<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COBBLESTONE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7997 330597600
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
----------------
3702 VIA DE LA VALLE, SUITE 202
DEL MAR, CALIFORNIA 92014
(619) 794-2602
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MR. JAMES A. HUSBAND
CHIEF EXECUTIVE OFFICER
COBBLESTONE HOLDINGS, INC.
3702 VIA DE LA VALLE, SUITE 202
DEL MAR, CALIFORNIA 92014
(619) 794-2602
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
ELIZABETH A. BLENDELL, ESQ.
ANDREW D. HUTTON, ESQ.
LATHAM & WATKINS
633 W. FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13 1/2% Series B Senior
Zero-Coupon Notes due
2004................... $86,000,000 $336.78 $28,964,000 $9,988
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<S> <C>
1.Forepart of Registration Statement
and Outside Front Cover Page of Outside Front Cover Page; Cross
Prospectus......................... Reference Sheet; Inside Front Cover
Page
2.Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page; Outside Back
Cover Page
3.Risk Factors, Ratio of Earnings to
Fixed Charges and Other Prospectus Summary; Risk Factors;
Information........................ Selected Consolidated Financial
Information
4.Terms of the Transaction............. The Exchange Offer; Certain Federal
Income Tax Consequences; Description
of Notes
5.Pro Forma Financial Information...... Consolidated Financial Statements
6.Material Contacts with the Company Not Applicable
Being Acquired.....................
7.Additional Information Required for
Reoffering by Persons and Parties Not Applicable
Deemed to be Underwriters..........
8.Interests of Named Experts and Legal Matters
Counsel............................
9.Disclosure of Commission Position on
Indemnification for Securities Act Not Applicable
Liabilities........................
10.Information with Respect to S-3 Not Applicable
Registrants........................
11.Incorporation of Certain Information Not Applicable
by Reference.......................
12.Information with Respect to S-2 or S- Not Applicable
3 Registrants......................
13.Incorporation of Certain Information Not Applicable
by Reference.......................
14.Information with Respect to
Registrants Other Than S-3 or S-2 Prospectus Summary; Consolidated
Registrants........................ Capitalization; Selected Consolidated
Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Relationships and Related
Transactions; Description of Notes
15.Information with Respect to S-3 Not Applicable
Companies..........................
16.Information with Respect to S-2 or S- Not Applicable
3 Companies........................
17.Information with Respect to Companies
Other Than S-2 or S-3 Companies.... Not Applicable
18.Information if Proxies, Consents or
Authorizations are to be Not Applicable
Solicited..........................
19.Information if Proxies, Consents or
Authorizations are not to be Management; The Exchange Offer;
Solicited or in an Exchange Offer.. Certain Relationships and Related
Transactions
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 2, 1996
PROSPECTUS
OFFER TO EXCHANGE
13 1/2% SERIES B SENIOR ZERO-COUPON NOTES DUE 2004 FOR ALL OUTSTANDING 13 1/2%
SERIES A SENIOR ZERO-COUPON NOTES DUE 2004
OF
COBBLESTONE HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME ON , 1996,
UNLESS EXTENDED.
-----------
Cobblestone Holdings, Inc., a Delaware corporation ("Holdings"), is hereby
offering (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 13 1/2%
Series B Senior Zero-Coupon Notes due 2004 (the "Exchange Notes"), which
exchange has 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 (the "Registration Statement"), for each $1,000 principal
amount of its outstanding 13 1/2% Series A Senior Zero-Coupon Notes due 2004
(the "Private Notes"), which Private Notes were issued on June 4, 1996 at a
discount from their principal amount to generate gross proceeds of
approximately $28,964,000 and will accrete at a rate of 13 1/2%, compounded
semi-annually, to an aggregate principal amount of $86,000,000 at stated
maturity. The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will
not bear legends restricting the transfer thereof and (ii) holders of the
Exchange Notes will not be entitled to certain rights of holders of the Private
Notes under the Registration Rights Agreement (as defined), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be entitled to the benefits of an indenture dated as of June 4, 1996
governing the Private Notes and the Exchange Notes. The Private Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes."
See "The Exchange Offer" and "Description of Notes."
The Exchange Notes will accrete interest at the same rate and on the same
terms as the Private Notes. Consequently, the Exchange Notes will accrete
interest at the rate of 13 1/2% per annum, compounded semi-annually, to an
aggregate principal amount of $86,000,000 at their June 1, 2004 maturity date.
There will be no periodic cash interest payments on the Exchange Notes. The
Exchange Notes will accrete interest from and including the date of issuance of
the Private Notes (June 4, 1996). Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to receive any interest
accreted on the Private Notes.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
HOLDINGS WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED PRIVATE NOTES
NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1996, UNLESS
THE EXCHANGE OFFER IS EXTENDED BY HOLDINGS IN ITS SOLE DISCRETION (THE
"EXPIRATION DATE"). TENDERS OF PRIVATE NOTES MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF
PRIVATE NOTES BEING TENDERED FOR EXCHANGE. PRIVATE NOTES MAY BE TENDERED
ONLY IN INTEGRAL MULTIPLES OF $1,000. IN THE EVENT HOLDINGS TERMINATES THE
EXCHANGE OFFER AND DOES NOT ACCEPT FOR EXCHANGE ANY PRIVATE NOTES,
HOLDINGS WILL PROMPTLY RETURN ALL PREVIOUSLY TENDERED PRIVATE NOTES TO
THE HOLDERS THEREOF.
-----------
The date of this Prospectus is , 1996.
<PAGE>
The Exchange Notes will be senior unsecured general obligations of Holdings
and will rank pari passu in right of payment to all other senior indebtedness
of Holdings, including Holdings' guarantee of borrowings under the New Credit
Facility (as defined), which guarantee is secured by a pledge of all of the
common stock of Cobblestone Golf Group, Inc., a Delaware corporation
("Cobblestone" or the "Company"). The Exchange Notes will be structurally
subordinated to all indebtedness (including trade payables and capitalized
lease obligations) of Holdings and its Subsidiaries (as defined). As of March
31, 1996, on a pro forma basis after giving effect to the Offerings (as
defined) and the application of the net proceeds therefrom, Holdings would
have had approximately $30.3 million of senior indebtedness, and the Company
and its Subsidiaries on a consolidated basis would have outstanding
approximately $90.5 million of indebtedness (including trade payables and
capitalized lease obligations) to which the Exchange Notes would have been
structurally subordinated. The Indenture (as defined) permits Holdings to
incur additional indebtedness, including senior and secured indebtedness,
subject to certain limitations. See "Description of Notes."
On or after June 1, 1999, Holdings may redeem the Exchange Notes, in whole
or in part, at the redemption prices set forth herein, plus Liquidated Damages
(as defined), if any, to the date of redemption. Notwithstanding the
foregoing, at any time on or before June 1, 1999, Holdings may, at its option
and subject to certain requirements, use the net cash proceeds from one or
more Public Equity Offerings or issuances of Qualified Capital Stock to
Strategic Investors (each as defined) to redeem all of the Exchange Notes
originally issued at a redemption price equal to 113.5% of the Accreted Value
(as defined) thereof, plus Liquidated Damages, if any, to the date of
redemption. In addition, upon a Change of Control (as defined), each holder of
Exchange Notes will have the right to require Holdings to repurchase all or
any part of such Holder's Exchange Notes at a price equal to 101% of the
Accreted Value thereof, plus Liquidated Damages, if any, to the date of
purchase.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, Holdings believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from Holdings to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of Holdings 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 the holder is
acquiring the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private
Notes wishing to accept the Exchange Offer must represent to Holdings, as
required by the Registration Rights Agreement, that such conditions have been
met. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private 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. Holdings believes that none of the
registered holders of the Private Notes is an affiliate (as such term is
defined in Rule 405 under the Securities Act) of Holdings.
The Private Notes were originally issued as part of an offering (the "Unit
Offering") by Holdings of 86,000 units (the "Units"), each consisting of
$1,000 principal amount at stated maturity of the Private Notes and one share
(collectively, the "Shares") of common stock, par value $.01 per share, of
Holdings ("Holdings Common Stock"). The Private Notes and the Shares included
in the Units are not transferable separately until the Separation Date (as
defined).
Prior to the Exchange Offer, there has been no public market for the Notes.
Holdings does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Notes will develop. To the
extent that a market for the Notes does develop, the market value of the Notes
will depend on market conditions (such as yields on alternative investments),
general economic conditions, Holdings' financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors--Absence of Public Market."
2
<PAGE>
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 Private Notes where
such Private Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. Holdings has indicated its
intention to make this Prospectus (as it may be amended or supplemented)
available to any broker-dealer for use in connection with any such resale for
a period of 180 days after the Expiration Date. See "Plan of Distribution."
Holdings will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL HOLDINGS ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY HOLDINGS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION
THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form.
Holdings expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC"
or the "Depositary") and registered in its name or in the name of Cede & Co.,
as its nominee. Beneficial interests in the global note representing the
Exchange Notes will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary and its participants. After the
initial issuance of such global note, Exchange Notes in certificated form will
be issued in exchange for the global note only in accordance with the terms
and conditions set forth in the Indenture. See "Description of Notes--Book
Entry, Delivery and Form."
----------------
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Market data used throughout this Prospectus were obtained from
internal Company surveys and industry publications, including publications by
the National Golf Foundation, a non-profit industry organization ("NGF"). The
industry publications consulted generally indicate that the information
contained therein has been obtained from sources believed to be reliable, but
the accuracy and completeness of such information is not guaranteed. Holdings
has not independently verified this market data. Similarly, internal Company
surveys, while believed by Holdings to be reliable, have not been verified by
any independent sources. Unless otherwise stated in this Prospectus or the
context otherwise requires, references to "Holdings" include Holdings, the
Company, and each of the Company's Subsidiaries and references to the "Company"
include the Company and each of its Subsidiaries. Unless otherwise indicated,
references to a fiscal year mean the twelve months ended September 30 of the
year indicated.
THE COMPANY
Cobblestone is one of the leading golf course owners and operators in the
United States, with a current portfolio of 22 golf properties including both
private country clubs and public (or daily fee) courses. The Company's courses
are concentrated in clusters near metropolitan areas in the Sunbelt states
(including Arizona, California and Texas) which have large golfing populations
and attractive climates. This clustering strategy enables the Company to
efficiently manage its portfolio of courses and improve the profitability of
its courses by sharing many administrative functions and capitalizing on joint
marketing opportunities and economies of scale.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from membership fees and membership
dues at private country clubs, greens fees, food and beverage concessions, golf
cart rentals, retail merchandise sales, driving range fees and lodging fees.
The Company owns and operates 16 courses, leases four courses (subject to long-
term leases in excess of 20 years, including extension options), leases one
driving range and pro shop facility and manages one additional course. The
Company's portfolio includes nine private country clubs, eight public
facilities and five semi-private facilities.
There are approximately 15,000 golf courses in the United States, which
generate approximately $15 billion in annual revenue. The ownership and
operation of golf courses in the United States is highly fragmented, with less
than 5% of golf courses owned and operated by multi-course management
companies. The Company believes that the majority of golf course operators,
including real estate developers and municipalities, are generally involved in
golf course management because the golf course is an important component of
their development or community, but that such operators frequently do not have
professional golf course management experience. As a result, owners are often
interested in selling the golf facilities to third-party operators such as the
Company. These owners frequently place significant emphasis on experience and
reputation for quality management in selecting an owner/operator, and the
Company believes that its reputation in these areas has provided it with a
steady supply of attractive acquisition opportunities.
The Company believes certain demographic characteristics of the United States
will increase the demand for golf in the future, thereby benefitting golf
course operators. The Company believes that total rounds played will increase
as the golfing population ages. The highest golf participation rates are found
among individuals aged 18 to 49, which had average participation rates of
approximately 13.6% in 1995, as compared to 11.6% for the population, as a
whole. However, individuals over 50 played a substantially greater number of
rounds of golf per year relative to individuals in younger age brackets.
Accordingly, assuming that golf participation rates remain at current levels,
the Company believes that these 18 to 49 year old golfers will increase the
number of rounds played per year as they age. See "Risk Factors--Factors
Affecting Golf Participation" and "Business--
4
<PAGE>
Industry Overview." The Company believes that, despite recent golf course
construction in some of its markets, golf course construction in its markets
generally has been constrained as a result of several factors, including the
lack of capital available for real estate development, the significant land
required to build a golf course and related facilities (approximately 150
acres) and increasing environmental regulation, particularly with regard to the
availability of water in Arizona and California, two of the Company's primary
markets.
The Company's strategy is to grow its revenue and cash flows by (i)
continuing to improve the financial performance of its existing courses and
(ii) acquiring courses located in attractive markets which management believes
will benefit from the Company's golf course management expertise. Key elements
of the Company's operating strategy include:
. INCREASING MEMBERSHIP REVENUES/IMPROVING UTILIZATION OF THE
FACILITIES. The Company increases its golf-related revenue through
several means, including (i) increasing membership through aggressive
marketing and innovative membership programs, (ii) raising membership
dues and greens fees to market levels, (iii) implementing premium prices
for prime time play and discounting prices for less utilized times (e.g.,
twilight play), (iv) starting golfers on both the first and tenth tee
simultaneously, thereby increasing the number of rounds played per day
and (v) booking tournaments into less popular time slots. At its private
courses, the Company positions the golf course and related facilities as
an integral social center of the surrounding community in order to
attract non-golfing members. The Company frequently offers a number of
ancillary services in an effort to appeal to every member of the
household, such as meeting, tennis and fitness facilities for those who
do not play golf.
. CONTROLLING OPERATING COSTS. As its golf course portfolio has grown, the
Company has improved its cash flow margins by consolidating
administrative functions, capitalizing on its increased buying power and,
within clusters, sharing certain services and capital equipment. In
addition, the Company closely monitors its course level operations in
order to manage expenses.
. UPGRADING GOLF COURSE AND RELATED FACILITIES. Following its acquisition
of a golf course, the Company generally upgrades or improves a facility
in order to enhance its appeal to customers and members and to generate
additional revenues and cash flow. Where appropriate, the Company adds
additional courses (including nine hole additions) to existing facilities
to increase capacity and invests in major clubhouse renovations to
support increased dues and fees. These expenditures are generally
non-recurring. In addition, the Company implements strategic capital
expenditure programs which enable it to reduce course level operating
costs and improve the efficiency of the operations, such as improving the
irrigation system and acquiring more efficient maintenance equipment.
. APPEAL TO CORE GOLFING POPULATION. The Company targets core golfers
(defined by the NGF to be golfers who play more than eight rounds per
year). These golfers represent approximately 46% of the golfers in the
United States but play approximately 87% of the total rounds. The Company
believes that core golfers represent a stable demand for golf and are
generally more willing to make a significant investment in a golf club
membership and pay higher greens fees than the golfing population as a
whole. These golfers also tend to spend more time at a golf facility and
therefore generate higher ancillary revenues.
Key elements of the Company's acquisition strategy include:
. CLUSTERING OF COURSES. The Company seeks to acquire golf courses in
clusters near densely populated metropolitan markets. This strategy
enables the Company to more efficiently manage its portfolio of courses
and to improve the profitability of its courses by sharing many
administrative expenses and capital equipment and by capitalizing on
joint marketing opportunities and economies of scale.
. FOCUS ON PRIVATE COUNTRY CLUBS AND HIGH-END DAILY FEE COURSES. The
Company focuses on acquiring private country clubs and high-end daily fee
courses which attract core golfers in middle and
5
<PAGE>
upper income brackets who are less price sensitive than the typical public
course player. Revenue and cash flows of private country clubs are
generally more stable and predictable than those of public courses because
the receipt of membership dues is independent of the level of course
utilization. In addition, private courses have an easily identifiable
target population which permits a highly-focused marketing effort,
particularly if the course is part of a larger residential development.
The Company's daily fee courses typically command higher greens fees than
the average municipal course in its markets and provide the golfer a
higher level of service and better playing conditions than do standard
municipal courses.
. REPUTATION WITH REAL ESTATE DEVELOPERS. The Company has focused on
acquiring courses from developers who have built golf courses primarily
as an enhancement to their residential real estate developments. The
Company believes that its experience and reputation for quality
management provide it with a steady supply of attractive acquisition
opportunities from developers seeking third party owner/operators to
professionally manage the facilities.
. FOCUS ON FAVORABLE GOLF MARKETS. The Company targets golf courses in
markets with characteristics which it believes are favorable to golf
course ownership and management. For example, the Company concentrates on
acquiring courses convenient to metropolitan areas with dense populations
but with relatively few golf courses in relation to the size of the
golfing population. In addition, the Company focuses on markets with a
high number of playable days per year, enabling the Company to maximize
revenue and course utilization and thereby capitalize on the operating
leverage inherent in golf course management.
CORPORATE BACKGROUND
The Company was formed in 1992 by Brentwood Golf Partners, L.P. (the
"Partnership"), a partnership organized by Brentwood Associates ("Brentwood"),
and James A. Husband, to build a leading golf course ownership and management
company. In its approximately four years of operation, the Company has become
one of the leading golf course management companies in the United States. Mr.
Husband, the Company's President and Chief Executive Officer, has more than 20
years experience in the golf industry, and prior to joining the Company, had
been Chairman and Chief Executive Officer of GolfCorp. (a subsidiary of Club
Corporation International), which he founded and built into one of the largest
public-course management companies in the United States.
Founded in 1972, Brentwood is a private investment firm specializing in
private equity and growth-oriented venture capital investments. Other than the
Partnership, Holdings' stockholders include The Northwestern Mutual Life
Insurance Company and Wilmington Interstate Corporation, an indirect wholly-
owned subsidiary of The Hillman Company.
Holdings was formed in 1994 as a holding company whose sole asset is 100% of
the capital stock of the Company. Holdings is incorporated in Delaware; its
executive offices are located at 3702 Via de la Valle, Suite 202, Del Mar,
California, 92014; and its telephone number is (619) 794-2602.
6
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.......... Holdings is hereby offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that are
properly tendered and accepted. Holdings will is-
sue Exchange Notes on or promptly after the Expi-
ration Date. The Exchange Notes will be issued at
a discount from their principal amount and will
accrete at a rate of 13 1/2%, compounded semi-
annually, to an aggregate principal amount of
$86,000,000 at stated maturity. See "The Exchange
Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, Holdings believes that the Ex-
change Notes issued pursuant to the Exchange Of-
fer in exchange for Private Notes may be offered
for resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from
Holdings to resell pursuant to Rule 144A or any
other available exemption under the Securities
Act or (ii) a person that is an affiliate of
Holdings within the meaning of Rule 405 under the
Securities Act), without compliance with the reg-
istration and prospectus delivery provisions of
the Securities Act; provided that the holder is
acquiring Exchange Notes in the ordinary course
of its business and is not participating, and had
no arrangement or understanding with any person
to participate, in the distribution of the Ex-
change Notes. Each broker-dealer that receives
Exchange Notes for its own account in exchange
for Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading activi-
ties, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. See "The Exchange Offer--Resale
of the Exchange Notes."
Registration Rights The Private Notes were sold by Holdings on June
Agreement.................. 4, 1996 to Donaldson, Lufkin & Jenrette Securi-
ties Corporation (the "Initial Purchaser") pursu-
ant to a Purchase Agreement, dated May 29, 1996,
by and between Holdings and the Initial Purchaser
(the "Purchase Agreement"). Pursuant to the Pur-
chase Agreement, Holdings and the Initial Pur-
chaser entered into a Registration Rights Agree-
ment, dated as of May 29, 1996 (the "Registration
Rights Agreement"), which grants the holders of
the Private Notes certain exchange and registra-
tion rights. The Exchange Offer is intended to
satisfy such rights, which will terminate upon
the consummation of the Exchange Offer. The hold-
ers of the Exchange Notes will not be entitled to
any exchange or registration rights with respect
to the Exchange Notes. See "The Exchange Offer--
Termination of Certain Rights."
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1996, unless the Exchange
Offer is extended by Holdings in its sole discre-
tion, in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended. See "The Exchange Of-
fer--Expiration Date; Extensions; Amendments."
7
<PAGE>
Accreted Interest on the
Exchange Notes and the The Exchange Notes will accrete from and includ-
Private Notes.............. ing the date of issuance of the Private Notes
(June 4, 1996). Holders whose Private Notes are
accepted for exchange will be deemed to have
waived the right to receive any interest accreted
on the Private Notes. See "The Exchange Offer--
Interest on the Exchange Notes."
Conditions to the Exchange The Exchange Offer is subject to certain custom-
Offer...................... ary conditions that may be waived by Holdings.
The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Private
Notes being tendered for exchange. See "The Ex-
change Offer--Conditions."
Procedures for Tendering
Private Notes.............. Each holder of Private Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile there-
of, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile,
together with such Private Notes and any other
required documentation to Norwest Bank Minnesota,
National Association, as exchange agent (the "Ex-
change Agent"), at the address set forth herein.
By executing the Letter of Transmittal, the
holder will represent to and agree with Holdings
that, among other things, (i) the Exchange Notes
to be acquired by such holder of Private Notes in
connection with the Exchange Offer are being ac-
quired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement
or understanding with any person to participate
in a distribution of the Exchange Notes, (iii)
that if such holder is a broker-dealer registered
under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing
the Exchange Notes, such holder will comply with
the registration and prospectus delivery require-
ments of the Securities Act in connection with a
secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on
the position of the staff of the Commission set
forth in no-action letters (see "The Exchange Of-
fer--Resale of Exchange Notes"), (iv) such holder
understands that a secondary resale transaction
described in clause (iii) above and any resales
of Exchange Notes obtained by such holder in ex-
change for Private Notes acquired by such holder
directly from Holdings should be covered by an
effective registration statement containing the
selling securityholder information required by
Item 507 or Item 508, as applicable, of Regula-
tion S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405 under
the Securities Act, of Holdings. If the holder is
a broker-dealer that will receive Exchange Notes
for its own account in exchange for Private Notes
that were acquired as a result of market-making
activities or other trading activities, such
holder will be required to acknowledge in the
Letter of Transmittal that such holder will de-
liver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowl-
edging and by delivering a prospectus, such
holder will
8
<PAGE>
not be deemed to admit that it is an "underwrit-
er" within the meaning of the Securities Act. See
"The Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Private Notes are reg-
istered in the name of a broker, dealer, commer-
cial bank, trust company or other nominee and who
wishes to tender such Private Notes in the Ex-
change Offer should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's be-
half. If such beneficial owner wishes to tender
on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering such owner's Private
Notes, either make appropriate arrangements to
register ownership of the Private 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
and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer--Proce-
dures for Tendering."
Guaranteed Delivery Holders of Private Notes who wish to tender their
Procedures................. Private Notes and whose Private Notes are not im-
mediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures
set forth under "The Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the Subject to the satisfaction or waiver of the con-
Exchange Notes............. ditions to the Exchange Offer, Holdings will ac-
cept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior
to the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
on the earliest practicable date following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Withdrawal Rights........... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
Certain Federal Income Tax
Considerations............. The exchange of Private Notes for Exchange Notes
will be treated as a "non-event" for federal in-
come tax purposes because the Exchange Notes will
not be considered to differ materially in kind or
extent from the Private Notes. As a result, no
material federal income tax consequences will re-
sult to holders exchanging Private Notes for Ex-
change Notes. See "Certain Federal Income Tax
Considerations."
Exchange Agent.............. Norwest Bank Minnesota, National Association is
serving as the Exchange Agent in connection with
the Exchange Offer.
9
<PAGE>
THE EXCHANGE NOTES
The Exchange Offer applies to the entire aggregate principal amount at stated
maturity of the Private Notes. The form and terms of the Exchange Notes are the
same as the form and terms of the Private Notes except that (i) the exchange
will have been registered under the Securities Act and, therefore, the Exchange
Notes will not bear legends restricting the transfer thereof and (ii) holders
of the Exchange Notes will not be entitled to certain rights of holders of the
Private Notes under the Registration Rights Agreement, which rights will
terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be issued under, and be entitled to the benefits of, the Indenture. For
further information and for definitions of certain capitalized terms used
below, see "Description of Notes."
Maturity Date............... June 1, 2004.
Interest.................... The Exchange Notes will be issued at a discount
from their principal amount and will accrete at a
rate of 13 1/2%, compounded semi- annually, to an
aggregate principal amount of $86,000,000 at
stated maturity. There will be no periodic cash
interest payments on the Exchange Notes.
Optional Redemption......... On or after June 1, 1999, Holdings may redeem the
Exchange Notes, in whole or in part, at the re-
demption prices set forth herein, plus Liquidated
Damages, if any, to the date of redemption. Not-
withstanding the foregoing, at any time on or be-
fore June 1, 1999, Holdings may, at its option
and subject to certain requirements, use the net
cash proceeds from one or more Public Equity Of-
ferings or issuances of Qualified Capital Stock
to Strategic Investors to redeem all of the Ex-
change Notes originally issued at a redemption
price equal to 113.5% of the Accreted Value
thereof, plus Liquidated Damages, if any, to the
date of redemption. See "Description of Notes--
Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of Exchange
Notes will have the right to require Holdings to
repurchase all or any part of such holders' Ex-
change Notes at a price equal to 101% of the Ac-
creted Value thereof, plus Liquidated Damages, if
any, to the date of purchase. There can be no as-
surance that Holdings will have the financial re-
sources necessary to repurchase the Exchange
Notes upon a Change of Control.
Ranking..................... The Exchange Notes will be senior unsecured gen-
eral obligations of Holdings. The Exchange Notes
will rank pari passu in right of payment to all
other senior indebtedness of Holdings, including
Holdings' guarantee of borrowings under the New
Credit Facility, which guarantee is secured by a
pledge of all of the common stock of the Company.
Holdings does not engage in any business opera-
tions of its own, and its assets consist solely
of 100% of the outstanding capital stock of the
Company. The Exchange Notes will be structurally
subordinated to all indebtedness (including trade
payables and capitalized lease obligations) of
the Company and its Subsidiaries. As of March 31,
1996, on a pro forma basis after giving effect to
the Offerings and the application of the net pro-
ceeds therefrom, Holdings would have had approxi-
mately $30.3 million of senior
10
<PAGE>
indebtedness and the Company and the Subsidiaries
on a consolidated basis would have had outstand-
ing approximately $90.5 million of indebtedness
(including trade payables and capitalized lease
obligations) to which the Exchange Notes would
have been structurally subordinated.
Certain Covenants...........
The Indenture contains covenants that will, among
other things, limit the ability of Holdings, the
Company and its Subsidiaries to (i) make
restricted payments, (ii) incur additional
indebtedness and issue disqualified capital
stock, (iii) create liens, (iv) enter into
agreements that would restrict the Company's
ability to make distributions, loans or other
payments to Holdings or the Subsidiaries' ability
to make distributions, loans and other payments
to the Company, (v) enter into consolidations or
mergers or sell all, or substantially all, of
their assets, (vi) make asset sales and
(vii) enter into transactions with affiliates.
See "Description of Notes--Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders of the Private Notes in evaluating the Exchange Offer.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The consolidated financial data set forth below with respect to Holdings'
statements of operations for each of the years in the three-year period ended
September 30, 1995 are derived from the consolidated financial statements that
have been audited by Ernst & Young LLP, independent auditors, which are
included elsewhere in this Prospectus. The statement of operations data for the
six months ended March 31, 1995 and 1996 and the balance sheet data at March
31, 1996 are derived from unaudited financial statements which contain all
adjustments, consisting only of normal recurring adjustments, which Holdings
considers necessary for a fair presentation of the financial position and
results of operations for such periods. Operating results for the six months
ended March 31, 1996 are not necessarily indicative of the results that are
expected for the entire year ended September 30, 1996. The selected financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Holdings' financial statements and notes thereto included herein.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
-------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues............ $ 6,507 $24,893 $ 49,863 $ 16,969 $ 27,007
Course-level operating
expenses(2).................. 4,184 16,818 34,427 11,860 19,085
General and administrative
expenses..................... 1,620 1,997 2,517 1,160 1,724
Depreciation and amortization
expense...................... 825 3,469 6,145 2,405 3,518
------- ------- -------- -------- --------
Income (loss) from
operations................... (122) 2,609 6,774 1,544 2,680
Interest expense, net......... (530) (3,515) (8,019) (3,206) (5,118)
Gain on insurance settlement.. -- -- 747 -- --
Minority interest............. (195) -- -- -- --
------- ------- -------- -------- --------
Loss before income taxes and
extraordinary item........... (847) (906) (498) (1,662) (2,438)
Provision for income taxes.... 6 72 208 27 24
------- ------- -------- -------- --------
Loss before extraordinary
item......................... (853) (978) (706) (1,689) (2,462)
Extraordinary item............ -- (428) -- -- --
------- ------- -------- -------- --------
Net loss...................... $ (853) $(1,406) $ (706) $ (1,689) $ (2,462)
======= ======= ======== ======== ========
OTHER OPERATING DATA:
EBITDA(3)..................... $ 703 $ 6,078 $ 12,919 $ 3,949 $ 6,198
Golf facility investments(4).. 41,212 34,623 55,643 46,886 3,960
Cumulative golf facility
investments(5)............... 41,212 75,835 131,478 122,721 135,438
Number of golf properties(6).. 7 12 19 19 20
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------
AS
ACTUAL ADJUSTED(7)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 1,591 $ 7,867
Total assets.............................................. 151,894 158,527
Total long-term debt and capital leases................... 96,211 106,482
Total liabilities......................................... 110,986 119,475
Total redeemable preferred stock.......................... 42,241 42,241
Net capital deficiency.................................... (1,333) (3,189)
</TABLE>
(Footnotes appear on the following page)
12
<PAGE>
- --------------------
(1) The Company acquired or leased seven courses in fiscal 1993, an additional
five in fiscal 1994, an additional seven in fiscal 1995 and entered into a
management contract to operate one course in the six months ended March 31,
1996 (fiscal 1996). Holdings' results of operations include the results of
acquired courses from their dates of acquisition and not for any periods
prior to acquisition. As a result, Holdings' historical results of
operations for any particular period do not generally represent the full
revenue and cash flow generating capability of its golf course portfolio as
of the end of such period. Holdings' results of operations for the year
ended September 30, 1995 include the results of three courses for six
months, one course for seven months, three courses for ten months and 12
courses for the full fiscal year.
(2) Course-level operating expenses include cost of golf course operations
(e.g., salaries, taxes, utilities), cost of food and beverages and cost of
pro shop sales.
(3) EBITDA represents net income before interest expense, income taxes,
extraordinary item, gain on insurance settlement, minority interest and
non-cash charges of depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness. However, EBITDA should not be
considered as an alternative to net income as a measure of Holdings'
operating results or to operating cash flow as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Private Membership Clubs; Accounting Treatment of Initiation
Fees."
(4) Golf facility investments consist of the aggregate purchase price
(including cash and principal amount of promissory notes) paid by the
Company to acquire its golf course portfolio, including non-recurring
upgrade capital expenditures.
(5) Cumulative since the Company's formation in October 1992.
(6) Of such 20 properties at March 31, 1996, 15 courses were owned by the
Company, three courses were operated under long-term leases, one driving
range/pro shop facility was leased and one course was managed by the
Company pursuant to a management contract. In addition, the Company
acquired one course and entered into a long term lease with respect to a
second course subsequent to March 31, 1996. See "Business--Recently
Completed Acquisitions."
(7) As adjusted to give effect to the Offerings and the use of the estimated
net proceeds therefrom. See "The Offerings" and "Consolidated
Capitalization."
13
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to the other information contained in this Prospectus before making
an investment in any of the Exchange Notes offered hereby. This Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act. Discussions containing such forward-looking statements may be
found in the material set forth under "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Business," as well as within the Prospectus generally.
In addition, when used in this Prospectus, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks
and uncertanties. Actual results in the future could differ materially from
those described in the forward-looking statements as a result of the risk
factors set forth below and the matters set forth in the Prospectus generally.
Holdings undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances. Holdings cautions the reader, however, that
this list of risk factors may not be exhaustive.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor Holdings is under any
duty to give notification of defects or irregularities with respect to tenders
of Private Notes for exchange. Private Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
addition, any holder of Private Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. Each broker-
dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as
a result of market-making activities or any other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. To the extent that Private Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Private Notes could be adversely affected due to the limited
amount, or "float," of the Private Notes that are expected to remain
outstanding following the Exchange Offer. Generally, a lower "float" of a
security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Private Notes are not tendered or are
tendered and not accepted in the Exchange Offer, the trading market for the
Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
LEVERAGE AND ABILITY TO SERVICE DEBT
Holdings is highly leveraged. As of March 31, 1996, after giving effect to
the Offerings and the use of a portion of the estimated net proceeds therefrom
to repay certain outstanding indebtedness, Holdings would have had
consolidated long-term debt of approximately $106.5 million and a net capital
deficiency of approximately $3.2 million. Holdings' earnings were insufficient
to cover its fixed charges for each of the fiscal years ended September 30,
1993, 1994 and 1995 and for the twelve months and six months ended March 31,
1996. See Note (7) to Selected Consolidated Financial Information. In
addition, the Company would have an additional $50 million of borrowing
availability under the New Credit Facility. See "Consolidated Capitalization"
and "Description of New Credit Facility."
Holdings' ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes) will
depend on the future performance of the Company, which, to a certain extent,
is subject to general economic, financial, competitive, legislative,
regulatory and other factors beyond its
14
<PAGE>
control. Based upon the current level of operations and anticipated growth,
the Company believes that cash flow from operations, together with available
borrowings under the New Credit Facility and other sources of liquidity, will
be adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures and scheduled payments of principal and interest
on its indebtedness, including the Notes. There can be no assurance, however,
that the Company's business will generate sufficient cash flow from operations
or that future working capital borrowings will be available in an amount
sufficient to enable Holdings to pay the principal amount at maturity of the
Notes, or make necessary capital expenditures. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
LIMITED OPERATING HISTORY; VARIABILITY OF QUARTERLY OPERATING RESULTS AND NET
LOSSES
Since its organization in October 1992, the Company has been in an early
development stage in which its activities have been concentrated on the
acquisition, lease and management of its golf course properties. Seasonal
weather conditions reduce the playing season at certain of the Company's golf
courses. As a result, the second half (April through September) of the
Company's fiscal year generally accounts for a greater portion of the
Company's operating revenue and EBITDA than does the first half. This seasonal
pattern, as well as the timing of new course purchases or leases may cause the
Company's results of operations to vary significantly from quarter to quarter.
The Company has experienced net losses since its inception. Net losses for the
fiscal years ended September 30, 1993, 1994 and 1995 were approximately $0.9
million, $1.4 million and $0.7 million, respectively, and net losses for the
twelve months and the six months ended March 31, 1996 were $1.5 million and
$2.5 million, respectively. There can be no assurance that the Company's
future operations will generate operating income or net income or sufficient
cash flow to pay its obligations. See "Selected Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
HOLDING COMPANY STRUCTURE
Holdings is a holding company whose sole asset is 100% of the capital stock
of the Company. All of the operations of Holdings are conducted through
subsidiaries. Accordingly, Holdings' ability to repay the Notes at maturity
will be dependent upon (i) earnings and cash flows of the Company and its
Subsidiaries and payment of funds by the Company to Holdings in the form of
loans, dividends and otherwise and/or (ii) Holdings' ability to refinance the
Notes prior to maturity. The Notes will be structurally subordinated to all
indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of Holdings' Subsidiaries. Any right of Holdings to
receive assets of any of its direct or indirect Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be structurally subordinated to the
claims of that Subsidiary's creditors. The terms of the Indenture and the New
Credit Facility will substantially restrict the ability of the Company to make
dividends or other distributions to Holdings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Financing Activities," "Description of Notes" and
"Description of New Credit Facility."
ACQUISITION STRATEGY AND RISKS RELATED TO RAPID GROWTH
The Company is continually involved in the investigation and evaluation of
potential golf course acquisitions and at any time may be discussing possible
transactions, conducting due diligence investigations or otherwise pursuing
acquisition opportunities. Since its inception in October 1992, the Company
has made acquisitions for an aggregate purchase price of approximately $135.4
million, including upgrade capital expenditures. The Company historically has
financed its acquisitions through a combination of the borrowings under bank
credit facilities, seller-provided financing, internally-generated cash flow
and the issuance of equity securities. The Company's future growth and
financial success will be dependent upon a number of factors, including, among
others, its ability to identify acceptable acquisition candidates, consummate
the acquisitions of such golf facilities on favorable terms, promptly and
profitably improve the financial performance of acquired properties and
integrate them into the Company's operations and attract and retain customers
and members. Managing this growth and
15
<PAGE>
integrating acquired businesses requires a significant amount of management
time and skill. There can be no assurance (i) that the Company will be
effective in managing its future growth or in assimilating acquisitions, or
(ii) that any failure to manage growth or assimilate an acquisition will not
have a material adverse effect on the Company's business, operating results or
financial condition. In addition, the Company has generally been able to
implement significant increases in initiation fees, membership dues and greens
fees to market levels following acquisition of a golf facility. The Company
believes that any subsequent increases in initiation fees, membership dues and
greens fees at acquired courses are likely to occur on a smaller magnitude.
The Company's ability to execute its growth strategy depends to a
significant degree on its ability to obtain additional long-term debt and
equity capital. Other than the New Credit Facility, the Company has no
commitments for additional borrowings or sales of equity, and there can be no
assurance that the Company will be successful in consummating any such future
financing transactions on terms favorable to the Company or that any such
acquisition will not result in the incurrence of additional indebtedness.
Holdings' ability to repay the Notes or any other indebtedness at maturity may
depend on refinancing, which could be adversely affected if Holdings does not
have access to the capital markets for the sale of additional debt or equity
through public offerings or private placements on terms acceptable to
Holdings. Factors which could affect Holdings' access to the capital markets,
or the cost of such capital, include changes in interest rates, general
economic conditions, the perception in the capital markets of the Company's
business, results of operations, leverage, financial condition and business
prospects. In addition, the New Credit Facility and the covenants with respect
to the Senior Notes significantly restrict the Company's ability to incur
additional indebtedness. See "Description of Principal Indebtedness."
COMPETITION
The Company intends to continue to acquire golf courses in order to expand
its operations and increase its portfolio. There can be no assurance that
suitable golf course acquisition opportunities will be available or that,
because of competition from other purchasers or other reasons, the Company
will be able to consummate acquisitions on satisfactory terms or to obtain
necessary acquisition financing. In addition, the acquisition of golf courses
may become more expensive in the future if demand for properties increases.
The Company competes for the purchase, lease and management of golf courses
with several national and regional golf course companies. Several of the
Company's national competitors have larger staffs and more golf courses
currently owned, leased or under management than does the Company. In
addition, several of the national competitors and certain of the smaller,
regional companies have significantly greater capital resources than the
Company.
Golf courses are also subject to competition for players and members from
other golf courses located in the same geographic areas. The number and
quality of golf courses in a particular area could have a material effect on
the revenue of a golf course. The availability of sufficient acreage often
limits the number of competing courses, particularly in metropolitan areas.
However, the parts of Arizona and Texas in which many of Cobblestone's
existing properties are clustered have significant open land available, and
there has been continued construction of both public and private golf
facilities in those areas. The Company carefully evaluates these and other
factors before acquiring a golf course, and tailors its marketing strategy to
fit the demographic and competitive characteristics of the community. In
addition, revenue will be affected by a number of factors including the demand
for golf and the availability of other forms of recreation.
RELIANCE ON KEY PERSONNEL
The success of the Company is dependent upon the experience and abilities of
its senior management as well as its ability to attract and retain qualified
golf course general managers and superintendents. There is significant
competition in the golf course management industry for qualified personnel,
and there can be no assurance that the Company will be able to retain its
existing senior management or golf course personnel or recruit new personnel
to support its acquisition plans. See "Management."
16
<PAGE>
RESTRICTIVE COVENANTS AND FINANCIAL RATIOS UNDER SENIOR NOTE INDENTURE AND NEW
CREDIT FACILITY
The indenture pursuant to which the Company's 11 1/2% Senior Notes due 2003
(the "Senior Notes") were issued ("the Senior Note Indenture") and the New
Credit Facility contain covenants which limit the ability of Holdings, the
Company and its Subsidiaries to, among other things, (i) incur indebtedness or
issue guarantees, (ii) create or permit to exist liens, or enter into negative
pledge agreements, (iii) make investments, including by purchase of assets or
equity interests (unless, in the case of the New Credit Facility, the Company
meets certain financial tests and after such investment provides the lenders
thereunder with liens on the assets acquired and secured guarantees of any new
Subsidiary), (iv) pay dividends or make distributions (other than dividends to
the Company), repurchase equity interests or, in the case of the New Credit
Facility, prepay or redeem the Senior Notes, (v) make asset sales or merge or
consolidate with other entities, (vi) enter into transactions with affiliates,
or (vii) amend certain agreements, including the Notes, the Indenture, the
Senior Notes or the Senior Note Indenture. In addition, under the New Credit
Facility, the Company is required to comply with certain financial covenants,
including a minimum net worth, minimum interest and fixed charge coverage
ratios, maximum leverage ratios and maximum Funded Debt (as defined in the New
Credit Facility) to Adjusted EBITDA and Bank Debt (as defined in the New
Credit Facility) to Adjusted EBITDA ratios (calculated as provided therein).
Under the Senior Note Indenture and the New Credit Facility, the occurrence of
certain events (including, without limitation, failure to make payments when
due, breach of covenants or representations and warranties, default under
other indebtedness or obligations, bankruptcy, dissolution or insolvency,
change of control, the occurrence of a material adverse change and material
judgments) in certain cases after notice and/or grace periods would constitute
an event of default permitting the acceleration of the indebtedness and
exercise of remedies, including, in the case of the New Credit Facility,
foreclosure on the security interests granted to secure such indebtedness. The
limitations imposed on the Company by the Senior Note Indenture and the New
Credit Facility are substantial, and failure to comply with such limitations
or the occurrence of any event of default could have a material adverse effect
on the Company. See "Description of Principal Indebtedness."
GOVERNMENTAL REGULATION; LEASES WITH MUNICIPALITIES
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on or in its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when
such substances are released, may adversely affect the ability of a property
owner to sell such real estate or to pledge such property as collateral for a
loan. See "Business--Governmental Regulation."
The Company's leases with municipalities at the Saticoy and Escondido
courses are subject to provisions which restrict the Company's ability to
increase greens fees and other charges. Such restrictions may have an adverse
effect on the Company's ability to increase revenue and improve operating cash
flow at those courses. It is probable that any new leases with municipalities
will also include similar restrictions.
FACTORS AFFECTING GOLF PARTICIPATION
The success of efforts to attract and retain members at a private country
club and the number of rounds played at a public golf course have historically
been dependent upon discretionary spending by consumers, which may be
adversely affected by general and regional economic conditions, particularly
those that affect southern California, Phoenix, Dallas and Houston. See
"Business--Summary of Golf Course Portfolio." Golf participation has increased
significantly since 1970. Although the Company believes that demographic
trends indicate that it is well positioned to grow its business and improve
its financial performance, a decrease in the number of golfers or their rates
of participation or in consumer spending on golf could have an adverse effect
on the Company's financial condition and results of operations.
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COURSE CONDITIONS
General turf grass conditions must be satisfactory to attract play on the
Company's courses. Severe weather or other factors, including disease, could
cause unexpected problems with turf grass conditions at any golf course or at
courses located in the same geographic region. Turf grass conditions at each
of the Company's golf courses also depend to a large extent on the quality and
quantity of available water. The availability of sufficient water is affected
by various factors, many of which are not under the Company's control. The
Company believes that it has access to sufficient water to operate its courses
in the manner in which they are currently operated. However, there can be no
assurance that certain conditions, including weather, government regulation or
environmental concerns, which could adversely affect the supply of water to a
particular golf course, may not arise in the future.
The Company operates golf courses in four states and has experienced natural
conditions which are beyond its control (such as periods of extraordinarily
dry, wet, hot or cold weather, or unforeseen natural events such as storms,
hurricanes, fires, floods or earthquakes). These conditions may occur at any
time and may have a significant impact on the condition and availability of
one or more golf courses for play and on the number of customers a golf course
can attract. Except for fire insurance, the Company does not carry insurance
against the effect of such conditions, which the Company believes to be
consistent with standard practice in the industry. However, the occurrence or
re-occurrence of any such conditions may require increased capital
expenditures by the Company to the extent the Company is not insured and could
have a material adverse effect on the Company's financial condition and
results of operations.
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, each holder of Notes will have certain rights to
require Holdings to repurchase all or a portion of such holder's Notes. See
"Description of Notes." If a Change of Control were to occur, there can be no
assurance that Holdings would have sufficient funds to pay the repurchase
price for all Notes, respectively, tendered by the holders thereof. In
addition, a Change of Control would constitute a default under the New Credit
Facility. Holdings' repurchase of Notes as a result of the occurrence of a
Change of Control is restricted by the New Credit Facility and may be
prohibited or limited by, or create an event of default under, the terms of
other agreements relating to borrowings which the Company or Holdings may
enter into from time to time, including other agreements relating to secured
indebtedness. If the Company's obligations under the New Credit Facility were
accelerated due to a default thereunder, the lenders thereunder would have a
priority claim on the proceeds from the sale of the collateral securing the
New Credit Facility. See "Description of Principal Indebtedness."
FRAUDULENT TRANSFER RISKS
The obligations of Holdings under the Notes may be subject to review under
state or Federal fraudulent transfer laws in the event of the bankruptcy or
other financial difficulty of Holdings. Under those laws, if a court, in a
lawsuit by an unpaid creditor or representative of creditors of Holdings, such
as a trustee in bankruptcy or either of the Issuers as debtor in possession
were to find that at the time Holdings issued the Notes, it either (i) was
insolvent, (ii) was rendered insolvent, (iii) was engaged in a business or
transaction for which its remaining unencumbered assets constituted
unreasonably small capital, or (iv) intended to incur or believed that it
would incur debts beyond its ability to pay as such debts matured, such court
could avoid the Notes, as applicable, and Holdings' obligations thereunder,
and direct the return of any amounts paid thereunder to such Issuer or to a
fund for the benefit of its creditors. Moreover, regardless of the factors
identified in the foregoing clauses (i) through (iv), the court could avoid
the Notes and direct such repayment if it found that such Notes were issued
with actual intent to hinder, delay, or defraud Holdings' creditors.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if the sum of its debts (including contingent or
unliquidated debts) is greater than all of its property at a fair valuation or
if the present fair salable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured.
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ABSENCE OF PUBLIC MARKET
There is currently no established trading market for the Notes and Holdings
does not intend to apply for listing of the Notes on any securities exchange
or on any automated dealer quotation system. Holdings has been advised by the
Initial Purchaser that it presently intends to make a market in the Notes, but
the Initial Purchaser is under no obligation to do so, and any such market-
making may be discontinued at any time without notice, at the sole discretion
of the Initial Purchaser. Accordingly, no assurance can be given as to the
prices or liquidity of, or trading markets for, the Notes. The liquidity of
any market for the Notes will depend upon the number of holders of the Notes,
the interest of securities dealers in making a market in the Notes, prevailing
interest rates, the market for similar securities and other factors, including
general economic conditions and the financial condition and performance of,
and prospects for, Holdings. The absence of an active market for the Notes
could adversely affect the market price and liquidity of the Notes. Although
Holdings does not intend to list the Notes on any securities exchange or to
seek approval for quotation of the Notes through any automated quotation
system, the Notes are expected to be eligible for trading in the Private
Offerings, Resales and Trading through Automatic Linkages ("PORTAL") market of
the National Association of Securities Dealers, Inc.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by Holdings on June 4, 1996 (the "Closing Date")
to the Initial Purchaser pursuant to the Purchase Agreement. The Initial
Purchaser subsequently sold the Private Notes to "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A. As a condition to the sale of the Private
Notes, Holdings and the Initial Purchaser entered into the Registration Rights
Agreement on May 29, 1996. Pursuant to the Registration Rights Agreement,
Holdings agreed that, unless the Exchange Offer is not permitted by applicable
law or Commission policy, it would file with the Commission a registration
statement under the Securities Act (a "Registration Statement") with respect
to the Exchange Notes within 60 days after the Closing Date and use its best
efforts to cause such Registration Statement to become effective under the
Securities Act within 120 days after the Closing Date. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement. The Registration Statement is intended to satisfy certain of
Holdings' obligations under the Registration Rights Agreement and the Purchase
Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, Holdings believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from Holdings to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii)
any such holder that is an "affiliate" of Holdings within the meaning of Rule
405 under the Securities Act) who exchanges Private Notes for Exchange Notes
in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement with any person to participate,
in a distribution of the Exchange Notes, will be allowed to resell Exchange
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Exchange Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if
any holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Notes or is
a broker-dealer, such holder cannot rely on the position of the staff of the
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private 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. 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 Private Notes where
such Private Notes were acquired by such broker-dealer as a result of market-
making or other trading activities. Pursuant to the Registration Rights
Agreement, Holdings has agreed to make this Prospectus, as it may be amended
or supplemented from time to time, available to broker-dealers for use in
connection with any resale for a period of 180 days after the Expiration Date.
See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Holdings will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date.
Holdings will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear
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legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to any of the rights of holders of Private Notes
under the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also
authorized the issuance of the Private Notes, such that both series of Notes
will be treated as a single class of debt securities under the Indenture.
As of the date of this Prospectus, $86,000,000 in aggregate principal amount
at stated maturity of the Private Notes are outstanding and registered in the
name of Cede & Co., as nominee for DTC. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of the Trustee under the Indenture may participate in
the Exchange Offer. There will be no fixed record date for determining
registered holders of the Private Notes entitled to participate in the
Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. Holdings intends to
conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
Holdings shall be deemed to have accepted validly tendered Private Notes
when, as and if Holdings has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from
Holdings.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. Holdings will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on ,
1996, unless Holdings, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, Holdings will (i) notify the Exchange
Agent of any extension by oral or written notice, (ii) mail to the registered
holders an announcement thereof and (iii) issue a press release or other
public announcement which shall include disclosure of the approximate number
of Private Notes deposited to date, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Without limiting the manner in which Holdings may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, Holdings shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to an appropriate news agency.
Holdings reserves the right, in its sole discretion, (i) to delay accepting
any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the registered holders. If
the Exchange Offer is amended in a manner determined by Holdings to constitute
a material change, Holdings will promptly disclose such amendment by means of
a prospectus supplement that will be distributed to the registered holders,
and Holdings will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the amendment and the manner
of disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
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INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrete at a rate equal to 13 1/2% per annum,
compounded semi-annually, to an aggregate principal amount of $86,000,000 at
stated maturity. There will be no periodic cash interest payments on the
Exchange Notes. Interest on the Exchange Notes will accrete from the date of
initial issuance of the Private Notes. Holders of Private Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accreted on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Private Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-
entry transfer (a "Book-Entry Confirmation") of such Private Notes, if such
procedure is available, into the Exchange Agent's account at the Depositary
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 tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and Holdings in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO HOLDINGS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private 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 described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or the box entitled
"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 made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of
one of the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
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If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by Holdings,
evidence satisfactory to Holdings of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), compliance with conditions, acceptance and withdrawal of tendered
Private Notes will be determined by Holdings in its sole discretion, which
determination will be final and binding. Holdings reserves the absolute right
to reject any and all Private Notes not properly tendered or any Private Notes
Holdings' acceptance of which would, in the opinion of counsel for Holdings,
be unlawful. Holdings also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes.
Holdings' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as
Holdings shall determine. Although Holdings intends to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither
Holdings, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived.
While Holdings has no present plan to acquire any Private Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, Holdings reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase
Private Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to Holdings that,
among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from Holdings should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or Item
508, as applicable, of Regulation S-K of the Commission and (v) such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of
Holdings. If the holder is a broker-dealer that will receive Exchange Notes
for such holder's own account in exchange for Private Notes that were acquired
as a result of market-making activities or other trading activities, such
holder will be required to acknowledge in the Letter of Transmittal that such
holder will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
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RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, 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 pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by Holdings setting
forth the name and address of the holder, the certificate number(s) of such
Private Notes and the principal amount of Private Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or a facsimile thereof), together with the certificate(s)
representing the Private Notes in proper form for 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
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number
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or numbers and principal amount of such Private Notes) and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Private Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by Holdings in
its sole discretion, whose determination shall be final and binding on all
parties. Any Private Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Private Notes so withdrawn are
validly retendered. Properly withdrawn Private Notes may be retendered by
following one of the procedures described above under "The Exchange Offer--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Holdings shall not be
required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates
applicable law, rules or regulations or an applicable interpretation of the
staff of the Commission.
If Holdings determines in its sole discretion that any of these conditions
are not satisfied, Holdings may (i) refuse to accept any Private Notes and
return all tendered Private Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Private Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Private Notes (see "--Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, Holdings will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and Holdings will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
LIQUIDATED DAMAGES
If (a) Holdings fails to file the Registration Statement or a shelf
registration statement covering resales of the Private Notes (a "Shelf
Registration Statement") on or before the date specified for such filing, (b)
neither of such registration statements is declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Registration Statement becomes
effective, and Holdings fails to consummate the Exchange Offer within 45 days
of the earlier of the effectiveness of the Registration Statement or the
Effectiveness Target Date, or (d) the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Private Notes during the period specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d)
above, a "Registration Default"), Holdings is required to pay as liquidated
damages ("Liquidated Damages"), to each holder of Private Notes, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Private Notes held by such holder. Upon a Registration Default,
Liquidated Damages will accrue at the rate specified above until such
Registration Default is cured, and the amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Private
Notes for each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.25 per week per
$1,000 principal amount of Private Notes. All accrued Liquidated Damages will
be paid by Holdings on June 1 and December 1 of each year and on each other
payment date provided in the Indenture including, without limitation, whether
upon redemption, maturity (by acceleration or otherwise), purchase upon a
change of control or purchase upon a sale of assets to the holders of Private
Notes by wire transfer of immediately available funds or by mailing checks to
their registered addresses if no such accounts have been specified. Following
the cure of all Registration Defaults, the payment of Liquidated Damages will
cease. The filing and effectiveness of the Registration Statement of which
this Prospectus is a part and the consummation of the Exchange Offer within
the time periods specified above will eliminate all rights of the holders of
Private Notes eligible to participate in the Exchange Offer to receive the
Liquidated Damages described in this section.
25
<PAGE>
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to Holdings' continuing obligations (i) to indemnify such holders
(including any broker-dealers) and certain parties related to such holders
against certain liabilities (including liabilities under the Securities Act),
(ii) to provide, upon the request of any holder of a transfer-restricted
Private Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Private Notes pursuant to Rule 144A and
(iii) to provide copies of the latest version of the Prospectus to broker-
dealers upon their request for a period of up to 180 days after the Expiration
Date.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Registered or Certified Mail: In Person:
Northstar East Bldg.
Norwest Bank Minnesota, 608 2nd Ave S.
National Association 12th Floor
Corporate Trust Operations Corporate Trust Ser.
P.O. Box 1517 Minneapolis, MN
Minneapolis, MN 55480-1517
By Facsimile (for Eligible
By Hand or Overnight Courier: Institutions only):
(612) 667-4927
Norwest Bank Minnesota,
National Association Confirm Receipt of Notice of
Corporate Trust Operations Guaranteed Delivery by Telephone:
Norwest Center (612) 667-9764
Sixth and Marquette
Minneapolis, MN 55479-0113
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holdings. The principal
solicitation is being made by mail; however, additional solicitation may be
made by telegraph, telephone or in person by officers and regular employees of
Holdings and its affiliates.
Holdings has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. Holdings, however, will pay the Exchange
Agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Holdings and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
Holdings will pay all transfer taxes, if any, applicable to the exchange of
Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private
26
<PAGE>
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.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such
Private Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities
Act, (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, (iv) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if Holdings so requests),
(v) to Holdings or (vi) pursuant to an effective registration statement and,
in each case, in accordance with any applicable securities laws of any state
of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, Holdings will recognize no gain or loss as a result
of the Exchange Offer. The expenses of the Exchange Offer will be amortized
over the term of the Exchange Notes.
27
<PAGE>
THE OFFERINGS
On the Closing Date, Holdings consummated the offering of 86,000 units, each
consisting of $1,000 principal amount at stated maturity of Private Notes and
one share of Holdings Common Stock. Pursuant to the terms of the Unit
Offering, the Private Notes and the Shares are not separable until the earlier
of (i) 180 days after the date of issuance, (ii) such date as the Initial
Purchaser may in its discretion deem appropriate, (iii) in the event a Change
of Control occurs, the date Holdings mails notice thereof to holders of the
Private Notes and (iv) the date on which the Registration Statement is
declared effective by the Commission (such date, the "Separation Date"). The
Unit Offering was conducted concurrently with, and was conditioned upon, the
offering by the Company (the "Senior Note Offering," and together with the
Unit Offering, the "Offerings") of $70,000,000 aggregate principal amount of
its 11 1/2% Series A Senior Notes due 2003.
THE RECAPITALIZATION
In connection with the closing of the Unit Offering, Holdings issued
additional shares of its capital stock to its existing shareholders, pro rata,
pursuant to a recapitalization to eliminate the necessity of issuing
fractional shares of Holdings Common Stock to purchasers of the Units (the
"Recapitalization").
USE OF PROCEEDS
Holdings will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this
Prospectus, Holdings will receive in exchange Private Notes in like principal
amount, the terms of which are identical to the Exchange Notes except that (i)
the exchange will have been registered under the Securities Act, and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of the Private Notes under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. The Private Notes surrendered in exchange for Exchange Notes will be
retained by Holdings and the Exchange Offer will not result in any increase in
the indebtedness of Holdings.
28
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth, as of March 31, 1996, the unaudited
consolidated cash and cash equivalents, long-term debt, stockholders' equity
and total consolidated capitalization of Holdings on an actual basis and as
adjusted to give effect to the Offerings, the application of the estimated net
proceeds therefrom and the Recapitalization. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements of Holdings
and the related notes thereto included elsewhere in this Prospectus. See "The
Offerings," "The Recapitalization" and "Selected Consolidated Financial
Information."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................... $ 1,591 $ 7,867
=========== ===========
Long-term debt:
New Credit Facility(1)............................ -- --
Old Credit Facility
Revolving loan facility.......................... $ 4,600 --
Term loan facility............................... 77,444 --
11 1/2% Series A Senior Notes due 2003............ -- $ 70,000
13 1/2% Series A Senior Zero-Coupon Notes due
2004............................................. -- 28,963
Capital lease obligations......................... 4,820 1,000
Other indebtedness(2)............................. 9,347 6,519
----------- -----------
Total long-term debt............................ 96,211 106,482
Redeemable Series A Preferred Stock, $.01 par value;
430,757 shares issued and outstanding; 5,220,365
shares as adjusted................................. 42,241 42,241
Stockholders' equity (net capital deficiency):
Common Stock, $.01 par value; 134,829 shares
issued and outstanding;
1,720,000 shares as adjusted(3) ................. 1 1
Additional paid-in capital........................ 4,092 5,405
Accumulated deficit............................... (5,427) (8,595)
----------- -----------
Total stockholders' equity (net capital
deficiency).................................... (1,333) (3,189)
----------- -----------
Total capitalization.......................... $ 137,119 $ 145,534
=========== ===========
</TABLE>
- ---------------------
(1) Concurrently with the closing of the Offerings, the Company entered into
the New Credit Facility under which the Company has the ability to borrow
up to $50 million aggregate principal amount, consisting of $45 million
under a reducing revolving credit facility and up to $5 million under a
revolving working capital facility. No borrowings were outstanding under
the New Credit Facility upon the closing of the Offerings. See
"Description of Principal Indebtedness--The New Credit Facility."
(2) Excludes the deferred purchase price on golf courses acquired of $1.2
million. The amounts are payable upon the achievement of operating
milestones at the acquired courses.
(3) Excludes up to 46,054 shares of Holdings Common Stock reserved for
issuance upon exercise of outstanding options.
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
The consolidated financial data set forth below with respect to Holdings'
statements of operations for each of the years in the three-year period ended
September 30, 1995 and with respect to the balance sheets at September 30,
1994 and 1995, are derived from the consolidated financial statements that
have been audited by Ernst & Young LLP, independent auditors, which are
included elsewhere in this Prospectus. The balance sheet data at September 30,
1993 are derived from audited financial statements not included in this
Prospectus. The statement of operations data for the six months ended March
31, 1995 and 1996 and the balance sheet data at March 31, 1996 are derived
from unaudited financial statements which contain all adjustments, consisting
only of normal recurring adjustments, which Holdings considers necessary for a
fair presentation of the financial position and results of operations for such
periods. Operating results for the six months ended March 31, 1996 are not
necessarily indicative of the results that are expected for the entire year
ended September 30, 1996. The selected financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Holdings' financial statements and
the notes thereto included herein.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
-------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(1):
Operating revenues............ $ 6,507 $24,893 $ 49,863 $ 16,969 $ 27,007
Course-level operating
expenses(2).................. 4,184 16,818 34,427 11,860 19,085
General and administrative
expenses..................... 1,620 1,997 2,517 1,160 1,724
Depreciation and amortization
expense...................... 825 3,469 6,145 2,405 3,518
------- ------- -------- -------- --------
Income (loss) from
operations................... (122) 2,605 6,774 1,544 2,680
Interest expense, net......... (530) (3,515) (8,019) (3,206) (5,118)
Gain on insurance settlement.. -- -- 747 -- --
Minority interest............. (195) -- -- -- --
------- ------- -------- -------- --------
Loss before income taxes and
extraordinary item........... (847) (906) (498) (1,662) (2,438)
Provision for income taxes.... 6 72 208 27 24
------- ------- -------- -------- --------
Loss before extraordinary
item......................... (853) (978) (706) (1,689) (2,462)
Extraordinary item............ -- (428) -- -- --
------- ------- -------- -------- --------
Net loss...................... $ (853) $(1,406) $ (706) $ (1,689) $ (2,462)
======= ======= ======== ======== ========
OTHER OPERATING DATA:
EBITDA(3)..................... $ 703 $ 6,078 $ 12,919 $ 3,949 $ 6,198
Golf facility investments(4).. 41,212 34,623 55,643 46,886 3,960
Cumulative golf facility
investments(5)............... 41,212 75,835 131,478 122,721 135,438
Number of golf properties(6).. 7 12 19 19 20
Ratio of earnings to fixed
charges(7)................... -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------- AT MARCH 31,
1993 1994 1995 1996
------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 1,359 $ 1,299 $ 821 $ 1,591
Total assets.................. 46,258 86,097 146,990 151,894
Total long-term debt and
capital leases............... 14,412 45,301 86,918 96,211
Total liabilities............. 19,885 54,635 103,620 110,986
Total redeemable preferred
stock........................ 27,121 33,611 42,241 42,241
Total stockholders' equity
(net capital deficiency)..... 748 (2,150) 1,129 (1,333)
</TABLE>
(Footnotes appear on the following page)
30
<PAGE>
- ---------------------
(1) The Company acquired or leased seven courses in fiscal 1993, an
additional five in fiscal 1994, an additional seven in fiscal 1995 and
entered into a management contract to operate one course in the six
months ended March 31, 1996 (fiscal 1996). Holdings' results of
operations include the results of acquired courses from their dates of
acquisition and not for any periods prior to acquisition. As a result,
Holdings' historical results of operations for any particular period do
not generally represent the full revenue and cash flow generating
capability of its golf course portfolio as of the end of such period.
Holdings' results of operations for the year ended September 30, 1995
include the results of three courses for six months, one course for seven
months, three courses for ten months and 12 courses for the full year.
(2) Course-level operating expenses include cost of golf course operations
(e.g., salaries, taxes, utilities), cost of food and beverages and cost
of pro shop sales.
(3) EBITDA represents net income before interest expense, income taxes,
extraordinary item, gain on insurance settlement, minority interest and
non-cash charges of depreciation and amortization. EBITDA is presented
because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. However, EBITDA should not
be considered as an alternative to net income as a measure of Holdings'
operating results or to operating cash flow as a measure of liquidity.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Private Membership Clubs; Accounting Treatment of
Initiation Fees."
(4) Golf facility investments consist of the aggregate purchase price
(including cash and principal amount of promissory notes) paid by the
Company to acquire its golf course portfolio, including non-recurring
upgrade capital expenditures.
(5) Cumulative since the Company's formation in October 1992.
(6) Of such 20 properties at March 31, 1996, 15 courses were owned by the
Company, three courses were operated under long-term leases, one driving
range/pro shop facility was leased and one course was managed by the
Company pursuant to a management contract. In addition, the Company
acquired one course and entered into a long term lease with respect to a
second course subsequent to March 31, 1996. See "Business--Recently
Completed Acquisitions."
(7) In calculating the ratio of earnings to fixed charges, earnings consist
of loss before income taxes and extraordinary item plus fixed charges.
Fixed charges consist of interest expense and amortization of debt
issuance costs. The ratio of earnings to fixed charges was less than 1.0
to 1.0 for each of Holdings' last three fiscal years, for the six months
ended March 31, 1995 and March 31, 1996 and for the twelve months ended
March 31, 1996. Earnings available for fixed charges were thus inadequate
to cover fixed charges. The amount of the coverage deficiencies for the
years ended September 30, 1993, September 30, 1994 and September 30,
1995, were $846,102, $906,461 and $497,812, respectively. The amount of
the coverage deficiencies for the six months ended March 31, 1995 and
March 31, 1996 were $1,661,663 and $2,438,480, respectively.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Information" as well as the consolidated
financial statements of the Company and notes thereto contained elsewhere in
this Prospectus.
INTRODUCTION
The Company owns and operates 16 courses, leases four courses, leases one
driving range and pro shop facility and manages one additional course. Since
its inception in October 1992, the Company has acquired or leased seven
courses in fiscal 1993, five in fiscal 1994, seven in fiscal 1995 and entered
into a management agreement to operate one course in the six months ended
March 31, 1996. In addition, the Company acquired one course and entered into
a long term lease with respect to a second course subsequent to March 31,
1996. See "Business--Recently Completed Acquisitions." The Company's audited
financials include the results of acquired courses from their dates of
acquisition but not any period prior to such acquisition. As a result, the
Company's historical financials for any particular period do not generally
represent the full revenue and cash flow generating capability of its golf
course portfolio as of the end of such period. At March 31, 1996, 19 of the
Company's facilities had been owned or leased by the Company for the prior
twelve months.
The Company's portfolio includes nine private country clubs, eight public
facilities and five semi-private facilities. The Company seeks to achieve
continued growth in revenue and operating cash flow by continuing to improve
the financial performance of its existing courses and acquiring courses
located in attractive markets which management believes will benefit from the
Company's golf course management expertise. The Company's business consists
primarily of operating golf courses and related facilities, with revenues
generated from several golf and non-golf related activities. "Golf revenues"
primarily include initiation fees and membership dues at private country clubs
and semi-private courses, greens fees, golf cart rentals and driving range
fees. "Non-golf revenues" primarily include food and beverage concessions,
retail merchandise sales and lodging fees. Golf revenues tend to produce
higher operating income margins than non-golf revenues.
SEASONALITY
Seasonal weather conditions reduce the playing season at certain of the
Company's golf courses. As a result the second half of the Company's fiscal
year tends to account for a greater portion of the Company's operating revenue
and EBITDA than does the first half. This seasonal pattern, as well as the
timing of new course purchases or leases, may cause the Company's results of
operations to vary significantly from quarter to quarter.
CAPITAL INVESTMENT PROGRAMS
The Company frequently implements capital investment programs at its courses
in order to upgrade the facilities and complement its marketing strategy.
These programs generally consist of improvements to the golf course (e.g.
replacement of greens, remodeling, addition of nine holes) and related
facilities. These programs require up-front capital expenditures intended to
generate additional revenue and cash flow once the programs are complete.
During the last 18 months, the Company has invested approximately $19.9
million to upgrade its facilities. For example, at Morgan Run, the Company has
invested approximately $9.4 million to remodel the clubhouse, the lodge and 18
of the twenty-seven holes at the facility. As a result, portions of this
facility were closed from December 1994 until April 1996. The Company
completed this capital project in April 1996, and as a result, expects to
generate incremental revenues and cash flows from this facility in the future.
PRIVATE MEMBERSHIP CLUBS; ACCOUNTING TREATMENT OF INITIATION FEES
The Company's private clubs generate revenues from initiation fees, monthly
membership dues and ancillary services such as golf carts, driving range, food
and beverage and lessons. As a club increases its membership base, the monthly
membership dues stream represents a significant percentage of its revenues and
profitability as there are no fixed cost increases and limited variable costs
associated with these incremental membership dues. During periods in which a
club is substantially increasing its members, initiation fees will represent a
greater percentage of revenues.
32
<PAGE>
The Company has designed its membership programs to maximize the long-term
profitability of its clubs. A key component of this strategy is structuring
the initiation fee to have a club's members make a meaningful investment in
the club. As a result, at five of the Company's private clubs, the Company has
designed a program under which a new member will make an initial minimum
deposit of at least 25% of the initiation fee upon joining a club, with the
remaining balance to be paid in equal monthly installments over a five-year
period pursuant to a note secured by the membership. The Company has full
recourse against the member under the note.
The Company recognizes as revenue the amount of the deposit plus the amount
of the note, less a provision for doubtful accounts at the time the membership
is sold. These promissory notes generally do not bear market interest rates
and are recorded at net present value using the effective interest method. The
Company periodically reviews the collectibility of these receivables and
provides an appropriate allowance for credit losses. As a result, as of March
31, 1996, the Company has estimated a reserve of $1.8 million for possible
future bad debts. For fiscal 1995, the twelve months ended March 31, 1996 and
the six months ended March 31, 1996, non-cash initiation fees constituted
approximately 8.4%, 9.2% and 4.9%, respectively, of revenues. See "--Sources
of Revenue--Golf Related Revenue--Initiation Fees."
SOURCES OF REVENUE
The following summarizes the primary components of the Company's revenue:
GOLF RELATED REVENUE
Membership Dues. The Company's private country clubs generate a significant
percentage of their revenue from the collection of monthly membership dues
from the members. These monthly membership dues (which vary by facility)
generally represent a stable and predictable source of income because they are
independent of golf course (or other facilities) utilization, do not vary
seasonally and are derived from a loyal customer base. The Company typically
offers several different memberships, including golf and non-golf programs.
For fiscal 1995, the Company had $13.5 million in revenue from membership
dues, representing approximately 27% of total fiscal 1995 revenue.
Initiation Fees. The Company also generates a significant percentage of its
revenue from initiation fees received from new members. For fiscal 1995, the
Company had $9.6 million in revenue from initiation fees, representing
approximately 19% of total fiscal 1995 revenue. See "--Private Membership
Clubs; Accounting Treatment of Membership Fees."
Daily Greens Fees. The Company derives revenue at public courses, semi-
private and private clubs (guest greens fees) from the payment of daily fees.
At public courses, these fees range from $11 to $100. At those private courses
where a daily greens fee is required, the fee ranges from $30 to $75. For
fiscal 1995, the Company had $9.2 million in revenue from greens fees,
representing approximately 18% of total fiscal 1995 revenue.
Golf Cart Rentals. At all of the Company's golf courses, golf carts are
available for rent for fees ranging from $9 to $12. For fiscal 1995, the
Company had $5.6 million in revenue from golf cart rentals, representing
approximately 11% of total fiscal 1995 revenue.
Driving Range Fees. The Company operates a driving range at 17 of its golf
facilities. For fiscal 1995, the Company had $1.0 million in revenue from
driving range fees, representing approximately 2% of total fiscal 1995
revenue.
NON-GOLF RELATED REVENUES
Food and Beverage Sales. The Company's golf facilities offer food and
beverage concessions (ranging from snack bars to dining rooms, catering and
meeting and banquet facilities). For fiscal 1995, the Company had $7.0 million
in revenue from food and beverage sales, representing 14% of total fiscal 1995
revenue.
33
<PAGE>
Pro Shop Sales. At each of the Company's golf courses, the Company operates
a retail pro shop. For fiscal 1995, the Company had $3.3 million in revenue
from pro shop sales, representing approximately 7% of total fiscal 1995
revenue.
Lodging Fees. The Company operates an 89-room lodge at Morgan Run Resort and
Club and a four-room lodge at Stonebridge Country Club. For fiscal 1995, the
Company had $0.7 million in revenue from lodging fees, representing
approximately 1% of total fiscal 1995 revenue.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
Operating Revenues. Operating revenues increased to $27.0 million for the
six months ended March 31, 1996 from $17.0 million for the comparable period,
an increase of $10.0 million or 59.2%. Of this increase, $7.1 million is
attributable to the effect of a full six months of operations of the seven
courses acquired in the six months ended March 31, 1995 and approximately $0.9
million is associated with the operation of Morgan Run Resort and Club which
had been closed for most of that same period. The remaining $2.0 million is
attributable to increased revenues from the Company's other courses.
Course-level Operating Expenses. Course-level operating expenses, which
include costs of golf course operations (e.g., salaries, taxes and utilities),
cost of food and beverage and costs of pro shop sales increased to $19.1
million for the six months ended March 31, 1996 from $11.9 million for the
comparable period, an increase of $7.2 million or 60.9%. Course-level
operating expenses attributable to courses acquired in the six months ended
March 31, 1995 but owned for all of the six month period ended March 31, 1996
accounted for $4.8 million of this increase. Of the remaining $2.5 million,
approximately $0.8 million is attributable to costs associated with the
operation of Morgan Run Resort and Club a portion of which had been closed for
most of the six months ended March 31, 1995, and approximately $0.4 million is
attributable to increased operating lease expenses from the sale/leaseback of
Carmel Mountain Ranch Country Club during the six months ended March 31, 1996.
General and Administrative Expenses. General and administrative expenses
primarily consist of corporate salaries and related expenses and legal and
accounting fees. General and administrative expenses increased to $1.7 million
for the six months ended March 31, 1996 from $1.2 million for the comparable
period, an increase of $0.6 million or 48.6%. General and administrative
expenses as a percentage of operating revenues decreased to 6.4% from 6.8% for
the six months ended March 31, 1996 and March 31, 1995, respectively.
Depreciation and Amortization Expense. Depreciation and amortization
expenses increased to $3.5 million for the six months ended March 31, 1996
from $2.4 million in the comparable period, an increase of $1.1 million or
46.3%. Of this increase, approximately $0.9 million is attributable to the
effect of a full six months of operations of the seven courses acquired in the
six months ended March 31, 1995.
Income from Operations. Income from operations increased to $2.7 million in
the six months ended March 31, 1996 from $1.5 million in the comparable
period, due primarily to the factors described above. Income from operations
as a percentage of operating revenues increased to 9.9% from 9.1% in the six
months ended March 31, 1996, and March 31, 1995, respectively.
Interest Expense, Net. Interest expense, net, increased to $5.1 million for
the six months ended March 31, 1996 from $3.2 million for the comparable
period, an increase of $1.9 million or 59.7% due to the increase in the level
of outstanding bank debt resulting from a full six months of interest charges
on debt incurred to finance acquisitions during the six months ended March 31,
1995.
Provision for Income Taxes. The Company recorded a $23,400 provision for
income taxes, which reflects the fact that certain subsidiaries generate
taxable income in individual states and localities notwithstanding the
Company's consolidated loss for financial reporting purposes.
Net loss. Net loss increased to $2.5 million in the six months ended March
31, 1996 from $1.7 million in the six months ended March 31, 1995 primarily
due to the factors described above.
34
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1994
Operating Revenues. Operating revenues increased to $49.9 million in fiscal
1995 from $24.9 million in fiscal 1994, an increase of $25.0 million or
100.3%. Of this increase, $18.2 million is attributable to the addition of
seven courses during fiscal 1995. The remaining $6.8 million increase is
attributable to the effect of a full year of operation of the five courses
acquired in fiscal 1994 and increased revenues from the Company's other
courses.
Course-level Operating Expenses. Course-level operating expenses increased
to $34.4 million in fiscal 1995 from $16.8 million in fiscal 1994, an increase
of $17.6 million or 104.7%. Of this increase, $11.9 million is attributable to
course-level operating expenses for the seven courses acquired by the Company
in fiscal 1995. Course-level operating expenses attributable to courses
acquired in fiscal 1994 but owned for all of fiscal 1995 accounted for $3.9
million of this increase. Of the remaining $1.8 million increase,
approximately $0.4 million is attributable to increased operating lease
expense from the sale/leaseback of Carmel Mountain Ranch Country Club during
1995 and approximately $0.8 million is attributable to costs associated with
the operation of Morgan Run Resort and Club, portions of which had been closed
for most of fiscal 1994.
General and Administrative Expenses. General and administrative expenses
increased to $2.5 million in fiscal 1995 from $2.0 million in fiscal 1994, an
increase of $0.5 million or 26.1%. This increase is primarily attributable to
added personnel costs and other costs associated with the acquisition of seven
courses during fiscal 1995. General and administrative expenses as a
percentage of operating revenues were 5.0% in fiscal 1995, a decrease from
8.0% in fiscal 1994.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased to $6.1 million in fiscal 1995 from $3.5 million in fiscal
1994, an increase of $2.7 million or 77.2%. Of this increase, $1.4 million is
attributable to the addition of seven courses during fiscal 1995 and $0.6
million is attributable to the inclusion of the five courses acquired during
fiscal 1994 for a full fiscal year.
Income from Operations. Income from operations increased to $6.8 million in
fiscal 1995 from $2.6 million in fiscal 1994, primarily due to the factors
described above. Income from operations as a percentage of operating revenues
was 13.6% in fiscal 1995, an increase from 10.5% in fiscal 1994.
Interest Expense, Net. Interest expense, net, increased to $8.0 million in
fiscal 1995 from $3.5 million in fiscal 1994, an increase of $4.5 million or
128.1%, due to the increase in the level of outstanding bank debt related to
expansion through the addition of seven new courses during fiscal 1995.
Provision for Income Taxes. The Company recorded a $0.2 million provision
for income taxes, which reflects the fact that certain subsidiaries generate
taxable income in individual states and localities notwithstanding the
Company's consolidated loss for financial reporting purposes.
Net loss. Net loss decreased to $0.7 million in fiscal 1995 from $1.4
million in fiscal 1994, primarily due to the factors described above and a
$0.7 million gain on insurance settlement, representing recoveries associated
with a fire at Pecan Grove Plantation C.C. in fiscal 1995.
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1993
Operating Revenues. Operating revenues increased to $24.9 million in fiscal
1994 from $6.5 million in fiscal 1993, an increase of $18.4 million or 282.5%.
Of this increase, $8.7 million is attributable to the addition of five courses
during fiscal 1994. The remaining $9.7 million increase is attributable to the
effect of a full year of operation of the seven courses acquired in fiscal
1993.
Course-level Operating Expenses. Course-level operating expenses increased
to $16.8 million in fiscal 1994 from $4.2 million in fiscal 1993, an increase
of $12.6 million or 302.0%. Of this increase, $5.6 million is attributable to
course-level operating expenses for the five courses acquired by the Company
in fiscal 1994.
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Course-level operating expenses attributable to courses acquired in 1993 but
owned for all of fiscal 1994 accounted for $7.0 million of this increase.
General and Administrative Expenses. General and administrative expenses
increased to $2.0 million in fiscal 1994 from $1.6 million in fiscal 1993, an
increase of $0.4 million or 23.3%. This increase is primarily attributable to
added personnel costs and other costs associated with the acquisition of five
courses during fiscal 1994. General and administrative expenses as a
percentage of operating revenues was 8.0% in fiscal 1994, a decrease from
24.9% in fiscal 1993.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased to $3.5 million in fiscal 1994 from $0.8 million in fiscal
1993, an increase of $2.6 million or 320.3%. Of this increase, $1.1 million is
attributable to the addition of five courses during fiscal 1994 and $1.2
million is attributable to the inclusion of the seven courses acquired during
fiscal 1993 for a full fiscal year.
Income from Operations. Income from operations increased to $2.6 million in
fiscal 1994 from a loss of $0.1 million in fiscal 1993, primarily due to the
factors described above. Income from operations as a percentage of operating
revenues was 10.5% in fiscal 1994.
Interest Expense, Net. Interest expense, net, increased to $3.5 million in
fiscal 1994 from $0.5 million in fiscal 1993, an increase of $3.0 million or
563.7%, due to the increase in the level of outstanding bank debt related to
expansion through the addition of five new courses during fiscal 1994.
Provision for Income Taxes. The Company recorded a $71,931 provision for
income taxes, which reflects the fact that the certain subsidiaries generate
taxable income in individual states and localities notwithstanding the
Company's consolidated loss for financial reporting purposes.
Net loss. Net loss increased to $1.4 million in fiscal 1994 from $0.9
million in fiscal 1993, primarily due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash are to fund debt service and maintenance
capital expenditures at its existing facilities (such as landscaping and
purchasing golf cart fleets). The Company also implements one-time upgrade and
renovation capital expenditures at its existing facilities in order to enhance
its appeal to customers and members and to generate additional revenues and
cash flow. Examples of these expenditures are the addition of courses
(including nine hole additions) to existing facilities to increase capacity
and major clubhouse renovations to support increased dues and fees. These
expenditures are generally of a non-recurring nature. In addition, the Company
implements strategic capital expenditure programs which enable it to reduce
course level operating costs and improve the efficiency of operations, such as
improving the irrigation system, acquiring more efficient maintenance
equipment and other programs which enhance the marketability and/or reduce the
operating expenses of existing facilities. As part of its business strategy,
the Company will require cash to continue to acquire, lease or manage
additional golf courses and the related facilities and to complete any
targeted renovations. As of March 31, 1996, the Company had approximately $3.0
million of long-term commitments for one-time capital expenditures with
respect to one recently acquired golf course. The Company's capital
expenditures budget for fiscal 1996 is $8.0 million, excluding acquisitions
and related capital expenditures, of which $4.8 million had been spent through
March 31, 1996.
Based upon the current level of operations and anticipated growth, the
Company believes that cash flow from operations, together with available
borrowings under the New Credit Facility and other sources of liquidity, will
be adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures and scheduled payments of principal and interest
on its indebtedness, including the Senior Notes. There can be no assurance,
however, that the Company's business will generate sufficient cash flow from
operations or that
36
<PAGE>
future working capital borrowings will be available in an amount sufficient to
enable Holdings to pay the principal amount at maturity of the Notes, or make
necessary capital expenditures.
The Company intends to fund these expenditures primarily with operating cash
flow and borrowings under the New Credit Facility. The New Credit Facility
provides for borrowings of up to $50.0 million, of which $45.0 million is
available to fund future acquisitions of golf courses and capital expenditures
at such courses and certain capital improvements at existing courses, and $5.0
million of which is available for general working capital purposes. The total
borrowing availability under the $45.0 million portion of the New Credit
Facility will decrease over the term of the facility beginning September 30,
1998. The New Credit Facility provides that the Company may not make any
acquisitions or upgrade capital expenditures when Funded Debt plus certain
project upgrade capital expenditures is greater than 6.5x of Adjusted EBITDA
(each as defined in the New Credit Facility), with certain adjustments for
notes receivable, reducing over time. This 6.5x Funded Debt to Adjusted EBITDA
test is reduced in subsequent years. The New Credit Facility also imposes
other limitations on the ability of the Company with respect to borrowings. In
addition, as set forth under "Consolidated Capitalization," as adjusted for
the Offerings and the application of the estimated net proceeds therefrom, the
Company had approximately $7.9 million of cash on hand to meet its working
capital and other needs. See "Description of New Credit Facility" and
"Consolidated Capitalization."
Historically, the Company has financed its operations through borrowings
under the Old Credit Facility and equity contributions by its stockholders. As
of March 31, 1996, the Partnership and Holdings' other stockholders have
invested a total of $46.3 million of equity to fund the expansion of the
Company and its golf course portfolio. Proceeds of the Unit Offering were
contributed by Holdings to the Company as equity, increasing the total equity
raised by the Company and Holdings since inception to approximately $75.4
million.
For the six months ended March 31, 1996, net cash used by operating
activities was $1.2 million versus $3.5 million provided from operations in
the prior comparable period. The largest components of this change are changes
in accounts payable and accrued liabilities related to income tax payments,
trade payables payments and retiring construction-related liabilities. The
Company generated $2.3 million and $1.9 million of cash from operations in
fiscal 1995 and 1994, respectively. During fiscal 1995, changes in notes
receivable and accounts receivable, net of allowance for doubtful accounts,
resulted in a $5.2 million use of funds. Approximately $4.2 million is
attributable to increases in notes receivable, and the remainder is due to
increases in accounts receivable. See "-- Private Membership Clubs; Accounting
Treatment of Initiation Fees." In fiscal 1994, the largest non-cash charges
were depreciation and amortization and the loss resulting from the Company's
retirement of debt obligations.
During the six months ended March 31, 1996, the Company made $4.8 million in
capital expenditures compared with $8.7 million in the prior comparable
period. In the six months ended March 31, 1995 and fiscal 1995, the Company
expended $41.2 million on the acquisition of a total of seven facilities. In
addition, the Company expended $17.7 million and $7.7 million in fiscal 1995
and fiscal 1994, respectively, for one-time upgrades at courses designed to
generate increased revenues and cash flows. The Company expended over
$23.9 million in fiscal 1994 on the acquisition of five facilities.
The Company relied upon bank borrowings of $8.3 million, $31.1 million,
$37.6 million and $46.3 million to finance its expansion in the six months
ended March 31, 1996, the six months ended March 31, 1995, fiscal 1995 and
fiscal 1994, respectively. Holdings contributed to the Company $12.6 million
of the proceeds of a private placement of equity securities in March 1995. The
Company also relies upon capital leases when consistent with its financing
objectives.
37
<PAGE>
BUSINESS
GENERAL
Cobblestone is one of the leading golf course owners and operators in the
United States, with a current portfolio of 22 golf properties including both
private country clubs and public (or daily fee) courses. The Company's courses
are concentrated in clusters near metropolitan areas in the Sunbelt states
(including Arizona, California and Texas) which have large golfing populations
and attractive climates. This clustering strategy enables the Company to
efficiently manage its portfolio of courses and improve the profitability of
its courses by sharing many administrative functions and capitalizing on joint
marketing opportunities and economies of scale.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from membership fees and dues at
private country clubs and semi-private courses, greens fees, food and beverage
concessions, golf cart rentals, retail merchandise sales, driving range fees
and lodging fees. The Company owns and operates 16 courses, leases four
courses (subject to long-term leases in excess of 20 years, including
extension options), leases one driving/range and pro shop facility and manages
one additional course. The Company's portfolio includes nine private country
clubs, eight public facilities and five semi-private facilities.
There are approximately 15,000 golf courses in the United States, which
generate approximately $15 billion in annual revenue. The ownership and
operation of golf courses in the United States is highly fragmented, with less
than 5% of golf courses owned and operated by multi-course management
companies. The Company believes that the majority of golf course operators,
including real estate developers and municipalities, are generally involved in
golf course management because the golf course is an important component of
their development or community, but that such operators do not have
professional golf course management experience. As a result, owners are often
interested in selling the golf facilities to third-party operators such as the
Company. These owners frequently place significant emphasis on experience and
reputation for quality management in selecting an owner/operator, and the
Company believes that its reputation in these areas has provided it with a
steady supply of attractive acquisition opportunities.
INDUSTRY OVERVIEW
There are three general types of golf courses: daily fee courses, private
country clubs and resort courses. Approximately two-thirds of the courses in
the United States are public, or daily fee, courses, and approximately one-
third are private country club or resort courses. Public courses derive
revenue primarily from greens fees, golf cart rentals, retail (pro shop) sales
and food and beverage sales. Because the majority of golf course operating
costs are fixed, revenue and operating profit are generally maximized at
public courses by generating the maximum number of golf rounds played. Private
courses derive revenue primarily from initiation fees, monthly membership
dues, guest greens fees and food and beverage sales. Revenue and operating
profit are maximized at private courses by maximizing the number of membership
sales and the associated monthly dues cash flow stream. In addition, certain
semi-private courses offer limited access to the golf facilities to the public
in order to maximize revenue.
The Company believes certain demographic characteristics will increase the
demand for golf in the future, thereby benefitting golf course operators.
Accordingly, the Company believes that total rounds played will increase as
the golfing population ages. The highest golf participation rates are found
among individuals aged 18 to 49, which had average participation rates of
approximately 13.6% in 1995, as compared to 11.6% for the population as a
whole. However, individuals over 50 played a substantially greater number of
rounds of golf per year relative to individuals in younger age brackets.
Accordingly, assuming that golf participation rates of 18 to 49 year old
golfers remain at current levels, the Company believes that these 18 to 49
year old golfers will increase the number of rounds played per year as they
age. See "Risk Factors--Factors Affecting Golf
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Participation." The following table summarizes the breakdown of all golfers
during 1995 by certain key demographic categories:
<TABLE>
<CAPTION>
ANNUAL
NUMBER OF GOLF AVERAGE
GOLFERS % OF TOTAL PARTICIPATION IN ROUNDS % OF TOTAL
AGE GROUP (YEARS) (IN THOUSANDS) GOLFERS CATEGORY PER GOLFER ROUNDS
----------------- -------------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
12-17 2,001 8.0% 8.6% 13.9 5.7%
18-29 5,263 21.0 12.1 11.8 12.7
30-39 6,748 27.0 15.2 13.3 18.3
40-49 4,762 19.0 13.0 17.1 16.6
50-59 2,694 10.8 11.1 25.3 13.9
60-64 933 3.7 9.2 38.4 7.3
65+ 2,621 10.5 7.8 47.8 25.5
</TABLE>
According to the NGF, the 25.0 million golfers in the United States played
approximately 490 million rounds of golf during 1995. A substantial majority
of these rounds were played by core golfers (those that play more than eight
rounds per year). Core golfers represented approximately 46% of total golfers
in 1995 but played approximately 87% of the total rounds. The Company targets
these core golfers. The following table summarizes the breakdown of the core
and other golfers during 1995:
<TABLE>
<CAPTION>
NUMBER OF
GOLFERS ROUNDS PLAYED
(IN THOUSANDS) (IN MILLIONS) ROUNDS/GOLFER
-------------- ------------- -------------
<S> <C> <C> <C>
Core Golfers................... 11,581 425.5 36.7
Other Golfers.................. 13,431 64.7 4.8
</TABLE>
Core golfer participation is also more constant across age categories. The
following table summarizes core golfer participation in 1995 by age category:
<TABLE>
<CAPTION>
NUMBER OF
CORE GOLFERS PERCENTAGE OF
AGE GROUP (YEARS) (IN THOUSANDS) CORE GOLFERS
----------------- -------------- -------------
<S> <C> <C>
18-29 2,126 18.4%
30-39 2,908 25.1
40-49 2,256 19.5
50-59 1,631 14.1
60-64 675 5.8
65+ 1,985 17.1
</TABLE>
The Company believes that, despite recent golf course construction in some
of its markets, golf course construction in its markets generally has been
constrained as a result of several factors, including the lack of capital
available for real estate development, the significant land required to build
a golf course and related facilities (approximately 150 acres) and increasing
environmental regulation, particularly with regard to the availability of
water in Arizona and California, two of the Company's primary markets.
BUSINESS STRATEGY
The Company's strategy is to grow its revenue and cash flow by (i) improving
operations and financial performance of its existing portfolio golf courses by
increasing revenue, controlling operating costs and selectively upgrading the
facilities and (ii) identifying and acquiring courses which will benefit from
the Company's management expertise. Key elements of the Company's operating
strategy include:
INCREASE REVENUE
Attracting New Members. The Company aggressively markets its courses within
the local community in order to increase memberships at its private clubs. The
Company positions the golf course and related facilities
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<PAGE>
as an integral social center of the surrounding community by hosting social,
educational and recreational events, in order to attract non-golfing members.
In order to attract these "social" members, the Company often provides
facilities for community events and charitable organizations, as well as
swimming, tennis and fitness facilities, particularly at those courses that
are part of a real estate development. The Company also tailors the membership
program to the facility, including offering multiple types of memberships
(e.g., senior, junior, weekday golf only, tennis, swimming, social, etc.). For
example, at the Hills of Lakeway, the Company created a new category of
membership called the "Premier Sports Membership," which allows the member to
use the facility for social purposes and limited golf play. This membership
entitles the member to 12 rounds of golf a year at non-prime tee times for a
reduced guest fee. The Premier Sports Membership is designed to appeal to the
occasional golfer who wants to join a private country club without paying the
full initiation fee and membership dues typically associated with such clubs.
Maximizing Tee Time Utilization. The Company seeks to increase revenue by
expanding the capacity of its public facilities. The Company frequently
implements several simple measures, such as opening seven days a week, opening
earlier in the morning or starting golfers on both the first and tenth holes
simultaneously. The Company also attempts to schedule tournament play into
less popular tee times; provide incentives for members of semi-private courses
to play on weekdays, thereby opening up prime weekend time for fully-priced
public play; and charge premium prices for prime tee times while discounting
prices for less utilized times (e.g., twilight play). For example, at Carmel
Mountain Ranch, the tournament salesperson has financial incentives to
schedule tournaments during non-prime tee times (e.g., weekend afternoon),
thereby increasing course utilization while minimizing inconvenience to
regular weekend golfers.
