGE> 13
-10-
extensions, increases, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing).
"Non-U.S. Person" has the meaning assigned to such term in
Regulation S.
"Notes" shall have the meaning specified in the recitals of this
Indenture.
"Offering Circular" means the Offering Circular dated April 24, 1998
pursuant to which the Notes were offered.
"Officer" means, with respect to the Company, the Chairman of the
Board, a Vice Chairman, the President, a Vice President, the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, a Vice Chairman, the President or a Vice President, and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, of
the Company and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel who may be
counsel for the Company or the Trustee, and who shall be reasonably acceptable
to the Trustee.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company or any Affiliate
thereof) in trust or set aside and segregated in trust by the Company or
any Affiliate thereof (if the Company or such Affiliate shall act as
Paying Agent) for the Holders of such Notes; provided, however, that if
such Notes are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(c) Notes with respect to which the Company has effected defeasance
or covenant defeasance as provided in Article Four, to the extent provided
in Sections 4.02 and 4.03 hereof; and
(d) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any
such Notes in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Notes are held by a bona fide
purchaser in whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes that a Responsible Officer of the Trustee actually knows to
be so owned shall be so disregarded. The Company shall notify the Trustee, in
writing, when it repurchases or otherwise acquires Notes, of the aggregate
principal amount of such Notes so repurchased or otherwise acquired. Notes so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or such other
obligor. If the Paying Agent holds, in its capacity as such, on any Maturity
Date or on any optional redemption date money sufficient to pay all accrued
interest and principal with respect to such
<PAGE> 14
-11-
Notes payable on that date and is not prohibited from paying such money to the
Holders thereof pursuant to the terms of this Indenture, then on and after that
date such Notes cease to be Outstanding and interest on them ceases to accrue.
Notes may also cease to be Outstanding to the extent expressly provided in
Article Four.
"Permitted Business" means the construction, development and
operation of laundromat facilities.
"Permitted Holders" means all executive officers of the Company
as of the Issue Date and each of their Affiliates as well as Dean L.
Buntrock, William Farley, Peer Pedersen and Howard C. Warren and each of
their Affiliates.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person, if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) commissions, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses for accounting purposes and that are made in the ordinary course of
business; (vi) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (vii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; and (viii) any Person, to
the extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to Section 10.15.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; (c)
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review or time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings; (e) Liens in favor of issuers of surety bonds or letters of credit
and banker's acceptances issued pursuant to the request of and for the account
of such Person in the ordinary course of its business; provided, however, that
such letters of credit and banker's acceptances do not constitute Indebtedness;
(f) survey exceptions, encumbrances, easements or reservations of or rights of
others for licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or Liens incidental to the conduct of the business
of such Person or to the ownership of its properties which were not incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (g) Liens securing an Interest
Rate Agreement so long as the related Indebtedness is, and is permitted to be
under this Indenture, secured by a Lien on the same property securing the
Interest Rate Agreement; and (h) leases and subleases of real property which do
not interfere with the ordinary conduct of the business of such Person, and
which are made on customary and usual terms applicable to similar properties.
<PAGE> 15
-12-
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Physical Notes" means any certificate for the Notes registered in
the name of the Holder thereof and not subject to the book-entry provisions of
Section 3.16.
"Preferred Stock," as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
"Private Exchange Notes" shall have the meaning specified in the
Registration Rights Agreement.
"Private Placement Legend" shall mean the first paragraph of the
legend initially set forth in the Notes in the form set forth on Exhibit A-1.
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering
has been consummated and (y) at least 15% of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Redemption Date" means, with respect to any Note to be redeemed,
the date fixed by the Company for such redemption pursuant to this Indenture and
the Notes.
"Redemption Price" means, with respect to any Note to be redeemed,
the price fixed for such redemption pursuant to the terms of this Indenture and
the Notes.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced. and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided, further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that Refinances Indebtedness of the
<PAGE> 16
-13-
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Registrable Securities" shall have the meaning specified in the
Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of April 29, 1998 between the Company and the Initial
Purchaser, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
"Regular Record Date" means the Regular Record Date specified in
the Notes.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Note" means a Physical Note issued either initially
pursuant to Section 3.03 or subsequently pursuant to Section 3.7 in transfers in
accordance with Regulation S.
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company on the Issue Date.
"Responsible Officer" means, when used with respect to the Trustee,
any officer within the Corporate Trust Office including any Vice President,
Managing Director, Assistant Vice President, Secretary, Assistant Secretary or
Assistant Treasurer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge and familiarity with the
particular subject.
"Restricted Note" means a Note that constitutes a "restricted
security" within the meaning of Rule 144(a)(3) under the Securities Act or a
Regulation S Note; provided, however, that the Trustee shall be entitled to
request and conclusively rely on an Opinion of Counsel with respect to whether
any Note constitutes a Restricted Note.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person), other than dividends or
distributions payable solely in its Capital Stock (other than Disqualified
Stock) and dividends or distributions payable solely to the Company or a
Restricted Subsidiary, and other than pro rata dividends or other distributions
made by a Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of the Company
held by any Person or of any Capital Stock of a Restricted Subsidiary held by
any Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying of a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition), or (iv)
the making of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that
is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
<PAGE> 17
-14-
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Significant Subsidiary" means any Restricted Subsidiary that would
be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02(w)
under Regulation S-X promulgated by the SEC.
"Special Record Date" means, with respect to the payment of any
Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.07 hereof.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, limited liability company, limited or general partnership or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock or other interests (including partnership interests) 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 (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person, or (iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P and (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or "A" by Moody's and (vi)
investments in money market
<PAGE> 18
-15-
funds that make investments in instruments of the type described in clauses (i)
through (v) above in accordance with the regulations of the SEC under the
Investment Company Act of 1940, as amended.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939, as amended. "Trustee" means the person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unit" means any of the 144,990 units, each consisting of one
Initial Note and one warrant to purchase .1839 shares of common stock, par value
$.01 per share of the Company at an exercise price of $.01 per share, with an
original issuance price of $689.71 per unit.
"Unrestricted Notes" means one or more Notes that do not and are not
required to bear the Private Placement Legend in the form set forth in Exhibit
A, including, without limitation, the Exchange Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 10.13. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) if such Unrestricted
Subsidiary at such time has Indebtedness, the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of Section 10.11 and (y) no Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced by the Company to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of a Person means all classes of Capital Stock or
other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of
which (other than directors' qualifying shares and shares held by other Persons
to the extent such shares are required by applicable law to be held by a Person
other than the Company or a Restricted Subsidiary) is owned by the Company or
one or more Wholly Owned Subsidiaries.
Section 1.02. Other Definitions
<PAGE> 19
-16-
<TABLE>
<CAPTION>
Defined in
Term Section
- ---- -------
<S> <C>
"Act" 1.05
"Affiliate Transaction" 10.14
"Agent Member" 3.16
"Asset Sale Offer" 10.15
"Asset Sale Offer Purchase Date" 10.15
"Change of Control Date" 10.10
"Change of Control Offer" 10.10
"Change of Control Payment Date" 10.10
"covenant defeasance" 4.03
"Defaulted Interest" 3.07
"Defeased Notes" 4.01
"Distribution Compliance Period" 3.17
"Event of Default" 5.01
"insolvent person" 4.04
"legal defeasance" 4.02
"Note Register" 3.05
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Receipt Date" 10.15
"Registrar" 3.02
"Successor Company" 8.01
</TABLE>
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to "$" or "dollars" refer to the lawful currency
of the United States of America; and
<PAGE> 20
-17-
(f) the words "include," "included" and "including" as used herein
are deemed in each case to be followed by the phrase "without limitation."
Section 1.04. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
person, or that they be so certified or covered by only one document, but one
such person may certify or give an opinion with respect to some matters and one
or more other persons as to other matters, and any such person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated, with
proper identification of each matter covered therein, and form one instrument.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution (as provided below in
subsection (b) of this Section 1.05) of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any reasonable manner which the Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the transfer thereof or
in exchange therefor or in lieu thereof to the same extent as the original
Holder, in respect of anything done, suffered or omitted to be done by the
Trustee, any Paying Agent or the Company in reliance thereon, whether or not
notation of such action is made upon such Note.
Section 1.06. Notices, etc., to the Trustee and the Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
<PAGE> 21
-18-
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed, in writing, to
or with the Trustee at the Corporate Trust Office, Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479, Attention: Corporate Trust Services, or at
any other address previously furnished in writing to
the Holders and the Company by the Trustee; or
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose (except as otherwise expressly provided herein) hereunder if
in writing and mailed, first-class postage prepaid, to the Company addressed to
it at 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale, Arizona 85260,
Attention: Chief Executive Officer, or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.07. Notice to Holders; Waiver
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise expressly provided
herein) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at the address of such Holder as it appears in the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when mailed
to a Holder in the aforesaid manner shall be conclusively deemed to have been
received by such Holder whether or not actually received by such Holder. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.08. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any
provision of the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so modified or
excluded, as the case may be.
Section 1.09. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
<PAGE> 22
-19-
In case any provision in this Indenture or in the Notes issued
pursuant hereto 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.
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Notes issued pursuant hereto,
express or implied, shall give to any person (other than the parties hereto and
their successors hereunder, any Paying Agent and the Holders) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT
TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation.
Section 1.15. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
Section 1.16. Exhibits.
All exhibits attached hereto are by this reference made a part
hereof with the same effect as if herein set forth in full.
Section 1.17. Counterparts.
This Indenture may be executed in any number of counterparts and by
telecopier, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
Section 1.18. Duplicate 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.
ARTICLE TWO
NOTE FORMS
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication with
respect thereto shall be in substantially the forms set forth, or referenced, in
Exhibit A-1 and Exhibit A-2, respectively, annexed hereto, with
<PAGE> 23
-20-
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with any applicable law or with the rules of the
Depositary, any clearing agency or any securities exchange or as may, consistent
herewith, be determined by the officers executing such Notes, as evidenced by
their execution thereof.
The definitive Notes shall be printed, typewritten, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its issuance and shall show the
date of its authentication. The terms and provisions contained in the Notes
shall constitute, and are expressly made, a part of this Indenture.
ARTICLE THREE
THE NOTES
Section 3.01. Title and Terms.
The aggregate principal amount at maturity of the Notes which may be
authenticated and delivered under this Indenture is limited to $144,990,000
aggregate principal amount at maturity, except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Notes pursuant to Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.10 or 10.15
hereof.
The Notes will mature on May 1, 2005. The Notes shall not bear cash
interest prior to May 1, 2001. Commencing on November 1, 2001, interest on the
Notes will be payable in cash at a rate of 12-3/4% per annum, semi-annually in
arrears from the most recent Interest Payment Date to which interest has been
paid or, if no interest has been paid, from May 1, 2001. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be payable
on demand.
Section 3.02. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in The City of New York, State of New York)
where Notes may be presented for registration of transfer or for exchange (the
"Registrar"), an office or agency (which shall be located in the Borough of
Manhattan in The City of New York, State of New York) where Notes may be
presented for payment (the "Paying Agent" or "Agent") and an office or agency
where notices and demands to or upon the Company in respect of the Notes and
this Indenture may be served. The Registrar shall keep a register of the Notes
and of their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term "Paying Agent"
or "Agent" includes any additional paying agent. The Company may act as its own
Paying Agent, except for the purposes of payments on account of principal on the
Notes pursuant to Sections 10.10 and 10.15 hereof. The Company shall enter into
an appropriate agency agreement with any Agent not a party to this Indenture,
which shall incorporate the provisions of the Trust Indenture Act. The agreement
shall implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, or fails to give the
foregoing notice, the Trustee shall act as such and shall be entitled to
appropriate compensation in accordance with Section 6.07 hereof. The Company
initially appoints the Trustee as the Registrar and Paying Agent and agent for
service of notices and demands in connection with the Notes.
Section 3.03. Execution and Authentication.
<PAGE> 24
-21-
The Initial Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A-1 hereto. The Exchange Notes and
the Trustee's certificate of authentication relating thereto shall be
substantially in the form of Exhibit A-2 hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Company shall approve the form of the Notes and any notation, legend or
endorsement thereon. Each Note shall be dated the date of issuance and shall
show the date of its authentication. The terms and provisions contained in the
Notes annexed hereto as Exhibits A-1 and A-2 shall constitute, and are hereby
expressly made, a part of this Indenture and, to the extent applicable, the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. Notes
offered and sold in reliance on Rule 144A shall be issued initially in the form
of one or more Global Notes, substantially in the form set forth in Exhibit A-1,
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided and shall
bear the legend set forth in Exhibit B. The aggregate principal amount of the
Global Notes may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary, as hereinafter
provided.
Notes offered and sold in reliance on Regulation S shall be issued
in the form of one or more Physical Notes, substantially in the form set forth
in Exhibit A-1 and delivered to the Holder thereof or such custodian or
depository as such Holder shall have designated in writing of the Trustee.
Notes issued in exchange for interests in a Global Note pursuant to
Section 3.17 hereof may be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A-1.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign, and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Notes for the Company by manual or facsimile
signature.
If an Officer or Assistant Secretary whose signature is on a Note
was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for aggregate
principal amount of the Notes at maturity not to exceed $144,990,000 aggregate
principal amount at maturity at any time, (ii) Private Exchange Notes from time
to time only in exchange for a like principal amount of Initial Notes and (iii)
Unrestricted Notes from time to time only in exchange for (A) a like principal
amount of Initial Notes or (B) a like principal amount of Private Exchange
Notes, in each case upon a written order of the Company in the form of an
Officers' Certificate of the Company. Each such written order shall specify the
amount of Notes to be authenticated and the date on which the Notes are to be
authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes
or Unrestricted Notes and whether (subject to this Section 3.03) the Notes are
to be issued as Physical Notes or Global Notes and such other information as the
Trustee may reasonably request. The aggregate principal amount of the Notes at
maturity outstanding at any time may not exceed $144,990,000, except as provided
in Section 3.06 hereof. Notwithstanding the foregoing, all Notes issued under
this Indenture shall vote and consent together on all matters (as to which any
of such Notes may vote or consent) as one class and no series of Notes will have
the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Notes. Unless otherwise provided in
the appointment, 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 and Affiliates of the Company.
<PAGE> 25
-22-
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
Section 3.04. Temporary Notes.
Until definitive Notes are prepared and ready for delivery, the
Company may execute and upon a Company Order the Trustee shall authenticate and
deliver temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes, in any authorized denominations, but may have variations that
the Company reasonably considers appropriate for temporary Notes as conclusively
evidenced by the Company's execution of such temporary Notes.
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay but in no event later than the
date that the Exchange Offer is consummated. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 10.02 hereof, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary Notes,
the Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Notes of like tenor and
of authorized denominations. Until so exchanged the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
Section 3.05. Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.02 hereof being sometimes
referred to herein as the "Note Register") in which, subject to such reasonable
regulations as the Registrar may prescribe, the Company shall provide for the
registration of Notes and of transfers and exchanges of Notes. The Trustee is
hereby initially appointed Registrar for the purpose of registering Notes and
transfers of Notes as herein provided.
When Notes are presented to the Registrar or a co-Registrar with a
request from the Holder of such Notes to register the transfer or exchange for
an equal principal amount of Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested;
provided, however, that every Note presented or surrendered for registration of
transfer or exchange shall be duly endorsed or be accompanied by a written
instrument of transfer or exchange in form satisfactory to the Company and the
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing. Whenever any Notes are so presented for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Notes which the
Holder making the exchange is entitled to receive. No service charge shall be
made to the Noteholder for any registration of transfer or exchange. The Company
may require from the Noteholder payment of a sum sufficient to cover any
transfer taxes or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Section 10.10, 10.15 or 9.06 hereof (in which events the Company
will be responsible for the payment of all such taxes which arise solely as a
result of the transfer or exchange and do not depend on the tax status of the
Holder). The Trustee shall not be required to exchange or register the transfer
of any Note for a period of 15 days immediately preceding the first mailing of
notice of redemption of Notes to be redeemed or of any Note selected, called or
being called for redemption except, in the case of any Note where public notice
has been given that such Note is to be redeemed in part, the portion thereof not
to be redeemed.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
<PAGE> 26
-23-
Any Holder of a beneficial interest in a Global Note shall, by
acceptance of such Global Note, agree that transfers of beneficial interests in
such Global Notes may be effected only through a book-entry system maintained by
the Holder of such Global Note (or its agent), and that ownership of a
beneficial interest in the Note shall be required to be reflected in a
book-entry system.
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder
of a Note of any series claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall execute and upon a Company Order, the
Trustee shall authenticate and deliver a replacement Note of like tenor and
principal amount, bearing a number not contemporaneously outstanding if the
Holder of such Note furnishes to the Company and to the Trustee evidence
reasonably acceptable to them of the ownership and the destruction, loss or
theft of such Note and an indemnity bond shall be posted by such Holder,
sufficient in the judgment of the Company or the Trustee, as the case may be, to
protect the Company, the Trustee or any Agent from any loss that any of them may
suffer if such Note is replaced. The Company may charge such Holder for the
Company's expenses in replacing such Note (including (i) expenses of the Trustee
charged to the Company and (ii) any tax or other governmental charge that may be
imposed) and the Trustee may charge the Company for the Trustee's expenses in
replacing such Note. Every replacement Note issued pursuant to this Section in
lieu of any destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
Section 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date and interest on such
defaulted interest at the then applicable interest rate borne by the Notes, to
the extent lawful (such defaulted interest and interest thereon herein
collectively called "Defaulted Interest") shall forthwith cease to be payable to
the Holder on the Regular Record Date; and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in subsection (a) or
(b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the persons in whose names the Notes (or their respective Predecessor Notes)
are registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest, which shall be fixed in the following manner. 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, and at
the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
on or prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the persons entitled to such Defaulted Interest
as provided in this subsection (a). Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the proposed payment
and not less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company in writing of
such Special Record Date. In the name and at the expense of the Company, the
Trustee shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder at its address as it appears in the Note Register, not less than
10 days prior to such Special Record Date. Notice of the proposed payment of
such
<PAGE> 27
-24-
Defaulted Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the persons in whose names the Notes
(or their respective Predecessor Notes) are registered on such Special Record
Date and shall no longer be payable pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest 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, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this subsection (b), such payment
shall be deemed practicable by the Trustee. Subject to the foregoing provisions
of this Section, each Note delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Note shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by such
other Note.
Section 3.08. Persons Deemed Owners.
Prior to and at the time of due presentment for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name any Note is registered in the Note Register
as the owner of such Note for the purpose of receiving payment of principal of,
premium, if any, and (subject to Section 3.07 hereof) interest on such Note and
for all other purposes whatsoever, whether or not such Note shall be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
Section 3.09. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall be delivered to the Trustee and, if not already
canceled, shall be promptly canceled by it. The Company may at any time deliver
to the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly canceled by the Trustee. The Registrar and
the Paying Agent shall forward to the Trustee any Notes surrendered to them for
registration of transfer or exchange, redemption or payment. The Trustee and no
one else shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation. No Notes shall be authenticated
in lieu of or in exchange for any Notes canceled as provided in this Section
3.09 hereof, except as expressly permitted by this Indenture. All canceled Notes
held by the Trustee shall be destroyed and certification of their destruction
delivered to the Company. The Trustee shall provide the Company a list of all
Notes that have been canceled from time to time as requested by the Company.
Section 3.10. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 3.11. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, date
established for the payment of Defaulted Interest or Stated Maturity of any Note
shall not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) payment of principal, premium, if any, or interest
need not be made on such date, but may be made on the next succeeding Business
Day with the same force and effect as if made on the Interest Payment Date,
Redemption Date, date established for the payment of Defaulted Interest or at
the Stated Maturity, as the case may be. In such event, no interest shall accrue
with respect to such payment for the period from and after such Interest Payment
Date, Redemption Date, date established for the payment of Defaulted Interest or
Stated Maturity, as the case may be, to the next succeeding Business Day and,
with respect to any Interest Payment Date, interest for the period from and
after such Interest Payment Date shall accrue with respect to the next
succeeding Interest Payment Date.
<PAGE> 28
-25-
Section 3.12. CUSIP and CINS Numbers.
The Company in issuing the Notes may use "CUSIP" and "CINS" numbers
(if then generally in use), and if so, the Trustee shall use the CUSIP or CINS
numbers, as the case may be, in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP or CINS
number, as the case may be, 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 shall promptly notify the Trustee in writing of any change in
the CUSIP or CINS number of any type of Notes.
Section 3.13. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Noteholders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, or interest on the Notes, and shall notify the
Trustee of any default by the Company in making any such payment. Money held in
trust by the Paying Agent need not be segregated except as required by law and
in no event shall the Paying Agent be liable for any interest on any money
received by it hereunder. The Company at any time may require the Paying Agent
to pay all money held by it to the Trustee and account for any funds disbursed
and the Trustee may at any time during the continuance of any Event of Default,
upon a Company Order to the Paying Agent, require such Paying Agent to pay
forthwith all money so held by it to the Trustee and to account for any funds
disbursed. Upon making such payment, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
Section 3.14. Treasury Notes.
In determining whether the Holders of the required aggregate
principal amount of Notes have concurred in any direction, waiver, consent or
notice, Notes owned by the Company or an Affiliate of the Company shall be
considered as though they are 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 which a Responsible Officer of the
Trustee actually knows are so owned shall be so considered. The Company shall
notify the Trustee, in writing, when it or any of its Affiliates repurchases or
otherwise acquires Notes, of the aggregate principal amount of such Notes so
repurchased or otherwise acquired.
Section 3.15. Deposits of Monies.
Prior to 12:00 Noon New York City time on each Interest Payment
Date, maturity date, Change of Control Payment Date and Asset Sale Offer
Purchase Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date, maturity date, Change of Control Payment Date and
Asset Sale Offer Purchase Date, as the case may be, in a timely manner which
permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, maturity date, Change of Control Payment Date and Asset Sale Offer
Purchase Date, as the case may be.
Section 3.16. Book-Entry Provisions for Global Notes.
(a) The Global Notes initially shall (i) be registered in the name
of the Depositary or the nominee of such Depositary, (ii) be delivered to the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Exhibit B.
Members of, or participants in, the Depositary (each an "Agent
Member") shall have no rights under this Indenture with respect to any Global
Note held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
<PAGE> 29
-26-
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) Transfers of Global Notes shall be limited to transfers in
whole, but not in part, to the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
or exchanged for Physical Notes in accordance with the rules and procedures of
the Depositary and the provisions of Sections 3.03 and 3.17 hereof. In addition,
Physical Notes shall be transferred to all beneficial owners, in exchange for
their beneficial interests in Global Notes if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for any Global
Note, or that it will cease to be a "Clearing Agency" under the Exchange Act,
and in either case a successor Depositary is not appointed by the Company within
90 days of such notice or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a written request from the Depositary
to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount at maturity of the Global Note in an amount equal to the
principal amount at maturity of the beneficial interest in the Global Note to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and principal amount of
authorized denominations.
(d) In connection with the transfer of Global Notes as an entirety
to beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed
to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by the Depositary in exchange for its beneficial interest in
the Global Notes, an equal aggregate principal amount at maturity of Physical
Notes of like tenor of authorized denominations.
(e) Any Physical Note constituting a Restricted Note delivered in
exchange for an interest in a Global Note pursuant to subparagraph (b), (c) or
(d) of this Section 3.16 shall, except as otherwise provided by Section 3.17
hereof, bear the Private Placement Legend.
(f) The Holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
Section 3.17. Special Transfer Provisions.
(a) Transfers to Non-U.S. Persons. The following additional
provisions shall apply with respect to the registration of any proposed
transfer of an Initial Note to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement Legend, if
(x) the requested transfer is after the second anniversary of the Issue
Date; provided, however, that neither the Company nor any Affiliate of
the Company has held any beneficial interest in such Note, or portion
thereof, at any time on or prior to the second anniversary of the Issue
Date and such transfer can otherwise be lawfully made under the
Securities Act without registering such Initial Notes thereunder or (y)
the proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto;
(ii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of
(x) written instructions given in accordance with the Depositary's and
the Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, together with any
required legal opinions and certifications, the
<PAGE> 30
-27-
Registrar shall register the transfer and reflect on its books and records
the date and a decrease in the principal amount of the Global Note from
which such interests are to be transferred in an amount equal to the
principal amount of the Notes to be transferred; and
(iii) until the 41st day after the Issue Date (the
"Distribution Compliance Period"), an owner of a Regulation S Note may
not transfer such interest to a transferee that is a U.S. person or for
the account or benefit of a U.S. person within the meaning of Rule
902(o) of the Securities Act.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a QIB
(excluding Non-U.S. Persons):
(i) the Registrar shall register the transfer of any Initial
Note, whether or not such Note bears the Private Placement Legend, if
(x) the requested transfer is after the second anniversary of the Issue
Date; provided, however, that neither the Company nor any Affiliate of
the Company has held any beneficial interest in such Note, or portion
thereof, at any time on or prior to the second anniversary of the Issue
Date and such transfer can otherwise be lawfully made under the
Securities Act without registering such Initial Note thereunder or (y)
such transfer is being made by a proposed transferor who has checked
the box provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that the sale has
been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Note stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Note for its own account or an
account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information
regarding the Company as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A;
(ii) if the proposed transferee is an Agent Member and the
Notes to be transferred consist of Physical Notes which after transfer
are to be evidenced by an interest in the 144A Global Note, upon
receipt by the Registrar of written instructions given in accordance
with the Depositary's and the Registrar's procedures, the Registrar
shall register the transfer and reflect on its book and records the
date and an increase in the principal amount at maturity of the 144A
Global Note in an amount equal to the principal amount at maturity of
Physical Notes to be transferred, and the Trustee shall cancel the
Physical Note so transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Note, upon receipt by the Registrar of
written instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall register the transfer and
reflect on its books and records the date and (A) a decrease in the
principal amount of the Global Note from which interests are to be
transferred in an amount equal to the principal amount of the Notes to
be transferred and (B) an increase in the principal amount of the 144A
Global Note in an amount equal to the principal amount of the Global
Note to be transferred.
(c) Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the registration of transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that bear the
Private Placement Legend unless (i) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act or (ii) such Note has been sold pursuant to an effective registration
statement under the Securities Act.
<PAGE> 31
-28-
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
(e) Other Transfers. If a Holder proposes to transfer a Note
constituting a Restricted Note pursuant to any exemption from the registration
requirements of the Securities Act other than as provided for by Section 3.17(a)
and (b) hereof, the Registrar shall only register such transfer or exchange if
such transferor delivers an Opinion of Counsel satisfactory to the Company and
the Registrar that such transfer is in compliance with the Securities Act and
the terms of this Indenture; provided, however, that the Company may, based upon
the opinion of its counsel, instruct the Registrar by a Company Order not to
register such transfer in any case where the proposed transferee is not a QIB or
a Non-U.S. person.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 3.16 hereof or this Section
3.17. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable prior written notice to the Registrar.
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant
Defeasance. The Company may, at its option by Board Resolution, at any time,
with respect to the Notes, elect to have either Section 4.02 or Section 4.03
hereof be applied to all of the Outstanding Notes (the "Defeased Notes"), upon
compliance with the conditions set forth below in this Article Four.
Section 4.02. Legal Defeasance.
Upon the Company's exercise under Section 4.01 hereof of the option
applicable to this Section 4.02, the Company shall be deemed to have been
discharged from its obligations with respect to the Defeased Notes on the date
the conditions set forth below are satisfied (hereinafter, "legal defeasance").
For this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Defeased Notes,
which shall thereafter be deemed to be "Outstanding" only for the purposes of
Section 4.05 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 insofar as such Notes are concerned (and the Trustee, at the expense
of the Company, and, upon Company Request, shall execute proper instruments
acknowledging the same), except for the following, which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
Defeased Notes to receive, solely from the trust fund described in Section 4.04
hereof and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (b) the Company's obligations with respect to such Defeased Notes under
Sections 3.04, 3.05, 3.06, 10.02 and 10.03 hereof, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder, including, without
limitation, the Trustee's rights under Sections 4.05 and 6.07 hereof, and (d)
this Article Four. Subject to compliance with this Article Four, the Company may
exercise its option under this Section 4.02 notwithstanding the prior exercise
of its option under Section 4.03 hereof with respect to the Notes.
Section 4.03. Covenant Defeasance.
Upon the Company's exercise under Section 4.01 hereof of the option
applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained in Sections 10.06 through
10.21 hereof and the provisions of Section 8.01 shall not apply, with respect to
the Defeased Notes, on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the
<PAGE> 32
-29-
Defeased Notes shall thereafter be deemed not to be "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. For this
purpose, such covenant defeasance means that, with respect to the Defeased
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 Section or
Article, whether directly or indirectly, by reason of any reference elsewhere
herein to any such Section or Article or by reason of any reference in any such
Section or Article 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 5.01(iv), (vi) or (ix) or under clause (vii) of Section 5.01 (with
respect only to Significant Subsidiaries) hereof, but, except as specified
above, the remainder of this Indenture and such Defeased Notes shall be
unaffected thereby.
Section 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 4.02 or Section 4.03 hereof to the Defeased Notes:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.09 hereof who shall agree to comply with the
provisions of this Article Four applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Notes, (a) money in an amount, or (b) U.S. Government
Obligations which through the scheduled payment of principal, premium,
if any, and interest in respect thereof in accordance with their terms
will provide, not later than the due date of any payment, money in an
amount, or (c) a combination thereof, in any such case, sufficient
without reinvestment, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge the entire
Indebtedness in respect of, and which shall be applied by the Trustee
(or other qualifying trustee) to pay and discharge, the principal of,
premium, if any, and interest on the Defeased Notes at the Stated
Maturity of such principal or installment of principal, premium, if
any, or interest or (if the Company has made irrevocable arrangements
satisfactory to such Trustee for the giving of notice of redemption by
such Trustee in the name and at the expense of the Company) the
redemption date thereof, as the case may be, in accordance with the
terms of this Indenture and the Notes; provided, however, that the
Trustee shall have been irrevocably instructed to apply such cash or
the proceeds of such U.S. Government Obligations to said payments with
respect to the Notes;
(2) No Default with respect to the Outstanding Notes shall
have occurred and be continuing on the date of such deposit or, insofar
as Section 4.02 hereof is concerned, at any time during the period
ending on the ninety-first day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period) no Default relating to Section 5.01(viii),
(ix) or (x) hereof;
(3) Neither the Company nor any Subsidiary of the Company is
an "insolvent person" within the meaning of any applicable Bankruptcy
Law on the date of such deposit or at any time during the period ending
on the ninety-first day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);
(4) Such defeasance or covenant defeasance shall not cause the
Trustee for the Notes to have a conflicting interest in violation of
Section 6.08 hereof and for purposes of the Trust Indenture Act with
respect to any securities of the Company;
<PAGE> 33
-30-
(5) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
or any other material agreement or instrument to which the Company is a
party or by which it is bound;
(6) In the case of an election under Section 4.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (y) since the
date hereof, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such
opinion 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 deposit, defeasance and discharge to be effected with
respect to the Notes and will be subject to federal income tax on the
same amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not
occurred;
(7) In the case of an election under Section 4.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of the
deposit and covenant defeasance to be effected with respect to the
Notes and will be subject to Federal income tax on the same amount, in
the same manner and at the same times as would have been the case if
such deposit and covenant defeasance had not occurred;
(8) The Company shall have delivered to the Trustee, an
Opinion of Counsel to the effect that, immediately following the
ninety-first day after the deposit, the trust funds established
pursuant to this Article will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally under any applicable U.S.
Federal or state law;
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit made by the Company
pursuant to its election under Section 4.02 or 4.03 hereof was not made
by the Company with the intent of preferring the Holders over the other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others;
(10) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that (i)
all conditions precedent (other than conditions requiring the passage
of time) provided for relating to either the defeasance under Section
4.02 or the covenant defeasance under Section 4.03 (as the case may be)
have been complied with as contemplated by this Section 4.04 and (ii)
if any other Indebtedness of the Company shall then be outstanding or
committed, such defeasance or covenant defeasance will not violate the
provisions of the agreements or instruments evidencing such
Indebtedness; and
(11) Such defeasance or covenant defeasance shall not result
in a trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act of 1940, as amended,
unless such trust shall be registered under the Act or exempt from
registration thereunder.
Opinions required to be delivered under this Section may have such
qualifications as are customary for opinions of the type required and reasonably
acceptable to the Trustee.
Section 4.05. Deposited Money and U.S. Government Obligations To Be
Held in Trust; Other Miscellaneous Provisions.
<PAGE> 34
-31-
Subject to the proviso of the last paragraph of Section 10.03, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 4.05, the "Trustee") pursuant to Section 4.04 in respect of the Defeased
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 (other than the Company) 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, its officers,
directors and agents and hold such harmless against any tax, fee or other charge
imposed on or assessed against the U.S. Government Obligations deposited
pursuant to Section 4.04 or the principal, premium, if any, 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 Defeased Notes.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 4.04 which, in the opinion of an internationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
Section 4.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 4.02 or 4.03 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 obligations of the Company under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
4.02 or 4.03 hereof, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money and U.S. Government
Obligations in accordance with Section 4.02 or 4.03 hereof, as the case may be;
provided, however, that if the Company makes any payment of principal, 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 and U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) a default in the payment of interest on the Notes
when due, continued for 30 days;
(ii) a default in the payment of principal of any Note when
due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon acceleration or otherwise;
(iii) the failure by the Company to comply with its
obligations under Section 8.01;
<PAGE> 35
-32-
(iv) the failure by the Company to comply for 30 days after
notice with any of its obligations in the covenants described under
Section 10.10 (other than a failure to purchase Notes) or under
Sections 10.11, 10.18, 10.13, 10.19, 10.15, 10.14, 10.20 or 10.09;
(v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in this Indenture;
(vi) Indebtedness of the Company or any Significant Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $10.0
million and such non-payment continues or such acceleration is not
rescinded within ten days after notice thereof;
(vii) the Company or any Material Restricted Subsidiary of the
Company pursuant to or under or within the meaning of any Bankruptcy
Law;
(a) commences a voluntary case or proceeding;
(b) consents to the making of a Bankruptcy Order in an
involuntary case or proceeding or the commencement of any case
against it;
(c) consents to the appointment of a Custodian of it or
for any substantial part of its property;
(d) makes a general assignment for the benefit of
its creditors;
(e) files an answer or consent seeking reorganization or
relief;
(f) shall admit in writing its inability to pay its
debts generally; or
(g) consents to the filing of a petition in bankruptcy.
(viii) a court of competent jurisdiction in any involuntary
case or proceeding enters a Bankruptcy Order against the Company or any
Material Restricted Subsidiary, and such Bankruptcy Order remains
unstayed and in effect for 60 consecutive days; or
(ix) any judgment or decree (not covered by insurance or an
indemnity by a person other than the Company or a Restricted
Subsidiary, which indemnitor is solvent) for the payment of money in
excess of $10.0 million is entered against the Company or any
Significant Subsidiary, remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed within
30 days after notice (the "judgment default provision").
However, a default under clause (iv), (v), (vi) or (ix) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount at
maturity of the outstanding Notes notify the Company of the default and the
Company does not cure such default within the time specified after receipt of
such notice.
Section 5.02. Acceleration of Maturity, Rescission and Annulment.
If an Event of Default (other than relating to Section 5.01(vii) or
(viii) relating to the Company) occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount at maturity of the outstanding Notes
may declare the Accreted Value of and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to Section 5.01(vii) or (viii) relating to the Company occurs and is continuing,
the principal of and
<PAGE> 36
-33-
interest on all the Notes will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders.
After a declaration of acceleration or any ipso facto acceleration
as related to clause (vii) or (viii) of Section 5.01, the holders of a majority
in Accreted Value of the Outstanding Notes may, by notice to the Trustee,
rescind such declaration of acceleration and its consequences if all existing
Events of Default, other than nonpayment of the principal of and accrued and
unpaid interest on, the Notes that has become due solely as a result of such
acceleration, have been cured or waived and if the rescission of acceleration
would not conflict with any judgment or decree.
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.
Subject to the provisions of this Indenture relating to the duties
of the Trustee, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under this Indenture at the request or direction of any of the Holders unless
such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder of a Note
may pursue any remedy with respect to this Indenture or the Notes unless (i)
such Holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) Holders of at least 25% in principal amount at maturity of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
Holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the Holders of a majority in principal amount at maturity of the
outstanding Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period. Subject to certain restrictions, the Holders
of a majority in principal amount at maturity of the outstanding Notes are given
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or this Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability.
Section 5.04. Trustee May File Proofs of Claims.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of
the Notes and to file such 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, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
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 the
Trustee as administrative expenses associated with any such proceeding, and in
the event that the Trustee shall consent to the making of such payments directly
to Holders, any amount due it for the reasonable compensa-
<PAGE> 37
-34-
tion, expenses, disbursements and advances of the Trustee, its agents and
counsel, and any other amounts due the Trustee under Section 6.07 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 6.07 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 thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
Section 5.05. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture, or the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, premium, if
any, or interest, upon presentation of the Notes and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to Holders for interest accrued on the Notes, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Notes for interest;
Third: to Holders of principal and premium, if any, owing under the Notes,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal; and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Noteholders pursuant to this
Section 5.06.
Section 5.07. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
<PAGE> 38
-35-
(b) the Holders of not less than 25% in Accreted Value of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
indemnity satisfactory to it against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture or any Note to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over any
other Holders or to enforce any right under this Indenture or any Note, except
in the manner provided in this Indenture and for the equal and ratable benefit
of all the Holders.
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
cash payment of the principal of, premium, if any, and (subject to Section 3.07
hereof) interest on such Note on the respective Stated Maturities expressed in
such Note (or, in the case of redemption, on the respective Redemption Date) and
to institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Note and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, the Trustee and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article Five or by
law to the Trustee or
<PAGE> 39
-36-
to the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
Section 5.12. Control by Majority.
The Holders of a majority in Accreted Value of the Outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, provided, however, that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture or any Note or expose the Trustee to
personal liability; and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in Accreted Value of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
Default hereunder and its consequences, except a Default
(a) in the payment of the principal of, or interest on any
Outstanding Note or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected thereby.
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 Event of Default or impair any right consequent
thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, 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,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.14 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in Accreted Value of the Outstanding Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the respective Redemption Dates).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury or other law wherever enacted, now or at any time hereafter in force,
which would prohibit or forgive the Company from paying all or any portion of
the principal of, premium, if any, or interest on the Notes contemplated herein
or in the Notes or which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and
<PAGE> 40
-37-
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 5.16. Unconditional Right of Holders To Receive Payment.
Notwithstanding any other provision in this Indenture and any other
provision of any Note, the right of any Holder of any Note to receive payment of
the principal of, premium, if any, and interest on such Note on or after the
respective Stated Maturities (or the respective Redemption Dates, in the case of
redemption) expressed in such Note, or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) 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; but in the case of any such certificates or opinions
which by provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Indenture.
(b) During the existence of an Event of Default, the Trustee
is required to exercise such rights and powers vested in it under this Indenture
and use the same degree of care and skill in its exercise thereof as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that no
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section 6.01.
Section 6.02. Notice of Defaults.
Within 90 days after the occurrence of any Default, the
Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Note Register, notice of such Default hereunder actually known to
a Responsible Officer, the Trustee, unless such Default shall have been cured or
waived; provided, however, that, except in the case of a Default in the payment
of the principal of, premium, if any, or interest on any Note or in the case of
any Default arising from the occurrence of a Change of Control, the Trustee
shall be protected
<PAGE> 41
-38-
in withholding such notice if and so long as a trust committee of Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders.
Section 6.03. Certain Rights of Trustee.
Subject to Section 6.01 hereof and the provisions of Section
315 of the Trust Indenture Act:
(a) the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board may be sufficiently evidenced by a
Board Resolution thereof;
(c) the Trustee may consult with counsel and any advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon in
accordance with such advice or Opinion of Counsel;
(d) 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 this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity satisfactory to it against the costs, expenses and
liabilities which might be incurred by the Trustee in compliance with
such request or direction;
(e) the Trustee shall not be liable for any action taken or
omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture other than any liabilities arising out of its own negligence;
(f) 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, approval, appraisal, bond, debenture, note, coupon,
security, other evidence of indebtedness or other paper or document
unless requested in writing so to do by the Holders of not less than a
majority in aggregate principal amount of the Notes then Outstanding;
provided, however, that, if the payment within a reasonable time to the
Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded
to it by the terms of this Indenture, the Trustee may require indemnity
satisfactory to it against such expenses or liabilities as a condition
to proceeding; the reasonable expenses of every such investigation
shall be paid by the Company or, if paid by the Trustee or any
predecessor Trustee, shall be repaid by the Company upon demand;
provided, further, the Trustee in its discretion may make such further
inquiry or investigation into such facts or matters as it may deem 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, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents, attorneys, custodian or nominees and the Trustee
<PAGE> 42
-39-
shall not be responsible for any misconduct or negligence on the part
of any agent, attorney, custodian or nominee appointed with due care by
it hereunder;
(h) except with respect to Section 10.01, the Trustee shall
have no duty to inquire as to the performance of the Company's
covenants in Article Ten. In addition, the Trustee shall not be deemed
to have knowledge of any Default or Event of Default except (i) any
Event of Default occurring pursuant to Sections 5.01(i), 5.01(ii) and
10.01 or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or a Responsible Officer
obtained actual knowledge; and
(i) if the Trustee is acting in the capacity of Registrar
and/or Paying Agent, then the rights afforded to the Trustee under this
Section 6.03 shall also be afforded to such Registrar and/or Paying
Agent.
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof.
The recitals contained herein and in the Notes, except the Trustee's
certificate of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and that the statements made by it in a Statement of
Eligibility and Qualification on Form T-1, if any, to be supplied to the Company
are true and accurate subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
Notes or the proceeds thereof.
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc.
The Trustee, any Paying Agent, Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes, with the same rights it would have if it were not the Trustee,
Paying Agent, Registrar or such other agent and, subject to Section 6.08 hereof
and Sections 310 and 311 of the Trust Indenture Act, may otherwise deal with the
Company and receive, collect, hold and retain collections from the Company with
the same rights it would have if it were not the Trustee, Paying Agent,
Registrar or such other agent.
Section 6.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required herein
or by law. The Trustee shall not be under any liability for interest on any
moneys received by it hereunder.
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim.
The Company covenants and agrees: (a) to pay to the Trustee from
time to time, and the Trustee shall be entitled to, reasonable compensation for
all services rendered by it hereunder (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust); (b) to reimburse the Trustee and each predecessor Trustee upon its
request for all reasonable expenses, fees, disbursements and advances incurred
or made by or on behalf of it in accordance with any of the provisions of this
Indenture (including the reasonable compensation, fees, and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ), except any such expense, disbursement or advance as may arise
from its negligence or bad faith; and (c) to indemnify the Trustee and any of
its officers, directors, employees and agents and each predecessor
<PAGE> 43
-40-
Trustee for, and to hold it harmless against any loss, liability or expense
(including attorneys' fees and expenses incurred in defending themselves)
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including enforcement of this Section 6.07.
To secure the Company's payment obligations in this Section 6.07,
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 satisfaction and
discharge of this Indenture so long as any amounts payable by the Company
pursuant to this Section 6.07 remain outstanding and are not contested in good
faith by the Company.
The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture or the rejection or termination of
this Indenture under bankruptcy law. Such additional indebtedness shall be a
senior claim to that of the Notes upon all property and funds held or collected
by the Trustee as such, except funds held in trust for the benefit of the
Holders of particular Notes, and the Notes are hereby subordinated to such
senior claim. If the Trustee renders services and incurs expenses following an
Event of Default under Section 5.01(viii), Section 5.01(ix) or Section 5.01(x)
hereof, the parties hereto and the Holders by their acceptance of the Notes
hereby agree that such expenses are intended to constitute expenses of
administration under any bankruptcy law.
Section 6.08. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions of
Section 310(b) of the Trust Indenture Act.
Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and (2)
and which shall have a combined capital and surplus of at least $50,000,000. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of any Federal, state, territorial or District of
Columbia supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 6.10. Resignation and Removal; Appointment of Successor
Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice thereof to the Company at least 20
Business Days prior to the date of such proposed resignation; provided such
trustee shall agree to cooperate with the Company with respect to the
appointment of a successor trustee and ongoing matters. Upon receiving such
notice of resignation, the Company shall, after all monies due and owing have
been paid to the Trustee, promptly appoint a successor trustee by written
instrument executed by authority of the Board, a copy of which shall be
delivered to the resigning Trustee and a copy to the successor Trustee. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 20 Business Days after the giving of such notice of
resignation, the resigning Trustee may, or any Holder who has
<PAGE> 44
-41-
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee. Such court may
thereupon, after such notice, if any, as it may deem proper, appoint a successor
Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders
of a majority in principal amount of the Outstanding Notes, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act in accordance with Section
6.08 hereof after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 6.09
hereof and shall fail to resign after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Note for
at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take charge
or control of the Trustee or of its property or affairs for the purpose
or rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Note who has been a bona fide
Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders of the Notes and accepted
appointment in the manner hereinafter provided, the Holder of any Note who has
been a bona fide Holder for at least six months may, subject to Section 5.14, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall use reasonable efforts to give notice of each
resignation and each removal of the Trustee and each appointment of a successor
Trustee by mailing written notice of such event by first-class mail, postage
prepaid, to the Holders of Notes as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company or
the successor Trustee, upon payment of amounts due to it pursuant to Section
6.07, such retiring Trustee shall duly assign, transfer and
<PAGE> 45
-42-
deliver to the successor Trustee all moneys and property at the time held by it
hereunder and shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers, duties and obligations of the retiring
Trustee. Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights and powers. Any Trustee ceasing to act
shall, nevertheless, retain a prior claim upon all property or funds held or
collected by such Trustee to secure any amounts then due it pursuant to the
provisions of Section 6.07.
No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section 6.11 unless at the time of such
acceptance such successor Trustee shall be eligible to act as Trustee under this
Article.
Upon acceptance of appointment by any successor Trustee as provided
in this Section 6.11, the successor shall give notice thereof to the Holders of
the Notes, by mailing such notice to such Holders at their addresses as they
shall appear on the Note Register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor Trustee, the successor Trustee shall cause such
notice to be given at the expense of the Company.
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or amalgamated, or any corporation resulting
from any merger, conversion, amalgamation or consolidation to which the Trustee
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided such corporation shall be
eligible under this Article Six to serve as Trustee hereunder.
In case at the time such successor to the Trustee under this Section
6.12 shall succeed to the trusts created by this Indenture any of the Notes
shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor Trustee
and deliver such Notes so authenticated; and, in case at that time any of the
Notes shall not have been authenticated, any successor to the Trustee under this
Section 6.12 may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Trustee shall have been
authenticated.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish
Trustee Names and Addresses of Holders.
(a) The Trustee shall preserve the names and addresses of the
Noteholders and otherwise comply with TIA Section 312(a). If the Trustee is not
the Registrar, the Company shall furnish or cause the Registrar to furnish to
the Trustee 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 Noteholders.
Neither the Company nor the Trustee shall be under any responsibility with
regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the Trustee
<PAGE> 46
-43-
(i) semi-annually, not more than 15 days after each Regular
Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular
Record Date; and
(ii) at such other times as the Trustee may reasonably request
in writing, within 30 days after receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Registrar, no
such list need be furnished pursuant to this Subsection 7.01(b).
Section 7.02. Communications of Holders.
Holders may communicate with other Holders with respect to their
rights under this Indenture or under the Notes pursuant to Section 312(b) of the
Trust Indenture Act. The Company and the Trustee and any and all other persons
benefited by this Indenture shall have the protection afforded by Section 312(c)
of the Trust Indenture Act.
Section 7.03. Reports by Trustee.
(a) Within 60 days after May 1 of each year commencing with the
first May 1 following the date of this Indenture, the Trustee shall mail to all
Holders, as their names and addresses appear in the Note Register, a brief
report dated as of such date, in accordance with, and to the extent required
under Section 313 of the Trust Indenture Act. At the time of its mailing to
Holders, a copy of each such report shall be filed by the Trustee with the
Company, the SEC and with each stock exchange on which the Notes are listed. The
Company shall notify the Trustee when the Notes are listed on any stock
exchange.
(b) If a Default occurs and is continuing and is known to the
Trustee, the Trustee must mail to each Holder notice of the Default within 90
days after it occurs. Except in the case of a Default in the payment of
principal of or interest on any Note, the Trustee may withhold notice if and so
long as the Board, the executive committee or a committee of its trust officers
determines that withholding notice is not opposed to the interest of the
Holders.
Section 7.04. Reports by Company.
The Company shall:
(a) file with the SEC the copies of annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the SEC may from time to time by rules and regulations
prescribe) required to be filed with the SEC pursuant to Section 13 or Section
15 of the Exchange Act, whether or not the Company has a class of securities
registered under the Exchange Act;
(b) file with the Trustee within 15 days after it files or would be
required to file the information specified in subsection (a) of this Section
7.04 reports and documents with the SEC copies of such information;
(c) file with the Trustee and the SEC in accordance with rules and
regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations;
(d) deliver to the Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year;
<PAGE> 47
-44-
(e) deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof; and
(f) transmit by mail to all Holders, as their names and addresses
appear in the Note Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to subsections (a) and (c) of this Section as may
be required by rules and regulations prescribed from time to time by the SEC.
Notwithstanding anything to the contrary herein, the Trustee shall
have no duty to review information provided pursuant to subsection (b) of this
Section 7.04 for purposes of determining compliance with any provisions of this
Indenture.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. Merger and Consolidation
The Company shall not consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, its
assets substantially as an entirety to, any Person, unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") shall be a Person
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by an indenture supplemental thereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and this Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the Successor Company or any Subsidiary as a result of
such transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default shall have occurred and
be continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of Section 10.11; (iv) immediately after giving effect
to such transaction, the Successor Company shall have Consolidated Net Worth in
an amount that is not less than the Consolidated Net Worth of the Company prior
to such transaction minus any costs incurred in connection with such
transaction; and (v) the Company shall have delivered to the Trustee an
officer's certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Section 8.02. Successor Substituted.
The Successor Company shall be the successor to the Company and
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture, but the predecessor company, only in the
case of a conveyance, transfer or lease, shall not be released from the
obligation to pay the principal of and interest on the Notes.
<PAGE> 48
-45-
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers
Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by the
Board as evidenced by a Board Resolution, and the Trustee, at any time and from
time to time, may amend, waive, modify or supplement this Indenture or the Notes
for any of the following purposes:
(a) to evidence the succession of another person to the Company, and
the assumption by any such successor of the covenants of the Company in the
Notes;
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company,
herein, in the Notes;
(c) to cure any ambiguity, to correct or supplement any provision
herein, in the Notes which may be defective or inconsistent with any other
provision herein or to make any other provisions with respect to matters or
questions arising under this Indenture or the Notes; provided, however, that, in
each case, such provisions shall not materially adversely affect the legal
rights of the Holders;
(d) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by Section 9.05 hereof or otherwise;
(e) to mortgage, pledge, hypothecate or grant a security interest in
any property or assets in favor of the Trustee for the benefit of the Holders as
security for the payment and performance of this Indenture Obligations;
(f) to make any other change that does not materially adversely affect
the legal rights of any Holder;
(g) to add Guarantors with respect to the Notes; or
(h) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code)
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not materially
adversely affect the legal rights of any Holder.
Section 9.02. Supplemental Indentures, Agreements and Waivers with
Consent of Holders.
With the written consent of the Holders of not less than a majority
of Accreted Value of the Outstanding Notes delivered to the Company and the
Trustee, the Company when authorized by a Board Resolution, together with the
Trustee, may amend, waive, modify or supplement any other provision of this
Indenture or the Notes; provided, however, that no such amendment, waiver,
modification or supplement may, without the written consent of the Holder of
each Outstanding Note affected thereby:
(i) reduce the amount of Notes whose Holders must consent
to an amendment;
(ii) reduce the rate of or extend the time for payment of
interest on any Note;
<PAGE> 49
-46-
(iii) reduce the principal or Accreted Value of or extend the
Stated Maturity of any Note;
(iv) reduce the premium payable upon the redemption of any
Note or change the time at which any Note may be redeemed as described
under paragraph 2 of the Notes;
(v) make any Note payable in money other than that stated in
the Note;
(vi) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Notes;
(vii) make any change in the amendment provisions which
require each Holder's consent or in the waiver provisions; or
(viii) affect the ranking of the Notes in any material
respect.
Upon the written request of the Company accompanied by a copy of a Board
Resolution authorizing the execution of any such supplemental indenture or other
agreement, instrument or waiver, and an Officers' Certificate and an Opinion of
Counsel upon which the Trustee may rely as conclusive evidence that such change,
agreement, supplement or waiver is permitted by this Indenture and upon the
filing with the Trustee of evidence of the consent of Holders as aforesaid, the
Trustee shall join with the Company in the execution of such supplemental
indenture or other agreement, instrument or waiver.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed supplemental indenture or other agreement,
instrument or waiver, but it shall be sufficient if such Act shall approve the
substance thereof.
Section 9.03. Execution of Supplemental Indentures, Agreements and
Waivers.
In executing or accepting the additional trusts created by any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and may rely upon, an
Opinion of Counsel and an Officers' Certificate from each obligor under the
Notes entering into such supplemental indenture, agreement, instrument or
waiver, each stating that the execution of such supplemental indenture,
agreement, instrument or waiver (a) is authorized or permitted by this Indenture
and (b) does not violate the provisions of any agreement or instrument
evidencing any other Indebtedness of the Company or any other Subsidiary of the
Company. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture, agreement, instrument or waiver which affects the
Trustee's own rights, duties or immunities under this Indenture, the Notes or
otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture and/or the Notes, if applicable, shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture and/or the Notes, if applicable, as the case may be, for all purposes;
and every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
<PAGE> 50
-47-
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Board, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee upon a Company Order in
exchange for Outstanding Notes.
Section 9.07. Record Date.
The Company may, but shall not be obligated to, fix, a record date
for the purpose of determining the Holders entitled to consent to any
supplemental indenture, agreement or instrument or any waiver, and shall
promptly notify the Trustee of any such record date. If a record date is fixed
those persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
supplemental indenture, agreement or instrument or waiver or to revoke any
consent previously given, whether or not such persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.
Section 9.08. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Note is a continuing consent by the Holder 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 a notation of the consent is not made on any
Note. However, any such Holder, or subsequent Holder, may revoke the consent as
to his Note or portion of a Note if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. An
amendment or waiver shall become effective in accordance with its terms and
thereafter bind every Holder.
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of, premium,
if any, and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
Section 10.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan in The City
of New York, State of New York, an office or agency where Notes may be presented
or surrendered for payment, where Notes may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The office of the Trustee
at its Corporate Trust Office will be such office or agency of the Company,
unless the Company shall designate and maintain some other office or agency for
one or more of such purposes. The Company will give prompt written notice to the
Trustee of any change in the location of any such office or agency. If at any
time the Company shall fail to maintain any such
<PAGE> 51
-48-
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, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands. The Company may also from time to time designate one or
more other offices or agencies (in or outside of The City of New York, State of
New York) where the Notes may be presented or surrendered for any or all such
purposes, and may from time to time rescind such designation; 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 City of New York, State
of New York for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such other office or agency.
Section 10.03. Money for Note Payments To Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of, premium, if any, or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Holders entitled thereto a sum sufficient to pay the principal, premium, if any,
or interest so becoming due until such sums shall be paid to such persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will, on
or before each due date of the principal of, premium, if any, or interest on,
any Notes, deposit with a Paying Agent a sum in same day funds sufficient to pay
the principal, premium, if any, or interest so becoming due, such sum to be held
in trust for the benefit of the Holders entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act. If the
Company is not acting as Paying Agent, the Company will cause each Paying Agent
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent will agree with the Trustee, subject to the provisions
of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of, premium, if any, or interest on Notes in trust for the benefit of
the Holders entitled thereto until such sums shall be paid to such
Holders or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal of, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects
with the provisions of this Indenture relating to the duties, rights
and liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent will be released from all further liability with respect to
such money.
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, premium, if any, or interest has become due and payable shall be paid
to the Company upon receipt of a Company Request therefor, or (if then held by
the Company) will be discharged from such trust; and the Holder of such Note
will thereafter, as an unsecured general creditor, look only to the Company for
payment
<PAGE> 52
-49-
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, will
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, at the option of the Company in the New York
Times or the Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication, any unclaimed balance of
such money then remaining shall be repaid to the Company.
Section 10.04. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of the Restricted Subsidiaries; provided, however, that the
Company will not be required to preserve any such right, license or franchise if
the Board shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and the Restricted Subsidiaries as
a whole and that the loss thereof is not adverse in any material respect to the
Holders; provided, further, that the foregoing will not prohibit a sale,
transfer or conveyance of a Subsidiary of the Company or any of its assets in
compliance with the terms of this Indenture.
Section 10.05. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed (i) upon the Company or
any of its Restricted Subsidiaries or (ii) upon the income, profits or property
of the Company or any of the Restricted Subsidiaries and (b) all material lawful
claims for labor, materials and supplies, which, if unpaid, could reasonably be
expected to become a Lien upon the property of the Company or any of the
Restricted Subsidiaries; provided, however, that the Company will not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim (x) whose amount, applicability or validity is being
contested in good faith by appropriate proceedings properly instituted and
diligently conducted or (y) if the failure to so pay, discharge or cause to be
paid or discharged could not reasonably be expected to have a Material Adverse
Effect (as defined in the Purchase Agreement).
Section 10.06. Maintenance of Properties.
The Company shall cause all material properties owned by the Company
or any of the Restricted Subsidiaries or used or held for use in the conduct of
their respective businesses to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 10.06
will prevent the Company from discontinuing the maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any of the Restricted
Subsidiaries and is not disadvantageous in any material respect to the Holders.
Section 10.07. Insurance.
The Company shall at all times keep all of its and the Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually and customarily so insured by corporations similarly situated and owning
like properties.
Section 10.08. Books and Records.
<PAGE> 53
-50-
The Company shall keep proper books of record and account, in which
full and correct entries will be made of all financial transactions and the
assets and business of the Company and each Restricted Subsidiary and each
Restricted Affiliate of the Company in material compliance with GAAP.
Section 10.09. SEC Reports.
Notwithstanding that the Company may not be or required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC and provide within 15 days of filing
therewith to the Trustee and Noteholders such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections.
Section 10.10. Change of Control.
Upon the occurrence of any of the following events (each a "Change
of Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause (i)
such person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the then
outstanding Voting Stock of the Company; provided, however, that for
purposes of this clause (i), the Permitted Holders shall be deemed to
beneficially own any Voting Stock of a corporation (the "specified
corporation") held by any other corporation (the "parent corporation")
so long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power
of the Voting Stock of the parent corporation;
(ii) during any period of two consecutive years after the
Company's initial Public Equity Offering, individuals who at the
beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was
approved by a vote of 66-2/3% of the directors of the Company then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
(iii) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company to another Person (in each case other than a Person that is
controlled by the Permitted Holders), and, in the case of any such
merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent
100% of the aggregate voting power of the Voting Stock of the Company
are changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving corporation or a parent corporation that owns all of the
capital stock of such corporation that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation or such parent corporation,
as the case may be.
<PAGE> 54
-51-
Upon the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall make an offer
to purchase (the "Change of Control Offer"), on a business day (the "Change of
Control Payment Date") not later than 60 days following the Change of Control
Date, all Notes then outstanding at a purchase price equal to 101% of the
Accreted Value thereof on any Change of Control Payment Date, plus accrued and
unpaid interest, if any, to any Change of Control Payment Date. Notice of a
Change of Control Offer shall be given to Holders and the Trustee not less than
25 days nor more than 45 days before the Change of Control Payment Date. The
Change of Control Offer is required to remain open for at least 20 business days
and until the close of business on the Change of Control Payment Date. Failure
to mail the notice of a Change of Control Offer on the date specified below or
to have satisfied the foregoing condition precedent by the date that such notice
is required to be mailed will constitute a Default under Section 5.01(iv).
Within 30 Business Days following the Change of Control Date, notice
of a Change of Control Offer shall be mailed by the Company to the Holders of
Notes at their last registered addresses with a copy to the Trustee and the
Paying Agent. The Change of Control Offer shall remain open from the time of
mailing of the notice thereof until 5:00 p.m., New York City time, on the Change
of Control Payment Date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed). The notice, which shall govern the
terms of the Change of Control Offer, shall include such disclosures as are
required by law and shall state:
(a) that the Change of Control Offer is being made pursuant to
this Section 10.10 and that all Notes tendered into the Change of
Control Offer will be accepted for payment;
(b) the purchase price (including the amount of accrued
interest, if any) for each Note, the Change of Control Payment Date and
the date on which the Change of Control Offer expires;
(c) that any Note not tendered for payment will continue to
accrete Accreted Value or accrue interest in accordance with the terms
thereof;
(d) that, unless the Company shall default in the payment of
the purchase price, any Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrete Accrued Interest or
accrue interest after the Change of Control Payment Date;
(e) that Holders electing to have Notes purchased pursuant to
a Change of Control Offer will be required to surrender their Notes to
the Paying Agent at the address specified in the notice prior to 5:00
p.m., New York City time, on the Change of Control Payment Date and
must complete any form letter of transmittal proposed by the Company
and acceptable to the Trustee and the Paying Agent;
(f) that Holders of Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New
York City time, on the Change of Control Payment Date, a facsimile
transmission or letter setting forth the name of the Holders, the
principal amount of Notes the Holders delivered for purchase, the Note
certificate number (if any) and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(g) that Holders whose Notes are purchased only in part will
be issued Notes of like tenor equal in principal amount to the
unpurchased portion of the Notes surrendered;
(h) the instructions that Holders must follow in order to
tender their Notes; and
(i) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
SEC pursuant to the Exchange Act (or, if the Company is not required to
file any such reports with the SEC, the comparable reports prepared
pursuant to Section 10.09), a description of material developments in
the Company's business, information with respect to pro forma
historical financial information after giving effect to such Change of
Control and
<PAGE> 55
-52-
such other information concerning the circumstances and relevant facts
regarding such Change of Control and Change of Control Offer as would,
in the good faith judgment of the Company, be material to a Holder of
Notes in connection with the decision of such Holder as to whether or
not it should tender Notes pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Company will (i) accept
for payment Notes or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent money, in immediately available funds,
sufficient to pay the purchase price of all Notes or portions thereof so
tendered and accepted and (iii) deliver to the Trustee the Notes so accepted
together with an Officers' Certificate setting forth the Notes or portions
thereof tendered to and accepted for payment by the Company. The Paying Agent
will promptly mail or deliver to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Note of like tenor equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Change of Control
Offer not later than the first Business Day following the Change of Control
Payment Date. Except as described above with respect to a Change of Control,
this Indenture does not contain provisions that permit the Holders to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction which may be highly leveraged. If a
Change of Control Offer is made, there can be no assurance that the Company will
have available funds sufficient to pay for all of the Notes that might be
delivered by holders of Notes seeking to accept the Change of Control Offer. The
Company shall not be required to make a Change of Control Offer following 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
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.
If the Company is required to make a Change of Control Offer, the
Company will comply with all applicable tender offer laws and regulations,
including, to the extent applicable, Section 14(e) and Rule 14e-1 under the
Exchange Act, and any other applicable securities laws and regulations. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this Section 10.10, the Company will comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 10.10 by virtue thereof.
Section 10.11. Limitation on Indebtedness.
(a) The Company shall not incur, directly or indirectly, any
Indebtedness unless, on the date of such Incurrence and after giving
effect thereto, the Consolidated Coverage Ratio exceeds 2.0 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company
may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the New Credit Agreement
or any other credit or loan agreement in an aggregate principal amount
which, when taken together with all letters of credit and the principal
amount of all other Indebtedness Incurred pursuant to this clause (1)
and then outstanding, does not exceed $40.0 million;
(2) Indebtedness owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
such Indebtedness (other than to another Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the Company;
<PAGE> 56
-53-
(3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2) or (3) of this Section
10.11);
(5) Refinancing Indebtedness in respect of Indebtedness
Incurred pursuant to paragraph (a) or pursuant to clause (3) or (4) or
this clause (5) or pursuant to Section 10.18;
(6) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the
Company pursuant to this Indenture;
(7) Indebtedness of the Company consisting of obligations in
respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under this Indenture;
(8) Capital Lease Obligations and Attributable Debt of the
Company with respect to Sale/Leaseback Transactions in an aggregate
principal amount not exceeding $10.0 million at any one time
outstanding; and
(9) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company outstanding on the
date of such Incurrence (other than Indebtedness permitted by clauses
(1) through (8) above or paragraph (a)), does not exceed $20.0 million
at any one time outstanding.
(c) Notwithstanding the foregoing, the Company shall not Incur
any Indebtedness pursuant to the foregoing paragraph (b) if the
proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated
to the Notes to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with Section 10.11,
(i) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described above, the
Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of
such Indebtedness in one of the above clauses and (ii) an item of
Indebtedness may be divided and classified in more than one of the
types of Indebtedness described above.
Section 10.12. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof, a written
statement signed by the chairman or a chief executive officer, the principal
financial officer or principal accounting officer of the Company, stating (i)
that a review of the activities of the Company during the preceding fiscal year
has been made under the supervision of the signing officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and (ii) that, to the best knowledge of each
officer signing such certificate, the Company has kept, observed, performed and
fulfilled each and every covenant and condition contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions, conditions and covenants hereof (or, if a Default shall have
occurred, describing all such Defaults of which such officers may have
knowledge, their status and what action the Company is taking or proposes to
take with respect thereto). When any Default under this Indenture has occurred
and is continuing, or if the Trustee or any Holder or the trustee for or the
holder of any other evidence of Indebtedness of the Company or any Restricted
Subsidiary gives any notice or takes any other action with respect to a claimed
default (other than with respect to Indebtedness (other than Indebtedness
evidenced by the Notes) in the principal amount of less than $1.0 million), the
Company will promptly notify the Trustee of such
<PAGE> 57
-54-
Default, notice or action and will deliver to the Trustee by registered or
certified mail or by telegram, or facsimile transmission followed by hard copy
by registered or certified mail an Officers' Certificate specifying such event,
notice or other action within five Business Days after the Company becomes aware
of such occurrence and what action the Company is taking or proposes to take
with respect thereto.
Section 10.13. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make a Restricted Payment if at the
time the Company or such Restricted Subsidiary makes, and after giving
effect to, the proposed Restricted Payment: (i) a Default shall have
occurred and be continuing (or would result therefrom); (ii) the Company
is not able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of Section 10.11; or (iii) the aggregate amount of such
Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during
which the Notes were originally issued to the end of the most
recently ended fiscal quarter for which financial statements
are available at the time of such Restricted Payment (or, in
case such Consolidated Net Income shall be a deficit, minus
100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
capital contributions or the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary of the
Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of its employees);
(C) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary of the Company) subsequent to the
Issue Date, of any Indebtedness of the Company for Capital
Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange),
whether pursuant to the terms of such Indebtedness or pursuant
to an agreement with a creditor to engage in an equity for
debt exchange; and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers
of assets, in each case to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of
an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Unrestricted
Subsidiary subsequent to the Issue Date.
(b) The provisions of the foregoing paragraph (a) shall not
prohibit:
<PAGE> 58
-55-
(i)any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than (A) Disqualified Stock or (B) Capital Stock issued or sold to a
Subsidiary of the Company or other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of
its Subsidiaries for the benefit of its employees) or out of the proceeds
of a substantially concurrent capital contribution to the Company;
provided, however, that (x) such purchase, capital contribution or
redemption shall be excluded in the calculation of the amount of
Restricted Payments and (y) the Net Cash Proceeds from such sale of
Capital Stock or capital contribution shall be excluded from clause
(iii)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations in whole
or in part (including premium, if any, and accrued and unpaid interest)
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to Section 10.11; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value shall be excluded in the calculation of the amount of Restricted
Payments; and
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
Section 10.14. Limitation on Affiliate Transactions.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with
any Affiliate of the Company (an "Affiliate Transaction") unless the terms
thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such
transaction in a comparable transaction in arm's-length dealings with a
Person who is not such an Affiliate, (2) if such Affiliate Transaction
involves an amount in excess of $1.0 million, (i) are set forth in writing
and (ii) have been approved by a majority of the members of the Board of
Directors having no material personal financial stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in
excess of $5.0 million, have been determined by a nationally recognized
investment banking firm or other qualified appraiser under the relevant
circumstances to be fair, from a financial standpoint, to the Company or
its Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit
(i) any Permitted Investment or Restricted Payment permitted to be made
pursuant to Section 10.13, or any payment or transaction specifically
excepted from the definition of Restricted Payment, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans or any other similar arrangement
heretofore or hereafter entered into in the ordinary course of business or
consistent with past practice, (iii) the grant of stock options or similar
rights to employees and directors pursuant to plans approved by the Board
of Directors or the board of directors of the relevant Restricted
Subsidiary, (iv) loans or advances to officers, directors or employees in
the ordinary course of business, (v) the payment of reasonable fees to
directors of the Company and its Restricted Subsidiaries who are not
employees of the Company or its Restricted Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries, (vii) the purchase of or the payment of
Indebtedness of or monies owed by the Company or any of its Restricted
Subsidiaries for goods or materials purchased, or services received, in
the ordinary course of business or (viii) any transaction pursuant to an
agreement or arrangement in effect on the Issue Date.
<PAGE> 59
-56-
Section 10.15. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset
Disposition unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Disposition at
least equal to the fair market value (including the value of all
non-cash consideration), as determined in good faith by the Board of
Directors, of the shares and assets subject to such Asset
Disposition, and at least 75% of the consideration thereof received
by the Company or such Restricted Subsidiary is in the form of cash
or cash equivalents and (ii) an amount equal to 100% of the Net
Available Cash from such Asset Disposition is applied by the Company
(or such Restricted Subsidiary, as the case may be) (A) first, to
the extent the Company elects in its sole discretion (or is required
by the terms of any Indebtedness), to prepay, repay, redeem or
purchase (and permanently reduce the commitments under) Indebtedness
under the New Credit Agreement or that is otherwise secured by its
assets subject to such Asset Disposition within one year from the
later of the date of such Asset Disposition or the receipt of such
Net Available Cash (the "Receipt Date"); (B) second, to the extent
of the balance of such Net Available Cash after application in
accordance with clause (A), to the extent the Company elects in its
sole discretion, to acquire Additional Assets; provided, however,
that the Company shall be required to commit such Net Available Cash
to the acquisition of Additional Assets within one year from the
later of the date of such Asset Disposition or the Receipt Date and
shall be required to consummate the acquisition of such Additional
Assets within 18 months from the Receipt Date; (C) third, to the
extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to make an offer pursuant to
paragraph (b) below to the Holders to purchase Notes pursuant to and
subject to the conditions contained in this Indenture (an "Asset
Sale Offer"); and (D) fourth, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A),
(B) and (C) to any other application or use not prohibited by this
Indenture. Notwithstanding the foregoing provisions of this
paragraph, the Company and the Restricted Subsidiaries shall not be
required to apply the Net Available Cash in accordance with this
paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which is not applied in accordance with
this paragraph exceeds $5 million (at which time, the entire
unutilized Net Available Cash, and not just the amount in excess of
$5 million, shall be applied pursuant to this paragraph). Pending
application of Net Available Cash pursuant to this covenant, such
Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or cash
equivalents: (x) the express assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, (y) securities received by the Company or any Restricted Subsidiary
from the transferee that are converted by the Company or such Restricted
Subsidiary into cash within 90 days of closing the transaction and (z) Temporary
Cash Investments.
(b) In the event of an Asset Disposition that requires the
purchase of the Notes pursuant to clause (a)(ii)(C) above, the
Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes at a purchase price of 100% of
their Accreted Value plus accrued but unpaid interest in accordance
with the procedures (including prorating in the event of
oversubscription) set forth in this Indenture. If the aggregate
purchase price of Notes tendered pursuant to such offer is less than
the Net Available Cash allotted to the purchase thereof, the Company
will be required to apply the remaining Net Available Cash in
accordance with clause (a)(ii)(D) above. The Company shall not be
required to make such an offer to purchase Notes pursuant to this
covenant if the Net Available Cash available therefor is less than
$5 million (which lesser amount shall be carried forward for
purposes of determining whether such an offer is required with
respect to any subsequent Asset Disposition).
<PAGE> 60
-57-
Notice of an Asset Sale Offer shall be mailed by the Company not
more than 20 Business Days after the obligation to make such Asset Sale Offer
arises to the Holders of Notes at their last registered addresses with a copy to
the Trustee and the Paying Agent. The Asset Sale Offer shall remain open from
the time of mailing for at least 20 Business Days and until 5:00 p.m., New York
City time, on the date fixed for Purchase of Notes validly tendered and not
withdrawn, which date shall be not later than the 30th Business Day following
the mailing of such Asset Sale Offer (the "Asset Sale Offer Purchase Date"). The
notice, which shall govern the terms of the Asset Sale Offer, shall include such
disclosures as are required by law and shall state:
(i)that the Asset Sale Offer is being made pursuant to
this Section 10.15 and that the Asset Sale Offer shall remain
open for a period of 20 Business Days or such longer period as
may be required by law;
(ii) the purchase price (including the amount of
accrued interest, if any) for each Note, the Asset Sale Offer
Purchase Date and the date on which the Asset Sale Offer
expires;
(iii) that any Note not tendered for payment will
continue to accrue interest in accordance with the terms
thereof;
(iv) that, unless the Company shall default in the
payment of the purchase price, any Note accepted for payment
pursuant to the Asset Sale Offer shall cease to accrue
interest after the Asset Sale Offer Purchase Date;
(v)that Holders electing to have Notes purchased
pursuant to an Asset Sale Offer will be required to surrender
their Notes to the Paying Agent at the address specified in
the notice prior to 5:00 p.m., New York City time, on the
Asset Sale Offer Purchase Date and must complete any form
letter of transmittal proposed by the Company and acceptable
to the Trustee and the Paying Agent;
(vi) that Holders of Notes will be entitled to
withdraw their election if the Paying Agent receives, not
later than 5:00 p.m., New York City time, on the Asset Sale
Offer Purchase Date, a facsimile transmission or letter
setting forth the name of the Holders, the principal amount of
Notes the Holders delivered for purchase, the Note certificate
number (if any) and a statement that such Holder is
withdrawing his election to have such Notes purchased;
(vii) that Holders whose Notes are purchased only in
part will be issued Notes of like tenor equal in principal
amount to the unpurchased portion of the Notes surrendered;
(viii) the instructions that Holders must follow in
order to tender their Notes; and
(ix) information concerning the business of the
Company, the most recent annual and quarterly reports of the
Company filed with the Commission pursuant to the Exchange Act
(or, if the Company is not required to file any such reports
with the SEC, the comparable reports prepared pursuant to
Section 10.09), a description of material developments in the
Company's business, information with respect to pro forma
historical financial information after giving effect to such
Asset Sale and such other information concerning the
circumstances and relevant facts regarding such Asset Sale and
Asset Sale Offer as would, in the good faith judgment of the
Company, be material to a Holder of Notes in connection with
the decision of such Holder as to whether or not it should
tender Notes pursuant to the Asset Sale Offer.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment
Notes or portions thereof tendered pursuant to the Asset Sale Offer, (ii)
deposit with the Paying Agent money, in immediately available funds, sufficient
to pay the purchase price of all Notes or portions thereof so tendered and
accepted and (iii) deliver to the Trustee the Notes so accepted together with an
Officers' Certificate setting forth the Notes or portions thereof
<PAGE> 61
-58-
tendered to and accepted for payment by the Company. The Paying Agent will
promptly mail or deliver to the Holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Note of like tenor equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company will publicly announce the results of the Asset Sale Offer
not later than the first Business Day following the Asset Sale Offer Purchase
Date.
(c) The Company shall comply, to the extent
applicable, with the requirements of Section 14(e) of the
Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant,
the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its
obligations under this clause by virtue thereof.
Section 10.16. Limitation on Liens.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or permit to exist any Lien upon
any of its property or assets, now owned or hereafter acquired, securing any
obligation unless concurrently with the creation of such Lien effective
provision is made to secure the Notes equally and ratably with such obligation
for so long as such obligation is so secured; provided, that, if such obligation
is a Subordinated Obligation, the Lien securing such obligation shall be
subordinated and junior to the Lien securing the Notes with the same or lesser
relative priority as such Subordinated Obligation shall have been with respect
to the Notes. The preceding restriction shall not require the Company or any
Restricted Subsidiary to secure the Notes if the Lien consists of the following:
(a) Liens created by this Indenture, Liens under the
New Credit Agreement and Liens existing as of the Issue Date;
(b) Permitted Liens;
(c) Liens to secure Indebtedness issued by the
Company for the purpose of financing all or a part of the
purchase price of assets or property acquired or constructed
in the ordinary course of business after the Issue Date;
provided, however, that (a) the aggregate principal amount (or
accreted value in the case of Indebtedness issued at a
discount) of Indebtedness so issued shall not exceed the
lesser of the cost or fair market value, as determined in good
faith by the Board of Directors of the Company, of the assets
or property so acquired or constructed, (b) the Indebtedness
secured by such Liens shall have been permitted to be Incurred
under Section 10.11 and (c) such Liens shall not encumber any
other assets or property of the Company or any of its
Restricted Subsidiaries other than such assets or property or
any improvement on such assets or property and shall attach to
such assets or property within 90 days of the construction or
acquisition of such assets or property;
(d) Liens on the assets or property of a Restricted
Subsidiary existing at the time such Restricted Subsidiary
becomes a Restricted Subsidiary and not issued as a result of
(or in connection with or in anticipation of) such Restricted
Subsidiary becoming a Restricted Subsidiary; provided,
however, that such Liens do not extend to or cover any other
property or assets of the Company or any of its other
Restricted Subsidiaries;
(e) Liens securing Capital Lease Obligations
Incurred in accordance with Section 10.11;
(f) Liens with respect to Sale/Leaseback
Transactions permitted by clause (b)(8) of Section 10.11;
<PAGE> 62
-59-
(g) Liens securing Indebtedness issued to Refinance
Indebtedness which has been secured by a Lien permitted under
this Indenture and is permitted to be Refinanced under this
Indenture; provided, however, that such Liens do not extend to
or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so
Refinanced; or
(h) Liens on assets of the Company or any of its
Restricted Subsidiaries securing Indebtedness in an aggregate
principal amount not to exceed $10.0 million.
Section 10.17. Limitation on Sale/Leaseback Transactions.
The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any
property unless (i) the Company or such Restricted Subsidiary would be (A) in
compliance with Sections 10.11 or 10.18 immediately after giving effect to such
Sale/Leaseback Transaction and (B) entitled to create a Lien on such property
securing the Attributable Debt with respect to such Sale/Leaseback Transaction
without securing the Notes pursuant to Section 10.16, (ii) the net proceeds
received by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair market value (as
determined by the Board of Directors of the Company) of such property and (iii)
the Company or such Restricted Subsidiary applies the proceeds of such
transaction in compliance with Section 10.15.
Section 10.18. Limitation on Indebtedness and Preferred Stock by
Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary to
Incur, directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and
held by the Company or a Wholly Owned Subsidiary; provided,
however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness or Preferred Stock
(other than to the Company or a Wholly Owned Subsidiary) shall
be deemed, in each case, to constitute the issuance of such
Indebtedness or Preferred Stock by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Restricted
Subsidiary Incurred and outstanding on or prior to the date on
which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness or Preferred Stock Incurred in
connection with, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company); provided, however, that on the date
of such acquisition and after giving effect thereto, the
Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to clause (a) of Section
10.11;
(c) Indebtedness or Preferred Stock outstanding on
the Issue Date (other than Indebtedness or Preferred Stock
described in clauses (a) or (b) of this paragraph);
(d) Indebtedness of any Restricted Subsidiary
consisting of obligations in respect of purchase price
adjustments in connection with the acquisition or disposition
of assets by the Company or any Restricted Subsidiary
permitted under this Indenture;
(e) Preferred Stock which is not Disqualified Stock;
provided, however, that such Restricted Subsidiary shall not
pay cash dividends on such Preferred Stock; and
<PAGE> 63
-60-
(f) Refinancing Indebtedness Incurred in respect of
Indebtedness or Preferred Stock referred to in clauses (b) or
(c) of this paragraph or this clause (f); provided, however,
that to the extent such Refinancing Indebtedness directly or
indirectly Refinances Indebtedness or Preferred Stock of a
Restricted Subsidiary described in clause (b), such
Refinancing Indebtedness shall be Incurred only by such
Restricted Subsidiary.
Section 10.19. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary, (b) pay any Indebtedness owed
to the Company, (c) make any loans or advances to the Company or (d) to transfer
any of its property or assets to the Company, except:
(i)any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to
a Restricted Subsidiary pursuant to an agreement relating to
any Indebtedness Incurred by such Restricted Subsidiary on or
prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to an
agreement effecting a Refinancing of Indebtedness Incurred
pursuant to an agreement referred to in clause (i) or (ii) of
this Section 10.19 or this clause (iii) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of
this Section 10.19 or this clause (iii); provided, however,
that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing
agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such agreements;
(iv) any such encumbrance or restriction consisting
of customary non-assignment provisions in leases to the extent
such provisions restrict the transfer of the lease or sublease
or the property leased or subleased thereunder or in purchase
money financings;
(v)in the case of clause (d) above, restrictions
contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to
such security agreements or mortgages;
(vi) encumbrances or restrictions imposed by
operation of applicable law; and
(vii) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary pending
the closing of such sale or disposition.
Section 10.20. Limitation on the Sale or Issuance of Capital Stock
of Restricted Subsidiaries.
<PAGE> 64
-61-
The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
provided, however, that in connection with any such sale or disposition of
Capital Stock the Company or any such Restricted Subsidiary complies with
Section 10.15.
Section 10.21. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company will furnish
to the Trustee an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture (including any covenants compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with, and an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such documents, certificates and/or opinions is specifically
required by any provision of this Indenture relating to such particular
application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture will include:
(i)a statement that each individual signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;
(ii) 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;
(iii) a statement that, in the opinion of each such
individual, he has made such examination or investigation as
is necessary to enable him to express an informed opinion as
to whether such covenant or condition has been complied with;
and
(iv) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been
complied with.
ARTICLE ELEVEN
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge of Indenture.
This Indenture will cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Notes, as
expressly provided for in this Indenture) as to all outstanding Notes when: (i)
either (a) all the Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid) have been delivered
to the Trustee for cancellation or (b) all Notes not theretofore delivered to
the Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of deposit; (ii) the
Company has paid or caused to be paid all other sums payable under this
Indenture by the Company; and (iii) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that all conditions
precedent under this Indenture relating to the satisfaction and discharge of
this Indenture have been complied with.
<PAGE> 65
-62-
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Sections 4.05 and 6.07 and,
if money shall have been deposited with the Trustee pursuant to subclause (1)(b)
of this Section 11.01, the obligations of the Trustee under Section 11.02 and
the last paragraph of Section 10.03 shall survive.
Section 11.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.03,
all money deposited with the Trustee pursuant to Section 11.01 shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the persons entitled thereto, of the principal of, premium, if
any, and interest on the Notes for whose payment such money has been deposited
with the Trustee.
ARTICLE TWELVE
REDEMPTION
Section 12.01. Notices to the Trustee.
If the Company elects to redeem Notes pursuant to Paragraph 3 of the
Initial Notes or Paragraph 2 of the Exchange Notes, it shall notify the Trustee
of the Redemption Date and principal amount of Notes to be redeemed.
The Company shall notify the Trustee of any redemption at least 45
days before the Redemption Date by an Officers' Certificate, stating that such
redemption will comply with the provisions hereof and of the Notes.
Section 12.02. Selection of Notes To Be Redeemed.
In the event that less than all of the Notes are to be redeemed at
any time, selection of such Notes for redemption will be made by the Trustee in
compliance with any applicable requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not then
listed on a national securities exchange (or if the Notes are so listed but the
exchange does not impose requirements with respect to the selection of debt
securities for redemption), on a pro rata basis, by lot or by such method as the
Trustee in its sole discretion shall deem fair and appropriate; provided,
however, that no Notes of a principal amount at maturity of $1,000 or less shall
be redeemed in part.
The Trustee shall promptly notify the Company and the Registrar in
writing of the Notes selected for redemption and, in the case of any Notes
selected for partial redemption, the principal amount at maturity thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
Section 12.03. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed, at the address of such Holder
appearing in the Note register maintained by the Registrar.
All notices of redemption shall identify the Notes to be redeemed
and shall state:
<PAGE> 66
-63-
(a) the Redemption Date;
(b) the Redemption Price and the amount of accrued
interest, if any, to be paid;
(c) that, unless the Company defaults in making the
redemption payment, interest on Notes called for redemption
ceases to accrue on and after the Redemption Date, and the
only remaining right of the Holders of such Notes is to
receive payment of the Redemption Price plus unpaid interest
on the Notes through the Redemption Date, upon surrender to
the Paying Agent of the Notes redeemed;
(d) if any Note is to be redeemed in part, the
portion of the principal amount at maturity (equal to $1,000
or any integral multiple thereof) of such Note to be redeemed
and that on and after the Redemption Date, upon surrender for
cancellation of such Note to the Paying Agent, a new Note or
Notes in the aggregate principal amount at maturity equal to
the unredeemed portion thereof will be issued without charge
to the Noteholder;
(e) that Notes called for redemption must be
surrendered to the Paying Agent to collect the Redemption
Price and the name and address of the Paying Agent; and
(f) the CUSIP or CINS number, if any, relating to
such Notes.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name and at the expense of the Company.