Market Positioning. The Company undertakes a comprehensive review of local
competition, identifying market rates for initiation fees and membership dues,
greens fees, guest and cart fees, private cart policies, and other key revenue
generators. In many cases, the Company is able to increase revenue merely by
raising prices to reflect market conditions and the course improvements
implemented by the Company's management. For example, at Morgan Run, the
Company has raised monthly dues from $195 to $300 over two years, resulting in
an increase in annual membership dues revenue of approximately $400,000.
Appeal to Core Golfing Population. The Company targets core golfers in its
markets (defined by the NGF to be golfers who play more than eight rounds per
year). These golfers represent approximately 46% of the golfers in the United
States but play approximately 87% of the total rounds. The Company believes
that core golfers represent a stable demand for golf and are generally more
willing to make a significant investment in a golf club membership and pay
higher greens fees than the golfing population as a whole. These golfers also
tend to spend more time at a golf facility and therefore generate higher
ancillary revenues.
Facilities Upgrades. Following its acquisition of a golf course, the Company
generally upgrades or improves the facility in order to significantly improve
its appeal to customers and members. Where appropriate, the Company adds
additional courses (including nine hole additions) to existing facilities to
increase course capacity and utilization and invests in major clubhouse
renovations to support increased dues and fees. These expenditures are
generally non-recurring. For example, the Company re-engineered the water flow
at Woodcrest Country Club so that heavy rains would not soak certain areas of
the course. In the past, a heavy rain could close Woodcrest for thirty days or
more, but since the re-engineering, rain has not closed the course for more
than four consecutive days. Additionally, in November 1994 the Company
completed the addition of nine holes to The Trophy Club, bringing the facility
to 36 holes. The Company believes that this addition increases golf membership
capacity from 900 to 1,200 members.
Focus on Non-Golf Operations. The Company also focuses significant effort on
non-golf operations. The Company offers non-golf memberships where additional
facilities (such as swimming, tennis or fitness facilities) are available,
promotes merchandise sales, provides on-course concessions to boost food and
beverage sales, and offers catering and meeting and banquet facilities for
members.
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<PAGE>
REDUCE OPERATING COSTS
Reducing Administrative Overhead. The Company continually seeks
opportunities to improve its margins by consolidating administrative functions
and eliminating duplicative personnel at its courses in order to reduce
operating costs. For example, after acquiring Pecan Grove, the Company reduced
the general and administrative staff, thereby reducing operating expenses by
approximately $75,000 per year.
Economies of Scale. As a multi-course operator, the Company is able to
achieve overhead and operating savings not available to owners of individual
properties. For example, the Company employs regional marketing staffs to
serve the courses in a cluster group, and is often able to eliminate an
accounting position at the course level by substituting a corporate controller
who has responsibility for multiple courses. In addition, insurance policies
for many properties, particularly those that are part of a geographical
cluster, can be consolidated under a master insurance policy. The Company's
volume purchasing ability also enables it to achieve savings not available to
smaller buyers in the purchase of almost all retail merchandise and
maintenance equipment.
Facilities Upgrades. In addition to implementing facilities improvements in
order to generate increased revenues, the Company also makes capital versus
operating expense decisions based on known economic trade-offs. The Company
attempts to identify strategic opportunities to invest relatively small
amounts of capital in maintenance equipment in order to improve the facility
and simultaneously reduce labor or other operating expenses. For example, at
Carmel Mountain Ranch, the Company invested approximately $100,000 to upgrade
the irrigation control system, resulting in a better maintained course and the
realization of approximately $30,000 in annual operating savings.
Managing Water Costs. At many of its courses, water is a significant
component of operating costs. The Company ensures that its irrigation systems
are as efficient as possible, and explores alternatives to reduce the cost of
water. For example, where possible, the Company uses treated effluent water or
constructs wells, rather than utilize more expensive municipal water for
course irrigation. For example, concurrently with the closing of the
acquisitions of Foothills and Ahwatukee, the Company acquired additional water
rights that allow the Company to use wells to provide substantially all the
required water for such courses.
ACQUISITIONS
The Company is continually involved in the investigation and evaluation of
potential golf course acquisitions and at any time may be discussing possible
transactions, conducting due diligence investigations or otherwise pursuing
acquisition opportunities. The Company's growth strategy is partly driven by
its ability to expand its portfolio of courses.
The Company conducts extensive due diligence when considering acquisition
candidates in order to evaluate the potential financial performance of a given
golf course. The principal criteria considered in the evaluation include
course location, the population size and demographics of the surrounding area,
the number of tourists visiting a market per year and the number of rounds of
golf played by these tourists, course condition, reputation among customers
and/or members, current operating efficiency and local competition.
During the evaluation of a potential acquisition, the Company considers
carefully the ease of access to the course, the conditions and appeal of the
immediately surrounding land, the proximity of the competition and the
climatic conditions which affect both potential revenue as well as the cost of
maintaining the course. The population base of the surrounding metropolitan
area must be large enough to support both the potential acquisition as well as
its competition. If the acquisition candidate is a resort-oriented course, the
Company also evaluates the size of and trends in the tourist population. The
demographic make-up of the population must be such that a sufficient number
and density of golfers are present. In its evaluation of the operating
potential of a course, the Company looks for correctable operational
deficiencies, potential facility improvements which can be made with a
moderate amount of capital investment and which have a high likelihood of
enhancing revenue and reducing costs, as well as deficiencies in the course's
position and reputation in the market which can benefit
41
<PAGE>
from a cohesive marketing program. The competition is evaluated by examining
the condition and appeal of the local courses, the position and reputation in
the local market and the likely potential clientele, and finally, the price
points at which the competition operates. In addition, prior to acquiring a
given course, the Company meets with private club members or forms public
course focus groups to discuss the potential acquisition and major anticipated
changes in order to ensure a smooth transition in ownership.
In addition to the criteria outlined above, the Company incorporates
specific analyses which are dependent upon whether the course is private or
public. At a private course, the set of considerations revolves around the
type of members the course targets, and the potential to increase dues or
offer valuable additional facilities such as banquet rooms, meeting rooms,
tennis, fitness facilities and child-care in order to expand membership. At a
daily fee course, a course may be significantly improved by adjusting greens
fees to market level, by adding amenities such as golf cart rental facilities,
improving the pro shop, implementing marketing programs or by promoting
tournament play.
The following summarizes the primary components of the Company's acquisition
strategy:
Clustering of Courses. The Company seeks to acquire courses in its existing
geographic clusters, or to form new clusters near densely populated
metropolitan markets. The clustering strategy is designed to facilitate
management and marketing and improve the profitability of each course because
of the ability to share administrative and operating expenses. In addition,
clustering allows the Company to operate facilities with fewer on-site
management personnel by consolidating several course-level management jobs or
eliminating them altogether in favor of a single regional or headquarters
position. For example, a cluster provides cross-marketing opportunities such
as exchanging play privileges, advertising multiple properties in a single
campaign and promoting tournament play at a course within the cluster.
Focus on Private Country Clubs and High-End Daily Fee Courses. The Company
focuses on acquiring private country clubs and high-end daily fee courses
which attract core golfers in middle and upper-income brackets who are less
price sensitive than the typical public course player. Revenue and cash flows
of private country clubs are generally more stable and predictable than those
of public courses because the receipt of membership dues is independent of the
level of course utilization. In addition, private courses have an easily
identifiable target population which enables a targeted and efficient
marketing effort, particularly if the course is part of a larger residential
development. The typical Cobblestone daily fee course commands higher greens
fees than the average municipal course in its market.
Reputation with Real Estate Developers. Cobblestone has focused on acquiring
courses from real estate developers who have built golf courses primarily as
an enhancement to their residential real estate developments. The Company
believes that its experience and reputation for quality management provide it
with a steady supply of attractive acquisition opportunities from developers
seeking third party owner/operators to professionally manage the facilities.
Focus on Favorable Golf Markets. The Company targets golf courses in markets
with characteristics which it believes are favorable to golf course ownership
and management. For example, the Company concentrates on acquiring courses
convenient to metropolitan areas with dense populations but relatively few
golf courses in relation to the size of the golfing population. In addition,
the Company focuses on markets with a high number of playable days per year,
enabling the Company to maximize revenue and course utilization and thereby
capitalize on the operating leverage inherent in golf course management.
To date, the Company primarily has targeted acquisitions in the Sunbelt
markets. Maximizing revenue is an important component of profitability due to
the high fixed cost nature of golf course operation, and these markets
typically have minimal weather risks and a high number of playable days per
year (i.e. high capacity). For instance, the number of playable days in
Southern California averages approximately 350, as compared to approximately
200 in the upper Midwest. Thus, average rounds played per course in the
Arizona and California markets are substantially greater than the national
average of approximately 33,000 rounds. Additionally, greens
42
<PAGE>
fee pricing in these markets tends to be higher than the national average
because of shortages of supply relative to demand and the impact of tourists
on pricing. Seasonal tourists have fairly inelastic demand because greens fees
represent only a relatively small portion of overall vacation expenses.
Furthermore, age demographics in the Sunbelt markets and the abundance of
retirees with ample leisure time contribute to a high demand for golf.
RECENTLY COMPLETED ACQUISITIONS
Subsequent to March 31, 1996, the Company completed two additional
acquisitions as a part of its ongoing acquisition strategy. On June 28, 1996,
the Company acquired Eagle Crest Golf Club in the San Diego, California area.
Eagle Crest is a daily fee golf facility with an 18-hole David Rainville-
designed course, as well as a clubhouse, food and beverage facilities and pro
shop. Eagle Crest is located in a master plan development which is expected to
include over 700 single family homes at completion. In addition, on July 1,
1996, the Company entered into a 15 year lease of the Sweetwater Country Club
near Houston, Texas. Sweetwater is a private country club with a 36-hole Roger
Packard-designed course, as well as a clubhouse, food and beverage facilities,
pro shop, indoor and outdoor swimming pools, fitness center (including indoor
basketball and squash courts) and both indoor and outdoor tennis courts.
MARKETING/MEMBERSHIP PROGRAMS
The Company's marketing programs are designed to capitalize on the economies
of scale provided by its clustering strategy. Marketing efforts for daily fee
properties primarily consist of co-op advertising directed at maximizing tee-
time utilization. Special promotions such as junior programs and special event
sales are geared toward attracting new customers and maximizing utilization at
off-peak hours. The Company also utilizes on-line reservation systems to
create greater accessibility for its customers, including allowing a customer
to reserve a tee-time at any of the Company's public courses within a cluster
through a central reservation number. Additionally, the Company has created an
interactive web-site on the Internet that enables customers to e-mail tee-time
requests within a given cluster market.
Private country club marketing programs are implemented by professional
sales personnel focusing on goal-oriented sales plans. Proactive membership
sales efforts are targeted at local developers, realtors and corporations
within specific cluster markets together with more traditional member referral
sales programs. The Company also uses its initiation fee structure to target
residents of its golf communities. This initiation fee structure allows
members to make a meaningful investment in the club while amortizing the
payment of the balance of the membership fee over a five-year period. The
Company also strives to increase other private club revenues by positioning
the club as a center of social and recreational activity for the entire
family. For example, the Company provides extensive activities calendars to
ensure a wide range of activities and increased participation from family
members in all areas of the club.
COMPETITION
The Company competes for members and players with existing golf courses.
Where the Company's courses are membership courses which are part of a housing
development project, competition is often limited. At those courses where
there is significant competition from other golf courses, the Company believes
that it competes less on the basis of price than on the overall quality of its
facilities, which is a function of customer service, the quality and the state
of maintenance of the facilities as well as available amenities.
The Company believes it and its management enjoy a favorable reputation in
the industry. The Company principally competes for the acquisition of golf
courses on a national level with a small number of national golf course
management companies, which include National Golf Properties, Inc. (a
publicly-traded real estate investment trust) and Club Corporation
International and for the lease and/or management of golf courses on a
national level with American Golf Corporation and Club Corporation
International. The Company also competes on a local level with several
smaller, regional companies.
43
<PAGE>
SUMMARY OF GOLF COURSE PORTFOLIO
Market and Design Data. The following tables set forth certain information
regarding the Company's golf course properties, including a description of
each course, a summary of the facilities and services available and a
comparison of operations data for each course.
<TABLE>
<CAPTION>
DATE
ACQUIRED
TYPE OF GOLF COURSE BY
COURSE NAME LOCATION OPERATION TYPE OF COURSE ARCHITECT COBBLESTONE(1)
- ----------------------- ------------------- --------- -------------------- -------------------------- --------------
<S> <C> <C> <C> <C> <C>
Southern California
Courses
Balboa Park G.C. San Diego, CA Leased (2) William Park Bell 3/93
Carmel Mountain Ranch
C.C. San Diego, CA Leased 18 Hole public Ron Fream 7/93
Morgan Run Resort and
Club Rancho Santa Fe, CA Owned 27 Hole semi-private David Rainville/Jay Morish 6/93
El Camino C.C. Oceanside, CA Owned 18 Hole private William Park Bell 6/93
Red Hawk G.C. Temecula, CA Managed 18 Hole public Ron Fream 10/95
Saticoy Regional G.C. Ventura, CA Leased 9 Hole municipal George Thomas 3/93
The Vineyard at
Escondido Escondido, CA Leased 18 Hole municipal David Rainville 12/93(3)
Eagle Crest Golf Club Escondido, CA Owned 18 Hole public David Rainville 6/96
Phoenix Courses
Ahwatukee C.C. Phoenix, AZ Owned 18 Hole semi-private Gary Panks 7/94
The Lakes at Ahwatukee Phoenix, AZ Owned 18 Hole public Gary Panks 7/94
The Foothills G.C. Phoenix, AZ Owned 18 Hole public Tom Weiskopf/Jay Morish 1/93
Red Mountain Ranch C.C. Mesa, AZ Owned 18 Hole semi-private Pete Dye 12/94
Texas-Austin Courses
Hills of Lakeway(4) Austin, TX Owned 18 Hole private Jack Nicklaus 3/95
Live Oak Golf Course(4) Austin, TX Owned 18 Hole semi-private Leon Howard 3/95
Yaupon Golf Course(4) Austin, TX Owned 18 Hole semi-private Leon Howard 3/95
Texas-Dallas Courses
Stonebridge C.C. Mc Kinney, TX Owned 18 Hole private Pete Dye 12/94
The Ranch C.C. Mc Kinney, TX Owned 18 Hole private Arthur Hills 12/94
The Trophy Club Trophy Club, TX Owned 36 Hole private Ben Hogan/Arthur Hills 12/93
Woodcrest C.C. Dallas, TX Owned 18 Hole private Don January 3/93
Other Courses
Brandermill C.C. Richmond, VA Owned 18 Hole private Gary Player 2/95
Pecan Grove Plantation
C.C. Richmond, TX Owned 27 Hole private Carlton Gipson 2/94
Sweetwater C.C. Sugar Land, TX Leased 36 Hole private Roger Packard 7/96
</TABLE>
- ---------------------
(1) Represents the date acquired by Cobblestone or, if different, the date
Cobblestone commenced operations of the courses.
(2) The Company operates a driving range, pro shop and golf cart rental
facility in connection with an 18-hole public course operated by the City
of San Diego.
(3) The Vineyard at Escondido was constructed by the Company and commenced
operations in December 1993.
(4) The Company owns a tennis facility (the World of Tennis) and a golf
practice and instruction facility (the Academy of Golf) which are
components of these Austin facilities.
44
<PAGE>
Facilities and Services
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DRIVING FOOD & FITNESS
COURSE NAME RANGE CARTS CLUBHOUSE BEVERAGE PRO SHOP POOL TENNIS LODGING CENTER
- ----------------------- ------- ----- --------- -------- -------- ---- ------ ------- -------
Southern California
Courses
Balboa Park G.C. Yes Yes Yes Yes Yes
Carmel Mountain Ranch
C.C. Yes Yes Yes Yes Yes
Morgan Run Resort and
Club Yes Yes Yes Yes Yes Yes Yes Yes Yes
El Camino C.C. Yes Yes Yes Yes Yes Yes Yes Yes
Red Hawk G.C. Yes Yes Yes Yes
Saticoy Regional G.C. Yes Yes Yes Yes
The Vineyard at
Escondido Yes Yes Yes Yes Yes
Eagle Crest Golf Club Yes Yes Yes Yes Yes
Phoenix Courses
Ahwatukee C.C. Yes Yes Yes Yes Yes
The Lakes at Ahwatukee Yes Yes Yes
The Foothills G.C. Yes Yes Yes Yes Yes
Red Mountain Ranch C.C. Yes Yes Yes Yes Yes Yes Yes Yes
Texas-Austin Courses
Hills of Lakeway Yes Yes Yes Yes Yes Yes Yes Yes
Live Oak Golf Course Yes Yes Yes Yes Yes
Yaupon Golf Course Yes Yes Yes
Texas-Dallas Courses
Stonebridge C.C. Yes Yes Yes Yes Yes Yes Yes Yes Yes
The Ranch C.C. Yes Yes Yes Yes Yes Yes Yes
The Trophy Club Yes Yes Yes Yes Yes Yes Yes
Woodcrest C.C. Yes Yes Yes Yes Yes Yes
Other Courses
Brandermill C.C.,
Richmond, VA Yes Yes Yes Yes Yes Yes Yes
Pecan Grove Plantation
C.C., Richmond, TX Yes Yes Yes Yes Yes Yes Yes Yes
Sweetwater C.C., Sugar
Land, TX Yes Yes Yes Yes Yes Yes Yes Yes
</TABLE>
ORGANIZATIONAL STRUCTURE
The Company generally owns and operates each of its facilities through a
separate subsidiary. All of the Company's subsidiaries are directly or
indirectly wholly-owned except for (i) Cobblestone Texas, Inc., (which owns
and operates the Trophy Club) which is 95% owned by the Company and 5% owned
by a former owner, (ii) Ocean Vista Land Company, (which is a holding company
whose sole assets are (a) 100% of the capital stock of Oceanside Golf
Management Corp., which owns and operates El Camino Country Club, and (b) a
50% equity interest in Whispering Palms Country Club Joint Venture, which owns
and operates Morgan Run Resort and Club) which is 96% owned by the Company and
4% owned by former owners, and (iii) Golf Course Inns of America Inc., (which
is a holding company whose sole asset is a 50% equity interest in Whispering
Palms Country Club Joint Venture ) which is 96% owned by the Company and 4%
owned by former owners.
EMPLOYEES
As of March 31, 1996 the Company employed approximately 1,395 persons. The
Company believes that its employee relations are good. None of the Company's
employees are represented by a labor union.
GOVERNMENTAL REGULATION
Environmental Matters. Operations at the Company's golf courses involve the
use and storage of various hazardous materials such as herbicides, pesticides,
fertilizers, motor oil and gasoline. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removing such hazardous substances that are
released on or in its property and for remediation of its property. Such laws
often impose liability regardless of whether a property owner or operator knew
of, or was responsible for, the release of hazardous materials. In addition,
the presence of such hazardous substances, or the failure to
45
<PAGE>
remediate the surrounding soil when such substances are released, may
adversely affect the ability of a property owner to sell such real estate or
to pledge such property as collateral for a loan. Prior to acquiring golf
courses, it is the Company's practice to commission preliminary environmental
assessments ("Phase I assessments") to evaluate the environmental condition
of, and potential environmental liabilities associated with, such properties.
Phase I assessments generally consist of an investigation of environmental
conditions at the subject property (not including soil or groundwater sampling
or analysis), as well as a review of available information regarding the site
and conditions at other sites in the vicinity. The Phase I assessments have
not revealed any environmental liability that the Company's management
believes would have a material adverse effect on the Company's business,
assets or results of operation, and the Company believes that it is in
material compliance with all environmental laws, ordinances and regulations
applicable to its properties and operations. No assurance, however, can be
given that the Phase I assessments reveal all potential environmental
liabilities or that such environmental liabilities, whether or not material,
may not arise in the future.
General. The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number of
the Company's golf course personnel receive the federal minimum wage, and
increases in the minimum wage would increase the Company's labor costs. In
addition, the Company is subject to certain state "dram-shop" laws, which
provide a person injured by an intoxicated individual the right to recover
damages from an establishment that wrongfully served alcoholic beverages to
the intoxicated individual. The Company is also subject to the Americans with
Disabilities Act of 1990, which, among other things, may require certain minor
renovations to various clubhouses at the Company's properties to meet
federally mandated access and use requirements. The cost of these renovations
is not expected to be material to the Company. The Company believes it is
operating in substantial compliance with applicable laws and regulations
governing its operations.
LEGAL PROCEEDINGS; INSURANCE
From time to time, lawsuits are filed against the Company in the ordinary
course of business. The Company is not a party to any litigation that, in the
judgment of management after consultation with counsel, is likely to have a
material adverse effect on the Company or its business. The Company carries
property and casualty insurance and insurance under umbrella policies in such
amounts and with such coverages as the Company believes to be adequate.
46
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of April 30, 1996, and a
brief account of the business experience of each person who is a director or
executive officer of Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James A. Husband........ 46 Director, President and Chief Executive Officer
Stefan C. Karnavas...... 33 Vice President, Chief Financial Officer, Treasurer and Secretary
Gary L. Dee............. 48 Vice President, Operations
Joseph H. Champ......... 38 Vice President, Acquisitions
Andrew Crosson.......... 35 Vice President, Acquisitions
Norm Goodmanson......... 47 Vice President, Development
Robert S. West, Jr. .... 52 Vice President, Golf Operations
Thomas Delaney, Jr. .... 38 Vice President, Design & Construction
Frederick J. Warren..... 56 Director
David H. Wong........... 32 Director
P.L. Davies III......... 34 Director
Martin R. Reid.......... 53 Director
John M. Sullivan........ 60 Director
</TABLE>
JAMES A. HUSBAND founded the Company in October 1992. From January 1994 to
the present, Mr. Husband has served as Holdings' President, Chief Executive
Officer and as a Director. Mr. Husband has 20 years of golf course operations
and acquisitions experience. Prior to founding the Company and since April
1977, Mr. Husband was a founder, Chairman and Chief Executive Officer of a
company which ultimately became known as CCA GolfCorp, which became the public
golf operations subsidiary of Club Corporation of America (now known as Club
Corporation International). Mr. Husband has been a Class A member of the PGA
of America since 1977 and was a PGA Tour member in 1978 and 1979. While at
GolfCorp, Mr. Husband served on the Board of Directors of ClubCorp of America.
Mr. Husband graduated from California State University in Northridge in 1972
with a Bachelor of Science degree in Business Administration.
STEFAN C. KARNAVAS joined Holdings as Vice President, Chief Financial
Officer, Treasurer and Secretary in April 1996. Prior to joining the Company
and since August 1993, Mr. Karnavas was Treasurer and Director of Development
of Horizon Cellular Telephone Company, L.P. ("Horizon"). From December 1992 to
August 1993, he served as Horizon's Assistant Treasurer. From April 1991 to
December 1992, he was Horizon's Manager of Mergers and Acquisitions. Prior to
that time, he was a Senior Loan Officer at Fidelity Bank.
GARY L. DEE has served as Vice President, Operations of Holdings since
January 1994. Mr. Dee has 18 years of golf course operations experience. From
February 1989 to November 1992, Mr. Dee was the Director of Operations for the
PGA Tour Public Golf, Inc. Prior to this position, Mr. Dee was a general
manager for the PGA tour at the TPC at Piper Glen in Charlotte, North
Carolina, from 1988-1989 and was a principal in GolfTexas, a golf facility
development and management company from 1986-1988. Mr. Dee also served as a
golf management professional at various facilities from 1974-1986. Mr. Dee
graduated from Drake University in 1972 with a Bachelor of Science in
management.
JOSEPH H. CHAMP has served as Vice President, Acquisitions of Holdings since
January 1994. From August 1993 to December 1993, Mr. Champ was Vice President,
Acquisitions for National Golf Properties, Inc., a real estate investment
trust. From September 1992 to August 1993, Mr. Champ was Vice President of
Acquisitions (Western Region) at American Golf Corporation. Prior to joining
American Golf, Mr. Champ was vice president
47
<PAGE>
of real estate and business development for Interstate Hotels Corporation from
January 1990 to August 1992 and was a director of development at Aircoa
Hospitality Services, Inc. from 1987 to January 1990.
ANDREW CROSSON has served as Vice President, Acquisitions of Holdings since
January 1994. From 1988 to 1992, Mr. Crosson was the head of the Development
and Acquisitions Department for GolfCorp, a subsidiary of Club Corporation
International. Mr. Crosson graduated from the University of Utah in 1986.
NORM GOODMANSON has served as Vice President, Development of Holdings since
January 1994. Mr. Goodmanson has over 25 years of experience in the golf
course industry. From January 1988 to June 1993, Mr. Goodmanson served as Vice
President of Development at CCA GolfCorp.
ROBERT S. WEST, JR. has served as Vice President, Golf Operations since
January 1994. From 1989 to 1993, Mr. West served as a Regional Manager with
Golf Enterprises, Inc. In addition to being involved in the golf business for
30 years and a PGA professional for 25 years, Mr. West owned and operated his
own golf course, retail golf clothing store and worked as an operations
consultant for several other courses. Additionally, from 1972 to 1980 Mr. West
served as the Director of Golf and was Tournament Chairman at Walt Disney
World in Orlando, Florida.
THOMAS L. DELANEY, JR. has served as Vice President, Design & Construction
of Holdings since January 1994. Prior to joining the Company, Mr. Delaney
worked in the real estate development industry as a construction manager for a
variety of commercial projects, including the Aventine Complex, a $250 million
multi-use development in La Jolla, California. Mr. Delaney received his
Bachelor of Building Construction degree from the University of Florida in
1984 and his MBA from the Wharton School at the University of Pennsylvania in
May 1993.
FREDERICK J. WARREN has served as a director of Holdings since January 1994.
He is presently a general partner of Brentwood Golf Partners, L.P., Brentwood
Buyout Management Partners, L.P. and Brentwood Buyout Partners, L.P. Mr.
Warren is a director of Horizon Cellular Telephone Company, L.P., Rental
Service Corporation, Tuboscope Vetco International ("Tuboscope") and Digital
Sound Corporation.
DAVID H. WONG has served as a director of Holdings since January 1994. He is
presently a general partner of Brentwood Golf Partners, L.P., Brentwood Buyout
Management Partners, L.P. and Brentwood Buyout Partners, L.P. Mr. Wong is a
director of Cardinal Business Media, Inc. ("Cardinal") and Horizon Finance
Corporation. Prior to joining Brentwood he worked in the investment banking
division of Dillon, Read & Co., Inc.
P.L. DAVIES III has served as a director of Holdings since February 1995. He
is presently Managing Principal of Cambria Group, LLC, a private equity
investment firm. From January 1995 to December 1995, Mr. Davies served as a
Principal of Fremont Group, Inc. Mr. Davies also serves on the board of
Lakeside Corporation. Prior to joining Fremont, Mr. Davies was a Principal at
Brentwood from April 1993 to December 1994 and held a variety of positions at
Bechtel Group, Inc. from 1987 to 1993.
MARTIN R. REID has served as director of Holdings since January 1994. He is
presently Chairman of the Board and Chief Executive Officer of Rental Service
Corporation and has held such position since September 1995. From June 1994 to
September 1995, Mr. Reid was Chairman of the Board and Chief Executive Officer
of Acme Holdings, Inc., which filed a voluntary petition under Chapter 11 of
the United States Bankruptcy Code on July 13, 1995. Since October 1990, Mr.
Reid has been a director of Tuboscope. Mr. Reid also served as Chief Executive
Officer of Tuboscope from May 1991 to October 1993. Mr. Reid has been a
General Partner in MDR Associates, a private investment concern, since
November 1990. From September 1986 to June 1990, he was Chief Executive
Officer of Eastman Christensen Co., a provider of oil and gas drilling
systems. Mr. Reid was also Vice Chairman of Eastman Christensen Co. from
August 1989 to June 1990. Prior to September 1986, he was Senior Vice
President of Operations of Norton Christensen, the predecessor to Eastman
Christensen Co.
48
<PAGE>
JOHN M. SULLIVAN has served as a director of Holdings since January 1994. He
is presently a director of The Scotts Company and Cardinal. From October 1987
to January 1993, Mr. Sullivan was Chairman of the Board and Chief Executive
Officer of Prince Holdings, Inc. ("Prince"). Prior to that and since September
1984, Mr. Sullivan was President of Prince and Vice President of Chesebrough-
Pond's, Inc.
DIRECTOR COMPENSATION
Neither Holdings nor the Company pays any fees or remuneration to their
directors for service on their respective board of directors or any board
committee, but Holdings and the Company reimburse directors for their out-of-
pocket expenses incurred in connection with attending meetings of the board.
In addition, in connection with becoming a director, each of Messrs. Davies,
Reid and Sullivan was offered the opportunity to acquire shares (or options to
acquire shares) of Holdings' capital stock.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid or accrued by Holdings or the Company
to or on behalf of Holdings' President and Chief Executive Officer and the
four other most highly compensated executive officers of Holdings who earned
more than $100,000 (salary and bonus) (the "Named Executive Officers") for all
services rendered in all capacities to Holdings and the Company during the
fiscal year ended September 30, 1995:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
FISCAL ALL OTHER LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) PAYOUTS(2)
- --------------------------- ------ -------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
James A. Husband......... 1995 $223,144 $135,638 $21,459 $370,000
(President and Chief
Executive Officer)
Steven L. Holmes(3)...... 1995 134,601 68,527 9,416 74,000
(Vice President,
Treasurer, Secretary and
Chief Financial Officer)
Gary L. Dee.............. 1995 120,556 60,458 10,812 37,000
(Vice
President/Operations)
Joseph H. Champ.......... 1995 127,652 65,352 9,898 55,500
(Vice
President/Acquisitions)
Robert S. West, Jr....... 1995 106,859 55,072 9,428 14,800
(Vice President/Golf
Operations)
</TABLE>
- ---------------------
(1) Represents (i) car allowance, (ii) dollar value of health benefits and
(iii) 401(k) matching contributions by the Company. The respective amounts
paid for Messrs. Husband, Holmes, Dee, Champ and West are as follows: (A)
car allowance: $16,560, $5,867, $8,207, $5,867 and $5,867; (B) health
benefits: $4,683, $3,336, $2,283, $3,336 and $3,336; and (C) 401(k)
matching contributions: $216, $213, $322, $695 and $225.
(2) Represents the dollar value of all the shares of Holdings Common Stock as
to which ownership vested in the fiscal year ended September 30, 1995. See
"Principal Stockholders."
(3) In April 1996, Mr. Holmes resigned his positions at Holdings.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH BRENTWOOD ASSOCIATES
Corporate Development and Administrative Services Agreement. Pursuant to a
Corporate Development and Administrative Services Agreement, dated as of
September 30, 1992, as amended, between Brentwood Buyout Partners, L.P.
("BBP") (an affiliate of Brentwood Associates) and the Company (the "Brentwood
Agreement"), BBP has agreed to assist in the corporate development activities
of the Company by providing services to the Company, including (i) assistance
in analyzing, structuring and negotiating the terms of investments and
acquisitions, (ii) researching, identifying, contacting, meeting and
negotiating with prospective sources of debt and equity financing, (iii)
preparing, coordinating and conducting presentations to prospective sources of
debt and equity financing, (iv) assistance in structuring and establishing the
terms of debt and equity financing and (v) assistance and advice in connection
with the preparation of the Company's financial and operating plans. Pursuant
to the Brentwood Agreement, BBP is entitled to receive (i) a service fee in an
amount equal to 1% per annum of the aggregate amount of debt and equity
investment in the Company of or by BBP or any person or entity associated with
BBP, which is payable semi-annually in advance, (ii) financial advisory fees
equal to 1.5% of the acquisition cost of the Company's completed acquisitions
and (iii) reimbursement of its reasonable fees and expenses incurred from time
to time (a) in performing the services rendered thereunder and (b) in
connection with any investment in, financing of, or sale, distribution or
transfer of any interest in the Company by BBP or any person or entity
associated with BBP. For the Company's fiscal year ended September 30, 1995,
BBP was paid compensation of $1,112,472 (including reimbursement of fees and
expenses) pursuant to the Brentwood Agreement.
TRANSACTIONS WITH JAMES A. HUSBAND
In connection with the formation of the Company in September 1992, Balboa
Park Management Co., Inc. ("Balboa"), a corporation owned by James A. Husband,
contributed to the Company the lease of the Balboa Park facility, associated
leasehold improvements and other assets, including driving range equipment,
golf carts, golf shop inventory and accounts receivable in exchange for (i)
2,087 shares of Series A Preferred Stock of Holdings and (ii) $235,270 in
cash, of which 2,087 shares and $160,270 have been paid. The consideration
paid to Balboa in exchange for the lease of the Balboa Park facility and the
associated assets acquired from Balboa was determined by arm's-length
negotiations between the Company and Balboa to represent the fair market value
of such lease and assets. In addition, if one of the Company's facilities
meets certain financial performance targets in a specified time frame, Mr.
Husband shall receive the remaining $75,000 from the Company.
The lease of the Balboa facility originally was acquired by Balboa in
January 1988 at no initial cost. However, rent is currently payable based upon
specified percentages of gross revenue, subject to a minimum rental floor.
In addition, in connection with the formation of the Company, Mr. Husband
contributed shares of stock representing his 50% interest in Escondido
Consulting, Inc. ("Escondido"), a corporation that held the lease of the
Escondido facility, associated contract rights, permits and other assets in
exchange for 2,460 shares of Series A Preferred Stock of Holdings.
Simultaneously, Escondido redeemed a portion of Mr. Husband's shares by
issuing him a subordinated promissory note in the principal amount of
$250,000, upon which interest accrues at a rate of 5% per annum and is payable
in arrears on the last date of each calendar quarter commencing December 31,
1992 and continuing through October 19, 1999. The Company also acquired the
remaining shares of Escondido from the other shareholder for $400,000 cash. In
all cases, the consideration paid for shares of Escondido stock was determined
by the Company, Mr. Husband and Escondido's other shareholder to represent the
fair market value of such stock.
Escondido was formed in 1990 by Mr. Husband and a partner. The lease of the
Escondido facility was acquired by Escondido in August 1990 at no initial
cost. However, rent is currently payable based upon specified percentages of
gross revenue, subject to a minimum rental floor.
In connection with the formation of the Company, Mr. Husband also agreed to
bring to the Company all future opportunities to acquire golf facilities of
which he became aware, including his then-existing options to acquire a
portion of the entity which owned the Foothills Country Club and to acquire
the leasehold interest in the Saticoy Regional Golf Club, as well as his
opportunity to acquire all or a portion of the entity which owned both El
Camino Country Club and an interest in Morgan Run Resort and Club. Mr. Husband
subsequently assigned all of such rights to the Company for no additional
consideration, and the Company completed such acquisitions.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The information in the following table sets forth, as of June 30, 1996,
certain information regarding the beneficial ownership of Holdings Common
Stock and Series A Preferred Stock by: (i) each person who to the knowledge of
Holdings owns 5% or more of Holdings' outstanding voting stock, (ii) each
person who is a director or named executive officer of Holdings and (iii) all
directors and officers of Holdings as a group. The following table assumes no
other changes in beneficial ownership since June 30, 1996.
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK PREFERRED STOCK PERCENTAGE PERCENTAGE
-------------- ---------------- OF TOTAL OF ALL
NUMBER OF NUMBER OF VOTING OUTSTANDING
BENEFICIAL OWNER(1) SHARES % SHARES % POWER STOCK
------------------- --------- ---- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Brentwood Golf Partners, 1,075,081 62.5% 3,928,729 75.3% 72.1% 72.1%
L.P.(2)................
11150 Santa Monica
Blvd.
Suite 1200
Los Angeles, California
90025
James A. Husband(3)(4).. 137,648 8.0% 55,106 1.1% 2.8% 2.8%
Stefan C. Karnavas...... -- -- -- -- -- --
Gary L. Dee(4).......... 12,725 * -- -- * *
Joseph H. Champ(4)...... 18,179 1.1% -- -- * *
Robert S. West, Jr.(4).. 4,848 * -- -- * *
P.L. Davies III(5)(6)... 24,445 1.4% 80,470 1.5% 1.5% 1.5%
Martin R. Reid(6)....... 5,745 * 12,119 * * *
John M. Sullivan(6)..... 9,066 * 24,238 * * *
The Northwestern Mutual
Life Insurance 116,053 6.7% 424,167 8.1% 7.8% 7.8%
Company(7).............
720 E. Wisconsin Avenue
Milwaukee, Wisconsin
53202
HLH Trust(8)............ 81,234 4.7% 296,916 5.7% 5.4% 5.4%
1800 Grant Building
Pittsburgh,
Pennsylvania 16219
All directors and
officers as a group (13
persons)(2)............ 1,331,133 77.4% 4,100,662 78.6% 78.2% 78.2%
</TABLE>
- ---------------------
* Less than 1%
(1) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Holdings Common Stock
or Series A Preferred Stock owned by such beneficial owners.
(2) Frederick J. Warren and David H. Wong, directors of Holdings, are general
partners of the general partner of Brentwood Golf Partners, L.P., and as
such may be deemed to beneficially own the shares of stock held by
Brentwood Golf Partners, L.P.
(3) Includes 25,293 shares of Series A Preferred Stock owned of record by
Balboa Park Management Co., Inc., a corporation controlled by Mr. Husband.
See "Certain Relationships and Related Transactions--Transactions with
James A. Husband."
(4) Includes share of Holdings Common Stock that are subject to vesting based
on continued employment, subject to acceleration of the vesting of a
portion of such shares if performance targets are met. Unvested shares are
subject to repurchase by Holdings at their initial purchase price. The
number of shares indicated assumes that all shares are vested.
51
<PAGE>
(5) Includes 485 shares of Holdings Common Stock purchasable pursuant to
options held by Mr. Davies exercisable within 60 days of the date of the
Prospectus. Other than such 485 shares, the shares of Holdings Common
Stock beneficially owned by Mr. Davies are owned of record by Pacific Golf
Enterprises, L.P., a limited partnership of which Mr. Davies is general
partner.
(6) Includes shares of Holdings Common Stock that are subject to vesting based
on continued service as a director over a period of time. Unvested shares
are subject to repurchase by Holdings at their initial purchase price. The
number of shares indicated assumes that all shares are vested.
(7) Does not include any shares owned by Brentwood Golf Partners, L.P., of
which the Northwestern Mutual Life Insurance Company is a limited partner
but as to which it has no voting or dispositive power.
(8) Includes 14,919 shares of Holdings Common Stock and 54,536 shares of
Series A Preferred Stock owned by a trust for the benefit of Henry L.
Hillman (the "HLH Trust"), and 66,316 shares of Holdings Common Stock and
242,381 shares of Series A Preferred Stock owned by Wilmington Interstate
Corporation ("Wilmington Interstate"). Wilmington Interstate is a Delaware
private investment company indirectly owned by The Hillman Company, a
Pittsburgh, Pennsylvania firm engaged in diversified investments and
operations, which is controlled by the HLH Trust. The trustees of the HLH
Trust are Henry L. Hillman, Elsie Hilliard Hillman and C. G. Grefenstette
(the "HLH Trustees"). The HLH Trustees share voting power and dispositive
power of the stock of The Hillman Company. Does not include 19,900 shares
of Holdings Common Stock and 72,715 shares of Series A Preferred Stock
owned by four irrevocable trusts for the benefit of members of the Hillman
family, as to which shares the HLH Trustees disclaim beneficial ownership.
Does not include 14,919 shares of Holdings Common Stock and 54,536 shares
of Series A Preferred Stock owned by Venhill Limited Partnership
("Venhill"), as to which shares the HLH Trustees disclaim beneficial
ownership. Venhill is a Delaware limited partnership, of which the limited
partners are trusts for the benefit of members of the Hillman family.
Howard B. Hillman, a step-brother of Henry L. Hillman, is the general
partner of Venhill. Does not include any shares owned by Brentwood Golf
Partners, L.P., of which the HLH Trust, Wilmington Interstate and the four
irrevocable trusts for the benefit of members of the Hillman family are
limited partners, and as to which they disclaim beneficial ownership.
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DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes. The Private
Notes were issued pursuant to, and upon consummation of the Exchange Offer,
the Exchange Notes will be issued pursuant to the Indenture dated as of June
4, 1996, by and between Holdings and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). The form and terms of the Exchange
Notes will be the same as the form and terms of the Private Notes except that
(i) the exchange will be registered under the Securities Act, and hence the
Exchange Notes will not bear legends restricting the transfer thereof, and
(ii) holders of the Exchange Notes will not be entitled to certain rights of
holders of the Private Notes under the Registration Rights Agreement, which
rights will terminate upon the consummation of the Exchange Offer. For
purposes of this summary, the term "Holdings" refers to Cobblestone Holdings,
Inc., exclusive of its subsidiaries. The terms of the Indenture are also
governed by certain provisions contained in the Trust Indenture Act of 1939,
as amended. The following summaries of certain provisions of the Indenture are
summaries only, do not purport to be complete and are qualified in their
entirety by reference to all of the provisions of the Indenture. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned
to them in the Indenture. Wherever particular provisions of the Indenture are
referred to in this summary, such provisions are incorporated by reference as
a part of the statements made and such statements are qualified in their
entirety by such reference. A copy of the form of Indenture is available upon
request.
GENERAL
The Notes are senior, unsecured, general obligations of Holdings, limited in
aggregate principal amount at maturity to $86.0 million. The Notes rank pari
passu in right of payment with all existing and future unsubordinated
Indebtedness of Holdings and rank senior in right of payment to all existing
and future subordinated Indebtedness of Holdings. The New Credit Facility is
guaranteed by Holdings on a senior basis which guarantee is secured by
substantially all of Holdings' assets. The Company's obligations under the New
Credit Facility are secured by substantially all of the Company's assets,
including substantially all of the stock of the Company's Subsidiaries. The
New Credit Facility is guaranteed on a senior basis by all of the Company's
Subsidiaries which guarantees are secured by substantially all of the
Company's Subsidiaries' assets. As of March 31, 1996, on a pro forma basis
after giving effect to the Offerings and the application of the estimated net
proceeds therefrom, Holdings and its Subsidiaries would have had outstanding
approximately $106.5 million of indebtedness on a consolidated basis
(including trade payables and capitalized lease obligations), all of which,
other than the Notes, would have been indebtedness of its Subsidiaries. See
"Risk Factors--Leverage and Ability to Service Debt" and "--Corporate
Structure; Effects of Asset Encumbrances." The Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.
The Notes will mature on June 1, 2004. The Notes were issued at a
substantial discount from their principal amount, and the original issue
discount on the Notes will accrete from the date of issuance to the maturity
date, calculated on the basis of a 360-day year consisting of twelve 30-day
months.
Principal of and premium and Liquidated Damages (as defined), if any, on the
Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of Holdings maintained for such
purpose, which office or agency shall be maintained in the Borough of
Manhattan, The City of New York. No service charge will be made for any
registration of transfer or exchange of Notes, but Holdings may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by Holdings,
Holdings' office or agency will be the corporate trust office of the Trustee.
OPTIONAL REDEMPTION
Except as set forth below, Holdings will not have the right to redeem any
Notes prior to June 1, 1999. On or after June 1, 1999, the Notes will be
redeemable at the option of Holdings, in whole or in part, at the following
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redemption prices (expressed as percentages of the Accreted Value plus
Liquidated Damages, if any, at the redemption date) if redeemed during the 12-
month period commencing in each case on June 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999........................................................... 106.750%
2000........................................................... 104.500%
2001........................................................... 102.250%
2002 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, until June 1, 1999, upon one or more Public
Equity Offerings or issuances of Qualified Capital Stock to Strategic
Investors, all of the outstanding Notes may be redeemed at the option of
Holdings within 120 days of such Public Equity Offering or issuance to
Strategic Investors with the Net Cash Proceeds thereof at 113.50% of Accreted
Value, together with Liquidated Damages, if any, to the date of redemption.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after
the date of redemption, interest will cease to accrete on the Notes called for
redemption, unless Holdings defaults in the payment thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an offer by Holdings (the "Change of Control Offer"), to require
Holdings to repurchase all or any part of such Holder's Notes (provided,
however, that the principal amount of such Notes must be $1,000 or an integral
multiple thereof) on a date (the "Change of Control Purchase Date") that is no
later than 90 days after the occurrence of such Change of Control, at a cash
price (the "Change of Control Purchase Price") equal to 101% of the Accreted
Value thereof at the Change of Control Purchase Date. The Change of Control
Offer shall be made within 30 days following a Change of Control and shall
remain open for 20 Business Days following its commencement (the "Change of
Control Offer Period"). Upon expiration of the Change of Control Offer Period,
Holdings shall purchase all Notes or portions thereof properly tendered in
response to the Change of Control Offer. If required by applicable law, the
Change of Control Purchase Date and the Change of Control Offer Period may be
extended as so required; however, if so extended, it shall nevertheless
constitute an Event of Default if the Change of Control Purchase Date does not
occur within 90 days of the Change of Control (or within 120 days of the
Change of Control, if during any such extension beyond 90 days following the
Change of Control, Holdings is diligently pursuing all commercially reasonable
steps to consummate the Change of Control Offer as promptly as practicable).
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As used herein, a "Change of Control" means (i) the Investor Group is no
longer the "beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate normally entitled to vote in the election
of directors, managers, or trustees, as applicable, of Holdings and (ii) any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more of the total voting power
in the aggregate outstanding normally entitled to vote in elections of
directors of Holdings than is owned collectively by Brentwood and James A.
Husband.
On or before the Change of Control Purchase Date, Holdings will (i) accept
for payment Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent Cash sufficient to pay
the Change of Control Purchase Price of all Notes or portions thereof so
tendered and (iii) deliver to the Trustee Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
Holdings. The Paying Agent will promptly mail to the Holders of Notes so
accepted payment in an amount equal to the Change of Control Purchase Price
and the Trustee will promptly authenticate and mail or deliver to such Holders
a new Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
Holdings to the Holder thereof. Holdings will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
Holdings' ability to repurchase Notes upon a Change of Control may be
limited by, among other factors, the financial resources of Holdings at the
time of repurchase. See "Risk Factors--Limitations on Repurchase of Notes." If
a Change of Control occurs at a time when Holdings is prohibited from
purchasing the Notes, Holdings could seek the consent of its lender(s) and the
Company's lenders, as the case may be, to such purchase or could attempt to
refinance the borrowings that contain such prohibition. If Holdings does not
obtain such a consent or repay such borrowings, Holdings would remain
prohibited from purchasing Notes. In such case, Holdings' failure to purchase
tendered Notes would constitute an Event of Default under the Indenture.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under
the Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws.
Limitation on Restricted Payments
The Indenture provides that Holdings will not, and (subject to the last
sentence of this paragraph) will not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment if, immediately prior
thereto or after giving effect to such Restricted Payment on a pro forma
basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) Holdings is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio in paragraph (a)
of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," or (3) the aggregate amount of all Restricted
Payments made by Holdings and its Subsidiaries, including after giving effect
to such proposed Restricted Payment, from and after the Issue Date, would
exceed the sum of (a) the amount determined by subtracting (i) 2.0 times the
aggregate Consolidated Fixed Charges of Holdings and its Consolidated
Subsidiaries for the period (taken as one accounting period), commencing on
the first day of the first full fiscal quarter commencing after the Issue
Date, to and including the last day of the fiscal quarter ended immediately
prior to the date of each such calculation (the "Computation Period") from
(ii) Consolidated EBITDA of Holdings and its Consolidated Subsidiaries for the
Computation Period, plus (b) 100% of the aggregate Net Cash Proceeds received
by Holdings from the sale of its Qualified Capital Stock (other than (i) to a
Subsidiary or Unrestricted Subsidiary of Holdings and (ii) to the extent
applied in connection with a Qualified Exchange, but including the Net Cash
Proceeds received by Holdings upon the exercise, exchange or conversion of
securities into Qualified Capital Stock other than in connection with a
Qualified Exchange) after the Issue Date and on or prior to the date of such
Restricted Payment. The full amount of any Restricted Payment made pursuant to
the immediately following paragraph (other than clause (x) or (y) thereof),
however, will be deducted in the calculation of the aggregate amount of
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Restricted Payments available to be made referred to in clause (3) of the
immediately preceding sentence. Notwithstanding the foregoing, the Company and
its Subsidiaries will be permitted to make any Restricted Payment not
prohibited by the indenture governing the Senior Notes, as in effect on the
Issue Date, so long as any Senior Notes remain outstanding.
In addition, the provisions in the immediately preceding paragraph will not
prohibit (t) amounts due in respect of Capital Stock of Holdings required to
be repurchased upon the exercise of "put" rights held prior to the Issue Date
by lenders under the Old Credit Facility, (u) Investments by the Company or
its Subsidiaries in Unrestricted Subsidiaries in an aggregate amount not to
exceed the sum of (i) $5.0 million and (ii) to the extent not otherwise
applied to a Restricted Payment, 100% of the aggregate Net Cash Proceeds
received by Holdings or the Company from the sale of its Qualified Capital
Stock after the Issue Date (other than (i) to a Subsidiary or Unrestricted
Subsidiary of Holdings and (ii) to the extent applied in connection with a
Qualified Exchange, but including the Net Cash Proceeds received by the
Company upon the exercise, exchange or conversion of securities into Qualified
Capital Stock other than in connection with a Qualified Exchange), (x)
repurchases of Capital Stock from employees, officers and directors of
Holdings or its Subsidiaries upon the death, disability or termination of
employment in an aggregate amount to all employees not to exceed $300,000 per
year or $2.1 million in the aggregate on and after the Issue Date, (v)
payments by Ocean Vista Land Company of dividends on its preferred stock
outstanding prior to the Issue Date, in accordance with the terms thereof, (w)
Investments in non-wholly owned Subsidiaries of the Company not to exceed $5.0
million in the aggregate, (x) payments of up to $1.25 million in the aggregate
to repurchase Capital Stock of Subsidiaries of the Company held by minority
stockholders outstanding prior to the Issue Date and not beneficially owned by
the Company or any of its Affiliates, (y) a Qualified Exchange, or (z) the
payment of any dividend on Qualified Capital Stock within 60 days after the
date of its declaration if such dividend could have been made on the date of
such declaration in compliance with the foregoing provisions. Notwithstanding
any other provision hereof, the foregoing clauses (u), (x) and (z) will not be
deemed to permit the respective Restricted Payments otherwise contemplated to
be made pursuant thereto if, immediately prior thereto or after giving effect
to such Restricted Payment on a pro forma basis, a Default or Event of Default
shall have occurred or be continuing.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, assume or suffer to exist
any consensual restriction on the ability of any Subsidiary of Holdings to pay
dividends or make other distributions to, or to pay any obligation to, or
otherwise to transfer assets or property to, or make or pay loans or advances
to, Holdings or any Subsidiary of Holdings, except (a) restrictions imposed by
the Notes or the Indenture, (b) customary provisions restricting subletting or
assignment of any lease (including a Capitalized Lease Obligation), (c)
restrictions imposed by applicable law, (d) existing restrictions under
Indebtedness outstanding, (e) restrictions under any Acquired Indebtedness not
incurred in violation of the Indenture or under any agreement relating to any
property, asset, or business acquired by Holdings or any of its Subsidiaries,
which restrictions existed at the time of acquisition, were not put in place
in connection with or in anticipation of such acquisition and are not
applicable to any person, other than the person acquired, or to any property,
asset or business, other than the property, assets and business so acquired,
(f) restrictions with respect solely to a Subsidiary of Holdings imposed
pursuant to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary, provided, such restrictions apply solely to the Capital Stock or
assets of such Subsidiary, (g) restrictions pursuant to the New Credit
Facility, the Senior Notes, the Senior Note Indenture or Indebtedness, other
than Subordinated Indebtedness, incurred in compliance with clause (a) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock" (including refinancings permitted to be incurred under clause
(d) thereof), (h) Liens specified under "Permitted Liens" other than clauses
(b), (c) and (e) thereof, and (i) in connection with and pursuant to permitted
Refinancings, replacements of restrictions that are not more restrictive than
those being replaced and do not apply to any other person or assets than those
that would have been covered by the restrictions in the Indebtedness so
refinanced.
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<PAGE>
Limitations on Liens
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, suffer to exist or
become effective any Lien upon any of its property or assets, whether now
owned or hereafter acquired, or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless all payments due under
the Indenture and the Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer secured
by a Lien, provided, however, that Permitted Liens may be created or incurred
or may exist or become effective without any requirement that all payments
under the Indenture and the Notes be equally and ratably secured.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except as set forth below in this covenant,
Holdings will not, and will not permit any of its Subsidiaries to, directly or
indirectly, issue, assume, guaranty, incur, become directly or indirectly
liable with respect to (including as a result of an Acquisition), extend the
maturity of, or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness or any Disqualified Capital Stock from and
after the Issue Date. Notwithstanding the foregoing:
(a) if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence of Indebtedness or Disqualified Capital
Stock and (ii) on the date of such incurrence (the "Incurrence Date"), the
Consolidated Cash Flow Ratio of Holdings for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro
forma basis to such incurrence of such Indebtedness or Disqualified Capital
Stock and, to the extent set forth in the definition of Consolidated Cash
Flow Ratio, the use of proceeds thereof, would be no greater than 6 to l
for Incurrence Dates prior to June 1, 1998 and no greater than 5 to 1
thereafter (the "Debt Incurrence Ratio"), then Holdings and its
Subsidiaries may incur such Indebtedness or Disqualified Capital Stock;
(b) Holdings may incur Indebtedness evidenced by the Notes and
represented by the Indenture up to the amounts specified therein as of the
Issue Date, together with any accretion thereon;
(c) Holdings' Subsidiaries may incur Indebtedness evidenced by the Senior
Notes and the guarantees in respect thereof represented by the Senior Note
Indenture up to the amounts specified therein as of the Issue Date;
(d) Holdings and its Subsidiaries may incur Refinancing Indebtedness with
respect to any Indebtedness or Disqualified Capital Stock, as applicable,
described in clauses (a), (b) or (c) of this covenant or which is
outstanding on the Issue Date after giving effect to the implementation of
the New Credit Facility;
(e) the Company and its Subsidiaries may incur Permitted Indebtedness;
(f) Holdings and its Subsidiaries may incur Indebtedness pursuant to the
New Credit Facility on or after the Issue Date up to an aggregate amount
outstanding (including any Indebtedness issued to Refinance, refund or
replace such Indebtedness) at any time of $50.0 million, plus accrued
interest, fees incurred in connection with the New Credit Facility and such
additional amounts as may be deemed to be outstanding in the form of
Interest Swap and Hedging Obligations with lenders party to the New Credit
Facility, reduced by the amount of any such Indebtedness permanently
retired with Net Cash Proceeds from any Asset Sale (other than a sale of
Assets to Be Disposed of) or assumed by a transferee in an Asset Sale; and
(g) the Company and its Subsidiaries may incur Indebtedness on or after
the Issue Date up to an aggregate amount outstanding (including any
Indebtedness issued to Refinance, refund or replace such Indebtedness) at
any time of $7.5 million.
Notwithstanding the foregoing, (i) the Company and its Subsidiaries will be
permitted to incur any Indebtedness to the extent such incurrence is not
prohibited by the indenture governing the Senior Notes (the "Senior Note
Indenture"), as in effect on the Issue Date, so long as any Senior Notes
remain outstanding, (ii) Holdings may not incur any Indebtedness having a
scheduled principal, interest or other payment due in cash
57
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or Cash Equivalents on or prior to the Stated Maturity, other than pursuant to
its guarantee of the New Credit Facility and (iii) Holdings may incur
Indebtedness to the extent such incurrence would not be prohibited if incurred
by the Company and its Subsidiaries under the Senior Note Indenture, so long
as any Senior Notes remain outstanding (for the purposes of this clause (iii)
any debt incurred pursuant to this clause shall be deemed to have been
incurred under the Senior Note Indenture only for the purposes of determining
whether any additional Indebtedness may be incurred under the Senior Note
Indenture).
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that Holdings will not, and will not permit any of
its Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets, including by merger or consolidation and
including upon any sale or other transfer or issuance of any Capital Stock of
any Subsidiary of Holdings or any sale and leaseback transaction, whether by
Holdings or a Subsidiary or through the issuance, sale or transfer of Capital
Stock by a Subsidiary of Holdings (an "Asset Sale"), unless (l)(a) within 405
days after the date of such Asset Sale, the Net Cash Proceeds therefrom (the
"Asset Sale Offer Amount") are applied to the optional redemption of the Notes
in accordance with the terms of the Indenture or to the repurchase of the
Notes pursuant to an irrevocable, unconditional offer by Holdings (the "Asset
Sale Offer") to repurchase Notes at a purchase price (the "Asset Sale Offer
Price") of 100% of the Accreted Value thereof to the date of payment plus
Liquidated Damages, if any, made within 360 days of such Asset Sale or (b)
within 360 days of such Asset Sale, the Asset Sale Offer Amount is (i)
invested (or committed, pursuant to a binding commitment subject only to
reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in fixed assets and real property
which in the good faith judgment of the Board constitute or are a part of a
Related Business of Holdings, or in 100% of the issued and outstanding Capital
Stock of a person the assets of which are principally comprised of such fixed
assets and real property, or (ii) used to redeem or repurchase Senior Notes or
other Indebtedness of the Company and its Subsidiaries (but not of Holdings)
or to retire Indebtedness outstanding under the New Credit Facility, except
with respect to the use of proceeds from the sale of Assets to Be Disposed of,
and to permanently reduce the amount of such Indebtedness permitted to be
incurred in compliance with paragraph (f) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock"
(including that in the case of a revolver or similar arrangement that makes
credit available, such commitment is so reduced by such amount), (2) with
respect to any transaction or related series of transactions of securities,
property or assets with an aggregate fair market value in excess of $1.0
million, at least 85% of the consideration for such Asset Sale (excluding the
amount of (A) any Indebtedness (other than Notes) that is required to be
repaid or assumed (and is either repaid or assumed by the transferee of the
related assets) by virtue of such Asset Sale and which is secured by a Lien on
the property or assets sold and (B) property received by Holdings or any such
Subsidiary from the transferee that within 30 days of such Asset Sale is
converted into Cash or Cash Equivalents) consists of Cash or Cash Equivalents,
(3) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect, on a pro forma basis, to,
such Asset Sale, and (4) the Board of Directors of Holdings determines in good
faith that Holdings or such Subsidiary, as applicable, receives fair market
value for such Asset Sale. The Indenture will provide that an Asset Sale Offer
may be deferred until the accumulated Net Cash Proceeds from Asset Sales not
applied to the uses set forth in (1)(b) above (or committed for use as
permitted thereunder) exceeds $10.0 million and that each Asset Sale Offer
shall remain open for 20 Business Days following its commencement (the "Asset
Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, Holdings
shall apply the Asset Sale Offer Amount, to the purchase of all Notes properly
tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient
to purchase all Notes so tendered) at the Asset Sale Offer Price. If required
by applicable law, the Asset Sale Offer Period may be extended as so required;
however, if so extended it shall nevertheless constitute an Event of Default
if within 90 days of its commencement the Asset Sale Offer is not consummated
or the properly tendered Notes are not purchased pursuant thereto (or within
120 days of the commencement of the Asset Sale Offer if, during any such
extension beyond 90 days following the commencement, Holdings is diligently
pursuing all commercially reasonable steps to consummate the Asset Sale Offer
or to purchase properly tendered Notes pursuant thereto as promptly as
practicable).
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Notwithstanding clause (1)(a) above, if an Asset Sale Offer is commenced and
securities of Holdings ranking pari passu in right of payment with the Notes
are outstanding at the date of commencement thereof, the terms of which
provide that a substantially similar offer must be made with respect thereto,
then the Asset Sale Offer shall be made concurrently with such other offer,
and securities of each issue which the holders of securities of such issue
elect to have purchased will be accepted pro rata in proportion to the
aggregate principal amount thereof; provided, that in so repurchasing such
other securities Holdings is in compliance with the provisions of "Limitation
on Restricted Payments." In addition, notwithstanding the foregoing provisions
of the prior paragraph:
(i) Holdings and its Subsidiaries may (A) convey, sell, lease, transfer,
assign or otherwise dispose of assets in the ordinary course of business or
(B) exchange assets for assets in a Related Business, provided, however, in
the case of this clause (B) that (1) Holdings, prior to the consummation of
any such proposed exchange or series of related exchanges having a fair
market value in excess of $2.5 million, obtains a written favorable opinion
as to the fairness of such transaction to Holdings from a financial point
of view from an independent investment banking firm of national reputation,
(2) no Default or an Event of Default shall have occurred and be continuing
and (3) after giving effect to such proposed exchange on a pro forma basis,
either (x) the Company is permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio in paragraph (a) of the
covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock" or (y) the Company's Debt Incurrence Ratio is
no greater than it was immediately prior to such proposed exchange;
(ii) Holdings and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
the limitation on mergers, sales or consolidations provisions in the
Indenture;
(iii) Holdings and its Subsidiaries may (A) sell or dispose of damaged,
worn out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of Holdings or such Subsidiary, as applicable, or (B) abandon such
property if it cannot, through reasonable efforts, be sold; and
(iv) Holdings and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets to Holdings or any of its wholly
owned Subsidiaries.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
Limitation on Transactions with Affiliates
The Indenture provides that neither Holdings nor any of its Subsidiaries or
Unrestricted Subsidiaries will be permitted after the Issue Date to enter into
any contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions
unless (1) the terms of such Affiliate Transaction are fair and reasonable to
Holdings, such Subsidiary or such Unrestricted Subsidiary, as the case may be,
and no less favorable to Holdings, such Subsidiary or such Unrestricted
Subsidiary, as the case may be, than could have been obtained in comparable
arm's length transaction with a non-Affiliate, (2) involving consideration to
either party in excess of $1 million, unless such transaction is evidenced by
an Officers' Certificate addressed and delivered to the Trustee stating that
the terms of such Affiliate Transaction are fair and reasonable to Holdings,
such Subsidiary or such Unrestricted Subsidiary, as the case may be, and no
less favorable to Holdings, such Subsidiary or such Unrestricted Subsidiary,
as the case may be, than could have been obtained in comparable arm's length
transaction with a non-Affiliate, and (3) involving consideration to either
party in excess of $5.0 million, unless Holdings, prior to the consummation
thereof, obtains a written favorable opinion as to the fairness of such
transaction to Holdings from a financial point of view from an independent
investment banking firm of national reputation. The foregoing restriction will
not apply to (1) pro rata dividends or distributions paid in cash on any class
of Capital Stock and not prohibited under "Limitation
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on Restricted Payments," (2) indemnification payments on behalf of directors,
officers or employees of Holdings or its Subsidiaries made or incurred by such
persons in such capacities, (3) payments made in accordance with the Brentwood
Agreement as in effect on the Issue Date, so long as no Event of Default shall
have occurred and be continuing, (4) repurchases of Capital Stock not
prohibited under clause (x) of the "Limitation on Restricted Payments"
covenant and (5) transactions between the Company and any Wholly Owned
Subsidiary of the Company or between Wholly Owned Subsidiaries of the Company.
Limitation on Lines of Business
Neither Holdings nor any of its Subsidiaries or Unrestricted Subsidiaries
will directly or indirectly engage to any substantial extent in any line or
lines of business activity other than a Related Business.
Limitation on Merger, Sale or Consolidation
The Indenture provides that Holdings will not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey
or transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another Person or group of affiliated Persons, unless (i) either (a)
Holdings is the continuing entity or (b) the resulting, surviving or
transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of Holdings in connection with
the Notes and the Indenture; (ii) no Default or Event of Default shall exist
or shall occur immediately after giving effect on a pro forma basis to such
transaction; and (iii) other than in the case of a transaction solely between
Holdings and any wholly owned Subsidiary, immediately after giving effect to
such transaction on a pro forma basis, the consolidated surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set
forth in paragraph (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially all
of the assets in accordance with the foregoing, the successor corporation
formed by such consolidation or into which Holdings is merged or to which such
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of, Holdings under the Indenture with the same effect as
if such successor corporation had been named therein as such, and Holdings
shall be released from the obligations under the Notes and the Indenture
except with respect to any obligations that arise from, or are related to,
such transaction.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that from and after the Issue Date, Holdings and will
not sell, and will not permit any of its Subsidiaries to issue or sell, any
shares of Capital Stock of any Subsidiary of Holdings to any person other than
Holdings or a wholly owned Subsidiary of Holdings. The Indenture provides that
all of the Capital Stock of a Subsidiary of Holdings may be sold if such Asset
Sale complies with the covenant "Limitation on Sale of Assets and Subsidiary
Stock."
Limitation on Status as Investment Company
The Indenture prohibits Holdings and its Subsidiaries from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not Holdings is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings
shall deliver to the Trustee, to each Holder and to prospective purchasers of
Notes identified to Holdings by an Initial Purchaser, within 15 days after it
is or would have been required to
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file such with the Commission, (i) annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission, if Holdings were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by Holdings' certified
independent public accountants as such would be required in such reports to
the Commission, and, in each case, together with a management's discussion and
analysis of financial condition and results of operations which would be so
required; and (ii) all reports that would be required to be filed with the
Commission on Form 8-K. In addition, whether or not required by the rules and
regulations of the Commission, Holdings will file a copy of all such
information and reports with the Commission for public availability (unless
the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request for so
long as any Notes remain outstanding. Furthermore, Holdings has agreed that,
for so long as any Notes on Shares remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by Holdings to
pay all or any part of the principal, or premium, if any, on the Notes when
and as the same becomes due and payable at maturity, redemption, by
acceleration or otherwise, including, without limitation, payment of the
Change of Control Purchase Price or the Asset Sale Offer Price, or otherwise,
(ii) the making by Holdings or any of its Subsidiaries of a Restricted Payment
not permitted by the Indenture, (iii) the failure by Holdings to observe or
perform any other covenant or agreement contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 60 days after written notice is given to Holdings by the
Trustee or to Holdings and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding, (iv) certain events of
bankruptcy, insolvency or reorganization in respect of Holdings or any of its
Significant Subsidiaries, (v) a default in any Indebtedness of Holdings or any
of its Subsidiaries with an aggregate principal amount in excess of $5.0
million (a) resulting from the failure to pay principal at maturity or (b) as
a result of which the maturity of such Indebtedness has been accelerated prior
to its stated maturity and (vi) final unsatisfied judgments not covered by
insurance aggregating in excess of $5.0 million, at any one time rendered
against Holdings or any of its Subsidiaries and not stayed, bonded or
discharged within 90 days. The Indenture provides that if a Default occurs and
is continuing, the Trustee must, within 90 days after the occurrence of such
default, give to the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above, relating to Holdings or any
Significant Subsidiary), then in every such case, unless the principal of all
of the Notes shall have already become due and payable, either the Trustee or
the Holders of 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to Holdings (and to the Trustee if given by
Holders) (an "Acceleration Notice"), may declare all principal, determined as
set forth below, to be due and payable immediately. In the event a declaration
of acceleration resulting from an Event of Default described in clause (v)
above has occurred and is continuing, such declaration of acceleration shall
be automatically annulled if such default is cured or waived or the holders of
the Indebtedness which is the subject of such default have rescinded their
declaration of acceleration in respect of such Indebtedness within 60 days
thereof and the Trustee has received written notice of such cure, waiver or
rescission and no other Event of Default described in clause (v) above has
occurred that has not been cured or waived within 60 days of the declaration
of such acceleration in respect of such Indebtedness. If an Event of Default
specified in clause (iv), above, relating to Holdings or any Significant
Subsidiary occurs, all principal will be immediately due and payable on all
outstanding Notes and Liquidated Damages, if any, without any declaration or
other act on the part of the Trustee or the Holders. The Holders of a majority
in aggregate principal amount of Notes generally are authorized to rescind
such acceleration if all existing Events of Default, other than the non-
payment of the principal of and premium, if any, on the Notes which have
become due solely by such acceleration, have been cured or waived.
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Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of any Note not yet cured, or a default
with respect to any covenant or provision which cannot be modified or amended
without the consent of the Holder of each outstanding Note affected. Subject
to the provisions of the Indenture relating to the duties of the Trustee, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request, order or direction of any of the Holders,
unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that Holdings may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that Holdings shall be
deemed to have paid and discharged the entire indebtedness represented, and
the Indenture shall cease to be of further effect as to all outstanding Notes,
except as to (i) rights of Holders to receive payments in respect of the
principal of and premium, if any, on such Notes when such payments are due
from the trust funds; (ii) Holdings' obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency
for payment and money for security payments held in trust; (iii) the rights,
powers, trust, duties, and immunities of the Trustee, and Holdings'
obligations in connection therewith; and (iv) the Legal Defeasance provisions
of the Indenture. In addition, Holdings may, at its option and at any time,
elect to have the obligations of Holdings released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, U.S. legal tender, non-callable government
securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of and premium, if any, on such Notes on the stated date
for payment thereof or on the redemption date of such principal or installment
of principal of and premium, if any, on such Notes, and the holders of Notes
must have a valid, perfected, exclusive security interest in such trust; (ii)
in the case of the Legal Defeasance, Holdings shall have delivered to the
Trustee a written opinion of counsel in the United States reasonably
acceptable to Trustee confirming that (A) Holdings has received from, or there
has been published by the Internal Revenue Service, a ruling or (B) since the
date of the Indenture, there has been a change in the applicable Federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of such Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Legal Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, Holdings shall have delivered to the Trustee a written opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the holders of such Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such Covenant Defeasance and will
be subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material agreement or
instrument to which Holdings or any of its Subsidiaries is a party or by which
Holdings or any of its Subsidiaries is bound;
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(vi) Holdings shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by Holdings with the intent of
preferring the holders of such Notes over any other creditors of Holdings or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of Holdings or others; and (vii) Holdings shall have delivered to
the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of and premium, if
any, on the Notes when due, then the obligations of Holdings under the
Indenture will be revived, and no such defeasance will be deemed to have
occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting Holdings and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
Holdings and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; provided, that
no such modification may, without the consent of each Holder affected thereby:
(i) change the Stated Maturity of or the Change of Control Purchase Date or
the Asset Sale Offer Period on any Note, or reduce the principal amount
thereof (or extend the time for payment) or the accretion rate specified under
"Accreted Value" or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which, any Note or any
premium thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or,
in the case of redemption, on or after the Redemption Date), or reduce the
Change of Control Purchase Price or the Asset Sale Offer Price or alter the
redemption provisions or the provisions of the "Repurchase of Notes at the
Option of the Holder Upon a Change of Control" covenant in a manner adverse to
the Holders, or (ii) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Holders is required for any such
amendment, supplemental indenture or waiver provided for in the Indenture, or
(iii) change the ranking of the Notes to anything other than pari passu in
right of payment to all unsubordinated Indebtedness of Holdings or (iv) modify
any of the waiver provisions, except to increase any required percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no individual who serves as a direct or indirect
stockholder, partner, employee, officer or director, as such, past, present or
future of Holdings or any successor entity shall have any personal liability
in respect of the obligations of Holdings under the Indenture or the Notes by
reason of his or its status as such stockholder, partner, employee, officer or
director.
GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York.
CERTAIN DEFINITIONS
"Accreted Value" means, as of any date of determination, the sum of (a) the
initial offering price of each Note and (b) the portion of the excess of the
principal amount of each Note over such initial offering price which shall
have been accreted thereon through such date, such amount to be so accreted on
a daily basis at the rate of 13 1/2% per annum of the initial offering price
of the Notes, compounded semi-annually on each June 1 and December 1 from the
date of issuance of the Notes through the date of determination.
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"Acquired Indebtedness" means Indebtedness of any person existing at the
time such person becomes a subsidiary of such person or is merged or
consolidated into or with such person or one of its subsidiaries, and not
incurred in connection with or in anticipation of, such merger or
consolidation or of such person becoming a subsidiary of such person.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means (i) any person directly or indirectly controlling or
controlled by or under direct or indirect common control with Holdings or any
of its Subsidiaries (ii) any spouse, immediate family member, or other
relative who has the same principal residence of any person described in
clause (i) above, and (iii) any trust in which any person described in clause
(i) or (ii) above has a beneficial interest. For purposes of this definition,
the term "control" means the power to direct the management and policies of a
person, directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise, provided, that a
beneficial owner of 10% or more of the total voting power normally entitled to
vote in the election of directors, managers or trustees, as applicable, shall
for such purposes be deemed to constitute control. Notwithstanding the
foregoing, the term Affiliate shall not include with respect to Holdings
wholly owned Subsidiaries of Holdings.
"Assets to Be Disposed of" means assets identified in an Officers'
Certificate at the time of an Acquisition as assets Holdings or the acquiring
Subsidiary intends to dispose of within 180 days of such Acquisition.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of (a)
the product of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of
such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"beneficial owner" for purposes of the definition of Change of Control, has
the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act
(as in effect on the Issue Date), whether or not applicable, except that a
"person" shall be deemed to have "beneficial ownership" of all shares that any
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or (unless not within the
control of such person) upon the occurrence of certain events.
"Brentwood" means Brentwood Golf Partners, L.P. and/or any of its
Affiliates.
"Brentwood Agreement" means the Corporate Development and Administrative
Services Agreement dated September 29, 1992 between the Company and Brentwood
Buyout Partners, L.P, as amended as of the Issue Date.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any person, any capital stock of such
person and shares, interests, participations or other ownership interests
(however designated) of any person and any rights (other than debt securities
convertible into corporate stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such person if such person is a corporation and each
general and limited partnership interest of such person if such person is a
partnership.
"Capitalized Lease Obligation" means rental obligations under a lease that
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations
shall be the capitalized amount of such obligations, as determined in
accordance with GAAP.
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"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million and commercial paper issued by others rated
at least A-2 or the equivalent thereof by Standard & Poor's Corporation or at
least P-2 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing within one year after the date of acquisition and (iii)
investments in money market funds substantially all of whose assets comprise
securities of the types described in clauses (i) and (ii) above.
"Consolidated Cash Flow Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of consolidated Indebtedness of such person on the
Transaction Date to (b) the aggregate amount of Consolidated EBITDA of such
person (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of) during the Reference Period;
provided, however, that for purposes of such calculation, (i) Acquisitions
which occurred during the Reference Period or subsequent to the Reference
Period and on or prior to the Transaction Date shall be assumed to have
occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the Consolidated Cash Flow Ratio shall be
assumed to have occurred on the first day of the Reference Period and (iii)
the incurrence of any Indebtedness or issuance of any Disqualified Capital
Stock during the Reference Period or subsequent to the Reference Period and on
or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of such Reference Period.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income tax expense,
(ii) consolidated depreciation and amortization expense (including any
accelerations thereof) and (iii) Consolidated Fixed Charges.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to Capitalized Lease Obligations) of
such person and its Consolidated Subsidiaries during such period, including
(i) original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations,
and (iii) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and currency
and Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period, (b) one-third of rental expense for such period
attributable to operating leases of such person and its Consolidated
Subsidiaries, and (c) the amount of dividends accrued or payable by such
person or any of its Consolidated Subsidiaries in respect of Disqualified
Capital Stock (other than by Subsidiaries of such person to such person or
such person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by Holdings to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP and (y)
interest expense attributable to any Indebtedness represented by the guarantee
by such person or a Subsidiary of such person of an obligation of another
person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains (but not losses) which are
either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including without limitation any gain from the sale
or other disposition of assets outside the ordinary course of business or from
the issuance or sale of any Capital Stock), (b) the net income, if positive,
of any person, other than a wholly owned Consolidated Subsidiary, in which
such
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person or any of its Consolidated Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in cash
to such person or a wholly owned Consolidated Subsidiary of such person during
such period, but in any case not in excess of such person's pro rata share of
such person's net income for such period, (c) the net income or loss of any
person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition and (d) the net income, if positive, of any of
such person's Consolidated Subsidiaries to the extent that the declaration or
payment of dividends or similar distributions is not at the time permitted by
operation of the terms of its charter or bylaws or any other agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated for financial
statement reporting purposes with the financial statements of such person in
accordance with GAAP.
"Consolidated Tangible Net Worth" of any person at any date means the total
assets of such person and its Consolidated Subsidiaries, as would be shown on
the consolidated balance sheet of such person prepared in accordance with
GAAP, less (a) the total liabilities appearing on such balance sheet, and (b)
intangible assets. For purposes hereof, "intangible assets" means the value
(net of any applicable reserves), as shown on or reflected in such balance
sheet, of: (i) all trade names, trademarks, licenses, patents, copyrights and
goodwill; (ii) organizational and development costs; and (iii) unamortized
debt discount and expense, less unamortized premium.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Capital Stock of such person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such person (including with respect to any Subsidiary of
Holdings), any Capital Stock other than any common stock with no special
rights and no preference, privileges, or redemption or repayment provisions.
"Existing Assets" means assets of Holdings and its Subsidiaries existing at
the Issue Date (other than cash, Cash Equivalents or inventory held for resale
in the ordinary course of business) and including proceeds of any sale of such
assets and assets acquired in whole or in part with proceeds from the sale
from any such assets.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"Indebtedness" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such person, (i) in respect
of borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 90 days past their original due
date, or for which adequate reserves have been established while such amounts
are being contested in good faith) those incurred in the ordinary course of
its business that would ordinarily constitute a trade payable to trade
creditors, (iv) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (v) in respect of Capitalized Lease Obligations,
or (vi) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit; (b) all net obligations of such
person under Interest Swap and Hedging Obligations; (c) all liabilities of
others of the kind described in the preceding clauses (a) and (b) that such
person has guaranteed or that is otherwise its legal liability and all
obligations to purchase, redeem or acquire any Capital Stock; (d) all
obligations secured by a Lien to which the property or assets (including,
without limitation, leasehold interests and any other tangible or
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intangible property rights) of such person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such person's legal liability, provided, that the amount of such obligations
shall be limited to the lesser of the fair market value of the assets or
property to which such Lien attaches and the amount of the obligation so
secured; and (e) any and all deferrals, renewals, extensions, refinancings and
refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c) or (d), or this clause (e), whether or not between or
among the same parties.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition by such person (whether for cash, property, services,
securities or otherwise) of capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities, including any
options or warrants, of such other person or any agreement to make any such
acquisition; (b) the making by such person of any deposit with, or advance,
loan or other extension of credit to, such other person (including the
purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property from another
person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable or deposits
arising in the ordinary course of business); (c) the entering into by such
person of any guarantee of, or other credit support or contingent obligation
with respect to, Indebtedness or other liability of such other person; (d) the
making of any capital contribution by such person to such other person; and
(e) the designation by the Board of Directors of Holdings of any person to be
an Unrestricted Subsidiary. Holdings shall be deemed to make an "Investment"
in an amount equal to the fair market value of the net assets of any person
(or, if neither Holdings nor any of its Subsidiaries has theretofore made an
Investment in such person, in an amount equal to the Investments being made),
at the time that such person is designated an Unrestricted Subsidiary or, if
such designation is made pursuant to clause (i)(c) of the definition of
Unrestricted Subsidiary, in an amount equal to the sum of the Investments
being made and the consideration paid by Holdings and its Subsidiaries to
effect such Acquisition (excluding, for this purpose only, Qualified Capital
Stock of Holdings issued in connection therewith). Any property transferred to
an Unrestricted Subsidiary from Holdings or any of its Subsidiaries shall be
deemed an "Investment" valued at its fair market value at the time of such
transfer.
"Investor Group" means any one or more of the stockholders of Holdings
immediately prior to the Issue Date and any one or more Affiliates of such
persons.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Net Cash Proceeds" means the aggregate amount of Cash or Cash Equivalents
received by Holdings in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible
or exchangeable debt) of Holdings that were issued for cash on or after the
Issue Date, the amount of cash originally received by Holdings upon the
issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary),
expenses (including, without limitation, the fees and expenses of legal
counsel and investment banking fees and expenses) incurred in connection with
such Asset Sale or sale of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and
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other applicable taxes required to be paid by Holdings or any of its
respective Subsidiaries in the current or next succeeding taxable year of sale
in connection with such Asset Sale.
"New Credit Facility" means the credit agreement dated as of June 4, 1996 by
and among Holdings, the Company and Bank of America NT & SA, individually and
as agent, and certain financial institutions, providing for (A) an aggregate
$45.0 million reducing revolving loan facility, and (B) an aggregate $5.0
million working capital revolving credit facility, including any related
notes, guarantees, collateral documents, instruments and agreements executed
in connection therewith, as such credit agreement and/or related documents may
be amended, restated, supplemented, renewed, replaced or otherwise modified
from time to time whether or not with the same agent, trustee, representative
lenders or holders, and, subject to the proviso to the next succeeding
sentence, irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "New Credit
Facility" shall include agreements in respect of Interest Swap and Hedging
Obligations with lenders party to the New Credit Facility and shall also
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to the New Credit Facility and all
refundings, refinancings and replacements of the New Credit Facility,
including any agreement (i) extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers
or guarantors thereunder, so long as borrowers and issuers include one or more
of Holdings and its Subsidiaries and their respective successors and assigns,
or (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder, provided, however, that on the date such
Indebtedness is incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock."
"Non-recourse Purchase Money Indebtedness" means Indebtedness of Holdings or
its Subsidiaries to the extent that (i) under the terms thereof or pursuant to
law, no personal recourse may be had against Holdings or its Subsidiaries for
the payment of the principal of or interest or premium on such Indebtedness
(or such portion), and enforcement of obligations on such Indebtedness (or
such portion) (except with respect to fraud, willful misconduct,
misrepresentation, misapplication of funds, reckless damage to assets and
undertakings with respect to environmental matters or construction defects) is
limited only to recourse against interests in specified assets and property
(the "Subject Assets"), accounts and proceeds arising therefrom, and rights
under purchase agreements or other agreements with respect to such Subject
Assets; (ii) such Indebtedness is incurred in connection with the acquisition
of such Subject Asset for the business of Holdings or such Subsidiaries,
including Indebtedness assumed which Indebtedness existed at the time of the
acquisition of such Subject Asset; (iii) such Indebtedness was incurred at the
time of such acquisition of such Subject Asset; and (iv) no proceeds from the
sale of Existing Assets were used to acquire such Subject Asset.
"Permitted Indebtedness" means any of the following:
(a) Holdings' Subsidiaries may incur Indebtedness in respect of
Capitalized Lease Obligations and Non-recourse Purchase Money Indebtedness
in the ordinary course of business, in amounts and for the purposes
customary in the Company's industry; provided, however, that the aggregate
principal amount outstanding of such Indebtedness (including any
Indebtedness issued to Refinance, refund or replace such Indebtedness)
shall at no time exceed $10.0 million;
(b) Holdings may incur Indebtedness to any wholly owned Subsidiary, and
any Subsidiary of Holdings may incur Indebtedness to any wholly owned
Subsidiary of Holdings or to Holdings; provided, that any such obligations
of Holdings shall be subordinated in all respects to Holdings' obligations
pursuant to the Indenture and the Notes; and
(c) Indebtedness outstanding on the Issue Date after giving effect to the
New Credit Facility.
"Permitted Liens" means any of the following:
(a) Liens existing on the Issue Date (including Liens in favor of the
Trustee arising under the Indenture and Liens securing Indebtedness
permitted to be incurred pursuant to the New Credit Facility in compliance
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with paragraph (f) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"), after giving effect to the
implementation of the New Credit Facility, and any extension, renewal,
replacement or refinancing, in whole or in part, of any such Lien so long
as (1) the amount of security is not increased thereby, (2) the aggregate
amount secured by such Lien after such extension, renewal, replacement or
refinancing does not exceed (after deduction of reasonable and customary
fees and expenses incurred in connection therewith) the aggregate amount
secured thereby prior thereto and (3) the Indebtedness secured by such
Lien, if any, is permitted under the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock";
(b) Liens for taxes, assessments or other governmental charges or claims
not yet due or which are being contested in good faith and by appropriate
proceedings by a person if adequate reserves or other appropriate
provisions with respect thereto are maintained on the books of such person
to the extent required in accordance with GAAP;
(c) statutory Liens of carriers, warehousemen, mechanics, landlords,
materialmen, repairmen or other like Liens arising by operation of law and
Liens on deposits made to obtain the release of such Liens if (i) the
underlying obligations are not overdue for a period of more than 60 days or
(ii) such Liens are being contested in good faith and by appropriate
proceedings by such person and adequate reserves with respect thereto are
maintained on the books of such person in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
in connection with any borrowing of money or any commitment to loan any
money or to extend any credit), leases, statutory obligations, surety and
appeal bonds and other obligations of a like nature, and pledges or
deposits in connection with workers' compensation, unemployment insurance
and other types of social security legislation, in each case made or
incurred in the ordinary course of business consistent with industry
practices;
(e) easements, rights-of-ways, zoning and similar restrictions and other
similar encumbrances or title defects which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from
the value of the property subject thereto (as such property is used by such
person) or interfere with the ordinary conduct of the business of such
person; provided, that any such Liens are not incurred for the benefit of
any borrowing of money or any commitment to loan any money or to extend any
credit;
(f) Liens arising by operation of law in connection with judgments to the
extent, for an amount and for a period not resulting in an Event of Default
with respect thereto;
(g) Liens securing Non-recourse Purchase Money Indebtedness permitted to
be incurred under the Indenture, provided, that each such Lien relates only
to the property which is subject to such Non-recourse Purchase Money
Indebtedness;
(h) any customary retention of title by the lessor under a Capitalized
Lease Obligation incurred in compliance with the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock";
(i) Liens that secure Acquired Indebtedness, provided, in each case, that
such Liens do not secure any other property or assets and were not put in
place in connection with or in anticipation of such acquisition, merger or
consolidation, and any extension, renewal, replacement or refinancing, in
whole or in part, of any such Lien so long as (1) the amount of security is
not increased thereby, (2) the aggregate amount secured by such Lien after
such extension, renewal, replacement or refinancing does not exceed (after
deduction of reasonable and customary fees and expenses incurred in
connection therewith) the aggregate amount secured thereby prior thereto
and (3) the Indebtedness secured by such Lien, if any, is permitted under
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock;"
(j) Liens that secure Indebtedness incurred pursuant to clause (a) of the
"Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock" covenant, provided that (i) after giving effect on a pro-
forma basis to such Incurrence and the use of proceeds thereof, the Debt
Incurrence Ratio is no greater
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than 5 to 1 and (ii) that the aggregate amount secured by any such Lien
does not exceed the aggregate amount of such Indebtedness; and
(k) Liens that secure Indebtedness incurred under the New Credit Facility
either (i) pursuant to clause (e) of the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock" and/or (ii)
pursuant to clause (a) of the "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" covenant, provided that after
giving effect on a pro forma basis to such Incurrence and the use of
proceeds thereof, the Debt Incurrence Ratio is no greater than 5 to 1.
"Public Equity Offering" means an underwritten offering of common stock of
Holdings pursuant to an effective registration statement under the Securities
Act after which the common stock of Holdings is listed on a national
securities exchange or quoted on the Nasdaq National Market.
"Qualified Capital Stock" means any Capital Stock of Holdings that is not
Disqualified Capital Stock.
"Qualified Exchange" means any defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of Holdings
issued on or after the Issue Date with the Net Cash Proceeds received by
Holdings from the substantially concurrent sale of Qualified Capital Stock.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination
is to be made pursuant to the terms of the Notes or the Indenture; provided,
however, that the Consolidated Fixed Charges of such person, to the extent
such person has been in existence for a shorter period than four full fiscal
quarters, shall be computed on an annualized basis.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing) the lesser of (i) the principal amount or, in
the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided, however, that (A) such Refinancing Indebtedness of
any Subsidiary of Holdings shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B) Refinancing
Indebtedness shall (x) not have an Average Life shorter than the Indebtedness
or Disqualified Capital Stock to be so refinanced at the time of such
Refinancing and (y) in all respects, be no less subordinated, if applicable,
to the rights of Holders of the Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have no installment of principal (or redemption payment)
scheduled to come due earlier than the scheduled maturity of any installment
of principal of the Indebtedness or Disqualified Capital Stock to be so
refinanced which was scheduled to come due prior to the Stated Maturity.
"Related Business" means the business conducted by Holdings and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of Holdings are materially related
businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than (a) in Cash Equivalents, (b) intercompany notes to
the extent permitted under "Permitted Indebtedness," (c) Investments in
existence on the Issue Date and (d) Investments in wholly owned Subsidiaries
(including Investments as a direct result of which the surviving entity is or
becomes Holdings or a direct wholly owned Subsidiary of Holdings).
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"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Capital Stock
of such person or any Subsidiary of such person, (b) any payment on account of
the purchase, redemption or other acquisition or retirement for value of
Capital Stock of such person or any Subsidiary of such person, (c) any
purchase, redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to Capital Stock of
an issuer to the extent payable solely in shares of Qualified Capital Stock of
such issuer; (ii) any dividend, distribution or other payment to Holdings or
to any of its Subsidiaries by Holdings or any of its Subsidiaries, provided,
however, that such payment by a Subsidiary of Holdings which is not wholly
owned by Holdings and/or its wholly owned Subsidiaries shall constitute a
"Restricted Payment" to the extent not paid on a pro rata basis in accordance
with its organizational documents as in effect on the later of the Issue Date
and the time such person first became a Subsidiary of Holdings; or (iii) loans
or advances to any wholly owned Subsidiary of Holdings the proceeds of which
are used by such Subsidiary in a Related Business activity of such Subsidiary.
"Significant Subsidiary," with respect to any person, means a Subsidiary of
such person which, as of the end of such person's most recent fiscal quarter,
had a Consolidated Tangible Net Worth equal to at least 5% of the Consolidated
Tangible Net Worth of such person as of such date.
"Stated Maturity," when used with respect to any Note, means June 1, 2004.
"Strategic Investors" means any person whose principal line of business
activity is a Related Business and (a) whose total market capitalization is in
excess of $500.0 million as measured by the sum of the aggregate principal
dollar amount of its Indebtedness and the aggregate dollar value of its
Capital Stock (as measured by the per share price of its Capital Stock
multiplied by the number of outstanding shares of such Capital Stock or (b) in
the case of a person without publicly traded Capital Stock whose private
market value, as determined by the Board of Directors of Holdings consistent
with advice obtained from an independent, nationally recognized investment
banking firm, is in excess of $500.0 million.
"Subordinated Indebtedness" means Indebtedness of Holdings that is
subordinated in right of payment to the Notes or has a stated maturity on or
after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by such person,
by such person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) a partnership in which a person or a
subsidiary of such person is, at the date of determination, a general partner
of such partnership and in which such person or a subsidiary of such person
has a majority of the economic interests or (iii) any other person (other than
a corporation) in which such person, one or more Subsidiaries of such person,
or such person and one or more Subsidiaries of such person, directly or
indirectly, at the date of determination thereof has at least majority
ownership interest. Notwithstanding the foregoing, an Unrestricted Subsidiary
shall not be a Subsidiary of Holdings or of any Subsidiary of Holdings.
"Unrestricted Subsidiary" means any subsidiary of Holdings that does not own
any Capital Stock of, or own or hold any Lien on any property of, Holdings or
any Subsidiary of Holdings and that, at the time of determination, shall be an
Unrestricted Subsidiary (as designated by the Board of Directors of Holdings);
provided, however, that such subsidiary shall not engage, to any substantial
extent, in any line or lines of business activity other than a Related
Business. Holdings may designate any person (other than the Company) to be an
Unrestricted Subsidiary if, immediately prior thereto and after giving pro
forma effect to such designation (i) either (a) Holdings could incur at least
$1.00 of Indebtedness pursuant to the Debt Incurrence Ratio in paragraph (a)
of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," (b) such subsidiary, at the time of designation,
has no assets or (c) such subsidiary is designated an
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"Unrestricted Subsidiary" at the time of Acquisition by Holdings or its
Subsidiaries and (ii) there would not exist a Default or Event of Default. The
Board of Directors of Holdings may designate any Unrestricted Subsidiary to be
a Subsidiary, provided, that (i) no Default or Event of Default is existing or
will occur as a consequence thereof and (ii) immediately after giving effect
to such designation, on a pro forma basis, Holdings could incur at least $1.00
of Indebtedness pursuant to the Debt Incurrence Ratio in paragraph (a) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock." Each such designation shall be evidenced by filing with the
Trustee a certified copy of the resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with
the foregoing conditions.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially will be issued
in the form of a single, permanent global certificate in definitive, fully
registered form (the "Global Notes"). The Global Notes will be deposited on
the Issue Date of the Exchange Notes, with, or on behalf of, The Depository
Trust Company (the "Depositary"), and registered in the name of Cede & Co., as
nominee of the Depositary. Interests in Global Notes will be available for
purchase only by "qualified institutional buyers," as defined in Rule 144A
under the Securities Act ("QIBs").
Exchange Notes that are (i) originally issued to or transferred to
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act, who are not QIBs or to any other persons who
are not QIBs or (ii) issued as described below under "Certificated
Securities," will be issued in registered form (the "Certificated
Securities"). Upon the transfer to a QIB of Certificated Securities, such
Certificated Securities will, unless the Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Notes representing the principal amount of Exchange Notes and the
related shares, as applicable, being transferred. For a description of the
restrictions on the transfer of Certificated Securities, see "Plan of
Distribution."
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, 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 Securities
Exchange Act of 1934. The Depositary holds securities that its participants
("Participants") deposit with the Depositary. The Depositary also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations. The Depositary is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the Depositary's system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through
or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The Rules applicable to the
Depositary and its Participants are on file with the Commission.
The issuance of Exchange Notes under the Depositary's system must be made by
or through Direct Participants, which will receive a credit for the Exchange
Notes on the Depositary's records. The ownership interest of each QIB that
purchases an Exchange Note ("Beneficial Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the Exchange Notes, except in the
event that use of the book-entry system for the Exchange Notes is
discontinued.
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To facilitate subsequent transfers, all Exchange Notes deposited by
Participants with the Depositary are registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of Exchange Notes
with the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Exchange Notes; the Depositary's records reflect only
the identity of the Direct Participants to whose accounts such Exchange Notes
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Exchange Notes are being redeemed, the Depositary's practice is to determine
by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Exchange Notes. Under its usual procedures, the Depositary mails an
Omnibus Proxy to Holdings as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal and premium payments on the Exchange Notes will be made to the
Depositary. The Depositary's practice is to credit Direct Participants
accounts on payable date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on payable date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is 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 Participant and not of the Depositary, Agent or Holdings, subject to
any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal to the Depositary is the responsibility of Holdings
or Agent, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
A Beneficial Owner shall give notice to elect to have its Exchange Notes
purchased or tendered, through its Participant, to any Tender Agent, and shall
effect delivery of such Securities by causing the Direct Participant to
transfer the Participant's interest in the Exchange Notes, on the Depositary's
records, to the Tender Agent. The requirement for physical delivery of
Exchange Notes in connection with an optional tender or a mandatory purchase
will be deemed satisfied when the ownership rights in the Exchange Notes are
transferred by Direct Participants on the Depositary's records and followed by
a book-entry credit of rendered Securities to the Tender Agent's account.
The Depositary may discontinue providing its services as securities
depository with respect to the Exchange Notes at any time by giving reasonable
notice to Holdings or its Agent. Under such circumstances, in the event that a
successor securities depository is not obtained, Certificated Securities are
required to be printed and delivered.
Holdings may decide to discontinue use of the system of book-entry transfers
through the Depositary (or a successor securities depository). In that event,
Certificated Securities will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Holdings
believes to be reliable, but Holdings takes no responsibility for the accuracy
thereof.
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Certificated Securities
If (i) Holdings notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depository and Holdings is unable to locate
a qualified successor within 90 days or (ii) Holdings, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Exchange Notes
in definitive form under the Indenture, then, upon surrender by the Depositary
of its Global Notes, Certificated Securities will be issued to each person
that the Depositary identifies as the beneficial owner of the Exchange Notes
represented by the Global Notes. In addition, subject to certain conditions,
any person having a beneficial interest in a Global Notes may, upon request to
the Trustee, exchange such beneficial interest for Certificated Securities.
Upon any such issuance, the Trustee is required to register such Certificated
Securities in the name of such person or persons (or the nominee of any
thereof), and cause the same to be delivered thereto.
Neither Holdings nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related Exchange Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Exchange Notes to
be issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources Holdings
believes to be reliable. Holdings will have no responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described hereunder and under the rules and procedures
governing their respective obligations.
Same-Day Funds Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Notes (including principal, premium, if any, and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the registered holder of the Global Notes.
With respect to Certificated Securities, Holdings will make all payments of
principal, premium, if any, and Liquidated Damages, if any, by wire transfer
of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. Secondary trading in long-term notes and
debentures of corporate issuers is generally settled in clearing-house or
next-day funds. In contrast, the Exchange Notes represented by the Global
Notes are expected to be eligible to trade in the PORTAL market and to trade
in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Exchange Notes will, therefore, be
required by the Depositary to be settled in immediately available funds.
Holdings expects that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
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DESCRIPTION OF CAPITAL STOCK
RECAPITALIZATION
In connection with the closing of the Unit Offering, Holdings issued
additional shares of its capital stock to its existing stockholders, pro rata,
pursuant to a recapitalization to eliminate the necessity of issuing
fractional shares of Holdings Common Stock to purchasers of the Units.
HOLDINGS
As of the Issue Date, after giving effect to the Unit Offering and the
Recapitalization, the authorized capital stock of Holdings consisted of (i)
5,000,000 shares of Common Stock, $.01 par value per share, of which 1,720,000
shares was issued and outstanding and (ii) 10,000,000 shares of Series A
Preferred Stock, $.01 par value per share, of which 5,220,365 shares was
issued and outstanding. Such numbers exclude up to 46,054 shares of Holdings
Common Stock reserved for issuance upon the exercise of outstanding options.
Holdings Common Stock. There is no public trading market for the capital
stock of Holdings. Holders of Holdings Common Stock are entitled to dividends
when and as declared by the Board of Directors of Holdings from funds legally
available therefor, and upon liquidation, will be entitled to share ratably in
any distribution to holders of Holdings Common Stock. All holders of Holdings
Common Stock are entitled to one vote per share on any matter coming before
the stockholders for a vote.
Series A Preferred Stock. The Series A Preferred Stock ranks prior to the
Common Stock upon liquidation, dissolution or wind-up of Holdings. The Series
A Preferred Stock has a liquidation preference of $8.25 per share. The Series
A Preferred Stock may be redeemed, in whole or in part, at any time at the
election of the Board of Directors of Holdings at a redemption price of $8.25
per share. In addition, upon the consolidation or merger of Holdings with or
into another corporation or corporations, the sale of all or substantially all
of Holdings' assets or the sale of stock representing at least 80% of the
voting power of Holdings, Holdings shall redeem all outstanding shares of
Series A Preferred Stock at a redemption price of $8.25 per share. The holders
of Series A Preferred Stock vote together with the holders of Holdings Common
Stock as a single class on all matters submitted for stockholder vote.
STOCKHOLDERS' AGREEMENT
Holdings and each current holder of capital stock of Holdings, including
both Holdings Common Stock and Series A Preferred Stock, are parties to a
Stockholders' Agreement, dated as of January 31, 1994 (the "Stockholders'
Agreement").
75
<PAGE>
Pursuant to the Stockholders' Agreement, each holder of Holdings' capital
stock has certain piggy back registration rights, as well as certain tag-along
and drag-along rights with respect to the sale of capital stock of Holdings.
In addition, each holder of capital stock of Holdings has granted Holdings a
right of first refusal to purchase such holders' stock prior to the sale,
transfer or assignment or pledge (subject to certain exceptions) of such
capital stock or any beneficial interest therein. The Stockholders' Agreement
grants each holder tag-along rights which provide that should Brentwood or any
of its affiliates at any time enter into an agreement to transfer, sell or
otherwise dispose of any shares of Holdings Common Stock, then, subject to
certain conditions and limitations, each other holder of Holdings Common Stock
or Series A Preferred Stock shall have the right to participate in any such
sale on a pro rata basis with all other holders who elect to sell stock in
such sale. In addition, pursuant to the Stockholders' Agreement's drag-along
rights, in the event that Brentwood or any of its affiliates determines to
accept an offer from any person (other than an affiliate) to purchase 100% of
the outstanding shares of capital stock of Holdings, then each other holder of
Holdings Common Stock or Series A Preferred Stock shall sell all shares of
Holdings Common Stock or Series A Preferred Stock held by it or any affiliate
of it pursuant to such offer and shall receive the same consideration and be
subject to the same terms and conditions of sale, and otherwise be treated
equally or on a pro rata basis with Brentwood or its affiliates.
DESCRIPTION OF PRINCIPAL INDEBTEDNESS
THE NEW CREDIT FACILITY
Simultaneously with the consummation of the Offerings, the Company entered
into a credit agreement dated as of June 4, 1996 (the "New Credit Facility")
with a syndicate of financial institutions for whom Bank of America NT & SA is
acting as agent. The New Credit Facility provides for (i) a six-year reducing
revolving credit facility with aggregate availability of $45 million (the
"Reducing Revolver Commitment") and (ii) a $5 million six-year working capital
revolving credit facility (the "Working Capital Revolver"). The following
description is a summary of the material terms and conditions of the New
Credit Facility. This summary does not purport to be a complete description of
the New Credit Facility and is subject to the detailed provisions of the loan
agreement and various related documents entered into in connection with the
New Credit Facility.
Borrowings under the New Credit Facility will be secured by substantially
all of the assets of the Company and its Subsidiaries, including their equity
interests, and by the stock of the Company and are guaranteed by such
Subsidiaries and by Holdings. Borrowings under the Reducing Revolver
Commitment may be used to fund future acquisitions of golf courses and to fund
upgrade capital expenditures at such courses and certain capital improvements
at existing courses. Borrowings under the Working Capital Revolver may be used
for maintenance, upgrade capital expenditures and other general corporate
purposes, including working capital and certain dividends to Holdings. In
addition, the New Credit Facility provides that the Company may not make any
acquisitions or upgrade capital expenditures when Funded Debt plus certain
upgrade projected capital expenditures are initially greater than 6.5x of
Adjusted EBITDA (each term as defined in the New Credit Facility), calculated
as provided therein.
Amounts borrowed will bear interest at rates, selected at the Company's
option from time to time, based on a base rate or the Eurodollar rate, in each
case plus a fluctuating percentage based on the Company's ratio of Funded Debt
plus certain projected upgrade capital expenditures to Adjusted EBITDA (each
term as defined in the New Credit Facility), calculated as provided therein.
Beginning on September 30, 1998, the Reducing Revolver Commitment will
reduce quarterly, with annual reductions of approximately $4.4 million in
1998, approximately $12.1 million in 1999, approximately $15.4 million in
2000, approximately $15.4 million in 2001 and approximately $7.7 million in
2002. In addition, the New Credit Facility provides for mandatory prepayments
of (i) all net proceeds of certain asset sales, subject to certain exceptions,
(ii) all net proceeds of certain debt issuances, subject to certain exceptions
and (iii) 50% of the net proceeds from certain equity issuances. Such
mandatory prepayments will be applied first to permanently
76
<PAGE>
reduce the Reducing Revolver Commitment (and outstanding loans) and secondly
to permanently reduce the Working Capital Revolver (and outstanding loans).
The obligations of the lenders under the New Credit Facility to advance
funds are subject to certain conditions customary in secured credit
facilities. In addition, the Company is subject to certain customary
affirmative and negative covenants contained in the New Credit Facility,
including without limitation covenants that restrict, subject to specified
exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the
granting of liens, (v) prepayment or repurchase of other indebtedness, (vi)
the granting of guarantees, (vii) the payments of dividends and other
restricted payments, (viii) certain upgrade capital expenditures and (ix)
modifications of certain material agreements. Certain of these covenants may
be more restrictive than those in favor of holders of the Notes as described
herein and as set forth in the Indenture. In addition, the New Credit Facility
requires that the Company maintain certain specified financial covenants,
including a minimum net worth, minimum interest and fixed charge coverage
ratios and maximum Funded Debt plus certain projected upgrade capital
expenditures to Adjusted EBITDA and Bank Debt to Adjusted EBITDA ratios
(calculated as provided therein).
The New Credit Facility provides for customary events of default, including
without limitation events of default relating to (i) failure to pay principal,
interest or fees, (ii) breach of covenants, representations or warranties,
(iii) cross default to other indebtedness (including the Senior Notes) or
material contracts, (iv) bankruptcy, (v) change in control, (vi) material
adverse effect and (vii) material judgments. The occurrence of any of such
events of default could result in acceleration of the Company's obligations
under the New Credit Facility and foreclosure on the collateral securing such
obligations, which would have material adverse results to holders of the
Notes.
THE SENIOR NOTES
The Senior Notes were issued by the Company in an aggregate principal amount
of $70,000,000 and will mature on June 1, 2003. Interest on the Senior Notes
will be payable semi-annually in arrears on June 1 and December 1 of each
year, commencing December 1, 1996. On or after June 1, 1999, the Company may
redeem the Senior Notes, in whole or in part, at redemption prices beginning
at 105.750% of their principal amount for the twelve month period commencing
June 1, 1999, declining ratably to par on and after June 1, 2002, plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of redemption.
Notwithstanding the foregoing, at any time on or before June 1, 1999, the
Company may, at its option and subject to certain requirements, use the net
cash proceeds from one or more Public Equity Offerings or issuances of capital
stock to Strategic Investors to redeem up to an aggregate of 25% of the
principal amount of the Senior Notes originally issued at a redemption price
equal to 110.50% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption. In
addition, upon a Change of Control, each holder will have the right to require
the Company to repurchase all or any part of such holder's Senior Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase.
The Senior Notes are senior unsecured general obligations of the Company and
rank pari passu in right of payment to all other senior indebtedness of the
Company, including borrowings under the New Credit Facility. The Senior Notes
are guaranteed (the "Guarantees") by all of the Company's existing and future
Subsidiaries (the "Guarantors"). The Guarantees are senior unsecured general
obligations of the Guarantors and rank pari passu in right of payment to all
other senior indebtedness of the Guarantors, including the Guarantors'
guarantees of borrowings under the New Credit Facility.
The Senior Note Indenture contains covenants that, among other things, limit
the ability of the Company and its Subsidiaries to (i) make restricted
payments, (ii) incur additional indebtedness and issue disqualified capital
stock, (iii) create liens, (iv) enter into agreements that would restrict the
Subsidiaries' ability to make
77
<PAGE>
distributions, loans and other payments to the Company, (v) enter into
consolidations or mergers or sell all or substantially all of their assets,
(vi) make asset sales and (vii) enter into transactions with affiliates.
Pursuant to a registration rights agreement between the Company and the
initial purchasers of the Senior Notes, the Company has agreed to file with
the Commission, within 60 days after the Issue Date, a registration statement
under the Securities Act relating to an exchange offer for the Senior Notes
and will use its reasonable efforts to cause such registration statement to
become effective within 120 days after the Issue Date. If the Company fails to
satisfy these registration obligations, the Company will be required to pay
certain Liquidated Damages.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Latham & Watkins, counsel to Holdings, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought with respect to the Exchange Offer. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. EACH HOLDER OF
PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a "non-
event" for federal income tax purposes because the Exchange Notes will not be
considered to differ materially in kind or extent from the Private Notes. As a
result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
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 the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. Holdings has agreed that for a
period of up to 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
Holdings will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. 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 and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own
78
<PAGE>
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 commissions 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.
Holdings has agreed to pay all expenses incident to Holdings' performance of,
or compliance with, the Registration Rights Agreement and will indemnify the
holders of Private Notes (including any broker-dealers), and certain parties
related to such holders, against certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Latham & Watkins, Los Angeles, California. Certain partners of
Latham & Watkins, members of their respective families, related persons and
others have an indirect interest, through Brentwood, in less than 1% of the
outstanding stock of Holdings, but do not have the power to vote or dispose of
such interests.
EXPERTS
The consolidated financial statements of Cobblestone Holdings, Inc. as of
September 30, 1994 and 1995 and for each of the three years in the period
ended September 30, 1995, the statements of operations of the Lakeway Country
Club for the year ended December 31, 1993 and 1994 and for the three months
ended March 31, 1995, the combined statements of operations of the Stonebridge
Country Club and the Ranch Country Club for the year ended December 31, 1993
and the eleven and a half months ended December 31, 1994, the statements of
operations of the Brandermill Country Club for the year ended December 31,
1994 and the two months ended February 28, 1995, the statements of operations
of the Pecan Grove Country Club for the year ended December 31, 1993 and the
month ended January 31, 1994, the statement of operations of the Ocean Vista
Land Company for the five months ended May 31, 1993, and the statement of
operations of the Saticoy Regional Golf Course for the two and a half months
ended March 12, 1993, appearing in this Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Sweetwater Golf Partnership as of December 31,
1994 and 1995 and for each of the three years in the period ended 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 auditing and accounting.
The financial statements of Brandermill Country Club, L.P. at December 31,
1993, and for the year then ended, included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
79
<PAGE>
AVAILABLE INFORMATION
Holdings has filed with the Commission a Registration Statement on Form S-4
under the Securities Act with respect to the Exchange Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to Holdings and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. As a result of the Exchange Offer,
Holdings will become subject to the informational requirements of the Exchange
Act. The Registration Statement (and the exhibits and schedules thereto), as
well as the periodic reports and other information filed by Holdings with the
Commission, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Room 1400,
75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 6061-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and its public reference facilities in New York, New York and Chicago,
Illinois at the prescribed rates. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
Pursuant to the Indenture, Holdings has agreed to furnish to the Trustee and
to registered holders of the Notes, without cost to the Trustee or such
registered holders, copies of all reports and other information that would be
required to be filed by Holdings with the Commission under the Exchange Act,
whether or not Holdings is then required to file reports with the Commission.
As a result of this Exchange Offer, Holdings will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
In the event that Holdings ceases to be subject to the informational
requirements of the Exchange Act, Holdings has agreed that, so long as any
Notes remain outstanding, it will file with the Commission (but only if the
Commission at such time is accepting such voluntary filings) and distribute to
holders of the Notes, copies of the financial information that would have been
contained in such annual reports and quarterly reports, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," that would have been required to be filed with the Commission
pursuant to the Exchange Act. Holdings will also furnish such other reports as
it may determine or as may be required by law.
The principal address of Holdings is 3702 Via de la Valle, Suite 202, Del
Mar, California 92104, and Holdings' telephone number is (619) 794-2602.
80
<PAGE>
COBBLESTONE HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements of Cobblestone Holdings, Inc.
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Consolidated Balance Sheets--September 30, 1994 and 1995 and March 31,
1996 (unaudited)....................................................... F-3
Consolidated Statements of Operations--for the years ended September 30,
1993, 1994 and 1995, and for the six months ended March 31, 1995 and
1996 (unaudited)....................................................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital
Deficiency)--for the years ended September 30, 1992, 1993, 1994, and
1995, and for the six months ended March 31, 1996 (unaudited).......... F-5
Consolidated Statements of Cash Flows--for the years ended September 30,
1993, 1994 and 1995, and for the six months ended March 31, 1995 and
1996 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements--September 30, 1995 and March
31, 1996 (unaudited)................................................... F-7
Financial Statements of Sweetwater Golf Partnership
Report of Independent Accountants....................................... F-17
Balance Sheet--December 31, 1994 and 1995 and June 30, 1996
(unaudited)............................................................ F-18
Statement of Operations--For the three years ended December 31, 1995,
and the six months ended June 30, 1995 and 1996 (unaudited)............ F-19
Statement of Partners' Capital (Deficit)--For the two years ended
December 31, 1995, and the six months ended June 30, 1996 (unaudited).. F-20
Statement of Cash Flows--For the three years ended December 31, 1995,
and the six months ended June 30, 1995 and 1996 (unaudited)............ F-21
Notes to Financial Statements........................................... F-23
Financial Statements of Lakeway Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-27
Statements of Operations--For the years ended December 31, 1993 and 1994
and for the three months ended March 31, 1995.......................... F-28
Note to Statements of Operations........................................ F-29
Combined Financial Statements of Stonebridge Country Club and The Ranch
Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-30
Statements of Operations--For the year ended December 31, 1993 and the
eleven and a half months ended December 15, 1994....................... F-31
Notes to Statements of Operations....................................... F-32
Financial Statements of Brandermill Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-33
Statements of Operations--For the year ended December 31, 1994 and the
two months ended February 28, 1995..................................... F-34
Note to Statements of Operations........................................ F-35
Financial Statements of Brandermill Country Club
Report of Independent Auditors.......................................... F-36
Balance Sheet--December 31, 1993........................................
Statement of Operations for the year ended December 31, 1993............ F-38
Statement of Partners' Deficit for the year ended December 31, 1993..... F-39
Statement of Cash Flows for the year ended December 31, 1993............ F-40
Summary of Accounting Policies.......................................... F-41
Notes to Financial Statements........................................... F-42
Financial Statements of Pecan Grove Plantation Country Club
Report of Ernst & Young LLP, Independent Auditors....................... F-44
Statements of Income--For the year ended December 31, 1993 and the month
ended
January 31, 1994....................................................... F-45
Notes to Statements of Income........................................... F-46
Financial Statements of Ocean Vista Land Company
Report of Ernst & Young LLP, Independent Auditors....................... F-48
Statement of Income--For the five months ended May 31, 1993............. F-49
Note to Statement of Income............................................. F-50
Financial Statements of Saticoy Regional Golf Course
Report of Ernst & Young LLP, Independent Auditors....................... F-51
Statement of Operations--For the two and a half months ended March 12,
1993................................................................... F-52
Note to Statement of Operations......................................... F-53
Unaudited Pro Forma Consolidated Financial Information.................... F-54
Unaudited Pro Forma Consolidated Statement of Operations--for the year
ended September 30, 1995................................................. F-55
Notes to Unaudited Pro Forma Consolidated Statement of Operations--for
the year ended September 30, 1995...................................... F-56
Unaudited Pro Forma Consolidated Statement of Operations--for the six
months ended March 31, 1996............................................ F-57
Notes to Unaudited Pro Forma Consolidated Statement of Operations--for
the six months ended March 31, 1996.................................... F-58
Unaudited Pro Forma Consolidated Balance Sheet--March 31, 1996.......... F-59
Notes to Unaudited Pro Forma Consolidated Balance Sheet--March 31,
1996................................................................... F-60
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Cobblestone
Holdings, Inc. as of September 30, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity (net capital deficiency) and
cash flows for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cobblestone
Holdings, Inc. at September 30, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
December 8, 1995
F-2
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1994 1995 1996
----------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 1,298,671 $ 820,608 $ 1,590,803
Accounts receivable, net of
allowance for doubtful accounts
of $67,000
and $76,000 at September 30,
1994 and 1995 and $112,000 at
March 31, 1996 (unaudited)...... 1,261,015 2,542,122 2,137,192
Current portion of notes
receivables, net................ -- 862,922 1,228,331
Inventory........................ 723,102 1,439,063 1,842,978
Prepaid expenses and other
current assets.................. 283,463 585,398 334,980
----------- ------------ ------------
Total current assets........... 3,566,251 6,250,113 7,134,284
Property, equipment and leasehold
interests, net................... 73,734,237 128,000,304 131,290,980
Notes receivable, net............. -- 3,315,393 4,282,072
Intangible assets, net of
accumulated amortization of
$508,000 and $910,000 at
September 30, 1994 and 1995 and
$1,053,000 at March 31, 1996
(unaudited)...................... 4,603,066 4,190,860 4,047,367
Other assets, net................. 4,193,215 5,233,473 5,139,453
----------- ------------ ------------
$86,096,769 $146,990,143 $151,894,156
=========== ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable................. $ 1,182,439 $ 2,788,114 $ 1,509,590
Accrued payroll and related
expenses........................ 835,426 1,092,232 1,266,467
Accrued interest expense......... 154,576 628,344 609,262
Accrued property taxes........... 520,667 1,038,856 525,237
Deferred revenue................. 965,890 1,221,305 2,369,680
Current portion of long-term debt
and capital lease obligations... 895,406 1,686,275 6,435,608
Current portion of deferred
purchase price.................. -- 441,427 188,329
Income taxes payable............. -- 842,241 382,853
Other current liabilities........ 269,450 479,541 507,633
----------- ------------ ------------
Total current liabilities...... 4,823,854 10,218,335 13,794,659
Long-term debt and capital lease
obligations...................... 44,194,386 85,013,950 89,554,422
Note payable to
stockholder/officer.............. 211,310 217,754 221,194
Deferred purchase price........... -- 1,108,573 984,692
Long-term deferred revenue........ 790,000 2,777,481 2,591,626
Deferred income taxes............. 4,184,000 3,877,000 3,458,583
Minority interest................. 431,675 407,175 380,985
Commitments
Redeemable preferred stock, $.01
par value
Authorized shares--450,000
Issued and outstanding shares--
343,625 and 430,757 at September
30, 1994 and 1995 and 430,757 at
March 31, 1996 (unaudited)
Liquidation preference of
$43,075,700 at September 30,
1995 and
March 31, 1996.................. 33,611,345 42,241,169 42,241,169
Stockholders' equity (net capital
deficiency):
Common stock, $.01 par value:
Authorized shares--200,000......
Issued and outstanding shares--
109,090 and 134,829 at
September 30, 1994 and 1995 and
134,829 at March 31, 1996
(unaudited).................... 1,091 1,348 1,348
Paid-in capital.................. 107,999 4,092,061 4,092,061
Accumulated deficit.............. (2,258,891) (2,964,703) (5,426,583)
----------- ------------ ------------
Total stockholders' equity (net
capital deficiency).............. (2,149,801) 1,128,706 (1,333,174)
----------- ------------ ------------
$86,096,769 $146,990,143 $151,894,156
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Green fees, cart
rental fees, practice
facility fees, dues
and initiation fees.. $3,778,299 $18,512,784 $38,043,441 $12,561,381 $19,738,164
Food and beverage
revenues............. 1,553,739 3,677,988 7,034,407 2,697,120 4,094,965
Pro shop sales........ 617,958 1,758,423 3,311,062 1,299,475 2,134,053
Other................. 557,109 943,559 1,473,869 411,233 1,039,499
---------- ----------- ----------- ----------- -----------
Total operating
revenues........... 6,507,105 24,892,754 49,862,779 16,969,209 27,006,681
Operating expenses:
Golf course
operations........... 3,520,135 14,341,609 29,591,886 10,087,490 16,256,240
Cost of food and
beverage............. 531,252 1,312,960 2,613,295 942,370 1,415,715
Cost of pro shop
sales................ 132,704 1,163,546 2,221,330 830,545 1,413,254
General and
administrative....... 1,620,166 1,996,991 2,517,423 1,160,137 1,723,545
Depreciation and
amortization......... 825,245 3,468,357 6,144,430 2,404,984 3,518,380
---------- ----------- ----------- ----------- -----------
Total operating
expenses........... 6,629,502 22,283,463 43,088,364 15,425,526 24,327,134
---------- ----------- ----------- ----------- -----------
Income (loss) from oper-
ations................. (122,397) 2,609,291 6,774,415 1,543,683 2,679,547
Interest expense, net... (529,720) (3,515,752) (8,019,072) (3,205,346) (5,118,027)
Gain on insurance
settlement............. -- -- 746,845 -- --
Minority interest....... (193,985) -- -- -- --
---------- ----------- ----------- ----------- -----------
Loss before income taxes
and extraordinary
item................... (846,102) (906,461) (497,812) (1,661,663) (2,438,480)
Provision for income
taxes.................. 6,400 71,931 208,000 27,332 23,400
---------- ----------- ----------- ----------- -----------
Loss before extraordi-
nary item.............. (852,502) (978,392) (705,812) (1,688,995) (2,461,880)
Extraordinary item...... -- (427,997) -- -- --
---------- ----------- ----------- ----------- -----------
Net loss................ $ (852,502) $(1,406,389) $ (705,812) $(1,688,995) $(2,461,880)
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
--------------
TOTAL
STOCKHOLDERS'
EQUITY
PAID-IN ACCUMULATED (NET CAPITAL
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY)
------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30,
1992.................... -- $ -- $ -- $ -- $ --
Issuance of common stock
for cash............... 104,250 1,043 103,207 -- 104,250
Net loss................ -- -- -- (852,502) (852,502)
------- ------ ---------- ----------- -----------
Balance at September 30,
1993.................... 104,250 1,043 103,207 (852,502) (748,252)
Issuance of common stock
for cash............... 4,840 48 4,792 -- 4,840
Net loss................ -- -- -- (1,406,389) (1,406,389)
------- ------ ---------- ----------- -----------
Balance at September 30,
1994.................... 109,090 1,091 107,999 (2,258,891) (2,149,801)
Issuance of common stock
for cash............... 25,739 257 3,984,062 -- 3,984,319
Net loss................ -- -- -- (705,812) (705,812)
------- ------ ---------- ----------- -----------
Balance at September 30,
1995.................... 134,829 1,348 4,092,061 (2,964,703) 1,128,706
Net loss (unaudited).... -- -- -- (2,461,880) (2,461,880)
------- ------ ---------- ----------- -----------
Balance at March 31, 1996
(unaudited)............. 134,829 $1,348 $4,092,061 $(5,426,583) $(1,333,174)
======= ====== ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $ (852,502) $ (1,406,389) $ (705,812) $ (1,688,995) $(2,461,880)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amor-
tization.............. 830,652 3,840,186 6,728,092 2,162,473 3,907,432
Gain on insurance set-
tlement............... -- -- (746,845) -- --
Loss on disposal of as-
sets.................. -- -- 322,834 -- --
Loss on early extin-
guishment of debt..... -- 427,997 -- -- --
Provision for doubtful
accounts.............. -- 12,084 2,125,458 4,219 (232,575)
Minority interest...... 193,985 -- -- -- --
Changes in assets and
liabilities:
Notes and accounts re-
ceivable.............. (252,133) (804,047) (7,321,947) 172,379 (694,583)
Inventory.............. (53,317) (246,253) (229,801) (212,570) (403,915)
Intangible assets...... (338,791) -- -- -- --
Prepaid expenses and
other assets.......... (340,936) 3,784 (57,476) 256,606 202,332
Accounts payable,
accrued liabilities
and deferred revenue.. 967,139 55,511 2,179,909 2,805,979 (1,502,928)
------------ ------------ ------------ ------------ -----------
Net cash provided by
(used in) operating ac-
tivities............... 154,097 1,882,873 2,294,412 3,500,091 (1,186,117)
INVESTING ACTIVITIES
Acquisitions, net of
cash acquired.......... (19,691,733) (23,924,305) (41,245,470) (41,245,470) --
Additions to property,
equipment and leasehold
interests.............. (5,761,983) (7,708,037) (17,716,295) (8,723,880) (4,811,024)
Insurance proceeds...... -- -- 1,941,917 1,122,963 --
Due to affiliate........ -- (699,356) -- -- --
Intangibles and other
assets................. -- (638,305) -- -- --
------------ ------------ ------------ ------------ -----------
Net cash used in invest-
ing activities......... (25,453,716) (32,970,003) (57,019,848) (48,846,387) (4,811,024)
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 72,532 46,338,471 37,560,573 31,060,573 8,300,000
Debt issuance costs and
other debt-related
costs.................. -- (4,008,901) (2,118,618) (1,832,969) (186,221)
Principal payments on
long-term debt and cap-
ital leases............ (258,417) (17,797,900) (1,219,252) (580,811) (969,464)
Payments on deferred
purchase price......... -- -- -- -- (376,979)
Proceeds from sale and
leaseback.............. -- -- 7,410,527 7,410,527 --
Proceeds from issuance
of redeemable preferred
stock.................. 26,740,545 6,490,000 8,629,824 8,629,824
Proceeds from issuance
of common stock........ 104,250 4,840 3,984,319 3,984,319 --
------------ ------------ ------------ ------------ -----------
Net cash provided by fi-
nancing activities..... 26,658,910 31,026,510 54,247,373 48,671,463 6,767,336
Net increase (decrease)
in cash and cash equiv-
alents................. 1,359,291 (60,620) (478,063) 3,325,167 770,195
Cash and cash equiva-
lents at beginning of
period................. -- 1,359,291 1,298,671 1,298,671 820,608
------------ ------------ ------------ ------------ -----------
Cash and cash equiva-
lents at end of peri-
od..................... $ 1,359,291 $ 1,298,671 $ 820,608 $ 4,623,838 $ 1,590,803
============ ============ ============ ============ ===========
SUPPLEMENTARY
DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the pe-
riod for:
Interest............... $ 549,956 $ 3,595,926 $ 6,464,811 $ 3,047,043 $ 4,728,552
============ ============ ============ ============ ===========
Income taxes........... $ 800 $ 55,264 $ 48,417 $ 27,332 $ 903,400
============ ============ ============ ============ ===========
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Redeemable preferred
stock issued for acqui-
sitions................ $ 380,800 $ -- $ -- $ -- $ --
============ ============ ============ ============ ===========
Capital leases entered
into................... $ 1,049,122 $ 2,342,870 $ 2,395,859 $ 903,001 $ 1,834,017
============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Cobblestone Holdings, Inc. (the "Company"), a Delaware corporation, was
incorporated on January 18, 1994 by shareholders of Cobblestone Golf Group,
Inc. (CGGI). On January 31, 1994, the Company issued shares of its common and
preferred stock in exchange for all of the shares of CGGI. The transaction has
been accounted for at historical cost in a manner similar to a pooling of
interests and, accordingly, had no effect on the accompanying consolidated
financial statements.
The Company owns and operates golf courses in the United States, with a
current portfolio of 20 golf properties including private country clubs, semi-
private clubs and public (or daily fee) courses. The Company's courses are
concentrated in clusters near metropolitan areas in the Sunbelt states
(including Arizona, California and Texas) which have large golfing populations
and attractive climates.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from membership fees and dues at
private country clubs, greens fees, food and beverage services, golf cart
rentals, retail merchandise sales, driving range fees and lodging fees. The
Company owns 15 courses, leases three courses (subject to long-term leases in
excess of 20 years, including extension options), leases one driving range and
pro shop facility and manages one additional course. The Company's portfolio
includes eight private country clubs, seven public facilities and five semi-
private facilities.
Seasonal weather conditions as well as the timing of new course purchases or
leases may cause the Company's results of operations to vary significantly
from quarter to quarter. The second half (April through September) of the
Company's fiscal year tends to account for a greater portion of the Company's
operating revenue and operating income than does the first half.
Principles of Consolidation
The Company has acquired certain golf facilities through its wholly-owned
and majority-owned subsidiaries. The consolidated financial statements include
the accounts of the Company and such subsidiaries. Intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and time deposits with original
maturities of less than 90 days.
Concentration of Credit Risk
Management places the Company's cash investments with what they consider to
be high credit-quality financial institutions and routinely assesses the
financial strength of these institutions. Management believes no significant
concentration of credit risk exists with respect to these cash investments.
Concentration of credit risk with respect to accounts receivable is limited
due to the geographic dispersion of golf courses and the large number of golf
course members and others from whom the receivables are to be collected.
Inventories
Inventories are carried at lower of cost (first-in, first-out) or market.
F-7
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Property, Equipment and Leasehold Interests
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets
which are generally as follows:
<TABLE>
<S> <C>
Depreciable land improvements................................ 20 years
Buildings and improvements................................... 30 years
Equipment, furniture and fixtures............................ 3 to 10 years
</TABLE>
Leasehold improvements, equipment recorded under capital leases and property
and equipment related to leased facilities are depreciated and amortized using
the straight-line method over the shorter of the lease term or the estimated
useful lives of the related assets. Costs associated with the acquisition of
leasehold interests in golf facilities have been capitalized and are amortized
over the remaining life of the related lease (4 to 35 years).
Golf course facility construction in progress is carried at cost. All costs
associated with, or allocable to golf course facility construction in progress
are capitalized until construction is completed.
Intangible Assets
Costs in excess of net assets of businesses acquired are amortized over 20
years which is consistent with the depreciation of land improvements. Other
intangible assets are amortized over their estimated useful lives (5 to 14
years).
Debt Issuance Cost
Costs associated with the issuance of long-term debt are capitalized and
amortized over the term of the related debt using the interest method. Such
costs and related accumulated amortization included in other assets totaled
$3,721,404 and $307,725, respectively, at September 30, 1994, $5,840,022 and
$1,168,155, respectively, at September 30, 1995, and $5,885,094 and
$1,429,449, respectively, at March 31, 1996.
Fair Value of Financial Instruments
To meet the reporting requirements of Statement of Financial Accounting
Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial
Instruments, the Company calculates the fair value of financial instruments
and includes this additional information in the notes to financial statements
when the fair value is different than the carrying value of those financial
instruments. When the fair value reasonably approximates the carrying value,
no additional disclosure is made. The Company uses quoted market prices and
management's estimates to calculate these fair values.
Revenue and Deferred Revenue
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period which the dues and fees allow
the members access to the facilities. The Company recognizes revenue on
initiation fees for the amount of the deposit and the amount of the note
receivable, less the provision for doubtful accounts and imputed interest, at
the time the membership is sold.
Long-term deferred revenue relates to the Company's obligation to provide
memberships to residential developers of properties adjacent to the golf
facility and is recognized when individual homeowners apply for membership.
Reliance on Estimates
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and
F-8
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of ("SFAS 121"), effective for fiscal years beginning after
December 15, 1995. SFAS 121 requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company believes,
based on current circumstances, the effect of adopting SFAS 121 will not have
a material effect on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), effective for
fiscal years beginning after December 15, 1995. SFAS 123 established the fair
value-based method of accounting for stock-based compensation arrangements
under which compensation cost is determined using the fair value of the stock
option at the grant date and the number of options vested, and is recognized
over the periods in which the related services are rendered. The Company has
elected to continue with the current intrinsic value-based method, as allowed
by SFAS 123, and will disclose the pro forma effect of adopting the fair value
based method in future fiscal years beginning with the fiscal year ending
September 30, 1997.
Interim Financial Information
The financial statements for the six months ended March 31, 1995 and 1996
are unaudited, but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
statement of the financial position and the operating results and cash flows
for the interim periods. Results for the interim periods are not necessarily
indicative of results to be expected for the entire year.
2. ACQUISITIONS
Since inception, the Company has acquired the property and equipment or
leasehold interest in nineteen golf course facilities in transactions that
have been recorded under the purchase method of accounting. Accordingly, the
acquired facilities have been reported in the consolidated financial
statements of the Company since the date of the respective acquisitions.
The 1993 acquisitions include: The Golf Course Construction and Lease
Agreement for The Vineyard at Escondido acquired in October, 1992 (lease
effective December 1993), The Foothills Golf Course acquired in January, 1993,
Balboa Park Municipal Golf Course, Saticoy Regional Golf Course and Woodcrest
Country Club acquired in February, 1993, Morgan Run Resort and Club and El
Camino Country Club acquired in June, 1993, and Carmel Mountain Ranch Country
Club acquired in July, 1993.
The 1994 acquisitions include: The Club at Trophy Club acquired in December,
1993, Pecan Grove Country Club acquired in January, 1994, and Ahwatukee
Country Club and The Lakes at Ahwatukee acquired in June, 1994.
The 1995 acquisitions include: The Ranch Country Club and Stonebridge
Country Club acquired in December, 1994, Red Mountain Ranch Country Club
acquired in January, 1995, The Hills of Lakeway, Live Oak Golf Course, Yaupon
Golf Course and Brandermill Country Club acquired in March, 1995.
F-9
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
In conjunction with the purchase of The Hills of Lakeway, the Company is
required to pay a deferred purchase price equal to the greater of $4,150 per
membership or 25% of Initiation Fees, as defined, collected for the first
three hundred memberships sold.
A summary of the aggregate acquisition costs and allocation of the purchase
price to the assets and liabilities assumed is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Total acquisition costs:
Cash paid and acquisition related costs.. $19,691,733 $23,924,305 $41,245,470
Long-term debt and assumption of
liabilities............................. 16,888,762 2,325,934 7,379,667
Minority interest........................ 401,379 344,175 --
----------- ----------- -----------
$36,981,874 $26,594,414 $48,625,137
=========== =========== ===========
Allocated to assets as follows:
Current assets........................... $ 747,428 $ 152,452 $ 775,622
Property, equipment and leasehold
interests............................... 34,488,661 26,441,962 47,849,515
Other assets............................. 1,745,785 -- --
----------- ----------- -----------
$36,981,874 $26,594,414 $48,625,137
=========== =========== ===========
</TABLE>
The following pro forma results assume the acquisitions occurred at the
beginning of the fiscal year prior to the year in which the facility was
acquired. The unaudited pro forma results have been prepared utilizing the
historical financial statements of the Company and the acquired business.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating revenues....................... $23,481,269 $47,043,151 $54,407,767
Net loss................................. $ (910,992) $(1,158,708) $(1,153,012)
</TABLE>
This pro forma information is not necessarily indicative of the actual
results that would have been achieved had the acquisitions occurred at the
beginning of the fiscal year prior to the year in which the facility was
acquired, nor is it necessarily indicative of future results.
3. NOTES RECEIVABLE
Notes receivable consists of promissory notes made by golf club members for
the payment of initiation fees. The notes carry below market or no interest
rates, amortize monthly and generally have a term of five years. Management
periodically analyzes the collectability of the notes receivable and reserves
for the portion that is doubtful of being collected. The notes are secured by
the underlying golf club membership and the Company has full recourse against
the member. The Company's notes receivable balance was composed of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1995 1996
------------- -----------
(UNAUDITED)
<S> <C> <C>
Gross Receivables.................................... $ 7,538,182 $ 8,772,155
Less allowance for uncollectable accounts............ (2,117,000) (1,847,913)
Less valuation allowance for imputed interest........ (1,242,867) (1,413,839)
----------- -----------
4,178,315 5,510,403
Current portion...................................... 862,922 1,228,331
----------- -----------
$ 3,315,393 $ 4,282,072
=========== ===========
</TABLE>
F-10
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS
Property, equipment and leasehold interests consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land................................. $ 8,458,701 $ 14,258,104 $ 14,258,104
Land improvements.................... 43,471,346 74,172,889 77,531,612
Buildings and improvements........... 15,041,211 26,558,329 29,389,854
Equipment, furniture and fixtures.... 6,689,814 12,777,828 15,832,826
Golf course facility construction in
progress............................ 1,059,305 6,009,124 3,408,918
Leasehold interests.................. 2,799,714 2,799,714 2,840,556
----------- ------------ ------------
77,520,091 136,575,988 143,261,870
Less accumulated depreciation and
amortization........................ (3,785,854) (8,575,684) (11,970,890)
----------- ------------ ------------
Property, equipment and leasehold
interests, net...................... $73,734,237 $128,000,304 $131,290,980
=========== ============ ============
</TABLE>
Land improvements include $10,848,847, $21,214,449, and $22,027,199 at
September 30, 1994 and 1995, and March 31, 1996 respectively, of
nondepreciable golf course improvements consisting of tees, fairways, roughs,
trees, greens, bunkers and sandtraps.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
8% note payable, due monthly through
2007..................................... $ 315,592 $ 301,104 $ 293,391
Variable rate note payable, effective
interest rate 11.02%,
due monthly, secured by the assets of The
Vineyard at Escondido.................... 6,067,673 5,978,847 5,833,773
10% imputed interest note payable, due
monthly beginning January 1996........... -- 2,873,253 2,998,507
Bank term loan............................ 35,683,851 71,444,424 77,444,424
Bank revolving credit agreement........... 500,000 2,300,000 4,600,000
Capital lease obligations, due at various
dates through 2000....................... 2,522,676 3,802,597 4,819,935
----------- ----------- -----------
45,089,792 86,700,225 95,990,030
Less current portion...................... 895,406 1,686,275 6,435,608
----------- ----------- -----------
$44,194,386 $85,013,950 $89,554,422
=========== =========== ===========
</TABLE>
During 1994, certain loans were repaid in advance of maturity. Costs
associated with the early retirement of such loans amounted to $427,997 and
were recorded as an extraordinary item in the consolidated statement of
operations.
In 1994, the Company entered into a credit agreement (the "Credit
Agreement") with a consortium of banks. The Credit Agreement, amended in 1995,
provides for a $5,000,000 revolving credit facility to be used primarily for
working capital and an $85,000,000 term loan facility used for refinancing
existing debt, acquisitions and certain capital expenditures.
F-11
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
The revolving credit facility expires September 30, 2001 at which time any
outstanding unpaid principal is payable in full. The revolving credit facility
provides that borrowings bear interest, which is payable quarterly, at the
Eurodollar rate or a Floating Rate, as defined, plus spreads ranging from 1%
to 4% depending upon the extent of utilization by the Company (9.875% and
9.550% at September 30, 1995 and March 31, 1996, respectively) and requires a
non-use fee on the unused portion equal to 1/2% per annum. The term loan
facility provides that borrowings are payable based on certain specified
percentages (ranging from 9.813% to 9.875% as of September 30, 1995 and 9.313%
to 9.500% as of March 31, 1996, respectively) in 20 quarterly installments
commencing December 1996 and ending September 2001.
The Credit Agreement requires mandatory reductions or prepayments of
principal as a result of certain events and provides for voluntary
prepayments. The Credit Agreement contains numerous covenants which, among
other things, require the Company to maintain defined leverage and interest
coverage ratios, as well as a minimum consolidated net worth and limits the
incurrance of debt, capital expenditures and payment of dividends. Borrowings
under the Credit Agreement are secured by substantially all assets of the
Company except for certain real property in Escondido, California and
equipment under capital leases. In addition, stock of CGGI and subsidiaries
has been pledged to the lenders.
In conjunction with the Credit Agreement, the Company issued warrants to
purchase 20,000 shares of the Company's Series A preferred stock at $100 per
share and 5,472 shares of the Company's common stock at $1 per share. As of
September 30, 1995, all warrants had been exercised.
Pursuant to the terms of the Credit Agreement and to reduce the impact of
interest-rate changes on future interest expense, the Company entered into
interest rate swap agreements during 1994 with one of the lender banks ("the
Bank"). The agreements effectively convert $20 million of the Company's
floating rate long-term debt to a fixed rate basis without an exchange of the
underlying principal amounts. At September 30, 1995 and March 31, 1996, the
Company was obligated to pay a fixed rate of 5.72% on $10 million and 6.13% on
$10 million and to receive the three-month LIBOR (6.00% and 5.87%,
respectively at September 30, 1995 and 5.48% and 5.62%, respectively, at March
31, 1996). The rate is reset every three months and the swap agreements expire
in March and April 1997, respectively. The differential to be paid or received
is accrued and recognized as an adjustment to, interest expense related to the
debt. The related amount payable to or receivable from the Bank is included in
other liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements.
In conjunction with a purchase of two adjacent golf course facilities in
1995 (the "Clubs"), the Company issued a $3,500,000 non-interest bearing
promissory note (the "Note"). Interest on the Note has been imputed at a rate
of 10% and monthly principal payments on the Note are payable in an amount
equal to 50% of Initiation Fees (as defined) collected by the Clubs after
January 1, 1996. Any unpaid principal on the Note is payable on the earlier of
December 14, 2006 or upon the sale by the holder of the Note of a certain
number of residential homes in the communities adjacent to the golf courses.
Maturities of long-term debt (exclusive of capital lease obligations) for
each of the five years in the period ending September 30, 2000, are as
follows: 1996--$350,889; 1997--$7,778,119; 1998--$9,352,990; 1999--
$11,675,086; 2000--$13,738,176; thereafter--$40,002,368.
6. REDEEMABLE PREFERRED STOCK
The Company has two classes of redeemable preferred stock. Both series have
priority upon liquidation over the Company's common stock, but have equal
priority with respect to each other. Both series are also entitled to vote
along with the common stock on the basis of one vote per share of preferred
stock. Shares of Series A
F-12
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
preferred stock are redeemable by the Company at any time, at the discretion
of the Board of Directors, for the purchase price of $100 per share. Shares of
Series B preferred stock are redeemable by the Company at any time, at the
discretion of the Board of Directors, for the purchase price of $100 per share
plus a pro-rata portion of any federal income taxes paid prior to the
redemption date as a result of any gain recognized for federal income tax
purposes upon sale of any golf facilities or subsidiaries in which the tax
basis of the property on the date of acquisition is less than the price paid
by the Company. Upon the sale, consolidation or merger of the Company with or
into another corporation, the sale of all or substantially all of the
Company's assets, or the sale or exchange of stock representing at least 80%
of the voting power of stock of the Company, the Company must redeem all
remaining outstanding shares of both series of preferred stock at the
redemption price as defined above. Redeemable preferred stock consists of the
following:
<TABLE>
<CAPTION>
SHARES AMOUNT
------- -----------
<S> <C> <C>
Balance at September 30, 1992............................. -- --
Issuance of Series A preferred stock for cash, net of
issuance costs of $623,075............................... 254,178 $24,794,725
Issuance of Series A preferred stock for assets and for
ownership interest in consolidated subsidiary............ 4,547 380,800
Issuance of Series B preferred stock for cash, net of
issuance costs of........................................ 20,000 1,945,820
------- -----------
Balance at September 30, 1993............................. 278,725 27,121,345
Issuance of Series A preferred stock for cash............. 64,900 6,490,000
------- -----------
Balance at September 30, 1994............................. 343,625 33,611,345
Issuance of Series A preferred stock for cash, net of
$83,376 in issuance costs................................ 87,132 8,629,824
------- -----------
Balance at September 30, 1995 and March 31, 1996.......... 430,757 $42,241,169
======= ===========
</TABLE>
At September 30, 1995 and March 31, 1996, there were 410,757 shares of
Series A preferred stock outstanding and 20,000 shares of Series B preferred
stock outstanding.
F-13
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. INCOME TAXES
Income taxes are provided for in accordance with the provisions of SFAS No.
109, Accounting for Income Taxes. Under this method, the Company recognizes
deferred tax assets and liabilities for the expected future tax effects of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities, as well as operating loss carryforwards.
The significant components of the Company's deferred tax assets and
liabilities are:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accounting basis in excess of tax basis of golf
properties........................................ $(4,184,000) $(4,184,000)
Depreciation....................................... (224,000) (472,000)
----------- -----------
Total deferred tax liabilities....................... (4,408,000) (4,656,000)
Deferred tax assets:
Net operating loss carryforwards................... 767,000 --
Reserve for notes receivable....................... -- 1,062,000
Deferred gain on sale and leaseback................ -- 320,000
Accrued liabilities................................ 298,000 262,000
Other, net......................................... -- 63,000
----------- -----------
Total deferred tax assets............................ 1,065,000 1,707,000
Valuation allowance for deferred tax assets.......... (841,000) (928,000)
----------- -----------
Net deferred tax assets.............................. 224,000 779,000
----------- -----------
Net deferred tax liabilities......................... $ 4,184,000 $ 3,877,000
=========== ===========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1994 1995
------- ---------
<S> <C> <C>
Current:
Federal............................................... $ -- $ 307,000
State................................................. 71,931 208,000
------- ---------
71,931 515,000
Deferred:
Federal............................................... -- (307,000)
State................................................. -- --
------- ---------
-- (307,000)
------- ---------
Total provision......................................... $71,931 $ 208,000
======= =========
</TABLE>
F-14
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
The following is a reconciliation of the actual tax provision (benefit) to
the expected tax provision (benefit) computed by applying the statutory
federal income tax rate to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision at statutory rate....... $(296,136) $(467,060) $(174,234)
State income tax provision, net of federal
tax benefit................................. 4,160 46,755 135,200
Permanent differences........................ -- -- 177,938
Increase in valuation allowance.............. 319,076 435,000 87,000
Other........................................ (20,700) 57,236 (17,904)
--------- --------- ---------
Total provision for income taxes............. $ 6,400 $ 71,931 $ 208,000
========= ========= =========
</TABLE>
8. COMMITMENTS
In March 1995, the Company entered into a sale and leaseback transaction for
one of its golf course facilities. The Company received proceeds of
approximately $7.4 million and entered into a lease for fifteen years with two
five year renewal options. Minimum rent was $60,939 and $61,975 per month at
September 30, 1995 and March 31, 1996, respectively, and is subject to annual
increases based upon changes in the Consumer Price Index. The deferred gain on
the sale and leaseback transaction of $499,000 is being amortized over the
term of the lease. The Company recorded $407,000 and $369,000 of rent expense
for the year ended September 30, 1995 and the six months ended March 31, 1996,
respectively, related to the lease.
The Company also leases three other golf facilities from the city or county
in which the facility is located. The leases expire in the years 1997, 2016
and 2029. The Company recorded an aggregate of $99,000, $138,000 and $639,000
in rent expense related to leased golf course facilities for the years ended
September 30, 1993, 1994 and 1995, respectively and $79,000 and $497,000 for
the six months ended March 31, 1995 and 1996, respectively.
The Company leases certain golf carts and maintenance equipment under
capital leases with terms of two to five years. Included in equipment,
furniture and fixtures in the accompanying consolidated balance sheets is
equipment under capital leases totaling $3,393,842, $5,806,693 and $7,640,712
at September 30, 1994 and 1995 and March 31, 1996, respectively. Accumulated
amortization of equipment under capital leases totaled $588,859, $1,490,214
and $2,152,977 at September 30, 1994 and 1995 and March 31, 1996,
respectively.
Future minimum lease payments at September 30, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING SEPTEMBER 30, LEASES LEASES
-------------------------- ---------- -----------
<S> <C> <C>
1996................................................. $1,655,582 $ 919,971
1997................................................. 1,202,848 815,265
1998................................................. 844,007 797,265
1999................................................. 569,326 797,265
2000................................................. 283,503 797,265
Thereafter........................................... -- 8,579,018
---------- -----------
Total minimum lease payments....................... 4,555,266 $12,706,049
===========
Amount representing interest......................... 752,669
----------
Present value of net minimum lease payments.......... 3,802,597
Current portion...................................... 1,335,386
----------
$2,467,211
==========
</TABLE>
F-15
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1995 AND PERTAINING
TO THE SIX MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
In accordance with certain purchase agreements, the Company is required to
maintain the respective golf courses in good condition and make various
capital improvements. As of September 30, 1995, the Company had commitments to
build an additional nine holes at two facilities with an estimated aggregate
cost of $5.5 million.
9. RELATED PARTY TRANSACTIONS
In connection with the formation of the Company, an officer of the Company
contributed his interests in the leases of two golf course facilities in
exchange for 4,547 shares of Series A preferred stock, $160,270 cash and a
$250,000 note due in 1999. The officer also contributed his options to acquire
certain other golf course facilities at no cost to the Company.
An affiliate of the majority stockholder provides investment banking and
consulting services to the Company. The Company is obligated to pay a service
fee to the affiliate semi-annually in advance in an amount equal to 1% per
annum of the affiliate's debt and equity investment in the Company and to
reimburse the reasonable fees and costs incurred by the affiliate in providing
services to the Company. The Company paid $677,255, $809,522, and $1,076,416
in fees to the affiliate pursuant to these obligations during the year ended
September 30, 1993, 1994 and 1995; and $913,883 and $162,533 for the six
months ended March 31, 1995 and 1996, respectively.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Sweetwater Golf Partnership
In our opinion, the accompanying balance sheet and the related statements of
operations, of partners' capital (deficit) and of cash flows present fairly,
in all material respects, the financial position of Sweetwater Golf
Partnership (the Partnership), formerly a division of Sugarland Properties
Incorporated (SPI) known as Sweetwater Country Club (the Division), at
December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership'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.
As disclosed in the financial statements, there are extensive transactions
and relationships between the Partnership and SPI. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.
On July 1, 1996, essentially all of the assets and ongoing operations of the
Partnership were sold to a third party for approximately $12,100,000. The
third party also assumed certain current liabilities and the liability for
refundable member security deposits. In July 1996, the Partnership repaid the
notes payable and substantially all remaining current liabilities. The
partners intend to distribute the remaining net assets of the Partnership and
liquidate the Partnership.
PRICE WATERHOUSE LLP
Houston, Texas
July 26, 1996
F-17
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, including restricted cash of
$361,024, $365,281 and $2,698,
respectively.......................... $ 630,048 $ 952,252 $ 642,300
Accounts receivable.................... 912,099 984,355 1,081,436
Inventories............................ 281,299 206,470 220,144
Prepaid and other assets, net.......... 149,388 108,030 57,974
----------- ----------- -----------
Total current assets................. 1,972,834 2,251,107 2,001,854
Clubhouse, golf course and related
facilities, net of accumulated
depreciation............................ 20,947,134 17,656,030 17,571,980
Deferred loan costs, net of accumulated
amortization............................ 57,999 -- --
----------- ----------- -----------
$22,977,967 $19,907,137 $19,573,834
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Current liabilities:
Notes payable.......................... $ 7,955,965 $ 7,923,604 $ 7,852,080
Accounts payable....................... 273,265 159,163 163,035
Accrued interest expense............... 36,939 37,193 33,571
Accrued property taxes................. 402,518 407,404 192,577
Other current liabilities.............. 230,050 404,739 187,081
Deferred revenues...................... 424,257 457,068 651,315
----------- ----------- -----------
Total current liabilities............ 9,322,994 9,389,171 9,079,659
Advances from SPI, net................... 7,378,179 7,263,652 7,156,899
Refundable member security deposits...... 6,260,601 6,102,651 6,075,638
----------- ----------- -----------
Total liabilities.................... 22,961,774 22,755,474 22,312,196
Partners' capital (deficit).............. 16,193 (2,848,337) (2,738,362)
----------- ----------- -----------
$22,977,967 $19,907,137 $19,573,834
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-18
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Membership dues....... $3,747,747 $3,889,271 $ 4,095,820 $2,007,058 $2,203,573
Initiation fees and
other................ 894,773 929,432 896,941 330,386 453,019
Food and beverage..... 1,687,086 1,723,432 1,891,668 830,856 930,196
Golf.................. 1,181,294 1,353,683 1,411,782 666,097 735,898
Merchandise........... 657,663 715,716 756,831 368,307 345,812
Other................. 722,795 598,397 555,339 279,204 296,414
---------- ---------- ----------- ---------- ----------
8,891,358 9,209,931 9,608,381 4,481,908 4,964,912
---------- ---------- ----------- ---------- ----------
Operating expenses:
Food and beverage..... 1,961,955 1,984,340 2,055,792 952,418 1,006,622
Golf.................. 1,589,170 1,750,181 1,955,559 995,622 1,002,050
Depreciation and
amortization......... 946,138 968,062 1,009,127 501,089 531,865
Merchandise........... 540,904 580,596 618,694 313,590 291,657
Property taxes........ 354,664 402,686 407,614 194,000 203,700
Membership............ 251,039 223,713 229,399 120,377 108,652
General and
administrative....... 1,570,385 1,560,970 1,608,071 764,362 767,935
Other................. 1,092,439 992,955 1,043,782 559,947 547,410
---------- ---------- ----------- ---------- ----------
8,306,694 8,463,503 8,928,038 4,401,405 4,459,891
---------- ---------- ----------- ---------- ----------
Income from operations.. 584,664 746,428 680,343 80,503 505,021
Loss on disposal of
assets................. 2,700,000
Interest expense........ 614,314 709,964 844,873 425,962 395,046
---------- ---------- ----------- ---------- ----------
Net income (loss)....... $ (29,650) $ 36,464 $(2,864,530) $ (345,459) $ 109,975
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
SUGARLAND FIRST COLONY
PROPERTIES SPORTS
INCORPORATED PROPERTIES, INC. TOTAL
------------ ---------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1993...... $ -- $ -- $ --
Capital contribution.............. 1,000 1,000
Net income for the period August
19 through December 31, 1994
(see Note 2)..................... 15,041 152 15,193
----------- -------- -----------
Balance at December 31, 1994...... 15,041 1,152 16,193
Net loss for 1995................. (2,835,885) (28,645) (2,864,530)
----------- -------- -----------
Balance at December 31, 1995...... (2,820,844) (27,493) (2,848,337)
Net income for the six month
period ended June 30, 1996
(unaudited)...................... 108,875 1,100 109,975
----------- -------- -----------
Balance at June 30, 1996
(unaudited)...................... $(2,711,969) $(26,393) $(2,738,362)
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------
1993 1994 1995 1995 1996
--------- --------- ----------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss).... $ (29,650) $ 36,464 $(2,864,530) $ (345,459) $ 109,975
Adjustments to
reconcile net income
(loss) to net cash
provided by
operating
activities:
Loan on disposal of
assets............ 2,700,000
Depreciation and
amortization...... 946,138 968,062 1,009,127 501,089 531,865
Provision for
doubtful
accounts.......... 23,903 17,092 11,725 795 2,905
Gain on disposal of
equipment......... (12,190) (2,733)
Changes in:
Operating accounts
with SPI.......... (331,494) (12,554) (114,527) (17,011) (106,753)
Accounts
receivable........ (6,204) (44,007) (83,981) (24,684) (99,986)
Inventories........ (16,751) (59,989) 74,829 40,790 (13,674)
Prepaid expenses
and other assets.. 1,604 (226,607) (75) (49,245) 343
Accounts payable
and accrued
liabilities....... 1,059 26,616 65,727 (202,675) (432,235)
Deferred revenues.. 178,177 (129,444) 32,811 106,105 194,247
Security deposits.. (164,789) (203,369) (157,950) (60,568) (27,013)
--------- --------- ----------- ------------ ------------
Net cash provided
(used) by
operating
activities...... 601,993 360,074 670,423 (50,863) 159,674
--------- --------- ----------- ------------ ------------
Cash flows from
investing activities:
Capital
expenditures........ (293,839) (464,417) (318,591) (139,542) (398,102)
Proceeds from sale of
fixed assets........ 2,733
--------- --------- ----------- ------------ ------------
Net cash used by
investing
activities...... (293,839) (464,417) (315,858) (139,542) (398,102)
--------- --------- ----------- ------------ ------------
Cash flows from financ-
ing activities:
Advances from SPI,
net................. 555,207 187,334
Proceeds from capital
contribution........ 1,000
Repayment of notes
payable............. (701,689) (549,094) (32,361) (71,524)
Proceeds from notes
payable............. 1,902 654,135 39,134
--------- --------- ----------- ------------ ------------
Net cash provided
(used) by financing
activities............ (144,580) 293,375 (32,361) 39,134 (71,524)
--------- --------- ----------- ------------ ------------
Net increase (decrease)
in cash............... 163,574 189,032 322,204 (151,271) (309,952)
Cash at beginning of
period................ 277,442 441,016 630,048 630,048 952,252
--------- --------- ----------- ------------ ------------
Cash at end of period.. $ 441,016 $ 630,048 $ 952,252 $ 478,777 $ 642,300
========= ========= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
STATEMENT OF CASH FLOWS
(continued)
Supplemental disclosure of noncash transactions:
During 1994, the Partnership restructured a capital lease into an operating
lease resulting in the disposal of equipment with a net book value of $68,364
in lieu of the reduction of the remaining related note payable of $83,307.
Also during 1994, the Partnership refinanced its outstanding debt
commitments with various institutions, aggregating $7,343,799, with Texas
Commerce Bank.
The accompanying notes are an integral part of this statement.
F-22
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Sweetwater Golf Partnership (the Partnership), formerly a division of
Sugarland Properties Incorporated (SPI) known as Sweetwater Country Club (the
Division), was formed on August 19, 1994 as discussed further in Note 2. The
Partnership owns and operates the clubhouse, golf course and related
facilities of the Sweetwater Country Club (the Club) located on 380 acres of
land in Sugar Land, Texas. The Club extends credit for merchandise and
services provided to its members who principally reside in Sugar Land and the
greater Houston Area. The Club commenced operations in June 1983.
On July 1, 1996, essentially all of the assets and ongoing operations of the
Partnership were sold to a third party for approximately $12,100,000. The
third party also assumed certain current liabilities and the liability for
refundable member security deposits. In July 1996, the Partnership repaid the
notes payable and substantially all remaining current liabilities. The
partners intend to distribute the remaining net assets of the Partnership and
liquidate the Partnership.
CLUBHOUSE, GOLF COURSE AND RELATED FACILITIES
Project development costs, including financing expenses, ad valorem taxes
and preoperating management fees incurred during the construction period of
the clubhouse, golf course and related facilities, were capitalized.
The clubhouse building, other buildings and improvements and land
development costs are depreciated using the straight-line method over 30
years. Furniture, fixtures and equipment are recorded at cost and are
depreciated using the straight-line method over their estimated useful lives
which range from three to eight years.
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). Since the
clubhouse, golf course and related facilities were written down to their sales
value at December 31, 1995 (see Note 4), adoption of SFAS 121 had no material
effect on the Partnership's financial position or results of operations.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on a first-in, first-out basis.
DEFERRED LOAN COSTS
Legal fees and other loan costs incurred in connection with the August 1994
refinancing of the Partnership's mortgages were capitalized and are being
amortized over the term of the related loans. For the year ended December 31,
1994 and 1995 and the six months ended June 30, 1996, amortization expense
relating to these costs equaled $41,429, $99,432 and $41,714, respectively.
MEMBERSHIP FEES AND DEPOSITS
Various membership classes are offered at the Club, all of which require
either a refundable security deposit or a nonrefundable initiation fee.
Refundable security deposits are recorded as liabilities when received;
nonrefundable initiation fees are recognized as income when received.
F-23
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The by-laws of the Club outline the conditions under which refundable
security deposits are to be returned to members. For resigning members, these
conditions include 30 days' written notice, full payment of unpaid dues and
charges and the existence of a full membership complement in the resigning
member's class of membership. Upon existence of these conditions, one
resigning member's security deposit will be refunded for each new member
admitted. Notwithstanding these conditions, all membership deposits are
refundable to members 30 years from the date their respective membership
applications became effective.
INCOME TAXES
The Partnership is not subject to income tax as the individual partners are
responsible for reporting their pro rata share of the Partnership's taxable
income or loss. However, the Partnership's tax return is subject to
examination by the Internal Revenue Service. Consequently, the individual
partners' tax returns are subject to adjustment for any findings resulting
from such an examination.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has determined that the fair value of the Partnership's financial
instruments is equivalent to the carrying amount of such instruments as
presented or disclosed in the financial statements.
ESTIMATES
The preparation of the Partnership's financial statements requires
management to make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent asset and
liabilities at the date of the financial statements and the related reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. The Partnership's management believes that
the estimates made in connection with these financial statements are
reasonable.
NOTE 2--CHANGE IN STRUCTURE OF ORGANIZATION:
The Partnership, a Texas general partnership, was established and assumed
ownership of the Division from SPI on August 19, 1994. SPI owns a 99%
interest, and First Colony Sports Properties, Inc., a wholly-owned subsidiary
of SPI, owns a 1% interest in the Partnership. Therefore, common control by
SPI continues to exist; additionally, virtually no change in the operations of
the Club, or in the basis of accounting for its assets and liabilities, has
occurred as a result of this change in the structure of the organization.
NOTE 3--INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Merchandise.................................... $211,209 $139,889 $154,831
Food and beverage.............................. 70,090 66,581 65,313
-------- -------- --------
$281,299 $206,470 $220,144
======== ======== ========
</TABLE>
F-24
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--CLUBHOUSE, GOLF COURSE AND RELATED FACILITIES:
The clubhouse, golf course and related facilities are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Clubhouse building...... $10,330,357 $ 10,330,357 $ 10,330,357
Other buildings and
improvements........... 5,324,690 5,589,539 5,585,868
Land development........ 5,052,767 4,809,365 4,819,660
Furniture, fixtures and
equipment.............. 3,543,220 3,300,780 3,566,244
----------- ------------ ------------
24,251,034 24,030,041 24,302,129
Accumulated
depreciation........... (9,972,182) (10,342,293) (10,698,431)
----------- ------------ ------------
14,278,852 13,687,748 13,603,698
Land.................... 1,293,794 1,293,794 1,293,794
Golf course land........ 5,374,488 5,374,488 5,374,488
----------- ------------ ------------
20,947,134 20,356,030 20,271,980
Loss on disposal of
assets................. (2,700,000) (2,700,000)
----------- ------------ ------------
$20,947,134 $ 17,656,030 $ 17,571,980
=========== ============ ============
</TABLE>
On July 1, 1996, the partnership sold all of its operating assets to an
unrelated party. Under the terms of the sale, the price paid for the
clubhouse, golf course and related facilities was determined to be
substantially lower than their net book value at December 31, 1995;
accordingly, these assets were written down at December 31, 1995 to reflect
their sales value.
During 1993, 1994 and 1995 and the six months ended June 30, 1995 and 1996,
depreciation expense amounted to $923,924, $926,633, $909,695, $451,375 and
$482,152, respectively. Accumulated depreciation was reduced by $512,217 and
$539,584 in connection with the retirement of certain fixed assets during 1994
and 1995, respectively, and by $126,014 for the six months ended June 30,
1996.
NOTE 5--NOTES PAYABLE:
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Texas Commerce Bank, interest at prime
plus 1.75% payable monthly, principal
due August 24, 1996, secured by
substantially all of the Partnership's
assets.................................. $6,609,614 $6,609,614 $6,609,614
Texas Commerce Bank, interest at prime
plus 1.75% payable monthly, principal
reduced by monthly instalment payments
of $11,860, remaining principal due
August 24, 1996, secured by a second
lien on substantially all of the
Partnership's assets.................... 1,340,880 1,313,432 1,242,272
Other notes, various interest rates,
payable monthly, secured by equipment... 5,471 558 194
---------- ---------- ----------
$7,955,965 $7,923,604 $7,852,080
========== ========== ==========
</TABLE>
F-25
<PAGE>
SWEETWATER GOLF PARTNERSHIP
(FORMERLY A DIVISION OF SUGARLAND PROPERTIES INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--ADVANCES FROM SPI, NET:
Advances from SPI, net are noninterest-bearing, unsecured and consist mainly
of reimbursable costs that are incurred by one party on behalf of the other in
addition to SPI's funding of cumulative working capital shortfalls. Management
of SPI has represented that repayment of these advances will not be required
within the next year, and accordingly, these obligations have been classified
as long-term on the balance sheet.
F-26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statements of operations of Lakeway Country
Club for the years ended December 31, 1993 and 1994, and for the three months
ended March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements of operations based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statements of operations presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements of operations referred to above present
fairly, in all material respects, the results of operations of Lakeway Country
Club for the years ended December 31, 1993 and 1994, and for the three months
ended March 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
July 3, 1996
F-27
<PAGE>
LAKEWAY COUNTRY CLUB
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------- THREE MONTHS ENDED
1993 1994 MARCH 31, 1995
---------- ---------- ------------------
<S> <C> <C> <C>
Operating revenues:
Green fees, cart rentals and
practice facility fees............ $4,592,525 $4,905,610 $1,250,549
Food and beverage.................. 589,293 621,563 152,099
Pro shop........................... 629,669 616,394 157,022
Other.............................. 389,195 376,833 50,812
---------- ---------- ----------
Total operating revenues............. 6,200,682 6,520,400 1,610,482
Operating expenses
Golf course and tennis center
operations........................ 3,548,790 3,650,040 865,257
Cost of food and beverage.......... 201,363 210,908 51,714
Cost of pro shop sales............. 436,529 425,400 108,345
General and administrative......... 1,783,988 1,627,991 307,572
Depreciation....................... 601,218 580,573 173,971
---------- ---------- ----------
Total operating expenses............. 6,571,888 6,494,912 1,506,859
---------- ---------- ----------
Income (loss) from operations........ (371,206) 25,488 103,623
Interest income, net................. 20,890 15,293 6,356
---------- ---------- ----------
Net income (loss).................... $ (350,316) $ 40,781 $ 109,979
========== ========== ==========
</TABLE>
See accompanying notes.
F-28
<PAGE>
LAKEWAY COUNTRY CLUB
NOTE TO STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THREE MONTHS ENDED MARCH 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
In 1991, the Federal Depository Insurance Corporation ("FDIC") took
possession of the assets of Lakeway Company. On January 31, 1995, Hillwood
Development Company ("Hillwood") purchased Lakeway Company from the FDIC.
In April 1995, Cobblestone Holdings, Inc. ("Cobblestone") purchased Live Oak
Golf Course, Yaupon Golf Course, The Hills of Lakesway Golf Course and their
related assets and a tennis center and its related assets from Hillwood. The
assets purchased by Cobblestone were only a portion of Lakeway Company. These
assets are being referred to as Lakeway Country Club (the "Company") herein.
Lakeway Country Club is located north of Austin, Texas near Lake Travis.
The accompanying statements of operations reflect the results of operations
from the assets acquired by Cobblestone. The statements of operations for the
years ended December 31, 1993 and 1994, and for the three month period ended
March 31, 1995 are not necessarily indicative of those that would have been
achieved by the Company had it operated on a stand-alone basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which is recognized over the period during which the dues and fees
allow the members access to the facilities. The Company recognizes revenue on
initiation fees at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight line over the estimated useful lives of the asset.
RELIANCE ON ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
Lakeway Country Club records income tax expense as if it would file tax
returns on a stand alone basis. No provision for income taxes has been made
due to the availability of the net operating loss carryforward to offset
taxable income.
F-29
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the combined statements of operations of Stonebridge Country
Club, Inc. and The Ranch Country Club, Inc. for the year ended December 31,
1993 and the eleven and one-half months ended December 15, 1994. These
statements of operations are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement of operations presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements of operations referred to above present
fairly, in all material respects, the combined results of operations of
Stonebridge Country Club, Inc. and The Ranch Country Club, Inc. in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
June 21, 1996
F-30
<PAGE>
STONEBRIDGE COUNTRY CLUB, INC.
THE RANCH COUNTRY CLUB, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN
AND ONE-
HALF
MONTHS
ENDED
YEAR ENDED DECEMBER
DECEMBER 31, 15,
1993 1994
------------ -----------
<S> <C> <C>
Operating revenues
Green fees, cart rental fees, practice facility
fees, dues and initiation fees.................... $3,319,483 $ 3,611,663
Food and beverage revenues......................... 1,149,343 1,151,130
Pro shop sales..................................... 672,279 658,308
Other.............................................. 344,256 189,881
---------- -----------
Total operating revenues............................. 5,485,361 5,610,982
Operating expenses:
Golf course operations............................. 1,451,871 1,551,028
Cost of food and beverage.......................... 1,553,489 1,543,889
Cost of pro shop sales............................. 1,262,266 1,145,852
General and administrative......................... 1,952,595 2,726,511
Depreciation and amortization...................... 104,532 104,530
---------- -----------
Total operating expenses............................. 6,324,753 7,071,810
---------- -----------
Net loss............................................. $ (839,392) $(1,460,828)
========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE>
STONEBRIDGE COUNTRY CLUB, INC.
THE RANCH COUNTRY CLUB, INC.
NOTES TO COMBINED STATEMENTS OF OPERATIONS
DECEMBER 31, 1993 AND THE ELEVEN AND ONE HALF MONTHS ENDED DECEMBER 15, 1994
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
Stonebridge Country Club, Inc. and The Ranch Country Club, Inc. (the
"Companies") own and operate two private country clubs. The Companies' main
activities include golf, tennis, swimming and dining. In December 1994,
Cobblestone Golf Group, Inc. purchased substantially all of the assets of the
Companies. Therefore, the accompanying statements of operations reflect the
results of operations from the assets acquired by Cobblestone. The statements
of operations for the years ended December 31, 1993 and the eleven and one
half months ended December 15, 1994 are not necessarily indicative of those
that would have been achieved by the Company had it operated on a stand-alone
basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which is recognized over the period which the dues and fees allow
the members access to the facilities. The Company recognizes revenue on
initiation fees at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the assets.
2. INCOME TAXES
As a result of the Company's net loss, the accompanying statements of
operations does not include any provision for income taxes. The Company has
recorded a valuation allowance on its deferred tax assets since the
realization of such assets is uncertain.
F-32
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statements of operations of Brandermill
Country Club, L.P. for the year ended December 31, 1994 and the two months
ended February 28, 1995. These statements of operations are the responsibility
of the Partnership's management. Our responsibility is to express an opinion
on these statements of operations based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statements of operations presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the statements of operations referred to above present
fairly, in all material respects, the results of operations of Brandermill
Country Club, L.P. for the year ended December 31, 1994 and the two months
ended February 28, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-33
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31, FEBRUARY 28,
1994 1995
------------ ------------
<S> <C> <C>
Operating revenues:
Membership dues and initiation fees................. $2,194,861 $359,939
Food and beverage................................... 647,297 50,872
Pro shop sales...................................... 693,820 46,646
Other............................................... 24,465 4,299
---------- --------
Total operating revenues.............................. 3,560,443 461,756
Operating expenses:
Golf course, tennis and swimming pool operations.... 776,614 52,373
Cost of food and beverage........................... 806,432 95,872
Cost of pro shop sales.............................. 701,161 63,862
General and administrative.......................... 710,676 119,563
Depreciation........................................ 83,308 13,885
---------- --------
Total operating expenses.............................. 3,078,191 345,555
Income from operations................................ 482,252 116,201
Interest expense, net................................. (486,794) (72,574)
---------- --------
Net income (loss)..................................... $ (4,542) $ 43,627
========== ========
</TABLE>
See accompanying notes.
F-34
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
NOTES TO STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 AND TWO MONTHS ENDED FEBRUARY 28, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Brandermill Country Club, L.P. ("BCC"), a limited partnership, owns and
operates a private country club in Midlothian, Virginia. The club's main
activities include golf, tennis, swimming and dining.
In March 1995, BCC sold its land, inventory, receivables, and other selected
assets to Cobblestone Golf Group, Inc. The accompanying statements of
operations reflect the results of operations from the assets acquired by
Cobblestone. The statements of operations for the years ended December 31,
1993 and 1994, and for the three month period ended March 31, 1995 are not
necessarily indicative of those that would have been achieved by the Company
had it operated on a stand-alone basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period which the dues and fees allow
the members access to the facilities. The Company recognizes revenue on
initiation fees for the amount of the deposit and the amount of the note
receivable at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the asset.
RELIANCE ON ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
Under the provisions of the Internal Revenue Code, partnerships are not
subject to income taxes. For income tax purposes, any income or losses
realized are taxable to the individual partners.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
Brandermill Country Club, L.P.
Richmond, Virginia
We have audited the balance sheet of Brandermill Country Club, L.P. as of
December 31, 1993, and the related statements of operations, partners'
deficit, and cash flows for the year then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brandermill Country Club,
L.P. at December 31, 1993, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Richmond, Virginia
April 12, 1994
F-36
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<S> <C>
ASSETS
Current assets
Cash............................................................ $ 96,312
Accounts receivable (Note 2).................................... 55,166
Prepaids and other assets....................................... 2,580
-----------
Total current assets............................................. 154,058
-----------
Property and equipment, net of accumulated depreciation (Notes 1
and 2).......................................................... 1,415,609
-----------
Other assets..................................................... 440
-----------
$ 1,570,107
===========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable................................................ $55,271
Current maturities of long-term debt (Note 2)................... 53,670
Other liabilities............................................... --
-----------
Total current liabilities........................................ 108,941
Long-term debt, less current maturities (Note 2)................. 4,541,874
-----------
Total liabilities................................................ 4,650,815
-----------
Commitments (Note 3).............................................
-----------
Partners' deficit
General partner................................................. (323,416)
Limited partners................................................ (2,757,292)
-----------
Total partners' deficit.......................................... (3,080,708)
-----------
$ 1,570,107
===========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-37
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
REVENUES
<S> <C>
Membership dues.................................................... $1,976,682
Initiation fees.................................................... 217,936
Golf course revenue................................................ 398,084
Other income....................................................... 20,657
----------
Total revenues..................................................... 2,613,359
----------
OPERATING EXPENSES
Management fees (Note 4)........................................... 1,038,933
Depreciation and amortization...................................... 131,137
Repairs and maintenance............................................ 199,012
Supplies........................................................... 112,182
Utilities and telephone............................................ 124,344
Insurance.......................................................... 45,703
Rent (Note 3)...................................................... 88,913
Real estate tax.................................................... 46,242
Other expenses..................................................... 292,140
----------
Total operating expenses............................................ 2,078,606
----------
Operating income.................................................... 534,753
INTEREST EXPENSE, NET............................................... 517,407
----------
NET INCOME.......................................................... $ 17,346
==========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-38
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
PARTNERS' DEFICIT, December 31, 1992...... $(322,054) $(2,749,949) $(3,072,003)
Distributions to partners................. (4,071) (21,980) (26,051)
Net income for the year................... 2,709 14,637 17,346
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1993...... $(323,416) $(2,757,292) $(3,080,708)
========= =========== ===========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-39
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 17,346
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization...................................... 131,137
Decrease in accounts receivable.................................... 6,834
Decrease in prepaids and other assets.............................. --
Increase (decrease) in accounts payable............................ (22,773)
Other.............................................................. (12,826)
--------
Net cash provided by operating activities............................ 119,718
--------
INVESTING ACTIVITIES
Purchase of property and equipment.................................. (47,500)
--------
Net cash absorbed by investing activities............................ (47,500)
--------
FINANCING ACTIVITIES
Payments on long-term debt.......................................... (47,866)
Distributions to partners........................................... (26,051)
--------
Net cash absorbed by financing activities............................ (73,917)
--------
INCREASE (DECREASE) IN CASH.......................................... (1,699)
CASH, beginning of year.............................................. 98,011
--------
CASH, end of year.................................................... $ 96,312
========
</TABLE>
See accompanying independent auditors' report, summary of accounting policies
and notes to financial statements.
F-40
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
SUMMARY OF ACCOUNTING POLICIES
<TABLE>
<C> <S>
NATURE OF Brandermill Country Club, L.P. ("BCC"), a limited
BUSINESS partnership, owns and operates a private country club
in Midlothian, Virginia. The club's main activities
include golf, tennis, swimming and dining.
OTHER ASSETS Other assets consist primarily of deferred financing
costs related to the note payable to Crestar Bank,
and are being amortized over the term of the note,
(five years).
PROPERTY AND Property and equipment is stated at cost.
EQUIPMENT Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Cost of betterments,
renewals and major replacements are capitalized. At
the time properties are retired or otherwise disposed
of, the related costs and allowances for depreciation
are eliminated from the accounts and any gain or loss
on disposition is reflected in income.
Depreciation is computed using accelerated methods
over the estimated useful lives of the assets.
INCOME TAXES BCC is a partnership and, consequently, each partner
will report their proportional share of the income,
losses and credits on their individual tax return.
SUPPLEMENTAL DISCLOSURE Cash payments for interest amounted to $518,310 for
OF CASH FLOW INFORMATION the year ended December 31, 1993.
</TABLE>
See accompanying independent auditors' report.
F-41
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
NOTES TO FINANCIAL STATEMENTS
1. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Land............................................................... $ 349,099
Buildings.......................................................... 823,579
Land improvements.................................................. 309,030
Furniture and fixtures............................................. 163,050
Machinery and equipment............................................ 151,331
Tennis courts...................................................... 29,070
Landscaping........................................................ 34,438
Shuffleboard courts................................................ 1,492
Parking lots....................................................... 10,229
----------
1,871,318
Less accumulated depreciation...................................... 455,709
----------
Net property and equipment......................................... $1,415,609
==========
</TABLE>
2. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
Note payable to Crestar Bank (Crestar), with interest at 11%,
collateralized by property and equipment with a book value of
approximately $1,416,000 at December 31, 1993, a first security
interest in accounts receivable, and personal guarantees of the
limited partners, due in 59 monthly installments (amortized on a
25-year basis) through March 1, 1995, with the final installment
equal to an amount to pay the loan in full due on April 1, 1995
(See below)..................................................... $4,595,544
Less current maturities.......................................... 53,670
----------
$4,541,874
==========
</TABLE>
On January 28, 1994, the Partnership entered into a new note agreement with
NationsBank in the principal amount of $5,550,000; proceeds of which were used
primarily to pay off the Crestar note. The new note bears interest at 7.70%.
Principal and interest are payable by the Partnership in monthly installments
of $45,757 through February 1997, on which date the entire remaining principal
balance is due.
Amounts maturing under the new note during each of its remaining years are as
follows: 1994--$110,552; 1995--$129,085; 1996--$139,531; 1997--$5,170,832.
3. COMMITMENTS
BCC leases certain equipment under operating leases expiring at various dates
through 1998. Future minimum rental payments required that have initial or
remaining noncancelable terms in excess of one year as of December 31, 1993 are
approximately $61,521 in 1994; $58,514 in 1995; $58,514 in 1996; $43,952 in
1997; and $39,601 in 1998. Total rental expense amounted to $88,913 for the
year ended December 31, 1993.
See accompanying independent auditors' report.
F-42
<PAGE>
BRANDERMILL COUNTRY CLUB, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTY TRANSACTIONS
For the year ended December 31, 1993 BCC paid $1,038,933 to East West
Partners of Virginia, Inc., a related entity to BCC, for management and
administrative fees. This amount relates primarily to salary and employee
benefit costs incurred by employees of East West.
See accompanying independent auditors' report.
F-43
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statements of income for Pecan Grove
Plantation Country Club, Inc. (the "Club") for the year ended December 31,
1993 and the month ended January 31, 1994. These statements of income are the
responsibility of the Club's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of income are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of income. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
income presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the statements of income referred to above present fairly,
in all material respects, the results of operations of Pecan Grove Plantation
Country Club, Inc. for the year ended December 31, 1993 and the month ended
January 31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-44
<PAGE>
PECAN GROVE PLANTATION COUNTRY CLUB, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED
DECEMBER 31, JANUARY 31,
1993 1994
------------ -----------
<S> <C> <C>
Operating revenues:
Green fees, cart rental fees, practice facility
fees, dues and initiation fees..................... $2,282,397 $182,064
Food and beverage revenues.......................... 408,847 20,067
Pro shop sales...................................... 283,230 5,980
Other............................................... 26,522 1,177
---------- --------
Total operating revenues.............................. 3,000,996 209,288
Operating expenses:
Golf course operations.............................. 2,380,405 171,304
Cost of food and beverage........................... 177,772 7,151
Cost of pro shop sales.............................. 265,547 11,606
Depreciation and amortization....................... 79,295 6,125
---------- --------
Total operating expenses.............................. 2,903,019 196,186
Income from operations................................ 97,977 13,102
Provision for income taxes............................ 25,404 4,000
---------- --------
Net income............................................ $ 72,573 $ 9,102
========== ========
</TABLE>
See accompanying notes.
F-45
<PAGE>
PECAN GROVE PLANTATION COUNTRY CLUB
NOTES TO STATEMENTS OF INCOME
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Pecan Grove Plantation Country Club (the "Company") is located in Richmond,
Texas, and consists of a 27-hole private golf course, driving range, tennis
courts, pool, clubhouse and pro shop. In February, 1994 the Company sold its
land, inventory, receivables, and other selected assets to Cobblestone Golf
Group, Inc.
The accompanying statements of income reflect the results of operations from
the assets acquired by Cobblestone Golf Group, Inc.. The statements of
operations for the year ended December 31, 1993 and for the month ended
January 31, 1994 are not necessarily indicative of those that would have been
achieved by the Company had it operated on a stand alone basis.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period during which the dues and fees
allow the members access to the facilities. The Company recognizes revenue on
initiation fees at the time the membership is sold.
PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment is depreciated using the
straight-line method over the estimated useful lives of the asset.
RELIANCE ON ESTIMATES
The statements of income have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the statements of income and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INCOME TAXES
The provision (benefit) for income taxes at January 31, 1994 and December
31, 1993 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1993 1994
------------ -----------
<S> <C> <C>
Current:
Federal........................................ $20,882 $3,280
State.......................................... 4,522 720
Deferred:
Federal........................................ -- --
State.......................................... -- --
------- ------
$25,404 $4,000
======= ======
</TABLE>
See accountants' review report.
F-46
<PAGE>
PECAN GROVE PLANTATION COUNTRY CLUB
NOTES TO STATEMENTS OF INCOME--(CONTINUED)
2. INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates and the statutory federal income
tax rates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1993 1994
------------ -----------
<S> <C> <C>
Tax at federal rate..... $ 35,174 $ 4,717
State income tax, net of
federal tax benefits... 2,939 469
Benefit of graduated
rates.................. (12,709) (1,186)
-------- -------
$ 25,404 $ 4,000
======== =======
</TABLE>
See accountants' review report.
F-47
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statement of income of Ocean Vista Land
Company for the five months ended May 31, 1993. This statement of income is
the responsibility of Ocean Vista Land Company's management. Our
responsibility is to express an opinion on this statement of income based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of income is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of income. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
income presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the statement of income referred to above presents fairly,
in all material respects, the results of operations of Ocean Vista Land
Company for the five months ended May 31, 1993, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-48
<PAGE>
OCEAN VISTA LAND COMPANY
STATEMENT OF INCOME
FIVE MONTHS ENDED MAY 31, 1993
<TABLE>
<S> <C>
Operating revenues:
Green fees, cart rental fees, practice facility fees,
dues and initiation fees......................................... $1,815,550
Food and beverage revenues........................................ 482,836
Other............................................................. 260,631
----------
Total operating revenues............................................ 2,559,017
Operating expenses:
Golf course operations............................................ 619,879
Cost of food and beverage......................................... 483,235
General and administrative........................................ 1,020,490
----------
Total operating expenses............................................ 2,123,604
----------
Net income.......................................................... $ 435,413
==========
</TABLE>
See accompanying notes.
F-49
<PAGE>
OCEAN VISTA LAND COMPANY
NOTE TO STATEMENT OF INCOME
FIVE MONTHS ENDED MAY 31, 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Ocean Vista Land Company owns and operates the El Camino Country Club ("El
Camino") and Whispering Palms Lodge and Country Club ("Whispering Palms"). El
Camino is located in Oceanside, California, and consists of an 18-hole private
golf course, driving range, tennis courts, pool, clubhouse and pro shop.
Whispering Palms is located in Rancho Santa Fe, California, and consists of a
27-hole semi-private golf course, lodge, tennis courts, swimming pool,
clubhouse and pro shop.
In June 1993, Cobblestone Golf Group, Inc. purchased substantially all of
the stock of Ocean Vista Land Company.
REVENUE
Operating revenue is recognized when received except for dues and fees paid
in advance which are recognized over the period during which the dues and fees
allow the members access to the facilities. The Company recognizes revenue on
initiation at the time the membership is sold.
RELIANCE ON ESTIMATES
The financial statements have been prepared in accordance with generally
accepted accounting principles and have required management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
The effective rate for income tax differs from the statutory rate as a
result of the change in deferred taxes related to the write off of notes
receivable and investments.
F-50
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Cobblestone Golf Group, Inc.
We have audited the accompanying statement of operations of Saticoy Regional
Golf Course for the two and a half months ended March 12, 1993. This statement
of operations is the responsibility of Saticoy Regional Golf Course's
management. Our responsibility is to express an opinion on this statement of
operations based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of operations is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement of operations presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of operations of Saticoy
Regional Golf Course for the two and a half months ended March 12, 1993, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
July 19, 1996
F-51
<PAGE>
SATICOY REGIONAL GOLF COURSE
STATEMENT OF OPERATIONS
FOR THE TWO AND A HALF MONTHS ENDED MARCH 12, 1993
<TABLE>
<S> <C>
Operating revenues:
Green fees, golf cart and range revenue............................ $ 77,538
Food and beverage.................................................. 7,249
Pro shop sales..................................................... 4,050
Other.............................................................. 4,205
--------
Total operating revenues............................................. 93,042
Operating expenses:
Golf course operations............................................. 43,302
Cost of food and beverage.......................................... 4,415
Cost of pro shop sales............................................. 3,911
General and administrative......................................... 21,687
Depreciation....................................................... 15,824
--------
Total operating expenses............................................. 89,139
Income from operations............................................... 3,903
Interest expense, net................................................ (14,499)
--------
Net income (loss).................................................... $(10,596)
========
</TABLE>
See accompanying notes.
F-52
<PAGE>
SATICOY REGIONAL GOLF COURSE
NOTES TO STATEMENT OF OPERATIONS
FOR THE TWO AND HALF MONTHS ENDED MARCH 12, 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Saticoy Regional Golf Course (the "Company") is a public golf course located
in Ventura, California. The facility consists of a 9-hole municipal golf
course, driving range, and pro shop.
In March of 1993, Cobblestone Golf Group, Inc. acquired the leasehold
interest in the Company.
REVENUE
Operating revenue is recognized when received.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is depreciated using the straight-line method
over the estimated useful lives of the asset.
INCOME TAXES
As a result of the Company's net loss, the accompanying statement of
operations does not include any provision for income taxes. The Company has
recorded a valuation allowance on its deferred tax assets since the
realization of such assets is uncertain.
F-53
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of the
Company presents the uanudited pro forma consolidated statements of operations
for the year ended September 30, 1995, and the six months ended March 31,
1996, and the unaudited pro forma consolidated balance sheet at March 31,
1996. The pro forma combined consolidated statements of operations for the
year ended September 30, 1995, and the six months ended March 31, 1996, have
been adjusted to give effect to (i) the Company's acquisition of Red Mountain
Ranch Country Club (completed in January, 1995), the Hills of Lakeway
(completed in March, 1995), Live Oak Golf Course (completed in March, 1995),
Brandermill Country Club (completed in March, 1995), Yaupon Golf Course
(completed in March, 1995), the Ranch Country Club (completed in December,
1994), Stonebridge Country Club (completed in December, 1994), (ii) the
Company's acquisition of Eagle Crest Country Club (completed in June, 1996),
and Sweetwater Country Club (completed in July, 1996), in each case as if such
transactions had occurred on October 1, 1994. The pro forma consolidated
balance sheet at March 31, 1996, has been adjusted to give effect to the
acquisitions of Eagle Crest and Sweetwater, which occurred after March 31,
1996. Pro forma adjustments relating to the 1995 Acquisitions and the 1996
Acquisitions are referred to herein collectively as the "Pro Forma Acquisition
Adjustments."
The pro forma as adjusted consolidated statements of operations for the year
ended September 30, 1995 and for the six months ended March 31, 1996, give
additional effect to (i) the issuance by the Company of $70,000,000 aggregate
principal amount of its 11 1/2% Series A Senior Notes due 2003, (ii) the
issuance by Holdings of 86,000 units, each consisting of $1,000 principal
amount at maturity of its 13 1/2% Series A Senior Zero-Coupon Notes due 2004
and one share of its common stock, for $352.04 per unit, (iii) the increase in
interest expense as a result of the increase in indebtedness, (iv) the write-
off of the unamortized loan fees, in each case as if such transactions had
occurred on the first day of the period presented. The pro forma adjustments
relating to the transactions referred to in clauses (i) through (iv) are
referred to herein collectively as the "Pro Forma Offering Adjustments." The
pro forma as adjusted consolidated balance sheet gives additional effect to
the Pro Forma Offering Adjustments as if they had occurred at March 31, 1996.