Section 12.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Notes called for redemption
become due and payable on the Redemption Date and at the Redemption Price. Upon
surrender to the Paying Agent, such Notes called for redemption shall be paid at
the Redemption Price plus accrued interest, if any, to the Redemption Date, but
interest installments whose maturity is on or prior to such Redemption Date will
be payable on the relevant Interest Payment Dates to the Holders of record at
the close of business on the relevant record dates referred to in the Notes.
Section 12.05. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with
the Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of, and any accrued interest on, all the Notes or portions
thereof which are to be redeemed on that date, other than Notes or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price, interest on the
Notes to be redeemed will cease to accrue on and after the applicable Redemption
Date, whether or not such Notes are presented for payment, and the Holders of
such Notes shall have no further rights with respect to such Notes except for
the right to receive the Redemption Price plus unpaid interest on the Notes
through the Redemption Date, upon surrender of such Notes. If any Note called
for redemption shall not be so paid upon surrender thereof for redemption, the
principal, premium, if any, and, to the extent lawful, accrued interest thereon
shall, until paid, bear interest from the Redemption Date at the rate provided
in the Notes.
Section 12.06. Notes Redeemed or Purchased in Part.
Upon surrender to the Paying Agent of a Note which is to be redeemed
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note
<PAGE> 67
-64-
or Notes, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to, and in exchange for, the unredeemed portion
of the principal of the Note so surrendered that is not redeemed.
<PAGE> 68
-65-
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first written above.
SPINCYCLE, INC.
By: /s/ Patrick Boyer
---------------------
Name: Patrick Boyer
Title: Chief Financial Officer
NORWEST BANK MINNESOTA, N.A.,
as Trustee
By: /s/ Raymond S. Haverstock
-----------------------------
Name: Raymond S. Haverstock
Title: Vice President
<PAGE> 69
-1-
EXHIBIT A-1
[FORM OF NOTE]
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF
THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY
BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (I) INSIDE THE UNITED
STATES TO A PERSON WHOM 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, (II) OUTSIDE OF THE UNITED
STATES IN A TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 904 UNDER THE
SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF
CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE.
A-1-1
<PAGE> 70
-2-
SPINCYCLE, INC.
-----------------
12-3/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES A
CUSIP No. __________
No. ___________ $
SPINCYCLE, INC., a corporation incorporated under the laws of the
State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on May 1, 2005, at the office or agency
of the Company referred to below. The Notes are unsecured senior obligations of
the Company, limited to $144,990,000 aggregate principal amount at maturity, and
will mature on May 1, 2005. Except as described below under "Registration
Rights", no cash interest will accrue on the Notes prior to May 1, 2001,
although for U.S. federal income tax purposes a significant amount of original
issue discount, taxable as ordinary income, will be recognized by a Holder as
such discount accrues from the issue date of the Notes through May 1, 2005. Cash
interest will accrue on the Notes at the rate per annum shown above from May 1,
2001, or from the most recent date to which interest has been paid or provided
for, payable semi-annually to Holders of record at the close of business on the
April 15 or October 15 immediately preceding the interest payment date on May 1
and November 1 of each year, commencing November 1, 2001 (each, an "Interest
Payment Date"). The Company will pay interest on overdue principal at 1% per
annum in excess of such rate, and it will pay interest on overdue installments
of cash interest at such higher rate to the extent lawful. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture referred to on
the reverse hereof, be paid to the person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on April 15 and
October 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record 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.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, 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; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof.
A-1-2
<PAGE> 71
-3-
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
A-1-3
<PAGE> 72
-4-
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
Dated: SPINCYCLE, INC.
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12-3/4% Senior Discount Notes due 2005, Series A, referred to
in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, N.A., as
Trustee
By:________________________________
Authorized Signatory
A-1-4
<PAGE> 73
-5-
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of Notes of
the Company designated as its 12-3/4% Senior Discount Notes due 2005, Series A
(herein called the "Initial Notes"). The Notes are limited (except as otherwise
provided in the Indenture referred to below) in aggregate principal amount at
maturity to $144,990,000, which may be issued under an indenture (herein called
the "Indenture") dated as of April 29, 1998, by and between the Company and
Norwest Bank Minnesota, N.A., as trustee (herein called the "Trustee," which
term includes any successor Trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Notes, and of the
terms upon which the Notes are, and are to be, authenticated and delivered. The
Notes include the Initial Notes, the Private Exchange Notes and the Unrestricted
Notes (including the Exchange Notes referred to below), issued in exchange for
the Initial Notes pursuant to the Registration Rights Agreement. The Initial
Notes and the Unrestricted Notes are treated as a single class of securities
under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
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
"TIA"), as in effect on the date of the Indenture. Notwithstanding anything to
the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Optional Redemption. Except as set forth in the following
paragraph, the Notes will not be redeemable at the option of the Company
prior to May 1, 2002. Thereafter, the Notes will be redeemable, at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class
mail to each Holder's registered address, at the following redemption prices
(expressed in percentages of principal amount at maturity), plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date), if redeemed during the 12-month period commencing on May 1 of the
years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Redemption Price
- ------ ----------------
<S> <C>
2002.................... 106.375%
2003.................... 103.188%
2004 and thereafter..... 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 1, 2001,
the Company may redeem in the aggregate up to 35% of the Accreted Value of the
Notes with the proceeds of one or more Public Equity Offerings following which
there is a Public Market, at a redemption price of 112.750% of the Accreted
Value; provided, however, that at least $94.2 million aggregate principal amount
at maturity of the Notes must remain outstanding after each such redemption.
A-1-5
<PAGE> 74
-6-
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in principal amount at maturity or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating 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.
3. Registration Rights. Pursuant to the Registration Rights
Agreement by and among the Company and the Initial Purchasers, the Company will
be obligated to consummate an exchange offer pursuant to which the Holder of
this Note shall have the right to exchange this Note for 12 3/4% Senior Discount
Notes due 2005, Series B, of the Company (herein called the "Exchange Notes"),
which have been registered under the Securities Act, in like principal amount
and having identical terms as the Notes (other than as set forth in this
paragraph). The Holders of Notes shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
4. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to certain conditions and limitations contained
therein, the Company shall make an offer to purchase all or a portion of the
Notes in accordance with the procedures set forth in the Indenture.
5. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
6. Defeasance. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
7. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority of Accreted Value of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages of Accreted Value of the Notes at the time Outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of this Indenture and certain past Defaults under the
Indenture and this Note and their consequences. Any such consent or waiver by or
on behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
8. Denominations, Transfer and Exchange. The Notes are issuable only
in registered form without coupons in denominations of $1,000 principal amount
at maturity and any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, the Notes are exchangeable for
a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
A-1-6
<PAGE> 75
-7-
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note Register
of the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in the Borough of
Manhattan in The City of New York, State of New York, or at such other office or
agency of the Company as may be maintained for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
9. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
10. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of this Indenture. Requests may be made to:
SPINCYCLE, INC., 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale,
Arizona 85260.
A-1-7
<PAGE> 76
-8-
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's social security or tax ID number)____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
________________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Note (or any Predecessor Note) or the last date on which the Company or
any Affiliate of the Company was the owner of this Note (or any Predecessor
Note), the undersigned confirms that it has not utilized any general
solicitation or general advertising in connection with the transfer and that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act provided by
Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Note in the name of
any person other than the Holder hereof unless and until the conditions to any
such transfer of registration set forth herein and in Section 3.16 and Section
3.17 of this Indenture shall have been satisfied.
A-1-8
<PAGE> 77
-9-
Date:______________ Your signature:_____________________________
(Sign exactly as your name appears on the other
side of this Note)
By:______________________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:_______________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:______________ _________________________________
NOTICE: To be executed by
an executive officer
A-1-9
<PAGE> 78
-10-
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of the Indenture, check the appropriate box:
Section 10.10 [ ]
Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of the Indenture, state the amount:
$___________________________________________________________________
________________________________________________________________________________
Date: ______________ Your signature:______________________________________
(Sign exactly as your name appears on
the other side of this Note)
By:___________________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee: ____________________________________
A-1-10
<PAGE> 79
-1-
EXHIBIT A-2
SPINCYCLE, INC.
-----------------
12-3/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES B
CUSIP No. __________
No. ________________ $
SPINCYCLE, INC., a corporation incorporated under the laws of the
State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on May 1, 2005, at the office or agency
of the Company referred to below. The Notes are unsecured senior obligations of
the Company, limited to $144,990,000 aggregate principal amount at maturity, and
will mature on May 1, 2005. Except as described below under "Registration
Rights", no cash interest will accrue on the Notes prior to May 1, 2001,
although for U.S. federal income tax purposes a significant amount of original
issue discount, taxable as ordinary income, will be recognized by a Holder as
such discount accrues from the issue date of the Notes through May 1, 2005. Cash
interest will accrue on the Notes at the rate per annum shown above from May 1,
2001, or from the most recent date to which interest has been paid or provided
for, payable semi-annually to Holders of record at the close of business on the
April 15 or October 15 immediately preceding the interest payment date on May 1
and November 1 of each year, commencing November 1, 2001 (each, an "Interest
Payment Date"). The Company will pay interest on overdue principal at 1% per
annum in excess of such rate, and it will pay interest on overdue installments
of cash interest at such higher rate to the extent lawful. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture referred to on
the reverse hereof, be paid to the person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on April 15 and
October 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record 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.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, 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; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register. Reference is hereby made to the further provisions
of this Note set forth on the reverse hereof.
A-2-1
<PAGE> 80
-2-
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
A-2-2
<PAGE> 81
-3-
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
Dated: SPINCYCLE, INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12-3/4% Senior Discount Notes due 2005, Series B,
referred to in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, N.A., as Trustee
By:________________________________________
Authorized Signature
A-2-3
<PAGE> 82
-4-
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of Notes
of the Company designated as its 12-3/4% Senior Discount Notes due 2005, Series
B (herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
amount at maturity to $144,990,000, which may be issued under an indenture
(herein called the "Indenture") dated as of April 29, 1998, by and between the
Company and Norwest Bank Minnesota, N.A., as trustee (herein called the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered. The Notes include the Initial Notes, the Private
Exchange Notes and the Unrestricted Notes (including the Exchange Notes referred
to below), issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes and the Unrestricted Notes are treated as a
single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
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 "TIA"), as in effect on the date of the Indenture. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Optional Redemption. Except as set forth in the following
paragraph, the Notes will not be redeemable at the option of the Company prior
to May 1, 2002. Thereafter, the Notes will be redeemable, at the Company's
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount at maturity), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on May 1 of the years set forth
below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ -----
<S> <C>
2002............................... 106.375%
2003............................... 103.188%
2004 and thereafter................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 1, 2001,
the Company may redeem in the aggregate up to 35% of the Accreted Value of the
Notes with the proceeds of one or more Public Equity Offerings following which
there is a Public Market, at a redemption price of 112.750% of the Accreted
Value; provided, however, that at least $94.2 million aggregate principal amount
at maturity of the Notes must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair
A-2-4
<PAGE> 83
-5-
and appropriate, although no Note of $1,000 in principal amount at maturity or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating 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.
3. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to certain conditions and limitations contained
therein, the Company shall make an offer to purchase all or a portion of the
Notes in accordance with the procedures set forth in the Indenture.
4. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
5. Defeasance. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
6. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority of Accreted Value of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages of Accreted Value of the Notes at the time Outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of this Indenture and certain past Defaults under the
Indenture and this Note and their consequences. Any such consent or waiver by or
on behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
7. Denominations, Transfer and Exchange. The Notes are issuable only
in registered form without coupons in denominations of $1,000 principal amount
at maturity and any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, the Notes are exchangeable for
a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note Register
of the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in the Borough of
Manhattan in The City of New York, State of New York, or at such other office or
agency of the Company as may be maintained for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
A-2-5
<PAGE> 84
-6-
8. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of this Indenture. Requests may be made to:
SPINCYCLE, INC., 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale,
Arizona 85260.
A-2-6
<PAGE> 85
-7-
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax ID number)____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
________________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date: ______________ Your signature:____________________________
(Sign exactly as your name appears
on the other side of this Note)
By:_________________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________________________
A-2-7
<PAGE> 86
-8-
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of the Indenture, check the appropriate box:
Section 10.10 [ ]
Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of the Indenture, state the amount:
$__________________________________________________________________
________________________________________________________________________________
Date:_____________________ Your signature:________________________________
(Sign exactly as your name
appears on the other side of
this Note)
By:______________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:_________________________________________
A-2-8
<PAGE> 87
-1-
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Note authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Note) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR
ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND
NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE 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) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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.
B-1
<PAGE> 88
-2-
EXHIBIT C
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
Norwest Bank Minnesota, N.A.
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Department
Re: SPINCYCLE, INC.
(the "Company") 12 3/4% Senior Discount
Notes due 2005 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $ aggregate principal
amount at maturity of the Securities, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States, or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf knows that the transaction has been pre-arranged with a buyer in the
United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903 or Rule 904 of Regulation S, as
applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities;
(6) if the circumstances set forth in Rule 904(B) under the
Securities Act are applicable, we have complied with the additional conditions
therein, including (if applicable) sending a confirmation or other notice
stating that the Securities may be offered and sold during the distribution
compliance period specified in Rule 903 of Regulation S; pursuant to
registration of the Securities under the Securities Act; or pursuant to an
available exemption from the registration requirements under the Securities Act;
and
(7) if the sale is made during a distribution compliance period and
the provisions of Rule 903 are applicable thereto, we confirm that such sale has
been made in accordance with such provisions.
C-2
<PAGE> 89
-3-
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________________
Authorized Signature
C-3
<PAGE> 1
-1-
EXHIBIT 4.2
SPINCYCLE, INC.
-----------------
12-3/4% SENIOR DISCOUNT NOTES DUE 2005, SERIES B
CUSIP No. __________
No. ________________ $
SPINCYCLE, INC., a corporation incorporated under the laws of the
State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on May 1, 2005, at the office or agency
of the Company referred to below. The Notes are unsecured senior obligations of
the Company, limited to $144,990,000 aggregate principal amount at maturity, and
will mature on May 1, 2005. Except as described below under "Registration
Rights", no cash interest will accrue on the Notes prior to May 1, 2001,
although for U.S. federal income tax purposes a significant amount of original
issue discount, taxable as ordinary income, will be recognized by a Holder as
such discount accrues from the issue date of the Notes through May 1, 2005. Cash
interest will accrue on the Notes at the rate per annum shown above from May 1,
2001, or from the most recent date to which interest has been paid or provided
for, payable semi-annually to Holders of record at the close of business on the
April 15 or October 15 immediately preceding the interest payment date on May 1
and November 1 of each year, commencing November 1, 2001 (each, an "Interest
Payment Date"). The Company will pay interest on overdue principal at 1% per
annum in excess of such rate, and it will pay interest on overdue installments
of cash interest at such higher rate to the extent lawful. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture referred to on
the reverse hereof, be paid to the person in whose name this Note (or one or
more Predecessor Notes) is registered at the close of business on April 15 and
October 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record 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.
Payment of the principal of, premium, if any, and interest on this
Note will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, 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; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Note Register. Reference is hereby made to the further provisions
of this Note set forth on the reverse hereof.
1
<PAGE> 2
-2-
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
2
<PAGE> 3
-3-
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
Dated: SPINCYCLE, INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12-3/4% Senior Discount Notes due 2005, Series B,
referred to in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, N.A., as Trustee
By:________________________________________
Authorized Signature
3
<PAGE> 4
-4-
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of Notes
of the Company designated as its 12-3/4% Senior Discount Notes due 2005, Series
B (herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
amount at maturity to $144,990,000, which may be issued under an indenture
(herein called the "Indenture") dated as of April 29, 1998, by and between the
Company and Norwest Bank Minnesota, N.A., as trustee (herein called the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered. The Notes include the Initial Notes, the Private
Exchange Notes and the Unrestricted Notes (including the Exchange Notes referred
to below), issued in exchange for the Initial Notes pursuant to the Registration
Rights Agreement. The Initial Notes and the Unrestricted Notes are treated as a
single class of securities under the Indenture.
All capitalized terms used in this Note which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
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 "TIA"), as in effect on the date of the Indenture. Notwithstanding anything
to the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this Note
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, premium, if any, and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
2. Optional Redemption. Except as set forth in the following
paragraph, the Notes will not be redeemable at the option of the Company prior
to May 1, 2002. Thereafter, the Notes will be redeemable, at the Company's
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount at maturity), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on May 1 of the years set forth
below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ -----
<S> <C>
2002............................... 106.375%
2003............................... 103.188%
2004 and thereafter................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 1, 2001,
the Company may redeem in the aggregate up to 35% of the Accreted Value of the
Notes with the proceeds of one or more Public Equity Offerings following which
there is a Public Market, at a redemption price of 112.750% of the Accreted
Value; provided, however, that at least $94.2 million aggregate principal amount
at maturity of the Notes must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair
4
<PAGE> 5
-5-
and appropriate, although no Note of $1,000 in principal amount at maturity or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating 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.
3. Offers to Purchase. Sections 10.10 and 10.15 of the Indenture
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to certain conditions and limitations contained
therein, the Company shall make an offer to purchase all or a portion of the
Notes in accordance with the procedures set forth in the Indenture.
4. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Notes, plus all accrued and
unpaid interest, if any, to and including the date the Notes are paid, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
5. Defeasance. The Indenture contains provisions (which provisions
apply to this Note) for defeasance at any time of (a) the entire indebtedness of
the Company on this Note and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
6. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority of Accreted Value of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages of Accreted Value of the Notes at the time Outstanding, on
behalf of the Holders of all the Notes, to waive compliance by the Company with
certain provisions of this Indenture and certain past Defaults under the
Indenture and this Note and their consequences. Any such consent or waiver by or
on behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
7. Denominations, Transfer and Exchange. The Notes are issuable only
in registered form without coupons in denominations of $1,000 principal amount
at maturity and any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, the Notes are exchangeable for
a like aggregate principal amount of Notes of a different authorized
denomination, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note Register
of the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in the Borough of
Manhattan in The City of New York, State of New York, or at such other office or
agency of the Company as may be maintained for such purpose, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Notes, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
5
<PAGE> 6
-6-
8. Persons Deemed Owners. Prior to and at the time of due
presentment of this Note for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of this Indenture. Requests may be made to:
SPINCYCLE, INC., 15990 North Greenway/Hayden Loop, Suite 400, Scottsdale,
Arizona 85260.
6
<PAGE> 7
-7-
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax ID number)____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
________________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for such agent.
Date: ______________ Your signature:____________________________
(Sign exactly as your name appears
on the other side of this Note)
By:_________________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________________________
7
<PAGE> 8
-8-
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 10.10 or 10.15 of the Indenture, check the appropriate box:
Section 10.10 [ ]
Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 10.10 or 10.15 of the Indenture, state the amount:
$__________________________________________________________________
________________________________________________________________________________
Date:_____________________ Your signature:________________________________
(Sign exactly as your name
appears on the other side of
this Note)
By:______________________________
NOTICE: To be executed
by an executive officer
Signature Guarantee:_________________________________________
8
<PAGE> 1
Exhibit 4.3
SPINCYCLE, INC.
$144,990,000
aggregate principal amount at maturity
12 3/4% Senior Discount Notes Due 2005
REGISTRATION RIGHTS AGREEMENT
April 29, 1998
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
Ladies and Gentlemen:
SpinCycle, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated in a purchase agreement
dated as of April 24, 1998 (the "Purchase Agreement"), to issue and sell to
Credit Suisse First Boston Corporation (the "Initial Purchaser"), 144,990 Units,
each consisting of 12 3/4% Senior Discount Notes Due 2005 with a principal
amount at maturity of $1,000 (collectively the "Notes") and one warrant
(collectively, the "Warrants") to purchase .1839 shares of the common stock, par
value $.01 per share, of the Company ("Common Stock"). The Notes are being
issued pursuant to an indenture dated as of April 29, 1998 (the "Indenture"),
between the Company and Norwest Bank Minnesota, N.A., as trustee (the
"Trustee"). As an inducement to the Initial Purchaser, the Company hereby agrees
with the Initial Purchaser, for the benefit of the holders of the Notes
(including, without limitation, the Initial Purchaser), the Exchange Notes (as
defined below) and the Private Exchange Notes (as defined below) (collectively,
the "Holders"), as follows:
1. Registered Exchange Offer. The Company shall, at its own
cost, prepare and, not later than 60 days after (or if the 60th day is not a
business day, the first business day thereafter) the date of original issue of
the Notes (the "Issue Date"), file with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Exchange Offer Registration
Statement") on an appropriate form under the Securities Act of 1933, as amended
(the "Securities Act"),with respect to a proposed offer (the "Registered
Exchange Offer") to the Holders of Transfer Restricted Securities (as defined in
Section 6 hereof), who are not prohibited by any law or policy of the Commission
from participating in the Registered Exchange Offer, to issue and deliver to
such Holders, in exchange for the Notes, a like aggregate principal amount of
debt securities (the "Exchange Securities") of the Company issued under the
Indenture and identical in all material respects to the Notes (except for the
transfer restrictions relating to the Notes and the provisions relating to the
matters described in Section 6 hereof) that would be registered under the
Securities Act. The Company shall use its best efforts to cause such Exchange
Offer Registration Statement to become effective under the Securities Act within
150 days (or if the 150th day is not a business day, the first business day
thereafter) after the Issue Date of the Notes and shall keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date notice of the Registered Exchange
Offer is mailed to the Holders (such period being called the "Exchange Offer
Registration Period").
If the Company effects the Registered Exchange Offer, the
Company will be entitled to close the Registered Exchange Offer 30 days after
the commencement thereof; provided, however, that the Company
<PAGE> 2
-2-
has accepted all the Notes theretofore validly tendered in accordance with the
terms of the Registered Exchange Offer.
Following the declaration of the effectiveness of the Exchange
Offer Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder of Transfer Restricted Notes electing to exchange the Notes
for Exchange Notes (assuming that such Holder is not an affiliate of the Company
within the meaning of the Securities Act, acquires the Exchange Notes in the
ordinary course of such Holder's business, has no arrangements with any person
to participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes and has no arrangements with any person to participate in the
distribution of the Exchange Notes and is not prohibited by any law or policy of
the Commission from participating in the Registered Exchange Offer) to trade
such Exchange Notes from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States.
The Company acknowledges that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act, in
the absence of an applicable exemption therefrom, (i) each Holder that is a
broker-dealer electing to exchange Notes, acquired for its own account as a
result of market making activities or other trading activities, for Exchange
Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing
the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto
in the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of
such prospectus in connection with a sale of any such Exchange Notes received by
such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) if the
Initial Purchaser elects to sell Exchange Notes acquired in exchange for Notes
constituting any portion of an unsold allotment it is required to deliver a
prospectus containing the information required by Items 507 or 508 of Regulation
S-K under the Securities Act, as applicable, in connection with such sale.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Notes; provided, however, that (i)
in the case where such prospectus and any amendment or supplement thereto must
be delivered by an Exchanging Dealer or the Initial Purchaser, such period shall
be the lesser of 180 days after the expiration date of the Registered Exchange
Offer and the date on which all Exchanging Dealers and the Initial Purchaser
have sold all Exchange Notes held by them (unless such period is extended
pursuant to Section 3(j) below), and (ii) the Company shall make such prospectus
and any amendment or supplement thereto available to any broker-dealer for use
in connection with any resale of any Exchange Notes for a period not less than
90 days after the consummation of the Registered Exchange Offer.
If, upon consummation of the Registered Exchange Offer, the
Initial Purchaser holds Notes acquired by it as part of its initial
distribution, the Company, simultaneously with the delivery of the Exchange
Notes pursuant to the Registered Exchange Offer, shall issue and deliver to the
Initial Purchaser upon the written request of the Initial Purchaser, in exchange
(the "Private Exchange") for the Notes held by the Initial Purchaser, a like
principal amount of debt securities of the Company issued under the Indenture
and identical in all material respects to the Notes (including the existence of
restrictions on transfer under the Securities Act and the securities laws of the
several states of the United States but excluding provisions relating to matters
described in Section 6 hereof) to the Notes (the "Private Exchange Notes"). The
Notes, the Exchange Notes and the Private Exchange Notes are herein collectively
called the "Securities".
<PAGE> 3
-3-
In connection with the Registered Exchange Offer, the Company
shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than
30 days (or longer, if required by applicable law) after the date
notice thereof is mailed to the Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York, which may be the Trustee or an affiliate of the Trustee;
(d) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business day
on which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all material respects with all
applicable law.
As soon as practicable after the close of the Registered
Exchange Offer or the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer or the Private
Exchange, as the case may be;
(ii) deliver to the Trustee for cancellation all the Notes so
accepted for exchange; and
(iii) cause the Trustee to authenticate and promptly deliver to each
Holder of the Notes, Exchange Notes or Private Exchange Notes, as the
case may be, equal in principal amount to the Notes of each Holder so
accepted for exchange.
The Indenture provides that the Exchange Notes will not be
subject to the transfer restrictions set forth in the Indenture and that none of
the Securities will have the right to vote or consent as a class separate from
one another on any matter.
Interest on each Exchange Note and Private Exchange Note
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the date of original issue of the Notes.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Notes received by
such Holder will be acquired in the ordinary course of business, (ii) such
Holder will have no arrangements or understanding with any person to participate
in the distribution of the Notes or the Exchange Notes within the meaning of the
Securities Act, (iii) such Holder is not an "affiliate", as defined in Rule 405
of the Securities Act, of the Company or, if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes, and (v) if such Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Notes
<PAGE> 4
-4-
that were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes.
Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto will
comply in all material respects with the Securities Act and the rules and
regulations thereunder, (ii) any Exchange Offer Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2. Shelf Registration. If, (i) because of any change in law or
in applicable interpretations thereof by the staff of the Commission, the
Company is not permitted to effect a Registered Exchange Offer, as contemplated
by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated
within 180 days of the Issue Date, (iii) any Initial Purchaser so requests with
respect to the Notes (or the Private Exchange Notes) not eligible to be
exchanged for Exchange Notes in the Registered Exchange Offer and held by it
following consummation of the Registered Exchange Offer or (iv) any Holder
(other than an Exchanging Dealer) is not eligible to participate in the
Registered Exchange Offer or, in the case of any Holder (other than an
Exchanging Dealer) that participates in the Registered Exchange Offer, such
Holder does not receive freely tradeable Exchange Notes on the date of the
exchange, the Company shall take the following actions:
(a) The Company shall, at its cost, as promptly as practicable
(but in no event more than 30 days after so required or requested
pursuant to this Section 2) file with the Commission and thereafter
shall use its best efforts to cause to be declared effective a
registration statement (the "Shelf Registration Statement" and,
together with the Exchange Offer Registration Statement, a
"Registration Statement") on an appropriate form under the Securities
Act relating to the offer and sale of the Transfer Restricted Notes by
the Holders thereof from time to time in accordance with the methods of
distribution set forth in the Shelf Registration Statement and Rule 415
under the Securities Act (hereinafter, the "Shelf Registration");
provided, however, that no Holder (other than an Initial Purchaser)
shall be entitled to have the Securities held by it covered by such
Shelf Registration Statement unless such Holder agrees in writing to be
bound by all the provisions of this Agreement applicable to such
Holder.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
prospectus included therein to be lawfully delivered by the Holders of
the relevant Securities, for a period of two years (or for such longer
period if extended pursuant to Section 3(j) below) from the date of its
effectiveness or such shorter period that will terminate when all the
Securities covered by the Shelf Registration Statement (i) have been
sold pursuant thereto or (ii) are no longer restricted securities (as
defined in Rule 144 under the Securities Act, or any successor rule
thereof). The Company shall be deemed not to have used its best efforts
to keep the Shelf Registration Statement effective during the requisite
period if it voluntarily takes any action that would result in Holders
of Securities covered thereby not being able to offer and sell such
Securities during that period, unless such action is required by
applicable law.
(c) Notwithstanding any other provisions of this Agreement to
the contrary, the Company shall cause the Shelf Registration Statement
and the related prospectus and any amendment or supple-
<PAGE> 5
-5-
ment thereto, as of the effective date of the Shelf Registration
Statement, amendment or supplement, (i) to comply in all material
respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission and (ii) not to contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
3. Registration Procedures. In connection with any Shelf
Registration contemplated by Section 2 hereof and, to the extent applicable, any
Registered Exchange Offer contemplated by Section 1 hereof, the following
provisions shall apply:
(a) The Company shall (i) furnish to the Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and, in the event that the
Initial Purchaser (with respect to any portion of an unsold allotment
from the original offering) is participating in the Registered Exchange
Offer or the Shelf Registration Statement, shall use its best efforts
to reflect in each such document, when so filed with the Commission,
such comments as the Initial Purchaser reasonably may propose; (ii)
include the information set forth in Annex A hereto on the cover, in
Annex B hereto in the "Exchange Offer Procedures" section and the
"Purpose of the Exchange Offer" section and in Annex C hereto in the
"Plan of Distribution" section of the prospectus forming a part of the
Exchange Offer Registration Statement and include the information set
forth in Annex D hereto in the Letter of Transmittal delivered pursuant
to the Registered Exchange Offer; (iii) if requested by the Initial
Purchaser, include the information required by Items 507 or 508 of
Regulation S-K under the Securities Act, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement;
(iv) include within the prospectus contained in the Exchange Offer
Registration Statement a section entitled "Plan of Distribution",
reasonably acceptable to the Initial Purchaser, which shall contain a
summary statement of the positions taken or policies made by the staff
of the Commission with respect to the potential "underwriter" status of
any broker-dealer that is the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of Exchange Notes received by such broker-dealer in
the Registered Exchange Offer (a "Participating Broker-Dealer"),
whether such positions or policies have been publicly disseminated by
the staff of the Commission or such positions or policies, in the
reasonable judgment of the Initial Purchaser based upon advice of
counsel (which may be in-house counsel), represent the prevailing views
of the staff of the Commission; and (v) in the case of a Shelf
Registration Statement, include the names of the Holders who propose to
sell Securities pursuant to the Shelf Registration Statement as selling
securityholders.
(b) The Company shall give written notice to the Initial
Purchaser, the Holders of the Securities and any Participating
Broker-Dealer from whom the Company has received prior written notice
that it will be a Participating Broker-Dealer in the Registered
Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall
be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made):
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus
included therein or for additional information;
<PAGE> 6
-6-
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company or its legal counsel of
any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such
purpose; and
(v) of the happening of any event that requires the Company
to make changes in the Registration Statement or the
prospectus in order that the Registration Statement or the
prospectus does not contain an untrue statement of a material
fact nor omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
(c) The Company shall make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending
the effectiveness of the Registration Statement.
(d) The Company shall furnish to each Holder of Securities
included within the coverage of the Shelf Registration, without charge,
at least one copy of the Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, and, if the Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference).
(e) The Company shall deliver to each Exchanging Dealer and
the Initial Purchaser, and to any other Holder who so requests, without
charge, at least one copy of the Exchange Offer Registration Statement
and any post-effective amendment thereto, including financial
statements and schedules, and, if the Initial Purchaser or any such
Holder requests, all exhibits thereto (including those incorporated by
reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of
the Shelf Registration, without charge, as many copies of the
prospectus (including each preliminary prospectus) included in the
Shelf Registration Statement and any amendment or supplement thereto as
such person may reasonably request. The Company consents, subject to
the provisions of this Agreement, to the use of the prospectus or any
amendment or supplement thereto included in the Shelf Registration
Statement by each of the selling Holders of the Securities in
connection with the offering and sale of the Securities covered by such
prospectus, or any such amendment supplement.
(g) The Company shall deliver to the Initial Purchaser, any
Exchanging Dealer, any Participating Broker-Dealer and such other
persons required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any amendment
or supplement thereto as such persons may reasonably request. The
Company consents, subject to the provisions of this Agreement, to the
use of the prospectus or any amendment or supplement thereto by the
Initial Purchaser, if necessary, any Participating Broker-Dealer and
such other persons required to deliver a prospectus following the
Registered Exchange Offer in connection with the offering and sale of
the Exchange Notes covered by the prospectus, or any amendment or
supplement thereto, included in such Exchange Offer Registration
Statement.
(h) Prior to any public offering of the Securities, pursuant
to any Registration Statement, the Company shall register or qualify or
cooperate with the Holders of the Securities included therein
<PAGE> 7
-7-
and their respective counsel in connection with the registration or
qualification of the Securities for offer and sale under the securities
or "blue sky" laws of such states of the United States as any Holder of
the Securities reasonably requests in writing and do any and all other
acts or things necessary or advisable to enable the offer and sale in
such jurisdictions of the Securities covered by such Registration
Statement; provided, however, that the Company shall not be required to
(i) qualify generally to do business in any jurisdiction where it is
not then so qualified or (ii) take any action which would subject it to
general service of process or to taxation in any jurisdiction where it
is not then so subject.
(i) The Company shall cooperate with the Holders of the
Securities to facilitate the timely preparation and delivery of
certificates representing the Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders may request a
reasonable period of time prior to sales of the Securities pursuant to
such Registration Statement.
(j) Upon the occurrence of any event contemplated by
paragraphs (ii) through (v) of Section 3(b) above during the period for
which the Company is required to maintain an effective Registration
Statement, the Company shall promptly prepare and file a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus and any other required document so that, as thereafter
delivered to Holders of the Notes or purchasers of Securities, the
prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. If the Company notifies the
Initial Purchaser, the Holders of the Securities and any known
Participating Broker-Dealer in accordance with paragraphs (ii) through
(v) of Section 3(b) above to suspend the use of the prospectus until
the requisite changes to the prospectus have been made, then the
Initial Purchaser, the Holders of the Securities and any such
Participating Broker-Dealers shall suspend use of such prospectus, and
the period of effectiveness of the Shelf Registration Statement
provided for in Section 2(b) above and the Exchange Offer Registration
Statement provided for in Section 1 above shall each be extended (i) by
the number of days from and including the date of the giving of such
notice to and including the date when the Initial Purchaser, the
Holders of the Securities and any known Participating Broker-Dealer
shall have received such amended or supplemented prospectus pursuant to
this Section 3(j) or (ii) if earlier, until the date when none of the
Securities represent Transfer Restricted Notes (as defined in Section
6(d)).
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for the
Notes, the Exchange Notes or the Private Exchange Notes, as the case
may be, and provide the applicable trustee with printed certificates
for the Notes, the Exchange Notes or the Private Exchange Notes, as the
case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Company will comply with all rules and regulations of
the Commission to the extent and so long as they are applicable to the
Registered Exchange Offer or the Shelf Registration and will make
generally available to its security holders (or otherwise provide in
accordance with Section 11(a) of the Securities Act) an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of a 12- month period (or 90
days, if such period is a fiscal year) beginning with the first month
of the Company's first fiscal quarter commencing after the effective
date of the Registration Statement, which statement shall cover such
12-month period.
<PAGE> 8
-8-
(m) The Company shall cause the Indenture to be qualified
under the Trust Indenture Act of 1939, as amended, in a timely manner
and containing such changes, if any, as shall be necessary for such
qualification. In the event that such qualification would require the
appointment of a new trustee under the Indenture, the Company shall
appoint a new trustee thereunder pursuant to the applicable provisions
of the Indenture.
(n) The Company may require each Holder of Securities to be
sold pursuant to the Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the distribution of
the Securities as the Company may from time to time reasonably require
for inclusion in the Shelf Registration Statement, and the Company may
exclude from such registration the Securities of any Holder that
unreasonably fails to furnish such information within a reasonable time
after receiving such request.
(o) The Company shall enter into such customary agreements
(including if requested an underwriting agreement in customary form)
and take all such other action, if any, as any Holder of the Securities
shall reasonably request in order to facilitate the disposition of the
Securities pursuant to any Shelf Registration.
(p) In the case of any Shelf Registration, the Company shall
(i) make reasonably available for inspection by the Holders of the
Securities, any underwriter participating in any disposition pursuant
to the Shelf Registration Statement and any attorney, accountant or
other agent retained by the Holders of the Securities or any such
underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and (ii) cause the
Company's officers, directors, employees, accountants and auditors to
supply all relevant information reasonably requested by the Holders of
the Securities or any such underwriter, attorney, accountant or agent
in connection with the Shelf Registration Statement, in each case, as
shall be reasonably necessary to enable such persons to conduct a
reasonable investigation within the meaning of Section 11 of the
Securities Act; provided, however, that the foregoing inspection and
information gathering shall be coordinated on behalf of the Initial
Purchaser by you and on behalf of the other parties by one counsel
designated by and on behalf of such other parties as described in
Section 4 hereof.
(q) In the case of any Shelf Registration, the Company, if
requested by any Holder of Securities covered thereby, shall cause (i)
its counsel to deliver an opinion and updates thereof relating to the
Securities in customary form addressed to such Holders and the managing
underwriters, if any, thereof and dated, in the case of the initial
opinion, the effective date of such Shelf Registration Statement (it
being agreed that the matters to be covered by such opinion shall
include, without limitation, the due incorporation and good standing of
the Company and its subsidiaries; the qualification of the Company and
its subsidiaries to transact business as foreign corporations; the due
authorization, execution and delivery of the relevant agreement of the
type referred to in Section 3(o) hereof; the due authorization,
execution, authentication and issuance, and the validity and
enforceability, of the applicable Securities; the absence of material
legal or governmental proceedings involving the Company and its
subsidiaries; the absence of governmental approvals required to be
obtained in connection with the Shelf Registration Statement, the
offering and sale of the applicable Securities, or any agreement of the
type referred to in Section 3(o) hereof; the compliance as to form of
such Shelf Registration Statement and any documents incorporated by
reference therein and of the Indenture with the requirements of the
Securities Act and the Trust Indenture Act, respectively; and, as of
the date of the opinion and as of the effective date of the Shelf
Registration Statement or most recent post-effective amendment thereto,
as the case may be, the absence from such Shelf Registration Statement
and the prospectus included
<PAGE> 9
-9-
therein, as then amended or supplemented, and from any documents
incorporated by reference therein of an untrue statement of a material
fact or the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading (in the case of any such documents, in the light of the
circumstances existing at the time that such documents were filed with
the Commission under the Exchange Act); (ii) its officers to execute
and deliver all customary documents and certificates and updates
thereof reasonably requested by any underwriters of the applicable
Securities; and (iii) its independent public accountants to provide to
the selling Holders of the applicable Securities and any underwriter
therefor a comfort letter in customary form and covering matters of the
type customarily covered in comfort letters in connection with primary
underwritten offerings, subject to receipt of appropriate documentation
as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
(r) In the case of the Registered Exchange Offer, if requested
by the Initial Purchaser or any known Participating Broker-Dealer, the
Company shall cause (i) its counsel to deliver to the Initial Purchaser
or such Participating Broker-Dealer a signed opinion in the form set
forth in Section 6(c) of the Purchase Agreement with such changes as
are customary in connection with the preparation of a Registration
Statement and (ii) its independent public accountants to deliver to the
Initial Purchaser or such Participating Broker-Dealer a comfort letter,
in customary form, meeting the requirements as to the substance thereof
as set forth in Section 6(a) of the Purchase Agreement, with
appropriate date changes.
(s) If a Registered Exchange Offer or a Private Exchange is to
be consummated, upon delivery of the Notes by Holders to the Company
(or to such other Person as directed by the Company) in exchange for
the Exchange Notes or the Private Exchange Notes, as the case may be,
the Company shall mark, or cause to be marked, on the Notes so
exchanged that such Notes are being cancelled in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be; in no
event shall the Notes be marked as paid or otherwise satisfied.
(t) The Company will use its best efforts to (a) if the Notes
have been rated prior to the initial sale of such Notes, confirm such
ratings will apply to the Securities covered by a Registration
Statement, or (b) if the Notes were not previously rated, cause the
Securities covered by a Registration Statement to be rated with the
appropriate rating agencies, if so requested by Holders of a majority
in aggregate principal amount of Securities covered by such
Registration Statement, or by the managing underwriters, if any.
(u) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Securities or participate as a member
of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Conduct Rules (the "Rules") of
the National Association of Securities Dealers, Inc. ("NASD")) thereof,
whether as a Holder of such Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Company shall assist such broker-dealer in complying
with the requirements of such Rules, including Rule 2720, shall so
require, engaging a "qualified independent underwriter" (as defined in
Rule 2720) to participate in the preparation of the Registration
Statement relating to such Securities, to exercise usual standards of
due diligence in respect thereto and, if any portion of the offering
contemplated by such Registration Statement is an underwritten offering
or is made through a placement or sales agent, to recommend the yield
of such Securities, (ii) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters
provided in Section 5 hereof and (iii) providing such information to
<PAGE> 10
-10-
such broker-dealer as may be required in order for such broker-dealer
to comply with the requirements of the Rules.
(v) The Company shall use its reasonable best efforts to take
all other steps necessary to effect the registration of the Securities
covered by a Registration Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and
expenses incurred in connection with the performance of its obligations under
Sections 1 through 3 hereof (including the reasonable fees and expenses, if any,
of Cahill Gordon & Reindel, counsel for the Initial Purchaser, incurred in
connection with the Registered Exchange Offer), whether or not the Registered
Exchange Offer or a Shelf Registration is filed or becomes effective, and, in
the event of a Shelf Registration, shall bear, or reimburse the Holders of the
Securities covered thereby for, the reasonable fees and disbursements of one
firm of counsel designated by the Holders of a majority in principal amount of
the Securities covered thereby to act as counsel for the Holders of the
Securities in connection therewith.
5. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Holder of the Securities, any Participating Broker-Dealer and
each person, if any, who controls such Holder or such Participating
Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each
Holder, any Participating Broker-Dealer and such controlling persons being
referred to collectively as the "Indemnified Parties") from and against any
losses, claims, damages or liabilities, joint or several, or any actions in
respect thereof (including, but not limited to, any losses, claims, damages,
liabilities or actions relating to purchases and sales of the Securities) to
which each Indemnified Party may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement or prospectus
or in any amendment or supplement thereto or in any preliminary prospectus
relating to a Shelf Registration, or arise out of, or are based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and shall reimburse,
as incurred, the Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action in respect thereof; provided, however, that
(i) the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in a
Registration Statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a Shelf Registration in reliance
upon and in conformity with written information pertaining to such Holder and
furnished to the Company by or on behalf of such Holder specifically for
inclusion therein, (ii) with respect to any untrue statement or omission or
alleged untrue statement or omission made in any prospectus relating to the
registration statement, the indemnity agreement contained in this subsection (a)
shall not inure to the benefit of any Holder or Participating Broker-Dealer from
whom the person asserting any such losses, claims, damages or liabilities
purchased the Securities concerned, to the extent that a prospectus relating to
such Securities was required to be delivered by such Holder or Participating
Broker-Dealer under the Securities Act in connection with such purchase and any
such loss, claim, damage or liability of such Holder or Participating
Broker-Dealer results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Securities
to such person, a copy of the final prospectus if the Company had previously
furnished copies thereof to such Holder or Participating Broker-Dealer; provided
further, however, that this indemnity agreement will be in addition to any
liability which the Company may otherwise have to such Indemnified Party. The
Company shall also indemnify underwriters, their officers and directors and each
person who controls such persons within the meaning of the Securities Act or the
Exchange Act to the same extent as provided above with respect to the
indemnification of the Holders of the Securities if requested by such Holders.