See "Use of Proceeds."
The Pro Forma Acquisition Adjustments and Pro Forma Offering Adjustments
represent the Company's determination of all adjustments necessary to present
fairly the Company's pro forma results of operations and financial position
and are based upon available information and certain assumptions considered
reasonable under the circumstances. The pro forma consolidated financial
information presented herein does not purport to present what the Company's
financial position or results of operations would actually have been had such
events leading to the Pro Forma Acquisition Adjustments and Pro Forma Offering
Adjustments in fact occurred on the date or at the beginning of the periods
indicated or to project the Company's financial position or results of
operations for any future date or period.
The pro forma consolidated financial information should be read in
conjunction with the historical Consolidated Financial Statements of the
Company and the Notes thereto and management's discussion thereof contained
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto.
F-54
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL 1995 1996 ACQUISITIONS PRO FORMA OFFERING PRO FORMA AS
HOLDINGS ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
----------- ------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues:
Green fees, cart
rental fees, practice
facility fees, dues
and initiation fees.. $38,043,441 $4,263,175 $ 7,766,082 $ -- $50,072,698 $ -- $ 50,072,698
Food and beverage
revenues............. 7,034,407 857,275 2,074,500 -- 9,966,182 -- 9,966,182
Pro shop sales........ 3,311,062 705,421 840,810 -- 4,857,293 -- 4,857,293
Other................. 1,473,869 172,703 557,146 -- 2,203,718 -- 2,203,718
----------- ---------- ----------- ---------- ----------- ----------- ------------
Total operating
revenues.............. 49,862,779 5,998,574 11,238,538 -- 67,099,891 -- 67,099,891
Operating expenses:
Golf course
operations........... 29,591,886 2,313,558 2,967,097 -- 34,872,541 -- 34,872,541
Cost of food and
beverage............. 2,613,295 799,046 2,124,723 -- 5,537,064 -- 5,537,064
Cost of pro shop
sales................ 2,221,330 717,656 681,019 -- 3,620,005 -- 3,620,005
General and
administrative....... 2,517,423 2,329,720 3,623,606 1,168,375 (1) 9,639,124 -- 9,639,124
Depreciation and
amortization......... 6,144,430 422,824 1,084,719 (597,704)(2) 7,054,269 -- 7,054,269
----------- ---------- ----------- ---------- ----------- ----------- ------------
Total operating
expense............... 43,088,364 6,582,804 10,481,164 570,671 60,723,003 -- 60,723,003
----------- ---------- ----------- ---------- ----------- ----------- ------------
Income (loss) from
operations............ 6,774,415 (584,230) 757,374 (570,671) 6,376,888 -- 6,376,888
Interest expense, net.. (8,019,072) (209,452) (844,873) (339,586)(3) (9,412,983) (3,473,145)(4) (12,886,128)
Loss on disposal of
assets................ -- -- (2,700,000) 2,700,000 (6) -- -- --
Gain on insurance
settlement............ 746,845 -- 746,845 -- 746,845
----------- ---------- ----------- ---------- ----------- ----------- ------------
Loss before income
taxes and
extraordinary item.... (497,812) (793,682) (2,787,499) 1,789,743 (2,289,250) (3,473,145) (5,762,395)
Provision for income
taxes................. 208,000 -- -- -- 208,000 -- 208,000
----------- ---------- ----------- ---------- ----------- ----------- ------------
Loss before
extraordinary item.... (705,812) (793,682) (2,787,499) 1,789,743 (2,497,250) (3,473,145) (5,970,395)
Extraordinary item..... -- -- -- -- -- (2,998,986)(5) (2,998,986)
----------- ---------- ----------- ---------- ----------- ----------- ------------
Net loss............... $ (705,812) $ (793,682) $(2,787,499) $1,789,743 $(2,497,250) $(6,472,131) $ (8,969,381)
=========== ========== =========== ========== =========== =========== ============
</TABLE>
See accompanying notes.
F-55
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AT SEPTEMBER
30, 1995
(1) Represents operating lease payments related to Sweetwater Country Club
assuming the lease on the property was acquired at the beginning of the
period.
(2) Represents the elimination of the historical depreciation and amortization
of 1995 and 1996 Acquisitions and the Company's estimate for depreciation
and amortization assuming the property, equipment and leasehold interests
acquired were stated at fair market value at the beginning of the period.
(3) Represents the net effect from the elimination of historical interest
expense for the 1995 and 1996 Acquisitions and the effect on interest
expense from the borrowings required to fund the 1995 and 1996
Acquisitions as if the transactions were consummated at the beginning of
the period.
(4) Represents the net effect from the elimination of historical interest
expense assuming all existing debt was repayed by the use of offering
proceeds at the beginning of the period and the effects on interest
expense related to the debt offering.
(5) Represents the write-off of the unamortized loan fees.
(6) Represents the elimination of the loss on disposal of assets related to
Sweetwater Country Club.
F-56
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL 1996 ACQUISITIONS PRO FORMA OFFERING PRO FORMA
HOLDINGS ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Green fees, cart rental
fees, practice
facility fees, dues
and initiation fees... $19,738,164 $3,847,446 $ -- $23,585,610 $ -- $23,585,610
Food and beverage
revenues.............. 4,094,965 1,103,201 -- 5,198,166 -- 5,198,166
Pro shop sales......... 2,134,053 379,023 -- 2,513,076 -- 2,513,076
Other.................. 1,039,499 268,434 -- 1,307,933 -- 1,307,933
----------- ---------- --------- ----------- ----------- -----------
Total operating
revenues............... 27,006,681 5,598,104 -- 32,604,785 -- 32,604,785
Operating expenses:
Golf course
operations............ 16,256,240 1,957,474 -- 18,213,714 -- 18,213,714
Cost of food and
beverage.............. 1,415,715 1,073,712 -- 2,489,427 -- 2,489,427
Cost of pro shop
sales................. 1,413,254 307,682 -- 1,720,936 -- 1,720,936
General and
administrative........ 1,723,545 1,017,224 584,187 (1) 3,324,956 -- 3,324,956
Depreciation and
amortization.......... 3,518,380 600,420 (477,980)(2) 3,640,820 -- 3,640,820
----------- ---------- --------- ----------- ----------- -----------
Total operating
expense................ 24,327,134 4,956,512 106,207 29,389,853 -- 29,389,853
----------- ---------- --------- ----------- ----------- -----------
Income (loss) from
operations............. 2,679,547 641,592 (106,207) 3,214,932 -- 3,214,932
Interest expense, net... (5,118,027) (408,590) 106,122 (3) (5,420,495) (1,140,709)(4) (6,561,204)
Gain on insurance
settlement............. -- -- -- -- -- --
----------- ---------- --------- ----------- ----------- -----------
Loss before income taxes
and extraordinary
item................... (2,438,480) 233,002 (85) (2,205,563) (1,140,709) (3,346,272)
Provision for income
taxes.................. 23,400 -- -- 23,400 -- 23,400
----------- ---------- --------- ----------- ----------- -----------
Net loss................ $(2,461,880) $ 233,002 $ (85) $(2,228,963) $(1,140,709) $(3,369,672)
=========== ========== ========= =========== =========== ===========
</TABLE>
See accompanying notes.
F-57
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AT MARCH 31,
1996
(1) Represents operating lease payments related to Sweetwater Country Club
assuming the lease on the property was acquired at the beginning of the
period.
(2) Represents the elimination of the historical depreciation and amortization
of 1996 Acquisitions and the Company's estimate for depreciation and
amortization assuming the property, equipment and leasehold interests
acquired were stated at fair market value at the beginning of the period.
(3) Represents the net effect from the elimination of historical interest
expense for the 1996 Acquisitions and the effect on interest expense from
the borrowings required to fund the 1996 Acquisitions as if the
transactions were consummated at the beginning of the period.
(4) Represents the net effect from the elimination of historical interest
expense assuming all existing debt was repayed by the use of offering
proceeds at the beginning of the period and the effects on interest
expense related to the debt offering.
F-58
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL 1996 ACQUISITIONS PRO FORMA OFFERING PRO FORMA AS
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 1,590,803 $ 828,022 $ (245,527)(2) $ 2,173,298 $ 6,275,939 (6) $ 8,449,237
Accounts receivable,
net................... 2,137,192 1,127,510 (1,127,510)(3) 2,137,192 -- 2,137,192
Current portion of
notes receivable,
net................... 1,228,331 -- -- 1,228,331 -- 1,228,331
Inventory.............. 1,842,978 258,026 (73,760)(2) 2,027,244 -- 2,027,244
Prepaid expenses and
other current assets.. 334,980 70,945 41,171 (2) 447,096 -- 447,096
------------ ------------ ------------ ------------ ----------- ------------
Total current assets.... 7,134,284 2,284,503 (1,405,626) 8,013,161 6,275,939 14,289,100
Property, equipment and
leasehold interest,
net.................... 131,290,980 18,871,708 (12,500,451)(2) 137,662,327 -- 137,662,327
Notes receivable, net... 4,282,072 -- -- 4,282,072 -- 4,282,072
Intangibles assets,
net.................... 4,047,367 -- -- 4,047,367 356,834 (7) 4,404,201
Other assets, net....... 5,139,453 74,168 (74,168)(3) 5,139,453 -- 5,139,453
------------ ------------ ------------ ------------ ----------- ------------
$151,894,156 $ 21,230,379 $(13,980,155) $159,144,380 $ 6,632,773 $165,777,153
============ ============ ============ ============ =========== ============
LIABILITIES AND NET
CAPITAL DEFICIENCY
Current liabilities:
Accounts payable....... $ 1,509,590 $ 234,555 $ (234,555)(3) $ 1,509,590 $ -- $ 1,509,590
Accrued payroll and
related expenses...... 1,266,467 -- -- 1,266,467 -- 1,266,467
Accrued interest
expense............... 609,262 -- -- 609,262 (609,262)(8) --
Accrued property
taxes................. 525,237 -- -- 525,237 -- 525,237
Deferred revenue....... 2,369,680 596,401 (66,900)(2) 2,899,181 -- 2,899,181
Current portion of
long-term debt and
capital lease
obligations........... 6,435,608 -- -- 6,435,608 (5,654,259)(8) 781,349
Current portion of
deferred purchase
price................. 188,329 -- -- 188,329 (188,329)(8) --
Income taxes payable... 382,853 -- -- 382,853 -- 382,853
Other current
liabilities........... 507,633 426,701 11,239 (2) 945,573 -- 945,573
------------ ------------ ------------ ------------ ----------- ------------
Total current
liabilities............ 13,794,659 1,257,657 (290,216) 14,762,100 (6,451,850) 8,310,250
Long term debt, security
deposits and capital
lease obligations...... 89,554,422 40,334,792 (34,052,009)(4) 95,837,205 15,924,645 (9) 111,761,850
Note payable to
stockholder/officer.... 221,194 -- -- 221,194 -- 221,194
Deferred purchase
price.................. 984,692 -- -- 984,692 (984,692)(8) --
Long-term deferred
revenue................ 2,591,626 -- -- 2,591,626 -- 2,591,626
Deferred income taxes... 3,458,583 -- -- 3,458,583 -- 3,458,583
Minority interest....... 380,985 -- -- 380,985 -- 380,985
Commitments
Redeemable preferred
stock.................. 42,241,169 -- -- 42,241,169 -- 42,241,169
Net capital deficiency:
Common stock........... 1,348 2,000 (2,000)(5) 1,348 67 (6) 1,415
Paid in capital........ 4,092,061 3,374,180 (3,374,180)(5) 4,092,061 1,312,723 (6) 5,404,784
Accumulated deficit.... (5,426,583) (23,738,250) 23,738,250 (5) (5,426,583) (3,168,120)(10) (8,594,703)
------------ ------------ ------------ ------------ ----------- ------------
Net capital deficiency.. (1,333,174) (20,362,070) 20,312,070 (1,333,174) (1,855,330) 3,188,504
------------ ------------ ------------ ------------ ----------- ------------
$151,894,156 $ 21,230,379 $(13,980,155) $159,144,380 $ 6,632,773 $165,777,153
============ ============ ============ ============ =========== ============
</TABLE>
See accompanying notes.
F-59
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996
(1) The purchase method of accounting has been used in preparing the Unaudited
Pro Forma Consolidated Financial Statements of Holdings with respect to
the 1996 Acquisitions. Purchase accounting values have been assigned to
the 1996 Acquisitions on a preliminary basis in the Pro Forma Acquisition
Adjustments. Management expects the final purchase accounting valuation to
be completed before September 30, 1996.
(2) Represents preliminary estimates of fair market value for assets acquired
or liabilities assumed, net of assets not acquired or liabilities not
assumed in the 1996 Acquisitions.
(3) Represents assets not acquired or liabilities not assumed in the 1996
Acquisitions.
(4) Represents borrowings under the Company's bank term loan to fund 1996
Acquisitions, net of liabilities not assumed.
(5) Represents elimination of the equity accounts of the 1996 Acquisitions.
(6) Represents net proceeds from the offering after repayment of existing debt
and offering expenses.
(7) Represents offering expenses net of the write-off of existing loan fees.
(8) Represents repayment of existing debt.
(9) Represents repayment of existing debt and assumption of offering debt.
(10) Represents the loss from extinguishment of debt.
F-60
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CON-
TAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY HOLDINGS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE NOTES OFFERED HEREBY TO ANY PERSON IN ANY JURISDIC-
TION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES, 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 HOLDINGS SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 14
The Exchange Offer....................................................... 20
The Offerings............................................................ 28
The Recapitalization..................................................... 28
Use of Proceeds.......................................................... 28
Consolidated Capitalization.............................................. 29
Selected Consolidated Financial Information.............................. 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 32
Business................................................................. 38
Management............................................................... 47
Certain Relationships and Related Transactions........................... 50
Principal Stockholders................................................... 51
Description of Notes..................................................... 53
Description of Capital Stock............................................. 75
Description of Principal Indebtedness.................................... 76
Certain Federal Income Tax Considerations................................ 78
Plan of Distribution..................................................... 78
Legal Matters............................................................ 79
Experts.................................................................. 79
Available Information.................................................... 79
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES,
WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER
A PROSPECTUS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOGO
COBBLESTONE HOLDINGS, INC.
OFFER TO EXCHANGE
13 1/2% SERIES B SENIOR ZERO-COUPON NOTES DUE 2004
FOR ALL OUTSTANDING 13 1/2% SERIES A SENIOR ZERO-COUPON NOTES DUE 2004
----------------
PROSPECTUS
----------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the Bylaws of Holdings provide for the
indemnification by Holdings of each director, officer, employee and agent of
Holdings to the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended. Section 145 of the
Delaware General Corporation Law provides in relevant part that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person
is or was a director, officer, employee,or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. Delaware law further provides that nothing in the
above-described provisions shall be deemed exclusive of any other rights to
indemnification or advancement of expenses to which any person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
The Certificate of Incorporation of Holdings further provides that a
Director of Holdings shall not be personally liable to Holdings or its
stockholders for monetary damages for any breach of fiduciary duty as a
Director. Section 102(b)(7) of the Delaware General Corporation Law provides
that a provision so limiting the personal liability of a director shall not
eliminate or limit the liability of a director for, among other things: breach
of the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; unlawful payment of
dividends; and transactions from which the director derived an improper
personal benefit.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1 and is incorporated herein
by reference.
(b) Financial Statement Schedules:
Schedule II. Valuation of Qualifying Accounts.
II-2
<PAGE>
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d)(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; (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 purposes 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Cobblestone Holdings, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on July 31, 1996.
COBBLESTONE HOLDINGS, INC.
/s/ Stefan C. Karnavas
By: _________________________________
Stefan C. Karnavas
Chief Financial Officer (Principal
Financial and Accounting Officer)
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James A.
Husband, Stefan C. Karnavas and David B. Wong, and each of them, with full
power to act without the other, such person's true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign this
Registration Statement, and any and all amendments thereto (including pre- and
post-effective amendments) or any registration statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or desirable 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 attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ James A. Husband Chief Executive July 31, 1996
- ------------------------------------- Officer and
James A. Husband Director (Principal
Executive Officer)
/s/ David B. Wong Director July 31, 1996
- -------------------------------------
David B. Wong
/s/ Frederick J. Warren Director July 31, 1996
- -------------------------------------
Frederick J. Warren
/s/ P.L. Davies III Director July 31, 1996
- -------------------------------------
P.L. Davies III
/s/ Martin R. Reid Director July 31, 1996
- -------------------------------------
Martin R. Reid
/s/ John M. Sullivan Director July 31, 1996
- -------------------------------------
John M. Sullivan
II-4
<PAGE>
COBBLESTONE HOLDINGS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO CHARGES TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
YEAR EXPENSES ACCOUNTS ACQUISITIONS DEDUCTIONS YEAR
------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1993
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $ -- $ -- $ -- $55,000 $ -- $ 55,000
======= ======= ========== ======= ======= ==========
YEAR ENDED SEPTEMBER 30,
1994
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $55,000 $68,797 $ -- $ -- $56,797 $ 67,000
======= ======= ========== ======= ======= ==========
YEAR ENDED SEPTEMBER 30,
1995
Deducted from asset
accounts:
Allowance for doubtful
accounts receivable.. $67,000 $58,550 $ -- $ -- $49,550 $ 76,000
Allowance for
uncollectable notes
receivable........... -- -- 2,117,000 -- -- 2,117,000
Valuation allowance
for imputed
interest............. -- -- 1,242,867 -- -- 1,242,867
------- ------- ---------- ------- ------- ----------
Total................... $67,000 $58,550 $3,359,867 $ -- $49,550 $3,435,867
======= ======= ========== ======= ======= ==========
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
3.1 Certificate of Incorporation of Cobblestone Holdings,
Inc....................................................
3.2 Bylaws of Cobblestone Holdings, Inc....................
4.1 Indenture, dated as of June 4, 1996, between
Cobblestone Holdings, Inc. and Norwest Bank Minnesota,
National Association, as trustee, relating to
$86,000,000 aggregate principal amount at maturity of
13 1/2% Senior Zero-Coupon Notes due 2004.............
4.2 Specimen Certificate of 13 1/2% Senior Zero-Coupon
Notes due 2004 (included in Exhibit 4.1 hereto).......
4.3* Indenture, dated as of June 4, 1996, among Cobblestone
Golf Group, Inc. and Norwest Bank Minnesota, National
Association, as trustee, relating to $70,000,000
aggregate principal amount of 11 1/2% Senior Notes due
2003..................................................
5.1 Form of Opinion of Latham & Watkins regarding the
validity of the Exchange Notes........................
8.1 Form of Opinion of Latham & Watkins regarding certain
federal income tax matters............................
10.1 Second Amended and Restated Credit Agreement, dated as
of June 4, 1996, among Cobblestone Golf Group, Inc.,
Cobblestone Holdings, Inc., Bank of America NT & SA,
as agent and the various lending institutions
thereto...............................................
10.2 Purchase Agreement, dated as of May 29, 1996, between
Cobblestone Holdings, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation.......................
10.3 Registration Rights Agreement, dated as of May 29,
1996, between Cobblestone Holdings, Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation...
10.4 Stockholders' Agreement, dated as of January 31, 1994..
10.5 Form of Indemnification Agreement......................
10.6* Lease dated as of July 1, 1996 by and between National
Golf Operating Partnership, L.P., as Landlord, and
Cobblestone Golf Group, Inc. .........................
10.7* Letter Agreement dated as July 1, 1996 by and between
National Golf Operating Partnership, L.P. and
Cobblestone Golf Group, Inc. .........................
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges...............................................
21.1 Subsidiaries of Cobblestone Holdings, Inc..............
23.1 Consent of Latham & Watkins (included in its opinions
filed as Exhibit 5.1 and Exhibit 8.1).................
23.2 Consent of Ernst & Young LLP...........................
23.3 Consent of Price Waterhouse, LLP.......................
23.4 Consent of BDO Seidman, LLP............................
24.1 Power of Attorney of Cobblestone Holdings, Inc.
(included on the signature page to this Registration
Statement on Form S-4)................................
25.1 Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939 of Norwest Bank
Minnesota, National Association.......................
99.1 Letter of Transmittal..................................
99.2 Notice of Guaranteed Delivery..........................
99.3 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.........................
</TABLE>
- ---------------------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RELATIVE RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF THE
SERIES A PREFERRED STOCK
OF
COBBLESTONE HOLDINGS, INC.
COBBLESTONE HOLDINGS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the provisions of the General Corporation Law of
the State of Delaware (the "GCL"), DOES HEREBY CERTIFY THAT:
FIRST: That, by written consent of the Board of Directors of the
-----
Corporation as of May 13, 1996, resolutions were duly adopted setting forth
proposed amendments to the Certificate of Designation, Preferences and Relative
Rights, Qualifications, Limitations and Restrictions of the Series A Preferred
Stock of the Corporation (the "Certificate of Designation of Series A Preferred
Stock"), declaring said amendments to be advisable and directing its officers to
submit said amendments to the stockholders of the Corporation for consideration
thereof. The resolutions setting forth the proposed amendments are as follows:
WHEREAS, a Certificate of Amendment to Certificate of Incorporation of
the Corporation is proposed to be filed with the Delaware Secretary of
State pursuant to which each share of existing Series A Preferred Stock is
to be converted into 12.11905 shares of a newly issued Series A Preferred
Stock;
WHEREAS, it is deemed to be advisable and in the best interest of the
Corporation to decrease the redemption price per share of Series A
Preferred Stock from $100.00 to $8.25, and to amend a certain provision of
the Certificate of Designation of Series A Preferred Stock;
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that paragraph 3(a) of the Certificate
of Designation of Series A Preferred Stock be, and it hereby is, amended to
read as follows:
"(a) Optional Redemption. The Series A Preferred Stock may be
-------------------
redeemed, in whole or in part, at any time at the election of the
Corporation by resolution of its Board of Directors, on notice as set
forth in subparagraph 3(b), below, at the redemption price of $8.25
per share of Series A Preferred Stock (the "Redemption Price").
In the event that at any time less than all of the Series A
Preferred Stock outstanding is to be redeemed, the shares to be
redeemed will be selected by lot or pro rata, except that if the
redemption is pro rata, the Corporation may redeem all shares of
Series A Preferred Stock held by all holders of 100 or fewer shares as
may be specified by the Corporation."
RESOLVED FURTHER, that the officers of the Corporation be, and each of
them hereby is, authorized and directed to submit the foregoing amendments
to the stockholders of the Corporation for consideration thereof; and
RESOLVED FURTHER, that, following approval of the foregoing amendments
by the stockholders of the Corporation, the officers of the Corporation be,
and each of them hereby is, authorized and directed to prepare or cause to
be prepared, to execute and to file or cause to be filed with the Secretary
of State of the State of Delaware a Certificate of Amendment of the
Certificate of Designation of Series A Preferred Stock, and to execute such
other documents and take such other actions as such officer or officers
shall deem necessary, appropriate or advisable in order to carry out the
intent and purposes of the foregoing resolutions.
SECOND: That, thereafter, by written consent of the holders of a
------
majority of the outstanding shares of capital stock of the Corporation,
including the holder of all of the outstanding shares of Series A Preferred
Stock of the Corporation, in accordance with Section 228 of the GCL, the
necessary number of shares required by statute were voted in favor of the
foregoing amendments, and prompt written notice in accordance with Section 228
of the GCL has been given to those stockholders of the Corporation who have not
consented in writing.
THIRD: That said amendments were duly adopted in accordance with
-----
the provisions of Section 242 of the GCL.
2
<PAGE>
IN WITNESS WHEREOF, COBBLESTONE HOLDINGS, INC. has caused this
certificate to be signed by James A. Husband, its President, this 13th day of
May, 1996.
COBBLESTONE HOLDINGS, INC.
By: /s/ James A. Husband
------------------------------------
James A. Husband
President
<PAGE>
CERTIFICATE OF INCREASE
OF
SERIES A PREFERRED STOCK
OF
COBBLESTONE HOLDINGS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
COBBLESTONE HOLDINGS, INC. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 151(g) thereof, DOES
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
by Article 4 of the Certificate of Incorporation of the Corporation, the Board
of Directors of the Corporation adopted on May 13, 1996 the following
resolutions increasing the number of shares designated as Series A Preferred
Stock, par value $.01 per share, of the Corporation:
WHEREAS, the Board of Directors of the Corporation deems it to be
desirable and in the best interests of the Corporation to amend the
Corporation's Certificate of Designation, Preferences and Relative Rights,
Qualifications, Limitations and Restrictions of the Series A Preferred
Stock of the Corporation (the "Series A Certificate of Designation"),
originally filed on January 25, 1994 and amended on March 30, 1995 and May
30, 1996, in order to increase the number of shares designated as Series A
Preferred Stock of the Corporation;
NOW, THEREFORE, BE IT RESOLVED, that the number of shares designated
as Series A Preferred Stock of the Corporation be increased from 6,000,000
to 10,000,000;
RESOLVED FURTHER, that, due to the foregoing increase, the 4,000,000
additional shares of the Corporation designated as Series A Preferred Stock
be, and they hereby are, set aside and reserved for issuance;
RESOLVED FURTHER, that the executive officers of the Corporation are
hereby authorized and directed to cause to be prepared and to execute,
verify and file a Certificate of Increase of Series A Preferred Stock of
the Corporation with the Secretary of State of the State of Delaware; and
RESOLVED FURTHER, the executive officers of the Corporation are hereby
authorized and directed to take whatever steps may be necessary or
desirable to carry out the above resolution.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
duly executed by Gary L. Dee, its Vice President, this 29th day of May, 1996.
COBBLESTONE HOLDINGS, INC.
By: /s/ Gary L. Dee
--------------------------------
Gary L. Dee
Vice President
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COBBLESTONE HOLDINGS, INC.
COBBLESTONE HOLDINGS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY THAT:
FIRST: By written consent of the Board of Directors of the
Corporation as of May 13, 1996, resolutions were duly adopted setting forth
proposed amendments to the Certificate of Incorporation of the Corporation,
declaring said amendments to be advisable and directing its officers to submit
said amendments to the stockholders of the Corporation for consideration
thereof. The resolutions setting forth the proposed amendments are as follows:
WHEREAS, in connection with the Corporation's proposed offering of
units consisting of series A senior zero-coupon notes due 2004 and shares
of common stock of the Corporation, the Board of Directors of the
Corporation deems it to be desirable and in the best interests of the
Corporation to amend the Corporation's Certificate of Incorporation to
increase the authorized capital stock of the Corporation and to provide for
a 12.11905 for one split of the outstanding shares of Capital Stock of the
Corporation;
WHEREAS, following such stock split, the Board of Directors deems it
to be advisable and in the best interests of the Corporation to convert
each outstanding share of Series B Preferred Stock of the Corporation into
one outstanding share of Series A Preferred Stock of the Corporation and to
eliminate the designated series of Series B Preferred Stock of the
Corporation;
NOW, THEREFORE, BE IT RESOLVED, that Article 4 of the Certificate of
Incorporation of the Corporation be, and it hereby is, amended to read as
follows:
"4. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Fifteen Million (15,000,000),
consisting of Five Million (5,000,000) shares of Common Stock, par value
$.01 per share, and Ten Million (10,000,000) shares of Preferred Stock, par
value $.01 per share.
<PAGE>
The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions
(including without limitation voting rights) granted to and imposed upon
the Preferred Stock or any series thereof with respect to any wholly
unissued class or series of Preferred Stock, and to fix the number of
shares of any series of Preferred Stock and the designation of any such
series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series,
may increase or decrease (but not below the number of any series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series."
RESOLVED FURTHER, that, upon this Certificate of Amendment becoming
effective in accordance with the Delaware General Corporation Law (the
"Effective Time"), each share of Common Stock, par value $.01 per share, of
the Corporation ("Old Common Stock") issued and outstanding immediately
prior to the Effective Time shall be reclassified as and changed into
12.11905 validly issued, fully paid and nonassessable shares of the Common
Stock, par value $.01 per share of the Corporation ("New Common Stock").
Each stock certificate that theretofore represented shares of Old Common
Stock shall thereafter represent that number of shares of New Common Stock
into which the shares of Old Common Stock represented by such certificate
shall have been reclassified, provided, however, that each person holding
of record a stock certificate or certificates that represented shares of
Old Common Stock shall receive, upon surrender of such certificate or
certificates, a new certificate or certificates evidencing and representing
the number of shares of New Common Stock to which such person is entitled."
RESOLVED FURTHER, that the Certificate of Designation, Preferences and
Relative Rights, Qualifications, Limitations and Restrictions of the Series
A Preferred Stock of the Corporation, originally filed on January 25, 2994
and amended on March 30, 1995, be, and hereby it is, amended by increasing
the number of shares designated as Series A Preferred Stock of the
Corporation from 430,000 to 6,000,000;
RESOLVED FURTHER, that, upon the Effective Time, each share of Series
A Preferred Stock, par value $.01 per share, of the Corporation ("Old
Series A Preferred") issued and outstanding immediately prior to the
Effective Time shall be reclassified as and changed into 12.11905 validly
issued, fully paid and nonassessable shares of the Series A Preferred
Stock, par value $.01 per share of the Corporation ("New Series A
Preferred"). Each stock certificate that theretofore represented shares of
Old Series A Preferred shall thereafter represent that number of shares of
New Series A Preferred into which the shares of Old Series A Preferred
represented by such certificate shall have been reclassified, provided,
however, that each person holding of record a stock certificate or
certificates that represented shares of Old Series A Preferred shall
receive, upon surrender of such certificate or certificates, a new
certificate or certificates evidencing and representing the number of
shares of New Series A Preferred to which such person is entitled;
RESOLVED FURTHER, that the Certificate of Designation, Preferences and
Relative Rights, Qualifications, Limitations and Restrictions of the Series
B Preferred
2
<PAGE>
Stock of the Corporation, originally filed on January 25, 2994 and amended
on March 30, 1995, be, and hereby it is, amended by increasing the number
of shares designated as Series B Preferred Stock of the Corporation from
20,000 to 242,381;
RESOLVED FURTHER, that, upon the Effective Time, each share of Series
B Preferred Stock, par value $.01 per share, of the Corporation ("Old
Series B Preferred") issued and outstanding immediately prior to the
Effective Time shall be reclassified as and changed into 12.11905 validly
issued, fully paid and nonassessable shares of the Series B Preferred
Stock, par value $.01 per share of the Corporation ("New Series B
Preferred"). Each stock certificate that theretofore represented shares of
Old Series B Preferred shall thereafter represent that number of shares of
New Series B Preferred into which the shares of Old Series B Preferred
represented by such certificate shall have been reclassified, provided,
however, that each person holding of record a stock certificate or
certificates that represented shares of Old Series B Preferred shall
receive, upon surrender of such certificate or certificates, a new
certificate or certificates evidencing and representing the number of
shares of New Series B Preferred to which such person is entitled;
RESOLVED FURTHER, that, immediately following the foregoing
reclassification of each share of Old Series B Preferred into 12.11905
shares of New Series B Preferred, each share of New Series B Preferred be,
and it hereby is, converted into one issued and outstanding share of New
Series A Preferred (the "Conversion");
RESOLVED FURTHER, that, following the Conversion, no additional shares
of New Series B Preferred shall be issued and the New Series B Preferred
shall be eliminated as a designated series of Preferred Stock of the
Corporation;
RESOLVED FURTHER, that the Board of Directors recommends to the
stockholders of the Corporation that such stockholders approve the
foregoing amendments of the Certificate of Incorporation of the
Corporation;
RESOLVED FURTHER, that, subject to the receipt of appropriate
stockholder approval, the executive officers of the Corporation are hereby
authorized and directed to cause to be prepared and to execute, verify and
file a Certificate of Amendment of Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware, and to
execute such other documents and take such other actions as such officer or
officers shall deem to be necessary, appropriate or advisable in order to
carry out the intent and purposes of the foregoing resolutions.
SECOND: Thereafter, by written consent of the holders of a majority
of the issued and outstanding shares of Common Stock, Series A Preferred Stock
and Series B Preferred Stock of the Corporation in accordance with Section 228
of the General Corporation Law of the State of Delaware, the necessary number of
shares required by statute were voted in favor of the amendments, and prompt
3
<PAGE>
written notice in accordance with Section 228 of the General Corporation Law of
the State of Delaware has been given to those stockholders of the Corporation
who have not consented in writing.
THIRD: Said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: As a result of said amendments and the conversion of the
Series B Preferred Stock into Series A Preferred Stock, no shares of Series B
Preferred Stock remain outstanding and no new shares of Series B Preferred Stock
will be issued.
4
<PAGE>
IN WITNESS WHEREOF, COBBLESTONE HOLDINGS, INC. has caused this
certificate to be signed by Gary L. Dee, its Vice President, this 29th day of
May, 1996.
COBBLESTONE HOLDINGS, INC.
By: \s\ Gary L Dee
-----------------------------
Gary L. Dee
Vice President
5
<PAGE>
CERTIFICATE OF INCREASE
OF
SERIES A PREFERRED STOCK
OF
COBBLESTONE HOLDINGS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
COBBLESTONE HOLDINGS, INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151(g) thereof, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
Article 4 of the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation adopted on March 27, 1995 the following resolutions
increasing the number of shares designated as Series A Preferred Stock, par
value $.01 per share, of the Corporation:
"RESOLVED, that the number of shares designated as Series A Preferred
Stock of the Corporation be increased from 400,000 to 430,000; and
RESOLVED FURTHER, that the appropriate officers of the Corporation
be, and each of them hereby is, authorized and directed to set aside and
reserve up to an additional 30,000 shares of Series A Preferred Stock of
the Corporation for issuance, to prepare or cause to be prepared, to
execute and to file or cause to be filed with the Secretary of State of the
State of Delaware a Certificate of Increase increasing the number of shares
constituting Series A Preferred Stock, par value $.01 per share, from
400,000 to 430,000."
IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly
executed this 28th day of March, 1995.
COBBLESTONE HOLDINGS, INC.
By: /s/ STEVEN L. HOLMES
--------------------------
Steven L. Holmes,
Chief Financial Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RELATIVE RIGHTS,
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS
OF THE
SERIES B PREFERRED STOCK
OF
COBBLESTONE HOLDINGS, INC.
COBBLESTONE HOLDINGS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the provisions of the General Corporation Law of
the State of Delaware (the "GCL"), DOES HEREBY CERTIFY:
FIRST: That, by written consent of the Board of Directors of the
Corporation as of March 27, 1995, resolutions were duly adopted setting forth
proposed amendments to the Certificate of Designation, Preferences and Relative
Rights, Qualifications, Limitations and Restrictions of the Series B Preferred
Stock of the Corporation, declaring said amendments to be advisable and
directing its officers to submit said amendments to the stockholders of the
Corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
"WHEREAS, the Corporation currently has authorized 450,000 shares of
Preferred Stock; and
WHEREAS, 50,000 of such shares are currently designated as Series B
Preferred Stock; and
WHEREAS, a Certificate of Designation, Preferences and Relative
Rights, Qualifications, Limitations and Restrictions of the Series B
Preferred Stock of the Corporation (the "Certificate of Designation of
Series B Preferred Stock") was filed with the Delaware Secretary of State
on January 25, 1994; and
WHEREAS, 20,000 shares of Series B Preferred Stock are currently
issued and outstanding; and
<PAGE>
WHEREAS, it is deemed to be advisable and in the best interest of the
Corporation to decrease the number of designated shares of Series B
Preferred Stock from 50,000 to 20,000, and to amend a certain provision of
the Certificate of Designation of Series B Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, that paragraph 1 of the Certificate of
Designation of Series B Preferred Stock be, and it hereby is, amended to
read as follows:
"1. Designation. A series of the Preferred Stock of the
-----------
Corporation is hereby designated as "Series B Preferred Stock" (hereinafter
called the "Series B Preferred Stock") consisting of 20,000 shares. Shares
of the Series B Preferred Stock shall rank prior to the Corporation's
Common Stock, par value $.01 per share, upon liquidation, dissolution,
winding-up or otherwise. Unless specifically designated as junior to
("Junior Stock") the Series B Preferred Stock with respect to the payment
of dividends or upon liquidation, dissolution, winding-up or otherwise, all
other series of Preferred Stock and other classes of preferred stock of the
Corporation shall rank on parity ("Parity Stock") with the Series B
Preferred Stock with respect thereto."
RESOLVED FURTHER, that subparagraph (a) of paragraph 3 of the
Certificate of Designation of Series B Preferred Stock be, and it hereby
is, amended to read as set forth on Exhibit A hereto.
RESOLVED FURTHER, that the officers of the Corporation be, and
each of them hereby is, authorized and directed to submit the foregoing
amendments to the stockholders of the Corporation for consideration
thereof; and
RESOLVED FURTHER, that, following approval of the foregoing
amendments by the stockholders of the Corporation, the officers of the
Corporation be, and each of them hereby is, authorized and directed to
prepare or cause to be prepared, to execute and to file or cause to be
filed with the Secretary of State of the State of Delaware a Certificate of
Amendment of the Certificate
2
<PAGE>
of Designation of Series B Preferred Stock, and to execute such other
documents and take such other actions as such officer or officers
shall deem necessary, appropriate or advisable in order to carry out
the intent and purposes of the foregoing resolutions."
SECOND: That, thereafter, by written consent of the holders of a
majority of the outstanding shares of capital stock of the Corporation,
including the holder of all of the outstanding shares of Series B Preferred
Stock of the Corporation, in accordance with Section 228 of the GCL, the
necessary number of shares required by statute were voted in favor of the
foregoing amendments, and prompt written notice in accordance with Section 228
of the GCL has been given to those stockholders of the Corporation who have not
consented in writing.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the GCL.
IN WITNESS WHEREOF, COBBLESTONE HOLDINGS, INC. has caused this certificate
to be signed by Steven L. Holmes, its Chief Financial Officer, this 28th day of
March, 1995.
COBBLESTONE HOLDINGS, INC.
By: /s/ Steven L. Holmes
-----------------------
Steven L. Holmes,
Chief Financial Officer
3
<PAGE>
EXHIBIT "A"
3. Redemption.
----------
(a) Optional Redemption. The Series B Preferred Stock may be redeemed, in
-------------------
whole or in part, at any time at the election of the Corporation by resolution
of its Board of Directors, on notice as set forth in subparagraph 3(c) below, at
the redemption price of $100.00 per share of Series B Preferred Stock (the
"Redemption Price"); provided, however, that, if at any time on or prior to the
-------- -------
date of such redemption (the "Redemption Date"), any Reduced Basis Golf Course
(as defined below) or Subsidiary (as defined below) is sold or otherwise
disposed of (in any such case, a "Disposition") such that the Corporation or the
Subsidiary (or the consolidated group of which they are members), as applicable,
has recognized gain for federal income tax purposes, the Redemption Price per
share of $100 shall be increased immediately prior to redemption by an amount
determined in accordance with the following formula:
I = A x W
-----
1 - W
-----
S
where:
I = The dollar amount by which the Redemption Price per share shall be
increased;
A = The aggregate amount of federal and state income taxes on the
Dispositions, if any, of Reduced Basis Golf Courses or Subsidiaries by
the Corporation or Subsidiary, as applicable, through the Redemption
Date attributable to the reduced basis of such Courses or Subsidiaries,
which amount is the sum of the amounts determined in accordance with
---
the following formula for each of the Dispositions:
T - (C - B)
<PAGE>
where:
T = The amount of federal and state income taxes on the Disposition of the
Reduced Basis Golf Course or Subsidiary attributable to the reduced
basis of such Course or Subsidiary;
C = The amount of federal and state income taxes recognized by the
Corporation or the Subsidiary (or the consolidated group of which they
are members), as applicable, on (i) the Disposition of the Reduced
Basis Golf Course or Subsidiary by the Corporation or (ii) Disposition
of the Reduced Basis Golf Course by the Subsidiary;
B = (1) In the event of a disposition of the Reduced Basis Golf Course by
the Subsidiary or in the event of a Disposition of the Reduced Basis
Golf Course by the Corporation (if the Corporation initially acquired
the stock of the Subsidiary and the Subsidiary subsequently transferred
the Reduced Basis Golf Course to the Corporation), the amount of
federal and state income taxes that would have been recognized on the
Disposition of the Reduced Basis Golf Course by the Corporation or the
Subsidiary (or consolidated group of which they are members), as
applicable, if the Subsidiary had acquired the Reduced Basis Golf
Course in a fully taxable transaction (i.e., resulting in the
----
Subsidiary having an initial tax basis in the Reduced Basis Golf Course
equal to its then fair market value) on the Acquisition Date (as
defined below); or
(2) In the event of a Disposition of the Subsidiary or Reduced Basis
Golf Course (other than as described in (1) above) by the Corporation,
the amount of federal and state income taxes that would have been
recognized on the Disposition of the Subsidiary or Reduced Basis Golf
Course by the Corporation (or consolidated group of which the
Corporation is a member) if the Corporation had acquired the Reduced
Basis Golf Course or the Subsidiary, as applicable, in a fully taxable
transaction (i.e., resulting in the Corporation having an initial tax
----
basis in the Reduced Basis Golf Course or Subsidiary, as applicable,
equal to its then fair market value) on the Acquisition Date;
W = The aggregate total percentage common equity ownership in the Corporation on
the Redemption Date of all holders of the Series B Preferred Stock; and
S = The number of outstanding shares of the Series B Preferred Stock on the
Redemption Date.
<PAGE>
(a) For purposes hereof, a "Reduced Basis Golf Course" shall mean the
golf facilities (whether or not owned by Subsidiaries (as defined below))
acquired by the Corporation pursuant to the Escondido Stock Contribution and
Acquisition Agreement, dated as of September 30, 1992, and the Balboa Asset
Contribution and Acquisition Agreement, dated as of September 30, 1992.
"Subsidiary" shall mean any corporation more than 50% of whose voting stock is
owned directly or indirectly (through one or more entities) by the Corporation
and which owns a Reduced Basis Golf Course. "Acquisition Date" shall mean the
date of the Corporation's or Subsidiary's acquisition of a Reduced Basis Golf
Course, provided, however, if the Corporation acquires the stock of a Subsidiary
which owns the Reduced Basis Golf Course at the time of such acquisition, such
terms shall refer to the date of the Corporation's acquisition of the
Subsidiary.
If a Reduced Basis Golf Course or a Subsidiary is disposed of in a
transaction which results in a tax loss (or which would have resulted in a tax
loss under the assumptions set forth in "B" above), the above provisions shall
be applied to ensure that "A" above reflects the difference in such taxes caused
by the reduced basis in such Reduced Basis Golf Course or Subsidiary (i.e., so
---
"A" above is increased for the loss of any tax losses due to the reduced basis
in the Course or Subsidiary acquired).
In the event that any time less than all of the Series B Preferred
Stock outstanding is to be redeemed, the shares to be redeemed will be selected
by lot or pro rata, except that if the redemption is pro rata, the Corporation
may redeem all shares of Series B Preferred Stock held by all holders of 100 or
fewer shares as may be specified by the Corporation.
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES,
AND RELATIVE RIGHTS,
QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS
OF THE
SERIES A PREFERRED STOCK
OF
COBBLESTONE HOLDINGS, INC.
---------------
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------
COBBLESTONE HOLDINGS, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation authorizes
the issuance of 450,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and, further, authorizes the Board of Directors of the
Corporation, by resolution or resolutions, at any time and from time to time, to
divide and establish any or all of the unissued shares of Preferred Stock not
then allocated to any series of Preferred Stock into one or more series and,
without limiting the generality of the foregoing, to fix and determine the
designation of each such share, the number of shares which shall constitute such
series and certain powers, preferences and relative participating, optional or
other special rights and qualifications, limitations and restrictions and voting
rights of the shares of each series so established.
SECOND: By unanimous written consent of the Board of Directors of the
Corporation, dated January 2l, 1994, the following resolutions were adopted
authorizing the creation and issuance of a series of said Preferred Stock to be
known as Series A Preferred Stock.
RESOLVED: The Board of Directors of the Corporation hereby authorizes
and fixes the number, designations, preferences, rights, voting rights and
limitations of the series of Preferred Stock on the terms and with the
provisions herein set forth:
1. Designation. A series of the Preferred Stock of the Corporation
-----------
is
<PAGE>
hereby designated as "Series A Preferred Stock" (hereinafter called the "Series
A Preferred Stock") consisting initially of 400,000 shares. Shares of the
Series A Preferred Stock shall rank prior to the Corporation's Common Stock, par
value $.01 per share, upon liquidation, dissolution, winding-up or otherwise.
Unless specifically designated as junior to ("Junior Stock") the Series A
Preferred Stock with respect to the payment of dividends or upon liquidation,
dissolution, winding-up or otherwise, all other series of Preferred Stock and
other classes of preferred stock of the Corporation shall rank on parity
("Parity Stock") with the Series A Preferred Stock with respect thereto.
2. Dividends. Except as otherwise set forth in this paragraph 2 the
---------
holders of the shares of Series A Preferred Stock shall not be entitled to
receive dividends or other distributions other than such dividends or other
distributions as are declared by the Board of Directors of the Company. Each
such dividend shall be paid to the holders of record of the Series A Preferred
Stock as they shall appear on the stock register of the Corporation on such
record date, not exceeding 45 days nor less than 10 days preceding a dividend
payment date, as shall be fixed by the Board of Directors of the Corporation or
a duly authorized committee thereof.
3. Redemption.
----------
(a) Optional Redemption. The Series A Preferred Stock may be
-------------------
redeemed, in whole or in part, at any time at the election of the Corporation by
resolution of its Board of Directors, on notice as set forth in subparagraph
3(b), below, at the redemption price of $100.00 per share of Series A Preferred
Stock (the "Redemption Price").
In the event that at any time less than all of the Series A Preferred
Stock outstanding is to be redeemed, the shares to be redeemed will be selected
by lot or pro rata, except that if the redemption is pro rata, the Corporation
may redeem all shares of Series A Preferred Stock held by all holders of 100 or
fewer shares as may be specified by the Corporation.
(b) Mandatory Redemption. Upon the sale of the Corporation, whether
--------------------
such sale is effected by the consolidation or merger of the Corporation with or
into another corporation or corporations, the sale of all or substantially all
of the Corporation's assets, or the sale or exchange of stock representing at
least eight percent (80%) of the voting power of the stock of the Corporation,
in terms of number of votes for the election of directors, the Corporation, if
permitted by law and under the Corporation's agreements, shall redeem all
remaining outstanding shares of the Series A Preferred Stock at a redemption
price per share equal to the Redemption Price.
(c) Notice of Redemption. Notice of any redemption pursuant to this
--------------------
paragraph 3 shall be mailed, postage prepaid, at least 15 days but not more than
60 days prior to said redemption date to each holder of record of the Series A
Preferred Stock to be redeemed at its address as the same shall appear on the
stock register of the Corporation. Each such notice shall state: (i) the date
fixed for such redemption, (ii) the place or places
2
<PAGE>
where certificates for such shares of Series A Preferred Stock are to be
surrendered for payment and (iii) the Redemption Price. If less than all the
shares of the Series A Preferred Stock owned by such holder are then to be
redeemed, such notice shall also specify the number of shares thereof which are
to be redeemed and the numbers of the certificates representing such shares.
If such notice of redemption shall have been so mailed and if prior to
the date of redemption specified in such notice all said funds necessary for
such redemption shall have been irrevocably deposited in trust, for the account
of the holders of the shares of the Series A Preferred Stock to be redeemed (and
so as to be and continue to be available therefor), with a bank or trust company
named in such notice doing business in Los Angeles, California and having
capital surplus and undivided profits of at least $50,000,000, thereupon, and
without awaiting the redemption date, all shares of the Series A Preferred Stock
with respect to which such notice shall have been so mailed and such deposit
shall have been so made, shall, notwithstanding that any certificate for shares
of Series A Preferred Stock shall not have been surrendered for cancellation, be
deemed to be no longer outstanding and all rights with respect to such shares of
the Series A Preferred Stock shall forthwith upon such deposit in trust cease
and terminate, except only the right of the holders thereof on or after the
redemption date to receive from such deposit the amount payable upon the
redemption, but without interest. In case the holders of shares of the Series A
Preferred Stock which shall have been called for redemption shall not within two
years (or any longer period if required by law) after the redemption date claim
any amount so deposited in trust for the redemption of such shares, such bank or
trust company shall, if permitted by applicable law, pay over to the Corporation
any such unclaimed amount so deposited with it, and shall thereupon be relieved
of all responsibility in respect thereof, and thereafter the holders of such
shares shall, subject to applicable escheat laws, look only to the Corporation
for payment of the redemption price thereof, but without interest.
(d) Status of Shares. Shares of Series A Preferred Stock redeemed,
----------------
purchased or otherwise acquired for value by the Corporation shall, after such
acquisition, have the status of authorized and unissued shares of Preferred
Stock and may be reissued by the Corporation at any time as shares of any series
of Preferred Stock, other than shares of Series A Preferred Stock.
4. Priority on Redemption. The Corporation shall not, directly or
----------------------
indirectly, redeem or purchase or otherwise acquire for value any Junior Stock
(except for Common Stock pursuant to the provisions of that certain Stock
Purchase and Stockholders Agreement dated as of September 30, 1992 among the
Corporation and the stockholders named therein) or Parity Stock unless, at the
time of making such redemption, purchase or other acquisition the Corporation
shall have redeemed, or shall contemporaneously redeem, all of the then
outstanding shares of Series A Preferred Stock at the applicable redemption
price (or shall have irrevocably committed to redeem all of the then outstanding
shares of Series A Preferred Stock and have set aside a sum sufficient for the
payment thereof at the applicable Redemption Price on the date of such
subsequent redemption). Notwithstanding the preceding sentence, the Corporation
may take any action otherwise prohibited by such
3
<PAGE>
sentence with the affirmative vote or consent of the holders of a majority of
the outstanding shares of Series A Preferred Stock.
5. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of the Series A Preferred Stock shall be entitled to receive
for each share of Series A Preferred Stock then held, out of the assets of the
Corporation, whether such assets are capital or surplus and whether or not any
dividends as such are declared, the applicable Redemption Price on the date
fixed for distribution, and no more, before any distribution shall be made to
the holders of the Common Stock or Junior Stock with respect to the distribution
of assets.
If, upon any such liquidation, dissolution or other winding up of the
affairs of the Corporation, the assets of the Corporation distributable among
the holders of all outstanding shares of the Series A Preferred Stock and of any
Parity Stock shall be insufficient to permit the payment in full to such holders
of the preferential amounts to which they are entitled, then the entire assets
of the Corporation remaining after the payment or provision of the debts and
other liabilities of the Corporation shall be distributed among the holders of
the Series A Preferred Stock and of any Parity Stock ratably in proportion to
the full amounts to which they would otherwise be respectively entitled.
(b) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating a payment
date and the place where the distributive amounts shall be payable, shall be
given by mail, postage prepaid, not less than 30 days prior to the payment date
stated therein, to the holders of record of the Series A Preferred Stock at
their respective addresses as the same shall appear on the books of the
Corporation.
(c) No payment on account of such liquidation, dissolution or winding
up of the affairs of the Corporation shall be made to the holders of any Parity
Stock, unless there shall likewise be paid at the same time to the holders of
the Series A Preferred Stock like proportionate distributive amounts, ratably,
in proportion to the full distributive amounts to which they and the holders of
such Parity Stock are respectively entitled with respect to such preferential
distribution.
6. Voting Rights. Except as otherwise required by law, the holders
-------------
of the Series A Preferred Stock shall be entitled to vote along with the Common
Stock and with any other class or series of stock that votes along with the
Common Stock (and not as a separate class) on all matters and shall be entitled
to one vote per share of Series A Preferred Stock.
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by David H. Wong, its President, and attested by Leslie R. Shaw, its
Assistant Secretary, this 2lst day of January, 1994.
Attest:
/s/ Leslie R. Shaw /s/ David H. Wong
_____________________________ ________________________________
Assistant Secretary President
5
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE RIGHTS,
QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS
OF THE
SERIES B PREFERRED STOCK
COBBLESTONE HOLDINGS, INC.
________________
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
________________
COBBLESTONE HOLDINGS, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), certifies as follows:
FIRST: The Certificate of Incorporation of the Corporation authorizes
the issuance of 450,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and, further, authorizes the Board of Directors of the
Corporation, by resolution or resolutions, at any time and from time to time, to
divide and establish any or all of the unissued shares of Preferred Stock not
then allocated to any series of Preferred Stock into one or more series and,
without limiting the generality of the foregoing, to fix and determine the
designation of each such share, the number of shares which shall constitute such
series and certain powers, preferences and relative participating, optional or
other special rights and qualifications, limitations and restrictions and voting
rights of the shares of each series so established.
SECOND: By unanimous written consent of the Board of Directors of the
Corporation, dated January 2l, l994, the following resolutions were adopted
authorizing the creation and issuance of a series of said Preferred Stock to be
known as Series B Preferred Stock.
RESOLVED: The Board of Directors of the Corporation hereby authorizes
and fixes the number, designations, preferences, rights, voting rights and
limitations of the series of Preferred Stock on the terms and with the
provisions herein set forth:
1. Designation. A series of the Preferred Stock of the Corporation
-----------
is hereby designated as "Series B Preferred Stock" (hereinafter called the
"Series B Preferred Stock") consisting initially of 50,000 shares. Shares of
the Series B Preferred Stock shall rank prior to the Corporation's Common Stock,
par value $.01 per share, upon liquidation,
<PAGE>
dissolution, winding-up or otherwise. Unless specifically designated as junior
to ("Junior Stock") the Series B Preferred Stock with respect to the payment of
dividends or upon liquidation, dissolution, winding-up or otherwise, all other
series of Preferred Stock and other classes of preferred stock of the
Corporation shall rank on parity ("Parity Stock") with the Series B Preferred
Stock with respect thereto.
2. Dividends. Except as otherwise set forth in this paragraph 2 the
---------
holders of the shares of Series B Preferred Stock shall not be entitled to
receive dividends or other distributions other than such dividends or other
distributions as are declared by the Board of Directors of the Company. Each
such dividend shall be paid to the holders of record of the Series B Preferred
Stock as they shall appear on the stock register of the Corporation on such
record date, not exceeding 45 days nor less than 10 days preceding a dividend
payment date, as shall be fixed by the Board of Directors of the Corporation or
a duly authorized committee thereof.
3. Redemption.
----------
(a) Optional Redemption. The Series B Preferred Stock may be
-------------------
redeemed, in whole or in part, at any time at the election of the Corporation by
resolution of its Board of Directors, on notice as set forth in subparagraph
3(c) below, at the redemption price of $100.00 per share of Series B Preferred
Stock (the "Redemption Price"); provided, however, that, if at any time on or
-------- -------
prior to the date of such redemption (the "Redemption Date"), any Reduced Basis
Golf Course (as defined below) or Subsidiary (as defined below) is sold or
otherwise disposed of (in any such case, a "Disposition") such that the
Corporation or the Subsidiary (or the consolidated group of which they are
members), as applicable, has recognized gain for federal income tax purposes,
the Redemption Price per share of $100 shall be increased immediately prior to
redemption by an amount determined in accordance with the following formula:
I = A x W
-----
1 - W
-----
S
where:
I = The dollar amount by which the Redemption Price per share shall be
increased;
A = The aggregate amount of federal and state income taxes on the
Dispositions, if any, of Reduced Basis Golf Courses or Subsidiaries by
the Corporation or Subsidiary, as applicable, through the Redemption
Date attributable to the reduced basis of such Courses or
Subsidiaries, which amount is the sum of the amounts determined in
---
accordance with the following formula for each of the Dispositions:
T = ( C - B )
2
<PAGE>
where:
T = The amount of federal and state income taxes on the
Disposition of the Reduced Basis Golf Course or Subsidiary
attributable to the reduced basis of such Course or
Subsidiary;
C = The amount of federal and state income taxes recognized by
the Corporation or the Subsidiary (or the consolidated group
of which they are members), as applicable, on (i) the
Disposition of the Reduced Basis Golf Course or Subsidiary
by the Corporation or (ii) Disposition of the Reduced Basis
Golf Course by the Subsidiary;
B = (1) In the event of a disposition of the Reduced Basis
Golf Course by the Subsidiary or in the event of a
Disposition of the Reduced Basis Golf Course by the
Corporation (if the Corporation initially acquired the stock
of the Subsidiary and the Subsidiary subsequently
transferred the Reduced Basis Golf Course to the
Corporation), the amount of federal and state income taxes
that would have been recognized on the Disposition of the
Reduced Basis Golf Course by the Corporation or the
Subsidiary (or consolidated group of which they are
members), as applicable, if the Subsidiary had acquired the
Reduced Basis Golf Course in a fully taxable transaction
(i.e., resulting in the Subsidiary having an initial tax
-----
basis in the Reduced Basis Golf course equal to its then
fair market value) on the Acquisition Date (as defined
below); or
(2) In the event of a Disposition of the Subsidiary or
Reduced Basis Golf Course (other than as described in (1)
above) by the Corporation, the amount of federal and state
income taxes that would have been recognized on the
Disposition of the Subsidiary or Reduced Basis Golf Course
by the Corporation (or consolidated group of which the
Corporation is a member) if the Corporation had acquired the
Reduced Basis Golf Course or the Subsidiary, as applicable,
in a fully taxable transaction (i.e., resulting in the
----
Corporation having an initial tax basis in the Reduced Basis
Golf Course or Subsidiary, as applicable, equal to its then
fair market value) on the Acquisition Date;
W = The aggregate total percentage common equity ownership in the
Corporation on the Redemption Date of all holders of the Series B
Preferred Stock; and
S = The number of outstanding shares of the Series B Preferred Stock on
the Redemption Date.
3
<PAGE>
For purposes hereof, a "Reduced Basis Golf Course" shall mean any golf course or
other golf facility, public or private (including, without limitation, any
driving range or any "pitch and putt" or "par three" golf course) or any
leasehold interest with respect to the same, that was acquired by the
Corporation or the Subsidiary, as applicable, with a tax basis to the
Corporation or the Subsidiary, as applicable, on the Acquisition Date less than
the total value of the consideration paid (including cash and the fair market
value of any property or stock) by (i) the Corporation or the Subsidiary, as
applicable, for such golf course or other golf facility or (ii) the Corporation
for the Subsidiary. "Subsidiary" shall mean any corporation more than 50% of
whose voting stock is owned directly or indirectly (through one or more
entities) by the Corporation. "Acquisition Date" shall mean the date of the
Corporation's or Subsidiary's acquisition of a Reduced Basis Golf Course,
provided, however, if the Corporation acquires the stock of a Subsidiary which
owns the Reduced Basis Golf Course at the time of such acquisition, such term
shall refer to the date of the Corporation's acquisition of the Subsidiary.
If a Reduced Basis Golf Course or a Subsidiary is disposed of in a
transaction which results in a tax loss (or which would have resulted in a tax
loss under the assumptions set forth in "B" above), the above provisions shall
be applied to ensure that "A" above reflects the difference in such taxes caused
by the reduced basis in such Reduced Basis Golf Course or Subsidiary (i.e., so
----
"A" above is increased for the loss of any tax losses due to the reduced basis
in the Course or Subsidiary acquired).
In the event that at any time less than all of the Series B Preferred
Stock outstanding is to be redeemed, the shares to be redeemed will be selected
by lot or pro rata, except that if the redemption is pro rata, the Corporation
may redeem all shares of Series B Preferred Stock held by all holders of 100 or
fewer shares as may be specified by the Corporation.
(b) Mandatory Redemption. Upon the sale of the corporation, whether
--------------------
such sale is effected by the consolidation or merger of the Corporation with or
into another corporation or corporations, the sale of all or substantially all
of the Corporation's assets, or the sale or exchange of stock representing at
least eighty percent (80%) of the voting power of the stock of the Corporation,
in terms of number of votes for the election of directors, the Corporation, if
permitted by law and under the Corporation's agreements, shall redeem all
remaining outstanding shares of the Series B Preferred Stock at a redemption
price per share equal to the Redemption Price.
(c) Notice of Redemption. Notice of any redemption pursuant to this
--------------------
paragraph 3 shall be mailed, postage prepaid, at least 15 days but not more than
60 days prior to said redemption date to each holder of record of the Series B
Preferred Stock to be redeemed at its address as the same shall appear on the
stock register of the Corporation. Each such notice shall state: (i) the date
fixed for such redemption, (ii) the place or places where certificates for such
shares of Series B Preferred Stock are to be surrendered for payment and (iii)
the Redemption Price. If less than all the shares of the Series B Preferred
Stock owned by such holder are then to be redeemed, such notice shall also
specify the
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<PAGE>
number of shares thereof which are to be redeemed and the numbers of the
certificates representing such shares.
If such notice of redemption shall have been so mailed and if prior to
the date of redemption specified in such notice all said funds necessary for
such redemption shall have been irrevocably deposited in trust, for the account
of the holders of the shares of the Series B Preferred Stock to be redeemed (and
so as to be and continue to be available therefor), with a bank or trust company
named in such notice doing business in Los Angeles, California and having
capital surplus and undivided profits of at least $50,000,000, thereupon, and
without awaiting the redemption date, all shares of the Series B Preferred Stock
with respect to which such notice shall have been so mailed and such deposit
shall have been so made, shall, notwithstanding that any certificate for shares
of Series B Preferred Stock shall not have been surrendered for cancellation, be
deemed to be no longer outstanding and all rights with respect to such shares of
the Series B Preferred Stock shall forthwith upon such deposit in trust cease
and terminate, except only the right of the holders thereof on or after the
redemption date to receive from such deposit the amount payable upon the
redemption, but without interest. In case the holders of shares of the Series B
Preferred Stock which shall have been called for redemption shall not within two
years (or any longer period if required by law) after the redemption date claim
any amount so deposited in trust for the redemption of such shares, such bank or
trust company shall, if permitted by applicable law, pay over to the Corporation
any such unclaimed amount so deposited with it, and shall thereupon be relieved
of all responsibility in respect thereof, and thereafter the holders of such
shares shall, subject to applicable escheat laws, look only to the Corporation
for payment of the redemption price thereof, but without interest.
(d) Status of Shares. Shares of Series B Preferred Stock redeemed,
----------------
purchased or otherwise acquired for value by the Corporation shall, after such
acquisition, have the status of authorized and unissued shares of Preferred
Stock and may be reissued by the Corporation at any time as shares of any series
of Preferred Stock, other than shares of Series B Preferred Stock.
4. Priority on Redemption. The Corporation shall not, directly or
----------------------
indirectly, redeem or purchase or otherwise acquire for value any Junior Stock
(except for Common Stock pursuant to the provisions of that certain Stock
Purchase and Stockholders Agreement dated as of September 30, l992 among the
Corporation and the stockholders named therein) or Parity Stock unless, at the
time of making such redemption, purchase or other acquisition the Corporation
shall have redeemed, or shall contemporaneously redeem, all of the then
outstanding shares of Series B Preferred Stock at the applicable redemption
price (or shall have irrevocably committed to redeem all of the then outstanding
shares of Series B Preferred Stock and have set aside a sum sufficient for the
payment thereof at the applicable Redemption Price on the date of such
subsequent redemption). Notwithstanding the preceding sentence, the Corporation
may take any action otherwise prohibited by such sentence with the affirmative
vote or consent of the holders of a majority of the outstanding shares of Series
B Preferred Stock.
5
<PAGE>
5. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of the Series B Preferred Stock shall be entitled to receive
for each share of Series B Preferred Stock then held, out of the assets of the
Corporation, whether such assets are capital or surplus and whether or not any
dividends as such are declared, the applicable Redemption Price on the date
fixed for distribution, and no more, before any distribution shall be made to
the holders of the Common Stock or Junior Stock with respect to the distribution
of assets.
If, upon any such liquidation, dissolution or other winding up of the
affairs of the Corporation, the assets of the Corporation distributable among
the holders of all outstanding shares of the Series B Preferred Stock and of any
Parity Stock shall be insufficient to permit the payment in full to such holders
of the preferential amounts to which they are entitled, then the entire assets
of the Corporation remaining after the payment or provision for payment of the
debts and other liabilities of the Corporation shall be distributed among the
holders of the Series B Preferred Stock and of any Parity Stock ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(b) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating a payment
date and the place where the distributive amounts shall be payable, shall be
given by mail, postage prepaid, not less than 30 days prior to the payment date
stated therein, to the holders of record of the Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the
Corporation.
(c) No payment on account of such liquidation, dissolution or winding
up of the affairs of the Corporation shall be made to the holders of any Parity
Stock, unless there shall likewise be paid at the same time to the holders of
the Series B Preferred Stock like proportionate distributive amounts, ratably,
in proportion to the full distributive amounts to which they and the holders of
such Parity Stock are respectively entitled with respect to such preferential
distribution.
6. Voting Rights. Except as otherwise required by law, the holders
-------------
of the Series B Preferred Stock shall be entitled to vote along with the Common
Stock and with any other class or series of stock that votes along with the
Common Stock (and not as a separate class) on all matters and shall be entitled
to one vote per share of Series B Preferred Stock.
6
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by David H. Wong, its President, and attested by Leslie R. Shaw, its
Assistant Secretary, this 2lst day of January, 1994.
Attest:
/s/ Leslie R. Shaw /s/ David H. Wong
_______________________ ____________________________
Assistant Secretary President
7
<PAGE>
CERTIFICATE OF INCORPORATION
OF
COBBLESTONE HOLDINGS, INC.
1. The name of the corporation is:
Cobblestone Holdings, Inc.
2. The address of its registered office in the State of Delaware is 32
Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name
of its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of all classes of stock which the
corporation shall have authority to issue is Six Hundred Fifty Thousand
(650,000), consisting of Two Hundred Thousand (200,000) shares of Common Stock,
par value $.0l per share, and Four Hundred Fifty Thousand (450,000) shares of
Preferred Stock, par value $.0l per share.
The Preferred Stock may be divided into such number of series as the Board
of Directors may determine. The Board of Directors is authorized to determine
and alter the rights, preferences, privileges and restrictions (including
without limitation voting rights) granted to and imposed upon the Preferred
Stock or any series thereof with respect to any wholly unissued class or series
of Preferred Stock, and to fix the number of shares of any series of Preferred
Stock and the designation of any such series of Preferred Stock. The Board of
Directors, within the limits and restrictions
<PAGE>
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, may increase or decrease
(but not below the number of any series then outstanding) the number of shares
of any series subsequent to the issue of shares of that series.
5. The name and mailing address of the incorporator is:
Ilona F. Bush
LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the bylaws of the corporation.
7. Election of directors need not be by written ballot unless the bylaws
of the corporation shall so provide.
8. No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, herein declaring and certifying
that this is my act and
2
<PAGE>
deed and the facts herein stated are true, and accordingly have hereunto set my
hand this l4th day of January, l994.
/s/ Ilona F. Bush
--------------------------------------
Ilona F. Bush
3
<PAGE>
Exhibit 3.2
-----------
BYLAWS
OF
COBBLESTONE HOLDINGS, INC.
ARTICLE I
OFFICES
-------
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Meetings of stockholders shall be held at any place within
or outside the State of Delaware designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
Section 2. The annual meeting of stockholders shall be held each year
on a date and a time designated by the Board of Directors. At each annual
meeting directors shall be elected and any other proper business may be
transacted.
Section 3. A majority of the stock issued and outstanding and
entitled to vote at any meeting of stockholders, the holders of which are
present in person or represented by proxy, shall constitute a quorum for the
transaction of business except as otherwise provided by law, by the Certificate
of Incorporation, or by these Bylaws. A quorum, once established, shall not be
broken by the withdrawal of enough votes to leave less than a quorum and the
votes present may continue to transact business until adjournment. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, a majority of the voting stock represented in person or by proxy
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat.
Section 4. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless
<PAGE>
the question is one upon which by express provision of the statutes, or the
Certificate of Incorporation, or these Bylaws, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 5. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing subscribed
by such stockholder and bearing a date not more than three years prior to said
meeting, unless said instrument provides for a longer period. All proxies must
be filed with the Secretary of the corporation at the beginning of each meeting
in order to be counted in any vote at the meeting. Each stockholder shall have
one vote for each share of stock having voting power, registered in his name on
the books of the corporation on the record date set by the Board of Directors as
provided in Article V, Section 6 hereof. All elections shall be had and all
questions decided by a plurality vote.
Section 6. Special meetings of the stockholders, for any purpose, or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the President and shall be called by the
President or the Secretary at the request in writing of a majority of the Board
of Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding,
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
notice shall state the place, date and hour of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called. The
written notice of any meeting shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting. If mailed, notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the corporation.
Section 8. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where
2
<PAGE>
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business, or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the earliest dated consent delivered
in the manner required by this Section 9 to the corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business or to an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
---------
Section 1. The number of directors which shall constitute the whole
Board shall be not less than three (3) nor more than nine (9). The first Board
shall consist of one (1). The directors need not be stockholders. The
directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 2 of this Article, and each director elected shall hold
office until his successor is elected and qualified; provided, however, that
unless otherwise restricted by the Certificate of Incorporation or by law, any
director or the entire Board of Directors may be removed, either with or without
cause, from the Board of Directors at any meeting of stockholders by a majority
of the stock represented and entitled to vote thereat.
Section 2. Vacancies on the Board of Directors by reason of death,
resignation, retirement, disqualification, removal from office, or otherwise,
and newly created directorships resulting from any increase in the authorized
number of
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<PAGE>
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. The directors so chosen
shall hold office until the next annual election of directors and until their
successors are duly elected and shall qualify, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
Section 4. The directors may hold their meetings and have one or more
offices, and keep the books of the corporation outside of the State of Delaware.
Section 5. Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be determined
by the Board.
Section 6. Special meetings of the Board of Directors may be called
by the President on forty-eight hours' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
President or the Secretary in like manner and on like notice on the written
request of two directors unless the Board consists of only one director; in
which case special meetings shall be called by the President or Secretary in
like manner or on like notice on the written request of the sole director.
Section 7. At all meetings of the Board of Directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute, by the Certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the Board of Directors the directors
present thereat may adjourn the meeting from time to time, without notice
4
<PAGE>
other than announcement at the meeting, until a quorum shall be present. If only
one director is authorized, such sole director shall constitute a quorum.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
-----------------------
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
5
<PAGE>
COMPENSATION OF DIRECTORS
-------------------------
Section 12. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
INDEMNIFICATION
---------------
Section 13.(a) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
6
<PAGE>
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Section 13. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 13 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses 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.
(g) The Board of Directors may authorize, by a vote of a majority of
a quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and
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<PAGE>
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Section 13.
(h) For the purposes of this Section 13, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Section with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 13 shall, unless otherwise provided when
authorized or ratified, 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.
ARTICLE IV
OFFICERS
--------
Section 1. The officers of this corporation shall be chosen by the
Board of Directors and shall include a Chairman or Vice-Chairman of the Board of
Directors or a President and a Secretary. The corporation may also have at the
discretion of the Board of Directors such other officers as are desired,
including a Chief Executive Officer, a Treasurer, one or more Vice Presidents,
one or more Assistant Secretaries and Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3
hereof. In the event there are two or more Vice Presidents, then one or more
may be designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time
8
<PAGE>
of the election of officers, the directors may by resolution determine the order
of their rank. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors, at its first meeting after each
annual meeting of stockholders, shall choose the officers of the corporation.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
CHAIRMAN OF THE BOARD
---------------------
Section 6. The Chairman of the Board, if such an officer be elected,
shall, if present, preside at all meetings of the Board of Directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the Board of Directors or prescribed by these Bylaws. If
there is no President, the Chairman of the Board shall in addition be the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in Section 7 of this Article IV.
PRESIDENT
---------
Section 7. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
9
<PAGE>
VICE PRESIDENTS
---------------
Section 8. In the absence or disability of the President, the Vice
Presidents in order of their rank as fixed by the Board of Directors, or if not
ranked, the Vice President designated by the Board of Directors, shall perform
all the duties of the President, and when so acting shall have all the powers of
and be subject to all the restrictions upon the President. The Vice Presidents
shall have such other duties as from time to time may be prescribed for them,
respectively, by the Board of Directors.
SECRETARY AND ASSISTANT SECRETARY
---------------------------------
Section 9. The Secretary shall attend all sessions of the Board of
Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep
in safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 10. The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Board of Directors, or
if there be no such determination, the Assistant Secretary designated by the
Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
TREASURER AND ASSISTANT TREASURER
---------------------------------
Section 11. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
10
<PAGE>
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 12. The Assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of Directors,
or if there be no such determination, the Assistant Treasurer designated by the
Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
---------------------
Section 1. Every holder of stock of the corporation shall be entitled
to have a certificate signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President, and by the Secretary or an Assistant Secretary, or the Treasurer or
an Assistant Treasurer of the corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the corporation.
Section 2. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Section 3. If the corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
11
<PAGE>
LOST, STOLEN OR DESTROYED CERTIFICATES
--------------------------------------
Section 4. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
------------------
Section 5. Upon surrender to the corporation, or the transfer agent
of the corporation, of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
------------------
Section 6. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
-----------------------
Section 7. The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
12
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
------------------
DIVIDENDS
---------
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve.
CHECKS
------
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
FISCAL YEAR
-----------
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
----
Section 5. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
NOTICES
-------
Section 6. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
13
<PAGE>
Section 7. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ANNUAL STATEMENT
----------------
Section 8. The Board of Directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
ARTICLE VII
AMENDMENTS
----------
Section 1. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
14
<PAGE>
BYLAWS
OF
COBBLESTONE HOLDINGS, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - OFFICES 1
Section 1. Registered Office........................... 1
Section 2. Other Offices............................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS...................... 1
Section 1. Place of Meetings........................... 1
Section 2. Annual Meeting of Stockholders.............. 1
Section 3. Quorum; Adjourned Meetings and Notice
Thereof................................ 1
Section 4. Voting ..................................... 2
Section 5. Proxies..................................... 2
Section 6. Special Meetings............................ 3
Section 7. Notice of Stockholder's Meetings............ 3
Section 8. Maintenance and Inspection of
Stockholder List....................... 3
Section 9. Stockholder Action by Written Consent
Without a Meeting...................... 4
ARTICLE III - DIRECTORS.................................... 5
Section 1. The Number of Directors..................... 5
Section 2. Vacancies................................... 5
Section 3. Powers...................................... 6
Section 4. Place of Directors' Meetings................ 6
Section 5. Regular Meetings............................ 6
Section 6. Special Meetings............................ 6
Section 7. Quorum...................................... 7
Section 8. Action Without Meeting...................... 7
Section 9. Telephonic Meetings......................... 7
Section 10. Committees of Directors..................... 7
Section 11. Minutes of Committee Meetings............... 8
Section 12. Compensation of Directors................... 8
Section 13. Indemnification............................. 9
ARTICLE IV - OFFICERS...................................... 13
Section 1. Officers.................................... 13
Section 2. Election of Officers........................ 13
Section 3. Subordinate Officers........................ 14
Section 4. Compensation of Officers.................... 14
Section 5. Term of Office; Removal and Vacancies....... 14
Section 6. Chairman of the Board....................... 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. President.................................. 14
Section 8. Vice President............................. 15
Section 9. Secretary.................................. 15
Section 10. Assistant Secretaries...................... 16
Section 11. Treasurer.................................. 16
Section 12. Assistant Treasurer........................ 16
ARTICLE V - CERTIFICATES OF STOCK......................... 17
Section 1. Certificates............................... 17
Section 2. Signatures on Certificates................. 17
Section 3. Statement of Stock Rights,
Preferences, Privileges............... 17
Section 4. Lost Certificates.......................... 18
Section 5. Transfers of Stock......................... 18
Section 6. Fixing Record Date......................... 19
Section 7. Registered Stockholders.................... 19
ARTICLE VI - GENERAL PROVISIONS DIVIDENDS................. 20
Section 1. Dividends.................................. 20
Section 2. Payment of Dividends; Directors'
Duties................................ 20
Section 3. Checks..................................... 20
Section 4. Fiscal Year................................ 20
Section 5. Corporate Seal............................. 20
Section 6. Manner of Giving Notice.................... 21
Section 7. Waiver of Notice........................... 21
Section 8. Annual Statement........................... 21
ARTICLE VII - AMENDMENTS................................. 21
Section 1. Amendment by Directors or
Stockholders.......................... 21
</TABLE>
ii
<PAGE>
BYLAWS
OF
COBBLESTONE HOLDINGS, INC.
<PAGE>
Exhibit 4.1
================================================================================
COBBLESTONE HOLDINGS, INC.
ISSUER,
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
TRUSTEE
_______________________
INDENTURE
Dated as of June 4, 1996
_______________________
$86,000,000
13 1/2% Senior Zero-Coupon Notes due 2004
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.................................................. 1
SECTION 1.2. Incorporation by Reference of TIA............................ 17
SECTION 1.3. Rules of Construction........................................ 18
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating............................................. 18
SECTION 2.2. Execution and Authentication................................ 19
SECTION 2.3. Registrar and Paying Agent.................................. 19
SECTION 2.4. Paying Agent to Hold Assets in Trust........................ 20
SECTION 2.5. Securityholder Lists........................................ 20
SECTION 2.6. Transfer and Exchange....................................... 21
SECTION 2.7. Replacement Securities...................................... 27
SECTION 2.8. Outstanding Securities...................................... 27
SECTION 2.9. Treasury Securities......................................... 28
SECTION 2.10. Temporary Securities........................................ 28
SECTION 2.11. Cancellation................................................ 28
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.......................................... 28
SECTION 3.2. Notices to Trustee........................................... 29
SECTION 3.3. Selection of Securities to Be Redeemed....................... 29
SECTION 3.4. Notice of Redemption......................................... 29
SECTION 3.5. Effect of Notice of Redemption............................... 31
SECTION 3.6. Deposit of Redemption Price.................................. 31
SECTION 3.7. Securities Redeemed in Part.................................. 31
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities....................................... 32
SECTION 4.2. Maintenance of Office or Agency............................. 32
SECTION 4.3. Limitation on Restricted Payments........................... 32
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4.4. Corporate Existence............................................... 34
SECTION 4.5. Payment of Taxes and Other Claims................................. 34
SECTION 4.6. Maintenance of Properties and Insurance........................... 35
SECTION 4.7. Compliance Certificate; Notice of Default......................... 36
SECTION 4.8. Reports........................................................... 36
SECTION 4.9. Limitation on Status as Investment Company........................ 36
SECTION 4.10. Limitation on Transactions with Affiliates........................ 36
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock.................................... 37
SECTION 4.12. Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries............................... 38
SECTION 4.13. Limitations on Liens.............................................. 39
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock................ 39
SECTION 4.15. Waiver of Stay, Extension or Usury Laws........................... 43
SECTION 4.16. Rule 144A Information Requirement................................. 44
SECTION 4.17. Restriction on Sale and Issuance of Subsidiary Stock.............. 44
SECTION 4.18. Limitation on Lines of Business................................... 44
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation........................ 44
SECTION 5.2. Successor Corporation Substituted.................................. 45
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.................................................. 45
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment............ 47
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee.... 49
SECTION 6.4. Trustee May File Proofs of Claim................................... 49
SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities........ 50
SECTION 6.6. Priorities......................................................... 50
SECTION 6.7. Limitation on Suits................................................ 51
SECTION 6.8. Unconditional Right of Holders to Receive Principal, Interest
and Premium........................................................ 51
SECTION 6.9. Rights and Remedies Cumulative..................................... 52
SECTION 6.10. Delay or Omission Not Waiver....................................... 52
SECTION 6.11. Control by Holders................................................. 52
SECTION 6.12. Waiver of Past Default............................................. 52
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.13. Undertaking for Costs............................................. 53
SECTION 6.14. Restoration of Rights and Remedies................................ 53
ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee................................................. 53
SECTION 7.2. Rights of Trustee................................................. 55
SECTION 7.3. Individual Rights of Trustee...................................... 56
SECTION 7.4. Trustee's Disclaimer.............................................. 56
SECTION 7.5. Notice of Default................................................. 56
SECTION 7.6. Reports by Trustee to Holders..................................... 56
SECTION 7.7. Compensation and Indemnity........................................ 57
SECTION 7.8. Replacement of Trustee............................................ 58
SECTION 7.9. Successor Trustee by Merger, Etc.................................. 59
SECTION 7.10. Eligibility; Disqualification..................................... 59
SECTION 7.11. Preferential Collection of Claims Against Company................. 59
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal Defeasance or Covenant
Defeasance......................................................... 59
SECTION 8.2. Legal Defeasance and Discharge..................................... 60
SECTION 8.3. Covenant Defeasance................................................ 60
SECTION 8.4. Conditions to Legal or Covenant Defeasance......................... 61
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous Provisions...................... 62
SECTION 8.6. Repayment to the Company........................................... 62
SECTION 8.7. Reinstatement...................................................... 63
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders................. 63
SECTION 9.2. Amendments, Supplemental Indentures and Waivers
with Consent of Holders............................................ 64
SECTION 9.3. Compliance with TIA................................................ 66
SECTION 9.4. Revocation and Effect of Consents.................................. 66
SECTION 9.5. Notation on or Exchange of Securities.............................. 67
SECTION 9.6. Trustee to Sign Amendments, Etc.................................... 67
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X
MEETINGS OF SECURITYHOLDERS
SECTION 10.1. Purposes for Which Meetings May Be Called......................... 67
SECTION 10.2. Manner of Calling Meetings........................................ 68
SECTION 10.3. Call of Meetings by the Company or Holders........................ 68
SECTION 10.4. Who May Attend and Vote at Meetings............................... 68
SECTION 10.5. Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment............................... 69
SECTION 10.6. Voting at the Meeting and Record to Be Kept....................... 69
SECTION 10.7. Exercise of Rights of Trustee or Securityholders
May Not Be Hindered or Delayed by Call of Meeting................. 70
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION 11.1. Repurchase of Securities at Option of the Holder
Upon a Change of Control......................................... 70
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. TIA Controls..................................................... 72
SECTION 12.2. Notices.......................................................... 72
SECTION 12.3. Communications by Holders with Other Holders..................... 73
SECTION 12.4. Certificate and Opinion as to Conditions Precedent............... 74
SECTION 12.5. Statements Required in Certificate or Opinion.................... 74
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar........................ 74
SECTION 12.7. Legal Holidays................................................... 75
SECTION 12.8. Governing Law.................................................... 75
SECTION 12.9. No Adverse Interpretation of Other Agreements.................... 75
SECTION 12.10. No Recourse Against Others....................................... 75
SECTION 12.11. Successors....................................................... 76
SECTION 12.12. Duplicate Originals.............................................. 76
SECTION 12.13. Severability..................................................... 76
SECTION 12.14. Table of Contents, Headings, Etc................................. 76
SECTION 12.15. Qualification of Indenture....................................... 76
SECTION 12.16. Registration Rights.............................................. 76
EXHIBIT A FORM OF SECURITY................................................. A-1
</TABLE>
iv
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- -------
<S> <C>
310(a)(1)....................................................................... 7.10
(a)(2)......................................................................... 7.10
(a)(3)......................................................................... N.A.
(a)(4)....................................................................... N.A.
(a)(5)....................................................................... 7.10
(b).......................................................................... 7.8
7.10;
14.2
(c)............................................................................ N.A.
311(a).......................................................................... 7.11
(b).......................................................................... 7.11
(c).......................................................................... N.A.
312(a).......................................................................... 2.5
(b).......................................................................... 14.3
(c).......................................................................... 14.3
313(a).......................................................................... 7.6
(b)(1)....................................................................... N.A.
(b)(2)....................................................................... 7.6
(c).......................................................................... 7.6;
14.2
(d).......................................................................... 7.6
314(a).......................................................................... 4.7(a);
4.8;
13.2
(b).......................................................................... N.A.
(c)(1)....................................................................... 2.2;
7.2;
14.4
(c)(2)....................................................................... 7.2;
14.4
(c)(3)....................................................................... N.A.
(d).......................................................................... N.A.
(e).......................................................................... 14.5
(f).......................................................................... N.A.
315(a).......................................................................... 7.1(b)
(b).......................................................................... 7.5;
7.6;
14.2
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- -------
<S> <C>
(c)........................................................................... 7.1(a)
(d)........................................................................... 2.8;
6.11;
7.1(b),
(c)
(e)........................................................................... 6.13
316(a)(last sentence).......................................................... 2.9
(a)(1)(A)..................................................................... 6.11
(a)(1)(B)..................................................................... 6.12
(a)(2)........................................................................ N.A.
(b)........................................................................... 6.12;
6.7
317(a)(1)...................................................................... 6.3
(a)(2)........................................................................ 6.4
(b)........................................................................... 14.1
</TABLE>
__________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of the Indenture.
vi
<PAGE>
INDENTURE, dated as of June 4, 1996, by and between Cobblestone
Holdings, Inc., a Delaware corporation (the "Company"), and Norwest Bank
Minnesota, National Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 13
1/2% Senior Zero-Coupon Notes due 2004 and the class of 13 1/2% Senior Zero-
Coupon Series B Notes due 2004 to be exchanged for the Zero-Coupon Series A
Notes due 2004:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
-----------
"Accreted Value" means, as of any date of determination, the sum of
(a) the issue price set forth on the face of a Security and (b) the portion of
the excess of the principal amount of such Security over such issue price which
shall have been accreted thereon through such date, such amount to be so
accreted on a daily basis at the rate of 13 1/2% per annum of the issue price of
the Securities, compounded semi-annually on each June 1 and December 1 using a
360-day year composed of twelve 30 day months from the Issue Date through the
date of determination.
"Acquired Indebtedness" means Indebtedness of any person existing at
the time such person becomes a subsidiary of such person or is merged or
consolidated into or with such person or one of its subsidiaries, and not
incurred in connection with or in anticipation of, such merger or consolidation
or of such person becoming a subsidiary of such person.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means (i) any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
of its Subsidiaries, (ii) any spouse, immediate family member, or other relative
who has the same principal residence of any person described in clause (i)
above, and (iii) any trust in which any person described in clause (i) or (ii)
above has a beneficial interest. For purposes of this definition, the term
"control" means the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether through the ownership of
voting securities, by contract, or otherwise, provided, that a beneficial owner
of 10% or more of the total voting power normally entitled to vote in the
election of directors, managers or trustees, as applicable, shall for such
purposes be deemed to constitute control. Notwithstanding the foregoing, the
term Affiliate shall not with respect to the Company include wholly owned
Subsidiaries of the Company.
<PAGE>
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Assets to Be Disposed of" means assets identified in an Officer's
Certificate at the time of an Acquisition as assets the Company or the acquiring
Subsidiary intends to dispose of within 180 days of such Acquisition.
"Asset Sale" shall have the meaning specified in Section 4.14 of
this Indenture.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of (a)
the product of the number of years from the date of determination to the date or
dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar
Federal, state or foreign law for the relief of debtors.
"beneficial owner," for purposes of the definition of Change of
Control, has the meaning attributed to it in Rules 13d-3 and 13d-5 under the
Exchange Act (as in effect on the Issue Date), whether or not applicable, except
that a "person" shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time or (unless not within the control
of such person) upon the occurrence of certain events.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Brentwood Agreement" means the Corporate Development and
Administrative Services Agreement dated September 30, 1992 between the Company
and Brentwood Buyout Partners, L.P., as amended as of the Issue Date.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
"CGG" means Cobblestone Golf Group, Inc., a Delaware corporation,
and a wholly owned subsidiary of the Company.
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<PAGE>
"Capital Stock" means, with respect to any person, any capital stock
of such person and shares, interests, participations or other ownership
interests (however designated) of any person and any rights (other than debt
securities convertible into corporate stock), warrants and options to purchase
any of the foregoing, including (without limitation) each class of common stock
and preferred stock of such person if such person is a corporation and each
general and limited partnership interest of such person if such person is a
partnership.
"Capitalized Lease Obligation" means rental obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations, as determined
in accordance with GAAP.
"Cash" means such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debts.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $500 million and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments in
money market funds substantially all of whose assets comprise securities of the
types described in clauses (i) and (ii) above.
"Change of Control" means (i) the Investor Group is no longer the
"beneficial owner," directly or indirectly, of more than 50% of the total voting
power in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the Company and (ii) any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) is or becomes the "beneficial owner,"
directly or indirectly, of more of the total voting power in the aggregate
outstanding normally entitled to vote in elections of directors of the Company
than is owned collectively by Brentwood Golf Partners, L.P. and James A.
Husband.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means such
successor.
"Consolidated Cash Flow Ratio" of any person on any date of
determination (the "Transaction Date"), means the ratio, on a pro forma basis,
of (a) the aggregate amount of consolidated Indebtedness of such person on the
Transaction Date to (b) the aggregate amount of Consolidated EBITDA of such
person (exclusive of amounts attributable to operations and
3
<PAGE>
businesses permanently discontinued or disposed of) during the Reference Period;
provided, however, that for purposes of such calculation, (i) Acquisitions which
occurred during the Reference Period or subsequent to the Reference Period and
on or prior to the Transaction Date shall be assumed to have occurred on the
first day of the Reference Period, (ii) transactions giving rise to the need to
calculate the Consolidated Cash Flow Ratio shall be assumed to have occurred on
the first day of the Reference Period and (iii) the incurrence of any
Indebtedness or issuance of any Disqualified Capital Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the Transaction
Date (and the application of the proceeds therefrom to the extent used to
refinance or retire other Indebtedness) shall be assumed to have occurred on the
first day of such Reference Period.
"Consolidated Depreciation and Amortization Expenses" for any person
means the total depreciation and amortization for such person and its
Consolidated Subsidiaries, as determined in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) Consolidated
Income Tax Expense, (ii) Consolidated Depreciation and Amortization Expenses
(including any accelerations thereof) and (iii) Consolidated Fixed Charges.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, (b)
one-third of rental expense for such period attributable to operating leases of
such person and its Consolidated Subsidiaries, and (c) the amount of dividends
accrued or payable by such person or any of its Consolidated Subsidiaries in
respect of Disqualified Capital Stock (other than by Subsidiaries of such person
to such person or such person's wholly owned Subsidiaries). For purposes of
this definition, (x) interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by the Company to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP and (y) interest expense attributable to any Indebtedness represented
by the guarantee by such person or a Subsidiary of such person of an obligation
of another person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Income Tax Expense" for any person means the total net
income tax expenses for such person and its Consolidated Subsidiaries, as
determined in accordance with GAAP.
4
<PAGE>
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) all gains (but not losses)
which are either extraordinary (as determined in accordance with GAAP) or are
either unusual or nonrecurring (including without limitation any gain from the
sale or other disposition of assets outside the ordinary course of business or
from the issuance or sale of any Capital Stock), (b) the net income, if
positive, of any person, other than a wholly owned Consolidated Subsidiary, in
which such person or any of its Consolidated Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash to such person or a wholly owned Consolidated Subsidiary of such
person during such period, but in any case not in excess of such person's pro
rata share of such person's net income for such period, (c) the net income or
loss of any person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (d) the net income, if positive, of
any of such person's Consolidated Subsidiaries to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated for
financial statement reporting purposes with the financial statements of such
person in accordance with GAAP.
"Consolidated Tangible Net Worth" of any person at any date means the
total assets of such person and its Consolidated Subsidiaries, as would be shown
on the consolidated balance sheet of such person prepared in accordance with
GAAP, less (a) the total liabilities appearing on such balance sheet, and (b)
intangible assets. For purposes hereof, "intangible assets" means the value
(net of any applicable reserves), as shown on or reflected in such balance
sheet, of: (i) all trade names, trademarks, licenses, patents, copyrights and
goodwill; (ii) organizational and development costs; and (iii) unamortized debt
discount and expense, less unamortized premium.
"Corporate Trust Office" means the Office of the Trustee in the
Borough of Manhattan, The City of New York.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Debt Incurrence Ratio" shall have the meaning specified in paragraph
(1) of Section 4.11 of this Indenture.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
5
<PAGE>
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 3 and 8 thereof.
"Depository" means, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.3 of this
Indenture as the Depository with respect to the Securities, until a successor
shall have been appointed and become such pursuant to the applicable provision
of this Indenture, and, thereafter, "Depository" shall mean or include such
successor.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any person, Capital Stock of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its Subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Securities and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Capital Stock other than any common stock with special rights and
no preference, privileges, or redemption or repayment provisions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means the 13 1/2% Series B Senior Zero-Coupon
Notes due 2004, as supplemented from time to time in accordance with the terms
hereof, to be issued pursuant to this Indenture in connection with the offer to
exchange Securities for the Initial Securities that may be made by the Company
pursuant to the Registration Rights Agreement that contains the changes referred
to in footnotes 1 and 2 to the form of Security attached hereto as Exhibit A.
"Existing Assets" means assets of the Company and its Subsidiaries
existing at the Issue Date (other than Cash, Cash Equivalents or inventory held
for resale in the ordinary course of business) and including proceeds of any
sale of such assets and assets acquired in whole or in part with proceeds from
the sale from any such assets.