<PAGE> 11
-11-
(b) Each Holder of the Securities, severally and not jointly,
will indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act from and against any losses, claims, damages or liabilities or any actions
in respect thereof to which the Company or any such controlling person may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement or prospectus or in any amendment or
supplement thereto or in any preliminary prospectus relating to a Shelf
Registration, or arise out of or are based upon the omission or alleged omission
to state therein a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, but in
each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein;
and, subject to the limitation set forth immediately preceding this clause,
shall reimburse, as incurred, the Company for any legal or other expenses
reasonably incurred by the Company or any such controlling person in connection
with investigating or defending any loss, claim, damage, liability or action in
respect thereof. This indemnity agreement will be in addition to any liability
which such Holder may otherwise have to the Company or any of its controlling
persons.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action or proceeding (including a
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under this Section 5,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above, except to the
extent that it is prejudiced or harmed in any material respect by failure to
give such prompt notice. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with one counsel (and local counsel as
necessary) reasonably satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof the indemnifying party will not
be liable to such indemnified party under this Section 5 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof. No indemnifying
party shall, without the prior written consent of the indemnified party, not to
be unreasonably withheld, effect any settlement of any pending or threatened
action 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 any claims that are the subject matter of such action. No
indemnifying party shall be liable for any amounts paid in settlement of any
action or claim without its written consent, which consent shall not be
unreasonably withheld.
(d) If the indemnification provided for in this Section 5 is
unavailable or insufficient to hold harmless an indemnified party under
subsections (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the one
hand and the indemnified party on the other from the exchange of the Notes,
pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by
the foregoing clause (i) 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
<PAGE> 12
-12-
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties 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
on the one hand or such Holder or such other indemnified person, as the case may
be, on the other, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection (d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any action
or claim which is the subject of this subsection (d). Notwithstanding any other
provision of this Section 5(d), the Holders of the Securities shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Securities pursuant to a
Registration Statement exceeds the amount of damages which such Holders 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. For purposes of this paragraph (d), each officer,
director, employee, representative and agent of an indemnified party and each
person, if any, who controls such indemnified party within the meaning of the
Securities Act or the Exchange Act shall have the same rights to contribution as
such indemnified party, and each officer, director, employee, representative and
agent of the Company and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act shall have the same rights
to contribution as the Company.
(e) The agreements contained in this Section 5 shall survive
the sale of the Securities pursuant to a Registration Statement and shall remain
in full force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of any indemnified party.
6. Additional Cash Interest Under Certain Circumstances. (a)
Additional cash interest (the "Additional Interest") with respect to the
Securities shall be assessed as follows if any of the following events occur
(each such event in clauses (i) through (iii) below a "Registration Default"):
(i) If by June 29, 1998, neither the Exchange Offer Registration
Statement nor a Shelf Registration Statement has been filed with the
Commission;
(ii) If by October 27, 1998, neither the Registered Exchange Offer
is consummated nor, if required in lieu thereof, the Shelf Registration
Statement is declared effective by the Commission; or
(iii) If after either the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective (A) such
Registration Statement thereafter ceases to be effective; or (B) such
Registration Statement or the related prospectus ceases to be usable
(except as permitted in paragraph (b)) in connection with resales of
Transfer Restricted Notes during the periods specified herein because
either (1) any event occurs as a result of which the related prospectus
forming part of such Registration Statement would include 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, or (2) it
shall be necessary to amend such Registration Statement or supplement
the related prospectus, to comply with the Securities Act or the
Exchange Act or the respective rules thereunder.
<PAGE> 13
-13-
Additional cash interest will accrue with respect to the Notes
and the Exchange Notes as applicable, at the rate of 0.50% per annum, from and
including the date on which any such Registration Default shall occur, to, but
excluding, the next Semi-Annual Accrual Date (calculated on the Accreted Value
on such Semi-Annual Accrual Date) and shall continue to accrue from and
including such Semi-Annual Accrual Date, and be payable on each successive
Semi-Annual Accrual Date (calculated on the Accreted Value on each such date)
to, but excluding, the earlier of (i) the date on which all such Registration
Defaults have been cured or (ii) the date on which all the Notes and Exchange
Notes otherwise become freely transferable by holders other than affiliates of
the Company without further registration under the Securities Act. Such interest
is payable in addition to any other interest payable from time to time with
respect to the Notes and the Exchange Notes in cash on each Semi-Annual Accrual
Date after any accrual of such interest to the Holders of record (as determined
pursuant to the Indenture), notwithstanding that cash interest may not otherwise
be payable on such Notes or Exchange Notes on each such date.
(b) A Registration Default referred to in Section 6(a)(iii)(B)
shall be deemed not to have occurred and be continuing in relation to a Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to such Shelf Registration Statement to incorporate annual audited or,
if required by the rules and regulations under the Securities Act, quarterly
unaudited financial information with respect to the Company where such
post-effective amendment is not yet effective and needs to be declared effective
to permit Holders to use the related prospectus or (y) other material events or
developments with respect to the Company that would need to be described in such
Shelf Registration Statement or the related prospectus and (ii) in the case of
clause (y), the Company is proceeding promptly and in good faith to amend or
supplement such Shelf Registration Statement and related prospectus to describe
such events; provided, however, that in any case if such Registration Default
occurs for a continuous period in excess of 30 days, Additional Interest shall
be payable in accordance with the above paragraph from the day such Registration
Default occurs until such Registration Default is cured.
(c) Any Additional Interest accruing on the Notes prior to May
1, 2001, will be payable in cash on the next May 1 or November 1 to holders of
record on the immediately preceding April 15 or October 15, respectively. Any
such Additional Interest accruing on the Notes thereafter will be payable in
cash on the regular interest payment dates with respect to the Notes to the
holders of record on the applicable record date. The amount of Additional
Interest will be calculated on the Accreted Value of the Notes as of the date on
which such Additional Interest is payable (treating each such interest payment
date as a Specified Date for purposes of calculating the Accreted Value).
Interest will be determined on the basis of a 360-day year comprised of twelve
30-day months.
(d) "Transfer Restricted Notes" means each Security until (i)
the date on which such Transfer Restricted Note has been exchanged by a person
other than a broker-dealer for a freely transferable Exchange Note in the
Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the
Registered Exchange Offer of a Transfer Restricted Note for an Exchange Note,
the date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Transfer Restricted Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Transfer Restricted Note is distributed
to the public pursuant to Rule 144 under the Securities Act or is saleable
pursuant to Rule 144(k) under the Securities Act.
7. Rules 144 and 144A. The Company shall use its reasonable
best efforts to file the reports required to be filed by it under the Securities
Act and the Exchange Act in a timely manner and, if at any time the Company is
not required to file such reports, it will, upon the request of any Holder of
Transfer Re-
<PAGE> 14
-14-
stricted Notes, make publicly available other information so long as necessary
to permit sales of their securities pursuant to Rules 144 and 144A. The Company
covenants that it will take such further action as any Holder of Transfer
Restricted Notes may reasonably request, all to the extent required from time to
time to enable such Holder to sell Transfer Restricted Notes without
registration under the Securities Act within the limitation of the exemptions
provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)).
The Company will provide a copy of this Agreement to prospective purchasers of
Notes identified to the Company by the Initial Purchaser upon request. Upon the
request of any Holder of Transfer Restricted Notes, the Company shall deliver to
such Holder a written statement as to whether it has complied with such
requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be
deemed to require the Company to register any of its securities pursuant to the
Exchange Act.
8. Underwritten Registrations. If any of the Transfer
Restricted Notes covered by any Shelf Registration are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering ("Managing Underwriters") will be
selected by the Holders of a majority in aggregate principal amount of such
Transfer Restricted Notes to be included in such offering (subject to the
approval (which approval shall not be unreasonably withheld) of the Company.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Notes on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, lock-up
agreements, powers of attorney, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, except by the Company
and the written consent of the Holders of a majority in principal amount of the
Securities affected by such amendment, modification, supplement, waiver or
consents.
(b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, first-class
mail, facsimile transmission, or air courier which guarantees overnight
delivery:
(1) if to a Holder of the Securities, at the most current
address given by such Holder to the Company;
(2) if to the Initial Purchaser:
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010
Fax No.: (212) 325-8278
Attention: Transactions Advisory Group
with a copy to:
<PAGE> 15
-15-
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Fax No.: (212) 269-5420
Attention: James J. Clark
(3) if to the Company, at its address as follows:
15990 North Greenway/Hayden Loop,
Suite 400
Scottsdale, Arizona 85260
Fax No: (602) 707-9999
Attention: Peter Ax
with a copy to:
Pedersen & Houpt
161 North Clark Street, Suite 3100
Chicago, Illinois 60601-3224
Fax No: (312) 641-6895
Attention: Susan Hermann
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; three
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged by recipient's facsimile machine operator, if sent
by facsimile transmission; and on the day delivered, if sent by overnight air
courier guaranteeing next day delivery.
(c) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(d) Successors and Assigns. This Agreement shall be binding
upon the Company and its successors and assigns.
(e) 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.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
(h) Severability. If 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
<PAGE> 16
-16-
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(i) Securities Held by the Company. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Securities
is required hereunder, Securities held by the Company or its affiliates (other
than subsequent Holders of Securities if such subsequent Holders are
deemed to be affiliates solely by reason of their holdings of such Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
<PAGE> 17
-17-
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this Agreement will become a binding agreement among the Company and
the Initial Purchaser in accordance with its terms.
Very truly yours,
SPINCYCLE, INC.
By: /s/ Patrick Boyer
--------------------------------
Name: Patrick Boyer
Title: Chief Financial Officer
The foregoing Registration Rights Agreement is hereby confirmed and accepted as
of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ Jeffrey C. Howe
--------------------------
Name: Jeffrey C. Howe
Title: Director
<PAGE> 18
ANNEX A
Each broker-dealer that receives Exchange 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 Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE> 19
ANNEX B
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Notes, where such 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 Exchange Notes. See "Plan of Distribution."
<PAGE> 20
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange 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 Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Existing Notes where such Existing Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.*
The Company will not receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the reasonable expenses of one counsel
for the Holders of the Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Securities (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
- --------
* In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE> 21
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------
Address:
-----------------------------
-----------------------------
If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE> 1
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
DATED AS OF APRIL 29, 1998
AMONG
SPINCYCLE, INC.,
AS BORROWER,
THE FINANCIAL INSTITUTIONS LISTED HEREIN,
AS LENDERS,
AND
HELLER FINANCIAL, INC.,
AS AGENT AND AS LENDER
<PAGE> 2
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS.......................................................1
1.1 Certain Defined Terms........................................1
1.2 Accounting Terms............................................14
1.3 Other Definitional Provisions...............................14
SECTION 2. LOANS AND COLLATERAL.............................................15
2.1 Loans.......................................................15
(A) Revolving Loan.....................................15
(B) Eligible Laundry Equipment.........................16
(C) Borrowing Mechanics................................16
(D) Notes..............................................17
(E) Evidence of Revolving Loan Obligations.............17
(F) Letters of Credit..................................17
(G) Other Letter of Credit Provisions..................18
2.2 Interest....................................................20
(A) Rate of Interest...................................20
(B) Interest Periods...................................20
(C) Computation and Payment of Interest................21
(D) Interest Laws......................................21
(E) Conversion or Continuation.........................22
2.3 Fees........................................................22
(A) Unused Line Fee....................................22
(B) Letter of Credit Fees..............................23
(C) Field Examination Fees.............................23
(D) Other Fees and Expenses............................23
2.4 Payments and Prepayments....................................23
(A) Manner and Time of Payment.........................23
(B) Mandatory Prepayments..............................23
(C) Voluntary Prepayments and Repayments...............24
(D) Payments on Business Days..........................24
2.5 Term of this Agreement......................................24
2.6 Statements..................................................24
2.7 Grant of Security Interest..................................24
2.8 Capital Adequacy and Other Adjustments......................25
2.9 Taxes.......................................................25
(A) No Deductions......................................25
(B) Changes in Tax Laws................................26
(C) Foreign Lenders....................................26
i
<PAGE> 3
2.10 Required Termination and Prepayment.........................27
2.11 Optional Prepayment/Replacement of Agent or Lenders in
Respect of Increased Costs..................................27
2.12 Compensation................................................28
2.13 Booking of LIBOR Loans......................................28
2.14 Assumptions Concerning Funding of LIBOR Loans...............28
SECTION 3. CONDITIONS TO LOANS..............................................28
3.1 Conditions to Loans.........................................28
(A) Closing Deliveries.................................29
(B) Security Interests.................................29
(C) Cash on Hand.......................................29
(D) Representations and Warranties.....................29
(E) Fees...............................................29
(F) No Default.........................................29
(G) Performance of Agreements..........................29
(H) No Prohibition.....................................29
(I) No Litigation......................................29
(J) Senior Unsecured Notes.............................30
(K) Senior Unsecured Notes Documents...................30
(L) Collateral Verification and Audit Procedure Report.30
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES.......................30
4.1 Organization, Powers, Capitalization........................30
(A) Organization and Powers............................30
(B) Capitalization.....................................31
4.2 Authorization of Borrowing, No Conflict.....................31
4.3 Financial Condition.........................................31
4.4 Indebtedness and Liabilities................................31
4.5 Laundry Equipment Warranties................................31
4.6 Names.......................................................32
4.7 Locations; FEIN.............................................32
4.8 Title to Properties; Liens..................................32
4.9 Litigation; Adverse Facts...................................32
4.10 Payment of Taxes............................................32
4.11 Performance of Agreements...................................33
4.12 Employee Benefit Plans......................................33
4.13 Intellectual Property.......................................33
4.14 Broker's Fees...............................................33
4.15 Environmental Compliance....................................33
4.16 Solvency....................................................33
4.17 Disclosure..................................................34
ii
<PAGE> 4
4.18 Insurance...................................................34
4.19 Compliance with Laws; Licenses and Approvals................34
4.20 Bank Accounts...............................................34
4.21 Subsidiaries................................................34
4.22 Employee Matters............................................34
4.23 Governmental Regulation.....................................35
4.24 Material Adverse Effect.....................................35
4.25 Senior Unsecured Notes Documents............................35
SECTION 5. AFFIRMATIVE COVENANTS............................................35
5.1 Financial Statements and Other Reports......................35
(A) Period Financials..................................36
(B) Year-End Financials................................36
(C) Accountants' Certification and Reports.............36
(D) Compliance Certificate.............................36
(E) Borrowing Base Certificates, Laundry
Equipment Reports..................................37
(F) Leased Property Reports............................37
(G) Management Report..................................37
(H) Appraisals.........................................37
(I) Government Notices.................................38
(J) Events of Default, etc.............................38
(K) Trade Names........................................38
(L) Locations..........................................38
(M) Bank Accounts......................................38
(N) Litigation.........................................38
(O) Projections........................................39
(P) Indebtedness Notices...............................39
(Q) Other Information..................................39
5.2 Access to Accountants and Management........................39
5.3 Field Examination...........................................39
5.4 Collateral Records..........................................39
5.5 Condition of Laundry Equipment..............................39
5.6 Collection of Accounts and Payments.........................40
5.7 Endorsement.................................................40
5.8 Corporate Existence.........................................41
5.9 Payment of Taxes............................................41
5.10 Maintenance of Properties; Insurance........................41
5.11 Compliance with Laws........................................41
5.12 Further Assurances..........................................41
5.13 Collateral Locations........................................42
5.14 Bailees.....................................................42
5.15 Mortgages; Title Insurance; Surveys.........................42
(A) Additional Mortgaged Property......................42
iii
<PAGE> 5
(B) Title Insurance....................................42
(C) Surveys............................................43
5.16 Use of Proceeds and Margin Security.........................43
5.17 Year 2000 Compatibility.....................................43
SECTION 6. FINANCIAL COVENANTS.............................................43
6.1 Fixed Charge Coverage.......................................43
6.2 Minimum Mature Store Average EBITDA.........................43
6.3 Minimum Unused Availability.................................44
SECTION 7. NEGATIVE COVENANTS...............................................44
7.1 Indebtedness and Liabilities................................44
7.2 Guaranties..................................................44
7.3 Transfers, Liens and Related Matters........................45
(A) Transfers..........................................45
(B) Liens..............................................45
(C) No Negative Pledges................................45
7.4 Investments and Loans.......................................45
7.5 Restricted Junior Payments..................................45
7.6 Restriction on Fundamental Changes..........................46
7.7 Changes Relating to Senior Unsecured Notes..................46
7.8 Transactions with Affiliates................................46
7.9 Environmental Liabilities...................................46
7.10 Conduct of Business.........................................47
7.11 Compliance with ERISA.......................................47
7.12 Tax Consolidations..........................................47
7.13 Subsidiaries................................................47
7.14 Fiscal Year.................................................47
7.15 Press Release; Public Offering Materials....................47
7.16 Bank Accounts...............................................47
SECTION 8. DEFAULT, RIGHTS AND REMEDIES....................................47
8.1 Event of Default............................................47
(A) Payment............................................47
(B) Default in Other Agreements........................47
(C) Breach of Certain Provisions.......................48
(D) Breach of Warranty.................................48
(E) Other Defaults Under Loan Documents................48
(F) Change of Control..................................48
(G) Involuntary Bankruptcy; Appointment of
Receiver, etc......................................48
iv
<PAGE> 6
(H) Voluntary Bankruptcy; Appointment of Receiver, etc.48
(I) Liens..............................................49
(J) Judgment and Attachments...........................49
(K) Dissolution........................................49
(L) Solvency...........................................49
(M) Injunction.........................................49
(N) Invalidity of Loan Documents.......................49
(O) Failure of Security................................49
(P) Damage, Strike, Casualty...........................49
(Q) Licenses and Permits...............................50
(R) Forfeiture.........................................50
8.2 Suspension of Commitments...................................50
8.3 Acceleration................................................50
8.4 Remedies....................................................50
8.5 Appointment of Attorney-in-Fact.............................51
8.6 Limitation on Duty of Agent with Respect to Collateral......51
8.7 Application of Proceeds.....................................52
8.8 License of Intellectual Property............................52
8.9 Waivers, Non-Exclusive Remedies.............................52
SECTION 9. ASSIGNMENT AND PARTICIPATION.....................................52
9.1 Assignments and Participations in Loans.....................52
9.2 Agent.......................................................54
(A) Appointment........................................54
(B) Nature of Duties...................................54
(C) Rights, Exculpation, Etc...........................54
(D) Reliance...........................................55
(E) Indemnification....................................55
(F) Heller Individually................................55
(G) Successor Agent....................................56
(1) Resignation...............................56
(2) Appointment of Successor..................56
(3) Successor Agent...........................56
(H) Collateral Matters.................................56
(1) Release of Collateral.....................56
(2) Confirmation of Authority; Execution
of Releases...............................56
(3) Absence of Duty...........................56
(I) Agency for Perfection..............................57
(J) Exercise of Remedies...............................57
9.3 Consents....................................................58
9.4 Set Off and Sharing of Payments.............................58
9.5 Disbursement of Funds.......................................58
9.6 Settlements, Payments and Information.......................59
v
<PAGE> 7
(A) Revolving Advances and Payments; Fee Payments......59
(B) Availability of Lender's Pro Rata Share............60
(C) Return of Payments.................................60
9.7 Dissemination of Information................................60
9.8 Discretionary Advances......................................60
SECTION 10. MISCELLANEOUS....................................................61
10.1 Expenses and Attorneys' Fees................................61
10.2 Indemnity...................................................61
10.3 Amendments and Waivers......................................62
10.4 Notices.....................................................63
10.5 Survival of Warranties and Certain Agreements...............64
10.6 Indulgence Not Waiver.......................................64
10.7 Marshaling; Payments Set Aside..............................64
10.8 Entire Agreement............................................64
10.9 Independence of Covenants...................................64
10.10 Severability................................................64
10.11 Lenders' Obligations Several; Independent Nature
of Lenders' Rights..........................................65
10.12 Headings....................................................65
10.13 Applicable Law..............................................65
10.14 Successors and Assigns......................................65
10.15 No Fiduciary Relationship; Limitation of Liabilities........65
10.16 Consent to Jurisdiction.....................................66
10.17 Waiver of Jury Trial........................................66
10.18 Construction................................................66
10.19 Counterparts; Effectiveness.................................67
10.20 No Duty.....................................................67
10.21 Confidentiality.............................................67
vi
<PAGE> 8
EXHIBITS
A Borrowing Base Certificate
B Compliance Certificate
C Laundry Equipment Report
D Assignment and Assumption Agreement
E Leased Property Report
F Blocked Account Agreement
SCHEDULES
1.1(A) Leased Property
1.1(B) Other Liens
1.1(C) Pro Forma
1.1(D) Financial Statements
3.1(A) List of Closing Documents
4.1(B) Capitalization of Loan Parties
4.6 Trade Names (Present and Past Five Years)
4.7 Location of Principal Place of Business, Books and Records,
Facilities and Collateral
4.13 Intellectual Property
4.15 Environmental Compliance
4.20 Bank Accounts
4.22 Employee Matters
7.2 Guaranties
vii
<PAGE> 9
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of April 29, 1998 and
entered into among SPINCYCLE, INC., a Delaware corporation ("BORROWER"), with
its principal place of business at 15990 North Greenway/Hayden Loop, Suite 400,
Scottsdale, Arizona 85260, the financial institution(s) listed on the signature
pages hereof and their respective successors and assigns (each individually a
"LENDER" and collectively "LENDERS") and HELLER FINANCIAL, INC., a Delaware
corporation (in its individual capacity, "HELLER"), with offices at 500 West
Monroe, Chicago, Illinois 60661, for itself as a Lender and as Agent. All
capitalized terms used herein are defined in Section 1 of this Agreement.
WHEREAS, Borrower desires that Lenders extend a credit facility to
provide working capital financing and to provide funds for capital expenditures
and other general corporate purposes; and
WHEREAS, Borrower desires to secure its obligations under the Loan
Documents by granting to Agent, for benefit of Lenders, a security interest in
and lien upon certain of Borrower's property; and
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Agent and Lenders agree as
follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement
shall have the following meanings:
"ACCOUNTS" means all "accounts" (as defined in the UCC), accounts
receivable, contract rights and general intangibles relating thereto, notes,
drafts and other forms of obligations owed to or owned by Borrower arising or
resulting from the sale of goods or the rendering of services.
"ACQUIRED STORE" means a Facility: (a) that, immediately prior to its
acquisition by Borrower, was operated as, or was substantially complete to be
operated as, a retail coin-operated laundromat by a Person which either owned or
leased the underlying real property; (b) that is leased to Borrower directly by
such Person or such Person's landlord or the lease for which is assigned by such
Person to Borrower (either with or without a concurrent amendment of such lease
being entered into by Borrower and the landlord); and (c) with respect to which
the equipment and other assets relating to the operation of such Facility are
concurrently acquired by Borrower from such Person.
"ADDITIONAL MORTGAGED PROPERTY" has the meaning assigned to that term
in subsection 5.15.
<PAGE> 10
"AFFILIATE" means any Person (other than Agent or Lender): (a) directly
or indirectly controlling, controlled by, or under common control with, any Loan
Party; (b) directly or indirectly owning or holding ten percent (10%) or more of
any equity interest in Borrower; (c) five percent (5%) or more of whose stock or
other equity interest having ordinary voting power for the election of directors
or the power to direct or cause the direction of management, is directly or
indirectly owned or held by Borrower; or (d) which has a senior executive
officer who is also a senior executive officer of Borrower. For purposes of this
definition, "control" (including with correlative meanings, the terms
"controlling", "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or other equity interest, or by contract or otherwise.
"AGENT" means Heller in its capacity as agent for Lenders under the
Loan Documents and any successor in such capacity appointed pursuant to
subsection 9.1.
"AGENT'S ACCOUNT" means Account No. 52-98695 at First National Bank of
Chicago, ABA No. 0710-0001-3, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of SpinCycle, Inc.
"AGREEMENT" means this Loan and Security Agreement as it may be
amended, restated, supplemented or otherwise modified from time to time.
"ANNUALIZED STORE EBITDA" means, as of any date of determination, Store
EBITDA for the four consecutive Periods ending on or immediately preceding such
date, multiplied by 3.25.
"ASSET DISPOSITION" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any or all of
the assets of Borrower.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means an agreement among Agent, a
Lender and such Lender's assignee regarding their respective rights and
obligations with respect to assignments of the Loans, the Commitments and other
interests under this Agreement and the other Loan Documents substantially in the
form of Exhibit D.
"BANK LETTER OF CREDIT" means each letter of credit issued by a bank
acceptable to and approved by Agent for the account of Borrower and supported by
a Risk Participation Agreement.
"BASE RATE" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate plus
one-half of one percent (.50%). The statistical release generally sets forth a
Bank Prime Loan rate for each Business Day. In the event the Board of Governors
of the Federal Reserve System ceases to publish a Bank Prime Loan rate or its
equivalent, the term "Base Rate" shall mean a variable rate of interest per
annum
2
<PAGE> 11
equal to the highest of the "prime rate", "reference rate", "base rate", or
other similar rate announced from time to time by any of Bankers Trust Company,
The Chase Manhattan Bank, N.A., or their successors (with the understanding that
any such rate may merely be a reference rate and may not necessarily represent
the lowest or best rate actually charged to any customer by any such bank).
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate.
"BLOCKED ACCOUNTS" has the meaning assigned to that term in subsection
5.6.
"BORROWER" has the meaning assigned to that term in the preamble to
this Agreement.
"BORROWING BASE" has the meaning assigned to that term in subsection
2.1(A)(2).
"BORROWING BASE CERTIFICATE" means a certificate and assignment
schedule duly executed by an officer of Borrower appropriately completed and in
substantially the form of Exhibit A.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Illinois or
Pennsylvania, or is a day on which banking institutions located in any such
state are closed, or for the purposes of LIBOR Loans only, a day on which
commercial banks are open for dealings in Dollar deposits in the London, England
(U.K.) market.
"CAPITAL EXPENDITURES" means all expenditures (including deposits) for,
or contracts for expenditures (excluding contracts for expenditures under or
with respect to Capital Leases, but including cash down payments for assets
acquired under Capital Leases) with respect to any fixed assets or improvements,
or for replacements, substitutions or additions thereto, which have a useful
life of more than one year, including the direct or indirect acquisition of such
assets by way of increased product or service charges, offset items or
otherwise.
"CAPITAL LEASE" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"CASH EQUIVALENTS" means: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
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 of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
3
<PAGE> 12
"CLOSING DATE" means April 29, 1998.
"COLLATERAL" has the meaning assigned to that term in subsection 2.7.
"COLLATERAL ASSIGNMENT OF LEASES" means the collateral assignment of
leases delivered by Borrower to Agent, on behalf of Lenders, with respect to
Facilities, in form and substance reasonably satisfactory to Agent.
"COLLECTING BANKS" has the meaning assigned to that term in subsection
5.6.
"COMMITMENT" or "COMMITMENTS" means the commitment or commitments of
Lenders to make Loans as set forth in subsection 2.1(A) and to provide Lender
Letters of Credit as set forth in subsection 2.1(E).
"COMPLIANCE CERTIFICATE" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit B.
"DEFAULT" means a condition, act or event that, after notice or lapse
of time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"DEFAULT RATE" has the meaning assigned to that term in subsection 2.2.
"EBITDA" means, for any period, without duplication, the total of the
following for Borrower, each calculated for such period: (1) net income
determined in accordance with GAAP; plus, to the extent included in the
calculation of net income, (2) the sum of (a) income and franchise taxes paid or
accrued; (b) Interest Expenses, net of interest income, paid or accrued; (c)
interest paid in kind; (d) amortization and depreciation and (e) other non-cash
charges (excluding accruals for cash expenses made in the ordinary course of
business); less, to the extent included in the calculation of net income, (3)
the sum of (a) the income of any Person in which Borrower has an ownership
interest except to the extent such income is received by Borrower in a cash
distribution during such period; (b) gains or losses from sales or other
dispositions of assets (other than Inventory in the normal course of business);
and (c) extraordinary or non-recurring gains, but not net of extraordinary or
non-recurring "cash" losses.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $250,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $250,000,000,
provided that such bank is acting through a branch or agency located in the
country in which it is organized or another which is also a member of the OECD;
(c) any other entity which is an "accredited investor" (as defined in Regulation
D under the Securities Act) which extends credit or buys loans
4
<PAGE> 13
as one of its businesses, including, but not limited to, insurance companies,
mutual funds and lease financing companies; and (d) a Person that is primarily
engaged in the business of lending that is (i) a Subsidiary of a Lender, (ii) a
Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of
which a Lender is a Subsidiary; provided that no Affiliate of Borrower shall be
an Eligible Assignee.
"ELIGIBLE LAUNDRY EQUIPMENT" has the meaning assigned to that term in
subsection 2.1(B).
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six (6) years been maintained for the employees of any Loan Party or any current
or former ERISA Affiliate.
"ENVIRONMENTAL CLAIMS" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"ENVIRONMENTAL LAWS" means any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal or
the protection of human health or safety, plant life or animal life, natural
resources or the environment.
"EQUIPMENT" means all "equipment" (as defined in the UCC), including,
without limitation, all washing machines, dryers, computer boards, furniture,
furnishings, fixtures, machinery, motor vehicles, trucks, trailers, vessels,
aircraft and rolling stock and all parts thereof and all additions and
accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA AFFILIATE", as applied to any Loan Party, means any Person who
is a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
"EVENT OF DEFAULT" means each of the events set forth in subsection
8.1.
"FACILITY" means a retail coin-operated laundromat facility operated by
Borrower.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
5
<PAGE> 14
"FEE LETTER" means that certain letter agreement between Borrower and
Agent, dated April 29, 1998 relating to certain fees.
"FISCAL YEAR" means the 13 Periods commencing on December 29, 1997 and
each 13 Periods thereafter.
"FIXED CHARGE COVERAGE" means, for any period, Operating Cash Flow plus
the net cash proceeds of any equity securities issued by Borrower and of the
issuance by Borrower of any Indebtedness for borrowed money that is unsecured
and is otherwise on terms substantially similar to the Senior Unsecured Notes,
divided by Fixed Charges.
"FIXED CHARGES" means, for any period, and each calculated for such
period (without duplication), (a) Interest Expenses paid or accrued by Borrower;
plus (b) scheduled payments of principal with respect to all Indebtedness of
Borrower; plus (c) any provision for (to the extent it is greater than zero)
income or franchise taxes included in the determination of net income, excluding
any provision for deferred taxes; plus (d) Restricted Junior Payments made in
cash to the extent permitted under subsection 7.5(b); plus (e) payment of
deferred taxes accrued in any prior period.
"FUNDING DATE" means the date of each funding of a Loan or issuance of
a Lender Letter of Credit.
"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 that are applicable to the
circumstances as of the date of determination.
"HAZARDOUS MATERIAL" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "HAZARDOUS SUBSTANCES" "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity, or
toxicity; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls.
"INDEBTEDNESS", as applied to any Person, means without duplication:
(a) all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is due
more than six months from the date the obligation is incurred or is evidenced by
a note or similar written instrument; (e) all indebtedness secured by any Lien
on any property or asset owned or held by that Person
6
<PAGE> 15
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is non recourse to the credit of that Person and (f)
obligations in respect of letters of credit.
"INTANGIBLE ASSETS" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, Intellectual
Property, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds.
"INTELLECTUAL PROPERTY" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired, all goodwill associated
with any of the foregoing, and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.
"INTEREST EXPENSES" means, without duplication, for any period, for
Borrower, the following, each calculated for such period: interest expenses
deducted in the determination of net income (excluding (i) the amortization of
fees and costs with respect to the transactions contemplated by this Agreement
which have been capitalized as transaction costs in accordance with the
provisions of subsection 1.2; and (ii) interest paid in kind).
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.2(B).
"INTEREST RATE" has the meaning assigned to that term in subsection
2.2(A).
"INVENTORY" means all "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in process and other
materials and supplies used or consumed in a Person's business, and goods which
are returned or repossessed.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"LANDLORD WAIVER" means a waiver and consent delivered to Agent from
(a) the landlord of a Facility leased by Borrower at which any of the Collateral
is located and (b) a bailee of a warehouse at which any of the Collateral is
located, in each case waiving any lien or security interest held by such
landlord or bailee in favor of the lien on and security interest in such
Collateral held by Agent for the benefit of Lenders, and otherwise in form and
substance satisfactory to Agent.
"LAUNDRY EQUIPMENT" means machinery and equipment comprising commercial
laundry equipment including washing machines and dryers.
"LAUNDRY EQUIPMENT REPORT" means: (a) on the Closing Date, a report
substantially in the form of Exhibit C (the "INITIAL LAUNDRY EQUIPMENT REPORT");
and (b) thereafter, a report specifying, as at its date, all additions and
deletions to the Initial Laundry Equipment Report;
7
<PAGE> 16
provided, however, that in the event that, as contemplated as at the date
hereof, Borrower modifies its computerized laundry equipment reporting system,
the format of the Laundry Equipment Report may change to a format consistent
with such modified reporting system so long as the type and scope of the
information contained in such new format is substantially the same as that
provided in the Initial Laundry Equipment Report.
"LEASED PROPERTY" means the real property leased by Borrower as
described on Schedule 1.1(A), as amended, modified and/or supplemented from time
to time pursuant to this Agreement.
"LEASED STORE" means a Facility that is not an Acquired Store or a
Self-Developed Leased Store and which is (i) leased directly to Borrower by the
landlord; or (ii) sublet to Borrower; or (iii) the lease for which is assigned
to Borrower, with or without a concurrent amendment entered into by Borrower
with the landlord.
"LENDER" or "LENDERS" has the meaning assigned to that term in the
preamble to this Agreement.
"LENDER LETTER OF CREDIT" has the meaning assigned to that term in
subsection 2.1(F).
"LETTER OF CREDIT LIABILITY" means, all reimbursement and other
liabilities of Borrower with respect to each Lender Letter of Credit, whether
contingent or otherwise, including: (a) the amount available to be drawn or
which may become available to be drawn; (b) all amounts which have been paid or
made available by any Lender issuing a Lender Letter of Credit or any bank
issuing a Bank Letter of Credit to the extent not reimbursed; and (c) all unpaid
interest, fees and expenses related thereto.
"LETTER OF CREDIT RESERVE" means, at any time, an amount equal to (a)
the aggregate amount of Letter of Credit Liability with respect to all Lender
Letters of Credit outstanding at such time plus, without duplication, (b) the
aggregate amount theretofore paid by Agent or any Lender under Lender Letters of
Credit and not debited to the Loan Account pursuant to subsection 2.1(E)(2) or
otherwise reimbursed by Borrower.
"LIABILITIES" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"LIBOR" means, for each Interest Period, a rate of interest equal to:
(a) the rate of interest determined by Agent at which deposits in
Dollars for the relevant Interest Period are offered based on information
presented on the Reuters Screen LIBOR Page as of 11:00 A.M. (London time) on the
day which is two (2) Business Days prior to the first day of such Interest
Period; provided that if at least two such offered rates appear on the Reuters
Screen LIBOR Page in respect of such Interest Period, the arithmetic mean of all
such rates (as determined by Agent) will be the rate used; provided further that
if Reuters ceases to provide LIBOR quotations, such rate shall be the average
rate of interest determined by Agent at which deposits in Dollars are
8
<PAGE> 17
offered for the relevant Interest Period by Bankers Trust Company, The Chase
Manhattan Bank, N.A., or its successors to prime banks in the London interbank
market as of 11:00 A.M. (London time) on the applicable interest rate
determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in effect
on the day which is two (2) Business Days prior to the beginning of such
Interest Period (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect) for Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) which are required to be maintained by a member bank of the Federal
Reserve System;
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there is not a nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR LOANS" means at any time that portion of the Loans bearing
interest at rates determined by reference to LIBOR.
"LIEN" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"LOAN" or "LOANS" means an advance or advances under the Revolving Loan
Commitment.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Collateral
Assignment of Leases, and all other instruments, documents and agreements
executed by or on behalf of Borrower and delivered concurrently herewith or at
any time hereafter to or for Agent or any Lender in connection with the Loans,
any Lender Letter of Credit, and other transactions contemplated by this
Agreement, all as amended, restated, supplemented or modified from time to time.
"LOAN PARTY" means each of Borrower and any other Person (other than
Agent or any Lender) which is or becomes a party to any Loan Document.
"LOAN YEAR" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of any Loan Party on an individual basis or taken as a whole or (b)
the ability of any Loan Party to perform its obligations under any Loan Document
to which it is a party or of Agent or any Lender to enforce or collect any of
the Obligations.
9
<PAGE> 18
"MATURE FACILITY" means, as at any date of determination thereof, a
Facility that has been continuously operating as a retail coin-operated
laundromat for at least 13 Periods prior to and through and including such date
(including, with respect to each Acquired Store, the period of operation prior
to Borrower's acquisition thereof).
"MATURE STORE AVERAGE EBITDA" means, as at any date of determination,
the sum of all Mature Facilities' Annualized Store EBITDA, as at such date,
divided by the number of Mature Facilities as at such date.
"MAXIMUM REVOLVING LOAN AMOUNT" has the meaning assigned to that term
in subsection 2.1(A)(1).
"MORTGAGE" means each of the mortgages, deeds of trust, leasehold
mortgages, leasehold deeds of trust, collateral assignments of leases (other
than the Collateral Assignment of Leases) or other real estate security
documents delivered by any Loan Party to Agent, on behalf of Lenders, with
respect to Mortgaged Property or Additional Mortgaged Property, all in form and
substance satisfactory to Agent.
"NET BOOK VALUE" means, as at any date of determination thereof:
(a) with respect to Laundry Equipment that is acquired other than as
part of the assets purchased in an Acquired Store acquisition (regardless of
whether such Laundry Equipment is utilized immediately after its acquisition or
subsequent to storing it), the purchase price of such Laundry Equipment; and
(b) with respect to Laundry Equipment that has been acquired as part of
the assets purchased in an Acquired Store acquisition, the purchase price
specified, either directly or pursuant to an allocation of a portion of the
aggregate purchase price, for such Laundry Equipment in the purchase agreement
between Borrower and the Person selling the same, provided that: (i) the manner
of specifying such purchase price, either directly or by allocation, is
consistent with Borrower's practices, in the ordinary course of its business at
the date of this Agreement, of specifying, directly or by allocation, the
purchase price of Laundry Equipment in Acquired Store acquisitions; (ii) such
purchase price does not exceed the fair market value of such Laundry Equipment
as at such date in Borrower's good faith judgment; and (iii) in the event no
such specification, directly or by allocation, of the purchase price is made as
at the date of acquisition thereof, then the fair market value thereof
determined by Borrower in its good faith judgment shall be deemed to be the
amount specified by this subparagraph (b), provided that, notwithstanding the
foregoing, the amounts used in determination of values of the Laundry Equipment
covered by this subparagraph (b) shall be such that for each type of Laundry
Equipment covered by this subparagraph (b), the sum of all book values initially
ascribed by Borrower to all such Laundry Equipment in each such type shall not,
in the aggregate, exceed the replacement cost, as new, of such Laundry
Equipment,
10
<PAGE> 19
in each case with respect to clauses (a) and (b) above, minus all depreciation
on such Laundry Equipment through such date of determination, calculated as if
depreciated over a ten year period (which period shall commence on the date such
Laundry Equipment is first utilized by Borrower) on a straight-line basis.
"NOTE" means each promissory note of Borrower in a form reasonably
acceptable to Agent, issued pursuant to subsection 2.1(D).
"NOTICE OF BORROWING" has the meaning assigned to that term in
subsection 2.1(C).
"OBLIGATIONS" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Agent or to any Lender
under the Loan Documents including the principal amount of all debts, claims and
indebtedness (whether incurred before or after the Termination Date), accrued
and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable including, without limitation, all
interest, fees, cost and expenses accrued or incurred after the filing of any
petition under any bankruptcy or insolvency law.
"OPERATING CASH FLOW" means, for any period, (a) EBITDA; less (b)
Capital Expenditures.
"PERIOD" means each four week period comprised of four Monday through
Sunday weeks of which there are 13 in any year, constituting an accounting
period of Borrower.
"PERMITTED ENCUMBRANCES" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent; (c) Liens (other
than any Lien imposed by ERISA) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money); (d) easements, rights-of-way, restrictions,
and other similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of any Loan Party or any of
its Subsidiaries; (e) Liens for purchase money obligations, provided that (i)
the Indebtedness secured by any such Lien is permitted under subsection 7.1, and
(ii) such Lien encumbers only the asset so purchased; (f) Liens in favor of
Agent, on behalf of Lenders, and (g) Liens set forth on Schedule 1.1(B).
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
11
<PAGE> 20
"PRO FORMA" means the unaudited balance sheet of Borrower as of March
22, 1998 after giving effect to the transactions contemplated by this Agreement.
The Pro Forma is annexed hereto as Schedule 1.1(C).
"PRO RATA SHARE" means (a) with respect to matters relating to a
particular Commitment of a Lender, the percentage obtained by dividing (i) such
Commitment of that Lender by (ii) all such Commitments of all Lenders and (b)
with respect to all other matters, the percentage obtained by dividing (i) the
Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of all
Lenders, in either case as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1; provided, however, if any Commitment is
terminated pursuant to the terms hereof, then "Pro Rata Share" means the
percentage obtained by dividing (x) the aggregate amount of such Lender's
outstanding Loans related to such Commitment by (y) the aggregate amount of all
outstanding Loans related to such Commitment.
"PROJECTIONS" means Borrower's forecasted: (a) balance sheets; (b)
profit and loss statements; (c) cash flow statements; and (d) capitalization
statements, all prepared on a basis consistent with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"REPLACEMENT LENDER" has the meaning assigned to that term in
subsection 2.11(A).
"REQUISITE LENDERS" means Lenders holding or being responsible for
fifty-one percent (51%) or more of the sum of (a) outstanding Loans (b)
outstanding Letter of Credit Liability and (c) unutilized Commitments; provided,
that at any time during which there are only two (2) Lenders, "Requisite
Lenders" shall mean both Lenders.