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"Global Security" means a Security that contains the paragraph
referred to in footnote 3 and the additional schedule referred to in footnote 8
to the form of Security attached hereto as Exhibit A.
6
<PAGE>
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" shall have the meaning specified in Section 4.11 of this
Indenture.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than ninety days past their original due
date, or for which adequate reserves have been established while such amounts
are being contested in good faith) those incurred in the ordinary course of its
business that would ordinarily constitute a trade payable to trade creditors,
(iv) evidenced by bankers' acceptances or similar instruments issued or accepted
by banks, (v) in respect of Capitalized Lease Obligations, or (vi) evidenced by
a letter of credit or a reimbursement obligation of such person with respect to
any letter of credit; (b) all net obligations of such person under Interest Swap
and Hedging Obligations; (c) all liabilities of others of the kind described in
the preceding clauses (a) and (b) that such person has guaranteed or that is
otherwise its legal liability and all obligations to purchase, redeem or acquire
any Capital Stock; (d) all obligations secured by a Lien to which the property
or assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such person are subject, whether or
not the obligations secured thereby shall have been assumed by or shall
otherwise be such person's legal liability, provided, that the amount of such
obligations shall be limited to the lesser of the fair market value of the
assets or property to which such Lien attaches and the amount of the obligation
so secured; and (e) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c) or (d) or this clause (e), whether or not between or among
the same parties.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Initial Securities" means the 13 1/2% Series A Senior Zero-Coupon
Notes due 2004, as supplemented from time to time in accordance with the terms
hereof, issued under this Indenture that contains the changes referred to in
footnotes 4, 6 and 9 to the form of Security attached hereto as Exhibit A.
"Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other
7
<PAGE>
agreement or arrangement designed to protect against fluctuations in interest
rates or currency values, including, without limitation, any arrangement
whereby, directly or indirectly, such person is entitled to receive from time to
time periodic payments calculated by applying either a fixed or floating rate of
interest on a stated notional amount in exchange for periodic payments made by
such person calculated by applying a fixed or floating rate of interest on the
same notional amount.
"Investment" by any person in any other person means (without
duplication) (a) the acquisition by such person (whether for cash, property,
services, securities or otherwise) of capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities, including any
options or warrants, of such other person or any agreement to make any such
acquisition; (b) the making by such person of any deposit with, or advance, loan
or other extension of credit to, such other person (including the purchase of
property from another person subject to an understanding or agreement,
contingent or otherwise, to resell such property from another person subject to
an understanding or agreement, contingent or otherwise, to resell such property
to such other person) or any commitment to make any such advance, loan or
extension (but excluding accounts receivable or deposits arising in the ordinary
course of business); (c) other than the guarantees of the Senior Notes by
subsidiaries of CGG, the entering into by such person of any guarantee of, or
other credit support or contingent obligation with respect to, Indebtedness or
other liability of such other person; (d) the making of any capital contribution
by such person to such other person; and (e) the designation by the Board of
Directors of the Company of any person to be an Unrestricted Subsidiary. The
Company shall be deemed to make an "Investment" in an amount equal to the fair
market value of the net assets of any person (or, if neither the Company nor any
of its Subsidiaries has theretofore made an Investment in such person, in an
amount equal to the Investments being made), at the time that such person is
designated an Unrestricted Subsidiary or, if such designation is made pursuant
to clause (i)(c) of the definition of Unrestricted Subsidiary, in an amount
equal to the sum of the Investments being made and the consideration paid by the
Company and its Subsidiaries to effect such Acquisition (excluding, for this
purpose only, Qualified Capital Stock of the Company issued in connection
therewith). Any property transferred to an Unrestricted Subsidiary from the
Company or any Subsidiary of the Company shall be deemed an "Investment" valued
at its fair market value at the time of such transfer.
"Investor Group" means any one or more of the stockholders of the
Company immediately prior to the Issue Date and any one or more Affiliates of
such persons.
"Issue Date" means the date of first issuance of the Securities under
this Indenture.
"Legal Holiday" shall have the meaning specified in Section 12.7.
"Lien" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable
8
<PAGE>
law (including any conditional sale or other title retention agreement and any
lease deemed to constitute a security interest and any option or other agreement
to give any security interest).
"Maturity Date" means, when used with respect to any Security, the
date specified on such Security as the fixed date on which the final installment
of principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any Change of Control Offer or Offer to
Purchase).
"Net Cash Proceeds" means the aggregate amount of Cash or Cash
Equivalents received by the Company in the case of a sale of Qualified Capital
Stock and by the Company and its Subsidiaries in respect of an Asset Sale plus,
in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of the Company that were issued for Cash on or
after the Issue Date, the amount of Cash originally received by the Company upon
the issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary),
expenses (including, without limitation, the fees and expenses of legal counsel
and investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable taxes required to be paid by the
Company or any of its respective Subsidiaries in the current or next succeeding
taxable year of sale in connection with such Asset Sale.
"New Credit Facility" means the credit agreement to be dated as of
June 4, 1996 by and among the Company, CGG, Bank of America NT&SA, individually
and as agent, and certain financial institutions, providing for (A) an aggregate
$45,000,000 reducing revolving loan facility, and (B) an aggregate $5,000,000
working capital revolving credit facility, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "New Credit Facility" shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders party to the New Credit Facility and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to the New Credit Facility and all refundings, refinancings and
replacements of the New Credit Facility, including any agreement (i) extending
the maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) adding or deleting borrowers or guarantors thereunder, so long as borrowers
and issuers include one or more of the Company and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder, provided, however,
that on the date such Indebtedness is incurred it would not be
9
<PAGE>
prohibited by Section 4.11 of this Indenture or (iv) otherwise altering the
terms and conditions thereof in a manner not prohibited by the terms of this
Indenture.
"Non-recourse Purchase Money Indebtedness" means Indebtedness of the
Company or its Subsidiaries to the extent that (i) under the terms thereof or
pursuant to law, no personal recourse may be had against the Company or its
Subsidiaries for the payment of the principal of or interest or premium on such
Indebtedness (or such portion), and enforcement of obligations on such
Indebtedness (or such portion), (except with respect to fraud, willful
misconduct, misrepresentation, misapplication of funds, reckless damage to
assets and undertakings with respect to environmental matters or construction
defects) is limited only to recourse against interests in specified assets and
property (the "Subject Assets"), accounts and proceeds arising therefrom, and
rights under purchase agreements or other agreements with respect to such
Subject Assets; (ii) such Indebtedness is incurred in connection with the
acquisition of such Subject Asset for the business of the Company or such
Subsidiaries, including Indebtedness assumed, which Indebtedness existed at the
time of the acquisition of such Subject Asset; (iii) such Indebtedness was
incurred at the time of such acquisition of such Subject Asset; and (iv) no
proceeds from the sale of Existing Assets were used to acquire such Subject
Asset.
"Obligation" means any principal, premium, interest, penalties, fees,
reimbursements, damages, indemnification and other liabilities relating to
obligations of the Company under the Securities or this Indenture.
"Officer" means, with respect to the Company, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Treasurer, the Controller, or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 12.4
and 12.5 of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
12.4 and 12.5 of this Indenture.
"Paying Agent" shall have the meaning specified in Section 2.3 of this
Indenture.
"Permitted Indebtedness" means, without duplication, any of the
following: (a) Subsidiaries of the Company may incur Indebtedness in respect of
Capitalized Lease Obligations and Non-recourse Purchase Money Indebtedness in
the ordinary course of business, in amounts and for the purposes customary in
the Company's industry; provided, however, that the aggregate principal amount
outstanding of such Indebtedness (including any Indebtedness issued to
Refinance, refund or replace such Indebtedness) shall at no time exceed
$10,000,000; (b) the Company may incur Indebtedness to any wholly owned
Subsidiary of the Company, and any Subsidiary of the Company may incur
Indebtedness to any wholly owned Subsidiary of the
10
<PAGE>
Company or to the Company; provided, that such obligations shall be subordinated
in all respects to the Company's obligations pursuant to this Indenture and the
Securities; and (c) Indebtedness of the Company and its Subsidiaries outstanding
on the Issue Date after giving effect to the implementation of the New Credit
Facility.
"Permitted Liens" means any of the following: (a) Liens existing on
the Issue Date (including Liens in favor of the Trustee arising under the
Indenture and Liens securing Indebtedness permitted to be incurred pursuant to
the New Credit Facility in compliance with Section 4.11(5) of this Indenture),
after giving effect to the implementation of the New Credit Facility, and any
extension, renewal, replacement or refinancing, in whole or in part, of any such
Lien so long as (1) the amount of security is not increased thereby, (2) the
aggregate amount secured by such Lien after such extension, renewal, replacement
or refinancing does not exceed (after deduction of reasonable and customary fees
and expenses incurred in connection therewith) the aggregate amount secured
thereby prior thereto and (3) the Indebtedness secured by such Lien, if any, is
permitted under Section 4.11 of this Indenture; (b) Liens for taxes, as
sessments or other governmental charges or claims not yet due or which are being
contested in good faith and by appropriate proceedings by a person if adequate
reserves or other appropriate provisions with respect thereto are maintained on
the books of such person to the extent required in accordance with GAAP; (c)
statutory Liens of carriers, warehousemen, mechanics, landlords, materialmen,
repairmen or other like Liens arising by operation of law and Liens on deposits
made to obtain the release of such Liens if (1) the underlying obligations are
not overdue for a period of more than sixty days or (2) such Liens are being
contested in good faith and by appropriate proceedings by such person and
adequate reserves with respect thereto are maintained on the books of such
person in accordance with GAAP; (d) Liens securing the performance of bids,
trade contracts (other than in connection with any borrowing of money or any
commitment to loan any money or to extend any credit), leases, statutory
obligations, surety and appeal bonds and other obligations of a like nature, and
pledges or deposits in connection with workers' compensation, unemployment
insurance and other types of social security legislation, in each case made or
incurred in the ordinary course of business consistent with industry practices;
(e) easements, rights-of-ways, zoning and similar restrictions and other similar
encumbrances or title defects which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto (as such property is used by such person) or interfere
with the ordinary conduct of the business of such person; provided, that any
such Liens are not incurred for the benefit of any borrowing of money or any
commitment to loan any money or to extend any credit; (f) Liens arising by opera
tion of law in connection with judgments to the extent, for an amount and for a
period not resulting in an Event of Default with respect thereto; (g) Liens
securing Non-recourse Purchase Money Indebtedness permitted to be incurred under
the Indenture, provided, that each such Lien relates only to the property which
is subject to such Non-recourse Purchase Money Indebtedness; (h) any customary
retention of title by the lessor under a Capitalized Lease Obligation incurred
in compliance with Section 4.11 of this Indenture; (i) Liens that secure
Acquired Indebtedness, provided, in each case, that such Liens do not secure any
other property or assets and were not put in place in connection with or in
anticipation of such acquisition, merger or consolidation, and any extension,
renewal, replacement or refinancing, in whole or in part, of any such Lien
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so long as (1) the amount of security is not increased thereby, (2) the
aggregate amount secured by such Lien after such extension, renewal, replacement
or refinancing does not exceed (after deduction of reasonable and customary fees
and expenses incurred in connection therewith) the aggregate amount secured
thereby prior thereto and (3) the Indebtedness secured by such Lien, if any, is
permitted under Section 4.11 of this Indenture; (j) Liens that secure
Indebtedness incurred pursuant to clause (1) of Section 4.11 of this Indenture,
provided, that (1) after giving effect on a pro forma basis to such Incurrence
and the use of proceeds therefrom, the Debt Incurrence Ratio is no greater than
5 to 1 and (2) the aggregate amount secured by any such Lien does not exceed the
aggregate amount of such Indebtedness; and (k) Liens that secure Indebtedness
under the New Credit Facility Incurred either (1) pursuant to clause (5) of
Section 4.11 of this Indenture or (2) pursuant to clause (1) of Section 4.11 of
this Indenture, provided, that after giving effect on a pro forma basis to such
Incurrence and the use of proceeds therefrom, the Debt Incurrence Ratio is no
greater than 5 to 1.
"Person" or "person" means any corporation, individual, joint stock
company, joint venture, partnership, limited liability company, unincorporated
association, governmental regulatory entity, country, state or political
subdivision thereof, trust, municipality or other entity.
"principal" of any Indebtedness means the principal of such
Indebtedness plus, without duplication, any applicable premium, if any, on such
Indebtedness.
"principal amount" of a Security means the principal amount due at the
Stated Maturity of the Security asset forth on the face of the Security.
"property" means any right or interest in or to property or assets of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Public Equity Offering" means an underwritten offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act after which the common stock of the Company, is listed on a
national securities exchange or quoted on the Nasdaq National Market.
"Purchase Agreement" means that certain Purchase Agreement dated May
29, 1996 by and between the Company and the Initial Purchaser, as such agreement
may be amended, modified or supplemented from time to time in accordance with
the terms thereof.
"Qualified Capital Stock" means any Capital Stock of the Company that
is not Disqualified Capital Stock.
"Qualified Exchange" means any defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of Qualified Capital Stock.
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"Record Date" means a Record Date specified in the Securities whether
or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security attached hereto as
Exhibit A.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price stated as a percentage of Accreted Value
for such redemption pursuant to Paragraph 5 in the form of Security attached
hereto as Exhibit A.
"Reference Period" with regard to any person means the four full
fiscal quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the Securities or this Indenture; provided,
however, that the Consolidated Fixed Charges of such person, to the extent such
person has been in existence for a shorter period than four full fiscal
quarters, shall be computed on an annualized basis.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
provided, however, that (A) such Refinancing Indebtedness of any Subsidiary of
the Company shall only be used to Refinance outstanding Indebtedness or
Disqualified Capital Stock of such Subsidiary, (B) Refinancing Indebtedness
shall (x) not have an Average Life shorter than the Indebtedness or Disqualified
Capital Stock to be so refinanced at the time of such Refinancing and (y) in all
respects, be no less subordinated, if applicable, to the rights of Holders of
the Securities than was the Indebtedness or Disqualified Capital Stock to be
refinanced and (C) such Refinancing Indebtedness shall have no installment of
principal (or redemption payment) scheduled to come due earlier than the
scheduled maturity of any installment of principal of the Indebtedness or
Disqualified Capital Stock to be so refinanced which was scheduled to come due
prior to the Stated Maturity.
"Registrar" shall have the meaning specified in Section 2.3 of this
Indenture.
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"Registration Rights Agreement" means the Registration Rights
Agreement dated as of June 4, 1996 by and between the Initial Purchaser and the
Company, as such agreement may be amended, modified or supplemented from time to
time in accordance with the terms thereof.
"Related Business" means the business conducted by the Company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of the Company are materially related
businesses.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than (a) in Cash Equivalents, (b)
intercompany notes to the extent permitted under "Permitted Indebtedness," (c)
Investments in existence on the Issue Date and (d) Investments in wholly owned
Subsidiaries (including Investments as a direct result of which the surviving
entity is or becomes the Company or a direct wholly owned Subsidiary of the
Company).
"Restricted Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Capital Stock of such person or any Subsidiary of such person, (b) any payment
on account of the purchase, redemption or other acquisition or retirement for
value of Capital Stock of such person or any Subsidiary of such person, (c) any
purchase, redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Capital Stock of an issuer
to the extent payable solely in shares of Qualified Capital Stock of such
issuer; (ii) any dividend, distribution or other payment to the Company or to
any of its Subsidiaries by the Company or any of its Subsidiaries, provided,
however, that such payment by a Subsidiary which is not wholly owned by the
Company and/or its wholly owned Subsidiaries shall constitute a "Restricted
Payment" to the extent not paid on a pro rata basis in accordance with its
organizational documents as in effect on the later of the Issue Date and the
time such person first became a Subsidiary of the Company; or (iii) loans or
advances to any wholly owned Subsidiary of the Company the proceeds of which are
used by such wholly owned Subsidiary in a Related Business activity of such
wholly owned Subsidiary.
"Restricted Security" means a Security, unless or until it has been
(i) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering it or (ii) distributed to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act; provided, that in no case shall an Exchange Security issued
in accordance with this Indenture and the terms and provisions of the
Registration Rights Agreement be a Restricted Security.
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"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities and, when and
if issued as provided in the Registration Rights Agreement, the Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a Security
is registered on the Registrar's books.
"Senior Notes" means the aggregate $70,000,000 principal amount of 11
1/2% Senior Notes due 2003 issued by CGG on the Issue Date.
"Senior Note Indenture" means the indenture, dated the Issue Date,
pursuant to which the Senior Notes are issued.
"Separation Date" means the earlier of (i) December 1, 1996 and (ii)
the date the Trustee receives an Officers' Certificate stating that any of the
following events has occurred, (a) the Initial Purchaser determined that the
separation date should occur, (b) a change of control has occurred and the
Notice required by Section 11.1(b)(4) of this Indenture has been mailed and (c)
the registration statement filed with the SEC, under the Securities Act,
relating to the Exchange Securities, became effective.
"Significant Subsidiary," with respect to any person, means a
Subsidiary of such person which, as of the end of such person's most recent
fiscal quarter, had a Consolidated Tangible Net Worth equal to at least 5% of
the Consolidated Tangible Net Worth of such person as of such date.
"Stated Maturity," when used with respect to any Security, means June
1, 2004.
"Strategic Investors" means any person whose principal line of
business is a Related Business and (a) whose total market capitalization is in
excess of $500,000,000 as measured by the sum of the aggregate principal dollar
amount of its Indebtedness plus the aggregate dollar value of its Capital Stock
(as measured by the per share price of its Capital Stock multiplied by the
number of outstanding shares of such Capital Stock) or (b) in the case of a
person without publicly traded Capital Stock, whose private market value, as
determined by the Board of Directors of the Company consistent with advice
obtained from an independent, nationally recognized investment banking firm, is
in excess of $500,000,000.
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"Subordinated Indebtedness" means Indebtedness of the Company that is
subordinated in right of payment to the Securities or has a stated maturity on
or after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such person,
by such person and one or more Subsidiaries of such person or by one or more
Subsidiaries of such person, (ii) a partnership in which a person or a
subsidiary of such person is, at the date of determination, a general partner of
such partnership and in which such person or a subsidiary of such person has a
majority of the economic interests or (iii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.6 of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust division
(or any successor group) of the Trustee or any other officer of the Trustee
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"Unrestricted Subsidiary" means any subsidiary of the Company that
does not own any Capital Stock of, or own or hold any Lien on any property of,
the Company or any Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, however, that such subsidiary shall not
engage, to any substantial extent, in any line or lines of business activity
other than a Related Business, the Company may designate any person (other than
CGG) to be an Unrestricted Subsidiary if, immediately prior thereto and after
giving pro forma effect to such designation (i) either (a) the Company could
incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio, (b)
such subsidiary, at the time of designation, has no assets or (c) such
subsidiary is designated an "Unrestricted Subsidiary" at the time of Acquisition
by the Company or its Subsidiaries and (ii) there would not exist a Default or
Event of Default. The Board of
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Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, provided, that (i) no Default or Event of Default is existing or
will occur as a consequence thereof and (ii) immediately after giving effect to
such designation, on a pro forma basis, the Company could incur at least $1.00
of Indebtedness pursuant to the Debt Incurrence Ratio. Each such designation
shall be evidenced by filing with the Trustee a certified copy of the resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Warrant" means the Warrant dated January 31, 1994 issued by the
Company to Continental Bank, N.A..
"Wholly Owned" or "wholly owned" with respect to a Subsidiary of any
person means (i) with respect to a Subsidiary that is a limited liability
company or similar entity, a Subsidiary whose capital stock is 99% or greater
beneficially owned by such person and (ii) with respect to a Subsidiary that is
other than a limited liability company or similar entity, a Subsidiary whose
capital stock or other equity interest is 100% beneficially owned by such
person.
SECTION 1.2. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
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SECTION 1.3. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and
words in the plural include the singular;
(5) provisions apply to successive events and
transactions;
(6) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(7) references to Sections or Articles means reference
to such Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Any such notations, legends or endorsements not contained in the form
of Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities 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.
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SECTION 2.2. Execution and Authentication.
----------------------------
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Initial Securities for original issue
in the aggregate principal amount of up to $86,000,000 and shall authenticate
Exchange Securities for original issue in the aggregate principal amount of up
to $86,000,000, in each case upon a written order of the Company in the form of
an Officers' Certificate; provided, that such Exchange Securities shall be
issuable only upon the valid surrender for cancellation of Initial Securities of
a like aggregate principal amount in accordance with the Registration Rights
Agreement. The Officers' Certificate shall specify the amount of Securities to
be authenticated and the date on which the Securities are to be authenticated.
The aggregate principal amount of Securities outstanding at any time may not
exceed $86,000,000, except as provided in Section 2.7. Upon the written order
of the Company in the form of an Officers' Certificate, the Trustee shall
authenticate Securities in substitution of Securities originally issued to
reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities 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, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
SECTION 2.3. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar"), and an office or agency
where Securities may be presented for payment ("Paying Agent"), and where
notices and demands to or upon the Company in respect of the Securities may be
served. The Company may act as Registrar or Paying Agent, except that, for
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the purposes of Articles III, VIII, XI, and Section 4.14 and as otherwise
specified in this Indenture, neither the Company nor any Affiliate of the
Company shall act as Paying Agent. The Registrar shall keep a register of the
Securities 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"
includes any additional Paying Agent. The Company hereby initially appoints the
Trustee as Registrar and Paying Agent, and the Trustee hereby initially agrees
so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, the
Trustee shall act as such.
The Company initially appoints The Depository Trust Company ("DTC"),
to act as Depository with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
SECTION 2.4. Paying Agent to Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest on, the Securities (whether such
assets have been distributed to it by the Company or any other obligor on the
Securities), and shall notify the Trustee in writing of any Default in making
any such payment. If either of the Company or a Subsidiary of the Company acts
as Paying Agent, it shall segregate such assets and hold them as a separate
trust fund for the benefit of the Holders or the Trustee. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent (if other than the Company) shall have no further
liability for such assets.
SECTION 2.5. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee at such times as the Trustee may request in writing a list in such form
and as of such date as the Trustee reasonably may require of the names and
addresses of Holders.
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SECTION 2.6. Transfer and Exchange.
---------------------
(a) Transfer and Exchange of Definitive Securities. When
----------------------------------------------
Definitive Securities are presented to the Registrar or a co-Registrar with a
request:
(x) to register the transfer of such Definitive Securities;
or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company and
the Registrar or co-Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are
Definitive Securities, shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Securities are being
delivered to the Registrar by a Holder for registration in the name of
such Holder, without transfer, a certification from such Holder to
that effect (in substantially the form set forth on the reverse of the
Security); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with Rule 144A under the
Securities Act, or pursuant to an exemption from registration in
accordance with Rule 144, or Regulation S under the Securities Act, or
pursuant to an effective registration statement under the Securities
Act, or to an institutional "accredited investor" within the meaning
of Rule 501 (A)(1), (2), (3) or (7) under the Securities Act that is
acquiring such Transfer Restricted Security for its own account, or
for the account of such an institutional accredited investor, not with
a view to or for offer or sale in connection with any distribution in
violation of the Securities Act, a certification to that effect (in
substantially the form set forth on the reverse of the Security); or
(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the registration
requirements of the Securities Act, a certification to that effect (in
substantially the form set forth on the reverse of the Security) and
an Opinion of Counsel reasonably acceptable to the Company
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and to the Registrar to the effect that such transfer is in compliance
with the Securities Act.
(b) Restrictions on Transfer of a Definitive Security for a
-------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- ----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form set forth on the reverse
of the Security, that such Definitive Security is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the Trustee to make, or
to direct the Securities Custodian to make, an endorsement on the Global
Security to reflect an increase in the aggregate principal amount of the
Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
------------------------------------------
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depository therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
------------------------------------------------------------
Definitive Security.
- -------------------
(i) Any Person having a beneficial interest in a
Global Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depository, from
the Depository or its nominee on behalf of any Person having a beneficial
interest in a Global Security, and upon receipt by the Trustee of a written
instruction or such other form of instructions as is customary for the
Depository or the Person designated by the Depository as having such a
beneficial interest in a Transfer Restricted Security only, the following
additional information and documents (all of which may be submitted by
facsimile):
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(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial owner, a
certification from such person to that effect (in substantially the
form set forth on the reverse of the Security); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act,
or pursuant to an exemption from registration in accordance with Rule
144, or Regulation S under the Securities Act, or pursuant to an
effective registration statement under the Securities Act, or to an
institutional "accredited investor" within the meaning of Rule 501
(A)(1), (2), (3) or (7) under the Securities Act that is acquiring
such beneficial interest in such Global Security for its own account,
or for the account of such an institutional accredited investor, not
with a view to or for offer or sale in connection with any
distribution in violation of the Securities Act, a certification to
that effect from the transferor (in substantially the form set forth
on the reverse of the Security); or
(C) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect from the transferee
or transferor (in substantially the form set forth on the reverse of
the Security) or an Opinion of Counsel from the transferee or
transferor reasonably acceptable to the Company and to the Registrar
to the effect that such transfer is in compliance with the Securities
Act,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian,
the aggregate principal amount of the Global Security to be reduced and,
following such reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate, the Trustee
will authenticate and deliver to the transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section 2.6(d)
shall be registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
----------------------------------------------------------
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Security
may not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the
23
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Depository or another nominee of the Depository or by the Depository or any such
nominee to a successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of
-----------------------------------------------------
Depository. If at any time:
- ----------
(i) the Depository for the Securities notifies the
Company that the Depository is unwilling or unable to continue as
Depository for the Global Securities and a successor Depository for the
Global Securities is not appointed by the Company within ninety days after
delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the
Trustee in writing that they elect to cause the issuance of Definitive
Securities under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
such Global Securities.
(g) Legends.
-------
(i) (1) Except as permitted by the following paragraph
(ii), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF
THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE
24
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144A, (b) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING
OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
(c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (d) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE COMPANY OR (3) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNTIED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS
SET FORTH IN (A) ABOVE."
(2) Until the Separation Date each Security Certificate
evidencing the Global Securities and the Definitive Securities (and all
Securities issued in exchange therefor or substitution thereof) shall bear
a legend in substantially the following form:
THE SECURITY EVIDENCED HEREBY WILL NOT BE TRANSFERABLE SEPARATELY FROM
THE SHARE ORIGINALLY SOLD AS A UNIT WITH THIS SECURITY UNTIL THE
EARLIEST TO OCCUR OF (I) DECEMBER 1, 1996, (II) SUCH EARLIER DATE AS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ("DLJ") MAY IN ITS
DISCRETION DEEM APPROPRIATE, (III) IN THE EVENT OF THE OCCURRENCE OF
A CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE BY AND BETWEEN THE
COMPANY AND THE TRUSTEE, DATED JUNE 4, 1996 RELATING TO THE ZERO-
COUPON NOTES), THE DATE THE COMPANY MAILS NOTICE THEREOF TO HOLDERS OF
THE SECURITIES AND (IV) THE DATE ON WHICH THE REGISTRATION STATEMENT
RELATING TO THE EXCHANGE OFFER (AS DEFINED IN THE PURCHASE AGREEMENT
BETWEEN THE COMPANY AND DLJ, DATED MAY 29, 1996) IS DECLARED EFFECTIVE
BY THE SECURITIES AND EXCHANGE COMMISSION.
25
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(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Act or an effective
registration statement under the Act:
(A) in the case of any Transfer Restricted Security that is
a Definitive Security, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Security for a Definitive
Security that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) any such Transfer Restricted Security represented by a
Global Security shall not be subject to the provisions set forth in
(i) above (such sales or transfers being subject only to the
provisions of Section 2.6(c) of this Indenture); provided, however,
that with respect to any request for an exchange of a Transfer
Restricted Security that is represented by a Global Security for a
Definitive Security that does not bear a legend, which request is made
in reliance upon Rule 144, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant to Rule 144
(such certification to be substantially in the form set forth on the
reverse of the Security).
(h) Cancellation and/or Adjustment of Global Security. At such
--------------------------------------------------
time as all beneficial interests in a Global Security have either been exchanged
for Definitive Securities, redeemed, repurchased or cancelled, such Global
Security shall be returned to or retained and cancelled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Security
is exchanged for Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of
------------------------------------------------------
Definitive Securities.
- ---------------------
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-Registrar's
request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer taxes,
assessments, or similar governmental charge payable upon exchanges or
transfers pursuant to Section 2.2 (fourth paragraph), 2.10, 3.7, 4.14(8),
9.5, or 11.1 (final paragraph) of this Indenture).
26
<PAGE>
(iii) The Registrar or co-Registrar shall not be
required to register the transfer of or exchange of (a) any Definitive
Security selected for redemption in whole or in part pursuant to Article
III, except the unredeemed portion of any Definitive Security being
redeemed in part, or (b) any Security for a period beginning 15 Business
Days before the mailing of a notice of an offer to repurchase pursuant to
Article XI or Section 4.14 of this Indenture or redeem Securities pursuant
to Article III hereof and ending at the close of business on the day of
such mailing.
SECTION 2.7. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Trustee, to the Trustee to the effect that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder must provide an indemnity
bond or other indemnity, sufficient in the judgment of both the Company and the
Trustee, to protect the Company, the Trustee or any Agent from any loss which
any of them may suffer if a Security is replaced. The Company may charge such
Holder for its reasonable, out-of-pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.8. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 of this Indenture
as not outstanding. A Security does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Security, except as provided in
Section 2.9 of this Indenture.
If a Security is replaced pursuant to Section 2.7 of this Indenture
(other than a mutilated Security surrendered for replacement), it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser. A mutilated Security ceases
to be outstanding upon surrender of such Security and replacement thereof
pursuant to Section 2.7 of this Indenture.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than an Company or an Affiliate of an Company) holds Cash or U.S. Government
Obligations sufficient to pay all of the principal and interest due on the
Securities payable on that date and payment of the Securities called for
redemption is not otherwise prohibited, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
27
<PAGE>
SECTION 2.9. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that the Trustee knows are so owned shall be
disregarded.
SECTION 2.10. Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company reasonably and in good faith consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities. Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
permanent Securities authenticated and delivered hereunder.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or an Affiliate of the Company), and no one else, shall
cancel and, at the written direction of the Company, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.7 of this Indenture, the Company may not issue new Securities to
replace Securities that have been paid or delivered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section 2.11 of this Indenture,
except as expressly permitted in the form of Securities and as permitted by this
Indenture.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
-------------------
Redemption of Securities, as permitted by any provision of this
Indenture, shall be made in accordance with such provision and this Article III.
The Company will not have the right to redeem any of the Securities prior to
June 1, 1999 (other than a redemption of all, but not less than all, of the
outstanding Securities, out of the Net Cash Proceeds of certain issuances
28
<PAGE>
of Capital Stock of the Company described under "Redemption" in Section 5 of the
form of Security attached as Exhibit A hereto). On or after June 1, 1999, the
Company will have the right to redeem all or any part of the Securities at the
Redemption Prices specified in the form of Security attached as Exhibit A set
forth under the caption "Redemption."
SECTION 3.2. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee in writing of the Redemption Date
and the principal amount of Securities to be redeemed and whether it wants the
Trustee to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of Securities to
be redeemed pursuant to Paragraph 5 of the Securities by crediting against any
such redemption Securities it has not previously delivered to the Trustee for
cancellation, it shall so notify the Trustee of the amount of the reduction and
deliver such Securities with such notice.
The Company shall give each notice to the Trustee provided for in this
Section 3.2 at least forty five days before the Redemption Date (unless a
shorter notice shall be satisfactory to the Trustee). Any such notice may be
cancelled at any time prior to notice of such redemption being mailed to any
Holder and shall thereby be void and of no effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
--------------------------------------
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed by
lot or by such other method as the Trustee shall determine to be fair and
appropriate and in such manner as complies with any applicable Depositary, legal
and stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.4. Notice of Redemption.
--------------------
At least thirty days, but not more than sixty days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee and each Holder whose Securities are to be redeemed. At
the Company's request, the Trustee
29
<PAGE>
'shall give the notice of redemption in the Company's name and at the Company's
expense. Each notice for redemption shall identify the Securities to be
redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name, address and telephone number of the Paying
Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in such
notice to collect the Redemption Price;
(5) that, unless (a) the Company defaults in its obligation
to deposit Cash with the Paying Agent in accordance with Section 3.6
of this Indenture or (b) such redemption payment is prohibited for any
reason, the issue price set forth on the face of the Security ceases
to accrete on and after the Redemption Date and the only remaining
right of the Holders of such Securities is to receive payment of the
Redemption Price upon surrender to the Paying Agent of the Securities
called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of
the principal amount, equal to $1,000 or any integral multiple thereof, of
such Security to be redeemed and that, after the Redemption Date, and upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities
to be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section
3.4 and pursuant to the optional redemption provisions of Paragraph 5
of the Securities.
30
<PAGE>
SECTION 3.5. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.4 of
this Indenture, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender to the Trustee or
Paying Agent, such Securities called for redemption shall be paid at the
Redemption Price; provided that if a Redemption Date is a Legal Holiday, payment
shall be made on the next succeeding Business Day and if paid on such Business
Day the issue price set forth on the face of the Security shall cease to accrete
for the period from such Redemption Date to such succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price.
---------------------------
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (other than the Company or an Affiliate of the Company) Cash
sufficient to pay the Redemption Price of all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any Cash
so deposited which is not required for that purpose upon the written request of
the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited for any reason, the issue price set forth on the
face of the Securities will cease to accrete on the applicable Redemption Date,
whether or not such Securities are presented for payment. Notwithstanding
anything herein to the contrary, if any Security surrendered for redemption in
the manner provided in the Securities shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, the issue price set forth on the face of the Securities shall
continue to accrete as set forth on the Security from the Redemption Date until
such payment is made on the Accreted Value, at the rate and in the manner
provided in Section 4.1 of this Indenture and the Security.
SECTION 3.7. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
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<PAGE>
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
---------------------
The Company shall pay all amounts in respect of the Securities on the
dates and in the manner provided herein and in the Securities. An installment
of principal, Accreted Value, or interest on the Securities shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than the
Company, a Subsidiary of the Company or an Affiliate of the Company) holds for
the benefit of the Holders, on or before 10:00 a.m. New York City time on that
date, Cash deposited and designated for and sufficient to pay the installment.
The Company shall pay interest, to the extent lawful, on overdue
amounts at the per annum rate specified in the Securities compounded semi-
annually, which interest shall accrue from the date such overdue amounts were
originally due and payable.
SECTION 4.2. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 12.2 of this
Indenture.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby initially designate the Corporate Trust Office of the
Trustee as such office.
SECTION 4.3. Limitation on Restricted Payments.
---------------------------------
The Company shall not, and (subject to the last sentence of this
paragraph) shall not permit any of its Subsidiaries to, directly or indirectly,
make any Restricted Payment, if, immediately prior to or after giving effect to
such Restricted Payment on a pro forma basis, (1) a Default or an Event of
Default shall have occurred and be continuing, (2) the Company is not
32
<PAGE>
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio, or (3) the aggregate amount of all Restricted Payments
made by the Company and its Subsidiaries, including after giving effect to such
proposed Restricted Payment, from and after the Issue Date, would exceed the sum
of (a) the amount determined by subtracting (i) 2.0 times the aggregate
Consolidated Fixed Charges of the Company and its Consolidated Subsidiaries for
the period (taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (the "Computation Period"), from (ii) Consolidated EBITDA of the
Company and its Consolidated Subsidiaries for the Computation Period, plus (b)
100% of the aggregate Net Cash Proceeds received by the Company from the sale of
its Qualified Capital Stock (other than (i) to a Subsidiary or Unrestricted
Subsidiary of the Company and (ii) to the extent applied in connection with a
Qualified Exchange, but including the Net Cash Proceeds received by the Company
upon the exercise, exchange or conversion of securities into Qualified Capital
Stock other than in connection with a Qualified Exchange) after the Issue Date
and on or prior to the date of such Restricted Payment. The full amount of any
Restricted Payment made pursuant to the immediately following paragraph (other
than clause (x) or (y) thereof), however, will be deducted in the calculation of
the aggregate amount of Restricted Payments available to be made referred to in
clause (3) of the immediately preceding sentence. Notwithstanding the
foregoing, CGG and its Subsidiaries will be permitted to make any Restricted
Payment not prohibited by the Senior Note Indenture, as in effect on the Issue
Date, so long as any Senior Notes remain outstanding.
Notwithstanding the foregoing, the provisions in the immediately
preceding paragraph will not prohibit (s) amounts due in respect of Capital
Stock of the Company required to be repurchased upon the exercise of "put"
rights held prior to the Issue Date by the holders of the Capital Stock issued
upon exercise of the Warrant, (t) Investments by the Company or its Subsidiaries
in Unrestricted Subsidiaries in an aggregate amount not to exceed the sum of (i)
$5,000,000 plus (ii) to the extent not otherwise applied to a Restricted
Payment, 100% of the aggregate Net Cash Proceeds received by the Company from
the sale of its Qualified Capital Stock after the Issue Date (other than (i) to
a Subsidiary or Unrestricted Subsidiary of the Company and (ii) to the extent
applied in connection with a Qualified Exchange, but including the Net Cash
Proceeds received by the Company upon the exercise, exchange or conversion of
securities into Qualified Capital Stock other than in connection with a
Qualified Exchange), (u) repurchases of Capital Stock from employees and
directors of the Company or its Subsidiaries upon the death, disability or
termination of employment or such person's position as a director in an
aggregate amount to all employees and directors not to exceed $300,000 per year
or $2,100,000 in the aggregate on and after the Issue Date, (v) payments by
Ocean Vista Land Company, a California corporation and Subsidiary of CGG, of
dividends on its preferred stock outstanding prior to the Issue Date, in
accordance with the terms thereof, (w) Investments in non-wholly owned
Subsidiaries not to exceed $5,000,000 in the aggregate, (x) payments of up to
$1,250,000 in the aggregate to repurchase Capital Stock of Subsidiaries of CGG
outstanding prior to the Issue Date which are held by minority stockholders and
not beneficially owned by the Company or any of its Affiliates, (y) a Qualified
Exchange, or (z) the payment of any dividend on Qualified Capital Stock within
sixty days after the date of its declaration if such
33
<PAGE>
dividend could have been made on the date of such declaration in compliance with
the foregoing provisions. Notwithstanding any other provision hereof, the
foregoing clauses (t), (x) and (z) will not be deemed to permit the respective
Restricted Payments otherwise contemplated to be made pursuant thereto if,
immediately prior thereto or after giving effect to such Restricted Payment on a
pro forma basis, a Default or an Event of Default shall have occurred or be
continuing.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.3 were computed, which calculations may
be based upon the Company's latest available internal financial statements;
provided, however, that a failure to so deliver such Officers' Certificate shall
not constitute a Default if the Company provides the Officers' Certificate
within thirty days of the date of making such Restricted Payment and
conclusively demonstrates therein that the Restricted Payment was permitted to
be made on the date made. The Trustee may rely on such Officers' Certificate
without further inquiry.
SECTION 4.4. Corporate Existence.
-------------------
Subject to Article V, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate or partnership existence, as the case may be, of
each of its Subsidiaries in accordance with the respective organizational
documents of each of them and the rights (charter and statutory) and corporate
franchises of the Company and each of its Subsidiaries; provided, however, that
the Company shall not be required to preserve, with respect to itself, any right
or franchise, and with respect to any of its Subsidiaries, any such existence,
right or franchise, if (a) the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of such entity and (b) the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 4.5. Payment of Taxes and Other Claims.
---------------------------------
Except with respect to immaterial items, the Company shall, and shall
cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon the Company or any of
its Subsidiaries or any of their respective properties and assets and (ii) all
lawful claims, whether for labor, materials, supplies, services or anything
else, which have become due and payable and which by law have or may become a
Lien upon the property and assets of the Company or any of its Subsidiaries;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves have
been established in accordance with GAAP.
34
<PAGE>
SECTION 4.6. Maintenance of Properties and Insurance.
---------------------------------------
The Company shall cause all material properties used or useful to the
conduct of their business and the business of each of its Subsidiaries to be
maintained and kept in good condition, repair and working order (reasonable wear
and tear excepted) and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in its reasonable judgment may be necessary, so
that the business carried on in connection therewith may be properly conducted
at all times; provided, however, that nothing in this Section 4.6 shall prevent
the Company from discontinuing any operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
(a), in the judgment of the Board of Directors of the Company, desirable in the
conduct of the business of such entity and (b) not disadvantageous in any
material respect to the Holders.
The Company shall provide, or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company is adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with (except for self-
insurance) reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable, good
faith opinion of the Company and adequate and appropriate for the conduct of
the business of the Company and such Subsidiaries in a prudent manner for
entities similarly situated in the industry, unless failure to provide such
insurance (together with all other such failures) would not have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries taken as a whole.
SECTION 4.7. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee within 120 days
after the end of its fiscal year an Officers' Certificate complying with Section
314(a)(4) of the TIA and stating that a review of its activities and the
activities of its Subsidiaries 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 further stating, as to each such Officer signing such
certificate, whether or not the signer knows of any failure by the Company or
any Subsidiary of the Company to comply with any conditions or covenants in this
Indenture and, if such signer does know of such a failure to comply, the
certificate shall describe such failure with particularity. The Officers'
Certificate shall also notify the Trustee should the relevant fiscal year end on
any date other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto. The Trustee shall not be deemed to have
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knowledge of any Default, any Event of Default or any such fact unless one of
its Trust Officers receives notice thereof from the Company or any of the
Holders.
SECTION 4.8. Reports.
-------
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder and to prospective purchasers of the Securities
identified to the Company by an Initial Purchaser within fifteen days after it
is or would have been required to file such with the SEC, (i) annual and
quarterly financial statements substantially equivalent to financial statements
that would have been included in reports filed with the SEC, if the Company were
subject to Section 13 or 15(d) of the Exchange Act, including, with respect to
annual information only, a report thereon by the Company's certified independent
public accountants as such would be required in such reports to the SEC, and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required; and (ii) all
reports that would be required to be filed with the SEC on Form 8-K. In
addition, whether or not required by the rules and regulations of the SEC, the
Company will file a copy of all such information and reports with the SEC for
public availability (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors for so
long as any Securities remain outstanding.
SECTION 4.9. Limitation on Status as Investment Company.
------------------------------------------
The Company shall not and shall not permit any of its Subsidiaries to
become an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or otherwise become subject to regulation
under the Investment Company Act.
SECTION 4.10. Limitation on Transactions with Affiliates.
------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries or
Unrestricted Subsidiaries to, enter into any contract, agreement, arrangement or
transaction with any Affiliate (an "Affiliate Transaction"), or any series of
related Affiliate Transactions unless (1) the terms of such Affiliate
Transaction are fair and reasonable to the Company, such Subsidiary or such
Unrestricted Subsidiary, as the case may be, and no less favorable to the
Company, such Subsidiary or such Unrestricted Subsidiary, as the case may be,
than could have been obtained in comparable arm's length transaction with a non-
Affiliate, (2) involving consideration to either party in excess of $1,000,000,
unless such transaction is evidenced by an Officers' Certificate addressed and
delivered to the Trustee stating that the terms of such Affiliate Transaction
are fair and reasonable to the Company, such Subsidiary or such Unrestricted
Subsidiary, as the case may be, and no less favorable to the Company, such
Subsidiary or such Unrestricted Subsidiary, as the case may be, than could have
been obtained in comparable arm's length transaction with a non-Affiliate, and
(3) involving consideration to either party in excess of $5,000,000, unless the
Company, prior to the consummation thereof, obtains a written favorable opinion
as to the fairness of such transaction to the Company from
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a financial point of view from an independent investment banking firm of
national reputation. The foregoing restriction will not apply to (v) pro rata
dividends or distributions paid in Cash on any class of Capital Stock and not
prohibited under Section 4.3 of this Indenture, (w) indemnification payments on
behalf of directors or employees of the Company or its Subsidiaries made or
incurred by such persons in such capacities, (x) payments made in accordance
with the Brentwood Agreement as in effect on the Issue Date, so long as no Event
of Default shall have occurred or be continuing, (y) repurchases of Capital
Stock not prohibited under clause (x) of Section 4.3 of this Indenture and
transactions between the Company and any Wholly Owned Subsidiary of the Company
or between Wholly Owned Subsidiaries of the Company.
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness and
-------------------------------------------------------
Disqualified Capital Stock.
- --------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition),
extend the maturity of, or otherwise become responsible for, contingently or
otherwise (individually and collectively, to "incur" or "Incur" or, as
appropriate, an "incurrence" or "Incurrence"), any Indebtedness or any
Disqualified Capital Stock from and after the Issue Date. Notwithstanding the
foregoing:
(1) if (i) no Default or Event of Default shall have
occurred and be continuing at the time of, or would occur after
giving effect on a pro forma basis to, such incurrence of
Indebtedness or Disqualified Capital Stock and (ii) on the date
of such incurrence (the "Incurrence Date"), the Consolidated Cash
Flow Ratio of the Company for the Reference Period immediately
preceding the Incurrence Date, after giving effect on a pro forma
basis to such incurrence of such Indebtedness or Disqualified
Capital Stock and, to the extent set forth in the definition of
Consolidated Cash Flow Ratio, the use of proceeds thereof, would
be no greater than 6 to 1 for Incurrence Dates prior to June 1,
1998 and no greater than 5 to 1 thereafter (the "Debt Incurrence
Ratio"), then the Company and its Subsidiaries may incur such
Indebtedness or Disqualified Capital Stock.
(2) the Company may incur Indebtedness evidenced by
the Securities and represented by the Indenture up to the amounts
specified herein as of the Issue Date;
(3) Subsidiaries of the Company may incur Indebtedness
evidenced by the Senior Notes and the guarantees in respect
thereof represented by the Senior Note Indenture up to the
amounts specified therein as of the Issue Date;
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(4) the Company and its Subsidiaries may incur
Refinancing Indebtedness with respect to any Indebtedness or
Disqualified Capital Stock, as applicable, described in clauses
(1), (2) and (3) of this Section 4.11 or which is, after giving
effect to the implementation of the New Credit Facility,
outstanding on the Issue Date;
(5) the Company and its Subsidiaries may incur
Permitted Indebtedness;
(6) the Company and its Subsidiaries may incur
Indebtedness pursuant to the New Credit Facility on or after the
Issue Date up to an aggregate amount outstanding (including any
Indebtedness issued to Refinance, refund or replace such
Indebtedness) at any time of $50,000,000, plus accrued interest,
fees incurred in connection with the New Credit Facility and such
additional amounts as may be deemed to be outstanding in the form
of Interest Swap and Hedging Obligations with lenders party to
the New Credit Facility, reduced by the amount of any such
Indebtedness permanently retired with Net Cash Proceeds from any
Asset Sale (other than a sale of Assets to Be Disposed of) or
assumed by a transferee in an Asset Sale; and
(7) the Company and its Subsidiaries may incur
Indebtedness on or after the Issue Date up to an aggregate amount
outstanding (including any Indebtedness issued to Refinance,
refund or replace such Indebtedness) at any time of $7,500,000.
Notwithstanding the foregoing, (i) the Company and its Subsidiaries
will be permitted to incur any Indebtedness to the extent such incurrence is not
prohibited by the Senior Note Indenture, as in effect on the Issue Date, so long
as any Senior Notes remain outstanding, (ii) the Company may not incur any
Indebtedness having a scheduled principal, interest or other payment due in Cash
or Cash Equivalents on or prior to the Stated Maturity, other than pursuant to
its guarantee of the New Credit Facility and (iii) the Company may incur
Indebtedness to the extent such incurrence would not be prohibited if incurred
by CGG and its Subsidiaries under the Senior Note Indenture, so long as any
Senior Notes remain outstanding (for the purposes of this clause (iii) any debt
incurred pursuant to this clause shall be deemed to have been incurred under the
Senior Note Indenture only for the purposes of determining whether any
additional Indebtedness may be incurred under the Senior Note Indenture).
SECTION 4.12. Limitations on Dividends and Other Payment Restrictions
-------------------------------------------------------
Affecting Subsidiaries.
- ----------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, assume or suffer to exist any consensual
restriction on the ability of any Subsidiary of the Company to pay dividends or
make other distributions to, or to pay any
38
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obligation to, or otherwise to transfer assets or property to, or make or pay
loans or advances to, the Company or any Subsidiary of the Company except (a)
restrictions imposed by the Securities or this Indenture, (b) customary
provisions restricting subletting or assignment of any lease (including a
Capitalized Lease Obligation), (c) restrictions imposed by applicable law, (d)
existing restrictions under Indebtedness outstanding on the Issue Date, after
giving effect to the implementation of the New Credit Facility, (e) restrictions
under any Acquired Indebtedness not incurred in violation of the Indenture or
under any agreement relating to any property, asset, or business acquired by the
Company or any of its Subsidiaries, which restrictions existed at the time of
acquisition, were not put in place in connection with or in anticipation of such
acquisition and are not applicable to any person, other than the person
acquired, or to any property, asset or business, other than the property, assets
and business so acquired, (f) restrictions with respect solely to a Subsidiary
of the Company imposed pursuant to a binding agreement which has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock or assets of such Subsidiary, provided, such restrictions apply solely to
the Capital Stock or assets of such Subsidiary, (g) restrictions pursuant to the
New Credit Facility, the Senior Notes, the indenture under which the Senior
Notes were issued or restrictions pursuant to Indebtedness, other than
Subordinated Indebtedness, incurred in compliance with clause (1) of Section
4.11 of this Indenture (including Refinancings permitted to be incurred under
clause (3) thereof), (h) Liens specified under "Permitted Liens," other than
clauses (b), (c) and (e) thereof, and (i) in connection with and pursuant to
permitted Refinancings, replacements of restrictions that are not more
restrictive than those being replaced and do not apply to any other person or
assets than those that would have been covered by the restrictions in the
Indebtedness so refinanced.
SECTION 4.13. Limitations on Liens.
--------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, suffer to exist or become effective
any Lien upon any of its property or assets, whether now owned or hereafter
acquired, or any income or profits therefrom, or assign or convey any right to
receive income therefrom, unless all payments due under the Indenture and the
Securities are secured on an equal and ratable basis with the obligations so
secured until such time as such obligation is no longer secured by a Lien,
provided, however, that Permitted Liens may be created or incurred or may exist
or become effective without any requirement that all payments due under this
Indenture and the Securities be equally and ratably secured.
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, in one or a series of related transactions, convey, sell, transfer, assign
or otherwise dispose of, directly or indirectly, any of its property, business
or assets, including by merger or consolidation and including upon any sale or
other transfer or issuance of any Capital Stock of any Subsidiary of the Company
or any sale and leaseback transaction, whether by the Company or a Subsidiary or
through the issuance, sale or transfer of Capital Stock by a Subsidiary of the
Company (an
39
<PAGE>
"Asset Sale"), unless (1)(a) within 405 days after the date of such Asset Sale,
the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount"), are applied to
the optional redemption of the Securities in accordance with the terms of this
Indenture or to the repurchase of the Securities pursuant to an irrevocable,
unconditional offer by the Company (the "Asset Sale Offer"), to repurchase
Securities at a purchase price (the "Asset Sale Offer Price"), of 100% of the
Accreted Value thereof to the date of payment, made within 360 days of such
Asset Sale or (b) within 360 days of such Asset Sale, the Asset Sale Offer
Amount is (i) invested (or committed, pursuant to a binding commitment subject
only to reasonable, customary closing conditions, to be invested, and in fact is
so invested, within an additional ninety days) in fixed assets and real property
which in the good faith judgment of the Board of Directors constitute or are a
part of a Related Business of the Company, or in 100% of the issued and
outstanding Capital Stock of a person the assets of which are principally
comprised of such fixed assets and real properties, or (ii) used to redeem or
repurchase Senior Notes or other Indebtedness of CGG and its Subsidiaries (but
not of the Company) or to retire Indebtedness outstanding under the New Credit
Facility, except with respect to the use of proceeds from the sale of Assets to
Be Disposed of, and to permanently reduce the amount of such Indebtedness
permitted to be incurred in compliance with paragraph (5) of Section 4.11 of
this Indenture (including that in the case of a revolver or similar arrangement
that makes credit available, such commitment is so reduced by such amount), (2)
with respect to any transaction or related series of transactions in respect of
securities, property or assets with an aggregate fair market value in excess of
$1,000,000, at least 85% of the consideration for such Asset Sale (excluding the
amount of (A) any Indebtedness (other than the Securities) that is required to
be repaid or assumed (and is either repaid or assumed by the transferee of the
related assets) by virtue of such Asset Sale and which is secured by a Lien on
the property or assets sold and (B) property received by the Company or any such
Subsidiary from the transferee that within thirty days of such Asset Sale is
converted into Cash or Cash Equivalents) consists of Cash or Cash Equivalents,
(3) no Default or Event of Default shall have occurred and be continuing at the
time of, or would occur after giving effect, on a pro forma basis, to, such
Asset Sale, and (4) the Board of Directors of the Company determines in good
faith that the Company or such Subsidiary, as applicable, receives fair market
value for such Asset Sale. Notwithstanding clause (1)(a) above, if an Asset
Sale Offer is commenced and securities of the Company ranking pari passu in
right of payment with the Securities are outstanding at the date of commencement
thereof, the terms of which provide that a substantially similar offer must be
made with respect thereto, then the Asset Sale Offer shall be made concurrently
with such other offer, and securities of each issue which the holders of
securities of such issue elect to have purchased will be accepted pro rata in
proportion to the aggregate principal amount thereof; provided, that in so
repurchasing such other securities, the Company is in compliance with Section
4.3 of this Indenture.
In addition, notwithstanding the provisions of the prior paragraph:
(i) the Company and its Subsidiaries may (A) convey, sell,
lease, transfer, assign or otherwise dispose of assets in the ordinary
course of business or (B) exchange assets for assets in a Related Business,
provided, however, in the case of this clause (B) that (1) the Company,
prior to the consummation of any such proposed
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exchange or series of related exchanges having a fair market value in
excess of $2,500,000, obtains a written favorable opinion as to the
fairness of such transaction to the Company from a financial point of view
from an independent investment banking firm of national reputation, (2) no
Default or Event of Default shall have occurred and be continuing and (3)
after giving effect to such proposed exchange on a pro forma basis, either
(x) the Company is permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio or (y) the Company's
Debt Incurrence Ratio is no greater than it was immediately prior to such
proposed exchange;
(ii) the Company and its Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the provisions of Article V of this Indenture;
(iii) the Company and its Subsidiaries may (A) sell or
dispose of damaged, worn out or other obsolete property in the ordinary
course of business so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Subsidiary, as
applicable, or (B) abandon such property if it cannot, through reasonable
efforts, be sold; and
(iv) the Company and its Subsidiaries may convey, sell,
transfer, assign or otherwise dispose of assets to the Company or any of
its Wholly Owned Subsidiaries.
The Company shall accumulate all Net Cash Proceeds (including any cash
as and when received from the proceeds of any property which itself was acquired
in consideration of an Asset Sale), and the aggregate amount of such accumulated
Net Cash Proceeds not used for the purposes permitted and within the time
provided by this Section 4.14 is referred to as the "Accumulated Amount."
For purposes of this Section 4.14, "Minimum Accumulation Date" means
each date on which the Accumulated Amount exceeds $10,000,000. Not later than
ten Business Days after each Minimum Accumulation Date, the Company will
commence an irrevocable unconditional offer (an "Offer to Purchase"), to the
Holders to purchase, on a pro rata basis, for Cash, Securities having a
principal amount (the "Offer Amount"), equal to the Accumulated Amount, at a
purchase price (the "Offer Price"), equal to 100% of the Accreted Value of the
Securities to, and including, the date (the "Purchase Date"), the Securities
tendered are purchased and paid for in accordance with this Section 4.14. The
Offer to Purchase shall remain open for twenty Business Days, except to the
extent that a longer period is required by applicable law, but in any case not
more than ninety Business Days after such Minimum Accumulation Date (or within
120 days of the commencement of the Offer to Purchase if, during any such
extension beyond ninety days following the commencement, the Company is
diligently pursuing all commercially reasonable steps to consummate the Offer to
Purchase or purchase properly tendered Securities pursuant thereto as promptly
as practicable). Notice of an Offer to Purchase will be sent on or before the
commencement of any Offer to Purchase, by first-class mail, by the Company to
each
41
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Holder at its registered address, with a copy to the Trustee. The notice to the
Holders will contain all information, instructions and materials required by
applicable law or otherwise material to such Holders' decision to tender
Securities pursuant to the Offer to Purchase. The notice, which (to the extent
consistent with the Indenture) shall govern the terms of the Offer to Purchase,
shall state:
(1) that the Offer to Purchase is being made pursuant to
such notice and this Section 4.14;
(2) the Offer Amount, the Offer Price, the Final Put Date
(as defined below), and the then applicable Purchase Date;
(3) that the issue price set forth on the face of any
Security, or portion thereof, not tendered or accepted for payment will
continue to accrete as set forth on the Security;
(4) that, unless the Company defaults in depositing Cash
with the Paying Agent in accordance with the penultimate paragraph of this
Section 4.14 or such payment is otherwise prevented, the issue price set
forth on the face of the Security, or portion thereof, accepted for payment
pursuant to the Offer to Purchase shall cease to accrete value after the
Purchase Date;
(5) that Holders electing to have a Security, or portion
thereof, purchased pursuant to an Offer to Purchase will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent
(which may not for purposes of this Section 4.14, notwithstanding anything
in this Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the close of
business on the earlier of (a) the third Business Day prior to the Purchase
Date and (b) the third Business Day following the expiration of the Offer
to Purchase (such earlier date being the "Final Put Date");
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 4.14, notwithstanding any other provision of this
Indenture, be the Company or any Affiliate of the Company) receives, up to
the close of business on the Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Securities the Holder is withdrawing and a statement that
such Holder is withdrawing his election to have such principal amount of
Securities purchased;
(7) that if Securities in a principal amount in excess of
the principal amount of Securities to be acquired pursuant to the Offer to
Purchase
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<PAGE>
are tendered on or prior to the Final Put Date and not withdrawn,
the Company shall purchase such Securities on a pro rata basis
(with such adjustments as may be deemed appropriate by the
Company so that only Securities in denominations of $1,000 or
integral multiples of $1,000 shall be acquired);
(8) that Holders whose Securities were purchased
only in part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities surrendered;
and
(9) a brief description of the circumstances and
relevant facts regarding such Asset Sales.
Any such Offer to Purchase shall comply with all applicable provisions
of Federal and state laws, including those regulating tender offers, if
applicable, and any provisions of this Indenture that conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before a Purchase Date, the Company shall (i) accept for payment
Securities or portions thereof properly tendered pursuant to the Offer to
Purchase on or before the Final Put Date (on a pro rata basis if required
pursuant to paragraph (7) of this Section 4.14), (ii) deposit with the Paying
Agent Cash sufficient to pay the Offer Price for all Securities or portions
thereof so tendered and accepted and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. The Paying Agent shall on
each Purchase Date mail or deliver to Holders of Securities so accepted payment
in an amount equal to the Offer Price for such Securities, and the Trustee
shall promptly authenticate and mail or deliver to such Holders a new Security
equal in principal amount to any unpurchased portion of the Security
surrendered. The Company shall not have any obligation to accept for payment or
pay for any Securities tendered by a Holder after the Final Put Date. Any
Security not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof.
If the amount required to be paid by the Company in order to acquire
all Securities duly tendered by Holders (and not withdrawn) pursuant to an
Offer to Purchase (the "Acceptance Amount"), made pursuant to the third
paragraph of this Section 4.14 is less than the Offer Amount, the excess of the
Offer Amount over the Acceptance Amount may be used by the Company for general
corporate purposes without restriction, unless otherwise restricted by the other
provisions of this Indenture. Upon consummation of any Offer to Purchase made
in accordance with the terms of this Indenture, the Accumulated Amount will be
reduced to zero irrespective of the amount of Securities tendered pursuant to
the Offer to Purchase.
SECTION 4.15. 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, plead, or in any manner whatsoever claim or
take the benefit or advan-
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tage of, any stay or extension law or any usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal
of, premium of, interest on or Accreted Value of the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and 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 4.16. Rule 144A Information Requirement.
---------------------------------
The Company shall furnish to the Holders of the Securities, securities
analysts, and prospective purchasers of Securities designated by the Holders of
Transfer Restricted Securities, upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such
time as either the Company has concluded an offer to exchange the Exchange
Securities for the Initial Securities or a registration statement relating to
resales of the Securities has become effective under the Securities Act. The
Company shall also furnish such information during the pendency of any
suspension of effectiveness of such resale registration statement.
SECTION 4.17. Restriction on Sale and Issuance of Subsidiary Stock.
----------------------------------------------------
The Company shall not sell, and shall not permit any of its
Subsidiaries to issue or sell, any shares of Capital Stock of any Subsidiary of
the Company to any Person other than the Company or a wholly owned Subsidiary of
the Company, provided, however, that all of the Capital Stock of a Subsidiary of
the Company may be sold if such Asset Sale complies with the provisions of
Section 4.14 of this Indenture.
SECTION 4.18. Limitations on Lines of Business.
--------------------------------
The Company shall not and it shall not permit any of its Subsidiaries
or Unrestricted Subsidiaries to directly or indirectly engage to any substantial
extent in any line or lines of business activity other than a Related Business.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
-------------------------------------------
(a) The Company shall not, directly or indirectly, consolidate
with or merge with or into another Person or sell, lease, convey or transfer all
or substantially all of its assets (computed on a consolidated basis), whether
in a single transaction or a series of related
44
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transactions, to another Person or group of affiliated Persons, unless (i)
either (a) the Company is the continuing entity or (b) the resulting, surviving
or transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection with
the Securities and this Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately before or after giving effect on a pro forma
basis to such transaction; (iii) other than in the case of a transaction solely
between the Company and any wholly owned Subsidiary of the Company, immediately
after giving effect to such transaction on a pro forma basis, the consolidated
surviving or transferee entity would immediately thereafter be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio; and (v) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and, if a supplemental indenture is required, such supplemental
indenture comply with this Indenture and that all conditions precedent herein
relating to such transactions have been satisfied.
(b) For purposes of clause (a), the sale, lease, conveyance,
assignment, transfer or other disposition of all or substantially all of the
properties and assets of one or more Subsidiaries of the Company, which
properties and assets, if held by the Company instead of such Subsidiaries,
would constitute all or substantially all of the properties and assets of the
Company on a consolidated basis, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company.
SECTION 5.2. Successor Corporation Substituted.
---------------------------------
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.1 of
this Indenture, the successor corporation formed by such consolidation or into
which the Company is merged or to which such transfer is made, shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor corporation had
been named herein as the Company, and when a successor corporation duly assumes
all of the obligations of the Company pursuant hereto and pursuant to the
Securities, the Company shall be released from such obligations (except with
respect to any obligations that arise from, or are related to, such
transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. 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 caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment,
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decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) failure to pay all or any part of the principal, Accreted
Value of or premium, if any, on the Securities when and as the same becomes
due and payable at maturity, upon redemption, by acceleration or otherwise,
including, without limitation, default in the payment of the Change of
Control Payment in accordance with Article XI or the Offer Price in
accordance with Section 4.14 or otherwise;
(2) the making by the Company or any of its Subsidiaries of a
Restricted Payment not permitted by Section 4.3 of this Indenture;
(3) failure by the Company to observe or perform any covenant or
agreement contained in the Securities or this Indenture (other than a
default in the performance of any covenant or agreement which is
specifically dealt with elsewhere in this Section 6.1), and continuance of
such failure for a period of sixty days after there has been given, by
registered or certified mail, to the Company by the Trustee, or to the
Company and the Trustee by Holders of at least 25% in aggregate principal
amount of the outstanding Securities, a written notice specifying such
default or breach, requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder;
(4) a decree, judgment or order by a court of competent
jurisdiction shall have been entered adjudicating the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under Bankruptcy Law, and such decree or order
shall have continued undischarged and unstayed for a period of sixty days;
or a decree or order of a court of competent jurisdiction over the
appointment of a receiver, liquidator, trustee or assignee in bankruptcy or
insolvency of the Company or any of its Significant Subsidiaries, or of the
property of any such Person, or for the winding up or liquidation of the
affairs of any such Person, shall have been entered, and such decree,
judgment or order shall have remained in force undischarged and unstayed
for a period of sixty days;
(5) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bank ruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any
bankruptcy or similar law or similar statute, or shall consent to the
filing of any such petition, or shall consent to the appointment of a
Custodian, receiver, liquidator, trustee or assignee in bankruptcy or
insolvency of it or any of its assets or property, or shall make a general
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall, within
the meaning of any Bankruptcy Law, become insolvent, fail generally to pay
its debts as they become due, or take any corporate action in furtherance
of or to facilitate, conditionally or otherwise, any of the foregoing;
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(6) a default under Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $5,000,000 (a)
resulting from the failure to pay principal at maturity or (b) as a result
of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity;
(7) final unsatisfied judgments not covered by insurance for the
payment of money, or the issuance of any warrant of attachment against any
portion of the property or assets of the Company or any of its
Subsidiaries, aggregating in excess of $5,000,000 at any one time rendered
against the Company or any of its Subsidiaries and not be stayed, bonded or
discharged for a period (during which execution shall not be effectively
stayed) of ninety days (or, in the case of any such final judgment which
provides for payment over time, which shall so remain unstayed, unbonded
or undischarged beyond any applicable payment date provided therein).
Notwithstanding the sixty-day period and notice requirement contained
in Section 6.1(3) above, (i) with respect to a default under Article XI the
sixty-day period referred to in Section 6.1(3) shall be deemed to have begun as
of the date the Change of Control notice is required to be sent in the event
that the Company has not complied with the provisions of Section 11.1 of this
Indenture, and the Trustee or Holders of at least 25% in principal amount of the
outstanding Securities thereafter give the Notice of Default referred to in
Section 6.1(3) to the Company and, if applicable, the Trustee; provided,
however, that if the breach or default is a result of a default in the payment
when due of the Change of Control Payment, such default shall be deemed, for
purposes of this Section 6.1, to arise no later than on such due date; and (ii)
with respect to a default under Section 4.14 of this Indenture, the sixty-day
period referred to in Section 6.1(3) shall be deemed to have begun as of the
date the notice of an Offer to Purchase is required to be sent in the event that
the Company has not complied with the provisions of Section 4.14 of this
Indenture requiring the giving of such notice, and the Trustee or Holders of at
least 25% in principal amount of the outstanding Securities thereafter give the
Notice of Default referred to in Section 6.1(3) to the Company and, if
applicable, the Trustee; provided, however, that if the breach or default is a
result of a default in the payment when due of the Offer Price, such default
shall be deemed, for purposes of this Section 6.1, to arise no later than on
such due date.
If a Default occurs and is continuing, the Trustee must, within ninety
days after the occurrence of such default, give to the Holders notice of such
default.
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment.
-------------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 6.1(4) or (5) above relating to the Company or any of its Significant
Subsidiaries) occurs and is continuing, then, and in every such case, unless
the principal of all of the Securities shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of then outstanding Securities, by a notice in writing to the
Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may
declare the Accreted
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Value of all of the Securities, determined as set forth below, to be due and
payable immediately. In the event a declaration of acceleration resulting from
an Event of Default described in Section 6.1(6) above has occurred and is
continuing, such declaration of acceleration shall be automatically annulled if
such default is cured or waived or the holders of the Indebtedness which is the
subject of such default have rescinded their declaration of acceleration in
respect of such Indebtedness within sixty days thereof and the Trustee has
received written notice of such cure, waiver or rescission and no other Event of
Default described in Section 6.1(6) above has occurred that has not been cured
or waived, or as to which the declaration has not been rescinded, within sixty
days of the declaration of such acceleration in respect of such Indebtedness.
If an Event of Default specified in Section 6.1(4) or (5) above relating to the
Company or any Significant Subsidiary occurs, the Accreted Value of all
outstanding Securities will be immediately due and payable on all outstanding
Securities without any declaration or other act on the part of Trustee or the
Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of a
majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash
sufficient to pay
(A) the Accreted Value of (and premium, if any, applicable
to) any Securities which would become due other than by reason of such
declaration of acceleration and interest on overdue amounts pursuant
to Section 4.1 of this Indenture,
(B) all sums paid or advanced by the Trustee hereunder and
the compensation, expenses, disbursements and advances of the Trustee
and its agents and counsel, and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, on Securities which have become due solely
by such declaration of acceleration, have been cured or waived as provided
in Section 6.12 of this Indenture.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event. No such waiver shall cure or waive any subsequent default or impair any
right consequent thereon.
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SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if an Event of Default in payment of
principal Accreted Value, interest or premium, if any, specified in clause (1)
of Section 6.1 of this Indenture occurs and is continuing, the Company shall,
upon demand of the Trustee, pay to it, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including compensation to, and expenses,
disbursements and advances of the Trustee and its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
--------------------------------
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
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
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, Accreted Value and interest
thereon) shall be entitled and empowered, by intervention in such proceeding or
otherwise to take any and all actions under the TIA, including
(1) to file and prove a claim for the whole amount of principal,
Accreted Value, (and premium, if any) and interest owing and unpaid in
respect of the Securities 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, expenses,
disbursements and advances of the Trustee and its agent and counsel) and of
the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 7.7 of this Indenture.
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 Securities
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 6.5. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee and its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6. Priorities.
----------
Any money collected by the Trustee pursuant to this Article VI 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, Accreted
Value, interest or premium (if any), thereon upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 of this Indenture;
SECOND: To the Holders in payment of the amounts then due and unpaid
for principal of, Accreted Value, premium (if any) or interest on, the
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, Accreted Value,
premium (if any), or interest respectively; and
THIRD: To the Company or such other Person as may be lawfully
entitled thereto, the remainder, if any.
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The Trustee may, but shall not be obligated to, fix a record date and
payment date for any payment to the Holders under this Section 6.6.
SECTION 6.7. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to order or direct the
Trustee 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;
(B) the Holders of not less than 25% in principal amount of then
outstanding Securities 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
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for sixty 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 sixty-day period by the Holders of a
majority in principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture 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, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, Accreted Value premium (if any) and
interest on, such Security on the Maturity Dates of such payments as expressed
in such Security (in the case of redemption, the Redemption Price on the
applicable Redemption Date, in the case of the Change of Control Payment, on the
applicable Change of Control Payment Date, and in the case of the Offer Price,
on the Purchase Date) and to institute suit for the enforcement of any such
payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
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SECTION 6.9. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7 of
this Indenture, 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 6.10. Delay or Omission Not Waiver.
----------------------------
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or 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 6.11. Control by Holders.
------------------
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities 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 upon the Trustee, provided, that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture,
(2) the Trustee shall not determine that the action so directed
would be unjustly prejudicial to the Holders not taking part in such
direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. Waiver of Past Default.
----------------------
Subject to Section 6.8 of this Indenture, the Holder or Holders of not
less than a majority in aggregate principal amount of the outstanding Securities
may, on behalf of all Holders, prior to the declaration of acceleration of the
maturity of the Securities, waive any past default hereunder and its
consequences, except a default
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(A) in the payment of the principal of, Accreted Value, premium,
if any, on, any Security as specified in clause (1) of Section 6.1 of this
Indenture and not yet cured, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder
of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that 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 to be taken by it
as Trustee, any court may in its discretion require 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 6.13 shall not apply to any suit instituted
by the Company, 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
aggregate principal amount of the outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, or
premium (if any) or interest on any Security on or after the respective Maturity
Date expressed in such Security (including, in the case of redemption, on or
after the Redemption Date).
SECTION 6.14. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture 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 case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
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.
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ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to 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. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1,
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts, and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.11 of this Indenture.
(d) 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 to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have
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reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section
7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.2. Rights of Trustee.
-----------------
Subject to Section 7.1 of the Indenture:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 12.4 and 12.5 of this Indenture. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond, debenture
or other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
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(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's covenants in Article IV hereof. 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 6.1(1) and 5.1 of
this Indenture, or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or obtained actual knowledge.
SECTION 7.3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any of
their Subsidiaries, or their respective Affiliates with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11 of this Indenture.
SECTION 7.4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within ninety days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal, Accreted Value (or premium, if any) on, any Security
(including the payment of the Change of Control Purchase Price on the Change of
Control Payment Date, the payment of the Redemption Price on the Redemption Date
and the payment of the Offer Price on the Purchase Date), the Trustee may
withhold the notice if and so long as a Trust Officer in good faith determines
that withholding the notice is in the interest of the Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
-----------------------------
Within sixty days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall, if required by law,
mail to each Securityholder a brief report dated as of such May 15 that complies
with TIA (S) 313(a). The Trustee also shall comply with TIA (S)(S) 313(b) and
313(c).
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The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
SECTION 7.7. Compensation and Indemnity.
--------------------------
The Company agrees to pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it in accordance with this Indenture. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's agents, accountants, experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as
Trustee) and each of its officers, directors, attorneys-in-fact and agents for,
and hold it harmless against, any claim, demand, expense (including but not
limited to reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel), loss or liability incurred by it without negligence or bad
faith on the part of the Trustee, arising out of or in connection with the
administration of this trust and its rights or duties hereunder, including the
reasonable costs and expenses of defending itself against any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. The Company shall defend
the claim and the Trustee shall provide reasonable cooperation at the Company's
expense in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel; provided, that the
Company will not be required to pay such fees and expenses if they assume the
Trustee's defense and there is no conflict of interest between the Company and
the Trustee in connection with such defense. The Company need not pay for any
settlement made without their written consent. The Company need not reimburse
any expense or indemnify against any loss or liability to the extent incurred by
the Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal, Accreted Value and premium, if any, on particular
Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) of this Indenture occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
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The Company's obligations under this Section 7.7 and any lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Company's obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 of this Indenture;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 of this Indenture have been paid, the retiring Trustee shall transfer all
property held by it as trustee to the successor Trustee, subject to the lien
provided in Section 7.7 of this Indenture, the resignation or removal of the
retiring Trustee shall become effective, and the successor Trustee shall have
all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
If a successor Trustee does not take office within sixty days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 of this Indenture,
any Securityholder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
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Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 of this Indenture shall
continue for the benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus
of at least $25,000,000 as set forth in its most recent published annual report
of condition. The Trustee shall comply with TIA (S) 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
ARTICLE VIII
DISCHARGE LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal Defeasance or Covenant
--------------------------------------------------------
Defeasance.
- -----------
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.7 and the Trustee's and the Paying Agent's
obligations under Sections 8.6 and 8.7 shall survive) when all outstanding
Securities theretofore authenticated and issued have been delivered (other than
destroyed, lost or stolen Securities that have been replaced or paid) to the
Trustee for cancellation and the Company has paid all sums payable hereunder.
In addition, the Company may, at its option at any time, elect to have Section
8.2 or 8.3 of this Indenture applied to all outstanding Securities upon
compliance with the conditions set forth below in this Article VIII.
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SECTION 8.2. Legal Defeasance and Discharge.
------------------------------
Upon the Company's exercise under Section 8.1 of this Indenture of the
option applicable to this Section 8.2, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.5 of this Indenture and the
other Sections of this Indenture referred to in (a) and (b) below, and the
Company shall be deemed to have satisfied all other of its obligations under
such Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (a) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 8.4 of this Indenture,
and as more fully set forth in such section, payments in respect of the
principal of, premium, if any, on such Securities when such payments are due,
(b) the Company's obligations with respect to such Securities under Sections
2.4, 2.6, 2.7, 2.10 and 5.2 of this Indenture, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article VIII. Subject to compliance with this
Article VIII, the Company may exercise its option under this Section 8.2
notwithstanding the prior exercise of its option under Section 8.3 of this
Indenture with respect to the Securities.
SECTION 8.3. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 8.1 of this Indenture of the
option applicable to this Section 8.3, the Company shall be released from its
obligations under the covenants contained in Sections 4.3, 4.5, 4.6, 4.7, 4.8,
4.10, 4.11, 4.12, 4.13, 4.14, 4.17 and 4.18 and Article V of this Indenture with
respect to the outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Securities shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, the Company need not comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document (and Section 6.1(3) of this
Indenture shall not apply to any such covenant), but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
In addition, upon the Company's exercise under Section 8.1 of this Indenture of
the option applicable to this Section 8.3, Sections 6.1(6) and 6.1(7) of this
Indenture shall not constitute Events of Default.
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SECTION 8.4. Conditions to Legal or Covenant Defeasance.
------------------------------------------
The following shall be the conditions to the application of either
Section 8.2 or 8.3 of this Indenture to the outstanding Securities:
(a) (1) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 of this Indenture who shall agree to comply with the provisions
of this Article VIII 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 Securities, (a) Cash, or
(b) U.S. Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, or (c) a combination
thereof, in such amounts, as in each case will be sufficient, 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,
and which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of, Accreted Value, premium, if any, on the
outstanding Securities on the stated maturity or on the applicable redemption
date, as the case may be, of such principal or installment of principal,
Accreted Value, premium, if any; provided that the Trustee shall have been
irrevocably instructed to apply such Cash and the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities and (2)
the Holders must have a valid, perfected, exclusive security interest in such
trust;
(b) In the case of an election under Section 8.2 of this
Indenture prior to one year before the Stated Maturity, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) 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 Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) In the case of an election under Section 8.3 of this
Indenture the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States to the effect that the Holders of the outstanding
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be subject to Federal
income tax in the same amount, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(d) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit or,
insofar as Section 6.1(4) or 6.1(5) of this Indenture is concerned, at any time
in the period ending on the ninety-first day
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after the date of such deposit (it being understood that this condition is a
condition subsequent which shall not be deemed satisfied until the expiration of
such period, but in the case of Covenant Defeasance, the covenants which are
defeased under Section 8.3 of this Indenture will cease to be in effect unless
an Event of Default under Section 6.1(4) or 6.1(5) of this Indenture occurs
during such period);
(e) Such Legal 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 or
any of its Subsidiaries is a party or by which any of them is bound;
(f) 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 8.2 or 8.3 of this Indenture was not made by the Company
with the intent of preferring the Holders over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; and
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating that
all conditions precedent provided for relating to either the Legal Defeasance
under Section 8.2 of this Indenture or the Covenant Defeasance under Section 8.3
of this Indenture, as the case may be, have been complied with as contemplated
by this Section 8.4.
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be
----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to Section 8.6 of this Indenture, all Cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 of this Indenture in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal, Accreted Value or premium, if any, but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.6. Repayment to the Company.
------------------------
(a) The Trustee and the Paying Agent shall promptly pay to the
Company upon written request any Cash and U.S. Government Obligations (including
the proceeds thereof) held by them at any time in excess of amounts required to
pay principal of, Accreted Value of, premium, if any, on the outstanding
Securities on the applicable date.
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(b) Any Cash and U.S. Government Obligations (including the
proceeds thereof) 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,
Accreted Value, interest on any Security and remaining unclaimed for two years
after such principal, and premium, if any, Accreted Value, interest has become
due and payable shall be paid to the Company on its request; and the Holder of
such Security shall thereafter look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, may at the expense of
the Company cause to be published once, in the New York Times and The Wall
Street Journal (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than thirty days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.7. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any Cash or U.S.
Government Obligations in accordance with Section 8.2 or 8.3 of this Indenture,
as the case may be, of this Indenture by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.2 or 8.3 of this Indenture until such time as the Trustee
or Paying Agent is permitted to apply such money in accordance with Sections 8.2
and 8.3 of this Indenture, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, Accreted Value of
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the Cash or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holder, the Company (when authorized by
Board Resolutions) and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect or inconsistency, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided such action pursuant to this clause (1) shall not adversely affect the
interests of any Holder in any respect;
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(2) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(3) 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 or to make any other change that does not adversely affect the legal
rights of any Holder under the Indenture, provided, that the Company has
delivered to the Trustee an Opinion of Counsel stating that such change does not
adversely affect the rights of any Holder;
(4) to provide for collateral for or guarantees of the
Securities;
(5) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the obligations of the Company,
herein and in the Securities in accordance with Article V;
(6) to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the TIA; or
(7) to provide for the issuance and authorization of the
Exchange Securities.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
----------------------------------------------------
Consent of Holders.
- ------------------
Subject to Section 6.8 of this Indenture, with the consent of the
Holders of not less than a majority in aggregate principal amount of then
outstanding Securities (including consents obtained in connection with a tender
offer or exchange offer for Securities), by written act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities.
Subject to Section 6.8 of this Indenture, the Holder or Holders of not less than
a majority, in principal amount of then outstanding Securities may waive
compliance by the Company with any provision of this Indenture or the
Securities. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall without the consent of the Holder of each
outstanding Security affected thereby:
(1) change the Change of Control Purchase Date pursuant to Section
11.1 hereof or the Asset Sale Offer Period pursuant to Section 4.14 hereof;
(2) reduce the principal amount or Accreted Value of any Security, or
reduce the Change of Control Payment, the Offer Price or the Redemption Price;
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(3) reduce the rate of accrual of the Accreted Value on any Security
or reduce the rate of interest in paragraph 1 of the Security;
(4) reduce the percentage of principal amount of Securities whose
Holders must consent to an amendment, supplement or waiver of any provision of
this Indenture or the Securities;
(5) change the ranking of the Securities to anything other than pari
passu in right of payment to all unsubordinated Indebtedness of the Company;
(6) change the Stated Maturity of any Security;
(7) alter the redemption provisions of Article III or the change of
control provisions in Article XI in a manner adverse to any Holder;
(8) make any changes in the provisions concerning waivers of Defaults
or Events of Default by Holders of the Securities or the rights of Holders to
recover the principal or premium of, Accreted Value or redemption payment with
respect to, any Security, including without limitation any changes that impair
the right to institute suit for enforcement of such payments or any changes in
Section 6.8 or 6.12 of this Indenture or the third sentence of this Section 9.2,
except to increase any required percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Security affected thereby; or
(9) make the principal of, Accreted Value or any premium payable upon
redemption of, any Security payable with anything or in any manner other than as
provided for in this Indenture (including changing the place of payment where,
or the coin or currency in which, any Security is payable) and the Securities as
in effect on the date hereof.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
under Section 9.4 of this Indenture becomes effective, it shall bind each
Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such
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amendment, supplement or waiver, or to all Holders, consideration for such
Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. Compliance with TIA.
-------------------
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
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 amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled 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 ninety
days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (9) of Section 9.2 of this Indenture, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Security who has consented
to it and every subsequent Holder of a Security or portion of a Security that
evidences the same debt as the consenting Holder's Security; provided, that any
such waiver shall not impair or affect the right of any Holder to receive
payment of principal, Accreted Value and premium of and interest on a Security,
on or after the respective dates set for such amounts to become due and payable
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates.
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SECTION 9.5. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
MEETINGS OF SECURITYHOLDERS
SECTION 10.1. Purposes for Which Meetings May Be Called.
-----------------------------------------
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article X for any of the following
purposes:
(a) to give any notice to the Company or the Trustee, or to give
any directions to the Trustee, or to waive or to consent to the waiving of any
Default or Event of Default hereunder and its consequences, or to take any other
action authorized to be taken by Securityholders pursuant to any of the
provisions of Article VI;
(b) to remove the Trustee or appoint a successor Trustee
pursuant to the provisions of Article VII;
(c) to consent to an amendment, supplement or waiver and the
execution of an indenture or indentures supplemental hereto pursuant to the
provisions of Section 9.2 of this Indenture; or
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(d) to take any other action (i) authorized to be taken by or on
behalf of the Holder or Holders of any specified aggregate principal amount of
the Securities under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the Trustee deems necessary or appropriate in
connection with the administration of this Indenture.
SECTION 10.2. Manner of Calling Meetings.
--------------------------
The Trustee may at any time call a meeting of Securityholders to take
any action specified in Section 10.1 of this Indenture, to be held at such time
and at such place in the City of New York, New York or elsewhere as the Trustee
shall determine. Notice of each meeting of Securityholders, setting forth the
time and place of such meeting and in general terms the action proposed to be
taken at such meeting, shall be mailed by the Trustee, first-class postage
prepaid, to the Company and the Holders at their last addresses as they shall
appear on the registration books of the Registrar, not less than ten nor more
than sixty days prior to the date fixed for such meeting.
Any meeting of Securityholders shall be valid without notice if the
Holders of all Securities then outstanding are present in Person or by proxy, or
if notice is waived before or after the meeting by the Holders of all Securities
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
SECTION 10.3. Call of Meetings by the Company or Holders.
------------------------------------------
In case at any time the Company or the Holders of not less than 20% in
aggregate principal amount of the Securities then outstanding, shall have
requested the Trustee to call a meeting of Securityholders to take any action
specified in Section 10.1 of this Indenture, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within twenty days
after receipt of such request, then the Company or the Holders of Securities in
the amount above specified may determine the time and place in The City of New
York, New York or elsewhere for such meeting and may call such meeting for the
purpose of taking such action, by mailing or causing to be mailed notice thereof
as provided in Section 10.2 of this Indenture, or by causing notice thereof to
be published at least once in each of two successive calendar weeks (on any
Business Day during such week) in a newspaper or newspapers printed in the
English language, customarily published at least five days a week of a general
circulation in The City of New York, State of New York, the first such
publication to be not less than ten nor more than sixty days prior to the date
fixed for the meeting.
SECTION 10.4. Who May Attend and Vote at Meetings.
-----------------------------------
To be entitled to vote at any meeting of Securityholders, a Person
shall (a) be a registered Holder of one or more Securities, or (b) be a Person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Securities. The only Persons who shall
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be entitled to be present or to speak at any meeting of Securityholders shall be
the Persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 10.5. Regulations May Be Made by Trustee; Conduct of the
--------------------------------------------------
Meeting; Voting Rights; Adjournment.
- -----------------------------------
Notwithstanding any other provision of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any action by or
any meeting of Securityholders, in regard to proof of the holding of Securities
and of the appointment of proxies, and in regard to the appointment and duties
of inspectors of votes, and submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think appropriate. Such regulations may fix
a record date and time for determining the Holders of record of Securities
entitled to vote at such meeting, in which case those and only those Persons who
are Holders of Securities at the record date and time so fixed, or their
proxies, shall be entitled to vote at such meeting whether or not they shall be
such Holders at the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 10.3 of this Indenture, in
which case the Company or the Securityholders calling the meeting, as the case
may be, shall in like manner appoint a temporary chairman. A permanent chairman
and a permanent secretary of the meeting shall be elected by vote of the Holders
of a majority in principal amount of the Securities represented at the meeting
and entitled to vote.
At any meeting each Securityholder or proxy shall be entitled to one
vote for each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairman of the meeting to be not then outstanding. The chairman of the meeting
shall have no right to vote other than by virtue of Securities held by him or
instruments in writing as aforesaid duly designating him as the proxy to vote on
behalf of other Securityholders. Any meeting of Securityholders duly called
pursuant to the provisions of Section 10.2 or 10.3 of this Indenture may be
adjourned from time to time by vote of the Holder or Holders of a majority in
aggregate principal amount of the Securities represented at the meeting and
entitled to vote, and the meeting may be held as so adjourned without further
notice.
SECTION 10.6. Voting at the Meeting and Record to Be Kept.
-------------------------------------------
The vote upon any resolution submitted to any meeting of
Securityholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amount of the Securities voted by the ballot. Subject to the
Trustee's regulations adopted under Section 10.5 of this Indenture, the
permanent
69
<PAGE>
chairman of the meeting shall appoint two inspectors of votes, who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Securityholders shall be prepared by the
secretary of the meeting and there shall be attached to such record the original
reports of the inspectors of votes on any vote by ballot taken thereat and
affidavits by one or more Persons having knowledge of the facts, setting forth a
copy of the notice of the meeting and showing that such notice was mailed as
provided in Section 10.2 of this Indenture or published as provided in Section
10.3 of this Indenture. The record shall be signed and verified by the
affidavits of the permanent chairman and the secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 10.7. Exercise of Rights of Trustee or Securityholders May
----------------------------------------------------
Not Be Hindered or Delayed by Call of Meeting.
- ---------------------------------------------
Nothing contained in this Article X shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Securityholders or
any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Securityholders under any of the provisions of
this Indenture or of the Securities.
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION 11.1. Repurchase of Securities at Option of the Holder Upon a
-------------------------------------------------------
Change of Control.
- -----------------
(a) In the event that a Change of Control occurs, each Holder
shall have the right, at such Holder's option, subject to the terms and
conditions of this Indenture, to require the Company to repurchase all or any
part of such Holder's Securities (provided, that the principal amount of such
Securities at maturity must be $1,000 or an integral multiple thereof) at a cash
price (the "Change of Control Payment"), equal to 101% of the Accreted Value to
and including the date (the "Change of Control Payment Date"), the Securities
tendered are purchased and paid for in accordance with this Article XI.
(b) In the event of a Change of Control, the Company shall be
required to commence an offer to purchase Securities (a "Change of Control
Offer"), as follows:
70
<PAGE>
(1) the Change of Control Offer shall commence within thirty
Business Days following the Change of Control date;
(2) the Change of Control Offer shall remain open for twenty
Business Days, except to the extent that a longer period is required by
applicable law, but in any case not more than ninety Business Days after
the occurrence of the Change of Control (or not more than 120 days of the
Change of Control if, during any such extension beyond ninety days
following the Change of Control, the Company is diligently pursuing all
commercially reasonable steps to consummate the Change of Control Offer as
promptly as practicable);
(3) the Company shall provide the Trustee with notice of the
Change of Control Offer at least five Business Days before the commencement
of any Change of Control Offer; and
(4) on or before the commencement of any Change of Control
Offer, the Company or the Trustee (upon the request and at the expense of
the Company) shall send, by first-class mail, a notice to each of the
Securityholders, which (to the extent consistent with this Indenture) shall
govern the terms of the Change of Control Offer and shall state:
(i) that the Change of Control Offer is being made pursuant
to such notice and this Section 11.1 and that all Securities, or portions
thereof, tendered will be accepted for payment;
(ii) the Change of Control Payment, including the Accreted
Value as of the then applicable Change of Control Payment Date, the then
applicable Change of Control Payment Date and the Change of Control Put
Date (as defined below);
(iii) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Change of Control Offer will be required
to surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the Paying
Agent (which may not for purposes of this Section 11.1, notwithstanding
anything in this Indenture to the contrary, be the Company or any Affiliate
of the Company) at the address specified in the notice prior to the close
of business on the earlier of (a) the third Business Day prior to the
Change of Control Payment Date and (b) the third Business Day following the
expiration of the Change of Control Offer (such earlier date being the
"Change of Control Put Date");
(iv) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 11.1, notwithstanding anything in this Indenture
to the contrary, be the Company or any Affiliate of the Company) receives,
up to the close of business on the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
71
<PAGE>
of the Holder, the principal amount of the Securities such Holder is
withdrawing and a statement that such Holder is withdrawing his election to
have such principal amount of Securities purchased;
(v) that Holders whose Securities are purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(vi) a brief description of the events resulting in such
Change of Control.
Any such Change of Control Offer shall comply with all applicable
provisions of Federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture which conflict with such
laws shall be deemed to be superseded by the provisions of such laws.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof properly tendered pursuant to
the Change of Control Offer on or before the Change of Control Put Date, (ii)
deposit with the Paying Agent Cash sufficient to pay the Change of Control
Payment for all Securities or portions thereof so tendered and (iii) deliver to
the Trustee Securities so accepted together with an Officers' Certificate
listing the Securities or portions thereof being purchased by the Company. The
Paying Agent shall on the Change of Control Payment Date mail to Holders of
Securities so accepted payment in an amount equal to the Change of Control
Payment for such Securities, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. The Company shall not have any
obligation to accept for payment or pay for any Securities tendered by a Holder
after the Change of Control Put Date. Any Security not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 12.2. Notices.
-------
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery,
72
<PAGE>
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company:
Cobblestone Golf Group, Inc.
3702 Villa de la Valle, Suite 202
Del Mar, California 92014
Attention: Chief Financial Officer
Telecopy: (619) 794-7806
if to the Trustee:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55472
Attention: Corporate Trust Division
Telecopy: (612) 667-9825
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.3. Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
73
<PAGE>
SECTION 12.4. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, such Person shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been met; and
(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of
such counsel, all such conditions precedent have been met.
SECTION 12.5. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) 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;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been met; and
(4) a statement as to whether or not, in the opinion of
each such Person, such condition or covenant has been met; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for its
functions.
74
<PAGE>
SECTION 12.7. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday and the issue price set forth on the face of the Security shall not
accrete for the intervening period.
SECTION 12.8. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDIC TION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY
SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
SECTION 12.9. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. No Recourse Against Others.
--------------------------
No partner, incorporator, direct or indirect stockholder, director,
officer or employee, as such, past, present or future, of the Company, or any
successor entity, shall have any personal liability in respect of the
obligations of the Company under the Securities or this Indenture by reason of
his, her or its status as such partner, incorporator, stockholder, director,
75
<PAGE>
officer or employee. Each Securityholder by accepting a Security waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Securities.
SECTION 12.11. Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 12.12. Duplicate Originals.
-------------------
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 12.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 12.14. Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 12.15. Qualification of Indenture.
--------------------------
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all costs and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of the Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive
from the Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
76
<PAGE>
SECTION 12.16. Registration Rights.