"RESTRICTED JUNIOR PAYMENT" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Borrower now or hereafter outstanding, except a dividend payable solely with
shares of the class of stock on which such dividend is declared; (b) any payment
or prepayment of principal of, premium, if any, or interest on, or any
redemption, conversion, exchange, retirement, defeasance, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any Indebtedness subordinated in right of payment to the Obligations or any
shares of any class of stock of Borrower now or hereafter outstanding, or the
issuance of a notice of an intention to do any of the foregoing; (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any class of stock of Borrower now or
hereafter outstanding; and (d) any payment by Borrower of any management,
consulting or similar fees to any Affiliate, whether pursuant to a management
agreement or otherwise.
"REVOLVING ADVANCE" means each advance made by Lender(s) pursuant to
subsection 2.1(A).
"REVOLVING LOAN" means the outstanding balance of all Revolving
Advances and any amounts added to the principal balance of the Revolving Loan
pursuant to this Agreement.
12
<PAGE> 21
"REVOLVING LOAN COMMITMENT" means (a) as to any Lender, the commitment
of such Lender to make Revolving Advances pursuant to subsection 2.1(A), and to
purchase participations in Lender Letters of Credit pursuant to subsection
2.1(F) in the aggregate amount set forth on the signature page of this Agreement
opposite such Lender's signature or in the most recent Assignment and Assumption
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make Revolving Advances and to purchase
participations in Lender Letters of Credit.
"RISK PARTICIPATION AGREEMENT" has the meaning assigned to that term in
subsection 2.1(F).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, as in effect from time to time.
"SELF-DEVELOPED LEASED STORE" means a Facility that was constructed by
Borrower or to its specifications on a parcel of unimproved real property, or on
a parcel of real property where any prior existing improvements were removed
prior to the construction of the Facility.
"SENIOR UNSECURED NOTES" has the meaning assigned to that term in
subsection 3.1(J).
"SENIOR UNSECURED NOTES DOCUMENTS" means, collectively, the Senior
Unsecured Notes Indenture and all documents, instruments and agreements
delivered in connection therewith.
"SENIOR UNSECURED NOTES INDENTURE" has the meaning assigned to that
term in subsection 3.1(J).
"SETTLEMENT DATE" has the meanings assigned to that term in subsection
9.6(A)(2).
"SPINDEVCO" has the meaning assigned to that term in subsection 7.4.
"STORE EBITDA" means, for any period, with respect to any Facility,
EBITDA resulting solely from the operations of such Facility during such period;
provided that Store EBITDA will be calculated in a manner consistent with that
used by Borrower to determine "Income From Store Operations" as such term is
used in the financial statements annexed hereto as Schedule 1.1(D).
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) 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 that Person or
one or more of the other subsidiaries of that Person or a combination thereof.
"TAX LIABILITIES" has the meaning assigned to that term in subsection
2.9(A).
13
<PAGE> 22
"TERMINATION DATE" has the meaning assigned to that term in subsection
2.5.
"TRIGGER PERIOD" means the period commencing on the first date after
the Closing Date, or the first date after the expiration of a previous Trigger
Period, on which (a) one or more Revolving Advances is outstanding; provided,
however, that for purposes of this definition only, advances to Borrower solely
for funding fees and interest on fees that remain outstanding for no more than
30 days shall not be deemed outstanding Revolving Advances, and (b) the sum of
(i) Borrower's cash on hand in immediately available funds, (ii) Borrower's Cash
Equivalents, and (iii) Unused Availability, is less than $15,000,000, and ending
on the date on which such sum was equal to or greater than $15,000,000 for a
period of sixty (60) consecutive days.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, as amended from time to time, and any successor
statute.
"UNUSED AVAILABILITY" means, as of any date, the amount (if any) by
which the Maximum Revolving Loan Amount exceeds the Revolving Loan less the
Letter of Credit Reserve.
1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to Agent or any Lender pursuant to subsection 5.1 shall be prepared in
accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis. In the event any "Accounting Changes" (as defined below) shall
occur and such changes affect financial covenants, standards or terms in this
Agreement, then Borrower and Lenders agree to enter into negotiations in order
to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating the
financial condition of Borrower shall be the same after such Accounting Changes
as if such Accounting Changes had not been made, and until such time as such an
amendment shall have been executed and delivered by Borrower and Requisite
Lenders, (A) all financial covenants, standards and terms in this Agreement
shall be calculated and/or construed as if such Accounting Changes had not been
made, and (B) Borrower shall prepare footnotes to each Compliance Certificate
and the financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "ACCOUNTING CHANGES" means: (a)
changes in accounting principles required by GAAP and implemented by Borrower;
(b) changes in accounting principles recommended by Borrower's certified public
accountants; and (c) changes in carrying value of Borrower's assets, liabilities
or equity accounts resulting from any adjustments that, in each case, were
applicable to, but not included in, the Pro Forma. All such adjustments
resulting from expenditures made subsequent to the Closing Date (including, but
not limited to, capitalization of costs and expenses or payment of pre-Closing
Date liabilities) shall be treated as expenses in the period the expenditures
are made and deducted as part of the calculation of EBITDA in such period.
1.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this
14
<PAGE> 23
Agreement unless otherwise specifically provided. Any of the terms defined in
subsection 1.1 may, unless the context otherwise requires, be used in the
singular or the plural depending on the reference. In this Agreement, words
importing any gender include the other genders; the words "including,"
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to agreements and other contractual instruments shall be
deemed to include subsequent amendments, assignments, and other modifications
thereto, but only to the extent such amendments, assignments and other
modifications are not prohibited by the terms of this Agreement or any other
Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
SECTION 2. LOANS AND COLLATERAL
2.1 LOANS.
(A) REVOLVING LOAN. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower and the other Loan Parties set forth herein and in the other Loan
Documents, each Lender, severally, agrees to lend to Borrower from time to time
its Pro Rata Share of each Revolving Advance. The aggregate amount of all
Revolving Loan Commitments shall not exceed at any time $40,000,000. Amounts
borrowed under this subsection 2.1(A) may be repaid and reborrowed at any time
prior to the earlier of (i) the termination of the Revolving Loan Commitment
pursuant to subsection 8.3 or (ii) the Termination Date. Except as otherwise
provided herein, no Lender shall have any obligation to make an advance under
this subsection 2.1(A) to the extent such advance would cause the Revolving Loan
(after giving effect to any immediate application of the proceeds thereof) to
exceed the Maximum Revolving Loan Amount.
(1) "MAXIMUM REVOLVING LOAN AMOUNT" means, as of any
date of determination, the lesser of (a) the Revolving Loan Commitment(s) of all
Lenders minus the Letter of Credit Reserve and (b) the Borrowing Base minus the
Letter of Credit Reserve.
(2) "BORROWING BASE" means, as of any date of
determination, an amount equal to:
(a) with respect to Facilities where the
Annualized Store EBITDA is equal to or less than $60,000, forty percent (40%) of
Eligible Laundry Equipment located at such Facilities;
(b) with respect to Facilities where the
Annualized Store EBITDA is greater than $60,000 and less than or equal to
$100,000, the lesser of (i) sixty-five percent (65%) of Eligible Laundry
Equipment located at such Facilities, or (ii) such Facility's Annualized Store
EBITDA multiplied by three (3);
15
<PAGE> 24
(c) with respect to Facilities where the
Annualized Store EBITDA is greater than $100,000, the lesser of (i) eighty-five
percent (85%) percent of Eligible Laundry Equipment located at such Facilities,
or (ii) such Facility's Annualized Store EBITDA multiplied by three (3); and
(d) forty (40%) percent of Eligible Laundry
Equipment that (i) is stored at a warehouse, (ii) was new when purchased by
Borrower, and (iii) has never been utilized;
less, in each case, such reserves as Agent in its reasonable discretion may
elect to establish for Facilities in respect of which a Landlord Waiver in form
and substance satisfactory to Agent has not been obtained and delivered to
Agent.
(B) ELIGIBLE LAUNDRY EQUIPMENT.
"ELIGIBLE LAUNDRY EQUIPMENT" means, as at any date of
determination, the Net Book Value of all Laundry Equipment owned by Borrower and
located in the United States of America that Agent, in its reasonable credit
judgment, deems to be eligible for borrowing purposes. Without limiting the
generality of the foregoing, unless otherwise agreed by Agent, the following is
not Eligible Laundry Equipment: (a) Laundry Equipment with respect to which
Agent, on behalf of Lenders, does not have a valid, first priority and fully
perfected security interest; and (b) Laundry Equipment with respect to which
there exists any Lien in favor of any Person other than Agent, on behalf of
Lenders other than Liens with respect to which Agent has received a Landlord
Waiver.
(C) BORROWING MECHANICS. (1) LIBOR Loans made on any Funding
Date shall be in an aggregate minimum amount of $500,000 and integral multiples
of $100,000 in excess of such amount. (2) On any day when Borrower desires an
advance under this subsection 2.1, Borrower shall give Agent telephonic notice
of the proposed borrowing by 11:00 a.m. Central time on the Funding Date of a
Base Rate Loan and three (3) Business Days in advance of the Funding Date of a
LIBOR Loan, which notice (a "NOTICE OF BORROWING") shall also specify the
proposed Funding Date (which shall be a Business Day), whether such Loans shall
consist of Base Rate Loans or LIBOR Loans, and for LIBOR Loans the Interest
Period applicable thereto. Any such telephonic notice shall be confirmed in
writing on the same day. Neither Agent nor Lender shall incur any liability to
Borrower for acting upon any telephonic notice Agent believes in good faith to
have been given by a duly authorized officer or other person authorized to
borrow on behalf of Borrower or for otherwise acting in good faith under this
subsection 2.1(C). Neither Agent nor Lender will make any advance pursuant to
any telephonic notice unless Agent has also received the most recent Borrowing
Base Certificate and all other documents required under subsection 5.1 by 11:00
a.m. Central time. Each Revolving Advance shall be deposited by wire transfer in
immediately available funds in such account as Borrower may from time to time
designate to Agent in writing. The becoming due of any amount required to be
paid under this Agreement or any of the other Loan Documents as principal,
accrued interest and fees shall be deemed irrevocably to be a request by
Borrower for a Base Rate Revolving Loan on the due date of, and in the amount
required to pay, such principal, accrued interest and fees, and the proceeds of
each such Revolving Advance if made by Agent or any
16
<PAGE> 25
Lender shall be disbursed by Agent or such Lender by way of direct payment of
the relevant obligation.
(D) NOTES. Borrower shall execute and deliver to each Lender
with appropriate insertions a Note to evidence such Lender's Revolving Loan
Commitment. In the event of an assignment under subsection 9.1, Borrower shall,
upon surrender of the assigning Lender's Note, issue new Note(s) to reflect the
interest held by the assigning Lender and its assignee.
(E) EVIDENCE OF REVOLVING LOAN OBLIGATIONS. Each Revolving
Advance shall be evidenced by this Agreement, the Notes, and notations made from
time to time by Agent in its books and records, including computer records.
Agent shall record in its books and records, including computer records, the
principal amount of the Revolving Loan owing to each Lender from time to time.
Agent's books and records shall constitute presumptive evidence, absent manifest
error, of the accuracy of the information contained therein. Failure by Agent to
make any such notation or record shall not affect the obligations of Borrower to
Lenders with respect to the Revolving Loans.
(F) LETTERS OF CREDIT. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, the Revolving Loan Commitments may, in addition to
Revolving Advances, be utilized, upon the request of Borrower, for (i) the
issuance of letters of credit by Agent (or, with Agent's consent, any Lender),
or (ii) the issuance by Agent of risk participations (a "RISK PARTICIPATION
AGREEMENT") to banks to induce such banks to issue letters of credit for the
account of Borrower (each of (i) and (ii) above a "LENDER LETTER OF CREDIT").
Each Lender shall be deemed to have purchased a participation in each Lender
Letter of Credit issued on behalf of Borrower in an amount equal to its Pro Rata
Share thereof. In no event shall any Lender Letter of Credit be issued to the
extent that the issuance of such Lender Letter of Credit would cause the sum of
the Letter of Credit Reserve (after giving effect to such issuance) plus the
Revolving Loan to exceed the lesser of (x) the Borrowing Base and (y) the
Revolving Loan Commitment.
(1) MAXIMUM AMOUNT. The aggregate amount of Letter of
Credit Liability with respect to all Lender Letters of Credit outstanding at any
time shall not exceed $1,000,000.
(2) REIMBURSEMENT. Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent or the issuer for any amounts
paid with respect to a Lender Letter of Credit including all fees, costs and
expenses paid to any bank that issues a Bank Letter of Credit. Borrower hereby
authorizes and directs Agent, at Agent's option, to debit Borrower's account (by
increasing the Revolving Loan) in the amount of any payment made with respect to
any Lender Letter of Credit. All amounts paid with respect to any Lender Letter
of Credit that are not immediately repaid by Borrower with the proceeds of a
Revolving Advance or otherwise shall bear interest at the Default Rate
applicable to Base Rate Revolving Loans. In the event that Borrower shall fail
to reimburse Agent on the date of any payment under a Lender Letter of Credit in
an amount equal to the amount
17
<PAGE> 26
of such payment, Agent shall promptly notify each Lender of the unreimbursed
amount of such payment together with accrued interest thereon and each Lender,
on the next Business Day, shall deliver to Agent an amount equal to its
respective participation in same day funds. The obligation of each Lender to
deliver to Agent an amount equal to its respective participation pursuant to the
foregoing sentence shall be absolute and unconditional and such remittance shall
be made notwithstanding the occurrence or continuation of an Event of Default or
Default or the failure to satisfy any condition set forth in Section 3. In the
event any Lender fails to make available to Agent the amount of such Lender's
participation in such Lender Letter of Credit, Agent shall be entitled to
recover such amount on demand from such Lender together with interest at the
Base Rate.
(3) CONDITIONS OF ISSUANCE. In addition to all other
terms and conditions set forth in this Agreement, the issuance of any Lender
Letter of Credit shall be subject to the satisfaction of all conditions
applicable to Revolving Advances, and the conditions that the letter of credit
which Borrower requests be in such form, be for such amount, contain such terms
and support such transactions as are reasonably satisfactory to Agent. The
expiration date of each Lender Letter of Credit shall be on a date which is at
least thirty (30) days prior to the Termination Date.
(4) REQUEST FOR LETTERS OF CREDIT. Borrower shall
give Agent at least three (3) Business Days prior notice specifying the date a
Lender Letter of Credit is to be issued, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby. The
notice shall be accompanied by the form of the letter of credit being requested.
(G) OTHER LETTER OF CREDIT PROVISIONS.
(1) OBLIGATIONS ABSOLUTE. The obligation of Borrower
to reimburse Agent or any Lender for payments made under, and other amounts
payable in connection with, any Lender Letter of Credit shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including the following circumstances:
(a) any lack of validity or enforceability
of any Lender Letter of Credit, Bank Letter of Credit or any other agreement;
(b) the existence of any claim, set-off,
defense or other right which Borrower, any of its Affiliates, Agent or any
Lender, on the one hand, may at any time have against any beneficiary or
transferee of any Lender Letter of Credit or Bank Letter of Credit (or any
Persons for whom any such transferee may be acting), Agent, any Lender or any
other Person, on the other hand, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Affiliates and the
beneficiary of the letter of credit);
(c) any draft, demand, certificate or any
other document presented under any Lender Letter of Credit or Bank Letter of
Credit is alleged to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
18
<PAGE> 27
(d) payment under any Lender Letter of
Credit or Bank Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
letter of credit; provided that, in the case of any payment by Agent or a Lender
under any Lender Letter of Credit, Agent or such Lender has not acted with gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit complies on its face with any applicable requirements for a
demand for payment under such Lender Letter of Credit;
(e) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or
(f) the fact that a Default or an Event of
Default shall have occurred and be continuing.
(2) NATURE OF LENDER'S DUTIES. As between Agent and Lenders,
on the one hand, and Borrower, on the other hand, Borrower assumes all risks of
the acts and omissions of, or misuse of any Lender Letter of Credit by the
beneficiary thereof. In furtherance and not in limitation of the foregoing,
neither Agent nor any Lender shall be responsible for the following, other than
as a result of such Lender's or Agent's willful misconduct or gross negligence:
(a) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document by any party in connection with the application for and issuance
of any Lender Letter of Credit, even if it should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (c) for failure of the beneficiary of
any Lender Letter of Credit to comply fully with conditions required in order to
demand payment thereunder; provided that, in the case of any payment by Agent or
any Lender under any Lender Letter of Credit, Agent or Lender has not acted with
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit complies on its face with any applicable requirements for a
demand for payment thereunder; (d) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (e) for errors in
interpretation of technical terms; (f) for any loss or delay in the transmission
or otherwise of any document required in order to make a payment under any
Lender Letter of Credit; (g) for the credit of the proceeds of any drawing under
any Lender Letter of Credit; and (h) for any consequences arising from causes
beyond the control of Agent or any Lender as the case may be. None of the above
shall affect, impair, or prevent the vesting of any of Agent's or any Lender's
rights or powers hereunder.
(3) LIABILITY. In furtherance and extension of and not in
limitation of, the specific provisions herein above set forth, any action taken
or omitted by Agent or any Lender under or in connection with any Lender Letter
of Credit, if taken or omitted in good faith, shall not put Agent or any Lender
under any resulting liability to Borrower.
19
<PAGE> 28
2.2 INTEREST.
(A) RATE OF INTEREST. The Loans and all other Obligations
shall bear interest from the date such Loans are made or such other Obligations
become due to the date paid at a rate per annum equal to (i) in the case of Base
Rate Loans and other Obligations for which no other interest rate is specified,
the Base Rate plus one-half of one percent (.50%) and (ii) in the case of LIBOR
Loans, LIBOR plus two and three quarters percent (2.75%) (the "INTEREST RATE").
The applicable basis for determining the rate of interest shall be selected by
Borrower initially at the time a Notice of Borrowing is given pursuant to
subsection 2.1(C). The basis for determining the interest rate with respect to
any Loan or a portion of any Loan may be changed from time to time pursuant to
subsection 2.2(E). If on any day a Loan or a portion of any Loan is outstanding
with respect to which notice has not been delivered to Agent in accordance with
the terms of this Agreement specifying the basis for determining the rate of
interest, then for that day that Loan or portion thereof shall bear interest
determined by reference to the Base Rate.
After the occurrence and during the continuance of an Event of Default
(i) the Loans and all other Obligations shall, at the option of Requisite
Lenders, bear interest at a rate per annum equal to two percent (2%) plus the
applicable Interest Rate (the "DEFAULT RATE"), (ii) each LIBOR Loan shall
automatically convert to a Base Rate Loan at the end of any applicable Interest
Period and (iii) no Loans may be converted to LIBOR Loans.
(B) INTEREST PERIODS. In connection with each LIBOR Loan,
Borrower shall elect an interest period (each an "INTEREST PERIOD") to be
applicable to such Loan, which Interest Period shall be either a one, two, three
or six month period; provided that:
(1) the initial Interest Period for any LIBOR Loan
shall commence on the Funding Date of such Loan;
(2) in the case of successive Interest Periods, each
successive Interest Period shall commence on the day on which the immediately
preceding Interest Period expires;
(3) if an Interest Period expiration date is not a
Business Day, such Interest Period shall expire on the next succeeding Business
Day; provided that if any Interest Period expiration date is not a Business Day
but is a day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the immediately preceding Business
Day;
(4) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to part (5), below, end on the last Business Day of a calendar
month;
(5) no Interest Period shall extend beyond the
Termination Date; and
20
<PAGE> 29
(6) there shall be no more than five (5) Interest
Periods relating to LIBOR Loans outstanding at any time.
(C) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans
and all other Obligations shall be computed on the daily principal balance on
the basis of a 360 day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of funding
of the Loan or the first day of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted from a LIBOR Loan, the date of
conversion of such LIBOR Loan to such Base Rate Loan, shall be included; and the
date of payment of such Loan or the expiration date of an Interest Period
applicable to such Loan, or with respect to a Base Rate Loan being converted to
a LIBOR Loan, the date of conversion of such Base Rate Loan to such LIBOR Loan,
shall be excluded; provided that if a Loan is repaid on the same day on which it
is made, one day's interest shall be paid on that Loan. Interest on Base Rate
Loans and all other Obligations (other than LIBOR Loans) shall be payable to
Agent for benefit of Lenders monthly in arrears on the first day of each month,
on the date of any prepayment of Loans, and at maturity, whether by acceleration
or otherwise. Interest on LIBOR Loans shall be payable to Agent for benefit of
Lenders on the last day of the applicable Interest Period for such Loan, on the
date of any prepayment of the Loans, and at maturity, whether by acceleration or
otherwise. In addition, for each LIBOR Loan having an Interest Period longer
than three (3) months, interest accrued on such Loan shall also be payable on
the last day of each three (3) month interval during such Interest Period.
(D) INTEREST LAWS. Notwithstanding any provision to the
contrary contained in this Agreement or any other Loan Document, Borrower shall
not be required to pay, and neither Agent nor any Lender shall be permitted to
collect, any amount of interest in excess of the maximum amount of interest
permitted by applicable law ("EXCESS INTEREST"). If any Excess Interest is
provided for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any other Loan Document, then in such
event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrower nor any other Loan Party shall be obligated to pay any Excess
Interest; (3) any Excess Interest that Agent or any Lender may have received
hereunder shall be, at such Lender's option, (a) applied as a credit against the
outstanding principal balance of the Obligations or accrued and unpaid interest
(not to exceed the maximum amount permitted by law), (b) refunded to the payor
thereof, or (c) any combination of the foregoing; (4) the interest rate(s)
provided for herein shall be automatically reduced to the maximum lawful rate
allowed from time to time under applicable law (the "MAXIMUM RATE"), and this
Agreement and the other Loan Documents shall be deemed to have been and shall
be, reformed and modified to reflect such reduction; and (5) neither Borrower
nor any Loan Party shall have any action against Agent or any Lender for any
damages arising out of the payment or collection of any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any
Obligations is calculated at the Maximum Rate rather than the applicable rate
under this Agreement, and thereafter such applicable rate becomes less than the
Maximum Rate, the rate of interest payable on such Obligations shall remain at
the Maximum Rate until each Lender shall have received the amount of interest
which such Lender would have received during such period on such Obligations had
the rate of interest not been limited to the Maximum Rate during such period.
21
<PAGE> 30
(E) CONVERSION OR CONTINUATION. Subject to the provisions of
subsection 2.2(A) Borrower shall have the option to (1) convert at any time all
or any part of outstanding Loans equal to $500,000 and integral multiples of
$100,000 in excess of that amount from Base Rate Loans to LIBOR Loans or (2)
upon the expiration of any Interest Period applicable to a LIBOR Loan, to (a)
continue all or any portion of such LIBOR Loan equal to $500,000 and integral
multiplies of $100,000 in excess of that amount as a LIBOR Loan or (b) convert
all or any portion of such LIBOR Loan to a Base Rate Loan. The succeeding
Interest Period(s) of such continued or converted Loan shall commence on the
last day of the Interest Period of the Loan to be continued or converted;
provided that no outstanding Loan may be continued as, or be converted into, a
LIBOR Loan, when any Event of Default or Default has occurred and is continuing.
Borrower shall deliver a notice of conversion/continuation to
Agent no later than noon (Central time) at least three (3) Business Days in
advance of the proposed conversion/ continuation date ("NOTICE OF
CONVERSION/CONTINUATION"). A Notice of Conversion/Continuation shall certify:
(1) the proposed conversion/continuation date (which shall be a Business Day);
(2) the amount of the Loan to be converted/continued; (3) the nature of the
proposed conversion/continuation; (4) in the case of conversion to, or a
continuation of, a LIBOR Loan, the requested Interest Period; and (5) that no
Default or Event of Default has occurred and is continuing or would result from
the proposed conversion/continuation.
In lieu of delivering the Notice of Conversion/Continuation,
Borrower may give Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2(E); provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Agent on or before the proposed
conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to
Borrower in acting upon any telephonic notice referred to above that Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized to act on behalf of Borrower or for otherwise acting in good
faith under this subsection 2.2(E) and upon conversion/continuation by Lenders
in accordance with this Agreement pursuant to any telephonic notice, Borrower
shall have effected such conversion or continuation, as the case may be,
hereunder.
2.3 FEES.
(A) UNUSED LINE FEE. Borrower shall pay to Agent, for the
benefit of Lenders, a fee in an amount equal to the Revolving Loan Commitment
less the sum of the average daily balance of the Revolving Loan plus the average
daily face amount of the Lender Letter of Credit Reserve during the preceding
month multiplied by one-half of one percent (.50%) per annum, such fee to be
calculated on the basis of a 360 day year for the actual number of days elapsed
and to be payable monthly in arrears on the first day of the first month
following the Closing Date and the first day of each month thereafter.
22
<PAGE> 31
(B) LETTER OF CREDIT FEES. Borrower shall pay to Agent for the
account of Lenders, a fee with respect to the Lender Letters of Credit in the
amount of the average daily amount of Letter of Credit Liability outstanding
during such month multiplied by two percent (2%) per annum. Such fees will be
calculated on the basis of a 360 day year for the actual number of days elapsed
and will be payable monthly in arrears on the first day of each month. Borrower
shall also reimburse Agent for any and all fees and expenses, if any, paid by
Agent or any Lender to the issuer of any Bank Letter of Credit.
(C) FIELD EXAMINATION FEES. Borrower agrees to pay to Agent
for its own account a field examination fee for each inspection equal to $750
per examiner per day or any portion thereof, excluding all full days spent by
Agent traveling to or from Borrower's locations, together with out of pocket
expenses. So long as no Event of Default is continuing, Borrower shall not be
liable for more than $5,000 in the aggregate for each field examination.
(D) OTHER FEES AND EXPENSES. Borrower shall pay to Agent, for
its own account, all (1) payments due under and pursuant to the Fee Letter, and
(2) charges for returned items and all other bank charges incurred by Agent, as
well as Agent's standard wire transfer charges for each wire transfer made under
this Agreement.
2.4 PAYMENTS AND PREPAYMENTS.
(A) MANNER AND TIME OF PAYMENT. In its sole discretion, Agent
may charge interest and other amounts payable hereunder to the Revolving Loan,
all as set forth on Agent's books and records. If Agent elects to bill Borrower
for any amount due hereunder, such amount shall be immediately due and payable
with interest thereon as provided herein. All payments made by Borrower with
respect to the Obligations shall be made without deduction, defense, setoff or
counterclaim. All payments to Agent hereunder shall, unless otherwise directed
by Agent, be made to Agent's Account or in accordance with subsection 5.6.
Proceeds remitted to Agent's Account shall be credited to the Obligations on the
Business Day such proceeds were received; provided, however, for the purpose of
calculating interest on the Obligations, such funds shall be deemed received on
the first Business Day thereafter, unless such proceeds were remitted to Agent's
Account by wire transfer of immediately available funds, in which case, for
purposes of calculating interest on the Obligations, such funds shall be deemed
received on the Business Day received.
(B) MANDATORY PREPAYMENTS.
(1) OVERADVANCE. At any time that the Revolving Loan
exceeds the Maximum Revolving Loan Amount, Borrower shall, immediately repay the
Revolving Loan to the extent necessary to reduce the principal balance to an
amount equal to or less than the Maximum Revolving Loan Amount.
(2) PROCEEDS OF ASSET DISPOSITIONS. At such time that
the sum of all proceeds of all Asset Dispositions (net of reasonable expenses
incurred in such transactions) received by Borrower in any Fiscal Year exceeds
$100,000, and such proceeds have not been immediately
23
<PAGE> 32
reinvested in like assets in which Agent has been granted a first priority
perfected security interest, then any such net proceeds received in excess of
such amount shall, immediately upon receipt thereof, be used to repay the
Obligations, to the extent any Obligations are then outstanding, in an amount
equal to the lesser of such excess net proceeds or the outstanding Obligations.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Borrower may, at any
time upon not less than three (3) Business Days' prior notice to Agent,
terminate the Revolving Loan Commitment and thereupon shall pay in full all of
the Obligations and shall cause Agent and each Lender to be released from all
liability under any Lender Letters of Credit or, at Agent's option, Borrower
will deposit cash collateral with Agent in an amount equal to 105% of the Letter
of Credit Liability that will remain outstanding after prepayment or repayment,
all under and pursuant to such instruments and documents in form and substance
satisfactory to Agent.
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 TERM OF THIS AGREEMENT. This Agreement shall be effective until
April 28, 2002 (the "TERMINATION DATE"). The Commitments shall (unless earlier
terminated pursuant to this Agreement) terminate upon the earlier of (i) the
occurrence of an event specified in subsection 8.3 or (ii) the Termination Date.
Upon termination in accordance with subsection 8.3 or on the Termination Date,
all Obligations shall become immediately due and payable without notice or
demand. Notwithstanding any termination, until all Obligations have been fully
paid and satisfied, Agent, on behalf of Lenders, shall be entitled to retain
security interests in and liens upon all Collateral, and even after payment of
all Obligations hereunder, Borrower's obligation to indemnify Agent and each
Lender in accordance with the terms hereof shall continue.
2.6 STATEMENTS. Agent shall render a monthly statement of account to
Borrower within twenty (20) days after the end of each month. Such statement of
account shall constitute an account stated unless Borrower makes written
objection thereto within thirty (30) days from the date such statement is mailed
to Borrower. Borrower promises to pay all of its Obligations as such amounts
become due or are declared due pursuant to the terms of this Agreement.
2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance
of the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, Borrower hereby grants to Agent,
on behalf of Lenders, a continuing security interest, lien and mortgage in and
to all right, title and interest of Borrower in the following property of
Borrower, whether now owned or existing or hereafter acquired or arising and
regardless of where located (all being collectively referred to as the
"COLLATERAL"): (A) Accounts, and all guaranties and security therefor, and all
goods and rights represented thereby or arising therefrom including the rights
of stoppage in transit, replevin and reclamation; (B) Inventory; (C) general
intangibles (as defined in the UCC); (D) documents (as defined in the UCC) or
other receipts covering, evidencing or representing goods; (E) instruments (as
defined in the UCC); (F) chattel paper (as defined in the
24
<PAGE> 33
UCC); (G) Equipment, including Laundry Equipment; (H) Additional Mortgaged
Property; (I) Leased Property; (J) Intellectual Property; (K) all deposit
accounts of Borrower maintained with any bank or financial institution; (L) all
cash and other monies and property of Borrower in the possession or under the
control of Agent, any Lender or any participant; (M) all books, records, ledger
cards, files, correspondence, computer programs, tapes, disks and related data
processing software that at any time evidence or contain information relating to
any of the property described above or are otherwise necessary or helpful in the
collection thereof or realization thereon; and (N) all products and proceeds of
all or any of the property described above, including, without limitation, the
proceeds of any insurance policies covering any of the above described property.
2.8 CAPITAL ADEQUACY AND OTHER ADJUSTMENTS. In the event Agent or any
Lender shall have determined that the adoption after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, reserve requirements or similar requirements
or compliance by Agent or such Lender or any corporation controlling Agent or
such Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) from any central
bank or governmental agency or body having jurisdiction does or shall have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by Agent or such Lender or any corporation controlling Agent or
such Lender and thereby reducing the rate of return on Agent's or such Lender's
or such corporation's capital as a consequence of its obligations hereunder,
then Borrower shall from time to time within fifteen (15) days after notice and
demand (which demand shall be accompanied by a statement setting forth in
reasonable detail the basis of such demand) from such Lender (with a copy to
Agent) or Agent (together with the certificate referred to in the next sentence)
pay to Agent or such Lender additional amounts sufficient to compensate Agent or
such Lender for such reduction to the extent that such Lender reasonably
determines such increase in capital to be allocable to the existence of such
Lender's Commitment. A certificate as to the amount of such cost and showing the
basis of the computation of such cost submitted by Agent or any Lender to
Borrower shall, absent manifest error, be final, conclusive and binding for all
purposes.
2.9 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however, the
following: taxes imposed on the net income of any Lender or Agent by the
jurisdiction under the laws of which Agent or such Lender is organized or doing
business or any political subdivision thereof and taxes imposed on its net
income by the jurisdiction of Agent's or such Lender's applicable lending office
or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
excluding such taxes imposed on net income, herein "TAX LIABILITIES"). If
Borrower shall be required by law to deduct any such Tax Liabilities from or in
respect of any sum payable hereunder to Agent or any Lender, then the sum
payable hereunder shall be increased as may be necessary so that, after making
all
25
<PAGE> 34
required deductions, Agent or such Lender receives an amount equal to the sum it
would have received had no such deductions been made.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the
Closing Date, (i) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (iii) compliance by Lender with any request or directive (whether or
not having the force of law) from any governmental authority, agency or
instrumentality:
(1) does or shall subject Agent or any Lender to any
tax of any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to Agent or such Lender of principal,
fees, interest or any other amount payable hereunder (except for net income
taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally
by federal, state or local taxing authorities with respect to interest or
commitment or other fees payable hereunder or changes in the rate of tax on the
overall net income of Agent or such Lender); or
(2) does or shall impose on Agent or any Lender any
other condition or increased cost in connection with the transactions
contemplated hereby or participations herein; and the result of any of the
foregoing is to increase the cost to Agent or such Lender of issuing any Lender
Letter of Credit or making or continuing any Loan hereunder, as the case may be,
or to reduce any amount receivable hereunder,
then, in any such case, Borrower shall promptly pay to Agent or such Lender,
within ten (10) days after its demand therefor (which demand shall be
accompanied by a statement setting forth in reasonable detail the basis of such
demand), any additional amounts necessary to compensate Agent or such Lender, on
an after-tax basis, for such additional cost or reduced amount receivable, to
the extent reasonably determined by Agent or such Lender to be attributable to
this Agreement or the other Loan Documents. If Agent or any Lender becomes
entitled to claim any additional amounts pursuant to this subsection, it shall
promptly notify Borrower of the event by reason of which Agent or such Lender
has become so entitled. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Agent or any Lender to Borrower
shall, absent manifest error, be final, conclusive and binding for all purposes.
(C) FOREIGN LENDERS. Each Lender organized under the laws of a
jurisdiction outside the United States (a "FOREIGN LENDER") as to which payments
to be made under this Agreement or under the Notes) is exempt from United States
withholding tax or is subject to United States withholding tax at a reduced rate
under an applicable statute or tax treaty shall provide to Borrower and Agent
(i) a properly completed and executed Internal Revenue Service Form 4224 or Form
1001 or other applicable form, certificate or document prescribed by the
Internal Revenue Service of the United States certifying as to such Foreign
Lender's entitlement to such exemption or reduced rate of withholding with
respect to payments to be made to such Foreign Lender under this Agreement, or
under the Notes (a "CERTIFICATE OF EXEMPTION"), or (ii) a letter from any such
Foreign Lender stating that it is not entitled to any such exemption or reduced
rate of withholding
26
<PAGE> 35
(a "LETTER OF NON-EXEMPTION"). Prior to becoming a Lender under this Agreement
and within fifteen (15) days after a reasonable written request of Borrower or
Agent from time to time thereafter, each Foreign Lender that becomes a Lender
under this Agreement shall provide a Certificate of Exemption or a Letter of
Non-Exemption to Borrower and Agent.
If a Foreign Lender is entitled to an exemption with respect
to payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption to
Borrower and Agent within the time periods set forth in the preceding paragraph,
Borrower shall withhold taxes from payments to such Foreign Lender at the
applicable statutory rates and Borrower shall not be required to pay any
additional amounts as a result of such withholding; provided, however, that all
such withholding shall cease upon delivery by such Foreign Lender of a
Certificate of Exemption to Borrower and Agent.
2.10 REQUIRED TERMINATION AND PREPAYMENT. If on any date any Lender
shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of its
LIBOR Loans has become unlawful or impossible due to compliance by Lender in
good faith with any law, governmental rule, regulation or order (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful), then, and in any such event, that Lender shall promptly give notice
(by telephone confirmed in writing) to Borrower and Agent of that determination
(which notice shall be accompanied by a statement setting forth in reasonable
detail the basis of such determination). Subject to prior withdrawal of a Notice
of Borrowing or a Notice of Conversion/Continuation or prepayment of LIBOR Loans
as contemplated by subsection 2.11, the obligation of Lender to make or maintain
its LIBOR Loans during any such period shall be terminated at the earlier of the
termination of the Interest Period then in effect or when required by law and
Borrower shall no later than the termination of the Interest Period in effect at
the time any such determination pursuant to this subsection 2.10 is made or,
earlier when required by law, repay or prepay LIBOR Loans together with all
interest accrued thereon or convert LIBOR Loans to Base Rate Loans.
2.11 OPTIONAL PREPAYMENT/REPLACEMENT OF AGENT OR LENDERS IN RESPECT OF
INCREASED COSTS. Within fifteen (15) days after receipt by Borrower of written
notice and demand from Agent or any Lender (an "AFFECTED LENDER") for payment of
additional costs as provided in subsection 2.8, Borrower may, at its option,
notify Agent and such Affected Lender of its intention to do one of the
following:
(A) Borrower may obtain, at Borrower's expense, a replacement
Lender ("REPLACEMENT LENDER") for such Affected Lender, which Replacement Lender
shall be reasonably satisfactory to Agent. In the event Borrower obtains a
Replacement Lender within ninety (90) days following notice of its intention to
do so, the Affected Lender shall sell and assign its Loans and Commitments to
such Replacement Lender provided that Borrower has reimbursed such Affected
Lender for its increased costs for which it is entitled to reimbursement under
this Agreement through the date of such sale and assignment.
27
<PAGE> 36
(B) Borrower may prepay in full all outstanding Obligations
owed to such Affected Lender and terminate such Affected Lender's Commitments.
Borrower shall, within ninety (90) days following notice of its intention to do
so, prepay in full all outstanding Obligations owed to such Affected Lender
(including such Affected Lender's increased costs for which it is entitled to
reimbursement under this Agreement through the date of such prepayment) and
terminate such Affected Lender's Commitments.
2.12 COMPENSATION. Borrower shall compensate each Lender, upon written
request by such Lender (which request shall set forth in reasonable detail the
basis for requesting such amounts and which shall, absent manifest error, be
conclusive and binding upon all parties hereto), for all reasonable losses,
expenses and liabilities including, without limitation, any loss sustained by
such Lender in connection with the re-employment of such funds: (i) if for any
reason (other than a default by such Lender) a borrowing of any LIBOR Loan does
not occur on a date specified therefor in a Notice of Borrowing, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
Conversion/Continuation; (ii) if any prepayment of any of its LIBOR Loans occurs
on a date that is not the last day of an Interest Period applicable to that Loan
(other than a prepayment made pursuant to subsection 2.10); (iii) if any
prepayment of any of its LIBOR Loans is not made on any date specified in a
notice of prepayment given by Borrower; or (iv) as a consequence of any other
default by Borrower to repay its LIBOR Loans when required by the terms of this
Agreement; provided that during the period while any such amounts have not been
paid, such Lender shall reserve an equal amount from amounts otherwise available
to be borrowed under the Revolving Loan.
2.13 BOOKING OF LIBOR LOANS. Each Lender may make, carry or transfer
LIBOR Loans at, to, or for the account of, any of its branch offices or the
office of an affiliate of Lender.
2.14 ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS. Calculation of all
amounts payable to any Lender under subsection 2.12 shall be made as though such
Lender had actually funded its relevant LIBOR Loan through the purchase of a
LIBOR deposit bearing interest at LIBOR in an amount equal to the amount of that
LIBOR Loan and having maturity comparable to the relevant Interest Period and
through the transfer of such LIBOR deposit from an offshore office to a domestic
office in the United States of America; provided, however, that each Lender may
fund each of its LIBOR Loans in any manner it sees fit and the foregoing
assumption shall be utilized only for the calculation of amounts payable under
subsection 2.12.
SECTION 3. CONDITIONS TO LOANS
3.1 CONDITIONS TO LOANS. The obligations of Agent and each Lender to
make Loans and the obligation of Agent or any Lender to issue Lender Letters of
Credit on the Closing Date and on each Funding Date are subject to satisfaction
of all of the conditions set forth below.
(A) CLOSING DELIVERIES. Agent shall have received, in form and
substance satisfactory to Agent, all documents, instruments and information
identified on Schedule 3.1(A) and
28
<PAGE> 37
all other agreements, notes, certificates, orders, authorizations, financing
statements, mortgages and other documents which Agent may at any time reasonably
request.
(B) SECURITY INTERESTS. Agent shall have received satisfactory
evidence that all security interests and liens granted to Agent for the benefit
of Lenders pursuant to this Agreement or the other Loan Documents have been duly
perfected and constitute first priority liens on the Collateral, subject only to
Permitted Encumbrances.
(C) CASH ON HAND. Agent shall have received evidence
satisfactory to it that after giving effect to the consummation of the
transactions contemplated hereunder on the Closing Date (including, without
limitation, the repayment of all Indebtedness of Borrower outstanding
immediately prior to the issuance of the Senior Unsecured Notes) and the payment
by Borrower of all costs, fees and expenses relating thereto, Borrower has not
less than $40,000,000 in unrestricted cash on hand (exclusive of any Revolving
Advances made under this Agreement).
(D) REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein and in the other Loan Documents shall be true,
correct and complete in all material respects on and as of that Funding Date to
the same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date and taking
into account any amendments to the Schedules or Exhibits as a result of any
disclosures made by Borrower to Agent after the Closing Date and approved by
Agent.
(E) FEES. With respect to Loans or Lender Letters of Credit to
be made or issued on the Closing Date, Borrower shall have paid the fees payable
on the Closing Date referred to in Section 2.3.
(F) NO DEFAULT. No event shall have occurred and be continuing
or would result from the consummation of the requested borrowing or notice
requesting issuance of a Lender Letter of Credit that would constitute an Event
of Default or a Default.
(G) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have
performed in all material respects all agreements and satisfied all conditions
which any Loan Document provides shall be performed by it on or before that
Funding Date.
(H) NO PROHIBITION. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Agent
or any Lender from making any Loans or issuing any Lender Letters of Credit.
(I) NO LITIGATION. There shall not be pending or, to the
knowledge of Borrower, threatened, any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration by, against or
affecting any Loan Party or any of its Subsidiaries or any property of any Loan
Party or any of its Subsidiaries, involving an amount (1) in excess of $250,000
with respect to any individual action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration or (2) in excess of $500,000
in the aggregate with respect to any action,
29
<PAGE> 38
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration taken together with all other actions, charges, claims, demands,
suits, proceedings, petitions, governmental investigations and arbitrations (in
either case not adequately covered by insurance as to which the insurance
company has acknowledged coverage) that has not been disclosed to Agent by
Borrower in writing, and there shall have occurred no development in any such
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration that, in the opinion of Agent, would reasonably be
expected to have a Material Adverse Effect.
(J) SENIOR UNSECURED NOTES. Agent shall be satisfied that
Borrower shall have received a sum in cash in the aggregate amount of not less
than $100,000,000 (prior to the payment by Borrower of all costs, fees and
expenses relating thereto) in consideration of its issuance of Units consisting
in the aggregate of $144,990,000 principal amount at maturity, 12 3/4% Senior
Discount Notes of Borrower due 2005, Series A, and warrants to purchase 26,661
Shares of common stock, $0.01 par value, at $.01 per share, of Borrower
(collectively, the "SENIOR UNSECURED NOTES") issued under an Indenture dated as
of April 29, 1998 (as amended, supplemented or otherwise modified from time to
time to the extent, but only to the extent, permitted under subsection 7.7, the
"SENIOR UNSECURED NOTES INDENTURE") between Borrower and Norwest Bank Minnesota,
N.A., as Trustee.
(K) SENIOR UNSECURED NOTES DOCUMENTS. Agent shall have
received copies of the Senior Unsecured Note Documents, certified as true and
complete and in full force and effect by an officer of Borrower, and such
documents shall be reasonably satisfactory to Agent.
(L) COLLATERAL VERIFICATION AND AUDIT PROCEDURE REPORT. Agent
shall have received from Price Waterhouse LLP a Collateral Verification and
Audit Procedure Report prepared by Price Waterhouse LLP, at Borrower's expense,
and otherwise satisfactory in form and substance to Agent.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Agent and each Lender to enter into this Agreement, to make
Loans and to issue Lender Letters of Credit, Borrower represents and warrants to
Agent and each Lender that the following statements are and will be true,
correct and complete:
4.1 ORGANIZATION, POWERS, CAPITALIZATION.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and qualified to do business in all states
where such qualification is required except where failure to be so qualified
could not be reasonably expected to have a Material Adverse Effect. Each of the
Loan Parties has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and proposed to be
conducted and to enter into each Loan Document.
30
<PAGE> 39
(B) CAPITALIZATION. The authorized capital stock of each of
the Loan Parties is as set forth on Schedule 4.1(B). All issued and outstanding
shares of capital stock of each of the Loan Parties are duly authorized and
validly issued, fully paid, nonassessable, free and clear of all Liens and such
shares were issued in all material respects in compliance with all applicable
state and federal laws concerning the issuance of securities. Schedule 4.1(B)
sets forth the largest registered owners of the common stock of Borrower (on a
fully diluted basis) aggregating no less than fifty-one percent (51%) of such
capital stock (on a fully diluted basis). No shares of the capital stock of any
Loan Party, other than those described above, are issued and outstanding. There
are no preemptive or other outstanding rights, options, warrants, conversion
rights or similar agreements or understandings for the purchase or acquisition
from any Loan Party, of any shares of capital stock or other securities of any
such entity.
4.2 AUTHORIZATION OF BORROWING, NO CONFLICT. Borrower has the corporate
power and authority to incur the Obligations and to grant security interests in
the Collateral. On the Closing Date, the execution, delivery and performance of
the Loan Documents by each Loan Party signatory thereto will have been duly
authorized by all necessary corporate and stockholder action. The execution,
delivery and performance by each Loan Party of each Loan Document to which it is
a party and the consummation of the transactions contemplated by this Agreement
and the other Loan Documents by each Loan Party do not contravene and will not
be in contravention of any applicable law, the corporate charter or bylaws of
any Loan Party or any agreement or order by which any Loan Party or any Loan
Party's property is bound. This Agreement is, and the other Loan Documents,
including the Notes when executed and delivered will be, the legally valid and
binding obligations of the applicable Loan Parties respectively, each
enforceable against the Loan Parties, as applicable, in accordance with their
respective terms.
4.3 FINANCIAL CONDITION. All financial statements concerning Borrower
which have been or will hereafter be furnished by Borrower to Agent or any
Lender pursuant to this Agreement have been or will be prepared in accordance
with GAAP consistently applied throughout the periods involved (except as
disclosed therein) and do or will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended. The Pro Forma was prepared by Borrower
based on the unaudited balance sheet of Borrower dated March 22, 1998. The
Projections delivered and to be delivered have been and will be prepared by
Borrower in light of the past operations of the business of Borrower, and such
Projections represent and will represent the good faith estimate of Borrower and
its senior management concerning the most probable course of its business as of
the date such Projections are prepared and delivered.
4.4 INDEBTEDNESS AND LIABILITIES. As of the Closing Date, Borrower does
not have (a) any Indebtedness except as reflected on the Pro Forma; or (b) any
Liabilities other than as reflected on the Pro Forma or as incurred in the
ordinary course of business following the date of the Pro Forma.
4.5 LAUNDRY EQUIPMENT WARRANTIES. Schedule 4.7 sets forth a list of the
locations where all Borrower's present Laundry Equipment is kept. All Laundry
Equipment is, and will be,
31
<PAGE> 40
owned by Borrower free and clear of all liens and security interests in favor of
any Person other than Agent, except as expressly permitted hereunder. All
Laundry Equipment hereafter acquired will be kept at the location or locations
shown on Schedule 4.7 except as permitted by this Agreement. Borrower shall at
all times hereafter keep correct and accurate records itemizing and describing
the location, kind and type of Laundry Equipment, the cost therefor and
accumulated depreciation thereof and retirements, sales, or other dispositions
thereof, all of which records shall be available for examination on demand to
any of the officers, employees or agents of Agent. To the best of Borrower's
knowledge, no Person owning or operating any Laundry Equipment necessary for the
operation of Borrower's business has used, operated or maintained the same in a
manner which, whether now or hereafter, could result in the cancellation or
termination of the right of Borrower to use the same or which could result in
any material liability of Borrower for damages in connection therewith.
4.6 NAMES. Schedule 4.6 sets forth all names, trade names, fictitious
names and business names under which Borrower currently conducts business or has
at any time during the past five years conducted business.
4.7 LOCATIONS; FEIN. Schedule 4.7 sets forth the location of Borrower's
principal place of business, the location of Borrower's books and records, the
location of all other offices of Borrower, the location of all Facilities, and
all Collateral locations, and such locations are Borrower's sole locations for
its business and the Collateral. Borrower's federal employer identification
number is set forth on the signature page hereof.
4.8 TITLE TO PROPERTIES; LIENS. Borrower has good, sufficient and legal
title, subject to Permitted Encumbrances, to all its respective material
properties and assets. Except for Permitted Encumbrances, all such properties
and assets are free and clear of Liens. To the best knowledge of Borrower after
due inquiry, there are no actual, threatened or alleged defaults with respect to
any leases of real property under which Borrower is lessee or lessor which would
have a Material Adverse Effect.
4.9 LITIGATION; ADVERSE FACTS. There are no judgments outstanding
against Borrower or affecting any property of Borrower nor is there any action,
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration now pending or, to the best knowledge of Borrower after due inquiry,
threatened against or affecting Borrower or any property of Borrower which could
reasonably be expected to result in any Material Adverse Effect. Borrower has
not received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed to any liability which could reasonably be expected to
result in any Material Adverse Effect.
4.10 PAYMENT OF TAXES. All material tax returns and reports of Borrower
required to be filed by it have been timely filed, and all taxes, assessments,
fees and other governmental charges upon Borrower and upon its properties,
assets, income and franchises which are shown on such returns as due and payable
have been paid when due and payable. As of the Closing Date, Borrower has
received no notice that any of its United States income tax returns are under
audit. No tax liens
32
<PAGE> 41
have been filed and no claims (except as otherwise permitted by Section 5.9) are
being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of Borrower in respect of any taxes or other governmental
charges are in accordance with GAAP.
4.11 PERFORMANCE OF AGREEMENTS. None of the Loan Parties is in default
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any contractual obligation of any such
Person, and no condition exists that, with the giving of notice or the lapse of
time or both, would constitute such a default which could reasonably be expected
to have a Material Adverse Effect.
4.12 EMPLOYEE BENEFIT PLANS. Borrower and each ERISA Affiliate is in
compliance in all material respects with all applicable provisions of ERISA, the
IRC and all other applicable laws and the regulations and interpretations
thereof with respect to all Employee Benefit Plans. No material liability has
been incurred by Borrower, or any ERISA Affiliate which remains unsatisfied for
any funding obligation, taxes or penalties with respect to any Employee Benefit
Plan.
4.13 INTELLECTUAL PROPERTY. Borrower owns, is licensed to use or
otherwise has the right to use, all Intellectual Property used in or necessary
for the conduct of its business as currently conducted, and all such
Intellectual Property is identified on Schedule 4.13.
4.14 BROKER'S FEES. No broker's or finder's fee or commission will be
payable by or on behalf of Borrower with respect to any of the transactions
contemplated hereby.
4.15 ENVIRONMENTAL COMPLIANCE. Each Loan Party has been and is
currently in compliance with all applicable Environmental Laws, including
obtaining and maintaining in effect all permits, licenses or other
authorizations required by applicable Environmental Laws as such Laws relate to
the Facilities operated by any Loan Party as of the date hereof. To each Loan
Party's knowledge, there are no claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or threatened against Borrower, or
judgments or orders relating to any Hazardous Materials asserted or threatened
against any Loan Party or relating to any real property currently or formerly
owned, leased or operated by any Loan Party, except as identified on Schedule
4.15.
4.16 SOLVENCY. After giving effect to the transactions contemplated by
the Loan Documents, and as of, and from and after, the date of this Agreement,
Borrower: (a) owns and will own assets the fair salable value of which are (i)
greater than the total amount of its liabilities (including contingent
liabilities) and (ii) greater than the amount that will be required to pay the
probable liabilities of Borrower as they mature; (b) has capital that is not
unreasonably small in relation to its business as presently conducted or any
contemplated or 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. There is no material fact known to Borrower that has or
could have a Material Adverse Effect and that has not been fully disclosed
herein or in such other documents, certificates and statements furnished to
Agent or Lenders for use in connection with the transactions contemplated
hereby.
33
<PAGE> 42
4.17 DISCLOSURE. No representation or warranty of Borrower or any other
Loan Party contained in this Agreement, the financial statements, the other Loan
Documents, or any other document, certificate or written statement furnished to
Agent or any Lender by or on behalf of any such Person for use in connection
with the Loan Documents contains any untrue statement of a material fact or
omitted, omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances in which the same were made. The Projections and pro forma
financial information contained in such materials are based upon good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by Agent and Lenders that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the projected
results. There is no material fact known to Borrower that has had or will have a
Material Adverse Effect and that has not been disclosed herein or in such other
documents, certificates and statements furnished to Agent or any Lender for use
in connection with the transactions contemplated hereby.
4.18 INSURANCE. Borrower maintains adequate insurance policies for
public liability, property damage for its business and properties, product
liability, and business interruption, no notice of cancellation has been
received with respect to such policies and Borrower is in compliance with all
conditions contained in such policies.
4.19 COMPLIANCE WITH LAWS; LICENSES AND APPROVALS. Borrower is not in
violation of any law, ordinance, rule, regulation, order, policy, guideline or
other requirement of any domestic or foreign government or any instrumentality
or agency thereof, having jurisdiction over the conduct of its business or the
ownership of its properties, including, without limitation, any violation
relating to any use, release, storage, transport or disposal of any Hazardous
Material, which violation would subject Borrower or any of its officers to
criminal liability or have a Material Adverse Effect and no such violation has
been alleged. Borrower has all necessary licenses, permits and governmental
authorizations, to lease and operate its properties and to carry on its business
as now conducted.
4.20 BANK ACCOUNTS. Schedule 4.20 sets forth the account numbers and
locations of all bank accounts of Borrower.
4.21 SUBSIDIARIES. Borrower has no Subsidiaries.
4.22 EMPLOYEE MATTERS. Except as set forth on Schedule 4.22, (a) no
Loan Party nor any of such Loan Party's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party, and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its respective
employees, other than employee grievances arising in the ordinary course of
business which could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. Except as set forth on Schedule 4.22,
Borrower is not subject to an employment contract.
34
<PAGE> 43
4.23 GOVERNMENTAL REGULATION. None of the Loan Parties is, or after
giving effect to any Loan will be, subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or the Investment
Company Act of 1940 or to any federal or state statute or regulation limiting
its ability to incur indebtedness for borrowed money which statute or regulation
would prohibit Borrower from borrowing or limit or restrict its right to borrow
under this Agreement.
4.24 MATERIAL ADVERSE EFFECT. Since March 22, 1998, no event or change
has occurred that has caused or evidences, and Borrower is not aware of any
incipient change that is reasonably likely to cause or evidence, either
individually or together with all such other events or changes, a Material
Adverse Effect with respect to Borrower.
4.25 SENIOR UNSECURED NOTES DOCUMENTS. The Senior Unsecured Notes
Documents have been duly executed and delivered and are in full force and
effect. The representations and warranties contained in the Senior Unsecured
Notes Documents are true and correct in all respects on the date hereof and will
be true and correct in all respects on the Closing Date, as if made on such
date, and Agent and Lenders shall be entitled to rely upon such representations
and warranties with the same force and effect as if they were incorporated in
this Agreement and made to Agent and each Lender directly as of the date hereof
and the Closing Date. The transactions contemplated by the Senior Unsecured
Notes Documents have been consummated in accordance with and pursuant to the
terms and conditions of the Senior Unsecured Notes Documents (without any waiver
or amendment of any term or condition therein not consented to by Agent and
Lenders) and in compliance with all applicable laws and pursuant to all
necessary approvals.
Borrower may, at any time and from time to time and subject to
subsection 5.13, amend any one or more of the Schedules referred in this Section
4 and any representation or warranty contained herein which refers to any such
Schedule shall from and after the date of any such amendment refer to such
Schedule as so amended, provided, however, that in no event may Borrower amend
any such Schedule if such amendment would reflect or evidence a Default or Event
of Default.
SECTION 5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the Commitments
hereunder shall be in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit, unless Requisite Lenders shall
otherwise give their prior written consent, Borrower shall perform all covenants
in this Section 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Borrower will deliver to Agent and each Lender (unless specified to
be delivered solely to Agent) the financial statements and other reports
described below.
35
<PAGE> 44
(A) PERIOD FINANCIALS. As soon as available and in any event
within twenty (20) days after the end of each Period, Borrower will deliver (1)
the balance sheet of Borrower as at the end of such Period and the related
statements of income, stockholders' equity and cash flow for such Period and for
the period from the beginning of the then current Fiscal Year to the end of such
Period, and (2) a schedule of the outstanding Indebtedness for borrowed money of
Borrower describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest
with respect to each such debt issue or loan.
(B) YEAR-END FINANCIALS. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, Borrower will
deliver: (1) the balance sheet of Borrower as at the end of such year and the
related statements of income, stockholders' equity and cash flow for such Fiscal
Year; (2) a schedule of the outstanding Indebtedness of Borrower describing in
reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each such debt
issue or loan; and (3) a report with respect to the financial statements from
Price Waterhouse LLP or another firm of independent certified public accountants
selected by Borrower and reasonably acceptable to Agent, which report shall be
unqualified as to going concern and scope of audit of Borrower and shall state
that (a) such financial statements present fairly the financial position of
Borrower as at the dates indicated and the results of its operations and cash
flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and (b) that the examination by such accountants in
connection with such financial statements has been made in accordance with
generally accepted auditing standards.
(C) ACCOUNTANTS' CERTIFICATION AND REPORTS. Together with each
delivery of financial statements of Borrower pursuant to subsection 5.1(B),
Borrower will deliver (1) a written statement by its independent certified
public accountants (a) stating that the examination has included a review of the
terms of this Agreement as the same relate to accounting matters and (b) stating
whether, in connection with the examination, any condition or event that
constitutes a Default or an Event of Default has come to their attention and, if
such a condition or event has come to their attention, specifying the nature and
period of existence thereof and (2) a letter addressed to Agent and Lenders from
such accountants stating that such accountants have been informed that a primary
intent of Borrower was to have the professional services such accountants
provided to Borrower in preparing their audit report and the letter referred to
in this subsection 5.1(C) benefit or influence Agent and Lenders, and
identifying Agent and Lenders as parties that Borrower has indicated intend to
rely on such professional services provided to Borrower by such accountants.
Promptly upon receipt thereof, Borrower will deliver copies of all significant
reports submitted to Borrower by independent public accountants in connection
with each annual, interim or special audit of the financial statements of
Borrower made by such accountants, including the comment letter submitted by
such accountants to management in connection with their annual audit.
(D) COMPLIANCE CERTIFICATE. Together with the delivery of each
set of financial statements referenced in subparts (A), (B) and (C) of this
subsection 5.1, Borrower will deliver a Compliance Certificate, together with
copies of the calculations and work-up employed to determine Borrower's
compliance or noncompliance with the financial covenants set forth in Section 6.
36
<PAGE> 45
(E) BORROWING BASE CERTIFICATES, LAUNDRY EQUIPMENT REPORTS. On
the Closing Date, as at April 19, 1998, and within ten (10) Business Days after,
and as at, the last day of each Period, Borrower shall deliver to Agent: (1) a
Borrowing Base Certificate; (2) a Laundry Equipment Report; and (3) an aged
trial balance of all then existing accounts payable. All such reports shall be
in form and substance satisfactory to Agent.
(F) LEASED PROPERTY REPORTS. Borrower shall, not less than
thirty (30) days prior to (or, with respect to the acquisition of an Acquired
Store, not less than thirty (30) days prior to such acquisition or, if later,
not later than the date on which substantive negotiations with respect to such
acquisition commenced) opening, reopening, or closing a Facility or selling any
Laundry Equipment or moving any Laundry Equipment to a location other than a
Facility (including a location not owned or leased by Borrower), notify Agent
thereof by delivery to Agent of a Leased Property Report in the form of Exhibit
E, which Leased Property Report shall include, as applicable, a description of
the Laundry Equipment to be maintained at such Facility or other location or, if
such Facility is closing, the location to where the Laundry Equipment from such
Facility is being moved or, if Laundry Equipment is being sold, the Net Book
Value of the Laundry Equipment being sold and the location from which it is
being sold. In the event of the opening of a Facility at a location previously
not occupied by Borrower, Borrower shall, at the same time it delivers such
Leased Property Report, deliver to Agent a copy of the Lease covering such
facility, a copy of the Landlord Waiver relating to such lease, executed UCC
financing statements covering the Collateral at such location, in proper form
for recording in the jurisdiction of such location to the extent necessary to
perfect Agent's security interest therein, and an amendment or supplement to
Schedule 1.1(a) to this Agreement as well as to Exhibit A to the Collateral
Assignment of Leases, to add such lease to the description of Leased Property
set forth on such schedules.
(G) MANAGEMENT REPORT. Together with each delivery of
financial statements of Borrower pursuant to subdivisions (A) (on a quarterly
basis only), and (B) of this subsection 5.1, Borrower will deliver a copy of its
Form 10-K or Form 10-Q, as applicable, filed with the Securities and Exchange
Commission for the period covered by such financial statements, each of which
shall include a complete management's discussion and analysis of financial
condition and results of operations. The information above shall be certified by
the chief financial officer of Borrower to the effect that such information
fairly presents the results of operations and financial condition of Borrower as
at the dates and for the periods indicated.
(H) APPRAISALS. From time to time, upon the request of Agent,
Borrower will obtain and deliver to Agent appraisal reports in form and
substance and from appraisers satisfactory to Agent, stating the then current
fair market and orderly liquidation values of all or any portion of the
Collateral specified by Agent. The costs of such appraisal reports shall be
allocated as follows: (a) so long as no Event of Default is continuing, the cost
of one such appraisal report per Loan Year shall be borne by Borrower (which
cost to Borrower shall not exceed $10,000 in any Loan Year) and the cost of all
other appraisal reports which are made during such Loan Year shall be borne by
Lenders, and (b) whenever an Event of Default exists hereunder, the costs of all
appraisal reports shall be borne by Borrower.
37
<PAGE> 46
(I) GOVERNMENT NOTICES. Borrower will deliver to Agent
promptly after receipt copies of all notices, requests, subpoenas, inquiries or
other writings received from any governmental agency concerning any Employee
Benefit Plan, the violation or alleged violation of any Environmental Laws, the
storage, use or disposal of any Hazardous Material, the violation or alleged
violation of the Fair Labor Standards Act or Borrower's payment or non-payment
of any taxes including any tax audit.
(J) EVENTS OF DEFAULT, ETC. Promptly upon (but in any event
within five (5) Business Days after) any officer of Borrower obtaining knowledge
of any of the following events or conditions, Borrower shall deliver a
certificate of Borrower's chief executive officer specifying the nature and
period of existence of such condition or event and what action Borrower has
taken, is taking and proposes to take with respect thereto: (1) any condition or
event that constitutes an Event of Default or Default (including, without
limitation, in each case, arising under subdivision (B) of subsection 8.1); (2)
any notice of default that any Person has given to Borrower or any other action
taken with respect to a claimed default which could reasonably be expected to
have a Material Adverse Effect; or (3) any Material Adverse Effect.
(K) TRADE NAMES. Borrower will give Agent at least thirty (30)
days' advance written notice of any change of name or of any new trade name or
fictitious business name. Borrower's use of any trade name or fictitious
business name will be in compliance with all laws regarding the use of such
names.
(L) LOCATIONS. Borrower will give Agent at least thirty (30)
days' advance written notice of any change in Borrower's principal place of
business or any change in the location of its books and records or of any new
location for its books and records. Borrower will give Agent at least thirty
(30) days advance written notice (or, in the case of the acquisition of an
Acquired Store, such shorter period as is provided in subdivision (F) of this
subsection 5.1) of any change in the location of, or new location for, the
Collateral.
(M) BANK ACCOUNTS. Borrower will give Agent prompt notice of
any new bank accounts Borrower intends to establish prior to its opening same.
(N) LITIGATION. Promptly upon any officer of Borrower
obtaining knowledge of (1) the institution of any action, suit, proceeding,
governmental investigation or arbitration against or affecting any Loan Party or
any property of any Loan Party not previously disclosed by Borrower to Agent
involving an amount (i) in excess of $250,000 with respect to any individual
action, suit, proceeding, governmental investigation or arbitration or (ii) in
excess of $500,000 in the aggregate with respect to any action, suit,
proceeding, governmental investigation or arbitration taken together with all
other actions, suits, proceedings, governmental investigations or arbitrations
(in either case not adequately covered by insurance as to which the insurance
company has acknowledged coverage), or (2) any material development in any
action, suit, proceeding, governmental investigation or arbitration at any time
pending against or affecting any Loan Party or any property of any Loan Party
which could reasonably be expected to have a Material Adverse Effect, Borrower
38
<PAGE> 47
will promptly give notice thereof to Agent and provide such other information as
may be reasonably available to them to enable Agent and its counsel to evaluate
such matter.
(O) PROJECTIONS. As soon as available and in any event no
later than fifteen (15) days prior to the end of each Fiscal Year of Borrower,
Borrower will deliver Projections of Borrower for the forthcoming three Fiscal
Years, year by year, and for the forthcoming Fiscal Year, Period by Period.
(P) INDEBTEDNESS NOTICES. Borrower shall promptly deliver
copies of all notices given or received by Borrower with respect to actual or
alleged noncompliance with any term or condition related to any Indebtedness
including, without limitation, Indebtedness under the Senior Unsecured Notes.
(Q) OTHER INFORMATION. With reasonable promptness, Borrower
will deliver such other information and data with respect to any Loan Party, or
the Collateral as Agent or any Lender may reasonably request from time to time.
5.2 ACCESS TO ACCOUNTANTS AND MANAGEMENT. Borrower authorizes Agent and
Lenders to discuss the financial condition and financial statements of Borrower
with Borrower's independent public accountants upon reasonable notice to
Borrower of its intention to do so, and authorizes such accountants to respond
to all of Agent's and Lenders' reasonable inquiries. Each Lender may, with the
consent of Agent (which will not be unreasonably denied) confer with Borrower's
management directly regarding Borrower's business, operations and financial
condition.
5.3 FIELD EXAMINATION. Borrower shall permit Agent and any authorized
representatives designated by Agent to visit and examine any of the properties
of Borrower, including its financial and accounting records, and in conjunction
with such examination, to make copies and take extracts therefrom, and to
discuss its affairs, finances and business with its officers and independent
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably requested. Borrower acknowledges that Agent intends
to make such examinations: (a) prior to the initial Revolving Advance hereunder,
on a semi-annual basis, and (b) subsequent to the initial Revolving Advance
hereunder up to four (4) times in any period of 12 consecutive months. Each
Lender may, with the consent of Agent (which will not be unreasonably denied)
accompany Agent on any such visit or examination.
5.4 COLLATERAL RECORDS. Borrower shall keep full and accurate books and
records relating to the Collateral and shall mark such books and records to
indicate Agent's security interests in the Collateral, for the benefit of
Lenders.
5.5 CONDITION OF LAUNDRY EQUIPMENT. Borrower shall keep all Laundry
Equipment in a good state of repair and good operating condition (except to the
extent of Laundry Equipment taken out of service, consistent with the final
clause of this sentence), and will make all repairs and replacements when and
where necessary, will not waste or destroy it or any part thereof, and will not
be negligent in the care or use thereof, all in the ordinary course of the
operation of Borrower's
39
<PAGE> 48
business, and in a manner consistent with that maintained by prudent business
people in similar circumstances. Borrower shall repair and maintain all Laundry
Equipment in a manner sufficient to continue the operation of its business as
presently being conducted. All Laundry Equipment shall be used in all material
respects in accordance with applicable law and the manufacturer's instructions
and shall be kept separate from and shall not be permanently annexed or affixed
to or become part of any premises to the extent that under applicable law such
Laundry Equipment would be deemed fixtures and/or otherwise part of the real
property at which it is located except where Agent first receives a Landlord
Waiver satisfactory to it. Laundry Equipment shall not be removed from the
premises shown on Schedule 4.7 except with Agent's prior written consent or in
the ordinary course of Borrower's business.
5.6 COLLECTION OF ACCOUNTS AND PAYMENTS. Within ninety (90) days after
the Closing Date (and from time to time thereafter concurrently with the
Borrower's establishment of any new bank accounts), Borrower shall establish
blocked accounts (collectively, "BLOCKED ACCOUNTS") in Borrower's name with all
banks at which it maintains deposit accounts ("COLLECTING BANKS") (subject to
irrevocable instructions acceptable to Agent as hereinafter set forth) in which
Borrower will immediately deposit all cash. The Collecting Banks shall
acknowledge and agree, in a manner satisfactory to Agent, that all payments made
to the Blocked Accounts are the sole and exclusive property of Agent, for the
benefit of Lenders, and that the Collecting Banks have no right of setoff
against the Blocked Accounts and that all such payments received will be
promptly transferred to Agent's Account. Borrower hereby agrees that all
payments received by Agent, whether by cash, check, wire transfer or any other
instrument, made to such Blocked Accounts or otherwise received by Agent will be
the sole and exclusive property of Agent, for the benefit of Lenders, to be
applied in accordance with the provisions of this Agreement. Borrower shall,
pursuant to a blocked account agreement substantially in the form of Exhibit F
attached hereto, irrevocably instruct each Collecting Bank to promptly transfer
all payments or deposits, at the request of Agent, to the Blocked Accounts into
Agent's Account; provided, however, that Agent shall not direct the Collecting
Banks to transfer payments from the Blocked Accounts to the Agent's Account
unless and until: (a) one or more Revolving Advances is outstanding hereunder,
and (b) the sum of (i) Borrower's cash on hand in immediately available funds,
(ii) Borrower's Cash Equivalents, and (iii) Unused Availability is, at the time
such direction is given, less than $15,000,000. Borrower, and any of its
Affiliates, employees, agents or other Persons acting for or in concert with
Borrower, shall, acting as trustee for Agent, receive, as the sole and exclusive
property of Agent, any monies, checks, notes, drafts or any other payments which
come into the possession or under the control of Borrower or any of Borrower's
Affiliates, employees, agents or other Persons acting for or in concert with
Borrower, and immediately upon receipt thereof, Borrower or such Persons shall
remit the same or cause the same to be remitted, in kind, to the Blocked
Accounts or to Agent at its address set forth in subsection 10.4 below.
5.7 ENDORSEMENT. Borrower hereby constitutes and appoints Agent and all
Persons designated by Agent for that purpose as Borrower's true and lawful
attorney-in-fact, with power to endorse Borrower's name to any of the items of
payment or proceeds described in subsection 5.6 above and all proceeds of
Collateral that come into Agent's possession or under Agent's control. Both the
appointment of Agent as Borrower's attorney and Agent's rights and powers are
coupled
40
<PAGE> 49
with an interest and are irrevocable until payment in full and complete
performance of all of the Obligations.
5.8 CORPORATE EXISTENCE. Borrower will at all times preserve and keep
in full force and effect its corporate existence and all rights and franchises
material to its business.
5.9 PAYMENT OF TAXES. Borrower will pay all taxes, assessments and
other governmental charges imposed upon it or any of its properties or assets or
with respect to any of its franchises, business, income or property before any
penalty accrues thereon provided that no such tax need be paid if Borrower is
contesting same in good faith by appropriate proceedings promptly instituted and
diligently conducted and if Borrower has established appropriate reserves as
shall be required in conformity with GAAP.
5.10 MAINTENANCE OF PROPERTIES; INSURANCE. Borrower will maintain or
cause to be maintained in good repair, working order and condition all material
properties used in the business of Borrower and will make or cause to be made
all appropriate repairs, renewals and replacements thereof. Borrower will
maintain or cause to be maintained, with financially sound and reputable
insurers, public liability and property damage insurance with respect to its
business and properties and the business and properties against loss or damage
of the kinds customarily carried or maintained by corporations of established
reputation engaged in similar businesses and in amounts acceptable to Agent.
Borrower shall cause Agent, for the benefit of Lenders, to be named as loss
payee on all insurance policies covering any of the Collateral and as additional
insured under all liability policies, in each case pursuant to appropriate
endorsements in form and substance satisfactory to Agent and shall collaterally
assign to Agent, for the benefit of Lenders, as security for the payment of the
Obligations all business interruption insurance of Borrower. Borrower shall
apply any proceeds received from any such policies of insurance to the
Obligations as set forth in subsection 2.4(B); provided, however that nothing
set forth in this Section 5.10 shall prohibit Borrower, if it is otherwise then
entitled to do so under the terms of this Agreement, from obtaining and applying
the proceeds of one or more Revolving Advances to rebuild its tenant
improvements damaged as a result of any casualty as may be required under any
lease of a Facility.
5.11 COMPLIANCE WITH LAWS. Borrower will comply with the requirements
of all applicable laws, rules, regulations and orders of any governmental
authority as now in effect and which may be imposed in the future in all
jurisdictions in which Borrower is now doing business or may hereafter be doing
business, other than those laws the noncompliance with which would not have a
Material Adverse Effect.
5.12 FURTHER ASSURANCES. Borrower shall, from time to time, execute
such guaranties, financing or continuation statements, documents, security
agreements, reports and other documents or deliver to Agent such instruments,
certificates of title or other documents as Agent at any time may reasonably
request to evidence, perfect or otherwise implement the security for repayment
of the Obligations provided for in the Loan Documents. At Agent's request,
Borrower shall cause any Subsidiaries of Borrower promptly to guaranty the
Obligations and to grant to Agent, on behalf of
41
<PAGE> 50
Lenders, security interests in the real, personal and mixed property of such
Subsidiary to secure the Obligations.
5.13 COLLATERAL LOCATIONS. Borrower will keep the Collateral at the
locations specified on Schedule 4.7. With respect to any new location (which in
any event shall be within the continental United States), Borrower will execute
such documents and take such actions as Agent deems necessary to perfect and
protect the security interests of Agent, on behalf of Lenders, in the Collateral
prior to the transfer or removal of any Collateral to such new location.
5.14 BAILEES. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Borrower's agents or processors,
Borrower shall, upon the request of Lenders, notify such warehouseman, bailee,
agent or processor of the security interests in favor of Agent, for the benefit
of Lenders, created hereby and shall instruct such Person to hold all such
Collateral for Agent's account subject to Agent's instructions.
5.15 MORTGAGES; TITLE INSURANCE; SURVEYS.
(A) ADDITIONAL MORTGAGED PROPERTY. In the event that Borrower,
after the date hereof, acquires any fee simple interest in real property,
Borrower shall, not less than thirty (30) days prior to such acquisition, notify
Agent in writing thereof, which notification shall contain a description of such
real property including the location and the fair market value thereof and
Borrower's good faith estimation of whether and for how long it intends to own
such real property. Agent may designate such real property as "ADDITIONAL
MORTGAGED PROPERTY", in which case Borrower shall as promptly as possible (and
in any event within sixty (60) days after such designation) deliver to Agent a
fully executed Mortgage, in form and substance reasonably satisfactory to Agent,
together with title insurance policies and surveys as required by this
subsection 5.15. Borrower agrees that, following the taking of the actions with
respect to any Additional Mortgaged Property required by the immediately
preceding sentence, Agent, on behalf of Lenders, shall have a valid and
enforceable first priority mortgage on the respective Additional Mortgaged
Property, free and clear of all defects and encumbrances except for Permitted
Encumbrances. Notwithstanding the foregoing provisions of this subdivision (A),
neither "Store #133" located at 6501-6517 Cottage Grove, Chicago, Illinois, nor
"Store #317" located at 8135 North Loop Drive, El Paso, Texas, shall be deemed
to be Additional Mortgaged Property if, but only if (i) each such store is
purchased by SpinDevCo or one or more of its Affiliates as part of a
sale/leaseback transaction with Borrower (as contemplated on the date hereof)
not later than October 31, 1998; and (ii) no Event of Default exists prior to
such purchase.
(B) TITLE INSURANCE. Within thirty (30) days following
delivery of any Mortgage with respect to Additional Mortgaged Property, Borrower
shall, upon the request of Agent, deliver or cause to be delivered to Agent,
ALTA lender's title insurance policies issued by title insurers reasonably
satisfactory to Agent (the "MORTGAGE POLICIES") in form and substance and in
amounts reasonably satisfactory to Agent assuring Agent that the Mortgages are
valid and enforceable first priority mortgage liens on the respective Additional
Mortgaged Property, free and clear of all defects and encumbrances except
Permitted Encumbrances. The Mortgage Policies shall be in form and
42
<PAGE> 51
substance reasonably satisfactory to Agent and shall include an endorsement
insuring against the effect of future advances under this Agreement, for
mechanics' liens and for any other matter that Agent may reasonably request, and
shall provide for affirmative insurance and such reinsurance as Agent may
reasonably request.
(C) SURVEYS. All such surveys shall be sufficient to allow the
issuer of the mortgage policy to issue an ALTA lender's policy.
5.16 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the
proceeds of all Loans for proper business purposes (as described in the recitals
to this Agreement) consistent with all applicable laws, statutes, rules and
regulations. No portion of the proceeds of any Loan shall be used by Borrower
for the purpose of purchasing or carrying margin stock within the meaning of
Regulation G or Regulation U, or in any manner that might cause the borrowing or
the application of such proceeds to violate Regulation T or Regulation X or any
other regulation of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act.
5.17 YEAR 2000 COMPATIBILITY. Borrower shall take all actions
reasonably necessary to assure that its computer based systems are able to
operate and effectively process data which includes dates on and after January
1, 2000. At the request of Agent, Borrower shall provided reasonable assurances
satisfactory to Agent of Borrower's Year 2000 compatibility.
SECTION 6. FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit, unless Borrower has received the prior written
consent of Requisite Lenders, Borrower shall comply with all covenants in this
Section 6.
6.1 FIXED CHARGE COVERAGE. During each Trigger Period, Borrower shall
not permit its Fixed Charge Coverage for the first period of four consecutive
Periods commencing immediately after the first day of such Trigger Period, and
for each fiscal quarter ending after such period of four consecutive Periods
during such Trigger Period, to be less than 1:1.
6.2 MINIMUM MATURE STORE AVERAGE EBITDA. Borrower shall maintain Mature
Store Average EBITDA with respect to each of the categories of Facilities set
forth below as at the last day of each fiscal quarter during:
(a) the first period of four consecutive fiscal quarters
commencing on or immediately after the Closing Date, in at least the amounts set
forth below opposite such categories:
<TABLE>
<CAPTION>
CATEGORY MINIMUM MATURE STORE AVERAGE EBITDA
-------- -----------------------------------
<S> <C>
Leased Stores $ 81,000
Acquired Stores $ 59,000
</TABLE>
43
<PAGE> 52
<TABLE>
<S> <C>
Self-Developed Leased Stores $ 53,000; and
</TABLE>
(b) each subsequent period of four consecutive fiscal
quarters, in amounts of at least 105% of the amounts required to be maintained
during the immediately preceding period of four consecutive fiscal quarters.
6.3 MINIMUM UNUSED AVAILABILITY. Borrower shall maintain at all times
Unused Availability greater than or equal to $7,500,000; provided, however, that
after March 22, 1999, such requirement shall be suspended if, and so long as,
the number of all Mature Facilities constitutes more than 55% of all Facilities.
SECTION 7. NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit, unless Borrower has received the prior written
consent of Requisite Lenders, Borrower shall not:
7.1 INDEBTEDNESS AND LIABILITIES. Directly or indirectly create, incur,
assume, guaranty, or otherwise become or remain directly or indirectly liable,
on a fixed or contingent basis, with respect to any Indebtedness except: (a) the
Obligations; (b) Indebtedness (excluding under Capital Leases) secured by
purchase money Liens not to exceed $500,000 in the aggregate at any time
outstanding; (c) Indebtedness under Capital Leases not to exceed $1,000,000 in
the aggregate at any time outstanding; (d) Indebtedness owing to one or more
sellers of Acquired Stores not to exceed $5,000,000 in the aggregate at any time
outstanding; (e) Indebtedness outstanding under the Senior Unsecured Notes in an
aggregate principal amount at maturity not to exceed $144,990,000 plus interest,
issued pursuant and subject to the terms and conditions of the Unsecured Notes
Documents; and (f) without duplication, other Indebtedness permitted under the
Senior Unsecured Notes Indenture provided such Indebtedness is and remains
unsecured. Except for Indebtedness described permitted in the preceding
sentence, Borrower will not incur any Liabilities except for trade payables and
normal accruals in the ordinary course of business not yet due and payable or
with respect to which Borrower is contesting in good faith the amount or
validity thereof by appropriate proceedings and then only to the extent that
Borrower has established adequate reserves therefor, if appropriate under GAAP.
7.2 GUARANTIES. Except for endorsements of instruments or items of
payment for collection in the ordinary course of business and except as set
forth on Schedule 7.2, guaranty, endorse, or otherwise in any way become or be
responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise.
44
<PAGE> 53
7.3 TRANSFERS, LIENS AND RELATED MATTERS.
(A) TRANSFERS. Sell, assign (by operation of law or otherwise)
or otherwise dispose of, or grant any option with respect to any of the
Collateral, except: (1) Laundry Equipment which in the ordinary course of
Borrower's business is replaced with new items of Equipment of like function and
comparable value to the replaced items of Equipment when the same were new;
provided, however, that such replacement items of Equipment shall become subject
to the liens and security interests in favor of Agent, for the benefit of
Lenders; and (2) Borrower may make Asset Dispositions if all of the following
conditions are met: (a) the fair market value of the assets sold or otherwise
disposed of in any single transaction or series of related transactions does not
exceed $2,500,000 and the aggregate fair market value of the assets sold or
otherwise disposed of in any Fiscal Year does not exceed $5,000,000; (b) the
consideration received is at least equal to the fair market value of such
assets; (c) the sole consideration received is cash; (d) the net proceeds of
such Asset Disposition are applied as required by subsection 2.4(B); (e) after
giving effect to the sale or other disposition of the assets included within the
Asset Disposition and the repayment of the Obligations with the proceeds
thereof, Borrower is in compliance on a pro forma basis with the covenants set
forth in Section 6 recomputed for the most recently ended Period for which
information is available and is in compliance with all other terms and
conditions contained in this Agreement; and (f) no Default or Event of Default
shall then exist or result from such sale or other disposition.
(B) LIENS. Except for Permitted Encumbrances, directly or
indirectly create, incur, assume or permit to exist any Lien on or with respect
to any of the Collateral or any proceeds, income or profits therefrom.
(C) NO NEGATIVE PLEDGES. Enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired.
7.4 INVESTMENTS AND LOANS. Make or permit to exist investments in or
loans to any other Person, except: (a) Cash Equivalents; (b) loans and advances
to employees: (i) for moving, entertainment, travel and other similar expenses
in the ordinary course of business in an aggregate outstanding amount not in
excess of $250,000 at any time; and (ii) to finance the purchase by such
employees of capital stock in Borrower, provided that such purchase is
substantially concurrent with the making of any such loan, in an aggregate
outstanding amount not in excess of $1,000,000 at any time; and (c) a Secured
Promissory Note dated December 31, 1997 made by SpinDevCo, L.L.C., a Delaware
limited liability company ("SPINDEVCO") and payable to Borrower in the principal
sum of $4,852.002.75 (and any amendments thereto and/or extensions thereof),
which note must be payable not later than October 31, 1998.
7.5 RESTRICTED JUNIOR PAYMENTS. Directly or indirectly declare, order,
pay, make or set apart any sum for any Restricted Junior Payment.
45
<PAGE> 54
7.6 RESTRICTION ON FUNDAMENTAL CHANGES. (a) Enter into any transaction
of merger or consolidation; (b) liquidate, wind-up or dissolve itself (or suffer
any liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or the capital stock of any of its
Subsidiaries, whether now owned or hereafter acquired; or (d) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person except in
connection with the acquisition of Acquired Stores.
7.7 CHANGES RELATING TO SENIOR UNSECURED NOTES.
(A) Amend, modify, waive or otherwise change any of the terms
of the Senior Unsecured Notes or the Senior Unsecured Notes Indenture,
including, without limitation, any of the financial covenants, without the prior
written consent of Agent and Requisite Lenders if the effect of such amendment,
modification or waiver is to: (a) increase the interest rate on such
Indebtedness; (b) change the dates upon which payments of principal or interest
are due on such Indebtedness; (c) change any event of default or add any
covenant with respect to such Indebtedness; (d) change the payment provisions of
such Indebtedness; (e) change or amend any other term if such change or
amendment would materially increase the obligations of the obligor or confer
additional material rights on the holder of such Indebtedness in a manner
adverse to Borrower, Agent or any Lender, or grant a lien on, or security
interest in, any of its assets or properties to secure the Indebtedness
evidenced thereby.
(B) Except for a permitted prepayment of up to thirty five
percent (35%) of the principal, interest and fees on the Senior Unsecured Notes
from the proceeds of one or more underwritten primary public offerings of common
stock of Borrower pursuant to an effective registration statement under the
Securities Act, all in accordance with the terms of the Senior Unsecured Notes
Indenture as in effect on the date hereof, make any payment of principal,
interest, fees or any other amounts on the Senior Unsecured Notes or otherwise
in connection with the Senior Unsecured Notes Indenture other than regularly
scheduled payments of principal, interest and fees on the Senior Unsecured Notes
in accordance with the terms of the Senior Unsecured Notes Indenture. Without
limiting the generality of the foregoing, Borrower shall not prepay, redeem,
offer to purchase, retire, fund any sinking fund, purchase or otherwise acquire
any of the Senior Unsecured Notes at any time other than at their regularly
scheduled maturity as set forth in the Senior Unsecured Notes Indenture.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into or
permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of any Loan Party, except for transactions in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Agent
and Lenders and which are no less favorable to Borrower than it would obtain in
a comparable arm's length transaction with an unaffiliated Person.