-------------------
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
77
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
COBBLESTONE HOLDINGS, INC.,
a Delaware corporation
[Seal]
By: /s/ James A. Husband
--------------------
Name: James A. Husband
Title: President and Chief
Executive Officer
Attest: /s/ Stefan C. Karnavas
----------------------
Secretary
NORWEST BANK NATIONAL
ASSOCIATION, as Trustee
By: /s/ Raymond S. Haverstock
-------------------------
Name: Raymond S. Haverstock
Title: Vice President
<PAGE>
EXHIBIT A
FORM OF SECURITY
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO ORIGINAL
ISSUE DISCOUNT AND TREASURY REGULATIONS PUBLISHED THEREUNDER, THE FOLLOWING
INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT IN THE AMOUNT OF $663.22 PER $1,000 PRINCIPAL AMOUNT DUE AT MATURITY
(2) THE ISSUE PRICE OF THIS SECURITY IS $336.78 PER $1,000 PRINCIPAL AMOUNT DUE
AT MATURITY; (3) THE ISSUE DATE OF THIS SECURITY IS JUNE 4, 1996; AND (4) THE
YIELD TO MATURITY OF THIS SECURITY IS 14.09%. HOLDERS SHOULD REFER TO THE
DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS SET FORTH IN THE
OFFERING MATERIALS FOR THIS SECURITY FOR MORE DETAILED INFORMATION CONCERNING
THE COMPUTATION OF ORIGINAL ISSUE DISCOUNT SET FORTH HEREIN.
COBBLESTONE HOLDINGS, INC.
13 1/2% SERIES A/1/ SENIOR ZERO-COUPON NOTE DUE 2004
CUSIP No. 19088MAA4
No. $ _________
ISSUE DATE: June 4, 1996
ISSUE PRICE: $336.78
(Per $1,000 principal amount)
Cobblestone Holdings, Inc., a Delaware corporation (hereinafter called
the "Company", which term includes any successors under the Indenture
hereinafter referred to), for value received, hereby promises to pay to _____,
or registered assigns, the principal sum of _____ Dollars, on June 1, 2004.
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated:
COBBLESTONE HOLDINGS, INC.,
a Delaware corporation
[Seal]
By: __________________________________
Name: James A. Husband
Title: President and Chief
Executive Officer
Attest: ________________
Secretary
________________
/1/ Series A should be replaced with Series B in the Exchange
Securities.
A-1
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the within-mentioned Indenture.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By ________________________________
Authorized Signatory
Dated: _____________, _____.
A-2
<PAGE>
COBBLESTONE GOLF GROUP, INC.
13 1/2% SERIES A/2/ Senior Zero-Coupon Note due 2004
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("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 such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or 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./3/
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH NOTE MAY BE RESOLD OR OTHERWISE TRANSFERRED,
ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIRE-
_____________________
/2/ Series A should be replaced with Series B in the Exchange Securities.
/3/ This paragraph should only be added if the Security is issued in global
form.
A-3
<PAGE>
MENTS OF RULE 144A, (b) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),(2),(3) OR (7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR
OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, (c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (d) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE
COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNTIED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY
ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE./4/
THE SECURITY EVIDENCED HEREBY WILL NOT BE TRANSFERABLE SEPARATELY FROM
THE SHARE ORIGINALLY SOLD AS A UNIT WITH THIS SECURITY UNTIL THE
EARLIEST TO OCCUR OF (I) DECEMBER 1, 1996, (II) SUCH EARLIER DATE AS
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ("DLJ") MAY IN ITS
DISCRETION DEEM APPROPRIATE, (III) IN THE EVENT OF THE OCCURRENCE OF A
CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE BY AND BETWEEN THE
COMPANY AND THE TRUSTEE, DATED JUNE 4, 1996 RELATING TO THE ZERO-
COUPON NOTES), THE DATE THE COMPANY MAILS NOTICE THEREOF TO HOLDERS OF
THE SECURITIES AND (IV) THE DATE ON WHICH THE REGISTRATION STATEMENT
RELATING TO THE EXCHANGE OFFER (AS DEFINED IN THE PURCHASE AGREEMENT
BETWEEN THE COMPANY AND DLJ,
______________________
/4/ These two paragraphs should be included only for the Initial Securities.
A-4
<PAGE>
DATED MAY 29, 1996) IS DECLARED EFFECTIVE BY THE SECURITIES AND
EXCHANGE COMMISSION./5/
1. Interest.
--------
This Security shall not bear interest except as specified in this
paragraph. If the principal or Accreted Value hereof or any portion of such
principal or Accreted Value is not paid when due (whether at maturity, upon
redemption, by acceleration or otherwise, including without limitation, default
in the payment of the Change of Control Payment or the Offer Price or
otherwise), then in each such case the overdue amount shall bear interest at the
rate of 13 1/2% per annum, compounded semiannually (to the extent that the
payment of such interest shall be legally enforceable), which interest shall
accrue from the date such overdue amount was due to the date payment of such
amount, including interest thereon, has been made or duly provided for. All such
interest shall be payable on demand.
The issue price, as set forth on the face of this security, shall
accrete on a daily basis at the rate of 13 1/2% per annum compounded
semi-annually on each June 1 and December 1, using a 360-day year composed of
twelve 30-day months, from the Issue Date and cease to accrete on the date on
which the principal amount or Accreted Value hereof becomes due and payable.
2. Method of Payment.
-----------------
Holders must surrender Securities to a Paying Agent to collect
principal payments. Except as provided below, the Company shall pay principal in
Cash. However, the Company may pay principal by wire transfer of Federal funds.
3. Paying Agent and Registrar.
--------------------------
Initially, Norwest Bank Minnesota, National Association (the
"Trustee"), will act as Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders. The
Company or any of its Subsidiaries may, subject to certain exceptions, act as
Paying Agent, Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of June
4, 1996 (the "Indenture"), between the Company and the Trustee. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
herein. The terms of the
____________________
/5/ This paragraph should be included only up to the Separation Date.
A-5
<PAGE>
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and said Act for a statement of them.
The Securities are general unsecured obligations of the Company limited in
aggregate principal amount to $86,000,000.
5. Redemption.
----------
The Securities may be redeemed in whole or from time to time in part
on or after June 1, 1999, at the option of the Company, at the Redemption Price
(expressed as a percentage of Accreted Value) set forth below with respect to
the indicated Redemption Date. The Securities may not be so redeemed prior to
June 1, 1999 (other than out of the Net Cash Proceeds of certain issuances of
Qualified Capital Stock of the Company described below).
<TABLE>
<CAPTION>
If redeemed during
the 12-month period
beginning June 1, Redemption Price
---------------------- ----------------
<S> <C>
1999 ................... 106.750%
2000 ................... 104.500%
2001 ................... 102.250%
2002 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, until June 1, 1999, upon one or more
Public Equity Offerings or issuances of Qualified Capital Stock to Strategic
Investors, all, but not less than all, of the outstanding Securities may be
redeemed at the option of the Company within 120 days of such Public Equity
Offering or issuance to Strategic Investors with the Net Cash Proceeds thereof
at 113.5% of the Accreted Value thereof to the date of redemption.
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
--------------------
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date, the issue
price set forth on
A-6
<PAGE>
the face of the Securities called for redemption will cease to accrete and the
only right of the Holders of such Securities will be to receive payment of the
Redemption Price.
7. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption.
8. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner of it
for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee and
such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
-----------------------------------------
Except as set forth in the Indenture, if the Company irrevocably
deposits with the Trustee, in trust, for the benefit of the Holders, Cash, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient in the opinion of a nationally recognized firm of independent public
accountants selected by the Trustee, to pay the principal of, premium, if any,
on the Securities to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including the
financial covenants, but excluding their obligation to pay the principal of,
premium, if any, on the Securities). Upon satisfaction of certain additional
conditions set forth in the Indenture, the Company may elect to have its
obligations discharged with respect to outstanding Securities.
11. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision of the
Indenture or the Securities
A-7
<PAGE>
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Securities then outstanding. Without notice to or
consent of any Holder, the parties thereto may under certain circumstances amend
or supplement the Indenture or the Securities to, among other things, cure any
ambiguity, defect or inconsistency, or make any other change that does not
adversely affect the rights of any Holder of a Security.
12. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the
Company to, among other things, Incur additional Indebtedness and Disqualified
Capital Stock, pay dividends or make certain other Restricted Payments, enter
into certain transactions with Affiliates, incur Liens, sell assets and
subsidiary stock, merge or consolidate with any other Person or transfer (by
lease, assignment or otherwise) substantially all of the properties and assets
of the Company. The limitations are subject to a number of important
qualifications and exceptions. The Company must periodically report to the
Trustee on compliance with such limitations.
13. Repurchase at Option of Holder.
------------------------------
(a) If there is a Change of Control, the Company shall be required to
offer to purchase on the Change of Control Payment Date all outstanding
Securities at a purchase price equal to 101% of the Accreted Value thereof, to
the Change of Control Payment Date. Holders of Securities will receive a Change
of Control Offer from the Company prior to any related Change of Control Payment
Date and may elect to have such Securities purchased by completing the form
entitled "Option of Holder to Elect Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability of the
Company, or any of its Subsidiaries to sell assets and subsidiary stock. In the
event the proceeds from a permitted Asset Sale exceed certain amounts, as
specified in the Indenture, the Company will be required either to reinvest the
proceeds of such Asset Sale in a Related Business or to make an offer to
purchase each Holder's Securities at 100% of the Accreted Value thereof to the
purchase date.
14. Successors.
----------
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
15. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing (other than as Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in
A-8
<PAGE>
every such case, unless the principal of all of the securities shall have
already become due and payable, either the Trustee or the Holders of 25% in
aggregate principal amount of Securities then outstanding may declare all the
Securities to be due and payable immediately in the manner and with the effect
provided in the Indenture. Holders of Securities may not enforce the Indenture
or the Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the Securities then outstanding may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Securityholders notice of
any continuing Default or Event of Default (except a Default in payment of
principal), if it determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, its Subsidiaries or any of their respective Affiliates, and may
otherwise deal with such Persons as if it were not the Trustee.
17. No Recourse Against Others.
--------------------------
No partner, incorporator, direct or indirect stockholder, partner,
director, officer or employee, as such, past, present or future, of the Company,
or any successor entity, shall have any personal liability in respect of the
obligations of the Company under the Securities or the Indenture by reason of
his, her or its status as such partner, incorporator, stockholder, director,
officer or employee. Each Holder of a Security by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-9
<PAGE>
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
21. Additional Rights of Holders of Transfer Restricted Securities./6/
--------------------------------------------------------------
In addition to the rights provided to Holders of Securities under
the Indenture, Holders of Securities shall have all the rights set forth in
the Registration Rights Agreement.
___________________
/6/ This paragraph should only be included for the Initial Securities.
A-10
<PAGE>
ASSIGNMENT
I or we assign this Security to
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of
assignee
_________________________
and irrevocably appoint __________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Dated: __________ Signed: ______________________________
__________________________________________________________
(Sign exactly as name appears on
the other side of this Security)
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.14 or Article XI of the Indenture, check the
appropriate box: [_] Section 4.14 [_] Article XI.
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.14 or Article XI of the Indenture, as
the case may be, state the amount you want to be purchased: $________
Date: ________________ Signature: ______________________________
(Sign exactly as your name
appears on the other side of
this Security)
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES/7/
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global authorized officer of
Principal Amount Principal Amount Security following Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
_______________________
/7/ This schedule should only be added if the security is issued in global
form.
A-13
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
TRANSFER RESTRICTED SECURITIES/8/
Re: 13 1/2% SENIOR SERIES A ZERO-COUPON NOTES DUE 2004 OF COBBLESTONE
HOLDINGS, INC.
This Certificate relates to $______ principal amount of Securities
held in (check applicable space) _____ book-entry or ______ definitive form
by _________________ (the "Transferor").
The Transferor (check applicable box):
[_] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depository a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial
interest in such Global Security (or the portion thereof indicated above);
or
[_] has requested the Trustee by written order to exchange or
register the transfer of a Security or Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that Transferor is familiar
with the Indenture relating to the above-captioned Securities and as
provided in Section 2.6 of such Indenture, the transfer of this Security
does not require registration under the Securities Act (as defined below)
because:
[_] Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture).
[_] Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act")) in reliance on Rule 144A (in satisfaction
of Section 2.6(a)(ii)(B), Section 2.6(b)(i) or Section 2.6(d)(i)(B) of the
Indenture), to an institutional "accredited investor" within the meaning of
subparagraph (a)(1),(2),(3) or (7) of Rule 501 under the Securities Act
that is acquiring the security for its own account, or for the account of
such an institutional "accredited investor," for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act, or pursuant to an
exemption from registration in accordance with Regulation S under the
Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06
(d)(i)(B) of the Indenture).
_________________________
/8/ The following should be included only for Initial Securities.
A-14
<PAGE>
[_] Such Security is being transferred in accordance with Rule 144
under the Securities Act, or pursuant to an effective registration
statement under the Securities Act (in satisfaction of Section
2.6(a)(ii)(B) or Section 2.6(d)(i)(B) of the Indenture).
[_] Such Security is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the
Securities Act, other than as provided in the immediately preceding
paragraph. An Opinion of Counsel to the effect that such transfer does not
require registration under the Securities Act accompanies this Certificate
(in satisfaction of Section 2.6(a)(ii)(C) or Section 2.6(d)(i)(C) of the
Indenture).
_______________________________________
[INSERT NAME OF TRANSFEROR]
By:____________________________________
Date:_______________________________
A-15
<PAGE>
EXHIBIT 5.1
FORM OF OPINION OF LATHAM & WATKINS
[LATHAM & WATKINS LETTERHEAD]
_____________, 1996
Cobblestone Holdings, Inc.
3702 Via de la Valle, Suite 202
Del Mar, California 92014
Re: Cobblestone Holdings, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form S-4
(the "Registration Statement") of Cobblestone Holdings, Inc., a Delaware
corporation (the "Company"), which you have filed with the Securities and
Exchange Commission on ______________, 1996 in connection with the exchange of
$1,000 principal amount of 13 1/2% Series B Senior Zero-Coupon Notes due 2004 of
the Company for each $1,000 principal amount of its outstanding 13 1/2% Series A
Senior Zero-Coupon Notes due 2004.
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of this opinion. We have examined, among
other things, the terms of the Notes, and the indenture pursuant to which the
Notes are to be issued. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity to authentic original documents of all documents submitted to
us as copies.
We are opining herein as to the effect on the subject transaction only of
the federal securities laws of the United States, the internal laws of the State
of California and the General Corporation Law of the State of Delaware, and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of any other laws.
Based upon the foregoing, we are of the opinion that, the Notes are legally
valid and binding obligations of the Company, except as may be limited by the
effect of bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the rights or remedies
of creditors; the affect of general principles of equity, whether enforcement is
<PAGE>
considered in a proceeding in equity or at law, and the discretion of the court
before which any proceeding therefor may be brought; and the unenforceability
under certain circumstances under law or court decisions of provisions providing
for the indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is contrary to public
policy.
We consent to your filing this opinion as an exhibit to the Registration
Statement.
Very truly yours,
LATHAM & WATKINS
<PAGE>
EXHIBIT 8.1
FORM OF OPINION OF LATHAM & WATKINS
[LATHAM & WATKINS LETTERHEAD]
_______, 1996
Cobblestone Holdings, Inc.
3702 Via de la Valle, Suite 202
Del Mar, California 92014
Re: Cobblestone Holdings, Inc.
Registration Statement on Form S-4
----------------------------------
Ladies/Gentlemen:
You have requested our opinion concerning the material federal income tax
consequences of the exchange of $1,000 principal amount of 13 1/2% Series B
Senior Zero-Coupon Notes due 2004 of Cobblestone Holdings, Inc., a Delaware
corporation (the "Company"), for 13 1/2% Series A Senior Zero-Coupon Notes due
2004 of the Company, pursuant to the Registration Statement on Form S-4 filed
with the Securities and Exchange Commission (the "Commission") on
______________, 1996 (the "Registration Statement").
The facts, as we understand them, and upon which with your permission we
rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, it is our opinion that the
material federal income tax consequences are accurately set forth under the
heading "Certain Federal Income Tax Considerations" in the registration
Statement. No opinion is expressed to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement may
affect the conclusion stated herein.
<PAGE>
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement and to the reference of our firm under the heading
"Certain Federal Income Tax Considerations."
Very truly yours,
LATHAM & WATKINS
<PAGE>
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of June 4, 1996
among
COBBLESTONE GOLF GROUP, INC.,
as Borrower,
COBBLESTONE HOLDINGS, INC.,
as Guarantor
VARIOUS FINANCIAL INSTITUTIONS,
and
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,
individually and as Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1.1 DEFINITIONS...................................................... 1
1.2 Reallocation of Loans and Commitments............................ 28
SECTION 2 COMMITMENTS OF THE LENDERS; TYPES OF LOANS;
BORROWING PROCEDURES; LETTERS OF CREDIT........................ 30
2.1 Commitments...................................................... 30
2.1.1 Working Capital Revolving Commitments..................... 31
2.1.2 Reducing Revolver Loan Commitment......................... 31
2.2 Various Types of Loans........................................... 32
2.3 Borrowing Procedures............................................. 33
2.4 Procedures for Conversion of Type of Loan........................ 33
2.5 Conditions to the Making of Reducing Revolver Loans
Used to Finance Subsequent Acquisitions........................ 33
2.6 Other Terms Applicable to Delayed Subsequent
Acquisition Capital Expenditures and Designated
Non-Recurring Capital Expenditures............................. 38
2.7 Warranty......................................................... 40
2.8 Conditions....................................................... 41
2.9 Commitments Several.............................................. 41
2.10 Letters of Credit................................................ 41
2.10.1 Issuance of Letters of Credit............................ 41
2.10.2 Issuance Requests........................................ 41
2.10.3 Amendments............................................... 43
2.10.4 Letter of Credit Fees.................................... 43
2.10.5 Other Lenders' Participations; Reimbursements............ 44
2.10.6 Disbursements............................................ 45
2.10.7 Reimbursement............................................ 46
2.10.8 Deemed Disbursements..................................... 46
2.10.9 Nature of Reimbursement Obligations...................... 47
SECTION 3 NOTES EVIDENCING LOANS........................................... 49
3.1 Notes............................................................ 49
3.2 Recordkeeping.................................................... 50
SECTION 4 INTEREST......................................................... 50
4.1 Interest Rates................................................... 50
4.2 Interest Payment Dates........................................... 50
4.3 Interest Periods................................................. 51
4.4 Setting and Notice of Eurodollar Rates........................... 51
4.5 Computation of Interest.......................................... 51
ii
</TABLE>
<PAGE>
<TABLE>
Page
----
<S> <C>
SECTION 5 FEES............................................................. 52
5.1 Working Capital Revolving Loan Non-Use Fee....................... 52
5.2 Reducing Revolver Loan Non-Use Fee............................... 52
5.3 Additional Fees.................................................. 52
SECTION 6 REDUCTION OR TERMINATION OF COMMITMENTS; REPAYMENTS;
PREPAYMENTS.................................................... 52
6.1 Reduction or Termination of the Commitments................ 53
6.1.1 Scheduled Mandatory Reductions of Reducing
Revolver Loan Commitments................................ 53
6.1.2 Mandatory Reduction from Asset Sale........................ 53
6.1.3 Mandatory Reduction from Debt Securities Sale.............. 53
6.1.4 Mandatory Reduction from Equity Securities Sale............ 53
6.1.5 Voluntary Reduction or Termination......................... 53
6.1.6 All Reduction.............................................. 54
6.2 Repayments................................................. 54
6.3 Prepayments...................................................... 54
6.3.1 Mandatory Prepayments from Asset Sales..................... 54
6.3.2 Mandatory Prepayments from Debt Securities Sale............ 54
6.3.3 Mandatory Prepayments from Equity Securities Sale.......... 55
6.3.4 Mandatory Prepayments Due to Commitment Reductions......... 55
6.3.5 Voluntary Prepayments...................................... 55
6.3.6 All Prepayments............................................ 55
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.................. 56
7.1 Making of Payments............................................... 56
7.2 Application of Certain Payments.................................. 56
7.3 Due Date Extension............................................... 56
7.4 Setoff........................................................... 56
7.5 Proration of Payments............................................ 57
7.6 Net Payments; Tax Exemptions..................................... 57
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS......... 58
8.1 Increased Costs.................................................. 58
8.2 Basis for Determining Interest Rate Inadequate or Unfair......... 60
8.3 Changes in Law Rendering Eurodollar Loans Unlawful............... 60
8.4 Funding Losses................................................... 61
8.5 Right of Lenders to Fund through Other Offices................... 61
8.6 Discretion of Lenders as to Manner of Funding.................... 62
8.7 Mitigation of Circumstances; Replacement of Affected Lender...... 62
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
8.8 Conclusiveness of Statements; Survival of
Provisions........................................................ 63
SECTION 9 WARRANTIES.......................................................... 63
9.1 Organization, etc................................................. 63
9.2 Authorization; No Conflict........................................ 63
9.3 Validity and Binding Nature....................................... 64
9.4 Financial Information............................................. 64
9.5 No Material Adverse Change........................................ 65
9.6 Litigation........................................................ 65
9.7 Ownership of Properties; Liens.................................... 66
9.8 Subsidiaries; Capitalization...................................... 66
9.9 Pension and Welfare Plans......................................... 66
9.10 Investment Company Act........................................... 67
9.11 Public Utility Holding Company Act............................... 67
9.12 Regulations G, T, U and X........................................ 67
9.13 Taxes............................................................ 67
9.14 Solvency, etc.................................................... 67
9.15 Insurance........................................................ 68
9.16 Contracts; Labor Matters......................................... 68
9.17 Environmental and Safety and Health Matters...................... 68
9.18 Real Property.................................................... 69
9.19 Information...................................................... 69
9.20 Patents, Trademarks, etc......................................... 70
9.21 The Collateral Documents......................................... 70
SECTION 10 COVENANTS.......................................................... 71
10.1 Reports, Certificates and Other Information...................... 71
10.1.1 Annual Report............................................. 71
10.1.2 Quarterly Reports......................................... 71
10.1.3 Monthly Reports........................................... 72
10.1.4 Certificates.............................................. 72
10.1.5 Reports to SEC, Shareholders and Holders of Debt..........
10.1.6 Budget, Etc............................................... 73
10.1.7 Stockholders' Agreements.................................. 73
10.1.8 Notice of Default, Litigation and ERISA Matters
10.1.9 Subsidiaries.............................................. 74
10.1.10 Management Reports....................................... 74
10.1.11 Insurance Information.................................... 74
10.1.12 Capital Stock Ownership.................................. 74
10.1.13 Update on Delayed Subsequent Acquisition Capital
Expenditures............................................. 74
10.1.14 Other Information........................................ 75
10.2 Books, Records and Inspections................................... 75
10.3 Insurance........................................................ 75
10.4 Compliance with Laws; Maintenance of Property; Payment
of Taxes and Liabilities......................................... 76
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
10.5 Maintenance of Existence, etc.................................... 76
10.6 Financial Covenants.............................................. 76
10.6.1 Funded Debt to Adjusted EBITDA Ratio...................... 76
10.6.2 Net Worth................................................. 77
10.6.3 Fixed Charge Coverage Ratio............................... 77
10.6.4 Interest Coverage Ratio................................... 77
10.6.5 Bank Debt to Adjusted EBITDA Ratio........................ 79
10.7 Limitations on Debt.............................................. 79
10.8 Liens............................................................ 80
10.9 Capital Expenditures............................................. 81
10.10 Operating Leases................................................ 82
10.11 Dividends, etc.................................................. 83
10.12 Investments..................................................... 84
10.13 Mergers, Consolidations, Sales, Capital Stock Issuances, Etc....
10.14 Guaranty and Collateral Documents............................... 86
10.15 Use of Proceeds................................................. 87
10.16 Transactions with Affiliates.................................... 87
10.17 Employee Benefit Plans.......................................... 87
10.18 Environmental Covenants......................................... 88
10.18.1 Environmental Response Obligation........................ 88
10.18.2 Environmental Liabilities................................ 88
10.18.3 Environmental Notices.................................... 88
10.19 Unconditional Purchase Obligations.............................. 89
10.20 Inconsistent Agreements......................................... 89
10.21 Further Assurances.............................................. 89
10.22 Modification, etc. of Certain Agreements........................ 89
10.23 Negative Pledges; Subsidiary Payments........................... 90
10.24 Fiscal Year..................................................... 90
10.25 Tax Sharing Agreements.......................................... 90
10.26 Conduct of Business............................................. 90
SECTION 11 CONDITIONS OF..................................................... 90
11.1 Amendment Effective Time........................................ 90
11.2 Documentary Conditions.......................................... 90
11.2.1 Notes.................................................... 90
11.2.2 Resolutions.............................................. 90
11.2.3 Consents, etc............................................ 91
11.2.4 Incumbency and Signature Certificates.................... 91
11.2.5 Guaranty................................................. 92
11.2.6 Security Agreement, etc.................................. 92
11.2.7 Pledge Agreements........................................ 92
11.2.8 Real Estate Documentation................................ 92
11.2.9 Landlord's Consents...................................... 93
11.2.10 Opinions of Counsel for Parent, the
Company and the Guarantors.............................. 93
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.2.11 Insurance................................................. 93
11.2.12 Senior Note Documents..................................... 93
11.2.13 Other..................................................... 94
11.3 Other Conditions to Amendment Effective Time..................... 94
11.3.1 Fees...................................................... 94
11.3.2 No Material Adverse Effect................................ 94
11.3.3 Further Requests.......................................... 94
11.3.4 Satisfactory Legal Form................................... 94
11.4 Amendment Effective Time and All Credit Extensions............... 94
11.4.1 Required Notice........................................... 94
11.4.2 No Default................................................ 95
11.4.3 Representations and Warranties............................
11.4.4 No Litigation, etc........................................ 95
11.4.5 Subsequent Acquisitions and Delayed Subsequent
Acquisition Capital Expenditures..........................
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT................................. 96
12.1 Events of Default................................................ 96
12.1.1 Non-Payment of the Loans, etc............................. 96
12.1.2 Default under Other Debt.................................. 96
12.1.3 Other Material Obligations................................ 96
12.1.4 Bankruptcy, Insolvency, etc............................... 96
12.1.5 Non-Compliance with Provisions of This Agreement..........
12.1.6 Warranties................................................ 97
12.1.7 Pension Plans............................................. 97
12.1.8 Judgments................................................. 97
12.1.9 Invalidity of Guaranty, etc............................... 98
12.1.10 Invalidity of Collateral Documents, etc...................
12.1.11 Change in Control......................................... 98
12.1.12 Material Adverse Effect................................... 98
12.2 Effect of Event of Default....................................... 98
SECTION 13 THE AGENT.......................................................... 99
13.1 Appointment and Authorization............................... 99
13.2 Delegation of Duties........................................ 99
13.3 Liability of Agent.......................................... 99
13.4 Reliance by Agent........................................... 100
13.5 Notice of Default........................................... 100
13.6 Credit Decision............................................. 101
13.7 Indemnification............................................. 101
13.8 Agent in Individual Capacity................................ 102
13.9 Successor Agent............................................. 103
13.10 Collateral Matters.......................................... 103
13.11 Issuer...................................................... 104
SECTION 14 GENERAL............................................................ 104
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
14.1 Waiver; Amendments............................................... 104
14.2 Confirmations.................................................... 105
14.3 Notices.......................................................... 105
14.4 Computations..................................................... 105
14.5 Regulation U..................................................... 105
14.6 Costs, Expenses and Taxes........................................ 105
14.7 Captions......................................................... 106
14.8 Assignments; Participations...................................... 106
14.8.1 Assignments............................................... 106
14.8.2 Participations............................................ 107
14.9 Governing Law.................................................... 108
14.10 Counterparts.................................................... 108
14.11 Successors and Assigns.......................................... 108
14.12 Indemnification by the Company.................................. 109
14.13 Confidentiality................................................. 109
14.14 Maximum Interest................................................ 110
14.15 Forum Selection and Consent to Jurisdiction..................... 111
14.16 Waiver of Jury Trial............................................ 111
SECTION 15 GUARANTY OF PARENT................................................. 111
vii
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT A-1 Form of Working Capital Revolving Note
EXHIBIT A-2 Form of Reducing Revolver Note
EXHIBIT B-1 Form of Compliance Certificate
EXHIBIT B-2 Form of Subsequent Acquisition Certificate
EXHIBIT C Form of Guaranty
EXHIBIT D Form of Security Agreement
EXHIBIT E-1 Form of Company Pledge Agreement
EXHIBIT E-2 Form of Subsidiary Pledge Agreement
EXHIBIT E-3 Form of Parent Pledge Agreement
EXHIBIT F-1 Form of Opinion of Latham & Watkins
EXHIBIT F-2 Form of Opinion of Quarles & Brady
EXHIBIT F-3 Form of Opinion of Page & Addison
EXHIBIT F-4 Form of Opinion of Lionel, Sawyer & Collins
EXHIBIT F-5 Form of Opinion of Young, Goldman & Van Beek
EXHIBIT G Form of Assignment Agreement
EXHIBIT H Form of Landlord's Consent
EXHIBIT I Form of Certificate as to Senior Note Documents
EXHIBIT J-1 Form of Issuance Request
EXHIBIT J-2 Form of Letter of Credit Amendment Request
EXHIBIT K-1 Sample Financial Schedule - Corporate Expenditures
EXHIBIT K-2 Sample Golf Course Property Financial Statement (The Club at
Trophy Club) - Cost of Goods Sold and Operating Expenses
EXHIBIT L Form of Mortgage Amendment
EXHIBIT M Form of Hazardous Materials Indemnity
SCHEDULE 1 Commitments and Percentages
SCHEDULE 1.2 Existing Commitments and Loans
SCHEDULE 2.1 Certain Specified Capital Expenditures
SCHEDULE 9.6 Litigation
SCHEDULE 9.8 Subsidiaries; Capitalization
SCHEDULE 9.9 Welfare Plans
SCHEDULE 9.15 Insurance
SCHEDULE 9.16 Contracts; Labor Matters
SCHEDULE 9.17 Environmental and Safety and Health Matters
SCHEDULE 9.18 Properties
SCHEDULE 10.7 Debt
SCHEDULE 10.8 Liens
SCHEDULE 10.12 Investments
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SECOND AMENDED AND RESTATED
---------------------------
CREDIT AGREEMENT
----------------
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 4, 1996
(as amended or otherwise modified from time to time, this "Agreement"), is
entered into among COBBLESTONE GOLF GROUP, INC., a Delaware corporation (the
"Company"), COBBLESTONE HOLDINGS, INC., a Delaware corporation ("Parent"), the
undersigned financial institutions (together with their respective successors
and assigns, collectively the "Lenders" and individually each a "Lender"), and
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, a national banking
association having its principal office at 1455 Market Street, Agency Management
Services #5596, San Francisco, California 94103 (in its individual capacity,
"BofA"), as agent for the Lenders.
WITNESSETH:
WHEREAS certain parties to this agreement entered into a Credit Agreement
dated as of January 31, 1994 (as amended, the "Original Credit Agreement");
WHEREAS the Original Credit Agreement was amended and restated in its
entirety pursuant to the Amended and Restated Credit Agreement dated as of March
30, 1995 (as amended and in effect on the date hereof, the "Existing Credit
Agreement");
WHEREAS the parties hereto desire to amend and restate the Existing Credit
Agreement as this Agreement;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
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SECTION 1.1 DEFINITIONS. When used herein, the following terms shall have
the following meaning (such definitions to be applicable to both the singular
and plural forms of such terms):
Additional Bank Warrants means the warrants, issued by Parent to certain
Lenders in connection with the closing of the Existing Credit Agreement, to
purchase an aggregate of (a) 3,633 shares of Parent's common stock, $0.01 par
value per share, and (b) 13,279 shares of Parent's Series A Preferred Stock,
$0.01 par value per share.
Adjusted EBITDA means, at the last date of any Fiscal Quarter in each
Fiscal Year, an amount equal to:
(a) for the Pre-Existing Properties, the actual aggregate Golf Course
Property EBITDA attributable to the Pre-Existing Properties for the
most recent complete consecutive four Fiscal Quarters as of such date;
plus
(b) for any Golf Course Property acquired in a Subsequent Acquisition,
(i) if such date is the end-date of the first incomplete Fiscal
Quarter following such Subsequent Acquisition, projected Golf
Course Property EBITDA attributable to such Golf Course Property
for the first four complete consecutive Fiscal Quarters to occur
following such Subsequent Acquisition; or
(ii) if such date is the end-date of the first complete Fiscal Quarter
ending following such Subsequent Acquisition, the product of
(A) the quotient of (x) actual Golf Course Property EBITDA
attributable to such Golf Course Property for such Fiscal
Quarter, divided by (y) projected Golf Course Property
EBITDA attributable to such Golf Course Property for such
Fiscal Quarter (provided that such quotient shall not be
greater than 1.5), times
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(B) projected Golf Course Property EBITDA attributable to such
Golf Course Property for the first four complete consecutive
Fiscal Quarters to occur following such Subsequent
Acquisition; or
(iii) if such date is the end-date of the second complete
consecutive Fiscal Quarter ending following such Subsequent
Acquisition, the product of
(A) the quotient of (x) actual Golf Course Property EBITDA
attributable to such Golf Course Property for the first two
complete consecutive Fiscal Quarters following such
Subsequent Acquisition, divided by (y) projected Golf Course
Property EBITDA attributable to such Golf Course Property
for such two complete consecutive Fiscal Quarters (provided
that such quotient shall not be greater than 1.5), times
(B) projected Golf Course Property EBITDA attributable to such
Golf Course Property for the first four complete consecutive
Fiscal Quarters to occur following such Subsequent
Acquisition; or
(iv) if such date is the end-date of the third complete consecutive
Fiscal Quarter ending following such Subsequent Acquisition, the
product of
(A) the quotient of (x) actual Golf Course Property EBITDA
attributable to such Golf Course Property for the first
three complete consecutive Fiscal Quarters following such
Subsequent Acquisition, divided by (y) projected Golf Course
Property EBITDA attributable to such Golf Course Property
for such three complete consecutive Fiscal Quarters
(provided that such quotient shall not be greater than 1.5),
times
(B) projected Golf Course Property EBITDA attributable to such
Golf Course Property for the first four complete consecutive
Fiscal
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Quarters to occur following such Subsequent
Acquisition; or
(v) if such date is the end-date of the fourth or any subsequent
complete consecutive Fiscal Quarter ending following such
Subsequent Acquisition, the actual Golf Course Property EBITDA
attributable to such Golf Course Property for the most recent
four complete consecutive Fiscal Quarters as of such date;
minus
(c) the actual Corporate Expenditures for the most recent four complete
consecutive Fiscal Quarters as of such date.
Adjusted Working Capital means the excess of:
(a) (i) the consolidated current assets of the Company and its
Subsidiaries, less (ii) the amount of cash and Cash Equivalent Investments
of the Company and its Subsidiaries included in such consolidated current
assets;
over
(b) (i) consolidated current liabilities of the Company and its
Subsidiaries, less (ii) the amount of short-term Debt (including current
maturities of long-term Debt) of the Company and its Subsidiaries included
in such consolidated current liabilities.
Advance - see Section 2.2.
Affected Lender means any Lender that has given notice to the Company
(which has not been rescinded) of (i) any obligation by the Company to pay any
amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any
circumstances of the nature described in Section 8.2 or 8.3.
Affected Loan - see Section 8.3.
Affiliate of any Person means any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person.
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Agent means BofA in its capacity as agent for the Lenders hereunder and any
successor thereto in such capacity.
Agent-Related Persons means BofA and any successor agent arising under
Section 13.9, together with their respective Affiliates (including, in the case
of BofA, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
Agreement - see the Preamble.
Alternate Reference Rate means, on any day, the greater of (a) the Federal
Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as
publicly announced from time to time by BofA in San Francisco, California, as
its "reference rate." (The "reference rate" is a rate set by BofA based upon
various factors, including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.) Any change
in the reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
Amendment Effective Time means the time when the conditions precedent for
the effectiveness of this Agreement specified in Section 11 shall have been met
or waived.
Arranger means BA Securities, Inc., a Delaware corporation.
Asset Sale means any sale, transfer or other disposition (including by way
of merger or consolidation) by Parent, the Company or any Subsidiary of any
asset (including any capital stock of the Company or any Subsidiary) outside the
ordinary course of business to a Person other than the Company or a Subsidiary,
and shall also include any condemnation, expropriation, loss or casualty (to the
extent that an Event of Default or Unmatured Event of Default exists as of the
date of such casualty or the receipt of insurance proceeds related thereto) of
any such asset; provided that any sale of a Golf Course Property or a golf
course or a Person owning a Golf Course Property or a golf course by Parent, the
Company or any Subsidiary to a Person other than the Company or any Subsidiary
shall be an Asset Sale.
Assignee - see Section 14.8.1.
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Assignment Agreement - see Section 14.8.1.
BAI means Bank of America Illinois, an Illinois banking corporation.
Bank Debt means the outstanding principal amount of all Loans under the
Credit Agreement.
Bank Debt to Adjusted EBITDA Ratio means, as of any measurement date, the
ratio of
(i) the sum of (A) Bank Debt as of such date plus (B) the aggregate
amount of projected Delayed Subsequent Acquisition Capital Expenditures as
of such date described in Sections 2.1.2(a)(i)(B) and (C), to
(ii) the sum of (A) Adjusted EBITDA as of such date less (B) any net
increase in Membership Notes Receivable (both current and noncurrent)
during the period over which such Adjusted EBITDA was measured above (1)
for the period between the Amendment Effective Date and June 29, 1997,
$5,400,000 and (2) for all Fiscal Quarter end-dates on or after June 30,
1997, the Fiscal Quarter-end balance four Fiscal Quarters prior thereto
plus (C) any net decrease in Membership Notes Receivable (both current and
non-current) during the period over which such Adjusted EBITDA was measured
below (1) for the period between the Amendment Effective Date and June 29,
1997, the June 30, 1996 Fiscal Quarter-end balance and (2) for all Fiscal
Quarter end-dates on or after June 30, 1997, the Fiscal Quarter-end balance
four Fiscal Quarters prior thereto.
Beneficial Owner is used as defined in Rule 13d-3 promulgated by the SEC
under the Securities Exchange Act of 1934, as amended; and "Beneficially Owned"
shall have a correlative meaning.
BofA - see the Preamble.
Brentwood means Brentwood Golf Partners, L.P., a Delaware limited
partnership and/or its Affiliates.
Budget - see Section 10.1.6.
Business Day means any day on which commercial banks are open for
commercial banking business in San Francisco, Chicago and New
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York and, in the case of a Business Day which relates to a Eurodollar Loan, the
Cayman Islands.
Capital Expenditures means all expenditures which, in accordance with
generally accepted accounting principles, would be required to be capitalized
and shown on the consolidated balance sheet of the Company, but excluding any
such expenditures made pursuant to Capital Leases or purchase money financing
permitted hereunder.
Capital Lease means, with respect to any Person, any lease of (or other
agreement conveying the right to use) any real or personal property by such
Person which, in conformity with generally accepted accounting principles, is
accounted for as a capital lease on the balance sheet of such Person.
Cash Equivalent Investment means, at any time:
(a) any evidence of Debt, maturing not more than one year after such
time, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than one year from the date
of issue, which is issued by
(i) a corporation (except an Affiliate of the Company) organized
under the laws of any State of the United States of America or of the
District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., at the time of
investment, or
(ii) the Agent or any Lender (or its holding company);
(c) any certificate of deposit or bankers' acceptance or eurodollar
time deposit, maturing not more than one year after the date of issue,
which is issued by either
(i) a financial institution that is a member of the Federal
Reserve System and has a combined capital and surplus and undivided
profits of not less than $500,000,000 at the time of investment, or
(ii) the Agent or any Lender; or
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(d) any repurchase agreement with a term of one year or less which
(i) is entered into with
(A) the Agent or any Lender, or
(B) any other commercial banking institution of the stature
referred to in clause (c)(i),
(ii) is secured by a fully perfected Lien in any obligation of
the type described in any of clauses (a) through (c), and
(iii) has a market value at the time such repurchase agreement
is entered into of not less than 100% of the repurchase obligation of
the Agent or such Lender (or other commercial banking institution)
thereunder;
(e) investments in money market funds that invest primarily in Cash
Equivalent Investments described in clauses (a) through (d); or
(f) investments in short-term asset management accounts offered by
the Agent or any Lender for the purpose of investing in loans to any
corporation (other than an Affiliate of the Company) organized under the
laws of any state of the United States or of the District of Columbia and
rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's
Investors Service, Inc.
Cash Flow Subsequent Acquisition Capital Expenditures means Capital
Expenditures that cease to be Delayed Subsequent Acquisition Capital
Expenditures in accordance with the definition thereof because such Capital
Expenditures are not funded by the Company or any Subsidiary from Reducing
Revolver Loans.
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Change In Control means the occurrence of any of the following:
(a) the failure by Brentwood and James A. Husband to be the Beneficial
Owner of each class of the issued and outstanding capital stock of Parent
representing more than 50%, on a fully diluted basis, of the voting power
in elections for directors of Parent, without regard to the occurrence of
any contingency;
(b) a majority of the Board of Directors of Parent ceases to be
comprised of Continuing Directors;
(c) the failure of Parent to be the Beneficial Owner of all of the
issued and outstanding capital stock of the Company, and of all options,
warrants or rights to subscribe for such capital stock; or
(d) any "change in control" or similar event under the Senior Note
Documents.
Collateral Document means the Security Agreement, each Pledge Agreement,
each Mortgage, each Mortgage Amendment, each Hazardous Materials Indemnity, and
each other instrument or document executed and delivered by Parent, the Company
or any Subsidiary pursuant to or in connection with any thereof in accordance
with the terms of this Agreement.
Commercial Letter of Credit means any Letter of Credit which is drawable
upon presentation of a sight draft and other documents evidencing the sale or
shipment of goods purchased by the Company or any Subsidiary in the ordinary
course of business.
Commitment means, as to any Lender, such Lender's Working Capital Revolving
Commitment and/or Reducing Revolver Loan Commitment, as applicable.
Common Stock means the common stock of Parent, $0.01 par value per share.
Company - see the Preamble.
Company Pledge Agreement - see Section 11.2.7(a).
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Consolidated Net Income means, with respect to the Company and its
Subsidiaries for any period, the consolidated net income (or loss) of the
Company and its Subsidiaries for such period.
Contingent Liability means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation under any Contingent Liability shall (subject to any
limitation set forth therein) be deemed to be the outstanding principal amount
of the debt, obligation or other liability guaranteed thereby.
Continuing Director means a director who either (a) was a member of the
Board of Directors of Parent prior to the Amendment Effective Time and
continuously thereafter or (b) after the Amendment Effective Time became a
director of Parent and whose election or nomination for election subsequent to
such date was approved by (i) a vote of the majority of the Continuing Directors
then on the Board of Directors of Parent or (ii) Brentwood.
Corporate Expenditures means corporate overhead expenditures of Parent and
the Company, in accordance with generally accepted accounting principles, which
are not expenditures of any Subsidiary or related to any individual Golf Course
Property, and which expenditures are calculated in a manner consistent with (and
include, but are not limited to) the lines "Salaries & Wages," "Outside
Services," "Payroll Costs," "Employee Benefits," "Rent and Parking," "Travel &
Entertainment," "Telephone," "Legal and Accounting Fees," "Brentwood Fees,"
"Other Office Overhead," and "Corporate Bonuses" set forth in the financial
schedule set forth at Exhibit K-1.
Cost of Goods Sold means any expenditures classified as cost of goods sold
in accordance with generally accepted accounting principles, which are
expenditures of any Subsidiary or related to any individual Golf Course
Property, and which expenditures are calculated in a manner consistent with (and
include, but are not limited to) the lines "Cost of Goods Golf Retail," "Cost of
Goods F&B" and "Cost of
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Goods Tennis" set forth in the financial statements for The Club at Trophy Club
Golf Course Property set forth at Exhibit K-2.
Credit Extension means any Loan, Letter of Credit or Reimbursement
Obligation.
Debt of any Person means, without duplication, (a) all indebtedness of such
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been recorded as liabilities on a balance sheet of
such Person, (c) all obligations of such Person to pay the deferred purchase
price of property or services (other than current accounts payable in the
ordinary course of business), (d) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such Person (it being understood that if such Person has not assumed
or otherwise become personally liable for any such indebtedness, the amount of
the Debt of such Person in connection therewith shall be limited to the lesser
of the face amount of such indebtedness or the fair market value of all property
of such Person securing such indebtedness), (e) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit (whether or
not drawn) and banker's acceptances issued for the account of such Person, (f)
liabilities of such Person in respect of Hedging Agreements, and (g) all
Contingent Liabilities of such Person.
Debt Securities Sale means any public or private sale or issuance by
Parent, the Company or any Subsidiary of its Debt securities, except issuances
of Debt permitted under Section 10.7.
Default Rate means the rate of interest at any time applicable to any Loan
or Reimbursement Obligation, as applicable, plus 2% per annum.
Delayed Subsequent Acquisition Capital Expenditures means any Capital
Expenditures made in connection with any Subsequent Acquisition, which had been
projected to be and which shall be made within the 18 months following such
Subsequent Acquisition (except to the extent otherwise permitted hereunder) in
accordance with the projections for such Subsequent Acquisition delivered
pursuant to Section 2.5(e)(i) and which are financed with the proceeds of
Reducing Revolver Loans borrowed in accordance with Section 2.6(a) (or term
loans borrowed in accordance with Section
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2.6(a) of the Original Credit Agreement or the Existing Credit Agreement);
provided that (a) upon certification by the Company to the Agent and the
Lenders, at the time of delivery of any financial statement pursuant to Section
10.1.1 or 10.1.2 or of any Subsequent Acquisition Certificate, that it does not
intend to make certain identified Delayed Subsequent Acquisition Capital
Expenditures and that it requests that such Delayed Subsequent Acquisition
Capital Expenditures cease to be treated as such hereunder, such Delayed
Subsequent Acquisition Capital Expenditures shall cease to be treated as Delayed
Subsequent Acquisition Capital Expenditures hereunder for all purposes and (b)
upon certification by the Company to the Agent and the Lenders, at the time of
delivery of any financial statement pursuant to Section 10.1.1 or 10.1.2 or of
any Subsequent Acquisition Certificate, that it does not intend to use the
proceeds of Reducing Revolver Loans to fund certain identified Delayed
Subsequent Acquisition Capital Expenditures because such Delayed Subsequent
Acquisition Capital Expenditures will not be funded from Loans, such Delayed
Subsequent Acquisition Capital Expenditures shall be treated hereunder as Cash
Flow Subsequent Acquisition Capital Expenditures for all purposes and shall
cease to be treated as Delayed Subsequent Acquisition Capital Expenditures
hereunder for all purposes.
Designated Non-Recurring Capital Expenditures - see Section 10.9(d).
Disbursement - see Section 2.10.6.
Disbursement Date - see Section 2.10.6.
Disqualified Capital Stock means (a) except as set forth in clause (b)
below, with respect to any Person, capital stock of such Person that, by its
terms or by the terms of any security into which it is convertible, exercisable
or exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such Person or any of its Subsidiaries, in whole or in part,
on or prior to the Reducing Revolver Termination Date or the Working Capital
Revolving Termination Date and (b) with respect to any Subsidiary of such Person
(including with respect to any Subsidiary of Parent), any capital stock other
than any common stock with no special rights and no preferences, privileges, or
redemption or repayment provisions.
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Dollar and the sign "$" mean lawful money of the United States of America.
EBITDA means, for any period of four complete consecutive Fiscal Quarters,
the sum, without duplication, of
(a) Consolidated Net Income for such period,
plus
(b) Interest Expense for such period,
plus
(c) all depreciation and amortization of assets (including
goodwill and other intangible assets) of the Company and its
Subsidiaries deducted in determining Consolidated Net Income for such
period,
plus
(d) all federal, state, local and foreign income taxes of the
Company and its Subsidiaries deducted in determining Consolidated Net
Income for such period,
plus (minus)
(e) other non-cash and non-operating charges deducted in
determining Consolidated Net Income for such period (or gains added in
determining Consolidated Net Income for such period).
Environmental Laws means the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, any so-
called "Superfund" or "Superlien" law, the Toxic Substances Control Act, and any
other applicable federal, state or local statute, law, ordinance, code, rule,
regulation, order, decree or other requirement regulating, relating to, or
imposing liability or standards of conduct (including, but not limited to,
permit requirements and emission or effluent restrictions) concerning any
Hazardous Materials, as now or at any time hereafter in effect.
Equity Documents means the Stockholders' Agreement, the Original Bank
Warrants and the Additional Bank Warrants.
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Equity Securities Sale means any public or private sale or transfer by
Parent, the Company or any Subsidiary of its capital stock, except (x) any sale
or transfer of capital stock of Parent (i) to the Persons listed on Schedule 9.8
hereto in the amounts set forth on such Schedule 9.8, and (ii) to members of
management and directors of Parent or any of its Subsidiaries or to any Person
selling any Golf Course Property or interest therein in connection with a
Subsequent Acquisition in an aggregate amount for all sales or transfers under
this clause (x)(ii) not to exceed 15% of the total outstanding shares of any
class or series of capital stock of Parent as of the Amendment Effective Time
(but giving effect to the issuances described in clause (i) above), (y) capital
contributions to the Company or its Subsidiaries and (z) the issuance of Common
Stock pursuant to the Senior Note Documents.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
Escondido Subsidiary means Escondido Consulting, Inc., a California
corporation, the principal asset of which is the lease of The Vineyard at
Escondido Golf Course Property located at 925 San Pasqual Road, Escondido,
California.
Escondido Subsidiary Loan Agreement means the two promissory notes dated as
of December 1, 1993 made by the Escondido Subsidiary payable to the City of
Escondido in the original aggregate principal amount of $6,274,640.
Eurocurrency Reserve Percentage means, with respect to any Eurodollar Loan
for any Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentage in effect on each
day of such Interest Period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining the aggregate maximum
reserve requirements applicable to "Eurocurrency Liabilities" pursuant to
Regulation D of such Board of Governors or any other then applicable regulation
of such Board of Governors which prescribes reserve requirements applicable to
"Eurocurrency Liabilities" as presently defined in Regulation D.
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Eurodollar Loan means any Loan which bears interest at a rate determined by
reference to the Eurodollar Rate (Reserve Adjusted).
Eurodollar Office means with respect to any Lender the office or offices of
such Lender which shall be making or maintaining the Eurodollar Loans of such
Lender hereunder or such other office or offices through which such Lender
determines its Eurodollar Rate. A Eurodollar Office of any Lender may be, at the
option of such Lender, either a domestic or foreign office.
Eurodollar Rate means, with respect to any Eurodollar Loan for any Interest
Period, the rate per annum at which Dollar deposits in immediately available
funds are offered to the Grand Cayman Branch of BofA two Business Days prior to
the beginning of such Interest Period by major banks in the interbank eurodollar
market as at or about 11:00 a.m., New York time, for delivery on the first day
of such Interest Period, for the number of days comprised therein and in an
amount equal or comparable to the amount of the Eurodollar Loan of BAI for such
Interest Period.
Eurodollar Rate (Reserve Adjusted) means, with respect to any Eurodollar
Loan for any Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) determined pursuant to the following formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
Event of Default means any of the events described in Section 12.1.
Excluded Taxes - see the definition of "Taxes."
Exemption Agreement - see Section 7.6(b).
Exemption Representation - see Section 7.6(c).
Existing Credit Agreement is defined in the recitals.
Existing Lender means a "Lender" under and as defined in the Existing
Credit Agreement immediately prior to the Amendment Effective Time.
Existing Loans means Existing Revolving Loans and Existing Term Loans.
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Existing Revolving Commitment means a "Revolving Commitment" under and as
defined in the Existing Credit Agreement immediately prior to the Amendment
Effective Time.
Existing Revolving Loan means a "Revolving Loan" under and as defined in
the Existing Credit Agreement immediately prior to the Amendment Effective Time.
Existing Term Commitment means a "Term Loan Commitment" under and as
defined in the Existing Credit Agreement immediately prior to the Amendment
Effective Time.
Existing Term Loan means a "Term Loan" under and as defined in the Existing
Credit Agreement immediately prior to the Amendment Effective Time.
Federal Funds Rate means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published for any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
Financial Standby Letter of Credit means any Standby Letter of Credit which
any Lender is required under applicable law (including under 12 CFR Part 3,
Appendix A, Section 3, clause (b)) to classify as a financial letter of credit
with respect to its participation therein pursuant to this Agreement.
FIRREA means the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, as amended and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to time.
Fiscal Quarter means a fiscal quarter of a Fiscal Year.
Fiscal Year means the fiscal year of Parent and the Company and its
Subsidiaries, which period shall be the 12-month period ending on September 30
of each year. References to a Fiscal Year
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with a number corresponding to any calendar year (e.g., "Fiscal Year 1993")
refer to the Fiscal Year ending on September 30 of such calendar year.
Fixed Charge Coverage Ratio means, for any period of four complete
consecutive Fiscal Quarters, the ratio of
(a) the remainder of, without duplication,
(i) EBITDA for such period,
plus
(ii) at any measurement date, the unused principal amount of the
Working Capital Revolving Commitments,
plus
(iii) at any measurement date, the amount of cash and Cash
Equivalent Investments shown on the Company's consolidated balance
sheet at such date,
minus
(iv) all federal, state, local and foreign income taxes paid
with respect to income of the Company and Subsidiaries during such
period or accrued and payable for such period,
minus
(v) Capital Expenditures (other than Capital Expenditures funded
by Reducing Revolver Loans and other than Designated Non-Recurring
Capital Expenditures) during such period (exclusive of such Capital
Expenditures that were funded from the first $1,000,000 in Net Cash
Proceeds from all Asset Sales received in each Fiscal Year),
to
(b) the sum, without duplication, of
(i) repayments of principal of Reducing Revolver Loans
pursuant to Section 6.3.4 made during
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such period (whether such repayments were made on the last day of the
relevant Fiscal Quarter as a result of the commitment reduction
scheduled for such day in accordance with Section 6.1.1 or were made
at any time during such Fiscal Quarter), regularly scheduled principal
payments with respect to any other long-term Debt of the Company and
its Subsidiaries made during such period, and the portion of any
payments with respect to Capital Leases allocable to principal made
during such period,
plus
(ii) Interest Expense for such period.
Floating Rate Loan means any Loan which bears interest at or by reference
to the Alternate Reference Rate.
Funded Debt means the remainder of (x) the outstanding principal amount of
all Debt of the Company and its Subsidiaries, excluding (i) all Contingent
Liabilities and any contingent obligations in respect of undrawn letters of
credit (except to the extent constituting Contingent Liabilities in respect of
any Funded Debt of a Person other than the Company or any Subsidiary), (ii)
liabilities in respect of Hedging Agreements, (iii) Debt of the Company to
Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries
and (iv) Debt in respect of Capital Leases and purchase money financing
permitted hereunder minus (y) cash and Cash Equivalent Investments held by the
Company and its Subsidiaries in excess of $1,000,000.
Funded Debt to Adjusted EBITDA Ratio means, as of any measurement date, the
ratio of
(i) the sum of (A) Funded Debt as of such date plus (B) the aggregate
amount of projected Delayed Subsequent Acquisition Capital Expenditures as
of such date described in Sections 2.1.2(a)(i)(B) and (C), to
(ii) the sum of (A) Adjusted EBITDA as of such date less (B) any net
increase in Membership Notes Receivable (both current and non-current)
during the period over which such Adjusted EBITDA was measured above (1)
for the period between the Amendment Effective Date and June 29, 1997,
$5,400,000 and (2) for all Fiscal Quarter end-dates on or after June 30,
1997, the Fiscal Quarter-end balance four
18
<PAGE>
Fiscal Quarters prior thereto plus (C) any net decrease in Membership Notes
Receivable (both current and non-current) during the period over which such
Adjusted EBITDA was measured below (1) for the period between the Amendment
Effective Date and June 29, 1997, the June 30, 1996 Fiscal Quarter-end
balance and (2) for all Fiscal Quarters end-dates on or after June 30,
1997, the Fiscal Quarter-end balance four Fiscal Quarters prior thereto.
Golf Course Property means any parcel or parcels of real property owned or
leased by or licensed to the Company or a Subsidiary that includes, as the
principal component of such parcel or parcels, a golf course or golf facility
(including driving ranges, "pitch and putt" and "par three" courses).
Golf Course Property EBITDA means, for any period and for any Golf Course
Property, the remainder of
(a) net revenues attributable to such Golf Course Property,
minus
(b) Cost of Goods Sold attributable to such Golf Course Property,
minus
(c) Operating Expenses attributable to such Golf Course Property,
plus
(d) depreciation and amortization attributable to such Golf Course
Property to the extent deducted in order to arrive at such Cost of
Goods Sold or Operating Expenses in the calculation thereof;
provided, that (x) for any such calculation made with respect to any period
prior to the acquisition of such Golf Course Property, such calculation shall be
certified in good faith by a Responsible Officer as being true and accurate in
the Company's best judgment based on all available historical information for
such period, and (y) for any such calculation made with respect to any period
after such acquisition, such calculation shall be certified as being
19
<PAGE>
made for such period in accordance with generally accepted accounting principles
consistently applied.
Guarantor means (a) as of the Amendment Effective Time, Parent and each
Subsidiary listed on Schedule 9.8, and (b) thereafter, the Persons referred to
in clause (a) and each other Person which from time to time executes and
delivers a counterpart of the Guaranty.
Guaranty - see Section 11.2.5.
Hazardous Materials means any toxic substance, hazardous substance,
hazardous material, hazardous chemical or hazardous waste defined or qualifying
as such in (or for the purposes of) any Environmental Law, or any pollutant or
contaminant, and shall include, but not be limited to, petroleum, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including, but not limited to, any source,
special nuclear or by-product material as defined at 42 U.S.C. section 2011 et
seq., as amended from time to time, polychlorinated biphenyls and asbestos in
any form or condition.
Hazardous Materials Indemnity means any hazardous materials undertaking and
indemnity entered into in connection with any Mortgage, substantially in the
form of Exhibit M.
Hedging Agreement means any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designed to protect a Person against fluctuations in
interest rates, currency exchange rates or commodity prices.
Highest Lawful Rate means, on any date, the maximum non-usurious interest
rate that may, under applicable federal and applicable state law, be contracted
for, charged or received under such laws.
Incurrence Test - see Section 2.5(a).
Indemnified Liabilities - see Section 14.12(a).
Interest Coverage Ratio means, as of the last day of any period of four
complete consecutive Fiscal Quarters, the ratio of
20
<PAGE>
(a) EBITDA for such period ending on such day to (b) Interest Expense for such
period.
Interest Expense means for any period the excess of (a) the consolidated
interest expense of the Company and its Subsidiaries for such period (including,
without limitation, all imputed interest on Capital Leases, all imputed interest
on Hedging Agreements, all fees under Sections 5.1, 5.2 and 5.3, and all
liquidated damages payable under the Senior Notes, but excluding (x) payments
and amortization of commissions and fees paid as a condition to (i) the
Amendment Effective Time or in connection with the closing of or amendments to
the Original Credit Agreement or the Existing Credit Agreement or (ii) the
Senior Notes and (y) all imputed interest over (b) the consolidated interest
income of the Company and its Subsidiaries for such period (excluding all
imputed interest income on the Membership Notes).
Interest Period - see Section 4.3.
Investment means, with respect to any Person:
(a) any loan or advance made by such Person to any other Person; and
(b) any ownership or similar interest held by such Person in any other
Person.
The amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and shall,
if made by the transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such property.
Issuance Request - see Section 2.10.2.
Issuer means BAI in its capacity as issuer of any Letter of Credit.
L/C Fee Rate means the rate per annum set forth in the table below for the
applicable type of Letter of Credit opposite the applicable Funded Debt to
Adjusted EBITDA Ratio:
21
<PAGE>
<TABLE>
<CAPTION>
Financial Non-Financial
Standby Standby Commercial
Funded Debt to Adjusted Letter Letter Letter
EBITDA Ratio of Credit of Credit of Credit
- ----------------------------- -------------- ----------- ----------
<S> <C> <C> <C>
Equal to or greater 2.75% 1.50% 1.00%
than 5.75 to 1
Equal to or greater 2.50% 1.25% 1.00%
than 5.0 to 1 but
less than 5.75 to 1
Equal to or greater 2.25% 1.25% 1.00%
than 3.50 to 1 but
less than 5.0 to 1
Less than 3.50 2.00% 1.00% 1.00%.
</TABLE>
The L/C Fee Rate shall be adjusted, to the extent applicable, (x) 45 days
(or, in the case of the last Fiscal Quarter of any Fiscal Year, 90 days) after
the end of each Fiscal Quarter based on the Funded Debt to Adjusted EBITDA Ratio
as of the last day of such Fiscal Quarter and (y) on the date of the borrowing
of the Reducing Revolver Loans applied to fund each Subsequent Acquisition
(after giving effect to such borrowing); it being understood that if the Company
fails to deliver the financial statements required by Section 10.1.1 or 10.1.2,
as applicable, by the 45th day (or, if applicable, the 90th day) after any
Fiscal Quarter, the L/C Fee Rate shall be 2.75% for Financial Standby Letters of
Credit until such financial statements are delivered.
Landlord's Consent means a landlord's consent substantially in the form of
Exhibit H, in each case with such changes as may be reasonably agreed to by the
Agent.
Lender - see the Preamble.
Lender Party - see Section 14.12(a).
Lending Office - see Section 8.1.
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<PAGE>
Letter of Credit means any Financial Standby Letter of Credit, Non-
Financial Standby Letter of Credit and/or Commercial Letter of Credit, as the
context may require or allow.
Letter of Credit Amendment Request - see Section 2.10.3.
Liabilities - see Section 15.
Lien means, when used with respect to any Person, any interest of any other
Person in any real or personal property, asset or other right owned or being
purchased or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
Loan Documents means this Agreement, the Notes, the Letters of Credit, the
Guaranty, any Hedging Agreement entered into with any Lender or any Affiliate
thereof, the Collateral Documents, each borrowing or continuation notice, each
Issuance Request, each Letter of Credit Amendment Request, and each other
instrument or document executed and delivered by Parent, the Company or any
Subsidiary to the Agent or any Lender pursuant to or in connection with any
thereof in accordance with the terms of this Agreement, but excluding the Equity
Documents and the Senior Note Documents.
Loans means Working Capital Revolving Loans and Reducing Revolver Loans.
Maintenance Capital Expenditures means all Capital Expenditures other than
Delayed Subsequent Acquisition Capital Expenditures, Cash Flow Subsequent
Acquisition Capital Expenditures and Designated Non-Recurring Capital
Expenditures.
Margin means the rate per annum set forth in the table below for the
applicable type of Loan opposite the applicable Funded Debt to Adjusted EBITDA
Ratio then in effect:
<TABLE>
<CAPTION>
Funded Debt to Adjusted EBITDA Ratio Margin for Margin for
- -------------------------------------- Floating Eurodollar
Rate Loans Loans
---------- ----------
<S> <C> <C>
Equal to or greater than 5.75 to 1 1.50% 2.75%
Equal to or greater than 5.0 to 1 1.25% 2.50%
but less than 5.75 to 1
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Equal to or greater than 3.5 to 1 1.00% 2.25%
but less than 5.0 to 1
Less than 3.50 to 1 0.75% 2.00%
</TABLE>
The Margin shall be adjusted, to the extent applicable, 45 days (or, in the case
of the last Fiscal Quarter of any Fiscal Year, 90 days) after the end of each
Fiscal Quarter based on the Funded Debt to Adjusted EBITDA Ratio as of the last
day of such Fiscal Quarter; it being understood that (a) if the Company fails to
deliver the financial statements required by Section 10.1.1 or 10.1.2, as
applicable, by the 45th day (or, if applicable, the 90th day) after any Fiscal
Quarter, the Margin shall be 1.50% for Floating Rate Loans and 2.75% for
Eurodollar Loans until such financial statements are delivered and (b) no
decrease in the Margin shall be effected on any date on which an Event of
Default exists (but shall be delayed until the first date on which no Event of
Default exists). Any change in the Margin shall be immediately effective for all
outstanding Loans.
Margin Stock means any "margin stock" or "margin security" as defined in
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
Material Adverse Effect means a material adverse effect on (a) the
condition (financial or otherwise), operations, business, properties or assets
of the Company and its Subsidiaries taken as a whole or (b) the ability of
Parent, the Company and the Guarantors taken as a whole to timely and fully
perform any of their respective payment or other material obligations under this
Agreement or any other Loan Document or Senior Note Document to which any of
them is a party.
Membership Notes Receivable means, at any date of determination, the
principal amount of notes receivable (both current and non-current) due as of
such date from members of all Golf Course Properties owned by the Company or its
Subsidiaries.
Mortgage means a mortgage, leasehold mortgage, deed of trust or similar
document granting a Lien on real property in appropriate form for filing or
recording in the applicable jurisdiction and otherwise reasonably satisfactory
to the Agent, executed and delivered pursuant to the Original Credit Agreement,
the Existing Credit Agreement or Section 10.14.
24
<PAGE>
Mortgage Amendment means each amendment (which shall include, without
limitation, extensions of the applicable Mortgage to any real property interests
that have resulted from Delayed Subsequent Acquisition Capital Expenditures made
prior to the Amendment Effective Date) to a Mortgage previously executed by the
Company or a Subsidiary, in appropriate form for filing or recording in the
applicable jurisdiction, substantially in the form of Exhibit L and reasonably
satisfactory to the Agent, executed and delivered pursuant to Section 11.2.8.
Net Cash Proceeds means
(a) with respect to any Asset Sale, the aggregate cash proceeds (including
cash proceeds received in respect of non-cash proceeds and
condemnation awards, and casualty loss insurance recoveries to the
extent the affected assets are not replaced or repaired in accordance
with the applicable Collateral Document(s)) received by the Company or
any Subsidiary pursuant to such Asset Sale, net of (i) the direct
costs relating to such Asset Sale (including, without limitation,
sales commissions and legal, accounting and investment banking fees),
(ii) taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be applied to the repayment
of any Debt secured by a Lien on the asset subject to such sale (other
than the Loans) and (iv) any reserve for adjustment in respect of the
sale price of such asset (until such amount is available to the
Company or the applicable Subsidiary); and
(b) with respect to any Debt Securities Sale or Equity Securities Sale,
the aggregate cash proceeds received by the Company or any Subsidiary
pursuant to such Debt Securities Sale or Equity Securities Sale, net
of the direct costs relating to such Debt Securities Sale or Equity
Securities Sale (including, without limitation, sales and
underwriter's commissions and legal, accounting and investment banking
fees).
Net Worth means the Company's consolidated stockholders' equity.
Non-Financial Standby Letter of Credit means any Standby Letter of Credit
that is not a Financial Standby Letter of Credit.
25
<PAGE>
Notes means each of the Working Capital Revolving Note and the Reducing
Revolver Note.
Obligations means all unpaid principal of and accrued and unpaid interest
on the Notes, all accrued and unpaid fees and expenses, the stated amount of any
outstanding Letter of Credit, all Reimbursement Obligations, and all other
obligations of the Company or, as applicable, any Affiliate to the Lenders or to
any Lender, Agent or the Issuer arising under or in connection with the Loan
Documents.
Occupational Safety and Health Law means the Occupational Safety and Health
Act of 1970 and any other federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to or imposing liability
or standards of conduct concerning employee health and/or safety.
Operating Expenses means all operating expenses of the Company or any
Subsidiary, or relating to any individual Golf Course Property, calculated in
accordance with generally accepted accounting principles, and calculated in a
manner consistent with (and include but are not limited to) the lines "Admin &
General (Incl Taxes/Insurance)", "Golf Dept", "Golf Retail", "Course
Maintenance", "Food & Beverage", "Golf Schools", "Membership", "Tennis", and
"Pool" set forth in the financial statements for The Club at Trophy Club Golf
Course Property set forth at Exhibit K-2.
Original Bank Warrants means the warrants, issued by Parent to certain
Lenders in connection with the closing of the Original Credit Agreement, to
purchase an aggregate of (a) 5,472 shares of Parent's common stock, $0.01 par
value per share, and (b) 20,000 shares of Parent's Series A Preferred Stock,
$0.01 par value per share.
Original Credit Agreement is defined in the recitals.
Parent - see the Preamble.
Parent Guaranty - see Section 15.
Parent Pledge Agreement - see Section 11.2.7(c).
Participant - see Section 14.8.2.
26
<PAGE>
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
Pension Plan means a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to title IV of ERISA (other than a multi-
employer plan as defined in section 4001(a)(3) of ERISA), and to which the
Company or any corporation, trade or business that is, along with the Company, a
member of a controlled group of corporations or a controlled group of trades or
businesses, as described in section 414 of the Internal Revenue Code of 1986, as
amended, or section 4001 of ERISA, may have any liability, including any
liability by reason of having been a substantial employer within the meaning of
section 4063 of ERISA at any time during the preceding five years or by reason
of being deemed to be a contributing sponsor under section 4069 of ERISA.
Permitted Acquisition Costs means (without duplication) the costs paid or
payable by the Company or a Subsidiary in connection with a Subsequent
Acquisition, including without limitation the purchase price of such Subsequent
Acquisition (including any principal and interest payments required on a
deferred purchase money note issued in connection with such Subsequent
Acquisition); any other assumed Debt; all closing costs, accountants' and
advisors' fees and expenses, attorneys' fees and disbursements, title fees and
premiums, appraisals, environmental and hydrological report fees, survey costs,
brokerage commissions, internally capitalized costs relating to such Subsequent
Acquisition and other out-of-pocket costs incurred in connection with such
Subsequent Acquisition; Delayed Subsequent Acquisition Capital Expenditures
relating to such Subsequent Acquisition (including engineering and
architectural fees); and the initial working capital requirements relating to
such Subsequent Acquisition.
Person means any natural person, corporation, partnership, trust,
association, governmental authority or unit, or any other entity, whether acting
in an individual, fiduciary or other capacity.
Pledge Agreements means the Company Pledge Agreement, the Parent Pledge
Agreement and each Subsidiary Pledge Agreement.
Pre-Existing Properties means the following Golf Course Properties at the
following locations:
27
<PAGE>
(a) Balboa Park Municipal Golf Course, located in San Diego, California;
(b) Saticoy Golf Course, located in Ventura, California;
(c) El Camino Country Club, located in Oceanside, California;
(d) Foothills Golf Club, located in Phoenix, Arizona;
(e) Woodcrest Country Club, located in Grand Prairie, Texas;
(f) Carmel Mountain Ranch Country Club and Golf Course, located in San
Diego, California;
(g) Morgan Run Resort and Club, located in Rancho Santa Fe, California;
(h) The Vineyard at Escondido, located in Escondido, California;
(i) The Club at Trophy Club, located in Trophy Club, Texas;
(j) Pecan Grove Plantation Country Club, located in Richmond, Texas;
(k) Ahwatukee Country Club and The Lakes at Ahwatukee, located in Phoenix,
Arizona;
(l) The Ranch Country Club and Stonebridge Country Club, each located in
McKinney, Texas;
(m) Red Mountain Ranch Country Club, located in Mesa, Arizona;
(n) The Hills of Lakeway, Live Oak Golf Course and Yaupon Golf Course,
each located in Austin, Texas; and
(o) Brandermill Country Club, located in Richmond, Virginia.
Qualified Capital Stock means any capital stock of Parent or any Subsidiary
is not Disqualified Capital Stock.
Recipient Taxes - see Section 7.6(a).
28
<PAGE>
Reducing Revolver Loan - see Section 2.1.2.
Reducing Revolver Loan Commitment means as to any Lender the commitment of
such Lender to make Reducing Revolver Loans pursuant to Section 2.1.2. The
amount of the Reducing Revolver Loan Commitment of each Lender is set forth on
Schedule 1.
Reducing Revolver Loan Percentage means as to any Lender the percentage
which (a) such Lender's Reducing Revolver Loan Commitment (or, after the
termination of the Reducing Revolver Loan Commitments, the aggregate principal
amount of such Lender's Reducing Revolver Loans) is of (b) the aggregate amount
of the Reducing Revolver Loan Commitments of all Lenders (or, after the
termination of the Reducing Revolver Loan Commitments, the aggregate principal
amount of all Reducing Revolver Loans). The initial Reducing Revolver Loan
Percentage for each Lender is set forth opposite such Lender's name on Schedule
1.
Reducing Revolver Note - see Section 3.1(b).
Reducing Revolver Termination Date means June 30, 2002 or such other date
on which the Reducing Revolver Loan Commitments shall terminate pursuant to
Section 12.
Reimbursement Obligation - see Section 2.10.7.
Required Lenders means Lenders having an aggregate Total Percentage of at
least 51%.
Responsible Officer means the Company's chief executive officer or chief
financial officer.
SEC means the Securities and Exchange Commission.
Security Agreement - see Section 11.2.6.
Senior Company Notes means the __% Senior Notes due June 2003 of the
Company.
Senior Zero-Coupon Notes means the __% Senior Zero-Coupon Notes due June
2004 of Parent.
29
<PAGE>
Senior Note Documents means any instrument evidencing or issued in
connection with Senior Notes, or pursuant to which any Debt consisting of Senior
Notes may be incurred.
Senior Notes means any of (a) the Senior Company Notes and (b) the Units of
Parent, consisting of the Senior Zero-Coupon Notes and the shares of Common
Stock.
Standby Letter of Credit means any Letter of Credit other than a Commercial
Letter of Credit.
Stated Expiry Date - see Section 2.10.2(b)(i).
Stockholders' Agreement means the Stockholders' Agreement dated as of
January 31, 1994 by and among Parent and the shareholders of Parent.
Stonebridge means Stonebridge Ranch Development Corporation, a Delaware
corporation.
Subordinated Debt means Debt of the Company having terms (including,
without limitation, as to covenants, acceleration, defaults, interest rate,
maturity and amortization), and which is subordinated to the Obligations of the
Company hereunder, in a manner satisfactory to the Required Lenders.
Subsequent Acquisition means the acquisition by the Company or any
Subsidiary, on or after the Amendment Effective Time, of a Golf Course Property
located in the United States (excluding Puerto Rico and other possessions and/or
territories of the United States), which term shall include (but not be limited
to) all Permitted Acquisition Costs incurred in connection therewith.
Subsequent Acquisition Certificate means a certificate, substantially in
the form of Exhibit B-2 hereto, delivered by a Responsible Officer of the
Company pursuant to Section 2.5(e)(v).
Subsidiary means, with respect to any Person, a Person of which such Person
and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares or other ownership interests as have more than 50% of the
ordinary voting power for the election of directors (or, in the case of a Person
that is not a corporation, the ordinary voting power concerning such matters as
to which such ownership interests are entitled to vote). Unless the context
otherwise requires, each reference to
30
<PAGE>
Subsidiaries herein shall be a reference to Subsidiaries of the Parent or the
Company, as the context permits.
Subsidiary Pledge Agreement - see Section 11.2.7(b).
Taxes relative to any Person means taxes, assessments or other governmental
charges or levies imposed upon such Person, its income or any of its properties,
franchises or assets (excluding, in the case of payments made to a Lender or the
Agent (all of the following taxes being "Excluded Taxes") taxes imposed upon the
overall net income of such Lender or the Agent).
Total Percentage means as to any Lender the percentage which (a) the
aggregate amount of such Lender's Working Capital Revolving Commitment (or,
after the termination of the Working Capital Revolving Commitments, the
aggregate principal amount of such Lender's Working Capital Revolving Loans and
Reimbursement Obligations) plus such Lender's Reducing Revolver Loan Commitment
(or, after the termination of the Reducing Revolver Loan Commitments, the
aggregate principal amount of such Lender's Reducing Revolver Loans) is of (b)
the aggregate amount of the Working Capital Revolving Commitments of all Lenders
(or, after the termination of the Working Capital Revolving Commitments, the
outstanding principal amount of all Working Capital Revolving Loans and
Reimbursement Obligations) plus the Reducing Revolver Loan Commitments of all
Lenders (or, after the termination of the Reducing Revolver Loan Commitments,
the outstanding principal amount of all Reducing Revolver Loans).
Transaction Documents means the Loan Documents, the Equity Documents and
the Senior Note Documents.
Type of Loan or Borrowing - see Section 2.2. The types of Loans or
borrowings under this Agreement are Floating Rate Loans or borrowings and
Eurodollar Loans or borrowings.
Unmatured Event of Default means any event which if it continues uncured
will, with lapse of time or notice or lapse of time and notice, constitute an
Event of Default.
Welfare Plan means a "welfare plan", as such term is defined in section
3(1) of ERISA.
Wholly-Owned Subsidiary means a Subsidiary of which the Company and/or its
Subsidiaries own, directly or indirectly, all
31
<PAGE>
of the outstanding shares of capital stock (other than directors' qualifying
shares).
Working Capital Revolving Commitment means as to any Lender the commitment
of such Lender to make Working Capital Revolving Loans pursuant to Section 2.1.1
and its obligation pursuant to Section 2.10.5 to participate in Letters of
Credit. The initial amount of the Working Capital Revolving Commitment of each
Lender is set forth on Schedule 1.
Working Capital Revolving Loan - see Section 2.1.1.
Working Capital Revolving Note - see Section 3.1(a).
Working Capital Revolving Percentage means as to any Lender the percentage
which (a) such Lender's Working Capital Revolving Commitment (or, after the
termination of the Working Capital Revolving Commitments, the aggregate
principal amount of such Lender's Working Capital Revolving Loans and
Reimbursement Obligations) is of (b) the aggregate amount of the Working Capital
Revolving Commitments of all Lenders (or, after the termination of the Working
Capital Revolving Commitments, the aggregate principal amount of all Working
Capital Revolving Loans and Reimbursement Obligations). The initial Working
Capital Revolving Percentage for each Lender is set forth opposite such Lender's
name on Schedule 1.
Working Capital Revolving Termination Date means June 30, 2002 or such
other date on which the Working Capital Revolving Commitments shall terminate
pursuant to Section 12.
1.2 Reallocation of Loans and Commitments.
(a) Each of the Lenders agrees that effective as of the Amendment
Effective Time,
(i) each Existing Revolving Commitment and, if any, Existing
Revolving Loan shall, upon sale, assignment and assumption in
accordance with clauses (ii) and (iii) below, be deemed to be a
Working Capital Revolving Commitment and a Working Capital
Revolving Loan; and each Existing Term Commitment and, if any,
Existing Term Loan shall, upon sale, assignment and assumption
in accordance with clauses (ii) and
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<PAGE>
(iii) below, be deemed to be a Reducing Revolver Loan
Commitment and a Reducing Revolver Loan;
(ii) each of the Existing Lenders shall be deemed to have sold and
assigned any portion of its Existing Revolving Commitment,
Existing Revolving Loans, Existing Term Commitment and Existing
Term Loans which is in excess of the amount of such Existing
Lender's Working Capital Revolving Commitment, Working Capital
Revolving Percentage of all outstanding Working Capital
Revolving Loans, Reducing Revolver Loan Commitment, and
Reducing Revolver Loan Percentage of all outstanding Reducing
Revolver Loans, respectively, after giving effect to the
effectiveness hereof; and
(iii) each of the Lenders shall, to the extent applicable, be deemed
to have purchased and assumed that portion of the Existing
Revolving Commitments, the Existing Revolving Loans, the
Existing Term Commitments and the Existing Term Loans (which
shall be deemed to be, after giving effect to clause (i) above,
Working Capital Revolving Commitments, Working Capital
Revolving Loans, Reducing Revolver Loan Commitments and
Reducing Revolver Loans, respectively) which is being sold
pursuant to clause (ii) above, and to have increased its
Working Capital Revolving Commitment and/or Reducing Revolver
Loan Commitment in an amount, which will cause such Lender's
Working Capital Revolving Commitment, Working Capital Revolving
Percentage of all outstanding Working Capital Revolving Loans,
Reducing Revolver Loan Commitment and Reducing Revolver Loan
Percentage of all outstanding Reducing Revolver Loans, to be in
each such case as set forth on Schedule 1.
(b) Each Existing Lender represents and warrants to the Agent and each
Lender that, at the Amendment Effective Time (but before giving effect to the
restatement hereof), (i) its Existing Revolving Commitment, its Existing
Revolving Loans, its Existing Term Commitment and its Existing Term Loans are in
the amounts set forth on Schedule 1.2; and (ii) to the extent that such Existing
Lender is making a sale and assignment pursuant to clause (a)(ii)
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<PAGE>
of this Section 1.2, the rights and interests being assigned are free and clear
of any adverse claim or encumbrance.
(c) The Company, Parent, the Existing Lenders and the Agent agree that each
Existing Lender which is making a sale and assignment pursuant to clause (a)(ii)
of this Section 1.2 shall, as of the Amendment Effective Time, relinquish its
rights and be released from its obligations under this Agreement and the
Existing Credit Agreement to the extent of the rights and interests so sold and
assigned.
(d) At the Amendment Effective Time, (i) each Lender which is purchasing
Existing Revolving Loans or Existing Term Loans (which in accordance with clause
(a)(i) above shall be deemed to be Working Capital Revolving Loans or Reducing
Revolver Loans, respectively) and/or increasing its Existing Revolving
Commitment and/or Existing Term Commitment (which in accordance with clause
(a)(i) above shall be deemed to be its Working Capital Revolving Commitment or
its Reducing Revolver Loan Commitment, respectively) pursuant to clause (a)(iii)
of this Section 1.2 shall deliver to the Agent immediately available funds to
cover such purchase and/or increase and (ii) the Agent shall, to the extent of
the funds so received, disburse such funds to the Existing Lenders which are
making sales and assignments pursuant to clause (a)(ii) of this Section 1.2.
(e) The Company agrees that, at the Amendment Effective Time, the Company
will (i) prepay all Loans outstanding under the Existing Credit Agreement and
(ii) pay to the Agent for the account of each Existing Lender all interest, fees
and other amounts (including amounts payable pursuant to Section 8.4) owed to
such Existing Lender under the Existing Credit Agreement.
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SECTION 2 COMMITMENTS OF THE LENDERS; TYPES OF LOANS;
BORROWING PROCEDURES; LETTERS OF CREDIT.
2.1 Commitments. On and subject to the terms and conditions of this
Agreement, each of the Lenders, severally and for itself alone, agrees that as
of the Amendment Effective Time, such Lender shall be deemed to have made a
Working Capital Revolving Loan and a Reducing Revolver Loan to the Company in an
amount equal to the amount set forth beside its name under the headings
"Outstanding Working Capital Revolving Loans" and "Outstanding Reducing Revolver
Loans" on Schedule 1. In addition, each of the Lenders, severally and for itself
above, agrees as follows:
2.1.1 Working Capital Revolving Commitments. (a) Each Lender agrees to
make revolving loans to the Company (together with revolving loans deemed made
in accordance with Section 2.1 above, its "Working Capital Revolving Loans")
from time to time on or after the Amendment Effective Time but before the
Working Capital Revolving Termination Date in such Lender's Working Capital
Revolving Percentage of such aggregate amounts as the Company may from time to
time request from all Lenders under the Working Capital Revolving Commitments,
provided that no Lender shall be permitted or required to make any Working
Capital Revolving Loan if, after giving effect thereto, the sum of (i) the
aggregate principal amount of all Working Capital Revolving Loans then
outstanding plus (ii) the aggregate undrawn stated amount of all then
outstanding Letters of Credit and all Reimbursement Obligations then due and
payable would exceed $5,000,000 (as such amount may be reduced from time to time
pursuant to Section 6).
(b) Working Capital Revolving Loans will be made only to (i) finance
Maintenance Capital Expenditures, (ii) provide working capital (including,
without limitation, payments under Section 10.11), (iii) fund escrow accounts or
make "good faith" deposits or similar deposits or payments in connection with a
Subsequent Acquisition pursuant to a purchase agreement for such Subsequent
Acquisition, in accordance with Section 10.12(h)(ii), and (iv) finance any
payment by Parent in accordance with Section 10.11. Subject to the foregoing,
Working Capital Revolving Loans may be repaid and reborrowed from time to time.
2.1.2 Reducing Revolver Loan Commitments. (a) Subject to the next
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succeeding sentence, each Lender agrees to make revolving loans to the Company
(together with Reducing Revolver Loans deemed made in accordance with Section
2.1 above, its "Reducing Revolver Loans") from time to time on or after the
Amendment Effective Time in such Lender's Reducing Revolver Loan Percentage of
such aggregate amounts as the Company may from time to time request from all
Lenders under the Reducing Revolver Loan Commitments, provided that the
aggregate principal amount of all Reducing Revolver Loans of all Lenders shall
not exceed $45,000,000 (as such amount may be reduced from time to time pursuant
to Section 6). Notwithstanding the foregoing, no borrowing of Reducing Revolver
Loans shall be made on any date if
(i) in the case of Reducing Revolver Loans used to finance any
Subsequent Acquisition (and not used to finance Delayed Subsequent
Acquisition Capital Expenditures), after giving effect to such borrowing,
the aggregate principal amount of Reducing Revolver Loans outstanding would
exceed the remainder of (A) $45,000,000 (as such amount may be reduced from
time to time pursuant to Section 6) less (B) the aggregate amount of all
Delayed Subsequent Acquisition Capital Expenditures permitted in accordance
with Section 2.6 (but subject to the definition thereof) for all Subsequent
Acquisitions closed prior to such date, which Delayed Subsequent
Acquisition Capital Expenditures have not been financed by Reducing
Revolver Loans already made prior to such date or by Term Loans under the
Existing Credit Agreement, less (C) the amount of Delayed Subsequent
Acquisition Capital Expenditures projected to be made in connection with
such Subsequent Acquisition for which such Reducing Revolver Loans are
being borrowed, and
(ii) in the case of Reducing Revolver Loans used to finance Delayed
Subsequent Acquisition Capital Expenditures, the principal amount of such
Reducing Revolver Loans would exceed the aggregate amount of all Delayed
Subsequent Acquisition Capital Expenditures permitted in accordance with
Section 2.6 (but subject to the definition thereof) for all Subsequent
Acquisitions closed prior to such date, which Delayed Subsequent
Acquisition Capital Expenditures have not been financed by Reducing
Revolver Loans already made prior to such date or by Term Loans under the
Existing Credit Agreement.
(b) Reducing Revolver Loans will be made only (i) on and after the
Amendment Effective Time, for the purpose of financing
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Permitted Acquisition Costs in connection with Subsequent Acquisitions made from
time to time if, and only if, each of the conditions precedent set forth in
Section 2.5 for each such Subsequent Acquisition is satisfied or waived in
accordance with the terms of this Agreement, (ii) on and after the Amendment
Effective Time, for the purpose of financing Delayed Subsequent Acquisition
Capital Expenditures made from time to time if, and only if, each of the
conditions precedent set forth in Section 2.5 for each related Subsequent
Acquisition was satisfied or waived at the time of such Subsequent Acquisition
and, in addition, each of the conditions precedent set forth in Section 2.6(a)
is satisfied or waived with respect to such Delayed Subsequent Acquisition
Capital Expenditures and (iii) on and after the Amendment Effective Time, for
the purpose of financing Designated Non-Recurring Capital Expenditures made from
time to time if, and only if, each of the conditions precedent set forth in
Section 2.6(c) is satisfied or waived with respect to such Designated Non-
Recurring Capital Expenditures. Subject to the foregoing, Reducing Revolver
Loans may be repaid and reborrowed from time to time.
2.2 Various Types of Loans. Each Loan may be divided into tranches which
are either a Floating Rate Loan or a Eurodollar Loan (each a "type" of Loan), as
the Company shall specify in the related notice of borrowing or conversion
pursuant to Section 2.3 or 2.4. Eurodollar Loans having the same Interest
Period are sometimes called an "Advance" or collectively "Advances". Floating
Rate Loans and Eurodollar Loans may be outstanding at the same time. Not more
than twelve different Advances of Eurodollar Loans shall be outstanding at any
one time, and the aggregate principal amount of each Advance of Eurodollar Loans
shall at all times be at least $500,000. All borrowings, conversions and
repayments of Loans shall be effected so that each Lender will have a pro rata
share (according to its Working Capital Revolving Percentage or Reducing
Revolver Loan Percentage, as applicable) of all types and Advances of Working
Capital Revolving Loans and Reducing Revolver Loans, as applicable.
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2.3 Borrowing Procedures. The Company shall give written or telephonic
notice to the Agent of each proposed borrowing not later than (a) in the case of
a borrowing of Floating Rate Loans, 10:00 a.m., Chicago time, on the Business
Day of the proposed date of such borrowing, and (b) in the case of a borrowing
of Eurodollar Loans, noon, Chicago time, at least three Business Days prior to
the proposed date of such borrowing. Each such notice shall be effective upon
receipt by the Agent, shall be irrevocable, and shall specify the date, amount
and type of borrowing and, in the case of a borrowing of Eurodollar Loans, the
initial Interest Period therefor. Promptly upon receipt of such notice, the
Agent shall advise each Lender thereof. Not later than 1:00 p.m., Chicago time,
on the date of a proposed borrowing, each Lender shall provide the Agent at the
principal office of the Agent in San Francisco with immediately available funds
covering such Lender's Working Capital Revolving Percentage or Reducing Revolver
Loan Percentage, as applicable, of such borrowing and, subject to the
satisfaction of the conditions precedent set forth in Section 11 with respect to
such borrowing, the Agent shall pay over the requested amount to the Company on
the requested borrowing date. Each borrowing shall be on a Business Day. Each
Floating Rate borrowing shall be in an aggregate amount of at least $250,000.
Unless the Company shall otherwise direct in writing, the proceeds of all
borrowings shall be deposited to the Company's demand deposit account no. 72-
10604 maintained with BAI.
2.4 Procedures for Conversion of Type of Loan. Subject to the provisions
of Section 2.2, the Company may convert all or any part of any outstanding Loan
into a Loan of a different type by giving written or telephonic notice to the
Agent not later than (a) in the case of conversion into a Floating Rate Loan,
noon, Chicago time, at least three Business Days prior to the proposed date of
such conversion, and (b) in the case of a conversion into a Eurodollar Loan,
noon, Chicago time, at least three Business Days prior to the proposed date of
such conversion. Each such notice shall be effective upon receipt by the Agent,
shall be irrevocable, and shall specify the date and amount of such conversion,
the Loan to be so converted, the type of Loan to be converted into and, in the
case of a conversion into a Eurodollar Loan, the initial Interest Period
therefor. Promptly upon receipt of such notice, the Agent shall advise each
Lender thereof. Subject to Sections 2.7 and 2.8, such Loan shall be so
converted on the requested date of conversion. Each conversion shall be on a
Business Day.
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2.5 Conditions to the Making of Reducing Revolver Loans Used to Finance
Subsequent Acquisitions. The Company shall not, and shall not permit any
Subsidiary to, make any Subsequent Acquisition after the Amendment Effective
Time unless, and the Lenders shall have no obligation to fund any Reducing
Revolver Loan used to finance any Subsequent Acquisition unless, each of the
following conditions precedent is satisfied with respect to such Subsequent
Acquisition:
(a) The Company's ratio of (x) the sum of, without duplication (A)
Funded Debt projected to be outstanding (after giving effect to such
Subsequent Acquisition) plus (B) Delayed Subsequent Acquisition Capital
Expenditures projected to be made in connection with such Subsequent
Acquisition plus (C) Delayed Subsequent Acquisition Capital Expenditures
projected to be made in connection with all previous Subsequent
Acquisitions and not yet made (and subject to the definition thereof), to
(y) the sum of (A) Adjusted EBITDA (calculated on a pro forma basis as of
the last date of the next succeeding Fiscal Quarter for the proposed
Subsequent Acquisition or any Subsequent Acquisition consummated in the
then-current Fiscal Quarter, and calculated on a pro forma basis as of the
last date of the next preceding Fiscal Quarter for any Subsequent
Acquisition consummated prior to the then-current Fiscal Quarter) less (B)
any increases in Membership Notes Receivable above (i) for the period
between the Amendment Effective Date and June 29, 1997, $5,400,000 and (ii)
for all Fiscal Quarters ending on or after June 30, 1997, the Fiscal
Quarter-end balance four Fiscal Quarters prior plus (C) reductions in
Membership Notes Receivable below (i) for the period between the Amendment
Effective Date and June 29, 1997, the June 30, 1996 Fiscal Quarter-end
balance and (ii) for all Fiscal Quarters ending on or after June 30, 1997,
the Fiscal Quarter-end balance four Fiscal Quarters prior, shall be less
than or equal to:
(i) 6.5 to 1.0 from the Amendment Effective Time to and
including March 30, 1997;
(ii) 6.25 to 1.0 from March 31, 1997 to and including June 29,
1997;
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(iii) 6.0 to 1.0 from June 30, 1997 to and including September
29, 1997;
(iv) 5.75 to 1.0 from September 30, 1997 to and including
December 30, 1997;
(v) 5.5 to 1.0 from December 31, 1997 to and including March
30, 1998;
(vi) 5.25 to 1.0 from March 31, 1998 to and including June 29,
1998;
(vii) 5.0 to 1.0 from June 30, 1998 to and including December
30, 1998;
(viii) [other dates] (the condition in this clause (a) being
the "Incurrence Test");
(b) at the time of such Subsequent Acquisition, Parent, Company and
its Subsidiaries, on a consolidated basis, shall have no more than
$2,000,000 in cash and Cash Equivalent Investments, or such cash and Cash
Equivalent Investments in excess of $2,000,000 shall be used in making such
Subsequent Acquisition prior to using Loans borrowed under this Agreement;
(c) the Company or the relevant Subsidiary making such Subsequent
Acquisition shall grant to the Agent, for the benefit of the Lenders, a
first priority perfected security interest (subject only to Liens permitted
hereunder) on (i) all assets acquired in such Subsequent Acquisition,
including, without limitation, accounts receivable, inventory, equipment,
real property, intangibles and any stock or other ownership interests of
any Person acquired by the Company or its Subsidiaries in such Subsequent
Acquisition, and (ii) any material leasehold interest acquired by the
Company or any Subsidiary in connection with such Subsequent Acquisition;
the Company shall have paid all mortgage recordation taxes, title insurance
premiums and other fees or costs associated with the grant of such security
interest, with the allocated value of the mortgage amount applicable to any
such mortgage recordation taxes (in any jurisdiction that restricts
foreclosure or other enforcement recoveries to the mortgage amount as to
which mortgage recordation taxes have been paid) being not less than the
product of (i) 1.40 times (ii) the sum of (without
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duplication) the Reducing Revolver Loans borrowed to finance such
Subsequent Acquisition and any Permitted Acquisition Costs incurred in
connection therewith; the Company shall take and cause each Subsidiary to
take such action in connection therewith as the Agent may reasonably
require; and the Company or such Subsidiary shall deliver to the Agent and
the Lenders an opinion or opinions of independent counsel as to such
security interest and as to such other matters (including, without
limitation, water rights issues) in connection with such Subsequent
Acquisition as the Agent may reasonably require;
(d) no Event of Default or Unmatured Event of Default shall exist at
the time of or after giving effect to such Subsequent Acquisition;
(e) the Company shall provide to the Agent and the Lenders the
following information with respect to such Subsequent Acquisition, no later
than ten Business Days prior to the projected closing date for such
Subsequent Acquisition:
(i) a detailed business plan, which shall include (without
limitation) an estimated schedule of all sources and uses of funds,
including (without limitation) an estimated schedule for all Delayed
Subsequent Acquisition Capital Expenditures (it being understood that
(A) all Delayed Subsequent Acquisition Capital Expenditures for such
Subsequent Acquisition must be completed within 18 months of the
borrowing date for the initial Reducing Revolver Loans (or term loans
made under the Original Credit Agreement or the Existing Credit
Agreement) funding such Subsequent Acquisition, and (B) the actual
uses for such Delayed Subsequent Acquisition Capital Expenditures, on
an aggregate basis for any Golf Course Property, must be consistent in
all material respects with the projected uses for such Delayed
Subsequent Acquisition Capital Expenditures specified in such
schedule);
(ii) historical financial and operating data for at least the
most recent 12 complete consecutive calendar months for which
financial statements are
available for the Golf Course Property subject to such Subsequent
Acquisition, and all other historical financial and operating data and
descriptive material
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in the Company's possession relating to such Golf Course Property, it
being understood that all such data and descriptive material (as well
as the business plan referred to in subclause (i) above and the
projections referred to in subclause (iv) below) shall be those
prepared for the Company's Board of Directors for purposes of
approving such Subsequent Acquisition and shall be in substantially
the same format and level of detail as those previously prepared by
the Company for the Subsequent Acquisition of The Club at Trophy Club
Golf Course Property located in Trophy Club, Texas and distributed to
the Agent and the Lenders;
(iii) the purchase agreement pursuant to which such Subsequent
Acquisition will be consummated (or, if not yet executed, the most
current version of such purchase agreement; provided that the final
version is provided at least three Business Days prior to the closing
date for such Subsequent Acquisition), and each material services
agreement, consulting agreement, lease, credit or financing agreement
or other material agreement relating to such Subsequent Acquisition or
applicable to such Golf Course Property to be in effect after the
consummation of such Subsequent Acquisition (or, if not yet executed,
the most current version of any such agreement; provided that the
final version is provided at least three Business Days prior to the
closing date for such Subsequent Acquisition);
(iv) detailed financial projections (x) on an annual basis,
for the seven Fiscal Years following such Subsequent Acquisition, and
(y) on a monthly basis, for the first four Fiscal Quarters (and any
calendar months occurring prior to the beginning of such first Fiscal
Quarter) following such Subsequent Acquisition;
(v)(a) Subsequent Acquisition Certificate, (A) showing the
calculations made to determine compliance with the Incurrence Test,
(B) as to such business plan, historical data, descriptive material,
projections, and all other materials furnished under this Section 2.5,
(C) as to compliance with all conditions set forth in this Section
2.5, and (D) as to resolutions and other corporate and third party
authorizations for such Subsequent Acquisition;
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(vi) [under review] a Phase I environmental report prepared by
an environmental firm on Agent's approved list regarding the real
property and other assets to be acquired in such Subsequent
Acquisition, which report (A) shall have been prepared in accordance
with the Agent's Phase I Environmental Site Assessment Scope of Work
and Report Outline, (B) shall include as an attachment the Agent's
Environmental Questionnaire and Disclosure Statement, and (C) shall
show no evidence that the Company would not be able to make the
representations and warranties set forth at Section 9.17 of this
Agreement, or to comply with the covenants set forth at Section 10.18
of this Agreement, after giving effect to such Subsequent Acquisition;
and
(vii) such other information as the Agent or any Lender may
reasonably request with respect to such Subsequent Acquisition;
(f) the Permitted Acquisition Costs (which costs, if not finally
determined at the time of determining compliance with this clause (f),
shall represent the Company's best estimate thereof) for such Subsequent
Acquisition (including, without limitation, any escrow account, "good
faith" deposit or similar deposit or payment made in connection with such
Subsequent Acquisition in accordance with Section 10.12(h)), shall not
exceed $15,000,000;
(g) the Person or assets to be acquired in such Subsequent Acquisition
shall not have experienced, based on financial information provided by the
seller, during the most recently completed twelve complete consecutive
calendar months for which financial statements are available prior to the
date of borrowing the Reducing Revolver Loans to fund such Subsequent
Acquisition, negative cumulative Golf Course Property EBITDA in excess of
<$1,000,000>, when taken together with the negative cumulative Golf Course
Property EBITDA for the most recently completed twelve complete consecutive
calendar months for all other Subsequent Acquisitions consummated after the
Amendment Effective Time (measured in each case as of the date of
consummation of such Subsequent Acquisition); provided, however, that if an
acquired Golf Course Property that had negative cumulative Golf Course
Property EBITDA on the date of consummation of the acquisition has been
owned by the Company for more than
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one year and such Golf Course Property has had positive cumulative Golf
Course Property EBITDA for the most recent four complete consecutive Fiscal
Quarters, the negative Golf Course Property EBITDA attributable to such
Golf Course Property shall no longer be included for purposes of
calculating compliance with this clause (g);
(h) the borrowing of Reducing Revolver Loans applied to fund such
Subsequent Acquisition shall include any amounts previously borrowed as
Working Capital Revolving Loans and applied to fund any escrow account,
"good faith deposit" or similar deposit or payment made in connection with
such Subsequent Acquisition in accordance with Section 10.12(i); and such
Working Capital Revolving Loans shall be repaid with the proceeds of such
Reducing Revolver Loans on or promptly after the borrowing date of such
Reducing Revolver Loans.
2.6 Other Terms Applicable to Delayed Subsequent Acquisition Capital
Expenditures and Designated Non-Recurring Capital Expenditures.
(a) The Company shall not, and shall not permit any Subsidiary to,
make any Delayed Subsequent Acquisition Capital Expenditures unless, and
the Lenders shall have no obligation to fund any Reducing Revolver Loan
used to finance any Delayed Subsequent Acquisition Capital Expenditures
unless, each of the following conditions precedent is satisfied with
respect to such Delayed Subsequent Acquisition Capital Expenditures:
(i) except as otherwise provided for herein, any Reducing
Revolver Loans used to finance such Delayed Subsequent Acquisition
Capital Expenditures shall be borrowed, and such Delayed Subsequent
Acquisition Capital Expenditures shall be completed, no later than 18
months after the borrowing date for the initial Reducing Revolver
Loans (or term loans made under the Original Credit Agreement or the
Existing Credit Agreement) used to finance the related Subsequent
Acquisition;
(ii) such Delayed Subsequent Acquisition Capital Expenditures
shall be described in writing in reasonable detail to the Agent and
the Lenders, by no
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later than three Business Days prior to the Company's submission of
the initial borrowing notice relating to the Reducing Revolver Loans
to fund such Delayed Subsequent Acquisition Capital Expenditures;
(iii) the Company or the relevant Subsidiary making such
Delayed Subsequent Acquisition Capital Expenditures shall grant to the
Agent, for the benefit of the Lenders, a first priority security
interest (subject only to Liens permitted hereunder) on all assets
acquired or constructed with such Delayed Subsequent Acquisition
Capital Expenditures;
(iv) the amount of such Delayed Subsequent Acquisition Capital
Expenditures does not exceed the amount designated therefor (on an
aggregate basis for any Golf Course Property), and the actual uses of
such Delayed Subsequent Acquisition Capital Expenditures does not vary
in material respects from the uses designated therefor, in the
business plan furnished by the Company pursuant to Section 2.5(e)(i);
(v) no Event of Default or Unmatured Event of Default shall
exist at the time of or after giving effect to such Delayed Subsequent
Acquisition Capital Expenditures;
(vi) if such Delayed Subsequent Acquisition Capital
Expenditure is for an improvement to real property, the Agent shall
have received a currently dated (x) Pending Disbursement Endorsement
to the title insurance policy for the Mortgage relating to the Golf
Course Property as to which such Delayed Subsequent Acquisition
Capital Expenditures relate confirming that the amount of insurance
offered by such policy has been increased (or the commitment of the
title insurer has been increased) by the amount of any Delayed
Subsequent Acquisition Capital Expenditures being funded with such
Loans being borrowed (without duplication of amounts of insurance
offered and paid for under Section 2.5(c)) and (y) a later date
endorsement showing no exceptions not reasonably acceptable to the
Agent; and
(vii) the Company shall have provided to the Agent and the
Lenders such information relating to such
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Delayed Subsequent Acquisition Capital Expenditures as the Agent or
any Lender may reasonably request.
(b) An amount equal to the aggregate amount of all Delayed Subsequent
Acquisition Capital Expenditures not yet funded by Reducing Revolver Loans
shall be deducted from the principal amount of Reducing Revolver Loans
available to be borrowed for Subsequent Acquisitions in accordance with
Section 2.1.2(a). Upon certification by the Company to the Agent and the
Lenders as to any Delayed Subsequent Acquisition Capital Expenditures no
longer being Delayed Subsequent Acquisition Capital Expenditures in
accordance with the definition of "Delayed Subsequent Acquisition Capital
Expenditures", the amount of such Delayed Subsequent Acquisition Capital
Expenditures will no longer be so deducted from the principal amount of
Reducing Revolver Loans available to be borrowed for Subsequent
Acquisitions.
(c) The Company shall not, and shall not permit any Subsidiary to,
make any Designated Non-Recurring Capital Expenditure unless, and the
Lenders shall have no obligation to fund any Reducing Revolver Loan used to
finance any Designated Non-Recurring Capital Expenditures unless, each of
the following conditions precedent is satisfied with respect to such
Designated Non-Recurring Capital Expenditures:
(i) at the borrowing date for the applicable Reducing
Revolver Loans the Company shall be in compliance with the Incurrence
Test (after including such Designated Non-Recurring Capital
Expenditures in the numerator of the Incurrence Test in the
calculation thereof);
(ii) such Designated Non-Recurring Capital Expenditures shall
be described in writing in reasonable detail to the Agent and the
Lenders and certified by a Responsible Officer as qualifying as a
Designated Non-Recurring Capital Expenditure, by no later than ten
Business Days prior to the Company's submission of the initial
borrowing notice relating to the Reducing Revolver Loans to fund such
Designated Non-Recurring Capital Expenditures;
(iii) the Company or the relevant Subsidiary making such
Designated Non-Recurring Capital Expenditures shall grant to the
Agent, for the benefit
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of the Lenders, a first priority security interest (subject only to
Liens permitted hereunder) on all assets acquired or constructed with
such Designated Non-Recurring Capital Expenditures;
(iv) no Event of Default or Unmatured Event of Default shall
exist at the time of or after giving effect to such Designated Non-
Recurring Capital Expenditures; and
(v) if such Designated Non-Recurring Capital Expenditure is for
an improvement to real property, the Agent shall have received a
currently dated (x) Pending Disbursement Endorsement to the title
insurance policy for the Mortgage relating to the Golf Course Property
as to which such Designated Non-Recurring Capital Expenditures relate
confirming that the amount of insurance offered by such policy has
been increased (or the commitment of the title insurer has been
increased) by the amount of any Designated Non-Recurring Capital
Expenditures being funded with such Loans being borrowed (without
duplication of amounts of insurance offered and paid for under Section
2.5(c)) and (y) a later date endorsement showing no exceptions not
reasonably acceptable to the Agent.
2.7 Warranty. Each notice of borrowing pursuant to Section 2.3, each
Issuance Request pursuant to Section 2.10.2 and each Letter of Credit Amendment
Request pursuant to Section 2.10.3 shall automatically constitute a warranty by
the Company to the Agent and each Lender on the date of such requested Credit
Extensions as to the facts specified in Sections 11.4.2 through 11.4.5.
2.8 Conditions. Notwithstanding any other provision of this Agreement, no
Lender shall be obligated to make any Credit Extension if the conditions
specified in Sections 11.4.2 through 11.4.5 have not been satisfied or waived.
2.9 Commitments Several. The failure of any Lender to make a requested
Credit Extension on any date shall not relieve any other Lender of its
obligation to make a Credit Extension on such date, but no Lender shall be
responsible for the failure of any other Lender to make any Credit Extension to
be made by such other Lender.
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2.10 Letters of Credit.
2.10.1 Issuance of Letters of Credit. On the terms and subject to
the conditions set forth in this Agreement, the Issuer shall issue from
time to time on or after the Amendment Effective Time and prior to the
Working Capital Revolving Termination Date (and, in the case of Commercial
Letters of Credit, prior to 15 Business Days before the Working Capital
Revolving Termination Date), one or more irrevocable Letters of Credit on
behalf of and for the account of the Company or any Subsidiary, each of
which Letters of Credit shall be denominated in Dollars and issued to
support obligations of the Company or a Subsidiary incurred in the ordinary
course of business; provided that no Letter of Credit shall be issued if
after the issuance thereof (a) the sum of (i) outstanding Working Capital
Revolving Loans plus (ii) the aggregate undrawn stated amounts of Letters
of Credit plus (iii) the aggregate unpaid Reimbursement Obligations then
due and payable hereunder would exceed $5,000,000 (as such amount may be
reduced from time to time pursuant to Section 6) or (b) the sum of the
amounts in clauses (a)(ii) plus (a)(iii) above would exceed $2,500,000.
Letters of Credit will be issued only for the purposes set forth in Section
2.1.1(b).
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2.10.2 Issuance Requests.
(a) By delivering a duly completed issuance request (an
"Issuance Request") in the form of Exhibit J-1, accompanied by a duly
completed application for a Letter of Credit, on or before 9:00 a.m.,
Chicago time, at least one Business Day prior to the requested
Business Day of issuance, to the Agent and the Issuer, the Company may
request the issuance from time to time of Letters of Credit; it being
understood that the Issuer may require
by notice to the Company a postponement of such requested issuance
date to the extent reasonably necessary for the preparation and
negotiation of such Letter of Credit and all related documentation.
Each Issuance Request and application shall be irrevocable, and upon
its receipt thereof, the Agent shall promptly notify the Lenders
thereof. Issuance Requests and applications (and all attachments
thereto) may be delivered to the Agent and the Issuer by facsimile or
telex if such deliveries are confirmed, or by delivery of the original
executed Issuance Requests and applications (and all attachments
thereto) to such Persons, in each case not later than one Business Day
prior to the date of issuance. The Agent shall promptly notify the
Issuer and the Company if, after giving effect to the issuance of any
requested Letter of Credit, the limitation set forth in the proviso to
Section 2.10.1 would be violated.
(b) Each Letter of Credit shall be in a form mutually
satisfactory to the Issuer and the Company and shall, by its terms,
(i) be stated to expire on a date (its "Stated Expiry
Date") not later than the earlier of (A) one year after the date
of issuance thereof and (B) the Working Capital Revolving
Termination Date,
(ii) unless the Agent shall otherwise agree, terminate on
or prior to its Stated Expiry Date immediately upon notice to the
Issuer from the beneficiary thereunder that all obligations
covered thereby have been terminated, paid or otherwise satisfied
in full, and
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(iii) provide for payment not earlier than three (3)
Business Days (unless the Issuer shall otherwise agree) after
demand for payment under such Letter of Credit and full
satisfaction of the conditions precedent thereto, and provide
solely for payment upon the presentation of a sight draft rather
than a time draft.
(c) The Issuer shall make the original of each Letter of Credit
it issues available (but in the case of replacement Letters of Credit,
only against delivery by such beneficiary of the Letter of Credit
being replaced) to the beneficiary indicated in the respective
Issuance Request (and provide on the date of issuance a copy thereof
to the Agent).
2.10.3 Amendments. Any extension of the Stated Expiry Date, increase
in the stated amount, or other modification of a Letter of Credit shall be
made only upon satisfaction of all of the procedures and conditions for the
issuance of a new Letter of Credit of the same type, except that the
Company's request therefor shall be in the form of Exhibit J-2 (a "Letter
of Credit Amendment Request").
2.10.4 Letter of Credit Fees.
(a) The Company agrees to pay to the Agent with respect to each
Letter of Credit, for the account of the Issuer and each other Lender,
ratably in accordance with their respective Working Capital Revolving
Percentages, accrual fees at the applicable L/C Fee Rate for a Letter
of Credit of such type (calculated in each case from and including the
date of issuance (or date of renewal or extension, if any) thereof to,
but not including, the Stated Expiry Date thereof or, if earlier, the
date upon which such Letter of Credit is cancelled, fully drawn or
terminated), in each case on the daily average undrawn stated amount
thereof, payable in arrears on a 360-day year for each Fiscal Quarter
within five (5) days after the Company's receipt of any statement of
such fees provided by the Agent or Issuer for such Fiscal Quarter;
provided that during the existence of any Event of Default, each of
such accrual fees shall be increased by 2.0% per annum.
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(b) The Company further agrees to pay upon demand made by the
Issuer from time to time, solely to the Issuer:
(i) all reasonable and customary fees and expenses of the
Issuer, as advised by the Issuer from time to time, in connection
with the negotiation, maintenance, modification (if any),
amendment, renewal, administration and collection of, or drawing
under, Letters of Credit issued by the Issuer;
(ii) an issuance fee of 0.125% of the face amount of each
Letter of Credit issued, payable at the same time as the accrual
fees described in clause (a) above; and
(iii) without duplication of payments made under Section 8,
any applicable reserve, assessment, insurance charge, premium or
levy imposed on the Issuer by any governmental authority,
including Federal Deposit Insurance Corporation assessments and
charges, with respect to any Letter of Credit issued hereunder.
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2.10.5 Other Lenders' Participations; Reimbursements.
(a) Each Letter of Credit shall, effective upon issuance and
without further action, be issued on behalf of each Lender (including
the Issuer) in accordance with the immediately succeeding sentence, in
each case pro rata according to such Lender's respective Working
Capital Revolving Percentage. Each Lender shall, to the extent of its
Working Capital Revolving Percentage, be deemed to have irrevocably
purchased a participation in the amount of its Working Capital
Revolving Percentage in each Letter of Credit issued on its behalf and
shall reimburse promptly to the Agent, on behalf of the Issuer, for
Reimbursement Obligations not reimbursed in accordance with Section
2.10.7 by the Company, or which have been reimbursed by the Company
but must be returned, restored or disgorged by the Issuer for any
reason, and each Lender (including the Issuer) shall, to the extent of
its Working Capital Revolving Percentage, be entitled to receive from
the Agent a ratable portion of the accrual fees received by the Agent,
pursuant to Section 2.10.4(a), with respect to such Letter of Credit.
(b) If the Company fails to satisfy its obligations set forth in
the last sentence of Section 2.10.6 and Section 2.10.7 to reimburse to
the Agent, on behalf of the Issuer, in an amount equal to the amount
of any drawing honored by the Issuer under a Letter of Credit, the
Issuer shall promptly notify the Agent and each Lender of the
unreimbursed amount of such drawing and of such Lender's respective
participation therein. If such notice is delivered, each Lender shall
make available to the Agent, on behalf of the Issuer, whether or not
any Default shall have occurred and is continuing, an amount equal to
the amount of the participation, in same day or immediately available
funds, at the Issuer's office specified in such notice, not later than
12:00 noon, Chicago time, on the Business Day after the date notified
by the Issuer. If any Lender fails to make available to the Agent, on
behalf of the Issuer, as provided herein, the amount of such
participation, the Issuer shall be entitled to recover such amount,
together in each case with interest thereon at the Federal Funds Rate
for three Business Days and thereafter at the rate applicable to
Floating Rate Loans, (x) on demand to such Lender, (y)
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by setoff against any payments made to the Issuer hereunder for the
account of such Lender, or (z) by payment to the Issuer by the Agent
of the amounts otherwise payable to such Lender under this Agreement.
Each Lender hereby authorizes the Agent to make the payments
described in clause (z) of the preceding sentence. Nothing in this
Section shall be deemed to prejudice the right of any Lender to
recover from the Issuer any amount made available by such Lender to
the Issuer pursuant to this Section if a court of competent
jurisdiction determines that the making of any payment by the Issuer
with respect to its Letter of Credit, and in respect of which a
participation payment was made by such Lender, constituted gross
negligence or willful misconduct on the part of the Issuer. The Issuer
shall transfer to the Agent, not later than the Business Day following
receipt, all payments received by the Issuer from the Company in, or
otherwise applied to, reimbursement of drawings honored by the Issuer
under any Letter of Credit and the Agent shall promptly distribute to
each Lender that has paid all amounts payable by such Lender under
this Section with respect to any Letter of Credit, such Lender's
Working Capital Revolving Percentage of such payments.
2.10.6 Disbursements. The Issuer will notify the Agent and the
Company in writing promptly following receipt of the presentment of any
demand for payment under any Letter of Credit, together with notice of the
amount of such payment and the date under the time zone of the jurisdiction
of the Issuer (the "Disbursement Date") such payment shall be made. Subject
to the terms and provisions of such Letter of Credit, the Issuer shall make
such payment ("Disbursement") to the respective beneficiary (or its
designee). Prior to 12:00 noon, Chicago time, on the applicable
Disbursement Date, the Company shall reimburse the Issuer for such
Disbursement. To the extent the Issuer is not, by 12:00 noon, Chicago time,
on the Disbursement Date of any Disbursement under a Letter of Credit,
reimbursed in full by the Company, the Issuer will promptly notify the
Agent and the Agent will promptly notify each Bank thereof, and the Company
shall be deemed to have requested that Floating Rate Loans be made by the
Lenders to be disbursed on the Disbursement Date under such Letter of
Credit, subject to the amount of the unutilized portion of the Working
Capital
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Revolving Commitment and subject to the conditions set forth in Section
11.4. Any notice given by the Issuer or pursuant to this Section 2.10.6 may
be oral if immediately confirmed in writing (including by facsimile);
provided that the lack of such an immediate confirmation shall not affect
the conclusiveness or binding effect of such notice. With respect to an
unreimbursed drawing that is not converted into Floating Rate Loans to the
Company in whole or in part, because of the Company's failure to satisfy
the conditions set forth in Section 11.4 or for any other reason, the
Company shall be deemed to have incurred from the Issuer a Letter of Credit
borrowing in the amount of such unreimbursed drawing, which Letter of
Credit borrowing shall be due and payable on demand (together with
interest) and shall bear interest at a rate per annum equal to the
Alternate Reference Rate plus 2% per annum, and each Lender's payment to
the Issuer pursuant to Section 2.10.5(b) shall be deemed payment in respect
of its participation in such Letter of Credit borrowing and shall
constitute a Letter of Credit advance from such Lender in satisfaction of
its participation obligation under Section 2.10.5(b).
2.10.7 Reimbursement. The obligation of the Company ("Reimbursement
Obligations") under the last sentence of Section 2.10.6 to reimburse the
Issuer for each Disbursement (including interest thereon) made under such
Issuer's Letters of Credit, and the obligation of each Lender under Section
2.10.5 to make participation payments in each unreimbursed thereunder,
shall be, to the fullest extent permitted by applicable law, absolute and
unconditional under any and all circumstances and irrespective of any
setoff, counterclaim or defense to payment which the Company may have or
have had against the Agent, the Issuer, any Lender or the beneficiary of
any Letter of Credit, including any defense based upon the occurrence of
any Event of Default or Unmatured Event of Default, any draft, demand or
certificate or other document presented under such Letter of Credit proving
to be forged, fraudulent, invalid or insufficient, the failure of any
Disbursement to conform to the terms of such Letter of Credit (if, in the
Issuer's good faith opinion, such Disbursement is determined to be
appropriate) or any non-application or misapplication by such beneficiary
of the proceeds of such Disbursement, or the legality, validity, form,
regularity or enforceability of such Letter of Credit, it being understood
that the Issuer shall remain liable for any liability or
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expense determined by a final judgment of a court of competent jurisdiction
to have been caused in all material respects by the Issuer's gross
negligence or willful misconduct.
2.10.8 Deemed Disbursements. Upon the occurrence and during the
continuation of any (x) acceleration upon an Event of Default, pursuant to
Section 12.2, or (y) upon any Unmatured Event of Default under Section
12.1.4, amounts equal to the respective amounts undrawn and available under
each Letter of Credit shall, at the option of the Agent or at the direction
of the Required Lenders and without demand upon or notice to the Company,
be deemed to have been paid or disbursed by the Issuer (notwithstanding
that such amounts may not in fact have been so paid or disbursed) and, upon
notification by the Agent to the Issuer and the Company of the Company's
obligations under this Section, the Company shall be immediately obligated
to reimburse the Agent for the benefit of the Issuer the amount deemed to
have been so paid or disbursed with respect to the Letters of Credit;
provided that, with respect to any such amounts deemed disbursed but not
reimbursed by the Company to the Agent, such amounts shall not be deemed to
bear interest until such time as a Reimbursement Obligation with respect
thereto shall arise. All amounts so received by the Agent from the Company
pursuant to this Section shall be held as collateral security for the
repayment of the Company's obligations in connection with the Letters of
Credit. To the extent the aggregate amount deposited by the Company with
the Agent pursuant to this Section and not previously applied by the Agent
to any Reimbursement Obligation exceeds the sum of (x) the aggregate
undrawn stated amounts of Letters of Credit plus (y) all unpaid
Reimbursement Obligations, the Agent will promptly return the amount of
such excess to the Company (except to the extent applied by the Agent to
the payment of amounts then due and owing hereunder). When all Events of
Default have been cured or waived, the Agent shall promptly return to the
Company all amounts, including interest as described in the immediately
succeeding sentence, less expenses, then on deposit pursuant to this
Section with the Agent. All amounts on deposit pursuant to this Section
shall, until their application to any Reimbursement Obligation or their
return to the Company, bear interest at the rate from time to time in
effect generally payable on Cash Equivalent Investments (net of the costs
of any reserve requirements, in respect of
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("Reimbursement Obligations") under the last sentence of Section 2.10.6 to
reimburse the Issuer for each Disbursement (including interest thereon)
made under such Issuer's Letters of Credit, and the obligation of each
Lender under Section 2.10.5 to make participation payments in each
unreimbursed thereunder, shall be, to the fullest extent permitted by
applicable law, absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which
the Company may have or have had against the Agent, the Issuer, any Lender
or the beneficiary of any Letter of Credit, including any defense based
upon the occurrence of any Event of Default or Unmatured Event of Default,
any draft, demand or certificate or other document presented under such
Letter of Credit proving to be forged, fraudulent, invalid or insufficient,
the failure of any Disbursement to conform to the terms of such Letter of
Credit (if, in the Issuer's good faith opinion, such Disbursement is
determined to be appropriate) or any non-application or misapplication by
such beneficiary of the proceeds of such Disbursement, or the legality,
validity, form, regularity or enforceability of such Letter of Credit, it
being understood that the Issuer shall remain liable for any liability or
expense determined by a final judgment of a court of competent jurisdiction
to have been caused in all material respects by the Issuer's gross
negligence or willful misconduct.
2.10.8 Deemed Disbursements. Upon the occurrence and during the
continuation of any (x) acceleration upon an Event of Default, pursuant to
Section 12.2, or (y) upon any Unmatured Event of Default under Section
12.1.4, amounts equal to the respective amounts undrawn and available under
each Letter of Credit shall, at the option of the Agent or at the direction
of the Required Lenders and without demand upon or notice to the Company,
be deemed to have been paid or disbursed by the Issuer (notwithstanding
that such amounts may not in fact have been so paid or disbursed) and, upon
notification by the Agent to the Issuer and the Company of the Company's
obligations under this Section, the Company shall be immediately obligated
to reimburse the Agent for the benefit of the Issuer the amount deemed to
have been so paid or disbursed with respect to the Letters of Credit;
provided that, with respect to any such amounts deemed disbursed but
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not reimbursed by the Company to the Agent, such amounts shall not be
deemed to bear interest until such time as a Reimbursement Obligation with
respect thereto shall arise. All amounts so received by the Agent from the
Company pursuant to this Section shall be held as collateral security for
the repayment of the Company's obligations in connection with the Letters
of Credit. To the extent the aggregate amount deposited by the Company with
the Agent pursuant to this Section and not previously applied by the Agent
to any Reimbursement Obligation exceeds the sum of (x) the aggregate
undrawn stated amounts of Letters of Credit plus (y) all unpaid
Reimbursement Obligations, the Agent will promptly return the amount of
such excess to the Company (except to the extent applied by the Agent to
the payment of amounts then due and owing hereunder). When all Events of
Default have been cured or waived, the Agent shall promptly return to the
Company all amounts, including interest as described in the immediately
succeeding sentence, less expenses, then on deposit pursuant to this
Section with the Agent. All amounts on deposit pursuant to this Section
shall, until their application to any Reimbursement Obligation or their
return to the Company, bear interest at the rate from time to time in
effect generally payable on Cash Equivalent Investments (net of the costs
of any reserve requirements, in respect of amounts on deposit pursuant to
this Section 2.10.8, pursuant to Regulation D), which interest shall be
held by the Agent as additional collateral security for the repayment of
the Reimbursement Obligations of the Company in connection with the Letters
of Credit.
2.10.9 Nature of Reimbursement Obligations. The Company shall
assume all risks of acts, omissions or misuse by the beneficiary of each
Letter of Credit issued on its behalf. Neither the Issuer (except to the
extent of any liability determined by a final judgment of a court of
competent jurisdiction to have been caused in all material respects by the
Issuer's gross negligence or willful misconduct), any Lender nor the Agent
shall be responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or
legal effect of such Letter of Credit or any particular conditions
stipulated in the documents or
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superimposed thereon, or any document presented under the Letter of
Credit, or any document submitted by any party in connection with the
application for and issuance of such Letter of Credit, even if it
should be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any instrument transferring or assigning or purporting
to transfer or assign such Letter of Credit or the rights or benefits
thereunder or proceeds thereof in whole or in part, which instrument
may be invalid or ineffective for any reason;
(c) failure of such beneficiary to comply fully with conditions
required to demand payment under such Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, facsimile, telex or
otherwise;
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under such
Letter of Credit or of the proceeds thereof;
(f) the existence of the property purporting to be represented
by documents;
(g) any difference in character, quality, quantity, condition or
value between any property description in documents presented under
the Letter of Credit and the property purporting to be represented by
such documents;
(h) partial or incomplete shipment or failure or omission to
ship any and all of the property referred to in the Letter of Credit;
(i) the character, validity, adequacy or genuineness of any
insurance or any risk connected with insurance;
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(j) any deviation from instructions, delay, default or fraud by
the shipper or anyone else in connection with the property or shipment
thereof;
(k) the solvency, responsibility or relationship to the property
of any Person issuing any documents relating thereto;
(l) any delay in giving or failure to give any necessary notices;
(m) any breach of contract between the shippers or vendors and
the Company; or
(n) the failure of any instrument to bear any reference or
adequate reference to the Letter of Credit, or the failure of any
draft to be accompanied by documents at negotiation, or the failure of
any Person to note the amount of any draft on the reverse of the
Letter of Credit or to surrender or take up the Letter of Credit or to
send forward documents apart from drafts as required by the terms of
the Letter of Credit.
None of the foregoing shall affect, impair or prevent the vesting of any rights
or powers granted the Issuer, any Lender or the Agent hereunder. In furtherance
of any of the foregoing, any action taken or omitted to be taken by the Issuer
in good faith shall be binding upon the Company and shall not put the Issuer
under any resulting liability to such Person.
SECTION 3 NOTES EVIDENCING LOANS.
3.1 Notes.
(a) The Revolving Loans of each Lender shall be evidenced by a global
promissory note (as amended, supplemented, replaced or otherwise modified
from time to time, the "Working Capital Revolving Note") substantially in
the form of Exhibit A-1, with appropriate insertions, dated June 4, 1996,
payable to the order of the Agent (for the account of the Lenders) in the
amount of $5,000,000 (or, if less, in the aggregate unpaid principal amount
of all Working
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Capital Revolving Loans and Reimbursement Obligations), and
payable in full on the Working Capital Revolving Termination Date.
(b) The Reducing Revolver Loans of each Lender shall be evidenced by a
global promissory note (as amended, supplemented, replaced or otherwise
modified from time to time, the "Reducing Revolver Note") substantially in
the form of Exhibit A-2, with appropriate insertions, dated June 4, 1996,
payable to the order of the Agent for the account of the Lenders in the
amount of $[40,000,000] (or, if less, in the aggregate unpaid principal
amount of all Reducing Revolver Loans), and payable in full on the Reducing
Revolver Termination Date.
(c) As of the Amendment Effective Time, each of the promissory notes
issued under the Existing Credit Agreement shall be null and void (having
been replaced by the Notes hereunder).
3.2 Recordkeeping. The Agent shall hold each of the Reducing Revolver
Note and the Working Capital Revolving Note for the ratable benefit of each
Lender with a Reducing Revolver Loan Commitment or Reducing Revolver Loans and a
Working Capital Revolving Commitment, Working Capital Revolving Loans or
Reimbursement Obligations, as applicable. Each of the Reducing Revolver Note
and the Working Capital Revolving Note shall evidence each such Lender's
Reducing Revolver Loan Percentage and Working Capital Revolving Percentage,
respectively, of the aggregate outstanding Reducing Revolver Loans, Working
Capital Revolving Loans and Reimbursement Obligations, as applicable.
The Agent shall record in its records, or at its option on the schedule
attached to the applicable Note, the date and amount of each Loan or
Reimbursement Obligation, each repayment or prepayment thereof, and, in the case
of any Eurodollar Loan, the dates on which the Interest Period for such Loan
shall begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record or any error in so recording any such amount in
such records or on such schedule shall not, however, limit or otherwise affect
the obligations of the Company
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hereunder or under any Note to repay the principal amount of the applicable
Loans and Reimbursement Obligations evidenced together with all interest
accruing thereon.
SECTION 4 INTEREST.
4.1 Interest Rates. The Company promises to pay interest on the unpaid
principal amount of each Loan for the period commencing on the date of such Loan
until (but excluding the date on which) such Loan is paid in full, as follows:
(a) at all times while such Loan is a Floating Rate Loan, at a rate
per annum equal to the sum of the Alternate Reference Rate from time to
time in effect plus the Margin; and
(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable
to each Interest Period for such Loan plus the Margin;
provided, however, that at any time an Event of Default exists, the interest
rate applicable to each Loan shall be the Default Rate.
4.2 Interest Payment Dates. Accrued interest on each Floating Rate Loan
shall be payable in arrears on June 30, 1996, on the last day of each Fiscal
Quarter thereafter and at maturity, commencing with the first of such dates to
occur after the date of such Loan. Accrued interest on each Eurodollar Loan
shall be payable on the last day of each Interest Period relating to such Loan,
at maturity and, with respect to any Interest Period of six months, at the date
three months from the beginning of such Interest Period. After maturity,
accrued interest on all Loans shall be payable on demand.
4.3 Interest Periods. (a) Each "Interest Period" for a Eurodollar Loan
shall commence on the date such Eurodollar Loan is made or converted from a
Floating Rate Loan, or on the expiration of the immediately preceding Interest
Period for such Eurodollar Loan, and shall end on the date which is 7, 14 or 21
days or one, two, three or, if available, six months thereafter, as the Company
may specify:
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(i) in the case of an Interest Period which commences on the date a
Eurodollar Loan is made or converted from a Floating Rate Loan, in the
related notice of borrowing or conversion pursuant to Section 2.3 or 2.4,
or
(ii) in the case of a succeeding Interest Period with respect to any
Eurodollar Loan, by written or telephonic notice to the Agent not later
than noon, Chicago time, at least three Business Days prior to the first
day of such succeeding Interest Period, it being understood that (i) each
such notice shall be effective upon receipt by the Agent and (ii) if the
Company fails to give such notice, such Loan shall automatically become a
Floating Rate Loan at the end of its then-current Interest Period.
(b) Each Interest Period that begins on the last day of a calendar month
(or on a day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the immediately
succeeding Business Day (unless such immediately succeeding Business Day is the
first Business Day of a calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day).
4.4 Setting and Notice of Eurodollar Rates. The applicable Eurodollar
Rate for each Interest Period shall be determined by the Agent, and notice
thereof shall be given by the Agent promptly to the Company and each Lender.
Each determination of the applicable Eurodollar Rate by the Agent shall be
conclusive and binding upon the parties hereto, in the absence of demonstrable
error. The Agent shall, upon written request of the Company or any Lender,
deliver to the Company or such Lender a statement showing the computations used
by the Agent in determining any applicable Eurodollar Rate hereunder.
4.5 Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year of 360 days. The applicable
interest rate for each Floating Rate Loan shall change simultaneously with each
change in the Alternate Reference Rate.
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SECTION 5 FEES.
5.1 Working Capital Revolving Loan Non-Use Fee. The Company agrees to pay
to the Agent for the account of each Lender a non-use fee for the period from
and including the Amendment Effective Time to but excluding the Working Capital
Revolving Termination Date of 1/2 of 1% per annum on the daily average of the
unused amount of such Lender's Working Capital Revolving Commitment, it being
understood that the principal amount of any Letters of Credit shall be
considered usage of the aggregate Working Capital Revolving Commitments in such
amount. Such non-use fee shall be payable in arrears on June 30, 1996, on the
last day of each calendar quarter thereafter and on the Working Capital
Revolving Termination Date, in each case for the period then ending for which
such non-use fee shall not have been theretofore paid. Such non-use fee shall
be computed for the actual number of days elapsed on the basis of a year of 360
days.
5.2 Reducing Revolver Loan Non-Use Fee. The Company agrees to pay to the
Agent for the account of each Lender a non-use fee for the period from and
including the Amendment Effective Time to but excluding the Reducing Revolver
Termination Date of 1/2 of 1% per annum on the daily average of the unused
amount of such Lender's Reducing Revolver Loan Commitment. Such non-use fee
shall be payable in arrears on June 30, 1996, on the last day of each calendar
quarter thereafter and on the Reducing Revolver Termination Date, in each case
for the period then ending for which such non-use fee shall not have been
theretofore paid. Such non-use fee shall be computed for the actual number of
days elapsed on the basis of a year of 360 days.
5.3 Additional Fees. The Company agrees to pay to the Agent such
additional fees, in each case at such times and in such amounts, as are mutually
agreed upon by the Company and the Agent.
SECTION 6 REDUCTION OR TERMINATION OF COMMITMENTS;
REPAYMENTS; PREPAYMENTS.
6.1 Reduction or Termination of the Commitments.
6.1.1 Scheduled Mandatory Reductions of Reducing Revolver Loan
Commitments. On the last Business Day of each
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Fiscal Quarter, during the period from September 30, 1998 to and including
June 30, 1999, the aggregate Reducing Revolver Loan Commitments of all
Lenders shall be reduced in an amount equal to 4.0% of the principal amount
of the aggregate Reducing Revolving Loan Commitments in effect as of the
Amendment Effective Time. On the last Business Day of each Fiscal Quarter
during the period from September 30, 1999 to and including June 30, 2002,
the aggregate Reducing Revolver Loan Commitments of all Lenders shall be
reduced in an amount equal to 7.0% of the principal amount of the aggregate
Reducing Revolving Loan Commitments in effect as of the Amendment Effective
Time.
6.1.2 Mandatory Reduction from Asset Sale. By no later than the date
360 days after the consummation of any Asset Sale, if the Net Cash Proceeds
of such Asset Sale have not been invested (or committed, pursuant to a
binding commitment subject only to reasonable customary closing conditions,
to be invested, and in fact is so invested, within an additional 90 days)
in fixed assets or real property which in the good faith judgment of the
Board of Directors of the Company consist of a Golf Course Property or
Properties or in a Designated Non-Recurring Capital Expenditure or in 100%
of the issued and outstanding capital stock of a Person the assets of which
are principally comprised of such fixed assets or real property, then the
Commitments shall be permanently reduced by an amount equal to 100% of the
Net Cash Proceeds of such Asset Sale not so reinvested, with such
reductions to be applied first to the Reducing Revolver Loan Commitments
until reduced to $0 and second to the Working Capital Revolving
Commitments.
6.1.3 Mandatory Reduction from Debt Securities Sale. Concurrently
with the consummation of any Debt Securities Sale, the Commitments shall be
permanently reduced by an amount equal to 100% of the Net Cash Proceeds of
such Debt Securities Sale, with such reductions to be applied first to the
Reducing Revolver Loan Commitments until reduced to $0 and second to the
Working Capital Revolving Commitments; provided that the Company shall not
be required to make such reduction in respect of the first $5,000,000 of
Net Cash Proceeds received by the Company after the Amendment Effective
Time.
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6.1.4 Mandatory Reduction from Equity Securities Sale. Concurrently
with the consummation of any Equity Securities Sale, the Commitments shall
be permanently reduced by an amount equal to 50% of the Net Cash Proceeds
of such Equity Securities Sale, with such reductions to be applied first to
the Reducing Revolver Loan Commitments until reduced to $0 and second to
the Working Capital Revolving Commitments.
6.1.5 Voluntary Reduction or Termination. The Company may from time
to time prior to the Working Capital Revolving Termination Date (in the
case of Working Capital Revolving Commitments) or prior to the Reducing
Revolver Termination Date (in the case of the Reducing Revolver Loan
Commitments), on at least three Business Days' prior written notice
received by the Agent (which shall promptly advise each Lender thereof),
permanently reduce (a) the amount of the Working Capital Revolving
Commitments to an amount not less than the sum of (i) the aggregate
principal amount of all outstanding Working Capital Revolving Loans (after
giving effect to any payment) plus (ii) the aggregate stated amount of all
then outstanding Letters of Credit and Reimbursement Obligations and/or (b)
the amount of the Reducing Revolver Loan Commitments to an amount not less
than the aggregate principal amount of all outstanding Reducing Revolver
Loans (after giving effect to any payment). Any such reduction shall be in
an aggregate amount of $500,000 or a higher integral multiple of $100,000.
The Company may at any time on like notice prior to the Working Capital
Revolving Termination Date (in the case of Working Capital Revolving
Commitments) or prior to the Reducing Revolver Termination Date (in the
case of the Reducing Revolver Loan Commitments) terminate the Working
Capital Revolving Commitments and/or the Reducing Revolver Loan
Commitments, as the case may be, upon payment in full of the applicable
Notes, cancellation of all outstanding Letters of Credit and payment of all
other Obligations of the Company hereunder.
6.1.6 All Reductions. All reductions of the Working Capital
Revolving Commitments and the Reducing Revolver Loan Commitments shall be
pro rata among the Lenders according to their Working Capital Revolving
Percentages or Reducing Revolver Loan Percentages, as the case may be.
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6.2 Repayments. The Working Capital Revolving Loans of each Lender
shall mature and be payable in full on the Working Capital Revolving
Termination Date. The Reducing Revolver Loans of each Lender shall mature
and be payable in full on the Reducing Revolver Termination Date.
6.3 Prepayments.
6.3.1 Mandatory Prepayments from Asset Sales. Within 15 days
after any Asset Sale, the Company shall make a prepayment of the
Reducing Revolver Loans in an amount equal to 100% of the Net Cash
Proceeds of such Asset Sale; provided that the Company shall not be
required to make such prepayment in respect of the first $500,000 of
Net Cash Proceeds received in each Fiscal Year.
6.3.2 Mandatory Prepayments from Debt Securities Sale. Within 15
days after the consummation of any Debt Securities Sale, the Company
shall make a prepayment of the Reducing Revolver Loans in an amount
equal to 100% of the Net Cash Proceeds of such Debt Securities Sale;
provided that the Company shall not be required to make such
prepayment in respect of the first $5,000,000 of Net Cash Proceeds
received by the Company after the Amendment Effective Time.
6.3.3 Mandatory Prepayments from Equity Securities Sale. Within
15 days after the consummation of any Equity Securities Sale, the
Company shall make a prepayment of the Reducing Revolver Loans in an
amount equal to 50% of the Net Cash Proceeds of such Equity Securities
Sale.
6.3.4 Mandatory Prepayments Due to Commitment Reductions. If,
after giving effect to any reduction of the Working Capital Revolving
Commitments or the Reducing Revolver Loan Commitments pursuant to
Section 6.1, (a) the sum of (i) the aggregate principal amount of all
outstanding Working Capital Revolving Loans plus (ii) the aggregate
stated amount of all then-outstanding Letters of Credit and
Reimbursement Obligations exceeds the aggregate amount of the Working
Capital Revolving Commitments or (b) the aggregate principal amount of
all outstanding Reducing Revolver Loans exceeds the aggregate amount
of the Reducing Revolver Loan Commitments,
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respectively, the Company will make an immediate repayment of Working
Capital Revolving Loans or Reducing Revolver Loans, as the case may be, in
an amount equal to such excess; provided that if, after giving effect to
any such repayment of Working Capital Revolving Loans, the sum of (x) the
aggregate principal amount of all outstanding Revolving Loans plus (y) the
aggregate stated amount of all then outstanding Letters of Credit and
Reimbursement Obligations exceeds the aggregate amount of the Working
Capital Revolving Commitments, the Company will deposit with the Agent cash
collateral in the amount of such excess on the same terms as any amounts
held by the Agent pursuant to Section 2.10.8.
6.3.5 Voluntary Prepayments. The Company may from time to time
prepay the Loans in whole or in part, provided that (a) the Company shall
give the Agent (which shall promptly advise each Lender) not less than one
Business Day's prior written notice thereof in the case of Floating Rate
Loans and not less than three Business Days' prior written notice thereof
in the case of Eurodollar Loans, specifying the Loans to be prepaid and the
date and amount of prepayment, (b) each partial prepayment shall be in a
principal amount of at least $500,000 and an integral multiple of $100,000,
(c) any prepayment of a Eurodollar Loan on a day other than the last day of
an Interest Period therefor shall be subject to Section 8.4 and (d) any
prepayment of any Loan shall include accrued interest to the date of
prepayment on the principal amount being repaid.
6.3.6 All Prepayments. All prepayments of Working Capital Revolving
Loans shall be pro rata among the Lenders according to their Working
Capital Revolving Percentages. All prepayments of Reducing Revolver Loans
shall be pro rata among the Lenders according to their Reducing Revolver
Loan Percentages.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 Making of Payments. All payments of principal of or interest on the
Credit Extensions, and of all fees, shall be made by the Company to BAI, as
agent of the Agent, in immediately available funds at BAI's principal office in
Chicago not later than
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noon, Chicago time, on the date due (and BAI agrees to remit any such funds
received to the Agent); and funds received after that hour shall be deemed to
have been received by the Agent on the next following Business Day. Upon notice
from the Agent to BAI, the Company hereby authorizes BAI to charge the Company's
demand deposit account no. 72-10604 maintained with BAI for the amount of any
such payment on the due date therefor (but only to the extent of funds available
in such account), and hereby authorizes BAI to remit any such amount to the
Agent, but BAI's or the Agent's failure to so charge such account shall in no
way affect the obligation of the Company to make any such payment. The Agent
shall promptly remit to each Lender its share of all such payments received in
collected funds by the Agent for the account of such Lender.
All payments under Sections 8.1 and 8.4 shall be made by the Company
directly to the Lender or Lenders entitled thereto.
7.2 Application of Certain Payments. Except as otherwise expressly
provided herein, each payment of principal shall be applied to such Credit
Extensions as the Company shall direct by notice to be received by the Agent on
or before the date of such payment or, in the absence of such notice, as the
Agent shall determine in its discretion. Concurrently with each remittance to
any Lender of its share of any such payment, the Agent shall advise such Lender
as to the application of such payment.
7.3 Due Date Extension. If any payment of principal or interest with
respect to any of the Credit Extensions, or of any fees, falls due on a day
which is not a Business Day, then such due date shall be extended to the
immediately following Business Day (except, in the case of a Eurodollar Loan, if
the immediately following Business Day is the first Business Day of a calendar
month, in which case such due date shall the be immediately preceding Business
Day) and, in the case of principal, additional interest shall accrue and be
payable for the period of any such extension.
7.4 Setoff. Each of Parent and the Company agrees that the Agent and each
Lender have all rights of set-off and bankers' lien provided by applicable law,
and in addition thereto, each of Parent and the Company agrees that at any time
any Unmatured Event of
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Default under Section 12.1.1 or 12.1.4 or any Event of Default exists, the Agent
and each Lender may apply to any obligation of each of Parent and the Company
hereunder, whether or not then due, any and all balances, credits, deposits,
accounts or moneys of each of Parent and the Company then or thereafter with the
Agent or such Lender.
7.5 Proration of Payments. If any Lender shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of offset or
otherwise) on account of principal of or interest on any Credit Extension in
excess of its pro rata share (based on such Lender's Total Percentage) of
payments and other recoveries obtained by all Lenders on account of principal of
and interest on Credit Extensions then held by them (other than any non-pro rata
interest payment resulting from a Loan being an Affected Loan), such Lender
shall purchase from the other Lenders such participation in the Credit
Extensions held by them as shall be necessary to cause such purchasing Lender to
share the excess payment or other recovery ratably with each of them; provided,
however, that if all or any portion of the excess payment or other recovery is
thereafter recovered from such purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery.
7.6 Net Payments; Tax Exemptions.
-----------------------------
(a) All payments by Parent or the Company of principal, interest, fees,
indemnities and other amounts payable hereunder and under the Notes shall be
made to the recipient thereof without setoff or counterclaim and free and clear
of, and without withholding or deduction for or on account of, any present or
future Taxes (other than Excluded Taxes) now or hereafter imposed on such
recipient or its income, property, assets or franchises (such recipient's
"Recipient Taxes"), except to the extent that such withholding or deduction (i)
is required by applicable law, (ii) results from the breach by such recipient of
its Exemption Agreement (as defined below) or (iii) would not be required if
such recipient's Exemption Representation (as defined below) were true. If any
such withholding or deduction is required by applicable law, Parent or the
Company (as the case may be) will:
(A) pay to the relevant authorities the full amount so
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required to be withheld or deducted;
(B) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authorities; and
(C) except to the extent that such withholding or deduction results
from the breach, by the recipient of a payment, of its Exemption Agreement
or would not be required if such recipient's Exemption Representation were
true, pay to the Agent for the account of the relevant recipient such
additional amount as is necessary to ensure that the net amount actually
received by such recipient will equal the full amount such recipient would
have received had no such withholding or deduction been required.
(b) In consideration of Parent's and the Company's agreements in clause (a)
of this Section 7.6, each Lender which is not organized under the laws of the
United States or a State thereof hereby agrees (such Lender's "Exemption
Agreement"), to the extent permitted by applicable law (including any applicable
double taxation treaty of the jurisdiction of its incorporation and the
jurisdiction in which its Eurodollar Office is located), to execute and deliver
to the Company (i) on or before the first scheduled payment date after the
Amendment Effective Time, a United States Internal Revenue Service Form 1001 or
4224 as appropriate (or successor forms), properly completed and claiming a
complete exemption, as the case may be, from withholding or deduction for or on
account of Recipient Taxes of such Lender, and (ii) a new Form 1001 or 4224 (or
successor form), as appropriate, upon the expiration or obsolescence of any
previously delivered Form.
(c) Each Lender hereby represents and warrants (such Lender's "Exemption
Representation") to Parent and the Company that on the Amendment Effective Time
(or, if later, the date it becomes a party to this Agreement) it is entitled to
receive payments of principal of, and interest on, Credit Extensions made by
such Lender without withholding or deduction for or on account of such Lender's
Recipient Taxes imposed by the United States of America or any political
subdivision thereof.
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SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR
EURODOLLAR LOANS.
8.1 Increased Costs. (a) If, after the Amendment Effective Time, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any Affiliate of such
Lender through which the Credit Extensions and/or Commitments are funded (a
"Lending Office")) with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency which
becomes effective after the Amendment Effective Time,
(A) shall subject any Lender (or any Lending Office of such Lender)
to any tax, duty or other charge (other than Excluded Taxes) with respect
to its Credit Extensions or its obligation to make Credit Extensions, or
shall change the basis of taxation of payments to any Lender of the
principal of or interest on its Credit Extensions or any other amounts due
under this Agreement in respect of its Credit Extensions or its obligation
to make Credit Extensions (except for changes in the rate of tax on the
overall net income of such Lender or its Lending Office imposed by the
jurisdiction in which such Lender's principal executive office or Lending
Office is located); or
(B) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of the
Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to Section 4), special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by any Lender (or any Lending Office of such Lender); or
(C) shall impose on any Lender (or its Lending Office) any other
condition affecting its Credit Extensions or its obligation to make Credit
Extensions ;
and the result of any of the foregoing is to increase the cost to
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(or in the case of Regulation D of the Board of Governors of the Federal Reserve
System, to impose a cost on) such Lender (or any Lending Office of such Lender)
of making or maintaining any Credit Extension, or to reduce the amount of any
sum received or receivable by such Lender (or its Lending Office) under this
Agreement, then within 10 days after demand by such Lender (which demand shall
be accompanied by a statement setting forth in reasonable detail the basis for
and a calculation of the amount of such demand, a copy of which shall be
furnished to the Agent), the Company shall pay directly to such Lender such
additional amount or amounts as will compensate such Lender for such increased
cost or such reduction.
(b) If any Lender shall reasonably determine that the adoption or phase-in
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Lending Office) or any Person controlling such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's or such controlling
Person's capital as a consequence of such Lender's obligations hereunder
(including, without limitation, such Lender's obligations under the Working
Capital Revolving Commitment or the Reducing Revolver Loan Commitment) to a
level below that which such Lender or such controlling Person could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such controlling Person's policies with respect to capital
adequacy) by an amount deemed by such Lender or such controlling Person to be
material, then from time to time, within 10 days after demand by such Lender
(which demand shall be accompanied by a statement setting forth in reasonable
detail the basis for and a calculation of the amount of such demand, a copy of
which shall be furnished to the Agent), the Company shall pay to such Lender
such additional amount or amounts as will compensate such Lender or such
controlling Person for such reduction.
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8.2 Basis for Determining Interest Rate Inadequate or Unfair. If with
respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are not being
offered to the Agent in the interbank eurodollar market for such Interest
Period, or the Agent otherwise reasonably determines (which determination
shall be binding and conclusive on the Company) that by reason of
circumstances affecting the interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable Eurodollar
Rate;
(b) two or more Lenders having an aggregate Working Capital Revolving
Percentage or Reducing Revolver Loan Percentage, as applicable, of 20% or
more advise the Agent that the Eurodollar Rate (Reserve Adjusted) as
determined by the Agent will not adequately and fairly reflect the cost to
such Lenders of maintaining or funding such Loans for such Interest Period
(taking into account any amount to which such Lenders may be entitled under
Section 8.1); or
(c) Lenders having an aggregate Working Capital Revolving Percentage
or Reducing Revolver Loan Percentage, as applicable, of 20% or more advise
the Agent, that the making or funding of Eurodollar Loans has become
impracticable as a result of an event occurring in the interbank market
after the Amendment Effective Time which in the opinion of such Lenders
materially affects such Loans;
then the Agent shall promptly notify the other parties thereof and, so long as
such circumstances shall continue, (i) no Lender shall be under any obligation
to make or convert into Eurodollar Loans and (ii) on the last day of the current
Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in
full, automatically convert to a Floating Rate Loan.
8.3 Changes in Law Rendering Eurodollar Loans Unlawful. In the event that
any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it (or in the good faith judgment of any
Lender cause a
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substantial question as to whether it is) unlawful for any Lender to make,
maintain or fund Eurodollar Loans, then such Lender shall promptly notify each
of the other parties hereto and, so long as such circumstances shall continue,
(a) such Lender shall have no obligation to make or convert into Eurodollar
Loans (but shall make Floating Rate Loans concurrently with the making of or
conversion into Eurodollar Loans by the Lenders which are not so affected, in
each case in an amount equal to such Lender's pro rata share of all Eurodollar
Loans which would be made or converted into at such time in the absence of such
circumstances) and (b) on the last day of the current Interest Period for each
Eurodollar Loan of such Lender (or, in any event, on such earlier date as may be
required by the relevant law, regulation or interpretation), such Eurodollar
Loan shall, unless then repaid in full, automatically convert to a Floating Rate
Loan. Each Floating Rate Loan made by a Lender which, but for the circumstances
described in the foregoing sentence, would be a Eurodollar Loan (an "Affected
Loan") shall remain outstanding for the same period as the Advance of Eurodollar
Loans of which such Affected Loan would be a part absent such circumstances.
8.4 Funding Losses. The Company hereby agrees that upon demand by any
Lender (which demand shall be accompanied by a statement setting forth the basis
for the calculations of the amount being claimed, a copy of which shall be
furnished to the Agent) the Company will indemnify such Lender against any net
loss or expense (including, without limitation, all lost profits) which such
Lender may sustain or incur (including, without limitation, any net loss or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund or maintain any Eurodollar Loan), as
reasonably determined by such Lender, as a result of (a) any payment or
prepayment or conversion of any Eurodollar Loan of such Lender on a date other
than the last day of an Interest Period for such Loan (including, without
limitation, any conversion pursuant to Section 8.3) or (b) any failure of the
Company to borrow or convert any Loans on a date specified therefor in a notice
of borrowing or conversion pursuant to this Agreement. For this purpose, all
notices of borrowing or conversion to the Agent pursuant to this Agreement shall
be deemed to be irrevocable.
8.5 Right of Lenders to Fund through Other Offices. Each
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Lender may, if it so elects, fulfill its commitment as to any Eurodollar Loan by
causing a foreign branch or Affiliate of such Lender to make such Loan, provided
that in such event for the purposes of this Agreement such Loan shall be deemed
to have been made by such Lender and the obligation of the Company to repay such
Loan shall nevertheless be to such Lender and shall be deemed held by it, to the
extent of such Loan, for the account of such branch or Affiliate, and provided,
further, the cost to the Company of causing such foreign branch or Affiliate to
make such Loan shall not be greater than the cost would have been if such Lender
had funded such Loan directly.
8.6 Discretion of Lenders as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, each Lender shall be entitled to
fund and maintain its funding of all or any part of its Loans in any manner it
sees fit, it being understood, however, that for the purposes of this Agreement
all determinations hereunder shall be made as if such Lender had actually funded
and maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
8.7 Mitigation of Circumstances; Replacement of Affected Lender. (a)
Each Lender shall promptly notify the Company and the Agent of any event of
which it has knowledge which will result in, and will use reasonable commercial
efforts available to it (and not, in such Lender's good faith judgment,
otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any
obligation by the Company to pay any amount pursuant to Section 7.6 or 8.1 and
(ii) the occurrence of any circumstances of the nature described in Section 8.2
or 8.3 (and, if any Lender has given notice of any such event described in
clause (i) or (ii) above and thereafter such event ceases to exist, such Lender
shall promptly so notify the Company and the Agent). Without limiting the
foregoing, each Lender will designate a different Lending Office if such
designation will avoid (or reduce the cost to the Company of) any event
described in clause (i) or (ii) of the preceding sentence and such designation
will not, in such Lender's sole judgment, be otherwise disadvantageous to such
Lender.
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(b) At any time any Lender is an Affected Lender, the Company may replace
such Affected Lender as a party to this Agreement with one or more other bank(s)
or financial institution(s) reasonably satisfactory to the Agent (and upon
notice from the Company such Affected Lender shall assign pursuant to an
Assignment Agreement, and without recourse or warranty, its Commitments, if any,
its Loans, its Reimbursement Obligations, and all of its other rights and
obligations hereunder, to such replacement bank(s) or other financial
institution(s) for a purchase price equal to the sum of the principal amount of
the Loans and Reimbursement Obligations so assigned, all accrued and unpaid
interest thereon, its ratable share of all accrued and unpaid non-use fees, any
amounts payable under Section 8.4 as a result of such Lender receiving payment
of any Eurodollar Loan prior to the end of an Interest Period therefor and all
other Obligations owed to such Affected Lender hereunder).
8.8 Conclusiveness of Statements; Survival of Provisions. Determinations
and statements of any Lender pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be
conclusive absent demonstrable error. Lenders may use reasonable averaging and
attribution methods in determining compensation under Sections 8.1 and 8.4, and
the provisions of such Sections shall survive repayment of the Obligations,
cancellation of the Notes and the Letters of Credit, and any termination of this
Agreement.
SECTION 9 WARRANTIES.
To induce the Agent and the Lenders to enter into this Agreement, and the
Lenders to make Credit Extensions hereunder, each of Parent and the Company
warrants to the Agent and the Lenders that:
9.1 Organization, etc. Each of Parent and the Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware; each Subsidiary which is a corporation is duly organized,
validly existing and in good standing under the laws of the state of its
incorporation; and each Subsidiary which is a joint venture is duly organized
and validly existing as a California general partnership; each of Parent, the
Company and each Subsidiary is duly qualified to do business in each
jurisdiction where the nature of its business makes such qualification
necessary, except where the failure to be so
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qualified would not have a Material
Adverse Effect; and each of Parent, the Company and each Subsidiary has full
corporate power and authority to own its property and conduct its business as
presently conducted by it.
9.2 Authorization; No Conflict. The execution and delivery by Parent and
the Company of this Agreement and each other Transaction Document to which it is
a party, the Credit Extensions hereunder, the execution and delivery by each
Guarantor of each Loan Document to which it is a party, the performance by each
of Parent and the Company of its obligations under each Transaction Document to
which it is a party, and the performance by each Guarantor of its obligations
under each Loan Document to which it is a party are within the corporate powers
of Parent, the Company and each Guarantor, as applicable, have been duly
authorized by all necessary corporate action on the part of Parent, the Company
and each Guarantor (including any necessary shareholder action), (a) have
received all necessary governmental or third party approvals (if any shall be
required), and (b) do not and will not (i) violate any provision of law or any
order, decree or judgment of any court or other government agency which is
binding on Parent, the Company or any Guarantor, (ii) contravene or conflict
with, or result in a breach of, any provision of the Certificate of
Incorporation, By-Laws or other organizational documents of Parent, the Company
or any Guarantor, (iii) contravene or conflict with, or result in a
breach of, any provision of any agreement, indenture, instrument or other
document, or any judgment, order or decree, which is binding on Parent, the
Company, any Guarantor or any other Subsidiary or (iv) result in, or require,
the creation or imposition of any Lien on any property of Parent, the Company,
any Guarantor or any other Subsidiary (other than pursuant to the Loan
Documents), except in the case of clauses (a) and (b)(i) and (iii), such
violations, conflicts, contraventions or breaches that, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect.
9.3 Validity and Binding Nature. This Agreement is, and upon the
execution and delivery thereof each other Transaction Document to which Parent
or the Company is a party will be, the legal, valid and binding obligation of
Parent or the Company, as the case may be, enforceable against Parent or the
Company, as the case may be, in accordance with its terms, except that
enforceability may be
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limited by bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law); and each Loan
Document to which any Guarantor is a party will be, upon the execution and
delivery thereof by such Guarantor, the legal, valid and binding obligation of
such Guarantor, enforceable against such Guarantor in accordance with its terms,
except that enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in
equity or at law).
9.4 Financial Information. (a) The audited consolidated and unaudited
consolidating financial statements of the Company and its Subsidiaries as at
September 30, 1995 and for the year then ended, and the unaudited, year-to-date
consolidated and consolidating financial statements of the Company and its
Subsidiaries for the three months ended March 31, 1996, together with the
unaudited financial statements for each Pre-Existing Property, for the three
months ended March 31, 1996, (i) are true and correct in all material respects,
subject to normal year-end adjustments, (ii) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved (except as disclosed therein and, in the case of interim
financial statements, for the absence of footnote disclosures and year-end
adjustments) and (iii) present fairly the consolidated financial condition of
the Company and its Subsidiaries at such dates and the results of their
operations for the periods then ended, subject to normal year-end adjustments.
(b) The unaudited consolidated balance sheet of Parent and
its Subsidiaries as of March 31, 1996 (giving effect to the refinancing
contemplated by this Agreement and the other transactions contemplated to occur
on such date), a copy of which has been delivered to each Lender, was prepared
by Parent in accordance with generally accepted accounting principles.
(c) The forecasted consolidated (i) balance sheet, (ii) profit and loss
statement, (iii) cash flow statement and (iv)
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capitalization statement, together with supporting details and a statement of
underlying assumptions, copies of which have been delivered to each Lender, have
been prepared by the Company in light of the past operations of the business of
the Company and its Subsidiaries and are based upon, as of the Amendment
Effective Time, the good faith estimate of the Company and its senior
management, historical financial information and assumptions the Company deems
reasonable and appropriate in light of current circumstances (it being
understood that such forecasted data do not constitute a representation or
warranty that the results stated therein will be achieved).
(d) Other than any liability incident to any litigation or proceedings set
forth in Schedule 9.6 and such other Contingent Liabilities set forth on such
Schedule 9.6 and the guaranties of the Senior Company Notes by the Company's
Subsidiaries, neither Parent nor any of its Subsidiaries has any material
contingent liabilities not provided for or disclosed in the financial statements
referred to in clause (a).
9.5 No Material Adverse Change. Since September 30, 1995, no event or
events have occurred which, individually or in the aggregate, have had or are
reasonably likely to have a Material Adverse Effect.
9.6 Litigation. Except as set forth in Schedule 9.6, no litigation,
arbitration, governmental investigation, proceeding or inquiry is pending, or,
to the best knowledge of Parent and the Company (after due inquiry), threatened
against Parent or any of its Subsidiaries:
(a) (i) which seeks to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, (x) the loan
and equity transactions contemplated by the Transaction Documents (other
than any such litigation, arbitration, governmental investigation,
proceeding or inquiry with respect to the Stockholders' Agreement brought
by or against or affecting any Person (except any Lender or any initial or
successive transferee of any Lender) Beneficially Owning less than 5% of
the capital stock of Parent), or (y) any material agreement pursuant to
which equity capital is contributed to Parent or Parent's capital stock is
issued (it
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being understood that a material agreement for purposes of this clause (y)
would be an agreement entered into with a Person Beneficially Owning 5% or
more of the capital stock of Parent), or (ii) which relates to the validity
of any of the foregoing agreements or instruments (subject to the foregoing
qualifications); or
(b) which is a development in the litigation, arbitration,
governmental investigation, proceeding or inquiry set forth in such
Schedule 9.6 (i) that would have or is reasonably likely to have a Material
Adverse Effect or (ii) that is reasonably likely to adversely affect the
Lenders and that arises with respect to any of the agreements described in
clause (a) above or any transactions contemplated hereby or thereby; or
(c) which otherwise could reasonably be expected to have a Material
Adverse Effect.
9.7 Ownership of Properties; Liens. Each of Parent, the Company and each
Subsidiary owns good and marketable title to, or a valid leasehold interest in,
or a valid right to use, all of its Golf Course Properties and all other
properties and assets, real and personal, tangible and intangible, of any nature
whatsoever (including patents, trademarks, trade names, service marks and
copyrights), free and clear of all Liens, charges and claims (including
infringement claims with respect to patents, trademarks, copyrights and the
like) except as permitted pursuant to Section 10.8.
9.8 Subsidiaries; Capitalization.
(a) As of the Amendment Effective Time, the Company has no
Subsidiaries except those listed in Schedule 9.8.
(b) Parent has no Subsidiaries except the Company.
(c) Schedule 9.8 sets forth each class of capital stock of Parent that
is outstanding on a fully diluted basis on the Amendment Effective Time,
and which is intended to be issued promptly following the Amendment
Effective Time, and each person to whom more than 2% of the outstanding
shares of such
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capital stock is or will be issued and the percentage of such common stock
Beneficially Owned by such Person.
9.9 Pension and Welfare Plans. Except as disclosed to the Lenders in
writing prior to the Amendment Effective Time, during the twelve-consecutive-
month period prior to the date of the execution and delivery of this Agreement
or the making of any Credit Extension hereunder, (a) no steps have been taken to
terminate any Pension Plan which would be reasonably likely to result in Parent
or the Company being required to make a contribution to such Pension Plan, or
incurring a liability or obligation to such Pension Plan, in excess of $250,000,
and (b) no contribution failure has occurred with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition
exists or event or transaction has occurred with respect to any Pension Plan
which could result in the incurrence by Parent or the Company of any material
liability, fine or penalty under ERISA or the Internal Revenue Code. Except as
set forth on Schedule 9.9, neither Parent nor the Company has any contingent
liability with respect to any post-retirement benefit under a Welfare Plan,
other than liability for continuation coverage described in Part 6 of subtitle B
of title I of ERISA.
9.10 Investment Company Act. Neither Parent, the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
9.11 Public Utility Holding Company Act. Neither Parent, the Company nor
any Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
9.12 Regulations G, T, U and X. Neither Parent nor the Company is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying Margin Stock. None of the
proceeds of any Credit Extension will be used for the purpose of, or be made
available by Parent, the Company or any of its Subsidiaries in any manner to any
other Person to enable or assist such Person in, purchasing or carrying Margin
Stock.
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9.13 Taxes. Each of Parent, the Company and each Subsidiary has filed all
tax returns and reports required by law to have been filed by it and has paid
all taxes and governmental charges thereby shown to be owing, except (a) as
disclosed on Schedule 9.6 and (b) for any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with generally accepted accounting principles
shall have been set aside on its books.
9.14 Solvency, etc. At the Amendment Effective Time (or, in the case of any
Person which becomes a Guarantor after the Amendment Effective Time, on the date
such Person becomes a Guarantor), and immediately prior to and after giving
effect to each borrowing hereunder and the use of the proceeds thereof, (a) each
of Parent's, the Company's and each Guarantor's assets will exceed its
liabilities and (b) each of Parent, the Company and each Guarantor will be
solvent, will be able to pay its debts as they mature, will own property with
fair saleable value greater than the amount required to pay its debts as they
come due and will have capital sufficient to carry on its business as then
constituted.
9.15 Insurance. Set forth on Schedule 9.15 is a complete and accurate
summary of the property and casualty insurance program carried by Parent, the
Company and its Subsidiaries at the Amendment Effective Time, including the
insurer's(s') name(s), policy number(s), expiration date(s), amount(s) of
coverage, type(s) of coverage, the annual premium(s), Best's policyholder's and
financial size ratings of the insurer(s), exclusions, deductibles and self-
insured retention and a description in reasonable detail of (a) any
retrospective rating plan, fronting arrangement or other self-insurance or risk
assumption agreed to by Parent, the Company or any Subsidiary or imposed upon
Parent, the Company or any Subsidiary by any such insurer and (b) any self-
insurance program that is in effect.
9.16 Contracts; Labor Matters. Except as disclosed on Schedule 9.16: (a)
neither Parent, the Company nor any Subsidiary is a party to any contract or
agreement, or is subject to any charge, corporate restriction, judgment, decree
or order, which materially and adversely affects its business, property, assets,
operations or condition, financial or otherwise; (b) no labor
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contract to which Parent, the Company or any Subsidiary is a party or is
otherwise subject is scheduled to expire prior to the Reducing Revolver
Termination Date or the Working Capital Revolving Termination Date; (c) neither
Parent, the Company nor any Subsidiary has, within the two-year period preceding
the Amendment Effective Time, taken any action which would have constituted or
resulted in a "plant closing" or "mass layoff" within the meaning of the Federal
Worker Adjustment and Retraining Notification Act of 1988 or any similar
applicable federal, state or local law, and neither Parent nor the Company has
any reasonable expectation that any such action is or will be required at any
time prior to the Reducing Revolver Termination Date or the Working Capital
Revolving Termination Date; and (d)(i) neither Parent, the Company nor any
Subsidiary is a party to any labor dispute and (ii) there are no strikes or
walkouts relating to any labor contracts to which Parent, the Company or any
Subsidiary is a party or is otherwise subject.
9.17 Environmental and Safety and Health Matters. Except as disclosed on
Schedule 9.17, Parent, the Company and each of its Subsidiaries and each
property, operation and facility that Parent, the Company or any Subsidiary
owns, operates or controls (including, without limitation, each Golf Course
Property) (i) complies in all material respects with (A) all applicable
Environmental Laws and (B) all applicable Occupational Safety and Health Laws;
(ii) is not subject to any judicial or administrative proceeding alleging the
violation of any Environmental Law or Occupational Safety and Health Law; (iii)
has not received any notice (A) that it may be in violation of any Environmental
Law or Occupational Safety and Health Law, or (B) threatening the commencement
of any proceeding relating to allegedly unlawful, unsafe or unhealthy
conditions, or (C) alleging that it is or may be responsible for any response,
cleanup, or corrective action, including but not limited to any remedial
investigation/feasibility study, under any Environmental Law or Occupational
Safety and Health Law; (iv) is not the subject of federal or state investigation
evaluating whether any investigation, remedial action or other response is
needed to respond to (A) a spillage, disposal or release or threatened release
into the environment of any Hazardous Material, or (B) any allegedly unsafe or
unhealthful condition; (v) has not filed any notice under or relating to any
Environmental Law or Occupational Safety and Health Law indicating
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or reporting (A) any past or present spillage, disposal or release into the
environment of, or treatment, storage or disposal of, any Hazardous Material, or
(B) any potentially unsafe or unhealthful condition, and to the best of Parent's
and the Company's knowledge there exists no basis for such notice irrespective
of whether such notice was actually filed; and (vi) has no material contingent
liability in connection with (A) any actual or potential spillage, disposal or
release into the environment of, or otherwise with respect to, any Hazardous
Material, whether on any premises owned or occupied by Parent, the Company or
any Subsidiary or on any other premises, or (B) any unsafe or unhealthful
condition. Except as disclosed on Schedule 9.17, there are no Hazardous
Materials on, in or under any property or facilities owned, operated or
controlled by Parent, the Company or any Subsidiary (including, without
limitation, Golf Course Properties), including but not limited to such Hazardous
Materials that may be contained in underground storage tanks, but excepting
Hazardous Materials used in the ordinary course of the business of Parent, the
Company and its Subsidiaries and used, stored, handled, treated and disposed in
all material respects in accordance with all applicable laws, including
Environmental Laws and Occupational Safety and Health Laws.
9.18 Real Property. Set forth on Schedule 9.18 is a complete and accurate
list, as of the Amendment Effective Time, of the address and legal description
of any real property owned or leased by Parent, the Company or any Subsidiary
(including, without limitation, Golf Course Properties), together with, in the
case of leased property, the name and mailing address of the lessor of such
property.
9.19 Information. All written information heretofore or contemporaneously
herewith furnished by or on behalf of Parent, the Company or any Subsidiary to
any Lender for purposes of or in connection with this Agreement, the other Loan
Documents or the Senior Note Documents and the transactions contemplated hereby
and thereby is, and all written information hereafter furnished by or on behalf
of Parent, the Company or any Subsidiary to any Lender pursuant hereto or in
connection herewith will be true and accurate in every material respect on the
date as of which such information is dated or certified, and none of such
information is or will be incomplete by omitting to state any material fact
necessary to make
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such information not misleading; provided that the foregoing representation and
warranty shall be made not on an absolute basis but rather on the qualified
basis of to the best knowledge of Parent, the Company or such Subsidiary, as the
case may be, after due inquiry if such representation and warranty is made with
respect to historical information as to any Golf Course Property as to any date
prior to its acquisition by the Company or any Subsidiary or with respect to any
other information not prepared by or on behalf of Parent, the Company, any
Subsidiary, Brentwood or any of their respective Affiliates.
9.20 Patents, Trademarks, etc. Parent, the Company and each of its
Subsidiaries owns (or is licensed to use) and possesses all such patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, service mark rights, and copyrights as Parent and the Company considers
necessary for the conduct of the businesses of Parent and the Company and its
Subsidiaries as now conducted without, individually or in the aggregate, any
infringement or alleged infringement, except as disclosed in Schedule 9.6, upon
rights of other Persons which might reasonably be expected to have a Material
Adverse Effect, and there is no individual patent or patent license or trademark
or trademark right the loss or which might reasonably be expected to have a
Material Adverse Effect.
9.21 The Collateral Documents. The provisions of the Collateral Documents
executed by Parent, the Company or any Subsidiary in favor of the Agent securing
the Notes and all other Obligations from time to time outstanding hereunder and
under the other Loan Documents are effective to create, in favor of the Agent,
on behalf of the Lenders, a legal, valid and enforceable Lien in all right,
title and interest of Parent, the Company or such Subsidiary, as applicable, in
any and all of the collateral described therein, and when all appropriate
filings and recordings have been made, each of such Collateral Documents will
constitute a fully perfected Lien in all right, title and interest of Parent,
the Company or such Subsidiary in such collateral superior in right to any
Liens, existing or future, which Parent, the Company or such Subsidiary or any
creditors thereof or purchasers therefrom, or any other Person, may have against
such collateral or interests therein, except to the extent, if any, otherwise
provided therein or in this Agreement.
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SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments, the expiration or
cancellation of all Letters of Credit and thereafter until all Obligations of
Parent and the Company hereunder and under the other Loan Documents are paid in
full, each of Parent and the Company agrees that, unless at any time the
Required Lenders shall otherwise expressly consent in writing, it will:
10.1 Reports, Certificates and Other Information. Furnish to each Lender:
10.1.1 Annual Report. Promptly when available and in any event within 90
days after the close of each Fiscal Year, (a) a copy of the annual reports of
Parent and its Subsidiaries and the Company and its Subsidiaries, respectively,
for such Fiscal Year, including therein consolidated balance sheets of Parent
and its Subsidiaries and the Company and its Subsidiaries, respectively, as of
the end of such Fiscal Year and consolidated statements of earnings and cash
flow of Parent and its Subsidiaries and the Company and its Subsidiaries,
respectively, for such Fiscal Year, which reports (i) shall be certified by
Ernst & Young, or other independent auditors of recognized national standing
selected by Parent and reasonably acceptable to the Required Lenders, in an
audit report which shall be without qualification as to going concern or scope
and (ii) shall be accompanied by a written statement from such auditors to the
effect that in making the examination necessary for the signing of such audit
reports they have not become aware of any Event of Default or Unmatured Event of
Default that has occurred and is continuing or, if they have become aware of any
such event, describing it in reasonable detail; and (b) a copy of the
consolidating balance sheets of Parent and its Subsidiaries and the Company and
its Subsidiaries, respectively, as of the end of such Fiscal Year and
consolidating statements of earnings for Parent and its Subsidiaries and the
Company and its Subsidiaries, respectively, for such Fiscal Year, together with
a certificate of a Responsible Officer certifying that such financial statements
in clauses (a) and (b) fairly present the financial condition and results of
operations of Parent and its Subsidiaries and the Company and its Subsidiaries,
respectively, as of the dates and periods indicated.
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10.1.2 Quarterly Reports. Promptly when available and in any event within
45 days after the end of the first three Fiscal Quarters of each Fiscal Year,
consolidated and consolidating balance sheets of Parent and its Subsidiaries and
the Company and its Subsidiaries, respectively, as of the end of such Fiscal
Quarter and consolidated and consolidating statements of earnings and
consolidated statements of cash flow for such Fiscal Quarter and for the period
beginning with the first day of such Fiscal Year and ending on the last day of
such Fiscal Quarter, including with respect to statements of earnings a
comparison with the corresponding Fiscal Quarter and period of the previous
Fiscal Year and a comparison with the Budget for such Fiscal Quarter and for
such period of such Fiscal Year, together with a certificate of a Responsible
Officer to the effect that such financial statements fairly present the
financial condition and results of operations of Parent and its Subsidiaries and
the Company and its Subsidiaries, respectively, as of the dates and periods
indicated, subject to changes resulting from normal year-end adjustments.
10.1.3 Monthly Reports. Promptly when available and in any event within
30 days after the end of each month of each Fiscal Year, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such calendar month and consolidated and consolidating statements of earnings
and consolidated statements of cash flow for such month and for the period
beginning with the first day of such Fiscal Year and ending on the last day of
such month, including with respect to statements of earnings a comparison with
the corresponding month and period of the previous Fiscal Year and a comparison
with the Budget for such month and for such period of such Fiscal Year, together
with (a) a certificate of a Responsible Officer to the effect that such
financial statements fairly present the financial condition and results of
operations of the Company and its Subsidiaries as of the dates and periods
indicated, subject to changes resulting from normal year-end adjustments, and
(b) (i) for those Golf Course Properties with members, a report of the number of
members by membership category per Golf Course Property and (ii) such
information as the Company provided under the Original Credit Agreement in
respect of its Golf Course Properties.
10.1.4 Certificates. Contemporaneously with the furnishing of a copy of
each annual audit report pursuant to Section 10.1.1,
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and each set of quarterly statements pursuant to Section 10.1.2, a duly
completed certificate in the form of Exhibit B-1, with appropriate insertions,
dated the date of such annual report or such quarterly statements and signed by
a Responsible Officer of the Company, containing a computation of each of the
financial ratios and restrictions set forth in this Section 10 and to the effect
that such Responsible Officer has not become aware of any Event of Default or
Unmatured Event of Default that has occurred and is continuing or, if there is
any such event, describing it and the steps, if any, being taken to cure it.
10.1.5 Reports to SEC, Shareholders and Holders of Debt. Promptly upon
the filing or sending thereof, a copy of (a) any annual, periodic or special
report or registration statement (inclusive of exhibits thereto) filed with the
SEC or any securities exchange by Parent or the Company, (b) any report, proxy
statement or similar communication to Parent's or the Company's shareholders
generally and (c) all material notices, documents, or other instruments required
to be delivered pursuant to any agreement governing any Funded Debt of the
Company or any Subsidiary or any Debt of Parent (including, in each case,
without limitation any Senior Note Documents) and not otherwise required to be
delivered hereunder.
10.1.6 Budget, Etc. (i) Promptly upon completion thereof, but in no event
later than October 31 of each Fiscal Year, a copy of the Company's annual
statement of earnings forecast on a consolidated basis, including a forecasted
balance sheet and statement of cash flow, and an earnings forecast for each Golf
Course Property owned or operated by the Company or its Subsidiaries, in each
case on an annual basis for the three succeeding Fiscal Years, and (ii) promptly
upon completion thereof, but in no event later than October 31 of each Fiscal
Year, a copy of Parent's annual statement of earnings forecast on a consolidated
basis (the "Budget"), and an earnings forecast for each Golf Course Property
owned or operated by the Company or its Subsidiaries, in each case on a monthly
basis for the succeeding Fiscal Year.
10.1.7 Stockholders' Agreements. Promptly upon the execution and delivery
thereof, copies of any stockholder or similar agreement entered into by Parent
and any holder of the capital stock of Parent.
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10.1.8 Notice of Default, Litigation and ERISA Matters. Promptly (and in
any event within one Business Day in the case of clause (a) and within three
Business Days in the case of clauses (b) through (e)) after any officer of
Parent or the Company learns of any of the following, written notice describing
the same and the steps being taken by Parent, the Company or the Subsidiary
affected thereby with respect thereto:
(a) the occurrence of an Event of Default or an Unmatured Event of
Default;
(b) any litigation, arbitration or governmental investigation,
proceeding or inquiry not previously disclosed by Parent or the Company to
the Lenders which has been instituted or, to the knowledge of Parent or the
Company, is threatened against Parent, the Company or any Subsidiary or to
which any of the properties of any thereof is subject which has had or is
reasonably likely to have a Material Adverse Effect;
(c) any material adverse development which occurs in any litigation,
arbitration or governmental investigation, proceeding or inquiry previously
disclosed on Schedule 9.6 or pursuant to clause (b);
(d) the institution of any steps by Parent, the Company,
any of its Subsidiaries or any other Person to terminate any Pension Plan,
or the failure to make a required contribution to any Pension Plan if such
failure is sufficient to give rise to a Lien under Section 302(f) of ERISA,
or the taking of any action with respect to a Pension Plan which could
result in the requirement that Parent or the Company furnish a bond or
other security to the PBGC or such Pension Plan, or the occurrence of any
event with respect to any Pension Plan which could result in the incurrence
by Parent or the Company of any material liability, fine or penalty, or any
material increase in the contingent liability of Parent or the Company with
respect to any post-retirement Welfare Plan benefit; and
(e) the occurrence of any other event or circumstance which has had
or is reasonably likely to have a Material Adverse Effect.
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10.1.9 Subsidiaries. Promptly upon the occurrence thereof, a written
report of any change in the list of Subsidiaries of Parent or the Company.
10.1.10 Management Reports. Promptly upon the request of the Agent or any
Lender, copies of all detailed financial and management reports submitted to
Parent or the Company by independent auditors in connection with any annual or
interim audit made by such auditors of the books of Parent or the Company.
10.1.11 Insurance Information. Not later than 90 days after the end of
each Fiscal Year, a complete and accurate summary of the property and casualty
insurance program of Parent and the Company, containing substantially the same
information with respect to such insurance program as the information set forth
on Schedule 9.15; and promptly upon the occurrence thereof, a written report of
any change in Parent's or the Company's insurance program which will materially
reduce the amount or scope of coverage.
10.1.12 Capital Stock Ownership. Concurrently with the delivery of the
annual and quarterly financial statements described in Sections 10.1.1 and
10.1.2, a report showing the ownership of each class of capital stock of Parent
that is outstanding at the end of such Fiscal Quarter (which report need not
disclose the identity of any Person Beneficially Owning less than 2% of such
capital stock).
10.1.13 Update on Delayed Subsequent Acquisition Capital Expenditures.
Concurrently with the delivery of the annual and quarterly financial statements
described in Sections 10.1.1 and 10.1.2, a report showing changes to projected
Delayed Subsequent Acquisition Capital Expenditures during the previous Fiscal
Quarter, including amounts spent and remaining to be spent per Golf Course
Property.
10.1.14 Other Information. Promptly from time to time, such other
information concerning Parent, the Company and its Subsidiaries as any Lender or
the Agent may reasonably request.
10.2 Books, Records and Inspections. Keep, and cause each Subsidiary to
keep, its books and records in accordance with sound business practices
sufficient to allow the preparation of financial
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statements in accordance with generally accepted accounting principles; permit,
and cause each Subsidiary to permit, on reasonable notice and at reasonable
times and intervals (or at any time without notice during the existence of an
Event of Default or Unmatured Event of Default) any Lender or the Agent or any
representative thereof to inspect the properties and operations of the Company
and of such Subsidiary; and permit, and cause each Subsidiary to permit, on
reasonable notice and at reasonable times and intervals (or at any time without
notice during the existence of an Event of Default or Unmatured Event of
Default) any Lender or the Agent or any representative thereof to visit any or
all of its offices, to perform appraisals and audits of the Company's or such
Subsidiary's real and/or personal property, to discuss its financial matters
with its officers and, after notice to Parent or the Company, its independent
auditors (and each of Parent and the Company hereby authorizes such independent
auditors to discuss such financial matters with the Agent or any representative
thereof), and to examine (and, at the expense of the Company or the applicable
Subsidiary, photocopy extracts from) any of its books or other corporate
records. All such visits, appraisals, audits, discussions, and examinations
shall be at the Company's expense; provided that so long as no Event of Default
or Unmatured Event of Default exists, the Company shall not be required to pay
for more than two such visits, appraisals and audits in any Fiscal Year by the
Lenders (which visits, appraisals and audits shall be coordinated through the
Agent) and provided, further, that the Company shall not be required to pay for
any marketing visits made in the ordinary course of business by any Lender.
10.3 Insurance. Maintain, and cause each Subsidiary to maintain, with
reputable, financially sound insurance companies (rated at least A by A.M. Best
& Co.), insurance to such extent and against such hazards and liabilities as is
customarily maintained by companies similarly situated (and, in any event, such
insurance as may be required by any law or governmental regulation or any court
order or decree); and, upon request of the Agent or any Lender, furnish to the
Agent or such Lender a certificate setting forth in reasonable detail the nature
and extent of all insurance maintained by Parent, the Company and its
Subsidiaries.
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10.4 Compliance with Laws; Maintenance of Property; Payment of Taxes and
Liabilities.
(a) Comply, and cause each Subsidiary to comply, in all material
respects with all applicable laws, rules, regulations and orders the
noncompliance with which would be reasonably likely to have a Material
Adverse Effect;
(b) maintain or cause to be maintained, and cause each Subsidiary to
maintain or cause to be maintained, in good repair, working order and
condition (ordinary wear and tear excepted) all material properties
(including, without limitation, Golf Course Properties) used in its
business, and make, and cause each Subsidiary to make, all appropriate
repairs, renewals and replacements of such properties;
(c) pay, and cause each Subsidiary to pay, prior to delinquency, all
taxes and other governmental charges against it or any of its property;
provided, however, that the foregoing shall not require Parent, the Company
or any Subsidiary to pay any such tax or charge so long as it shall contest
the validity thereof in good faith by appropriate proceedings and shall set
aside on its books such reserves with respect thereto as are required by
generally accepted accounting principles; and
(d) not, and not permit any Subsidiary to, file or consent to the
filing of any consolidated income tax return with any Person other than
Parent.
10.5 Maintenance of Existence, etc. Maintain and preserve, and (subject
to Section 10.13) cause each Subsidiary to maintain and preserve, (a) its
existence and good standing in the jurisdiction of its incorporation and (b) its
qualification and good standing as a foreign corporation in each jurisdiction
where the nature of its business makes such qualification necessary, except
where the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect.
10.6 Financial Covenants.
10.6.1 Funded Debt to Adjusted EBITDA Ratio. Not permit the Funded Debt
to Adjusted EBITDA Ratio to exceed the following ratios as of the following
dates:
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<TABLE>
<CAPTION>
Fiscal Funded Debt to
Quarter Ending: Adjusted EBITDA Ratio
--------------- ---------------------
<C> <C>
06/30/96 7.00:1.00
09/30/96 7.00:1.00
12/31/96 7.00:1.00
03/31/97 7.00:1.00
06/30/97 6.75:1.00
09/30/97 6.75:1.00
12/31/97 6.75:1.00
03/31/98 6.50:1.00
06/30/98 6.00:1.00
09/30/98 5.70:1.00
12/31/98 5.40:1.00
03/31/99 5.00:1.00
06/30/99 4.60:1.00
09/30/99 4.25:1.00
12/31/99 3.85:1.00
03/31/00 3.55:1.00
06/30/00 3.30:1.00
09/30/00 and thereafter
3.00:1.00;
</TABLE>
10.6.2 Net Worth. Not permit, at any date, Net Worth to be less than the
sum of (a) $55,000,000, plus (b) 50% of Consolidated Net Income (if Consolidated
Net Income is positive) from April 1, 1996 to such date, plus (c) 100% of the
Net Cash Proceeds from any sale of capital stock of Parent, the Company or any
Subsidiary occurring after the Amendment Effective Time, plus (d) 100% of the
increase in Net Worth resulting from the purchase of a Golf Course Property or
any other asset after the Amendment Effective Time using capital stock of Parent
in consideration therefor.