46
<PAGE> 55
7.9 ENVIRONMENTAL LIABILITIES. (a) Violate any applicable Environmental
Law which could reasonably be expected to have a Material Adverse Effect; (b)
dispose of any Hazardous Materials (except in accordance with applicable law)
into or onto or from, any real property owned, leased or operated by any Loan
Party; or (c) except as indicated on Schedule 4.15, permit any Lien imposed
pursuant to any Environmental Law to be imposed or to remain on any real
property owned, leased or operated by any Loan Party.
7.10 CONDUCT OF BUSINESS. From and after the Closing Date, engage in
any business other than businesses of the type engaged in by Borrower on the
Closing Date.
7.11 COMPLIANCE WITH ERISA. Establish any new Employee Benefit Plan or
amend any existing Employee Benefit Plan (except such amendments as may be
required to enable any Employee Benefit Plan to continue to comply with the
requirements of the IRC and ERISA and the rules and regulations promulgated
thereunder) if the liability or increased liability resulting from such
establishment or amendment is material. Borrower shall not fail to establish,
maintain and operate each Employee Benefit Plan in compliance in all material
respects with the provisions of ERISA, the IRC and all other applicable laws and
the regulations and interpretations thereof.
7.12 TAX CONSOLIDATIONS. File or consent to the filing of any
consolidated income tax return with any Person.
7.13 SUBSIDIARIES. Establish, create or acquire any Subsidiaries.
7.14 FISCAL YEAR. Change its Fiscal Year.
7.15 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Disclose the name of
Agent or any Lender in any press release or in any prospectus, proxy statement
or other materials filed with any governmental entity relating to a public
offering of the capital stock of any Loan Party except as may be required by
law.
7.16 BANK ACCOUNTS. Amend or terminate any Blocked Account without
Agent's prior written consent.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "EVENT OF DEFAULT" shall mean the occurrence or
existence of any one or more of the following:
(A) PAYMENT. Failure to make payment of any of the Obligations
when due and in the case of interest, such failure shall not be cured within
five (5) Business Days of the applicable due date; or
47
<PAGE> 56
(B) DEFAULT IN OTHER AGREEMENTS. (1) Failure of Borrower to
pay when due any principal or interest on any Indebtedness (other than the
Obligations) or breach or default of Borrower with respect to any Indebtedness
(other than the Obligations), if such failure to pay, breach or default entitles
the holder to cause such Indebtedness having an individual principal amount in
excess of $500,000 or having an aggregate principal amount in excess of
$1,000,000 to become or be declared due prior to its stated maturity; or (2)
default under the Senior Unsecured Notes Indenture, including any breach of any
covenant thereunder regardless of whether such covenant is more restrictive
than, or conflicts with, or covers the same or similar matters as the covenants
set forth in this Agreement or any other Loan Documents; or
(C) BREACH OF CERTAIN PROVISIONS. Failure of Borrower to
perform or comply with any term or condition contained in subsections 5.1 (A)
and (B), 5.3, 5.5 or 5.6 or contained in Section 6 or Section 7; or
(D) BREACH OF WARRANTY. Any representation, warranty,
certification or other statement made by any Loan Party in any Loan Document or
in any statement or certificate at any time given by such Person in writing
pursuant or in connection with any Loan Document is false in any material
respect on the date made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other
Loan Party defaults in the performance of or compliance with any term contained
in this Agreement or the other Loan Documents and such default is not remedied
or waived within fifteen (15) days after receipt by Borrower of notice from
Agent, or Requisite Lenders of such default (other than occurrences described in
other provisions of this subsection 8.1 for which a different grace or cure
period is specified or which constitute immediate Events of Default); or
(F) CHANGE OF CONTROL. Any Change of Control (as defined in
the Senior Unsecured Notes Indenture as in effect on the date hereof) shall
occur; or
(G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1)
A court enters a decree or order for relief with respect to Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, which decree or order is not stayed or other
similar relief is not granted under any applicable federal or state law; or (2)
the continuance of any of the following events for sixty (60) days unless
dismissed, bonded or discharged: (a) an involuntary case is commenced against
Borrower, under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect; or (b) a decree or order of a court for the appointment
of a receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Borrower, or over all or a substantial part of its
property, is entered; or (c) an interim receiver, trustee or other custodian is
appointed without the consent of Borrower for all or a substantial part of the
property of Borrower.
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) An
order for relief is entered with respect to Borrower or Borrower commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the
48
<PAGE> 57
entry of an order for relief in an involuntary case or to the conversion of an
involuntary case to a voluntary case under any such law or consents to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; or (2) Borrower makes any
assignment for the benefit of creditors; or (3) the board of directors of
Borrower adopts any resolution or otherwise authorizes action to approve any of
the actions referred to in this subsection 8.1(H); or
(I) LIENS. Any lien, levy or assessment is filed or recorded
with respect to or otherwise imposed upon all or any part of the Collateral or
the assets of Borrower by the United States or any department or instrumentality
thereof or by any state, county, municipality or other governmental agency
(other than Permitted Encumbrances) and such lien, levy or assessment is not
stayed, vacated, paid or discharged within ten (10) days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or
warrant of attachment, or similar process involving (1) an amount in any
individual case in excess of $100,000 or (2) an amount in the aggregate at any
time in excess of $250,000 (in either case not adequately covered by insurance
as to which the insurance company has acknowledged coverage) is entered or filed
against Borrower or any of its assets and remains undischarged, unvacated,
unbonded or unstayed for a period of forty-five (45) days or in any event later
than five (5) days prior to the date of any proposed sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered
against Borrower decreeing the dissolution or split up of Borrower and such
order remains undischarged or unstayed for a period in excess of twenty (20)
days; or
(L) SOLVENCY. Borrower ceases to be solvent (as represented by
Borrower in subsection 4.17) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(M) INJUNCTION. Borrower is enjoined, restrained or in any way
prevented by the order of any court or any administrative or regulatory agency
from conducting all or any material part of its business and such order
continues for more than thirty (30) days; or
(N) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents
for any reason, other than a partial or full release in accordance with the
terms thereof, ceases to be in full force and effect or is declared to be null
and void, or any Loan Party denies that it has any further liability under any
Loan Documents to which it is party, or gives notice to such effect; or
(O) FAILURE OF SECURITY. Agent, on behalf of Lenders, does not
have or ceases to have a valid and perfected first priority security interest in
the Collateral (subject to Permitted Encumbrances), in each case, for any reason
other than the failure of Agent or any Lender to take any action within its
control; or
49
<PAGE> 58
(P) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive days beyond
the coverage period of any applicable business interruption insurance, the
cessation or substantial curtailment of revenue producing activities at any
Facility if any such event or circumstance could reasonably be expected to have
a Material Adverse Effect.
(Q) LICENSES AND PERMITS. The loss, suspension or revocation
of, or failure to renew, any license or permit now held or hereafter acquired by
Borrower, if such loss, suspension, revocation or failure to renew could
reasonably be expected to have a Material Adverse Effect.
(R) FORFEITURE. There is filed against Borrower any civil or
criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred twenty (120) days; and (2) could result in the confiscation
or forfeiture of any material portion of the Collateral.
8.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default or
Event of Default, notwithstanding any grace period or right to cure, Agent may
or upon demand by Requisite Lenders shall, without notice or demand, immediately
cease making additional Loans and the Commitments shall be suspended; provided
that, in the case of a Default, if the subject condition or event is waived or
cured within any applicable grace or cure period, the Commitments shall be
reinstated.
8.3 ACCELERATION. Upon the occurrence of any Event of Default described
in the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrower, and the Commitments shall thereupon terminate. Upon the
occurrence and during the continuance of any other Event of Default, Agent may,
and upon demand by Requisite Lenders shall, by written notice to Borrower, (a)
declare all or any portion of the Obligations to be, and the same shall
forthwith become, immediately due and payable and the Commitments shall
thereupon terminate and (b) demand that Borrower immediately deposit with Agent
an amount equal to one hundred five percent (105%) of the Letter of Credit
Reserve to enable Lender to make payments under the Lender Letters of Credit
when required and such amount shall become immediately due and payable.
8.4 REMEDIES. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any other rights or remedies
available to Agent and Lenders at law or in equity, Agent may and shall upon the
request of Requisite Lenders exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the UCC
(whether or not the UCC applies to the affected Collateral) and may also (a)
notify any or all obligors on the Accounts to make all payments directly to
Agent; (b) require Borrower to, and Borrower hereby agrees that it will, at its
expense and upon request of Agent forthwith, assemble all or part of the
Collateral as
50
<PAGE> 59
directed by Agent and make it available to Agent at a place to be designated by
Agent which is reasonably convenient to both parties; (c) withdraw all cash in
the Blocked Accounts and apply such monies in payment of the Obligations in the
manner provided in subsection 8.7; (d) without notice or demand or legal
process, enter upon any premises of Borrower and take possession of the
Collateral; and (e) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Agent's offices or elsewhere, at such time or times, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Borrower agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days notice to
Borrower of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. At any sale
of the Collateral, if permitted by law, Agent or any Lender may bid (which bid
may be, in whole or in part, in the form of cancellation of indebtedness) for
the purchase of the Collateral or any portion thereof for the account of Agent
or such Lender. Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Borrower shall remain liable for
any deficiency. Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. To
the extent permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Agent shall not be required to proceed against
any Collateral but may proceed against Borrower directly.
8.5 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and
appoints Agent as Borrower's attorney-in-fact with full authority in the place
and stead of Borrower and in the name of Borrower, Agent or otherwise, from time
to time in Agent's discretion while an Event of Default is continuing to take
any action and to execute any instrument that Agent may deem reasonably
necessary or advisable to accomplish the purposes of this Agreement, including:
(a) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral; (b) to adjust, settle or compromise the amount or payment
of any Account, or release wholly or partly any customer or obligor thereunder
or allow any credit or discount thereon; (c) to receive, endorse, and collect
any drafts or other instruments, documents and chattel paper, in connection with
clause (a) above; (d) to file any claims or take any action or institute any
proceedings that Agent may deem reasonably necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of Agent
and Lenders with respect to any of the Collateral; and (e) to sign and endorse
any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts and
other documents relating to the Collateral. The appointment of Agent as
Borrower's attorney and Agent's rights and powers are coupled with an interest
and are irrevocable until payment in full and complete performance of all of the
Obligations.
8.6 LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL. Beyond the
safe custody thereof, Agent and each Lender shall have no duty with respect to
any Collateral in its possession or control (or in the possession or control of
any agent or bailee) or with respect to any income thereon or the preservation
of rights against prior parties or any other rights pertaining thereto. Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of the
51
<PAGE> 60
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Agent accords its own property. Neither Agent
nor any Lender shall be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by Agent in good faith.
8.7 APPLICATION OF PROCEEDS. Upon the occurrence and during the
continuance of an Event of Default, (a) Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times thereafter
received by Agent from or on behalf of Borrower, and Borrower hereby irrevocably
agrees that Agent shall have the continuing exclusive right to apply and to
reapply any and all payments received at any time or times after the occurrence
and during the continuance of an Event of Default against the Obligations in
such manner as Agent may deem advisable notwithstanding any previous entry by
Agent upon any books and records and (b) the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied: first, to
all reasonable fees, costs and expenses incurred by Agent or any Lender with
respect to this Agreement, the other Loan Documents or the Collateral; second,
to all fees due and owing to Agent and Lenders; third, to accrued and unpaid
interest on the Obligations; fourth, to the principal amounts of the Obligations
outstanding; and fifth, to any other indebtedness or obligations of Borrower
owing to Agent or any Lender.
8.8 LICENSE OF INTELLECTUAL PROPERTY. Borrower hereby assigns,
transfers and conveys to Agent, for the benefit of Lenders, effective upon the
occurrence of any Event of Default hereunder, the non-exclusive right and
license to use all Intellectual Property owned by Borrower together with any
goodwill associated therewith, all to the extent necessary to enable Agent to
realize on the Collateral and any successor or assign to enjoy the benefits of
the Collateral. This right and license shall inure to the benefit of all
successors, assigns and transferees of Agent and its successors, assigns and
transferees, whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and
license is granted free of charge, without requirement that any monetary payment
whatsoever be made to Borrower by Agent.
8.9 WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of Agent or
any Lender to exercise, and no delay in exercising and no course of dealing with
respect to, any right under this Agreement or the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise by Agent
or any Lender of any right under this Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights in this Agreement and the other Loan Documents are cumulative
and are not exclusive of any other remedies provided by law.
SECTION 9. ASSIGNMENT AND PARTICIPATION
9.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS.
52
<PAGE> 61
(A) Each Lender may assign its rights and delegate its
obligations under this Agreement to an Eligible Assignee; provided, that (a)
such Lender shall first obtain the written consent of Agent, which shall not be
unreasonably withheld, (b) the amount of Commitments and Loans of the assigning
Lender being assigned shall in no event be less than the lesser of (i)
$5,000,000 or (ii) the entire amount of the Commitments and Loans of such
assigning Lender and (c)(i) each such assignment shall be of a pro rata portion
of all such assigning Lender's Loans and Commitments hereunder, and (ii) the
parties to such assignment shall execute and deliver to Agent for acceptance and
recording an Assignment and Assumption Agreement together with (x) a processing
and recording fee of $2,500 payable to Agent (which in no event shall be at
Borrower's expense or responsibility) and (y) the Note originally delivered to
the assigning Lender. Upon receipt of all of the foregoing, Agent shall notify
Borrower of such assignment and Borrower shall comply with its obligations under
the last sentence of subsection 2.1(D). In the case of an assignment authorized
under this subsection 9.1, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were a
Lender hereunder. The assigning Lender shall be relieved of its obligations
hereunder with respect to its Commitment or assigned portion thereof arising
after the date such assignment is effective. Borrower hereby acknowledges and
agrees that any assignment will give rise to a direct obligation of Borrower to
the assignee and that the assignee shall be considered to be a "Lender".
(B) Each Lender may sell participations in all or any part of
any Loans made by it to another Person; provided, that any such participation
shall be in a minimum amount of $5,000,000, and provided, further, that all
amounts payable by Borrower hereunder shall be determined as if that Lender had
not sold such participation and the holder of any such participation shall not
be entitled to require such Lender to take or omit to take any action hereunder
except action directly effecting (a) any reduction in the principal amount,
interest rate or fees payable with respect to any Loan in which such holder
participates; (b) any extension of the Termination Date or the date fixed for
any payment of interest or fees payable with respect to any Loan in which such
holder participates; and (c) any release of substantially all of the Collateral
(other than in accordance with the terms of this Agreement or the Loan
Documents). Borrower hereby acknowledges and agrees that the participant under
each participation shall for purposes of subsection 2.8, 2.9, 2.10, 9.4 and 10.2
be considered to be a "Lender".
(C) Except as otherwise provided in this subsection 9.1 no
Lender shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans or
other Obligations owed to such Lender. Each Lender may furnish any information
concerning Borrower in the possession of that Lender from time to time to
assignees and participants (including prospective assignees and participants)
provided that the Persons obtaining such information agrees to maintain the
confidentiality of such information to the extent required by subsection 10.21.
(D) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Note(s) held by it in favor of any
53
<PAGE> 62
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System).
9.2 AGENT.
(A) APPOINTMENT. Each Lender hereby designates and appoints
Heller as its agent under this Agreement and the Loan Documents, and each Lender
hereby irrevocably authorizes Agent to take such action or to refrain from
taking such action on its behalf under the provisions of this Agreement and the
Loan Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably incidental thereto. Agent is
authorized and empowered to amend, modify, or waive any provisions of this
Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances as
provided in subsection 9.3. Agent agrees to act as such on the express
conditions contained in this subsection 9.2. The provisions of this subsection
9.2 are solely for the benefit of Agent and Lenders and neither Borrower nor any
Loan Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
Agent shall act solely as an administrative representative of Lenders and does
not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Lenders, Borrower or any Loan Party.
Agent may perform any of its duties hereunder, or under the Loan Documents, by
or through its agents or employees.
(B) NATURE OF DUTIES. Agent shall have no duties, obligations
or responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of Agent shall be mechanical and administrative in
nature. Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Each Lender shall make its own
independent investigation of the financial condition and affairs of Borrower in
connection with the extension of credit hereunder and shall make its own
appraisal of the credit worthiness of Borrower, and Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information with respect thereto, whether coming into
its possession before the Closing Date or at any time or times thereafter. If
Agent seeks the consent or approval of any Lenders to the taking or refraining
from taking any action hereunder, then Agent shall send notice thereof to each
Lender. Agent shall promptly notify each Lender any time that the applicable
percentage of Lenders have instructed Agent to act or refrain from acting
pursuant hereto.
(C) RIGHTS, EXCULPATION, ETC. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents, or
in connection herewith or therewith, except that Agent shall be obligated on the
terms set forth herein for performance of its express obligations hereunder, and
except that Agent shall be liable with respect to its own gross negligence or
willful misconduct. Agent shall not be liable for any apportionment or
distribution of payments made by it in good faith and if any such apportionment
or distribution is subsequently determined to have been made in error the sole
recourse of any Lender to whom payment was due but not made, shall be to recover
from other Lenders any payment in excess of the amount to which they are
determined to be entitled (and such other Lenders hereby agree to return to such
Lender any such erroneous payments received by
54
<PAGE> 63
them). In performing its functions and duties hereunder, Agent shall exercise
the same care which it would in dealing with loans for its own account, but
Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, enforceability, collectability, or sufficiency of this
Agreement or any of the Loan Documents or the transactions contemplated thereby,
or for the financial condition of any Loan Party. Agent shall not be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any of the Loan Documents
or the financial condition of any Loan Party, or the existence or possible
existence of any Default or Event of Default. Agent may at any time request
instructions from Lenders with respect to any actions or approvals which by the
terms of this Agreement or of any of the Loan Documents Agent is permitted or
required to take or to grant, and Agent shall be absolutely entitled to refrain
from taking any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from any action or withholding
any approval under any of the Loan Documents until it shall have received such
instructions from the applicable percentage of Lenders. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent as
a result of Agent acting or refraining from acting under this Agreement or any
of the other Loan Documents in accordance with the instructions of the
applicable percentage of Lenders and notwithstanding the instructions of
Lenders, Agent shall have no obligation to take any action if it, in good faith
believes that such action exposes Agent to any liability.
(D) RELIANCE. Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message or other communication (including any writing, telex, telecopy or
telegram) believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it. Agent shall be
entitled to rely upon the advice of legal counsel, independent accountants, and
other experts selected by Agent in its sole discretion.
(E) INDEMNIFICATION. Each Lender, severally, agrees to
reimburse and indemnify Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against Agent in any way relating to or
arising out of this Agreement or any of the Loan Documents or any action taken
or omitted by Agent under this Agreement for any of the Loan Documents, in
proportion to each Lender's Pro Rata Share; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements resulting from Agent's gross negligence or willful misconduct. The
obligations of Lenders under this subsection 9.2(E) shall survive the payment in
full of the Obligations and the termination of this Agreement.
(F) HELLER INDIVIDUALLY. With respect to its Commitments and
the Loans made by it, and the Note(s) issued to it, Heller shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall,
unless
55
<PAGE> 64
the context clearly otherwise indicates, include Heller in its individual
capacity as a Lender or one of the Requisite Lenders. Heller may lend money to,
and generally engage in any kind of banking, trust or other business with any
Loan Party as if it were not acting as Agent pursuant hereto.
(G) SUCCESSOR AGENT.
(1) RESIGNATION. Agent may resign from the
performance of all its functions and duties hereunder at any time by giving at
least thirty (30) Business Days' prior written notice to Borrower and Lenders.
Such resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) APPOINTMENT OF SUCCESSOR. Upon any such notice
of resignation pursuant to clause (G)(1) above, Requisite Lenders shall, upon
receipt of Borrower's prior consent, which shall not unreasonably be withheld,
appoint a successor Agent. If a successor Agent shall not have been so appointed
within said thirty (30) Business Day period, the retiring Agent, upon notice to
Borrower, shall then appoint a successor Agent who shall serve as Agent until
such time, as Requisite Lenders, upon receipt of Borrower's prior written
consent which shall not be unreasonably withheld, appoint a successor Agent as
provided above.
(3) SUCCESSOR AGENT. Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Loan
Documents arising after the effective date of such appointment. After any
retiring Agent's resignation as Agent under the Loan Documents, the provisions
of this subsection 9.2 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under the Loan Documents.
(H) COLLATERAL MATTERS.
(1) RELEASE OF COLLATERAL. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by this Agreement or the
Loan Documents (i) upon termination of the Commitments and payment and
satisfaction of all Obligations; (ii) constituting property being sold or
disposed of if Borrower certifies to Agent that the sale or disposition is made
in compliance with the provisions of this Agreement (and Agent may rely in good
faith conclusively on any such certificate, without further inquiry); or (iii)
constituting property leased to Borrower under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by Borrower to be, renewed or
extended. In addition during any Fiscal Year (x) Agent may release Collateral
having a Net Book Value of not more than $1,000,000, and (y) Agent, with the
consent of Requisite Lenders, may release Collateral having a Net Book Value of
not more than 25% of the Net Book Value of all Collateral.
(2) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES.
Without in any manner limiting Agent's authority to act without any specific or
further authorization or consent by
56
<PAGE> 65
Lenders (as set forth in subsection 9.2(H)(1)), each Lender agrees to confirm in
writing, upon request by Borrower, the authority to release any property covered
by this Agreement or the Loan Documents conferred upon Agent under subsection
9.2(H)(1). So long as no Event of Default is then continuing, upon receipt by
Agent of confirmation from the requisite percentage of Lenders, of its authority
to release any particular item or types of property covered by this Agreement or
the Loan Documents, and upon at least five (5) Business Days prior written
request by Borrower, Agent shall (and is hereby irrevocably authorized by
Lenders to) execute such documents as may be necessary to evidence the release
of the Liens granted to Agent for the benefit of Lenders herein or pursuant
hereto upon such Collateral; provided, however, that (i) Agent shall not be
required to execute any such document on terms which, in Agent's opinion, would
expose Agent to liability or create any obligation or entail any consequence
other than the release of such Liens without recourse or warranty, and (ii) such
release shall not in any manner discharge, affect or impair the Obligations or
any Liens upon (or obligations of any Loan Party, in respect of), all interests
retained by any Loan Party, including, without limitation, the proceeds of any
sale, all of which shall continue to constitute part of the property covered by
this Agreement or the Loan Documents.
(3) ABSENCE OF DUTY. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property covered
by this Agreement or the Loan Documents exists or is owned by Borrower or is
cared for, protected or insured or has been encumbered or that the Liens granted
to Agent on behalf of Lenders herein or pursuant hereto have been properly or
sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Agent in this subsection 9.2(H) or in any of the Loan Documents, it being
understood and agreed that in respect of the property covered by this Agreement
or the Loan Documents or any act, omission or event related thereto, Agent may
act in any manner it may deem appropriate, in its discretion, given Agent's own
interest in property covered by this Agreement or the Loan Documents as one of
the Lenders and that Agent shall have no duty or liability whatsoever to any of
the other Lenders; provided, that Agent shall exercise the same care which it
would in dealing with loans for its own account.
(I) AGENCY FOR PERFECTION. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in Collateral which, in accordance with Article 9 of the Uniform Commercial Code
in any applicable jurisdiction, can be perfected only by possession. Should any
Lender (other than Agent) obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent's request therefor, shall
deliver such Collateral to Agent or in accordance with Agent's instructions.
(J) EXERCISE OF REMEDIES. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce this Agreement or any
Loan Document or to realize upon any collateral security for the Loans, it being
understood and agreed that such rights and remedies may be exercised only by
Agent.
57
<PAGE> 66
9.3 CONSENTS.
(A) In the event Agent requests the consent of a Lender and
does not receive a written denial thereof within ten (10) Business Days after
such Lender's receipt of such request, then such Lender will be deemed to have
given such consent.
(B) In the event Agent requests the consent of a Lender and
such consent is denied, then Heller may, at its option, require such Lender to
assign its interest in the Loans to Heller for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees will be paid when collected from
Borrower. In the event that Heller elects to require any Lender to assign its
interest to Heller, Heller will so notify such Lender in writing within
forty-five (45) days following such Lender's denial, and such Lender will assign
its interest to Heller no later than five (5) days following receipt of such
notice.
9.4 SET OFF AND SHARING OF PAYMENTS. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender is hereby authorized by Borrower at any time or from time to time,
with reasonably prompt subsequent notice to Borrower or to any other Person (any
prior or contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (A) balances held by such Lender or such
holder at any of its offices for the account of Borrower (regardless of whether
such balances are then due to Borrower) and (B) other property at any time held
or owing by such Lender or such holder to or for the credit or for the account
of Borrower, against and on account of any of the Obligations which are not paid
when due; except that no Lender or any such holder shall exercise any such right
without the prior written consent of Agent. Any Lender which has exercised its
right to set off shall, to the extent the amount of any such set off exceeds its
Pro Rata Share of the Obligations, purchase for cash (and the other Lenders or
holders shall sell) participations in each such other Lender's or holder's Pro
Rata Share of the Obligations as would be necessary to cause such Lender to
share such excess with each other Lender or holder in accordance with their
respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted by
law, that after an Event of Default (a) any Lender or holder may exercise its
right to set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participations in such excess to other Lenders and
holders, and (b) any Lender or holder so purchasing a participation in the Loans
made or other Obligations held by other Lenders or holders may exercise all
rights of set-off, bankers' lien, counterclaim or similar rights with respect to
such participation as fully as if such Lender or holder were a direct holder of
Loans and other Obligations in the amount of such participation.
9.5 DISBURSEMENT OF FUNDS. Agent may, on behalf of Lenders, disburse
funds to Borrower for Loans requested. Each Lender shall reimburse Agent on
demand for all funds disbursed on its behalf by Agent, or if Agent so requests,
each Lender will remit to Agent its Pro Rata Share of any Loan before Agent
disburses same to Borrower. If Agent elects to require that funds be made
available prior to disbursement to Borrower, Agent shall advise each Lender by
telephone, telex or telecopy of the amount of such Lender's Pro Rata Share of
such requested Loan no later than (a) two (2) Business Day prior to the Funding
Date applicable thereto for LIBOR Loans
58
<PAGE> 67
and (b) by 12:00 noon. Central time on the Funding Date for Base Rate Loans, and
each such Lender shall pay Agent such Lender's Pro Rata Share of such requested
Loan, in same day funds, by wire transfer to Agent's account not later than
10:00 a.m. Central time on such Funding Date for LIBOR Loans and 3:00 p.m.
Central time for Base Rate Loans. If any Lender fails to pay the amount of its
Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify
Borrower, and Borrower shall immediately repay such amount to Agent. Any
repayment required pursuant to this subsection 9.5 shall be without premium or
penalty, which repayment shall not be deemed a waiver of any claim Borrower may
have against such Lender for its failure to comply with its obligations to make
Loans hereunder. Nothing in this subsection 9.5 or elsewhere in this Agreement
or the other Loan Documents, including without limitation the provisions of
subsection 9.6, shall be deemed to require Agent to advance funds on behalf of
any Lender or to relieve any Lender from its obligation to fulfill its
Commitments hereunder or to prejudice any rights that Agent or Borrower may have
against any Lender as a result of any default by such Lender hereunder.
9.6 SETTLEMENTS, PAYMENTS AND INFORMATION.
(A) REVOLVING ADVANCES AND PAYMENTS; FEE PAYMENTS.
(1) The Revolving Loan may fluctuate from day to day
through Agent's disbursement of funds to, and receipt of funds from, Borrower.
In order to minimize the frequency of transfers of funds between Agent and each
Lender notwithstanding terms to the contrary set forth in Section 2 and
subsection 9.5, Revolving Advances and repayments may be settled according to
the procedures described in subsection 9.6(A)(2) and 9.6(A)(3) of this
Agreement. Notwithstanding these procedures, each Lender's obligation to fund
its Pro Rata Share of any advances made by Agent to Borrower will commence on
the date such advances are made by Agent. Such payments will be made by such
Lender without set-off, counterclaim or reduction of any kind.
(2) Once each week, or more frequently (including
daily), if Agent so elects (each such day being a "SETTLEMENT DATE"), Agent will
advise each Lender by 1 p.m. Central time by telephone, telex, or telecopy of
the amount of each such Lender's Pro Rata Share of the Revolving Loan. In the
event payments are necessary to adjust the amount of such Lender's share of the
Revolving Loan to such Lender's Pro Rata Share of the Revolving Loan, the party
from which such payment is due will pay the other, in same day funds, by wire
transfer to the other's account not later than 3:00 p.m. Central time on the
Business Day following the Settlement Date.
(3) On the first Business Day of each month
("INTEREST SETTLEMENT DATE"), Agent will advise each Lender by telephone,
telefax or telecopy of the amount of interest and fees charged to and collected
from Borrower for the preceding month. Provided that such Lender has made all
payments required to be made by it under this Agreement, Agent will pay to such
Lender, by wire transfer to such Lender's account (as specified by such Lender
on the signature page of this Agreement as amended by such Lender from time to
time after the date hereof pursuant to the notice provisions contained herein or
in the applicable Assignment and Assumption Agreement) not later than 3 p.m.
Central time on the next Business Day following the Interest Settlement Date
such Lender's share of such interest and fees.
59
<PAGE> 68
(B) AVAILABILITY OF LENDER'S PRO RATA SHARE.
(1) Unless Agent has been notified by a Lender prior
to a Funding Date of such Lender's intention not to fund its Pro Rata Share of
the Loan amount requested by Borrower, Agent may assume that such Lender will
make such amount available to Agent on the Funding Date or the Business Day
following the next Settlement Date, as applicable. If such amount is not, in
fact, made available to Agent by such Lender when due, Agent will be entitled to
recover such amount on demand from such Lender without set-off, counterclaim or
deduction of any kind.
(2) Nothing contained in this subsection 9.6(B) will
be deemed to relieve a Lender of its obligation to fulfill its Commitments or to
prejudice any rights Agent or Borrower may have against such Lender as a result
of any default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing,
each Lender shall be obligated to fund its Pro Rata Share of any Revolving
Advance made with respect to any draw on a Lender Letter of Credit.
(C) RETURN OF PAYMENTS
(1) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrower or paid to
any other person pursuant to any solvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement, Agent will not be
required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
9.7 DISSEMINATION OF INFORMATION. Agent will provide Lenders with any
information received by Agent from Borrower which is required to be provided to
a Lender hereunder; provided, however, that Agent shall not be liable to Lenders
for any failure to do so, except to the extent that such failure is attributable
to Agent's gross negligence or willful misconduct.
9.8 DISCRETIONARY ADVANCES. Agent may, in its sole discretion, (i)
provided that no Event of Default exists, make Revolving Advances of up to
$1,000,000 in excess of the limitations set forth in subsection 2.1(A)(1)(b) but
not in excess of the limitation set forth in subsection 2.1(A)(1)(a) for a
period of not more than 30 consecutive days and (ii) during the continuance of
an Event of Default, make Revolving Advances in an aggregate amount of not more
than $750,000 in excess of the limitations set forth in subsection 2.1(A)(1) for
the purpose of preserving or protecting the Collateral.
60
<PAGE> 69
SECTION 10. MISCELLANEOUS
10.1 EXPENSES AND ATTORNEYS' FEES. Whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to promptly pay all
reasonable fees, costs and expenses incurred by Agent in connection with any
matters contemplated by or arising out of this Agreement or the other Loan
Documents including the following, and all such reasonable fees, costs and
expenses shall be part of the Obligations, payable on demand and secured by the
Collateral: (a) reasonable fees, costs and expenses (including reasonable
attorneys' fees, allocated costs of internal counsel and fees of environmental
consultants, accountants and other professionals retained by Agent) incurred in
connection with the examination, review, due diligence investigation,
documentation and closing of the financing arrangements evidenced by the Loan
Documents; (b) reasonable fees, costs and expenses (including reasonable
attorneys' fees, allocated costs of internal counsel and reasonable fees of
environmental consultants, accountants and other professionals retained by
Agent) incurred in connection with the review, negotiation, preparation,
documentation, execution, syndication, and administration of the Loan Documents,
the Loans, and any amendments, waivers, consents, forbearances and other
modifications relating thereto or any subordination or intercreditor agreements;
(c) reasonable fees, costs and expenses incurred by Agent in creating,
perfecting and maintaining perfection of Liens in favor of Agent, on behalf of
Lenders; (d) reasonable fees, costs and expenses incurred by Agent in connection
with forwarding to Borrower the proceeds of Loans including Agent's or any
Lenders' standard wire transfer fee; (e) reasonable fees, costs, expenses and
bank charges, including bank charges for returned checks, incurred by Agent or
any Lender in establishing, maintaining and handling lock box accounts, blocked
accounts or other accounts for collection of the Collateral; (f) reasonable
fees, costs, expenses (including reasonable attorneys' fees and allocated costs
of internal counsel) of Agent or any Lender and reasonable costs of settlement
incurred in collecting upon or enforcing rights against the Collateral or
incurred in any action to enforce this Agreement or the other Loan Documents or
to collect any payments due from Borrower or any other Loan Party under this
Agreement or any other Loan Document or incurred in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement, whether in the nature of a "workout" or in connection with any
insolvency or bankruptcy proceedings or otherwise.
10.2 INDEMNITY. In addition to the payment of expenses pursuant to
subsection 10.1, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold Agent and each Lender
and any holder of the Note(s) and the officers, directors, employees, agents,
consultants, auditors, persons engaged by Agent or any Lender and any holder of
the Note(s) to evaluate or monitor the Collateral, affiliates and attorneys of
Agent, Lender and such holders (collectively called the "INDEMNITEES") harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, reasonable costs, expenses and
disbursements (including the fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto) that may be imposed on, incurred by, or asserted
against that Indemnitee, in any manner relating to or arising out of this
Agreement or the other Loan Documents, the consummation of the transactions
contemplated by this
61
<PAGE> 70
Agreement, the statements contained in the commitment letters, if any, delivered
by Agent or any Lender, Agent's and each Lender's agreement to make the Loans
hereunder, the use or intended use of the proceeds of any of the Loans or the
exercise of any right or remedy hereunder or under the other Loan Documents (the
"INDEMNIFIED LIABILITIES"); provided that Borrower shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of that Indemnitee as determined by a
court of competent jurisdiction.
10.3 AMENDMENTS AND WAIVERS.
(A) Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement or any
Loan Document, or consent to any departure by any Loan Party therefrom, shall in
any event be effective unless the same shall be in writing and signed by
Requisite Lenders or Agent, as applicable; provided, that no amendment,
modification, termination or waiver shall, unless in writing and signed by all
Lenders, do any of the following: (i) increase the Commitment of any Lender;
(ii) reduce the principal of, rate of interest on or fees payable with respect
to any Loan; (iii) extend the scheduled due date of any installment of principal
of the Loans; (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans, or the percentage of Lenders which shall
be required for Lenders or any of them to take any action hereunder; (v) amend
or waive this subsection 10.3 or the definitions of the terms used in this
subsection 10.3 insofar as the definitions affect the substance of this
subsection 10.3; (vi) consent to the assignment or other transfer by any Loan
Party of any of its rights and obligations under any Loan Document; (vii)
increase the percentages contained in the definition of Borrowing Base; and
(viii) release all or substantially all of the Collateral and provided, further,
that no amendment, modification, termination or waiver affecting the rights or
duties of Agent under any Loan Document shall in any event be effective, unless
in writing and signed by Agent, in addition to the Lenders required herein above
to take such action.
(B) Each amendment, modification, termination or waiver shall
be effective only in the specific instance and for the specific purpose for
which it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan Document.
(C) No amendment, modification or waiver of any provision of
any Lender Letter of Credit shall be applicable without the written concurrence
of the issuer of such Lender Letter of Credit. No notice to or demand on
Borrower or any other Loan Party in any case shall entitle Borrower or any other
Loan Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 10.3 shall be binding upon each
Lender, and, if signed by a Loan Party, on such Loan Party.
(D) In the event Agent waives (1) any Default arising under
subsection 8.1(E) as a result of the breach of any of the provisions of Section
5 of this Agreement (other than any such breach which constitutes an Event of
Default) or (2) any Default constituting a condition to the
62
<PAGE> 71
funding of any Revolving Advance or issuance of any Lender Letter of Credit,
such waiver shall expire on the date upon which the Default which was the
subject of such waiver matures into an Event of Default pursuant to the terms of
this Agreement.
10.4 NOTICES. Unless otherwise specifically provided herein, all
notices shall be in writing addressed to the respective party as set forth below
and may be personally served, telecopied or sent by overnight courier service or
United States mail and shall be deemed to have been given: (a) if delivered in
person, when delivered; (b) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. Central time or,
if not, on the next succeeding Business Day; (c) if delivered by overnight
courier, two (2) days after delivery to such courier properly addressed; or (d)
if by U.S. Mail, four (4) Business Days after depositing in the United States
mail, with postage prepaid and properly addressed.
If to Borrower: SpinCycle, Inc.
15990 North Greenway/Hayden Loop
Suite 400
Scottsdale, Arizona 85260
Attn: Chief Financial Officer
Telecopy No.: (602) 707-9967
With a copy to: Pedersen & Houpt, P.C.
161 North Clark Street, Suite 3100
Chicago, Illinois 60601
Attn: Mary C. Muehlstein, Esq.
Telecopier: 312-641-6895
If to Agent or to Heller: Heller Financial, Inc.
500 West Monroe
Chicago, Illinois, 60661
Attn: HBC Portfolio Manager
Telecopy No.: (312) 441-6133
With a copy to: Heller Financial, Inc.
500 West Monroe
Chicago, Illinois 60661
Attn: Legal Department/HBC
Telecopy No.: (312) 441-6876
If to any Lender: Its address indicated on the signature page hereto,
in an Assignment and Assumption Agreement or in a notice to Agent and Borrower
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
10.4.
63
<PAGE> 72
10.5 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in subsections 10.1 and 10.2 shall survive
the payment of the Loans and the termination of this Agreement.
10.6 INDULGENCE NOT WAIVER. No failure or delay on the part of Agent,
any Lender or any holder of the Note(s) in the exercise of any power, right or
privilege hereunder or under the Note(s) shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
10.7 MARSHALING; PAYMENTS SET ASIDE. Neither Agent nor any Lender shall
be under any obligation to marshal any assets in favor of any Loan Party or any
other party or against or in payment of any or all of the Obligations. To the
extent that any Loan Party makes a payment or payments to Agent and/or any
Lender or Agent and/or any Lender enforces its security interests or exercise
its rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.
10.8 ENTIRE AGREEMENT. This Agreement, the Note(s) and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. There are no oral agreements among the parties hereto.
10.9 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
10.10 SEVERABILITY. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement or the
other Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
10.11 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS'
RIGHTS. The obligation of each Lender hereunder is several and not joint and
neither Agent nor any Lender shall
64
<PAGE> 73
be responsible for the obligation or commitment of any other Lender hereunder.
In the event that any Lender at any time should fail to make a Loan as herein
provided, Lenders, or any of them, at their sole option, may make the Loan that
was to have been made by the Lender so failing to make such Loan. Nothing
contained in any Loan Document and no action taken by Agent or any Lender
pursuant hereto or thereto shall be deemed to constitute Lenders to be a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and, provided Agent fails or refuses to exercise any remedies
against Borrower after receiving the direction of the Requisite Lenders, each
Lender shall be entitled to protect and enforce its rights arising out of this
Agreement and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.
10.12 HEADINGS. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
10.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
10.14 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns except that Borrower may not assign its rights or obligations hereunder
without the written consent of Lenders.
10.15 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES.
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by Agent or any Lender to Borrower.
(B) (i) Neither Agent nor any Lender, nor any affiliate,
officer, director, shareholder, employee, attorney, or agent of Agent or any
Lender shall have any liability with respect to, and Borrower hereby waives,
releases, and agrees not to sue any of them upon, any claim for any special,
indirect, incidental, or consequential damages suffered or incurred by Borrower
in connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. Borrower hereby waives, releases,
and agrees not to sue Agent or any Lender or any of Agent's or any Lender's
affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
(ii) Neither Borrower nor any affiliate, officer,
director, shareholder, employee, attorney, or agent of Borrower shall have any
liability with respect to, and Agent and
65
<PAGE> 74
Lenders hereby waive, release, and agree not to sue any of them upon, any claim
for any special, indirect, incidental, or consequential damages suffered or
incurred by Agent or Lenders in connection with, arising out of, or in any way
related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Agent and Lenders hereby waive, release, and agree not to sue Borrower or any of
its affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or any
of the transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
10.16 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES
OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH LOAN PARTY
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE NOTES,
THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS.
10.17 WAIVER OF JURY TRIAL. EACH LOAN PARTY, AGENT AND EACH LENDER
HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS.
EACH LOAN PARTY, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. EACH LOAN PARTY, AGENT AND EACH LENDER FURTHER WARRANTS
AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
10.18 CONSTRUCTION. Borrower, Agent and each Lender each acknowledge
that it has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement and the other Loan Documents
with its legal counsel and that this Agreement and the other Loan Documents
shall be construed as if jointly drafted by Borrower, Agent and each Lender.
10.19 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
66
<PAGE> 75
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto. Delivery of an executed counterpart of a signature
page to this Agreement, any amendments, waivers, consents or supplements, or to
any other Loan Document by telecopier shall be as effective as delivery of a
manually executed counterpart thereof.
10.20 NO DUTY. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Agent or any Lender shall have
the right to act exclusively in the interest of Agent or such Lender and shall
have no duty of disclosure, duty of loyalty, duty of care, or other duty or
obligation of any type or nature whatsoever to Borrower or any of Borrower's
shareholders or any other Person.
10.21 CONFIDENTIALITY. Agent and Lenders shall hold all nonpublic
information obtained pursuant to the requirements hereof and identified as such
by Borrower in accordance with such Person's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
business practices and in any event may make disclosure to such of its
respective Affiliates, officers, directors, employees, agents and
representatives as need to know such information in connection with the Loans.
If any Lender is otherwise a creditor of a Borrower, such Lender may use the
information in connection with its other credits. Agent and Lenders may also
make disclosure reasonably required by a bona fide offeree or assignee (or
participation), or as required or requested by any Governmental Authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other advisors, and shall require any such offeree or assignee (or
participant) to agree (and require any of its offerees, assignees or
participants to agree) to comply with this Section 10.21. In no event shall
Agent or any Lender be obligated or required to return any materials furnished
by Borrower; provided, however, each Offeree shall be required to agree that if
it does not become a assignee (or participant) it shall return all materials
furnished to it by Borrower in connection herewith.
[Signature Page to Follow]
67
<PAGE> 76
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
SPINCYCLE, INC.
By: /s/ Patrick Boyer
-----------------------------
Title: Chief Financial Officer
--------------------------
FEIN: 41-1821793
---------------------------
HELLER FINANCIAL, INC.,
as a Lender and as Agent
By: /s/
-----------------------------
Title: Senior Vice President
--------------------------
Revolving Loan Commitment:
$40,000,000
68
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
A Borrowing Base Certificate
B Compliance Certificate
C Laundry Equipment Report
D Assignment and Assumption Agreement
E Leased Property Report
F Blocked Account Agreement
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
1.1(A) Leased Property
1.1(B) Other Liens
1.1(C) Pro Forma
1.1 (D) Financial Statements
3.1(A) List of Closing Documents
4.1(B) Capitalization of Loan Parties
4.6 Trade Names (Present and Past Five Years)
4.7 Location of Principal Place of Business, Books and Records,
Facilities and Collateral
4.13 Intellectual Property
4.15 Environmental Compliance
4.20 Bank Accounts
4.22 Employee Matters
7.2 Guaranties
</TABLE>
69
<PAGE> 78
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
I, Maritza Torres, a Notary Public in and for said County, in
the State aforesaid, DO HEREBY CERTIFY that W.L. Hall, Jr., personally known to
me to be the Senior Vice President of Heller Financial, Inc., the person who
executed the foregoing instrument, who being by me duly sworn, did depose and
say he is the Senior Vice President of such corporation described in and which
executed the foregoing instrument; that said instrument is signed on behalf of
such corporation by order of its Board of Directors; and that he acknowledged
said instrument to be the free act and deed of such corporation.
GIVEN under my hand and notarial seal this 29th day of April,
1998.
--------------------------------------------
Notary Public
My commission expires:
-------------------------------------------
70
<PAGE> 79
STATE OF NEW YORK )
SS
COUNTY OF NEW YORK )
I, Maritza Torres, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that Patrick Boyer, personally known to me to be a
Chief Financial Officer of SpinCycle, Inc., the person who executed the
foregoing instrument, who being by me duly sworn, did depose and say he is a
Chief Financial Officer of such corporation described in and which executed the
foregoing instrument; that said instrument is signed on behalf of such
corporation by order of its Board of Directors; and that he acknowledged said
instrument to be the free act and deed of such corporation.
GIVEN under my hand and notarial seal this 29th day of April, 1998
-------------------------------------------
Notary Public
My commission expires:
------------------------------------------
71
<PAGE> 1
Exhibit 10.2
COLLATERAL ASSIGNMENT OF LEASES
THIS COLLATERAL ASSIGNMENT OF LEASES ("ASSIGNMENT") dated as of this
29th day of April, 1998, is made by and between SPINCYLE, INC., a Delaware
corporation (the "BORROWER") and HELLER FINANCIAL, INC., a Delaware corporation,
as Agent for the ratable benefit of the Lenders (hereinafter defined) (in such
capacity, hereinafter referred to as the "ASSIGNEE").
W I T N E S S E T H:
WHEREAS, the Borrower has entered into a certain Loan and Security
Agreement dated as of April 29, 1998 with the Lenders signatory thereto (the
"LENDERS") and the Assignee (hereinafter, as it may from time to time be
amended, modified, or supplemented, referred to as the "LOAN AGREEMENT")
pursuant to which the Lenders have agreed to lend to the Borrower up to the
principal amount set forth therein and to provide certain other financial
accommodations to the Borrower, subject to and upon the terms and conditions of
the Loan Agreement;
WHEREAS, the Borrower is the lessee relative to certain lots or parcels
of real property (collectively, the "PREMISES") pursuant to certain leases
described on Exhibit A attached hereto and made a part hereof (such leases,
together with any and all renewals, extensions, amendments and supplements
thereto, are hereinafter referred to individually as a "LEASE" and collectively
as the "LEASES"); and
WHEREAS, as a condition to the extension by the Lenders to the Borrower
of the financial accommodations described in the Loan Agreement, the Lenders
have required that the Borrower enter into this Assignment to secure the payment
and performance of the Borrower's "Obligations" (as such term is defined in the
Loan Agreement) to the Lenders and the Assignee as well as the payment and
performance obligations related to this Assignment (the aforesaid Obligations of
the Borrower being hereinafter referred to as the "OBLIGATIONS"; each, an
"OBLIGATION");
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower hereby agrees with the Assignee as follows:
1. Subject to the provisions of Paragraphs 3 and 10 of this Assignment,
and as collateral security for the payment and performance of Borrower's
Obligations, the Borrower hereby assigns, transfers and sets over to the
Assignee for the ratable benefit of the Lenders any and all of the Borrower's
right, title and interest, powers, privileges and other benefits as lessee or
grantee under each Lease, including, without limitation, but subject to any
limitation on any of the following that may be set forth in the Lease, (a) the
right to enter upon, take possession of and use any and all property leased or
granted to the Borrower, (b) the right to make all waivers and agreements, to
give all notices, consents and releases, to take all action upon the happening
of any default giving rise to a right in favor of the Borrower under each Lease,
to exercise the Borrower's rights as lessee under 11 U.S.C. Section 365(h)
(including, without limitation, the Borrower's right to remain in possession of
or to use the Premises), and (c) the right to do any and all other things
whatsoever which the Borrower
<PAGE> 2
is or may become entitled to do under any of the Leases. The Borrower represents
and warrants that a true and correct copy of each Lease has been previously
delivered to the Assignee.
2. Upon the occurrence of an "Event of Default" (as defined in the Loan
Agreement) or any failure of the Borrower to perform or discharge its
obligations, covenants, agreements or duties hereunder or under any of the
Leases, the Borrower agrees that, at the option of the Assignee and in addition
to such other rights and remedies as may be afforded to the Lenders and the
Assignee under the Loan Agreement, by law or in equity, the Assignee shall have
the right, upon giving notice to the Borrower in accordance with the notice
provisions of the Loan Agreement or obtaining the consent of the Borrower, to
exercise, enforce or avail itself of any of the rights, powers, privileges,
authorizations or benefits assigned and transferred to the Assignee pursuant to
this Assignment, including, without limitation, the right to enter upon and take
possession of any of the Premises by or through its own action or that of any
agents or assigns, in which event the Borrower agrees to peacefully vacate and
surrender such Premises to the Assignee or its agents or assigns.
3. This Assignment is executed only as security for Borrower's
Obligations and, therefore, the execution and delivery of this Assignment shall
not subject the Assignee or any of the Lenders to, or transfer or pass to the
Assignee or any of the Lenders or in any way affect or modify, the liability of
the Borrower under each of the Leases, it being understood and agreed that,
notwithstanding this Assignment or any subsequent assignment, all of the
obligations of the Borrower to each and every other party under each Lease shall
be and remain enforceable by such other party, its successors and assigns,
against, but only against, the Borrower or persons other than the Assignee, the
Lenders and their successors and assigns.
4. To protect the security afforded by this Assignment, the Borrower
agrees as follows:
a. Subject to any express provision within the Lease which may grant
the Borrower a right to contest, the Borrower shall, within the time periods
provided therein, perform and discharge each and every material obligation,
covenant, condition, duty and agreement which each Lease provides is to be
performed by the Borrower.
b. Without the prior written consent of the Assignee (which consent
shall not be unreasonably withheld, conditioned or delayed), the Borrower shall
not materially amend, modify or otherwise change or terminate (other than as a
result of a landlord's default thereunder) any of the Leases.
c. At the Borrower's sole cost and expense, the Borrower shall
appear in and defend any action or proceedings arising under, growing out of or
in any manner connected with the obligations, covenants, conditions, duties,
agreements or liabilities of the Borrower under any of the Leases which if
adversely determined could have a Material Adverse Effect.
d. Without the prior written consent of the Assignee (which consent
shall not be unreasonably withheld, conditioned or delayed), the Borrower shall
not elect to treat any Lease as terminated under 11 U.S.C. Section 365(h)(1) in
any bankruptcy proceeding, and shall not set off against
-2-
<PAGE> 3
the rent due under any such Lease, pursuant to 11 U.S.C. Section 365(h)(2), the
amount of any damages caused by the nonperformance of the lessor under such
Lease following the rejection of such Lease by lessor.
e. Without the prior written consent of the Assignee (which consent
shall not be unreasonably withheld, conditioned or delayed), the Borrower shall
not commence or compromise any action, suit, proceeding or case, or file any
application or make any motion affecting any Lease in any bankruptcy proceeding.
f. Should the Borrower fail to perform or discharge its obligations
or duties under any Lease as required in subparagraph 4(a) above or under this
Assignment, then the Assignee may, but shall have no obligation to (and shall
not thereby release the Borrower from any Obligation hereunder), perform or
discharge any such obligation or duty under any such Lease to such extent as the
Assignee may deem reasonably necessary or advisable to protect the security
provided hereby, including appearing in and defending any action or proceeding
purporting to affect the security hereof or the rights or powers of the Assignee
hereunder. In exercising any such powers, the Assignee may pay necessary and
reasonable costs (including reasonable attorneys' and paralegals' fees and
expenses), and all such expenses paid or incurred by the Assignee shall be
additional obligations of Borrower pursuant to the Loan Agreement, payable upon
demand, and shall bear interest at the Default Rate of interest applicable to
Base Rate Loans set forth in the Loan Agreement.
g. Upon either the occurrence of an Event of Default or the failure
of the Borrower to perform or discharge its obligations under this Assignment,
the Assignee shall have the right to assign Borrower's rights and interests in
the Leases to the extent permitted by the terms of the Leases.
5. The Assignee (in the name of the Borrower or otherwise) may, after
the occurrence of an Event of Default, ask, require, demand, receive and give
acquittance for every payment under or arising out of any of the Leases to which
the Borrower is or may become entitled, including, without limitation, any
damage resulting from any rejection of any Lease by the lessor thereunder in any
bankruptcy proceeding involving such lessor, to enforce compliance by any other
party with any term or provision of any Lease, to endorse each and every check
or other instrument or order in connection therewith, and to file any claim,
take any action, or institute any proceeding which the Assignee may deem to be
necessary or advisable.
6. Until Borrower's Obligations are fully paid and discharged, this
Assignment and all representations, warranties, covenants, agreements, grants of
security and other terms and provisions hereof shall remain in full force and
effect. No termination or cancellation (regardless of cause or procedure) of
this Assignment shall in any way affect or impair the powers, obligations,
duties, rights and liabilities of the Borrower or the Assignee in any way or
respect relating to (i) any transaction or event occurring prior to such
termination or cancellation and/or (ii) any of the undertakings, agreements,
covenants, warranties and representations of the Borrower contained in
-3-
<PAGE> 4
this Assignment. All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation.
7. The Borrower shall, from time to time, do and perform any other act
or acts and shall execute, acknowledge, deliver and file, register, record (and
shall re-file, re-register and re-record whenever required) any further
instruments, including any extensions and renewals thereof, required by law or
reasonably requested by the Assignee in order to confirm, or further assure, the
interests of the Assignee hereunder.
8. If the Assignee shall convey or assign its rights under or pursuant
to the Loan Agreement to any successor or assign, then the Assignee may assign
to such successor or assign any of the rights assigned to it hereby, or arising
under any of the Leases. In such event, such successor or assign shall enjoy all
rights and privileges and be subject to all obligations of the assignor
hereunder and there shall be no further liability of the Assignee hereunder or
under any of the Leases arising after the date of such assignment. The Assignee
shall give prompt written notice to the Borrower of any such assignment.
9. The Borrower shall cause a copy of every notice or communication
received from any of the other parties to any Lease, which notices or
communication shall notify the Borrower of any default or event of default on
the part of the Borrower under any such Lease to be delivered to the Assignee
within ten Business Days of the Borrower's receipt of said notice or
communication in the manner and at the place provided for in the Loan Agreement
for the giving of notices thereunder, or at such other address or in such other
manner as the Assignee shall designate in writing upon no less than ten (10)
days written notice. The Borrower shall promptly notify the Assignee upon
receiving notice of the filing of any bankruptcy petition by or against, or the
institution of any insolvency or reorganization proceeding involving the lessor
under any Lease, and shall thereafter keep the Assignee informed of any
information which comes to the Borrower's attention in connection with such
bankruptcy, insolvency or reorganization proceeding. Without limiting the
generality of the foregoing, the Borrower shall provide the Assignee with copies
of all notices, summonses, pleadings, applications and other documents received
by the Borrower in connection with any such proceeding.
10. The Assignee hereby agrees with the Borrower that notwithstanding
anything to the contrary contained herein, so long as both (a) no Default or
Event of Default exists under the Loan Agreement, and (b) the Borrower is not in
default of any of its obligations, covenants, agreements or duties hereunder:
(i) the Assignee shall neither exercise, enforce or avail itself of, nor seek to
exercise, enforce or avail itself of any of the rights, powers, privileges,
authorizations or benefits assigned and transferred to the Assignee pursuant to
this Assignment, and (ii) the Borrower may exercise or enforce, or seek to
exercise or enforce such rights, powers, privileges, authorizations or benefits
under the Leases.
-4-
<PAGE> 5
11. All terms used herein which are not defined herein but are defined
in the Loan Agreement shall have the meanings ascribed to them therein. In the
event of a conflict between the terms and provisions of this Assignment and the
terms and provisions of the Loan Agreement, the terms and provisions of the Loan
Agreement shall control.
12. Except to the extent that the laws of the state where any Premises
is located must be applied, this Assignment shall be governed and controlled by
the internal laws of the State of Illinois.
13. If any provision of this Assignment or the application thereof to
the Borrower or circumstance is held invalid or unenforceable, the remainder of
this Assignment and the application of such provision will not be affected
thereby and the provisions of this Assignment shall be severable in any such
instance. If the execution and effect of this Assignment shall constitute a
breach or default under the terms of any Lease for any reason including, without
limitation, the failure to procure the prior consent of any lessor, then this
Assignment shall be deemed to be of no force or effect with respect to any such
Lease.
14. This Assignment shall be binding upon and inure to the benefit of
the successors and assigns of the Borrower and the Assignee and their respective
successors and assigns, provided, however, that inasmuch as the terms of any
Lease prohibit any assignments by the Borrower without the consent of the
landlord under any such Lease, the Assignee acknowledges that it shall be
required to obtain the consent of such landlord and the Borrower acknowledges
and agrees that it shall use its best efforts to obtain such consent.
15. Any notice(s) required or desired to be given hereunder shall be
delivered to the recipient party in the manner and at the place provided for in
the Loan Agreement for the giving of notices thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their respective duly authorized officers all as of the date
first above written.
BORROWER:
SPINCYLE, INC.,
A DELAWARE CORPORATION
BY: /s/
---------------------------------
ITS:
----------------------------
ASSIGNEE:
HELLER FINANCIAL, INC., AS AGENT
A DELAWARE CORPORATION
BY: /s/
---------------------------------
ITS:
----------------------------
-5-
<PAGE> 6
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this ____ day of April, 1998, before me, the undersigned, a Notary
Public in and for the State set forth above, personally appeared
___________________________, to me personally known, who, being by me duly
sworn, did say that he is the above-indicated authorized officer of SPINCYCLE,
INC., a Delaware corporation; and that the foregoing officer of the company
acknowledged execution of the instrument to be the voluntary act and deed of
said company.
IN TESTIMONY WHEREOF, I have hereunto set by hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
{SEAL} /s/
-----------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this ____ day of April, 1998, before me, the undersigned, a
Notary Public in and for the State set forth above, personally appeared
___________________________, to me personally known, who, being by me duly
sworn, did say that he is the above-indicated authorized officer of HELLER
FINANCIAL, INC., a Delaware corporation; and that the foregoing officer of the
company acknowledged execution of the instrument to be the voluntary act and
deed of said company.
IN TESTIMONY WHEREOF, I have hereunto set by hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
{SEAL} /s/
------------------------------
NOTARY PUBLIC
<PAGE> 7
EXHIBIT A
LEASES
SEE ATTACHED
<PAGE> 1
Exhibit 10.3
ASSIGNMENT FOR SECURITY OF
PATENTS, TRADEMARKS AND COPYRIGHTS
This ASSIGNMENT FOR SECURITY OF PATENTS, TRADEMARKS AND COPYRIGHTS
(this "ASSIGNMENT") is made as of the 29th day of April, 1998 by and between:
SPINCYCLE, INC. a Delaware corporation, ( "ASSIGNOR"); and
HELLER FINANCIAL, INC., a Delaware corporation, as Agent for the
benefit of the Lenders defined below (in such capacity, "AGENT").
W I T N E S S E T H
WHEREAS, pursuant to a certain Loan and Security Agreement of even date
herewith among Assignor, Agent and certain financial institutions from time to
time party thereto (collectively, "LENDERS") (as the same may hereafter be
amended, supplemented or otherwise modified from time to time, the "LOAN
AGREEMENT"), Lenders have agreed to make certain loans and extend certain other
financial accommodations to Assignor; and
WHEREAS, the Loan Agreement grants to Agent for the benefit of Lenders
a continuing security interest in certain assets of Assignor, including, without
limitation, all of Assignor's patents, patent rights and applications therefor,
trademarks and applications therefor, copyrights and applications and
registrations therefor, license rights and goodwill;
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Assignor agrees as follows:
SECTION 1. INCORPORATION OF LOAN AGREEMENT DEFINITIONS. The Loan
Agreement and the provisions thereof are hereby incorporated herein in their
entirety by this reference thereto. Capitalized terms used but not defined
herein shall have the respective meanings given thereto in the Loan Agreement.
SECTION 2. ASSIGNMENT FOR SECURITY.
(a) To secure the complete and timely payment and satisfaction
of the Obligations, Assignor hereby grants to Agent for the benefit of Lenders a
continuing security interest in its entire right, title and interest in and to
all of its now owned or existing and hereafter acquired or arising:
<PAGE> 2
(i) patents, patent applications and patent licenses,
including, without limitation, the inventions and improvements described and
claimed therein, all patentable inventions and those patents, patent
applications and patent licenses listed on Schedule A attached hereto and made a
part hereof and the reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any of the foregoing, and all income, royalties,
damages and payments now or hereafter due and/or payable under or with respect
to any of the foregoing with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing (all of the foregoing are sometimes
hereinafter individually and/or collectively referred to as the "PATENTS");
(ii) copyrights, rights and interests in copyrights, works
protectable by copyrights, copyright registrations copyright applications and
copyright licenses, including, without limitation, the copyright registrations,
applications and licenses listed on Schedule B attached hereto and made a part
hereof and all renewals of any of the foregoing, all income, royalties, damages
and payments now and hereafter due and/or payable under or with respect to any
of the foregoing, including, without limitation, damages and payments for past,
present and future infringements of any of the foregoing and the right to sue
for past, present and future infringements of any of the foregoing (all of the
foregoing are sometimes hereinafter individually and/or collectively referred to
as the "COPYRIGHTS");
(iii) trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos,
other business identifiers, prints and labels on which any of the foregoing have
appeared or appear, all registrations and recordings thereof, all applications
and licenses in connection therewith, including, without limitation, the
trademarks, applications and licenses listed on Schedule C attached hereto and
made a part hereof and renewals thereof, and all income, royalties, damages and
payments now or hereafter due and/or payable under or with respect to any of the
foregoing or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to sue for past, present and future
infringements of any of the foregoing (all of the foregoing are sometimes
hereinafter individually and/or collectively referred to as the "TRADEMARKS");
and
(iv) all rights corresponding to any of the foregoing
throughout the world and the goodwill of Assignor's business connected with the
use of and symbolized by the Trademarks.
(b) In addition to, and not by way of limitation of, all other
rights granted to Agent for the ratable benefit of Lenders under the Loan
Agreement, this Assignment and all other Loan Documents, as collateral security
for the complete payment when due of all Obligations under the Loan Agreement
and the other Loan Documents, each Assignor hereby sells, assigns, grants,
conveys, transfers and sets over to Agent, for use and benefit of Lenders, upon
the occurrence of an
- 2 -
<PAGE> 3
Event of Default, any and all rights of Assignor under any license and any
license agreement with any other party, whether Assignor is a licensor or
licensee under such license agreement and the right to prepare for sale, sell
and advertise for sale, all Collateral now or hereafter owned by Assignor and
now or hereafter covered by such license and agrees that it will not take any
unreasonable action, or permit any unreasonable action to be taken by others
subject to its control, including licensees, or fail to take any reasonable
action, which could affect the validity or enforcement of the rights transferred
to Agent under this Assignment which rights are material to the conduct of
Assignor's business. Assignor hereby covenants that it will promptly notify
Agent if any Patent, Copyright or Trademark shall at any time hereafter become
subject to such license agreement and that it will promptly provide Agent with
full identification thereof and with such further documentation as Agent may
reasonably request to accomplish or assure the accomplishment of the purpose of
this subsection.
(c) If any provision of this Assignment or the application thereof
to the Assignor or circumstance is held invalid or unenforceable, the remainder
of this Assignment and the application of such provision will not be affected
thereby and the provisions of this Assignment shall be severable in any such
instance. If the execution and effect of this Assignment shall constitute a
breach or default under the terms of any agreement for any reason including,
without limitation, the failure to procure the prior consent of any third party,
then this Assignment shall be deemed to be of no force or effect with respect to
any such agreement.
SECTION 3. LICENSES. Assignor hereby agrees that the use by Agent, on
behalf of Lenders, of all Patents, Copyrights and Trademarks as described above
shall be worldwide, to the extent possessed by Assignor, and is granted free of
charge, without requirement that any monetary payment whatsoever (including,
without limitation, any royalty, license fee or other related charges) be made
to Assignor or any other Person by Agent or any Lender (except that if Agent
shall receive proceeds from the disposition of any such property, such proceeds
shall be applied to the Obligations). Notwithstanding the foregoing, in the
event that Agent uses any Patents, Copyrights and/or Trademarks which are
licensed from a third party, Agent shall be subject to all obligations
(including, without limitation, royalty, license fee or other related charges)
set forth in the license agreements related thereto. The term of the assignments
and grant of security interest granted herein shall extend until the earlier of:
(x) expiration of each of the respective Patents, Copyrights and Trademarks
assigned hereunder, or (y) the Obligations have been finally paid in full in
cash and the Loan Agreement and the Commitments terminated.
SECTION 4. REPORTS OF APPLICATIONS. The Patents, Copyrights and
Trademarks constitute all of the federally registered patents, copyrights and
trademarks, and applications therefor now owned by Assignor. Assignor shall
provide Agent on a quarterly basis with a list of all new federally registered
patents, copyrights and trademarks and federal applications for letters patent,
copyright registrations and trademark registrations and licences, if any, which
new patents, copyrights, trademarks, licenses and applications shall be subject
to the terms and conditions of the Loan Agreement and this Assignment.
- 3 -
<PAGE> 4
SECTION 5. EFFECT ON LOAN AGREEMENT; CUMULATIVE REMEDIES. Assignor
acknowledges and agrees that this Assignment is not intended to limit or
restrict in any way the rights and remedies of Agent under the Loan Agreement
but rather is intended to supplement and facilitate the exercise of such rights
and remedies. All of the rights and remedies of Agent with respect to the
Patents, Copyrights and Trademarks, whether established hereby, by the Loan
Agreement, by any other agreements, or by law, shall be cumulative and may be
exercised singularly or concurrently. Notwithstanding any provision herein
contained to the contrary, Agent shall not have the right to use and enforce the
Patents, Copyrights and Trademarks unless and until the occurrence of an Event
of Default, and until the occurrence of an Event of Default Assignor shall have
all of such rights.
SECTION 6. BINDING EFFECT; BENEFITS. This Assignment shall be binding
upon Assignor and its successors and assigns, and shall inure to the benefit of
Agent for the benefit of Lenders and its successors and assigns whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise.
SECTION 7. APPLICABLE LAW; SEVERABILITY. THIS ASSIGNMENT SHALL BE
GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH ALL OF THE
PROVISIONS OF THE UNIFORM COMMERCIAL CODE AS ADOPTED IN ILLINOIS AND BY THE
OTHER INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES, EXCEPT FOR THE PERFECTION AND ENDORSEMENT OF SECURITY INTERESTS AND
LIENS IN OTHER JURISDICTIONS, WHICH SHALL BE GOVERNED BY THE LAWS OF THOSE
JURISDICTIONS OR, AS APPLICABLE, BY THE LAWS OF THE UNITED STATES OF AMERICA.
WHENEVER POSSIBLE, EACH PROVISION OF THIS ASSIGNMENT SHALL BE INTERPRETED IN
SUCH A MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY
PROVISION OF THIS ASSIGNMENT SHALL 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 PROVISIONS OR THE
REMAINING PROVISIONS OF THIS ASSIGNMENT.
SECTION 8. CONSENT TO JURISDICTION. ASSIGNOR HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE LOAN
AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. ASSIGNOR EXPRESSLY SUBMITS AND
CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS. ASSIGNOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON ASSIGNOR BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO ASSIGNOR
- 4 -
<PAGE> 5
AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE
SHALL BE COMPLETED WITHIN TEN (10) DAYS AFTER THE SAME HAS BEEN
POSTED.
SECTION 9. JURY TRIAL WAIVER. ASSIGNOR AND AGENT HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT AND THE LOAN AGREEMENT. ASSIGNOR AND AGENT
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS RELIED ON THIS WAIVER IN ENTERING INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS RELIED ON THIS WAIVER IN ENTERING INTO THIS
AGREEMENT AND THE LOAN AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. ASSIGNOR AND AGENT HEREBY WARRANT AND
REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS.
[Signature Page to Follow]
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this
Assignment as of the date first above written.
SPINCYCLE, INC.
By: /s/
---------------------------------
Its:
--------------------------------
Address:
15990 North Greenway/Hayden Loop
Suite 400
Scottsdale, Arizona 85260
HELLER FINANCIAL, INC., as Agent
By: /s/
---------------------------------
Its:
---------------------------------
Address:
500 West Monroe Street
Chicago, Illinois 60661
- 6 -
<PAGE> 7
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
I, Maritza Torres, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that Patrick Boyer, personally known to me to be
the Chief Financial Officer of SpinCycle, Inc., a Delaware corporation, the
person who executed the foregoing instrument, who being by me duly sworn, did
depose and say he is the Chief Financial Officer of such corporation described
in and which executed the foregoing instrument; that said instrument is signed
on behalf of such corporation by order its Board of Directors; and that he
acknowledged said instrument to be the free act and deed of such corporation.
GIVEN under my hand and notarial seal this 29th day of April, 1998.
/s/
-------------------------------------------
Notary Public
My commission expires:
-------------------------------------------
- 7 -
<PAGE> 8
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
I, Maritza Torres, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that W.L. Hall, Jr., personally known to me to be
the Senior Vice President of Heller Financial, Inc., the person who executed the
foregoing instrument, who being by me duly sworn, did depose and say he is the
Senior Vice President of such corporation described in and which executed the
foregoing instrument; that said instrument is signed on behalf of such
corporation by order of its Board of Directors; and that he acknowledged said
instrument to be the free act and deed of such corporation.
GIVEN under my hand and notarial seal this 29th day of April, 1998.
/s/
-------------------------------------------
Notary Public
My commission expires:
-------------------------------------------
- 8 -
<PAGE> 9
SCHEDULE A
PATENTS
None
PATENT APPLICATIONS
None
PATENT LICENSES
None
<PAGE> 10
SCHEDULE B
COPYRIGHT REGISTRATIONS
None
COPYRIGHT APPLICATIONS
None
COPYRIGHT LICENSES
None
- 10 -
<PAGE> 11
SCHEDULE C
TRADEMARK REGISTRATIONS
Mark Registration No. Date
- ---- ---------------- ----
Servicemark for SpinCycle Reg. No. 2,051,510 April 8, 1997
(United States Patent and
Trademark Office)
Trademark for SpinCycle, Inc. Reg. No. 2,056,312 April 22, 1997
(and design) (United States
Patent and Trademark Office)
Trademark for SPINCYCLE Reg. No. 515676 January 29, 1996
(block letters) (Copyright
Directorate of Department of
Education (Mexico))
TRADEMARK APPLICATIONS
Mark Trademark Application No. Date Applied
- ---- ------------------------- ------------
Trademark for SpinCycle No. 799733 December 14, 1995
(Commissioner of Patents and
Registrar of Copyrights
(Canada))
Trademark for SpinCycle, Inc. No. 810071 April 16, 1996
(and design (Commissioner of
Patents and Registrar of
Copyrights (Canada))
Trademark for SpinCycle, Inc. No. 260993 April 26, 1996
(and design) (Copyright
Directorate of Department of
Education (Mexico))
TRADEMARK LICENSES
None
- 11 -
<PAGE> 1
Exhibit 10.4
AMENDED AND RESTATED
SUPPLY AGREEMENT
This Amended and Restated Supply Agreement (this "Agreement") is made
and entered into as of February 19, 1998, by and among SPINCYCLE, INC., a
Delaware corporation ("Buyer"), and RAYTHEON COMMERCIAL LAUNDRY LLC, a Delaware
limited liability company ("Seller").
W I T N E S S E T H
WHEREAS, Buyer is in the business of building, acquiring, owning, and
operating, or selling to third persons to own and operate, coin-or card-operated
laundromats, and activities ancillary or related thereto; and
WHEREAS, Buyer desires to purchase substantially all of its new
coin-operated or card-operated washing machines and dryers from Seller, and
wishes to assure itself of an ongoing business relationship with Seller
beneficial to Buyer in terms of providing it with the latest products and
technology in the business, and other complementary benefits;
WHEREAS, Buyer's predecessors-in-interest, SpinCycle, Inc., a Minnesota
corporation and Pinnacle Financial, Inc., a Minnesota corporation, previously
entered into a Supply Agreement with Seller's predecessor-in-interest, Raytheon
Appliances, Inc., a Delaware corporation, dated as of November 22, 1996 (the
"Original Supply Agreement"), pursuant to which Buyer and/or its
predecessors-in-interest acquired Products (as hereafter defined) from Seller
and/or its predecessor-in-interest; and
WHEREAS, the parties now desire to amend and restate the terms of the
Original Supply Agreement, and in order to do so Buyer and Seller wish to enter
into this Agreement, pursuant to which Buyer will continue to purchase its
requirements of the Products from Seller.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Requirements Contract . For the term hereof (as defined in Section
10), so long as Seller is a manufacturer of the Products defined in Section 2
herein and so long as Buyer leases and/or operates premises on which one or more
coin-operated or card-operated washing machines and/or dryers are located,
Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller,
Buyer's requirements of Products on the terms and conditions contained herein.
In the event Buyer wishes to lease Products, Buyer further agrees to specify to
the lessor that such Products must be purchased from Seller. In the event Buyer
shall at any time be deriving revenue from any other person to whom Buyer has
leased or subleased any laundromat, or with
<PAGE> 2
whom Buyer has entered into any license agreement, franchise agreement, or other
arrangement relative to the operation of a laundromat and/or providing such
person with the benefit of Buyer's experience in connection therewith, Buyer
shall, to the maximum extent permitted by law, require and encourage such person
to purchase Products from Seller.
2. Definition of Products. For purposes of this Agreement, the parties
agree that the following are the defined "Products" referenced in this
Agreement:
a. All washing machines and front load washers;
b. All dryers, stacked dryers, and tumbler dryers;
c. All replacement and repair parts for any and all of Seller's
washing machines and dryers owned by, leased to or serviced by Buyer (which
Buyer may acquire either directly from Seller or from Seller's authorized
distributors).
3. Price. The current prices to be charged Buyer for all current
formulations of the Products are those set forth in Exhibit A attached hereto
and by this reference made a part hereof. The prices are stated on a FOB
shipping point basis. Seller will prepay freight on orders of 42 or more units
of Seller's top-load washers for shipments within the continental United States.
Seller reserves the right to select the carrier and shipping point. Payments
with respect to Products hereunder shall be made on "Funding Dates" through the
delivery of the "Promissory Notes," all as more specifically set forth in that
certain Loan Agreement between Buyer's predecessors-in-interest and Seller's
predecessor-in-interest, as the same was subsequently amended by a First
Amendment to Loan Agreement dated as of July 15, 1997, and a Second Amendment to
Loan Agreement of even date herewith (and as all the rights, duties, and
obligations of Buyer's predecessors-in-interest and Seller's
predecessor-in-interest have been assumed by and become binding upon Buyer and
Seller, respectively). In the event that the Loan Agreement shall at any time be
terminated, or amounts to be funded thereunder shall have been fully funded,
without renewal or extension, then from and after such date, payment for
Products purchased hereunder shall be made by Buyer within thirty (30) days from
date of invoice; provided, however, that Seller retains the right to adjust
payment terms in a manner consistent with Seller's customary open-account credit
terms, as the same may be adjusted from time to time, or in the event Buyer
fails to maintain the timeliness of its payment in all material respects.
The prices set forth in Exhibit A will be subject to Seller's
Commercial Laundry Volume Rebate Program, as attached hereto and by this
reference made a part hereof on Exhibit B, with respect to Buyer's net purchases
of serial numbered Speed Queen branded equipment. The Volume Rebate will be paid
based upon calendar year purchases (and for purposes of calculating Buyer's
Volume Rebate for 1998, Buyer shall be given credit for all purchases commencing
January 1, 1998). Rebates will be paid or credited to Buyer's account with
Seller within thirty (30) days following the end of each calendar year.
- 2 -
<PAGE> 3
4. Rights with Respect to Future Prices. Seller shall have the right to
change the prices charged Buyer for Products upon thirty (30) days prior written
notice. The percentage increases in prices by Seller shall not exceed the
percentage price increases which are implemented with respect to Seller's Speed
Queen Distributors, as documented by Seller's published manufacturer's list
prices. In any event, there shall be no increase in the prices charged by Seller
for Products during the first year of the term of this Agreement, and thereafter
increases in price by Seller shall not exceed two percent (2%) for the second
year of the term hereof and shall not exceed three percent (3%) for the third
year of the term hereof, provided, however, that prices may be changed as a
result of modifications to the Products which are requested by Buyer.
5. Competitive Product. In consideration of Seller's agreement to
provide the significant volume-based rebates described in Exhibit B attached
hereto, Buyer agrees to limit the extent to which it acquires equipment which is
competitive with the Products manufactured by Seller. Buyer agrees that it may
choose to purchase only up to 5% of its needed Products from competitors of
Seller. In addition, if (a) Seller is unable to deliver Products which Buyer has
ordered within forty-five (45) days of the date such Products would be shipped
in the ordinary course of Seller's business, and (b) such order is in an amount
of equipment of comparable grade and quality from Seller's competitors. In
addition to the foregoing, in the event that Buyer requires certain items of
laundry equipment with respect to which none of the Products manufactured by
Seller materially conform to the specifications of such equipment required by
Buyer, then Buyer shall be free to purchase such equipment from any other
person; provided, however, that in the event Seller subsequently manufactures a
Product which satisfies in all material respects the specifications required by
Buyer and is reasonably competitively priced, Buyer shall thereafter purchase
such equipment from Seller as one of the Products hereunder.
6. Technical Support. Seller will commit resources to work directly
with Buyer on projects mutually beneficial to the parties, including but not
limited to audit control, electronic display and card-actuated washers and
dryers. This is required to ensure timely response to new product development
and day-to-day product problem resolution.
7. Product Reliability. Buyer will share with Seller service history
and product reliability data which is readily available to Buyer concerning the
performance of Seller's products.
8. Warrant. All Products are sold to Buyer with a standard
manufacturer's warranty as provided to Speed Queen distributors, unless
specifically agreed to the contrary between Buyer and Seller as to designated
Products.
- 3 -
<PAGE> 4
9. Default and Arbitration. Each of the following shall constitute an
Event of Default under this Agreement:
A. Default in the payment when due of any amount owed by Buyer to
Seller under this Agreement; and
B. Default In the obligation to obtain all Products from Seller in
the manner set forth in Sections 1, 2 and 5.
Upon the occurrence of an Event of Default hereunder, Seller shall
have the right to commence appropriate proceedings in any state or federal court
located in Fond du Lac County, Wisconsin, Buyer hereby agreeing that it
irrevocably submits to the jurisdiction of such court and waives, to the fullest
extent such party may effectively do so, the defense of an inconvenient forum to
the maintenance of any such action or proceeding. Provided, however, that if
there is a dispute arising out of any of the other terms of this Agreement, such
dispute shall be immediately submitted to arbitration in Fond du Lac, Fond du
Lac County, Wisconsin, in accordance of the commercial rules then in effect of
the American Arbitration Association, and any award of such arbitration shall be
final and binding upon the parties.
10. Term. The initial term of this Agreement shall be three (3) years,
commencing on the date hereof and ending on February 18, 2001. This Agreement
shall be automatically renewed thereafter, for a maximum of four (4) additional
years, each such renewal being for a one (1) year term (to February 18 of the
applicable year), until one party gives a written notice of non-renewal to the
other party at least six (6) months prior to the termination date of the term of
this Agreement then in effect, or until February 18, 2005, whichever first
occurs.
11. Notice. Except as otherwise provided herein, any notice required
hereunder shall be in writing and shall be deemed to have been validly served,
given, or delivered upon (a) three (3) business days after deposit in the United
States certified or registered mails, with proper postage prepaid, (b) the next
business day after deposit with a reputable overnight courier with all charges
prepaid, or (c) delivery, if hand-delivered by messenger, all of which must be
properly addressed to the party to be notified as follows:
(a) If to Seller at: Raytheon Commercial Laundry LLC
Shepard Street
P.O. Box 990
Ripon, WI 54971-0990
Attn: Senior Vice President, Sales and
Marketing
- 4 -
<PAGE> 5
(b) If to Buyer at: SpinCycle, Inc.
15990 N. Greenway/Hayden Loop
Suite 400
Scottsdale, Arizona 85260
Attention: Mr. Peter Ax
with a copy to: Pedersen & Houpt
161 N. Clark Street
Suite 3100
Chicago, Illinois 60601-3224
Attention: Susan Hermann, Esq.
or to such other address as each party may designate for itself by like notice.
12. Choice of Law. This Agreement shall be governed by the laws of the
State of Wisconsin.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
legal representatives, and assigns.
14. Entire Agreement. This Agreement is the entire agreement among the
parties hereto concerning the subject matter hereof and supersedes all prior
agreements, understandings, or negotiations between the parties.
15. Counterparts Clause; Telecopy Execution. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually executed counterpart of this Agreement, but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
BUYER:
SPINCYCLE, INC, a Delaware corporation
By: ____________________________________
Title: _________________________________
SELLER:
RAYTHEON COMMERCIAL LAUNDRY
LLC, a Delaware limited liability company
By: ____________________________________
Title: _________________________________
- 6 -
<PAGE> 1
EXHIBIT 11.1
SPINCYCLE, INC.
COMPUTATION OF HISTORICAL NET LOSS PER SHARE
(ALL AMOUNTS ACTUAL)
<TABLE>
<CAPTION>
Historical Net Loss per Share (1)
----------------------------------------------------------------------------------------
Fiscal Year Ended Fiscal Quarter Ended
December 31, December 31, December 28, March 31, March 22,
1995 1996 1997 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss applicable to holders of .. ($5,451) ($3,893,923) ($15,737,387) ($2,463,963) ($3,751,973)
common stock (2)
Weighted average number of
common shares outstanding .......... 4 33,162 38,127 37,038 33,553
Weighted average number of
common equivalent shares
outstanding (3) .................... -- -- -- -- --
----------------------------------------------------------------------------------------
Weighted average number of
common and common equivalent
shares outstanding ................. 4 33,162 38,127 37,038 33,553
========================================================================================
Basic and diluted net loss
per share ........................ ($1,362.75) ($117.42) ($412.76) ($66.53) ($111.82)
========================================================================================
</TABLE>
(1) See discussion of computation of historical net loss per share in Note
2 to Consolidated Financial Statements.
(2) The Company's 1995 fiscal year is for the period from October 10, 1995
(inception) through December 31, 1995.
(3) Due to the Company's net losses to date, inclusion of common equivalent
shares in the computation of diluted net loss per share would be
antidilutive and therefore is not presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF PEDERSEN & HOUPT, P.C.
Pedersen & Houpt, P.C. hereby consents to all references made to it in the
Registration Statement on Form S-4 of SpinCycle, Inc., as filed with the
Securities and Exchange Commission on June 26, 1998.
/s/ PEDERSEN & HOUPT, P.C.
--------------------------------------
Pedersen & Houpt, P.C.
Chicago, Illinois
June 25, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of SpinCycle, Inc. of our report dated March
13, 1998 relating to the financial statements of SpinCycle, Inc., which appears
in such prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
--------------------------------------
Price Waterhouse LLP
Phoenix, Arizona
June 22, 1998
<PAGE> 1
Exhibit 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
[ ] CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A U.S. NATIONAL BANKING ASSOCIATION 41-1592157
(JURISDICTION OF INCORPORATION OR (I.R.S. Employer
ORGANIZATION IF NOT A U.S. NATIONAL Identification No.)
BANK)
SIXTH STREET AND MARQUETTE AVENUE
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
STANLEY S. STROUP, GENERAL COUNSEL
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
SIXTH STREET AND MARQUETTE AVENUE
MINNEAPOLIS, MINNESOTA 55479
(612) 667-1234
(AGENT FOR SERVICE)
-----------------------------
SPINCYCLE, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1821793
(STATE OR OTHER JURISDICTION OF (I.R.S. Employer
INCORPORATION OR ORGANIZATION) Identification No.)
15990 NORTH GREENWAY HAYEN LOOP, SUITE 400
SCOTTSDALE, AZ 85260
(Address of principal executive offices) (Zip code)
-----------------------------
$144,990,000 - 12.75% SENIOR DISCOUNT NOTES DUE 2005
(TITLE OF INDENTURE SECURITIES)
================================================================================
<PAGE> 2
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility. Norwest Bank
incorporates by reference into this Form T-1
the exhibits attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of
the trustee to commence business issued June
28, 1872, by the Comptroller of the Currency
to The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis
and The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January
12, 1943, as to change of corporate title of
Northwestern National Bank and Trust Company
of Minneapolis to Northwestern National Bank
of Minneapolis.*
- 1 -
<PAGE> 3
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the
Currency, acknowledging receipt of notice of
name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to
Norwest Bank Minneapolis, National
Association.*
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January 2,
1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
- --------------------
* Incorporated by reference to exhibit number 25 filed with
registration statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with
registration statement number 333-53851.
- 2 -
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 3rd day of June 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/______________________
Jane Y. Schweiger
Corporate Trust Officer
- 3 -
<PAGE> 5
EXHIBIT 6
June 3, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/_____________________________
Jane Y. Schweiger
Corporate Trust Officer
- 4 -