10.6.3 Fixed Charge Coverage Ratio. Not permit the Fixed Charge Coverage
Ratio to be less than the following ratios as of the following dates:
<TABLE>
<CAPTION>
Fiscal Fixed Charge
Quarter Ending: Coverage Ratio
--------------- --------------
<C> <C>
06/30/96 1.00:1.00
09/30/96 1.00:1.00
12/31/96 1.10:1.00
</TABLE>
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<TABLE>
<CAPTION>
<C> <C>
03/31/97 1.15:1.00
06/30/97 1.30:1.00
09/30/97 1.35:1.00
12/31/97 1.35:1.00
03/31/98 1.40:1.00
06/30/98 1.40:1.00
09/30/98 1.35:1.00
12/31/98 1.25:1.00
03/31/99 1.15:1.00
06/30/99 1.05:1.00
09/30/99 and thereafter 1.00:1.00;
</TABLE>
10.6.4 Interest Coverage Ratio. Not permit the Interest Coverage Ratio to
be less than the following ratios as of the following dates:
<TABLE>
<CAPTION>
Fiscal Interest
Quarter Ending: Coverage Ratio
--------------- --------------
<C> <C>
06/30/96 1.25:1.00
09/30/96 1.25:1.00
12/31/96 1.35:1.00
03/31/97 1.40:1.00
06/30/97 1.55:1.00
09/30/97 1.60:1.00
12/31/97 1.60:1.00
03/31/98 1.60:1.00
06/30/98 1.70:1.00
09/30/98 1.75:1.00
12/31/98 1.85:1.00
03/31/99 1.95:1.00
06/30/99 2.05:1.00
09/30/99 2.15:1.00
12/31/99 2.30:1.00
03/31/00 2.45:1.00
06/30/00 2.65:1.00
09/30/00 2.80:1.00
12/31/00 2.95:1.00
03/31/01 and thereafter
3.00:1.00;
</TABLE>
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10.6.5 Bank Debt to Adjusted EBITDA Ratio. Not permit the Bank Debt to
Adjusted EBITDA Ratio to exceed the following ratios as of the following dates:
<TABLE>
<CAPTION>
Fiscal Bank Debt to
Quarter Ending: Adjusted EBITDA Ratio
--------------- ---------------------
<C> <C>
06/30/96 2.85:1.00
09/30/96 2.85:1.00
12/31/96 2.85:1.00
03/31/97 2.85:1.00
06/30/97 2.50:1.00
09/30/97 2.50:1.00
12/31/97 2.50:1.00
03/31/98 2.50:1.00
06/30/98 2.25:1.00
09/30/98 2.00:1.00
12/31/98 1.75:1.00
03/31/99 1.55:1.00
06/30/99 1.35:1.00
09/30/99 1.05:1.00
12/31/99 and thereafter 1.00:1.00;
</TABLE>
10.7 Limitations on Debt. Not, and not permit any Subsidiary to, create,
incur, assume or suffer to exist any Debt, except
(a) obligations arising under (i) the Loan Documents and (ii) the
Senior Note Documents (as such Senior Note Documents may be amended or
modified in compliance with Section 10.22);
(b) Debt of the Company or any Subsidiary in respect of Capital
Leases or Debt secured by a Lien on the assets acquired with the proceeds
thereof (including, without limitation, in each case, such Debt assumed in
connection with a Subsequent Acquisition) in an aggregate principal amount
not to exceed $7,500,000;
(c) unsecured Debt of Subsidiaries to the Company or to other
Subsidiaries; provided that if such Debt is evidenced by a promissory note
or other instrument that may be pledged by possession, such note or other
instrument shall be pledged to the Agent for the benefit of the Lenders;
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(d) unsecured Debt of the Company to Subsidiaries; provided that if
such Debt is evidenced by a promissory note or other instrument that may be
pledged by possession, such note or other instrument shall be pledged to
the Agent for the benefit of the Lenders;
(e) at any date, Hedging Agreements entered into by the Company or
any Subsidiary intended to hedge interest rate risk relating to the Loans,
in a notional principal amount not to exceed the principal amount of the
Loans outstanding on such date;
(f) Contingent Liabilities of the Company or any Subsidiary in
respect of any obligation of Parent, the Company or any Subsidiary
permitted under this Agreement;
(g) Debt in respect of taxes, assessments or governmental charges to
the extent that payment thereof shall not at the time be required to be
made in accordance with Section 10.4;
(h) other Debt of the Company or any Subsidiary outstanding at the
Amendment Effective Time and listed under the heading "Continuing Debt" in
Schedule 10.7 or hereafter incurred in connection with Liens permitted by
Section 10.8, and extensions, renewals and refinancings of any Debt
described in this clause (h) so long as the principal amount thereof is not
increased;
(i) Debt of the Company or any Subsidiary consisting of usual and
customary purchase price adjustments and indemnities under contracts to
purchase or sell Golf Course Properties or other assets;
(j) the Existing Loans (provided that all such Debt shall be
refinanced in accordance with Section 1.2 at the Amendment Effective Time);
and
(k) other Debt of the Company or any Subsidiary, in addition to Debt
permitted by the foregoing clauses of this Section 10.7, not exceeding
$1,000,000 in the aggregate in outstanding principal amount.
10.8 Liens. Not, and not permit any Subsidiary to, create or
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permit to exist any Lien on any of its real or personal properties, assets or
rights of whatsoever nature (whether now owned or hereafter acquired), except
(a) Liens for taxes or other governmental charges not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and, in each case, for which it maintains
reserves required by this Agreement;
(b) Liens arising in the ordinary course of business (such as (i)
Liens of carriers, warehousemen, mechanics and materialmen and other
similar Liens imposed by law and (ii) Liens incurred in connection with
worker's compensation, unemployment compensation and other types of social
security (excluding Liens arising under ERISA) or in connection with surety
and appeal bonds, bids, performance bonds and similar obligations) for sums
not overdue or being contested in good faith by appropriate proceedings and
not involving any deposits or advances or borrowed money or the deferred
purchase price of property or services, and, in each case, for which it
maintains adequate reserves;
(c) Liens existing at the Amendment Effective Time and identified on
Schedule 10.8;
(d) Liens in connection with Debt permitted under Section 10.7(b), so
long as such Liens do not encumber any assets other than the assets
financed by such Debt;
(e) attachments, judgments and other similar Liens, for sums not
exceeding $250,000 (excluding any portion thereof which is covered by
insurance so long as the insurer is reasonably likely to be able to pay and
has accepted a tender of defense and indemnification) arising in connection
with court proceedings, provided the execution or other enforcement of such
Liens is effectively stayed and claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or
irregularities in title, rights of lessors or sublessors, and other similar
Liens not interfering in any material respect with the ordinary conduct of
the business of
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the Company and its Subsidiaries taken as a whole;
(g) leases or subleases granted by the Company or any Subsidiary in
the ordinary course of its business;
(h) extensions, renewals or replacements of any Lien permitted by the
foregoing provisions of this Section 10.8, but only if the principal amount
of the Debt secured thereby immediately prior to such extension, renewal or
replacement is not increased and such Lien is not extended to any other
property;
(i) Liens in favor of the Agent for the benefit of the Lenders; and
(j) escrow accounts, "good faith" deposits or similar deposits in
connection with any Subsequent Acquisition or Asset Sale permitted in
accordance with Section 10.12(i).
10.9 Capital Expenditures. Not, and not permit any Subsidiary to, make or
commit to make any Capital Expenditures except
(a) Delayed Subsequent Acquisition Capital Expenditures relating to
any Golf Course Property acquired after the Amendment Effective Time in
accordance with Section 2.5 or 2.6, as applicable,
(b) Maintenance Capital Expenditures in an amount not to exceed,
without duplication the sum of (x) the first $1,000,000 in Net Cash
Proceeds from all Asset Sales received in any Fiscal Year and (y) the
amount of any proceeds of casualty insurance not required to be prepaid in
accordance with the definition of "Asset Sale",
(c) any Maintenance Capital Expenditures (in addition to those
permitted by clause (b) above) so long as, after giving effect to all
Maintenance Capital Expenditures under this clause (c), the aggregate
amount of all such Maintenance Capital Expenditures under this clause (c)
made by the Company and its Subsidiaries during any Fiscal Year shall not
exceed 3.5% of consolidated net revenues of Parent and its Subsidiaries for
the immediately preceding Fiscal Year; provided that any amounts of
permitted Maintenance Capital
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<PAGE>
Expenditures under this clause (c) not spent in any Fiscal Year may be
carried over and spent in the next succeeding Fiscal Year; provided,
further, that in any such succeeding Fiscal Year, the amount of such
Maintenance Capital Expenditures spent in such Fiscal Year shall be
allocated first against the permitted amount of Maintenance Capital
Expenditures for such Fiscal Year until such entire permitted amount is
used and second against any carryover amount arising from the preceding
proviso,
(d) Capital Expenditures ("Designated Non-Recurring Capital
Expenditures"), in an amount not to exceed $7,500,000 in aggregate during
the term of this Agreement, for purposes of non-recurring improvements at
Golf Course Properties owned by the Company or its Subsidiaries at the
Amendment Effective Time or acquired thereafter in accordance with Section
2.5, in accordance with Section 2.6(c), and
(e) Cash Flow Subsequent Acquisition Capital Expenditures to the
extent such Capital Expenditures would be permitted hereunder as Delayed
Subsequent Acquisition Capital Expenditures.
10.10 Operating Leases. Not permit the aggregate amount of all payments
by the Company and its Subsidiaries as lessee under operating leases to exceed
[$350,000] in any Fiscal Year; provided that the foregoing limitation shall not
apply to the leases relating to (a) the Balboa Park Municipal Golf Course,
located in San Diego, California, (b) the Saticoy Golf Course, located in
Ventura, California and (c) The Vineyard at Escondido Golf Course, located in
Escondido, California; and provided further that the Company and its
Subsidiaries shall be permitted to enter into operating leases for Golf Course
Properties under which the lessor is National Golf Operating Partners, L.P. with
aggregate payments (including payments under the operating leases relating to
the Carmel Mountain Ranch Country Club and Golf Course, located in San Diego,
California and Sweetwater Country Club, located in Houston,
Texas) not to exceed (x) for the period from the Amendment Effective Time
through September 30, 1997, $5,000,000, (y) for the period from October 1, 1997
through September 29, 1998, $7,500,000 and (z) thereafter, $10,000,000 in any
Fiscal Year.
10.11 Dividends, etc. Not, and not permit any Subsidiary to, (a) declare
or pay any dividends on any of its capital stock (other
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<PAGE>
than stock dividends), (b) purchase or redeem any capital stock of Parent or any
of its Subsidiaries or any warrants, options or other rights in respect of such
stock, (c) make any other distribution to shareholders of Parent or any
Subsidiary, (d) prepay, purchase or redeem any Debt issued under the Senior Note
Documents or any Subordinated Debt or (e) set aside funds for any of the
foregoing; except that:
(i) any Subsidiary may pay dividends to the Company or to any other
Wholly-Owned Subsidiary; and
(ii) the Company may make payments to Parent in an amount required
to permit Parent to pay any federal, state or local income tax
liability of Parent; provided that no such amount shall exceed
the amount which the Company and its Subsidiaries would have had
to pay if the Company and its Subsidiaries were not members of an
affiliated group filing consolidated returns with Parent (and
Parent shall immediately return any refund, rebate or credit
received by Parent to the Company if, after giving effect to such
refund, rebate or credit, this proviso would be violated);
(iii) not less than ten Business Days after the Company has delivered
to the Lenders a written statement setting forth a description of
the "put" rights of the holder of capital stock of Parent issued
upon exercise of any Original Bank Warrant then being exercised
in accordance with Article IX of any Original Bank Warrant, and
not more than two Business Days before such amount is due and
payable, the Company may make payments to Parent in an amount
required to permit Parent to repurchase such capital stock of
such holder required by such "put" provisions of such Original
Bank Warrant;
(iv) so long as no Event of Default or Unmatured Event of Default
exists or would result therefrom, the Company or any Subsidiary
may purchase stock of any minority shareholder of a Subsidiary;
provided that the aggregate amount of all such purchases during
the term of this Agreement shall not exceed $950,000;
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(v) so long as no Event of Default or Unmatured Event of Default
exists or would result therefrom, the Company may make payments
to Parent in an amount required to purchase or redeem capital
stock of Parent from any individual (or the estate or heirs of
any individual) who has ceased to be an officer, director or
employee of Parent, the Company or any of its Subsidiaries;
provided that the aggregate amount of all such purchases in any
Fiscal Year shall not exceed $300,000;
(vi) Parent may make payments to members of Parent's board of
directors for customary directors' fees (so long as such payments
do not exceed $25,000 in any Fiscal Year), and reasonable travel
and other expenses of such directors;
(vii) Ocean Vista Land Company may make payments of dividends with
respect to preferred stock of Ocean Vista Land Company
outstanding on January 31, 1994;
(viii) the Company may make payments to Parent in order to pay
fees and expenses permitted under Section 10.16 and reasonable
general and administrative expenses not to exceed $100,000 in any
consecutive Four Fiscal Quarters; and
(ix) the Company may make distributions to Parent to pay liquidated
damages due on the Senior Zero-Coupon Notes as in effect at the
Amendment Effective Time.
10.12 Investments. Not, and not permit any Subsidiary to, make, incur,
assume or suffer to exist any Investment in any other Person, except:
(a) Investments existing at the Amendment Effective Time and
identified in Schedule 10.12;
(b) Cash Equivalent Investments;
(c) Investments by Parent in the Company, and Investments by the
Company in its Subsidiaries or by any Subsidiary in any other Subsidiary,
in the form of contributions to capital or loans or advances;
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(d) Investments by the Company or any Subsidiary in any Subsidiary,
in the form of capital contributions existing at the Amendment Effective
Time;
(e) loans or advances made by any Subsidiary to the Company;
(f) loans or advances to officers and employees of the Company or of
any Subsidiary for travel, relocation, or other
ordinary business expenses not in excess of $250,000 in the aggregate at
any time;
(g) advances to Parent permitted in accordance with Sections 10.11
and 10.16;
(h) bank deposits of the Company or any Subsidiary in the ordinary
course of business (i) with any Lender or any financial institution that is
a member of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than $500,000,000, (ii) held in
refundable and non-refundable escrow accounts, "good faith" deposits or
similar deposits or payments made in connection with a Subsequent
Acquisition pursuant to the purchase agreement related to such Subsequent
Acquisition, so long as the aggregate amount thereof permitted by this
clause (ii) does not at any time exceed $1,250,000 (provided that (x) no
such accounts, deposits or payments that are non-refundable may be made
prior to the approval of the applicable purchase agreement for such
Subsequent Acquisition by the Board of Directors of the Company and (y) no
more than $750,000 of such accounts, deposits or payments may be non-
refundable), or (iii) with any other commercial banking institution so long
as all deposits permitted by this clause (iii) do not at any time exceed
$250,000;
(i) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods and services in
the ordinary course of business; and
(j) Subsequent Acquisitions permitted by Section 2.5.
10.13 Mergers, Consolidations, Sales, Capital Stock Issuances, Etc. Not,
and not permit any Subsidiary to, be a party to any merger or consolidation, or
purchase or otherwise acquire
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all or substantially all of the assets or any stock of any class of, or any
partnership or joint venture interest in, any other Person, or, except in the
ordinary course of its business, sell, transfer, convey or lease any of its
assets, or sell or assign with or without recourse any receivables, or issue any
capital stock, except for
(a) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing or would result therefrom, any such merger or
consolidation, sale, transfer, conveyance, lease or assignment of or by any
Wholly-Owned Subsidiary into the Company or into, with or to any other
Wholly-Owned Subsidiary,
(b) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing or would result therefrom, any such purchase or
other acquisition by the Company or any Wholly-Owned Subsidiary of the
assets or stock
of any Wholly-Owned Subsidiary,
(c) Investments (including Investments by way of merger) permitted by
Section 10.12,
(d) Subsequent Acquisitions if permitted by Section 2.5,
(e) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing or would result therefrom, any Asset Sales for
an aggregate purchase price not exceeding $15,000,000 during the term of
this Agreement; provided that the Net Cash Proceeds thereof shall be
applied in accordance with Section 6.3.1,
(f) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing or would result therefrom, issuances of shares
of Qualified Capital Stock of Parent to (x) members of management or
directors of Parent and/or (y) the Person selling any Golf Course Property
or interest in a Person that holds a Golf Course Property in a Subsequent
Acquisition, in an aggregate amount during the period this Agreement shall
remain in effect, for the shares of any class or series for both clauses
(x) and (y) together, of 15% of the total outstanding shares of such class
or series of capital stock of Parent as of the Amendment Effective Time
(but giving effect to the issuances described in clause (x)(i)
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of the definition of Equity Securities Sale); provided that any issuance of
capital stock described in clause (x)(i) of the definition of Equity
Securities Sale may be made irrespective of the existence of any Unmatured
Event of Default, and
(g) so long as no Event of Default or Unmatured Event of Default has
occurred and is continuing or is reasonably likely to result therefrom, any
other issue of Qualified Capital Stock of the Company or Parent (in
addition to those permitted under clause (f) above), provided that the Net
Cash Proceeds thereof are applied (if required by the definition of Equity
Securities Sale) in accordance with Section 6.3.3.
10.14 Guaranty and Collateral Documents. Immediately upon the creation or
acquisition of any Subsidiary, whether or not in connection with any Subsequent
Acquisition,
(a) cause such Subsidiary to execute and deliver a counterpart of the
Guaranty;
(b) deliver or cause to be delivered all shares of capital stock of
such Subsidiary owned by Parent or any of its Subsidiaries to the Agent in
accordance with the Company Pledge Agreement or a Subsidiary Pledge
Agreement, as applicable;
(c) cause such Subsidiary to execute and deliver a counterpart of the
Security Agreement and to take such action in connection therewith
(including, without limitation, executing UCC financing statements), as the
Agent shall find necessary or convenient to obtain a first priority
perfected security interest on the accounts receivable, inventory,
equipment, general intangibles, and other personal property of such
Subsidiary (subject to Liens permitted by this Agreement); and
(d) grant to the Agent, for the benefit of the Lenders, a Mortgage on
all material real property owned or leased by such Subsidiary.
10.15 Use of Proceeds. Not use or permit any proceeds of any Credit
Extension to be used, either directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, (a) of
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"purchasing or carrying" any Margin Stock, (b) that would be inconsistent with
the second sentence of Section 2.1.1 or 2.1.2, as applicable, or (c) of
purchasing or otherwise acquiring any stock of any Person if such Person (or its
board of directors) has (i) announced that it will oppose such purchase or other
acquisition or (ii) commenced any litigation which alleges that such purchase or
other acquisition violates, or will violate, applicable law.
10.16 Transactions with Affiliates. Not, and not permit any Subsidiary
to, enter into or cause, suffer or permit to exist any transaction, arrangement
or contract with any of its other Affiliates (other than Parent, the Company or
any Subsidiary) which is on terms which are less favorable than are obtainable
from any Person which is not one of its Affiliates. Without limiting the
foregoing, neither Parent nor the Company will, and will not permit any
Subsidiary to, pay any management, consulting or similar fee to any Affiliate
(other than to Parent, the Company or a Subsidiary); provided that, so long as
there exists and is continuing no Event of Default under Section 12.1.1, the
Company may (a) pay fees and reimburse expenses to Brentwood Buyout Partners,
L.P. in accordance with that certain Corporate Development and Administrative
Services Agreement dated as of September 30, 1992 between Brentwood Buyout
Partners, L.P. and The Sticks Group, Inc., as in effect on the Amendment
Effective Time and (b) pay investment banking fees to Brentwood not to exceed
1-1/2% of the amount of Permitted Acquisition Costs for any Subsequent
Acquisition(with such Permitted Acquisition Costs to be calculated without
taking into account such investment banking fees payable to Brentwood).
10.17 Employee Benefit Plans. Maintain, and cause each Subsidiary to
maintain, each Pension Plan in compliance in all material respects with all
applicable requirements of law and regulations, and, without limiting the
generality of the foregoing, not at any time permit the aggregate accumulated
benefit obligations of all Pension Plans to exceed the aggregate assets of all
Pension Plans (as shown on the most recent Form 5500 filed with the Internal
Revenue Service with respect to each such Pension Plan).
10.18 Environmental Covenants.
10.18.1 Environmental Response Obligation. (a) Comply, and cause each
Subsidiary to comply, in all material respects with any Federal or state
judicial or administrative order requiring the
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performance at any real property owned, operated or leased by Parent, the
Company or any Subsidiary (including, without limitation, Golf Course
Properties) of activities in response to the release or threatened release of a
Hazardous Material, except for the period of time that Parent, the Company or
such Subsidiary is diligently in good faith contesting such order; (b) notify
the Agent within ten days of the receipt of any written claim, demand,
proceeding, action or notice of liability by any Person arising out of or
relating to the release or threatened release of a Hazardous Material; and (c)
notify the Agent within ten days of any release, threat of release, or disposal
of Hazardous Material reported by Parent, the Company or any Subsidiary to any
governmental or regulatory authority at any real property owned, operated, or
leased by Parent, the Company or any Subsidiary (including, without limitation,
Golf Course Properties).
10.18.2 Environmental Liabilities. (a) Comply, and cause each Subsidiary
to comply, in all material respects with all material Environmental Laws; (b)
without limiting clause (a), not commence disposal of any Hazardous Material
into or onto any real property owned, operated or leased by Parent, the Company
or any Subsidiary (including, without limitation, Golf Course Properties) except
in compliance in all material respects with Environmental Laws; and (c) without
limiting clause (a), not allow any Lien imposed pursuant to any law, regulation
or order relating to Hazardous Materials or the disposal thereof to remain on
any real property owned, operated or leased by Parent, the Company or any
Subsidiary (including, without limitation, Golf Course Properties).
10.18.3 Environmental Notices. Without limiting Section 10.18.1 or any
other provision of this Agreement,
(a) promptly notify the Agent and provide copies upon receipt of all
written claims, complaints, notices or inquiries relating to the condition
of its facilities and properties (including, without limitation, Golf
Course Properties) or compliance with all Environmental Laws and
Occupational Health and Safety Laws, to the extent that such condition or
non-compliance would reasonably be likely to have a Material Adverse
Effect, and promptly cure and have dismissed with prejudice (or diligently
contest) to the satisfaction of the Agent any actions and proceedings
relating to compliance with such Laws; and
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(b) provide such information and certifications which the Agent may
reasonably request from time to time to evidence compliance with this
Section.
10.19 Unconditional Purchase Obligations. Not, and not permit any
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.
10.20 Inconsistent Agreements. Not, and not permit any Subsidiary to,
enter into any agreement containing any provision which would be violated or
breached by any Credit Extension by the Company hereunder or by the performance
by Parent, the Company or any Subsidiary of any of its Obligations hereunder or
under any other Transaction Document.
10.21 Further Assurances. Take, and cause each Subsidiary to take, such
actions as may be required, and such actions as the Agent may reasonably
request, from time to time (including, without limitation, the execution and
delivery of guaranties, security agreements, pledge agreements, mortgages, stock
powers, financing statements and other documents, the filing or recording of any
of the foregoing, and the delivery of stock certificates and other collateral
with respect to which perfection is obtained by possession) to ensure that (a)
the Obligations of Parent and the Company hereunder and under the other Loan
Documents are secured by first priority perfected security interests and Liens
on substantially all assets of Parent and the Company (subject to Liens
permitted hereunder) and guaranteed by all Subsidiaries (including, promptly
upon the acquisition or creation thereof, any Subsidiary created or acquired
after the date hereof) and (b) the Obligations of each Subsidiary under the
Guaranty are secured by substantially all of the assets of such Subsidiary
(subject to Liens permitted hereunder), subject, in the case of both clause (a)
and clause (b) above, to such exceptions as the Agent or the Required Lenders
may permit from time to time.
10.22 Modification, etc. of Certain Agreements. Not consent to or enter
into any amendment, supplement or other modification of
(a) any material term, provision or agreement contained
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in the certificate of incorporation of Parent or the Company if such
amendment, supplement or other modification is reasonably likely to be
adverse in any material respect to the Lenders; or
(b) any material term, provision or agreement of the Stockholders'
Agreement, any Additional Bank Warrant, any Original Bank Warrant, any
Senior Note Document, or any lease relating to the Balboa Park Municipal
Golf Course Golf Course Property located in San Diego, California, Saticoy
Golf Course Property, located in Ventura, California, The Vineyard at
Escondido Golf Course Property located in Escondido, California, and the
Carmel Mountain Ranch Country Club and Golf Course, located in San Diego,
California, if such amendment, supplement or other modification is
reasonably likely to be adverse in any material respect to the Lenders.
10.23 Negative Pledges; Subsidiary Payments. Not, and not permit any
Subsidiary to, enter into any agreement (excluding this Agreement or any
Transaction Document) (a) prohibiting the creation or assumption of any Lien
upon its properties, revenues, or assets, whether now owned or hereafter
acquired, or (b) which would restrict the ability of any Subsidiary to pay or
make dividends or distributions in cash or kind, to make loans, advances or
other payments of whatsoever nature, or to make transfers or distributions of
all or any part of its assets, in each case to the Company or to any corporation
as to which such Subsidiary is a Subsidiary, except (i) non-assignment clauses
in existing leases and future leases or agreements relating to purchase money
financing permitted hereunder (other than future leases or purchase money
agreements of Golf Course Properties) and (ii) security agreements, pledge
agreements and similar instruments existing on the Amendment Effective Time.
10.24 Fiscal Year. Not change its Fiscal Year.
[10.25 TAX SHARING AGREEMENTS. NOT ENTER INTO ANY TAX SHARING OR SIMILAR
AGREEMENT OR ARRANGEMENT OTHER THAN AS MAY BE APPROVED IN WRITING BY THE
REQUIRED LENDERS.]
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10.26 Conduct of Business.
(a) In the case of Parent, not engage in any business other than the
ownership of all of the Company's capital stock and the issuance of the
Senior Zero-Coupon Notes.
(b) In the case of the Company, not, and not permit any Subsidiary to,
engage in any business other than (i) the ownership and management of golf
courses and related facilities located in the United States (excluding
Puerto Rico, and the territories and possessions of the United States) and
(ii) businesses closely related thereto.
SECTION 11 CONDITIONS OF CREDIT EXTENSIONS.
SECTION 11.1 Amendment Effective Time. On and from the first date that the
Agent shall have received counterparts of this Agreement duly executed by the
Company, Parent, the Agent and each Lender listed on the signature pages hereof,
and that each of the conditions in Sections 11.2, 11.3 and 11.4 shall have been
satisfied, the terms and conditions of the Existing Credit Agreement shall be
superseded and restated in their entirety by the terms and conditions of this
Agreement and this Agreement shall take effect. This Agreement shall not
constitute a novation, and the execution and delivery by the Company of this
Agreement and the Notes is in substitution for, but not in payment of, the
Company's obligations incurred under or evidenced by the Existing Credit
Agreement and the "Notes" delivered thereunder and as defined therein. In
addition, it is the intention of the parties that the Liens created under the
"Collateral Documents" (as defined in the Original Agreement) shall remain in
full force and effect under this Agreement and the Collateral Documents
hereunder, without any loss or impairment of perfection or priority.
The Agent shall give notice to the Company and to each Lender that the
Amendment Effective Time has occurred. Each agreement, opinion or certificate
described in Sections 11.2, 11.3 and 11.4 shall be dated the date of the
Amendment Effective Time, unless the applicable subsection of any such Section
explicitly provides otherwise or the Agent in its sole discretion allows
otherwise.
11.2 Documentary Conditions. The occurrence of the Amendment Effective
Time is, in addition to the conditions precedent specified in Sections 11.3 and
11.4, subject to the conditions
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precedent that the Agent shall have received, on or prior to June 28, 1996, all
of the following documents described in this Section 11.2, each duly executed
and dated the Amendment Effective Time (or such earlier date as shall be
satisfactory to the Agent), in form and substance satisfactory to the Agent, and
each (except for the Notes, of which only the originals shall be signed) in
sufficient number of signed counterparts to provide one for each Lender:
11.2.1 Notes. The Notes.
11.2.2 Resolutions. Certified copies of resolutions of the Board of
Directors of each of Parent and the Company authorizing or ratifying the
execution, delivery and performance by each of Parent and the Company, as
applicable, of the Loan Documents and Senior Note Documents to which it is a
party; and certified copies of resolutions of the Board of Directors of each
Guarantor authorizing or ratifying the execution, delivery and performance by
such Guarantor of the Guaranty and the other Loan Documents to which such
Guarantor is a party.
11.2.3 Consents, etc. Certified copies of all documents evidencing any
necessary corporate action, material consents and governmental approvals (if
any) required for the execution, delivery and performance by Parent, the Company
and each Guarantor of the Loan Documents and Senior Note Documents to which such
Person is a party.
11.2.4 Incumbency and Signature Certificates. A certificate of the
Secretary or an Assistant Secretary of Parent, the Company and each Guarantor
certifying the names of the officer or officers of such Person authorized to
sign the Loan Documents and Senior Note Documents to which such Person is a
party, together with a sample of the true signature of each such officer (it
being understood that the Agent and each Lender may conclusively rely on each
such certificate until formally advised by a like certificate of any changes
therein).
11.2.5 Guaranty. An amended and restated guaranty, substantially in the
form of Exhibit C, executed by the Guarantors (other than Parent) (as amended,
supplemented or otherwise modified from time to time, the "Guaranty").
11.2.6 Security Agreement, etc. An amended and restated
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security agreement, substantially in the form of Exhibit D (as amended,
supplemented or otherwise modified from time to time, the "Security Agreement")
issued by Parent, the Company and each Guarantor, together with evidence,
satisfactory to the Agent, that all filings and recordings necessary to maintain
the Agent's Lien on any collateral granted under the Security Agreement have
been duly made and are in full force and effect (subject to such exceptions as
the Agent may approve).
11.2.7 Pledge Agreements. Each of
(a) an amended and restated pledge agreement, substantially in the
form of Exhibit E-1, issued by the Company (as amended, supplemented or
otherwise modified from time to time, the "Company Pledge Agreement"),
(b) amended and restated pledge agreements, each substantially in the
form of Exhibit E-2, issued by each of Foothills Holding Company, Inc., a
Nevada corporation, OVLC Management Corp., a California corporation, and
Ocean Vista Land Company, a California corporation (such pledge agreement,
together with any other pledge agreement executed in the future by a
Subsidiary pursuant hereto, in each case as amended, supplemented or
otherwise modified from time to time, each a "Subsidiary Pledge
Agreement"), and
(c) an amended and restated pledge agreement, substantially in the
form of Exhibit E-3, issued by Parent (as amended, supplemented or
otherwise modified from time to time, the "Parent Pledge Agreement"),
together with, in the case of each Pledge Agreement, the stock certificates to
be pledged thereunder and stock powers executed in blank (to the extent not
previously furnished to the Agent).
11.2.8 Real Estate Documentation. With respect to each parcel of real
property owned or leased by the Company or any Subsidiary as to which the Agent
holds a Mortgage, a duly executed Mortgage Amendment, together with (a) date
down endorsements of the title insurance policies as to each such Mortgage,
effective as of the Amendment Effective Time, in form and substance satisfactory
to the Agent, (b) a Hazardous Materials Indemnity relating to each such
Mortgage, or (c) such other documentation as the Agent may reasonably request,
in form and substance satisfactory to the
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Agent, as to the priority and continued validity of each such Mortgage.
11.2.9 Landlord's Consents. With respect to each material parcel of real
property leased by the Company or any Subsidiary (other than (i) Balboa Park
Municipal Golf Course Property located in San Diego, California, (ii) The
Vineyard at Escondido Golf Course Property located in Escondido, California and
(iii) Carmel Mountain Ranch Country Club and Golf Course, located in San Diego,
California), a duly executed Landlord's Consent (unless already provided in
connection with the Original Credit Agreement or the Existing Credit Agreement).
11.2.10 Opinions of Counsel for Parent, the Company and the Guarantors.
The opinions of
(a) Latham & Watkins, Illinois and California counsel for Parent, the
Company and the Guarantors, in the form of Exhibit F-1; and
(b) Quarles & Brady, special Arizona counsel for the Company and those
of its Subsidiaries organized under the laws of Arizona, in the form of
Exhibit F-2;
(c) Page & Addison, special Texas counsel for the Company and those of
its Subsidiaries organized under the laws of Texas, in the form of Exhibit
F-3;
(d) Lionel, Sawyer & Collins, special Nevada counsel to the Company
and those of its Subsidiaries organized under the laws of Nevada, in the
form of Exhibit F-4;
(e) Mays & Valentine, special Virginia counsel for the Company and
those of its Subsidiaries organized under the laws of Virginia, in the form
of Exhibit F-5.
11.2.11 Insurance. Independent evidence of insurance coverage required
pursuant to Section 10.3 (to the extent not already furnished to Agent).
11.2.12 Senior Note Documents. A certificate of a Responsible Officer of
Parent and the Company, substantially in the form of Exhibit J, certifying as to
fully executed copies of the Senior Note Documents (which shall be attached
thereto), together
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with evidence satisfactory to the Agent that (x) the Company has received the
proceeds of the Senior Company Notes, (y) Parent has received the proceeds of
the issuance of the Units of Parent (consisting of the Senior Zero-Coupon Notes
and the Common Stock) and that such proceeds of the issuance of the Units have
been irrevocably contributed to the capital of the Company by Parent and
accordingly constitute a portion of the equity of the Company, and (z) the
proceeds of the Senior Company Notes and such capital contributions have been
applied by the Company to repay in full all Existing Loans, interest and fees
thereon and all other amounts due under the Existing Credit Agreement.
11.2.13 Other. Such other documents as the Agent or any Lender may
reasonably request.
11.3 Other Conditions to Amendment Effective Time. The occurrence of the
Amendment Effective Time is, in addition to the conditions precedent specified
in Sections 11.2 and 11.4, subject to the following conditions precedent:
11.3.1 Fees. The Company shall have paid all fees and expenses then due
and payable to the Agent or any Lender (including, to the extent then billed,
all amounts payable pursuant to Section 14.6).
11.3.2 No Material Adverse Effect. Since September 30, 1995, there has
not occurred any material adverse effect on (a) the condition (financial or
otherwise), operations, business, properties, assets or prospects of the Company
and its Subsidiaries taken as a whole or (b) the ability of Parent, the Company
and the Guarantors taken as a whole to timely and fully perform any of their
payment or other material Obligations under this Agreement or any other
Transaction Document to which it is a party.
11.3.3 Further Requests. The Agent shall have received all documents any
Lender may reasonably request relating to the existence of Parent, the Company
or any Subsidiary, the corporate authority for and the validity of this
Agreement and each Transaction Document and any other matters relevant hereto.
11.3.4 Satisfactory Legal Form. All documents executed or submitted
pursuant hereto by or on behalf of Parent, the Company and any Subsidiary shall
be reasonably satisfactory in form and substance to the Agent and its counsel;
and the Agent and its
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counsel shall have received all information and such counterpart originals or
such certified or other copies of such materials as any Lender or its counsel
may reasonably request.
11.4 Amendment Effective Time and All Credit Extensions. The occurrence
of the Amendment Effective Time and obligation of each Lender to make each
Credit Extension on or after the Amendment Effective Time is subject to the
following further conditions precedent that:
11.4.1 Required Notice. The Agent shall have received a notice of the
borrowing of such Loan in accordance with Section 2.3, an Issuance Request in
accordance with Section 2.10.2 or a Letter of Credit Amendment Request in
accordance with Section 2.10.3, as applicable.
11.4.2 No Default. Immediately prior to and after making such Credit
Extension or the occurrence of the Amendment Effective Time, no Event of Default
or Unmatured Event of Default shall have occurred and be continuing.
11.4.3 Representations and Warranties Correct. The representations and
warranties of Parent and the Company contained in this Agreement and the other
Loan Documents (except the representations and warranties set forth in Sections
9.6 and 9.8(a) and (c) of this Agreement) shall be true and correct in all
material respects on and as of the date of such Credit Extension, except to the
extent that any such representation and warranty was made as of another date, in
which case it shall have been true and correct as of such other date.
11.4.4 No Litigation, etc. Except as set forth in Schedule 9.6, no
litigation, arbitration, governmental investigation, proceeding or inquiry shall
be pending, or, to the best knowledge of Parent and the Company (after due
inquiry), threatened against Parent, the Company or any Subsidiary:
(a) (i) which seeks to enjoin or otherwise prevent the consummation of
or to recover any damages or obtain relief as a result of (x) the loan and
equity transactions contemplated by the Transaction Documents (other than
any such litigation, arbitration, governmental investigation, proceeding or
inquiry with respect to the Stockholders' Agreement brought by or against
or affecting any Person (except any Lender or any
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initial or successive transferee of any Lender) Beneficially Owning less
than 5% of the capital stock of Parent), or (y) any material agreement
pursuant to which equity capital is contributed to Parent or Parent's
capital stock is issued (it being understood that a material agreement for
purposes of this clause (y) would be an agreement entered into with a
Person Beneficially Owning 5% or more of the capital stock of Parent), or
(ii) which relates to the validity or enforceability of any of the
foregoing agreements or instruments (subject to the foregoing
qualifications);
(b) which is a development in the litigation, arbitration,
governmental investigation, proceeding or inquiry set forth in Schedule 9.6
(i) that has or is reasonably likely to have a Material Adverse Effect or
(ii) that is reasonably likely to adversely affect the Lenders and that
arises with respect to any of the agreements described in clause (a) above
or any transactions contemplated hereby or thereby; or
(c) which has or is reasonably likely to have a Material Adverse
Effect.
11.4.5 Subsequent Acquisitions and Delayed Subsequent Acquisition Capital
Expenditures. With respect to any Reducing Revolver Loan requested by the
Company to fund any Subsequent Acquisition, Delayed Subsequent Acquisition
Capital Expenditures or Designated Non-Recurring Capital Expenditures, the
Company shall have satisfied each of the conditions set forth in Section 2.5 or
2.6, as applicable.
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 Events of Default. Each of the following shall constitute an Event of
Default under this Agreement:
12.1.1 Non-Payment of the Loans, etc. Default in the payment when due of
the principal of any Loan or Reimbursement Obligation; or default, and
continuance thereof for three Business Days, in the payment when due of any
interest on any Loan or Reimbursement Obligation, or any fee or other amount
payable by the Company hereunder or under any other Loan Document.
12.1.2 Default under Other Debt. Any default shall occur and shall not
have been waived under the terms applicable to any Debt
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of Parent, the Company or any Subsidiary having an aggregate principal amount
exceeding $250,000 and such default shall (a) consist of the failure to pay such
Debt when due (subject to any applicable grace period), whether by acceleration
or otherwise, (b) accelerate the maturity of such Debt or (c) permit the holder
or holders of such Debt, or any trustee or agent for such holder or holders, to
cause such Debt to become due and payable prior to its expressed maturity.
12.1.3 Other Material Obligations. A default which has not been waived in
the payment when due (subject to any grace period), whether by acceleration or
otherwise, or in the performance or observance of (subject to any grace period),
any material obligation of, or condition agreed to by, Parent, the Company or
any Subsidiary with respect to any material purchase or lease of goods or
services (except only to the extent that the other party has not taken action to
assert such default or the existence of any such default is being contested by
Parent, the Company or such Subsidiary in good faith and by appropriate
proceedings and appropriate reserves have been made in respect of such default),
if the aggregate liability of Parent, the Company and its Subsidiaries in
respect of all such purchases and leases so affected shall exceed $500,000.
12.1.4 Bankruptcy, Insolvency, etc. Parent, the Company or any Subsidiary
becomes insolvent or generally fails to pay, or admits in writing its inability
or refusal to pay, debts as they become due; or Parent, the Company or any
Subsidiary applies for, consents to, or acquiesces in the appointment of a
trustee, receiver or other custodian for Parent, the Company or such Subsidiary
or any property thereof, or makes a general assignment for the benefit of
creditors; or, in the absence of such application, consent or acquiescence, a
trustee, receiver or other custodian is appointed for Parent, the Company or any
Subsidiary or for a substantial part of the property of any thereof and is not
discharged within 60 days; or any bankruptcy, reorganization, debt arrangement,
or other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is commenced in respect of Parent, the
Company or any Subsidiary, and if such case or proceeding is not commenced by
Parent, the Company or such Subsidiary, it is consented to or acquiesced in by
Parent, the Company or such Subsidiary, or remains for 60 days undismissed.
12.1.5 Non-Compliance with Provisions of This Agreement.
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Failure by Parent or the Company to comply with or to perform any covenant set
forth in Section 10.1.9(a), 10.3, 10.5 through 10.13, 10.15, 10.16, 10.22 or
10.23; failure by Parent or the Company to comply with or to perform any
covenant set forth in Section 10.14 or 10.21 and continuance of such failure for
five days after notice thereof to the Company from the Agent or any Lender; or
failure by Parent or the Company to comply with or to perform any other
provision of this Agreement (and not constituting an Event of Default under any
of the other provisions of this Section 12) and continuance of such failure for
30 days after notice thereof to the Company from the Agent or any Lender.
12.1.6 Warranties. Any warranty made by Parent, the Company or any
Subsidiary in any Transaction Document is false or misleading in any material
respect when made, or any schedule, certificate, financial statement, report,
notice or other writing furnished by or on behalf of Parent, the Company or any
Subsidiary to the Agent or any Lender is false or misleading in any material
respect on the date as of which the facts therein set forth are stated or
certified, it being understood that any such warranty shall have been made to
the best knowledge of Parent, the Company or such Subsidiary, as the case may
be, after due inquiry if made with respect to historical information as to any
Golf Course Property as at any date prior to its acquisition by the Company or
any Subsidiary or with respect to any other information not prepared by Parent,
the Company, any Subsidiary, Brentwood, or any of their respective Affiliates.
12.1.7 Pension Plans. (i) Institution of any steps by Parent, the Company
or any other Person to terminate a Pension Plan if as a result of such
termination Parent or the Company could be required to make a contribution to
such Pension Plan, or could incur a liability or obligation to such Pension
Plan, in excess of $250,000, or (ii) a contribution failure occurs with respect
to any Pension Plan sufficient to give rise to a Lien under section 302(f) of
ERISA.
12.1.8 Judgments. Final judgments which exceed an aggregate of $250,000
(excluding any portion thereof which is covered by insurance so long as the
insurer is reasonably likely to be able to pay and has accepted a tender of
defense and indemnification) shall be rendered against Parent or the Company or
any Subsidiary and shall not have been discharged or vacated or had execution
thereof stayed pending appeal within 30 days after entry or filing of such
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judgments.
12.1.9 Invalidity of Guaranty, etc. The Guaranty (or, as to Parent, the
guaranty of Parent set forth in Section 15 hereof) shall be revoked or otherwise
cease to be in full force and effect (whether with respect to amounts already
advanced or to be advanced) with respect to any Guarantor (other than as
expressly permitted hereunder or thereunder), any Guarantor shall fail (subject
to any applicable grace period) to comply with or to perform any applicable
provision of the Guaranty, or any Guarantor (or any Person by, through or on
behalf of such Guarantor) shall contest in any manner the validity, binding
nature or enforceability of the Guaranty with respect to such Guarantor.
12.1.10 Invalidity of Collateral Documents, etc. Any Collateral Document
shall cease to be in full force and effect with respect to the Company or any
Guarantor (other than as expressly permitted hereunder or thereunder), any
default shall occur (subject to any applicable grace period) under any
Collateral Document, or the Company or any Guarantor (or any Person by, through
or on behalf of the Company or any Guarantor) shall contest in any manner the
validity, binding nature or enforceability of any Collateral Document.
12.1.11 Change in Control. A Change In Control shall occur.
12.1.12 Material Adverse Effect. The Required Lenders shall have
determined in good faith that an event has occurred or a condition exists that
has had or is reasonably likely to have a Material Adverse Effect (other than a
Material Adverse Effect that relates solely to the ability of Parent, the
Company and the Guarantors to perform their material obligations under the
Equity Documents or Senior Note Documents).
12.2 Effect of Event of Default. If any Event of Default described in
Section 12.1.4 shall occur, the Commitments (if they have not theretofore
terminated) shall immediately terminate and the Notes, the Reimbursement
Obligations and all other Obligations hereunder shall become immediately due and
payable, all without presentment, demand, protest or notice of any kind; and, in
the case of any other Event of Default, the Agent may (and upon written request
of the Required Lenders shall) declare the Commitments (if they have not
theretofore terminated) to be terminated and/or declare all Notes, the
Reimbursement Obligations and all other
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Obligations hereunder to be due and payable, whereupon the Commitments (if they
have not theretofore terminated) shall immediately terminate and/or all Notes,
the Reimbursement Obligations and all other Obligations hereunder shall become
immediately due and payable, all without presentment, demand, protest or notice
of any kind. The Agent shall promptly advise the Company of any such
declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing, the effect as an Event of Default of
any event described in Section 12.1.1 or Section 12.1.4 may be waived by the
written concurrence of all of the Lenders, and the effect as an Event of Default
of any other event described in this Section 12 may be waived by the written
concurrence of the Required Lenders.
SECTION 13 THE AGENT.
13.1 Appointment and Authorization. Each Lender hereby irrevocably
(subject to Section 13.9) appoints, designates and authorizes the Agent to take
such action on such Lender's behalf under the provisions of this Agreement and
each other Transaction Document and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms of this Agreement or
any other Transaction Document, together with such powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or in any other Transaction Document, the Agent
shall not have any duties or responsibilities except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other
Transaction Document or otherwise exist against the Agent.
13.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Transaction Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
13.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other
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Transaction Document or the transactions contemplated hereby (except for
liability caused by its own gross negligence or willful misconduct, and
determined to have been so caused by a final judgment of a court of competent
jurisdiction), or (ii) be responsible in any manner to any of the Lenders for
any recital, statement, representation or warranty made by the Company, Parent
or any Subsidiary or Affiliate of the Company or Parent, or any officer thereof,
contained in this Agreement or in any other Transaction Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Transaction Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Transaction
Document, or for any failure of the Company, Parent or any other party to any
Transaction Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Transaction
Document, or to inspect the properties, books or records of the Company, Parent
or any of the Company's or Parent's Subsidiaries or Affiliates.
13.4 Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel
to the Company and/or Parent), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Transaction
Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or
any other Transaction Document
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in accordance with a request or consent of the Required Lenders and such
request and any action taken or failure to act pursuant thereto shall be
binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 11, each Lender that has executed this Agreement shall
be deemed to have consented to, approved or accepted or to be satisfied
with, each document or other matter either sent by the Agent to such Lender
for consent, approval, acceptance or satisfaction, or required thereunder
to be consented to or approved by or acceptable or satisfactory to the
Lender.
13.5 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Event of Default or Unmatured Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Agent for the account of the Lenders, unless
the Agent shall have received written notice from a Lender or the Company
referring to this Agreement, describing such Event of Default or Unmatured Event
of Default and stating that such notice is a "notice of default". The Agent
will notify the Lenders of its receipt of any such notice. The Agent shall take
such action with respect to such Event of Default or Unmatured Event of Default
as may be requested by the Required Lenders in accordance with Section 12.2;
provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default or
Unmatured Event of Default as it shall deem advisable or in the best interest of
the Lenders.
13.6 Credit Decision. Each Lender acknowledges that none of the Agent-
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company, Parent and their Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
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creditworthiness of the Company, Parent and their Subsidiaries, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company hereunder. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Transaction Documents, and
to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Company and Parent. Except for notices, reports and
other documents expressly herein required to be furnished to the Lenders by the
Agent, the Agent shall not have any duty or responsibility to provide any Lender
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
13.7 Indemnification. Whether or not the transactions contemplated hereby
are consummated, the Lenders shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata (based on the
Lenders' respective Total Percentage), from and against any and all Indemnified
Liabilities; provided, however, that no Lender shall be liable for the payment
to the Agent-Related Persons of any portion of such Indemnified Liabilities
caused solely by such Person's gross negligence or willful misconduct and
determined to have been so caused by a final judgment by a court of competent
jurisdiction. Without limitation of the foregoing, each Lender shall reimburse
the Agent upon demand for its ratable share of any costs or out-of-pocket
expenses (including reasonable fees of attorneys for the Agent (including the
allocable costs of internal legal services and all disbursements of internal
counsel)) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other
Transaction Document, or any document contemplated by or referred to herein, to
the extent that the Agent is not reimbursed for such expenses by or on behalf of
the Company. The undertaking in this Section shall survive the expiration or
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termination of the Commitments and payment of the Loans and other liabilities of
the Company hereunder and the resignation or replacement of the Agent.
For the purposes of this Section 13.7, "Indemnified Liabilities" shall
mean: "any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements
(including reasonable fees of attorneys for the Agent (including the
allocable costs of internal legal services and all disbursements of
internal counsel)) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans and the
termination, resignation or replacement of the Agent or replacement of any
Lender) be imposed on, incurred by or asserted against any such Person in
any way relating to or arising out of this Agreement, any Transaction
Document or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any action taken or omitted by any
such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including (a)
any case, action or proceeding before any court or other governmental
authority relating to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any
general assignment for the benefit of creditors, composition, marshalling
of assets for creditors, or other, similar arrangement in respect of its
creditors generally or any substantial portion of its creditors, whether
undertaken under U.S. Federal, state or foreign law, including the U.S.
bankruptcy code or any appellate proceeding) related to or arising out of
this Agreement, any Transaction Document or the Loans or the use of the
proceeds thereof, whether or not any Agent-Related Person, any Lender or
any of their respective officers, directors, employees, counsel, agents or
attorneys-in-fact is a party thereto."
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13.8 Agent in Individual Capacity. BofA and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company, Parent and
their Subsidiaries and Affiliates as though BofA were not the Agent hereunder
and without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, BofA or its Affiliates may receive information
regarding the Company, Parent or their Affiliates (including information that
may be subject to confidentiality obligations in favor of the Company, Parent or
any such Affiliate) and acknowledge that the Agent shall be under no obligation
to provide such information to them. With respect to their Loans, BofA and its
Affiliates shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though BofA were not the Agent, and
the terms "Lender" and "Lenders" may include BofA and its Affiliates, to the
extent applicable, in their individual capacities.
13.9 Successor Agent. The Agent may, and at the request of the Required
Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If the
Agent resigns under this Agreement, the Required Lenders shall appoint from
among the Lenders (with, so long as no Event of Default or Unmatured Event of
Default exists, the prior written consent of the Company, which shall not be
unreasonably withheld or delayed) a successor agent for the Lenders. If no
successor agent is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with the Lenders and the
Company, a successor agent from among the Lenders (with, so long as no Event of
Default or Unmatured Event of Default exists, the prior written consent of the
Company, which shall not be unreasonably withheld or delayed). Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 13,
Section 14.6 and Section 14.12 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement. If
no successor agent has accepted appointment as Agent by the date which is 30
days following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective
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and the Lenders shall perform all of the duties of the Agent hereunder until
such time, if any, as the Required Lenders appoint a successor agent as provided
for above.
13.10 Collateral Matters. The Lenders irrevocably authorize the Agent, at
its option and in its discretion, to release any Lien granted to or held by the
Agent upon any collateral held pursuant to any Collateral Document and to
release any Guarantor from its obligations under the Guaranty (or, as to Parent,
the guaranty set forth in Section 15 hereof) (a) upon termination of the
Commitments, cancellation, expiration or cash collateralization in full of all
Letters of Credit and payment in full of all Credit Extensions and all other
Obligations of the Company; (b) in the case of any Lien, constituting property
sold or to be sold or disposed of as part of or in connection with any
disposition permitted hereunder; (c) in the case of any Lien, constituting
property in which the Company or any Subsidiary owned no interest at the time
the Lien was granted or at any time thereafter; (d) in the case of any Lien,
constituting property leased to the Company or any Subsidiary 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
the Company or such Subsidiary to be, renewed or extended; (e) in the case of
any Lien, constituting property leased to the Company pursuant to a Capital
Lease or property financed through a purchase money financing, in each case
permitted hereunder if the Lien on such property is prohibited by the terms of
such Capital Lease or purchase money financing; (f) in the case of any
Guarantor, if such Guarantor or any Person owning such Guarantor is sold or to
be sold or disposed of as part of or in connection with any disposition
permitted hereunder; or (g) subject to the penultimate sentence of Section 14.1,
if approved, authorized or ratified in writing by the Required Lenders. Upon
request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this Section 13.10.
13.11 Issuer. The Issuer shall enjoy all the rights of the Agent under
this Article XIII mutatis mutandis as if the provisions of this Article XIII
referred to the Issuer.
SECTION 14 GENERAL.
14.1 Waiver; Amendments. No delay on the part of the Agent
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or any Lender in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any of them of any
right, power or remedy preclude other or further exercise thereof, or the
exercise of any other right, power or remedy. No amendment, modification or
waiver of, or consent with respect to, any provision of this Agreement or any
other Loan Documents shall in any event be effective unless the same shall be in
writing and signed and delivered by the Company and by Lenders having an
aggregate Total Percentage of not less than the aggregate Total Percentage
expressly designated herein with respect thereto or, in the absence of such
designation as to any provision of this Agreement or any other Loan Documents,
by the Required Lenders, and then any such amendment, modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No amendment, modification, waiver or consent (a) shall
amend, modify or waive the Incurrence Test relating to the making of any
Subsequent Acquisition, any Designated Non-Recurring Capital Expenditures or the
funding thereof without the consent of all Lenders or (b) shall (i) extend or
increase the amount of any Commitment, (ii) extend the date for any scheduled
payment of any principal of or interest on the Credit Extensions or any fees
payable hereunder, (iii) reduce the principal amount of any Loan or
Reimbursement Obligation, the rate of interest thereon or any fees payable
hereunder, (iv) release any Guarantor from its obligations under the Guaranty
(except as provided hereunder or thereunder) or release all or substantially all
of the collateral granted under the Collateral Documents (except as provided
hereunder or thereunder), or (v) change the aggregate Total Percentage required
to effect an amendment, modification, waiver or consent without, in each case,
the consent of all Lenders. No provisions of Section 2.10 shall be amended,
modified or waived without the consent of the Issuer. No provisions of Section
13 shall be amended, modified or waived without the consent of the Agent or the
Issuer.
14.2 Confirmations. The Company and each holder of a Note agree from time
to time, upon written request received by it from the other, to confirm to the
other in writing (with a copy of each such confirmation to the Agent) the
aggregate unpaid principal amount of the Loans and Reimbursement Obligations
then outstanding under such Note.
14.3 Notices. Except as otherwise provided in Sections 2.3, 2.4 and 4.3,
all notices hereunder shall be in writing (including,
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without limitation, facsimile transmission) and shall be sent to the applicable
party at its address shown below its signature hereto or at such other address
as such party may, by written notice received by the other parties hereto, have
designated as its address for such purpose. Notices sent by facsimile
transmission shall be deemed to have been given when sent; notices sent by mail
shall be deemed to have been given three Business Days after the date when sent
by registered or certified mail, postage prepaid; and notices sent by hand
delivery shall be deemed to have been given when received. For purposes of
Sections 2.3, 2.4 and 4.3, the Agent shall be entitled to rely on telephonic
instructions from any person that the Agent in good faith believes is an
authorized officer or employee of the Company, and the Company shall hold the
Agent and each Lender harmless from any loss, cost or expense resulting from any
such reliance.
14.4 Computations. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the Company's audited financial
statements referred to in clause (a) of Section 9.4.
14.5 Regulation U. Each Lender represents that it in good faith is not
relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
14.6 Costs, Expenses and Taxes. The Company agrees to pay on demand (a) all
reasonable out-of-pocket costs and expenses of the Agent and the Issuer
(including (x) the reasonable fees and charges of counsel for the Agent and the
Issuer, (y) the fees and charges of local counsel, if any, who may be retained
by such counsel, and (z) the allocable costs of internal legal services and all
disbursements of internal counsel) in connection with the negotiation,
preparation, execution, delivery and administration of this Agreement, the other
Transaction Documents and all other documents provided for herein or delivered
or to be delivered hereunder or in connection herewith (including, without
limitation, any amendment, supplement or waiver to any Transaction Document and
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the arrangement and syndication of the financing provided under the Transaction
Documents), and (b) all reasonable out-of-pocket costs and expenses (including
(x) attorneys' fees, court costs and other legal expenses of all counsel and (y)
the allocable costs of internal legal services and all disbursements of internal
counsel) incurred by the Agent, the Issuer and each Lender in connection with
the enforcement of this Agreement, the other Transaction Documents or any such
other documents. In addition, the Company agrees to pay, and to save the Agent,
the Issuer and the Lenders harmless from all liability for, any stamp or other
similar taxes which may be payable in connection with the execution and delivery
of this Agreement, the Credit Extensions hereunder, the issuance of the Notes or
the execution and delivery of any other Transaction Document or any other
document provided for herein or delivered or to be delivered hereunder or in
connection herewith. All obligations provided for in this Section 14.6 shall
survive repayment of the Obligations, cancellation of the Notes and Letters of
Credit and termination of each Transaction Document.
14.7 Captions. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
14.8 Assignments; Participations.
14.8.1 Assignments. Any Lender may at any time assign and delegate to one
or more Affiliates or may, with the prior written consent of the Agent, the
Issuer and the Company (which consents shall not be unreasonably delayed or
withheld, it being understood that an assignment to a business competitor of the
Company shall be a reasonable basis for withholding such consent), at any time
assign and delegate to one or more commercial banks or other Persons (any Person
to whom such an assignment and delegation is to be made being herein called an
"Assignee"), all or any fraction of such Lender's Credit Extensions and
Commitments (which assignment and delegation shall be of a constant, and not a
varying, percentage of all the assigning Lender's Working Capital Revolving
Commitments and Working Capital Revolving Loans and Reimbursement Obligations
and/or all of such Lender's Reducing Revolver Loan Commitment and Reducing
Revolver Loans, as the case may be) in a minimum aggregate amount equal to the
lesser of (i) the sum of the assigning Lender's remaining Credit Extensions and
(to the extent not used) Commitments, and (ii) $5,000,000; provided, however,
that the Company and the Agent shall be entitled to continue to deal
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solely and directly with such Lender in connection with the interests so
assigned and delegated to an Assignee until the date when all of the following
conditions shall have been met:
(a) five Business Days (or such lesser period of time as the Agent
and the assigning Lender shall agree) shall have passed after written
notice of such assignment and delegation, together with payment
instructions, addresses and related information with respect to such
Assignee, shall have been given to the Company, the Issuer and the Agent by
such assigning Lender and the Assignee,
(b) the assigning Lender and the Assignee shall have executed and
delivered to the Company, the Issuer and the Agent an assignment agreement
substantially in the form of Exhibit G (an "Assignment Agreement"),
together with any documents required to be delivered thereunder, which
Assignment Agreement shall have been consented to (if required) and
accepted by the Agent, the Issuer and the Company,
(c) the Assignee, if not organized under the laws of the United
States or a State thereof, shall have delivered to the Company a United
States Internal Revenue Service Form 1001 or 4224 as appropriate (or
successor forms), properly completed and claiming a complete exemption, as
the case may be, from withholding or deduction for or on account of
Recipient Taxes of such Assignee; and
(d) the assigning Lender or the Assignee shall have paid the Agent a
processing fee of $3,500.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Lender hereunder, and (y) the assigning Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it pursuant to such Assignment Agreement, shall be released from
its obligations hereunder. Accrued interest on that part of the Loans being
assigned shall be paid as provided in the Assignment Agreement. Accrued interest
and accrued fees shall be paid at the same time or times provided in
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this Agreement. Any attempted assignment and delegation not made in accordance
with this Section 14.8.1 shall be null and void.
14.8.2 Participations. Any Lender may at any time sell to one or more
commercial banks or other Persons participating interests in any Credit
Extension owing to such Lender, the Working Capital Revolving Commitment of such
Lender, the Reducing Revolver Loan Commitment of such Lender, or any other
interest of such Lender hereunder (any Person purchasing any such participating
interest being herein called a "Participant"). In the event of a sale by a
Lender of a participating interest to a Participant, (x) such Lender shall
remain the Lender for all purposes of this Agreement, (y) the Company, the
Issuer and the Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations hereunder and (z) all
amounts payable by the Company shall be determined as if such Lender had not
sold such participation and shall be paid directly to such Lender. No
Participant shall have any direct or indirect voting rights hereunder except
with respect to any of the events described in the penultimate sentence of
Section 14.1. Each Lender agrees to incorporate the requirements of the
preceding sentence into each participation agreement which such Lender enters
into with any Participant. The Company agrees that if amounts outstanding under
this Agreement and the Notes are due and payable (as a result of acceleration or
otherwise), each Participant shall be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement and
any Note to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement; provided that such right
of setoff shall be subject to the obligation of each Participant to share with
the Lenders, and the Lenders agree to share with each Participant, as provided
in Section 7.5. The Company also agrees that each Participant shall be entitled
to the benefits of Section 8 as if it were a Lender (provided that no
Participant shall receive any greater compensation pursuant to Section 8 than
would have been paid to the participating Lender if no participation had been
sold).
14.9 Governing Law. This Agreement and each Note shall be a contract made
under and governed by the internal laws of the State of Illinois. Whenever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
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shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of Parent, the Issuer and the Company and rights of
the Agent, the Issuer and the Lenders expressed herein or in any other
Transaction Document shall be in addition to and not in limitation of those
provided by applicable law.
14.10 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement.
14.11 Successors and Assigns. This Agreement shall be binding upon
Parent, the Company, the Lenders, the Issuer and the Agent and their respective
successors and assigns, and shall inure to the benefit of Parent, the Company,
the Lenders, the Issuer and the Agent and the permitted successors and assigns
of the Lenders and the Agent.
14.12 Indemnification by the Company.
(a) In consideration of the execution and delivery of this Agreement by
the Agent, the Issuer and the Lenders and the agreement to extend the
Commitments provided hereunder, the Company hereby agrees to indemnify,
exonerate and hold the Agent, the Issuer, each Lender and each of the officers,
directors, employees, agents and attorneys-in-fact of the Agent, the Issuer and
each Lender (collectively the "Lender Parties" and individually each a "Lender
Party") free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities, damages and expenses, including, without
limitation, reasonable attorneys' fees and charges (collectively therein called
the "Indemnified Liabilities"), incurred by the Lender Parties or any of them as
a result of, or arising out of, or relating to
(i) any tender offer, merger, purchase of stock, purchase of
assets or other similar transaction financed or proposed to be
financed in whole or in part, directly or indirectly, with the
proceeds of any of the Credit Extensions,
(ii) the execution, delivery, performance or
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enforcement of this Agreement or any other Transaction Document by any
of the Lender Parties, or
(iii) any investigation, litigation or proceeding related to any
violation or alleged violation of any Environmental Law or
Occupational Safety and Health Law,
except for any such Indemnified Liabilities arising for the account of a
particular Lender Party that are determined in a final judgment of a court of
competent jurisdiction to have been caused in all material respects by such
Lender Party's gross negligence or willful misconduct. If and to the extent that
the foregoing undertaking may be unenforceable for any reason, the Company
hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Nothing set forth above shall be construed to relieve any Lender Party from
any obligation it may have under this Agreement.
(b) All obligations provided for in this Section 14.12 shall survive
repayment of the Loans, cancellation of the Notes, cancellation or expiration of
the Letters of Credit and any termination of the Transaction Documents.
14.13 Confidentiality. The Agent and the Lenders shall hold all non-
public information obtained pursuant to the requirements of this Agreement in
accordance with their customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices and, in
any event, may make disclosure on the same confidential basis as provided for
herein that is reasonably required by any actual or bona fide potential
transferee or participant in connection with the contemplated transfer of any
Note or participation therein, or as required or requested by any governmental
agency or representative thereof or pursuant to legal process; provided that,
unless prohibited by applicable law or court order, each of the Agent and each
Lender shall promptly notify the Company of any request by any governmental
agency or representative thereof (other than any such request in connection with
an examination of the financial condition of the Agent or such Lender by such
governmental agency) for disclosure of any such non-public information prior to
disclosure of such information, and at the request of the Company will take
reasonable efforts to maintain the confidentiality of such information.
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14.14 Maximum Interest. Anything in this Agreement or any Note or any other
Loan Document to the contrary notwithstanding, the Company shall never be
required to pay unearned interest on any Note and shall never be required to pay
interest on any Note or on any other Loan Document at a rate in excess of the
Highest Lawful Rate, and if the effective rate of interest which would otherwise
be payable under this Agreement and any Note and the other Loan Documents would
exceed the Highest Lawful Rate, or if the holder of any Note shall receive
monies that are deemed to constitute interest which would increase the effective
rate of interest payable by the Company under this Agreement and any Note and
the other Loan Documents to a rate in excess of the Highest Lawful Rate, then
(i) the amount of interest which would otherwise be payable by the Company under
this Agreement and such Note and the other Loan Documents shall be reduced to
the amount allowed by applicable law, and (ii) any unearned interest paid by the
Company or any interest paid by the Company in excess of the Highest Lawful Rate
shall, at the option of the holder of such Note, be either refunded to the
Company or credited on the principal of such Note. It is further agreed that,
without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received by the Lenders under any Note, or under this
Agreement or any other Loan Document, are made for the purpose of determining
whether such rate exceeds the Highest Lawful Rate applicable to the Lenders
(such Highest Lawful Rate being the "Maximum Permissible Rate"), and shall be
made, to the extent permitted by usury laws applicable to the Lenders (now or
hereafter enacted), by amortizing, prorating and spreading in equal parts during
the period of the full stated term of the Loans evidenced by the Notes and other
Loan Documents all interest at any time contracted for, charged or received by
the Lenders in connection therewith. If at any time and from time to time (i)
the amount of interest payable to the Lenders on any date shall be computed at
the Maximum Permissible Rate pursuant to this Section 14.14 and (ii) in respect
of any subsequent interest computation period the amount of interest otherwise
payable to the Lender would be less than the amount of interest payable to the
Lenders computed at the Maximum Permissible Rate, then the amount of interest
payable to the Lenders in respect of such subsequent interest computation period
shall continue to be computed at the Maximum Permissible Rate until the total
amount of interest payable to the Lenders shall equal the total amount of
interest which would have been payable to the Lenders if the total amount of
interest had been computed without giving effect to this Section 14.14.
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14.15 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
AGENT'S OR ISSUER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF PARENT, THE COMPANY, THE
AGENT, THE ISSUER AND EACH LENDER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE. EACH OF PARENT, THE COMPANY, THE AGENT, THE
ISSUER AND EACH LENDER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF ILLINOIS. EACH OF PARENT AND THE COMPANY HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
14.16 WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY, THE AGENT, THE
ISSUER AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 15 GUARANTY OF PARENT.
Parent hereby unconditionally, as primary obligor and not merely as surety,
guarantees the full and prompt payment when due, whether by acceleration or
otherwise, and at all times thereafter, of all obligations (monetary or
otherwise) of the Company to the Lenders and the Agent, under or in connection
with the Credit Agreement, the Notes, the Letters of Credit any other Loan
Document and any other document or instrument (including, without limitation,
any Hedging Agreement entered into with any Lender or any Affiliate thereof)
executed in connection therewith, in each
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case howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due, in
each case as the same may be amended, modified, extended or renewed from time to
time (all such obligations being herein collectively called the "Liabilities");
provided, however, that the liability of Parent hereunder shall be limited to
the maximum amount of the Liabilities which Parent may guaranty without
violating any fraudulent conveyance or fraudulent transfer law (plus all costs
and expenses paid or incurred by the Agent or any Lender in enforcing this
guaranty of Parent (this "Parent Guaranty") under this Section 15 against
Parent.
This Parent Guaranty shall in all respects be a continuing, absolute and
unconditional guaranty, and shall remain in full force and effect
(notwithstanding, without limitation, the dissolution of Parent or Company or
that at any time or from time to time no Liabilities are outstanding) until all
Commitments have terminated and all Liabilities have been paid in full.
Parent further agrees that if at any time all or any part of any payment
theretofore applied by the Agent or any Lender to any of the Liabilities is or
must be rescinded or returned by the Agent or such Lender for any reason
whatsoever (including, without limitation, the insolvency, bankruptcy or
reorganization of the Company or Parent), such Liabilities shall, for the
purposes of this Guaranty, to the extent that such payment is or must be
rescinded or returned, be deemed to have continued in existence, notwithstanding
such application by the Agent or such Lender, and this Parent Guaranty shall
continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent or such Lender had not
been made.
The Agent or any Lender may, from time to time, at its sole discretion and
without notice to Parent, take any or all of the following actions: (a) retain
or obtain a security interest in any property to secure any of the Liabilities
or any obligation hereunder, (b) retain or obtain the primary or secondary
obligation of any obligor or obligors, in addition to Parent, with respect to
any of the Liabilities, (c) extend or renew any of the Liabilities for one or
more periods (whether or not longer than the original period), alter or exchange
any of the Liabilities, or release or compromise any obligation of any of the
undersigned hereunder or any obligation of any nature of any other obligor with
respect to
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any of the Liabilities, (d) release its security interest in, or surrender,
release or permit any substitution or exchange for, all or any part of any
property securing any of the Liabilities or any obligation hereunder, or extend
or renew for one or more periods (whether or not longer than the original
period) or release, compromise, alter or exchange any obligations of any nature
of any obligor with respect to any such property, and (e) resort to Parent for
payment of any of the Liabilities when due (subject to any applicable grace
period), whether or not the Agent or such Lender shall have resorted to any
property securing any of the Liabilities or any obligation hereunder or shall
have proceeded against any other Guarantor or any other obligor primarily or
secondarily obligated with respect to any of the Liabilities.
Parent hereby waives each of the following, to the fullest extent allowed
by law:
(a) all statutes of limitations as a defense to any action brought by
Agent against Parent;
(b) any defense based upon:
(i) the unenforceability or invalidity of all or any part of the
Credit Agreement or the Liabilities, or any security or other guaranty
for the Liabilities or the lack of perfection or failure of priority
of any security for the Liabilities; or
(ii) any act or omission of the Company or any other Person that
directly or indirectly results in the discharge or release of the
Company or any other Person or any of the Liabilities or any security
therefor; or
(iii) any disability or any other defense of the Company or any
other Person with respect to the Liabilities, whether consensual or
arising by operation of law or any bankruptcy, insolvency or debtor-
relief proceeding, or from any other cause;
(c) any right (whether now or hereafter existing) to require Agent, as
a condition to the enforcement of this Parent Guaranty, to:
(i) accelerate the Liabilities; or
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(ii) give notice to Parent of the terms, time and place of any
public or private sale of any security for the Liabilities; or
(iii) proceed against the Company, Parent or any other Person,
or proceed against or exhaust any security for the Liabilities;
(d) until payment in full of the Liabilities and termination of the
Commitments, all rights of subrogation, all rights to enforce any remedy
that Agent now or hereafter has against the Company or any other Person,
and any benefit of, and right to participate in, any security now or
hereafter held by the Company with respect to the Liabilities;
(e) presentment, demand, protest and notice of any kind, including
without limitation notices of default and notice of acceptance of this
Parent Guaranty;
(f) all suretyship defenses and rights of every nature otherwise
available under California law and the laws of any other jurisdiction,
including without limitation all defenses arising under Sections 2787
through 2855, and Sections 2899 and 3433 of the California Civil Code and
any successor provisions of those Sections; and
(g) all other rights and defenses the assertion or exercise of which
would in any way diminish the liability of Parent hereunder.
Parent further agrees to pay all expenses (including attorneys' fees and
legal expenses) paid or incurred by the Agent or any Lender in endeavoring to
collect the Liabilities of Parent, or any part thereof, and in enforcing this
Parent Guaranty against Parent.
The creation or existence from time to time of additional Liabilities to
the Agent or the Lenders or any of them is hereby authorized, without notice to
Parent, and shall in no way affect or impair the rights of the Agent or the
Lenders or the obligations of Parent under this Parent Guaranty, including
Parent's guaranty of such additional Liabilities.
The Agent and any Lender may from time to time without notice
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to Parent, assign or transfer any or all of the Liabilities or any interest
therein to the extent permitted by this Agreement; and, notwithstanding any such
assignment or transfer or any subsequent permitted assignment or transfer
thereof, such Liabilities shall be and remain Liabilities for the purposes of
this Parent Guaranty, and each and every immediate and successive permitted
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee in the
Liabilities, be entitled to the benefits of this Parent Guaranty to the same
extent as if such assignee or transferee were a Lender.
No delay on the part of the Agent or any Lender in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Agent or any Lender of any right or remedy shall preclude other
or further exercise thereof or the exercise of any other right or remedy; nor
shall any modification or waiver of any provision of this Parent Guaranty be
binding upon the Agent or the Lenders except as expressly set forth in a writing
duly signed and delivered on behalf of the Agent. No action of the Agent or any
Lender permitted hereunder shall in any way affect or impair the rights of the
Agent or any Lender or the obligations of Parent under this Parent Guaranty. For
purposes of this Parent Guaranty, Liabilities shall include all obligations of
the Company to the Agent or any Lender arising under or in connection with the
Credit Agreement, any Note, any Letter of Credit or any other Loan Document
notwithstanding any right or power of the Company or anyone else to assert any
claim or defense as to the invalidity or unenforceability of any obligation, and
no such claim or defense shall affect or impair the obligations of Parent
hereunder.
Parent authorizes Agent, at its sole option, without notice or demand and
without affecting the liability of Parent hereunder, to release and reconvey
(with or without the receipt of any consideration) any Lien against any or all
security for the Credit Agreement, and to foreclose any or all deeds of trust,
mortgages or other instruments or agreements by judicial or nonjudicial sale,
all without affecting the liability of Parent hereunder. Parent expressly
waives any defense to the recovery by Agent from Parent of any deficiency after
a nonjudicial sale, including without limitation any defense arising as a result
of any election of remedies by Agent which limits or destroys Parent's
subrogation rights or Parent's right to proceed against the Company for
138
<PAGE>
reimbursement (including without limitation any election by Agent to exercise
its rights under the power of sale in any mortgage or deed of trust and any
consequential loss by Parent of the right to recover any deficiency from the
Company). Parent waives any defenses or benefits that may be derived from
California Code of Civil Procedure Sections 580a, 580b, 580d or 726, or
comparable provisions of the laws of the State of California or any other
jurisdiction, and all other suretyship defenses it would otherwise have under
California law or the laws of any other jurisdiction. Parent waives any right to
receive notice of any judicial or nonjudicial sale or foreclosure of any real
property, and the failure of Parent to receive such notice shall not impair or
affect Parent's liability hereunder.
139
<PAGE>
Delivered at New York, New York, as of the day and year first above written.
COBBLESTONE HOLDINGS, INC.
By: ---------------------------------------------
Title: Vice President and Chief Financial Officer
Name Printed: Stefan C. Karnavas
Address: 3702 Via de la Valle
Suite 202
Del Mar, California 92104
Attention: Stefan C. Karnavas
Telephone: 619-794-2602
Facsimile: 619-794-7805
COBBLESTONE GOLF GROUP, INC.
By: ---------------------------------------------
Title: Vice President and Chief Financial Officer
Name Printed: Stefan C. Karnavas
Address: 3702 Via de la Valle
Suite 202
Del Mar, California 92104
Attention: Stefan C. Karnavas
Telephone: 619-794-2602
Facsimile: 619-794-7805
<PAGE>
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,
as Agent
By:_________________________________________________
Address: 1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Leandro Balidoy
Telephone: 415-436-4008
Facsimile: 415-436-3359
with a copy to:
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Attention: Patrick A. Dunbar
Telephone: 312-828-3065
Facsimile: 312-828-3555
BANK OF AMERICA ILLINOIS, individually and as Issuer
By:_________________________________________________
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Attention: Patrick A. Dunbar
Telephone: 312-828-3065
Facsimile: 312-828-3555
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By:_______________________________________
Address: Diversified Finance
MS 01-08-05
100 Federal Street
Boston, Massachusetts 02110
Attention: Drew Piculell
Telephone: 617-434-4060
Facsimile: 617-434-4929
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By:__________________________________________
Address: 225 Franklin Street
Boston, Massachusetts 02110-2804
Attention: Karen E. Pellegrini
Telephone: 617-654-3248
Facsimile: 617-338-4041
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:________________________________________
Address: Asset Based Finance Group
70 South Lake Avenue
Suite 900
Pasadena, California 91101
Attention: Stephen R. Sweeney/Sean Spring
Telephone: 818-304-1816
Facsimile: 818-304-1845
<PAGE>
Solely as an Existing Lender:
FLEET BANK
By:_________________________________
Address: Mail Stop: MA BO F40
75 State Street
Boston, MA 02109
Attention: William M. Clark
Telephone: 617/346-1623
Facsimile: 617/346-1561
<PAGE>
Solely as an Existing Lender:
PILGRIM AMERICA PRIME RATE TRUST
By:__________________________________
Address: Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
Attention: Michael Bacevich
Telephone: 602/417-8301
Facsimile: 602/417-8258
<PAGE>
Solely as an Existing Lender:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By:_____________________________________
Address: One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Brian Good
Telephone: 708/684-6740
Facsimile: 708/684-6425
<PAGE>
Exhibit 10.2
COBBLESTONE HOLDINGS, INC.
86,000 Units Consisting of
$86,000,000 13 1/2% Series A Senior Zero-Coupon Notes due 2004 and
86,000 Shares of Common Stock
PURCHASE AGREEMENT
------------------
May 29, 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Subject to the terms and conditions herein contained, Cobblestone
Holdings, Inc., a Delaware corporation (the "Company"), proposes to issue and
sell to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ" or the
"Initial Purchaser") an aggregate of 86,000 units (the "Units"), each consisting
of $1,000 principal amount at maturity of Holdings' 13 1/2% Series A Senior
Zero-Coupon Notes due 2004 (the "Zero-Coupon Notes"), and one share
(collectively, the "Shares") of Holdings' Common Stock, $.01 par value (the
"Common Stock"). The Zero-Coupon Notes are to be issued pursuant to the
provisions of an Indenture (the "Indenture"), to be dated as of June 4, 1996, by
and between the Company and Norwest Bank Minnesota, National Association, as
trustee (the "Trustee"). In connection with the closing contemplated by this
Agreement, the Company will enter into (i) the Registration Rights Agreement (as
hereinafter defined) and (ii) a credit facility and each of its related
documents with a syndicate of banks represented by Bank of America NT&SA which
is evidenced by that certain Second Amended and Restated Credit Agreement
<PAGE>
to be dated as of June 4, 1996, by and among the Company, Cobblestone Golf
Group, Inc. ("CGG"), the various financial institutions party thereto and Bank
of America NT&SA (collectively, with each of the documents related thereto, the
"New Credit Facility"). The Units and the Indenture are more fully described in
the Offering Memorandum (as hereinafter defined). Capitalized terms used herein
without definition shall have the respective meanings ascribed thereto in the
Offering Memorandum.
1. Delivery and Payment. Delivery to you of and payment for the
Units shall be made at 10:00 A.M., New York City time, on June 4, 1996 (such
time and date being referred to as the "Closing Date") at the offices of Latham
& Watkins at 885 Third Avenue, New York, New York 10022, or such other place as
DLJ shall reasonably designate. The Closing Date and the location of delivery
of, and the form of payment for the Units may be varied by agreement between DLJ
and the Company.
One or more of the Units in definitive form, registered in the name of
Cede and Co., as nominee of The Depository Trust Company ("DTC"), or such other
names as you shall request in writing not later than one full business day prior
to the Closing Date, in an aggregate amount corresponding to the aggregate
amount of Units resold pursuant to Rule 144A under the Securities Act of 1933,
as amended, and the rules and regulations promulgated by the Securities and
Exchange Commission (the "Commission"), thereunder (the "Act"), as such rule may
be amended from time to time ("Rule 144A"), to qualified institutional buyers
("QIBs") within the meaning of Rule 144A (collectively, the "Global
Securities"), and one or more Units in definitive form shall be registered in
such names and issued in such amounts as you shall request in writing not later
than one business day prior to the Closing Date, in an aggregate amount
corresponding to the aggregate amount of the Units sold to Institutional
Accredited Investors (as defined herein) (collectively, the "Certificated
Securities"), shall be delivered by the Company to you on the Closing Date with
any transfer taxes payable upon initial issuance thereof duly paid by the
Company, for your account against payment of the Purchase Price (as hereinafter
defined) by wire transfer of same day funds to such bank account as the Company
shall designate at least two business days prior to the Closing Date. The
Global Securities and Certificated Securities in definitive form shall be made
available to you at the offices of DLJ (or at such other place as shall be
acceptable to you) for inspection not later than 9:30 A.M., New York City time,
on the business day next preceding the Closing Date.
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<PAGE>
2. Offering of the Securities and the Initial Purchaser's
Representations.
(a) You have advised the Company that it is your intention, as
promptly as you deem appropriate after the Company shall have furnished you
with copies of the Offering Memorandum, to resell the Units pursuant to the
procedures and upon the terms set forth in the Offering Memorandum.
(b) The Initial Purchaser represents, warrants and agrees that it:
(i) is not acquiring the Units with a view to any
distribution thereof or with any present intention of offering or
selling any of the Units in a transaction that would violate the Act
or the securities laws of any state of the United States or any other
applicable jurisdiction;
(ii) will solicit offers for Units only from, and will
offer Units only to, persons that it reasonably believes are (y) QIBs
in transactions meeting the requirements of Rule 144A, or (z) other
institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Act ("Institutional Accredited Investors"));
(iii) will offer and sell the Units only (y) to persons who
it reasonably believes to be QIBs or (z) to institutions which it
reasonably believes are Institutional Accredited Investors that
execute and deliver a letter containing certain representations and
agreements in the form attached as Annex A to the Offering Memorandum;
(iv) is an Institutional Accredited Investor with such
knowledge and experience in financial and business matters as are
necessary in order to evaluate the merits and risks of an investment
in the Units;
(v) has not and will not offer or sell the Units by any form
of general solicitation or general advertising, including but not
limited to, the methods described in Rule 502(c) under the Act; and
(vi) will, during its initial distribution of the Units
unless prohibited by applicable law, furnish to each person to whom it
offers any Unit a copy of the preliminary offering memorandum (as
defined) or inform each such person that a copy of such preliminary
3
<PAGE>
offering memorandum is available upon request and will, during its
initial distribution of the Units, furnish to each person to whom it
sells any Units a copy of the Offering Memorandum (as then amended or
supplemented).
3. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to the
terms and conditions contained in this Agreement, the Company agrees to issue
and sell to the Initial Purchaser, and the Initial Purchaser agrees, to purchase
from the Company all of the Units offered hereby at a purchase price per Unit
equal to $352.04 (the "Purchase Price").
The Units will be offered and sold to you without being registered
under the Act in reliance on an exemption therefrom. The Company has prepared a
preliminary offering memorandum dated May 13, 1996 (such preliminary offering
memorandum is referred to herein as the "preliminary offering memorandum"), and
an offering memorandum dated May 29, 1996 (such offering memorandum, in the form
first furnished to the Initial Purchaser for use in connection with the offering
of the Units, is referred to herein as the "Offering Memorandum"), setting forth
information regarding the Company and the Units. The Company hereby confirms
that it has authorized the use of the preliminary offering memorandum and the
Offering Memorandum in connection with the offering and resale of the Units.
Holders (including subsequent transferees) of the Zero-Coupon Notes
will have the registration rights set forth in the Registration Rights Agreement
(the "Registration Rights Agreement"), to be dated the Closing Date, in
substantially the form of Exhibit A hereto, for so long as such Zero-Coupon
Notes constitute "Registrable Securities" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company will
agree to file with the Commission under the circumstances set forth therein (i)
a registration statement under the Act (the "Exchange Offer Registration
Statement"), registering an issue of senior zero-coupon notes identical in all
material respects to the Zero-Coupon Notes (the "Exchange Securities"), to be
offered in exchange for the Zero-Coupon Notes (the "Exchange Offer"), or (ii),
under certain circumstances, a registration statement pursuant to Rule 415 under
the Act (the "Shelf Registration Statement" and collectively, with the Exchange
Offer Registration Statement, the "Registration Statements").
4. Agreements of the Company. The Company agrees with you that:
4
<PAGE>
(a) It will advise you promptly and, if requested by you, confirm such
advice in writing, of the happening of any event during the period as in
your judgment you are required to deliver an Offering Memorandum in
connection with sales of the Units by you which makes any statement of a
material fact made in the Offering Memorandum untrue or which requires the
making of any additions to or changes in the Offering Memorandum (as
amended or supplemented from time to time) in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) It will notify you promptly of (i) the receipt of any comments
from any state securities commission or any other regulatory authority that
relate to the preliminary offering memorandum or the Offering Memorandum,
(ii) of the suspension of qualification of the Units for offering or sale
in any jurisdiction, or the initiation of any proceeding for such purpose
by any state securities commission or any other regulatory authority. The
Company shall use its best efforts to prevent the issuance of any stop
order or order suspending the qualification or exemption of the Units under
any state securities or Blue Sky laws, and, if at any time any state
securities commission or any other regulatory authority shall issue an
order suspending the qualification or exemption of the Units under any
state securities or Blue Sky laws, the Company shall use every reasonable
effort to obtain the withdrawal or lifting of such order at the earliest
possible time.
(c) Promptly after the execution of this Agreement, and from time to
time thereafter for such period as in your judgment the Offering Memorandum
is required to be delivered in connection with sales of the Units by you,
it will furnish to you, without charge, as many copies of the Offering
Memorandum (and of any amendment or supplement to the Offering Memorandum)
as you may reasonably request.
(d) If, during such period as in your judgment you are required to
deliver the Offering Memorandum in connection with sales of the Units by
you, any event shall occur as result of which it becomes necessary to amend
or supplement the Offering Memorandum in order to make the statements
therein, in light of the circumstances existing as of the date the Offering
Memorandum is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Offering Memorandum so that the
statements in the Offering Memorandum, as so amended or supplemented, will
not, in light of the circumstances existing as of the date the Offering
Memorandum is so delivered, be misleading or so that the Offering
Memorandum will comply
5
<PAGE>
with applicable law, it will so amend or supplement the Offering Memorandum
and will furnish to you without charge such number of copies thereof as you
may reasonably request.
(e) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, it will pay and be responsible
for all costs, expenses, fees and taxes incurred in connection with or
incident to (i) the printing, filing, processing and distribution and
delivery of the Offering Memorandum, each preliminary offering memorandum
and all amendments and supplements thereto, (ii) the printing, processing,
execution, distribution and delivery of this Agreement, the Indenture, any
memoranda describing state securities or Blue Sky laws and all other
agreements, memoranda, correspondence and other documents printed,
distributed and delivered in connection with the offering of the Units,
(iii) the registration or qualification of the Units for offer and sale
under the securities or Blue Sky laws of the jurisdictions referred to in
paragraph (h), below (including, in each case, the reasonable fees and
disbursements of counsel relating to such registration or qualification and
memoranda relating thereto and any filing fees in connection therewith),
(iv) furnishing such copies of the preliminary offering memorandum and the
Offering Memorandum, all amendments and supplements to any of them as may
be reasonably requested by the Initial Purchaser, (v) the inclusion of the
Units and the Zero-Coupon Notes on the National Association of Securities
Dealers, Inc. (the "NASD"), Automatic Quotation System-PORTAL ("PORTAL")
and the approval of the Securities by DTC for "book-entry" transfer, (vi)
the rating of the Zero-Coupon Notes by investment rating agencies and (vii)
the performance by the Company of its other obligations under this
Agreement, including (without limitation) the fees of the Trustee, the cost
of its personnel and other internal costs, the cost of printing and
engraving the certificates representing the Units, Shares and Zero-Coupon
Notes and all expenses and taxes incident to the sale and delivery of the
Units to the Initial Purchaser.
(f) It will furnish to the Initial Purchaser, without charge, two (2)
signed copies (plus one additional signed copy to your legal counsel) of
the Registration Statements as first filed with the Commission and of each
amendment or supplement to it, including each post effective amendment and
all exhibits filed therewith.
(g) It will not make any amendment or supplement to any preliminary
offering memorandum or the Offering Memorandum, of which you shall not
previously have been advised and provided a copy within two
6
<PAGE>
business days prior to the first use thereof (or such reasonable amount of
time as is necessitated by the exigency giving rise to the need for such
amendment or supplement), or to which you shall reasonably object; and it
will prepare and provide you with, promptly upon your reasonable request,
any amendment or supplement to the Offering Memorandum which may be
necessary or advisable in connection with the resale of the Units by you.
(h) It will cooperate with you and your counsel in connection with the
registration or qualification of the Units for offer and sale to and by the
Initial Purchaser under the state securities or Blue Sky laws of such
jurisdictions as you may request. The Company will continue such
qualification in effect so long as required by law for distribution of the
Units (provided, that the Company shall not be obligated to qualify as a
foreign corporation or a foreign partnership, as the case may be, in any
jurisdiction in which it is not so qualified or to take any action that
would subject it to taxation or to general consent to service of process in
any jurisdiction in which it is not now so subject).
(i) For so long as and at any time that it is not subject to Section
13 or 15(d) of the Securities Exchange Act of 1934 and the Commission's
rules and regulations thereunder (the "Exchange Act"), the Company, upon
request of any holder of the Units, the Shares or the Zero-Coupon Notes,
will furnish to such holder, and to any prospective purchaser or purchasers
of the Units, Shares or Zero-Coupon Notes designated by such holder,
information satisfying the requirements of subsection (d)(4)(i) of Rule
144A under the Act; provided, however, that the Company's obligations under
this Section 4(i) with respect to the Zero-Coupon Notes shall terminate
upon the earlier of (i) the date the Exchange Offer is concluded and the
exchange of the Exchange Securities for the Zero-Coupon Notes tendered
therein is consummated or (ii) the date the Shelf Registration Statement is
declared effective by the Commission; provided further that,
notwithstanding the foregoing proviso, the Company shall be obligated to
deliver, upon request, any information required by Rule 144A(d)(4) under
the Act to prospective purchasers of the Units, the Shares or the Zero-
Coupon Notes during any period during which, pursuant to the Registration
Rights Agreement, the Shelf Registration Statement is required to be
effective, but such effectiveness has been suspended or revoked for any
reason
(j) It will, so long as any of the Zero-Coupon Notes are outstanding,
deliver to the Initial Purchaser, without charge, a copy of each report or
such other publicly available information furnished to holders of the Zero-
7
<PAGE>
Coupon Notes, or filed with the Commission, whether or not required by law
or pursuant to the Indenture, and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request,
at the same time as such reports or other information are furnished to such
holders.
(k) It will not voluntarily claim, and will actively resist any
attempts to claim, the benefit of any usury laws against the holders of the
Zero-Coupon Notes.
(l) It will use the proceeds from the sale of the Units and cause CGG
to use such proceeds in the manner described in the Offering Memorandum
under the caption "Use of Proceeds."
(m) It will cooperate with you to cause the Units and the Zero-Coupon
Notes to be designated as eligible for trading through PORTAL in accordance
with the rules and regulations of the NASD.
(n) It will not, and will ensure that no affiliate (as such term is
defined in the Commission's Rule 501(b) under the Act) of the Company will
offer, sell or solicit offers to buy or otherwise negotiate in respect of
any "security" (as defined in the Act) which could be integrated with the
offer and sale of the Units in a manner that would require the registration
of the Units under the Act.
(o) Except in connection with the Exchange Offer or the filing of the
Shelf Registration Statement, as the case may be, it will not, and will not
authorize or knowingly permit any person acting on its behalf to, solicit
any offer to buy or offer to sell the Units by means of any form of general
solicitation or general advertising (as such terms are used in Regulation D
under the Act), or in any manner involving a public offering within the
meaning of Section 4(2) of the Act.
(p) It will cause each Unit, Share or Zero Coupon Note to bear the
following legend until such legend shall no longer be necessary or
advisable because the Units, Shares or Zero-Coupon Notes, as applicable,
are no longer subject to the restrictions on transfer described therein:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION
8
<PAGE>
5 OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR
FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT,
(c) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (d) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE COMPANY OR (3) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES
9
<PAGE>
LAWS OF ANY STATE OF THE UNTIED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
THE SECURITY EVIDENCED HEREBY WILL NOT BE TRANSFERABLE SEPARATELY FROM
THE [SHARE/ 13 1/2% SENIOR ZERO-COUPON NOTE DUE 2004] ORIGINALLY SOLD
AS A UNIT WITH SUCH SECURITY UNTIL THE EARLIEST TO OCCUR OF (I)
DECEMBER 1, 1996, (II) SUCH EARLIER DATE AS DONALDSON, LUFKIN &
JENRETTE SECURITIES CORPORATION ("DLJ") MAY IN ITS DISCRETION DEEM
APPROPRIATE, (III) IN THE EVENT OF THE OCCURRENCE OF A CHANGE OF
CONTROL (AS DEFINED IN THE INDENTURE BY AND BETWEEN THE COMPANY AND
THE TRUSTEE, DATED JUNE 4, 1996 RELATING TO THE ZERO-COUPON NOTES),
THE DATE THE COMPANY MAILS NOTICE THEREOF TO HOLDERS OF THE SECURITIES
AND (IV) THE DATE ON WHICH THE REGISTRATION STATEMENT RELATING TO THE
EXCHANGE OFFER (AS DEFINED IN THE PURCHASE AGREEMENT BETWEEN THE
COMPANY AND DLJ, DATED MAY 29, 1996) IS DECLARED EFFECTIVE BY THE
SECURITIES AND EXCHANGE COMMISSION.
(q) It will use its best efforts to do and perform all things required
to be done and performed under this Agreement by it prior to or after the
Closing Date and to satisfy all conditions precedent to the delivery of the
Units.
5. Representations and Warranties. The Company, represents and
warrants to you that:
(a) Each of the preliminary offering memorandum and the Offering
Memorandum, as of its date, contains all the information that, if
requested by a prospective purchaser of the Units, would be required
to be provided pursuant to Rule 144A(d)(4) under the Act. The Offering
Memorandum does not, and at the Closing Date will not, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the state-
10
<PAGE>
ments therein, in light of the circumstances under which they were
made, not misleading, except that the representations and warranties
contained in this paragraph (a) shall not apply to statements in or
omissions from the preliminary offering memorandum or the Offering
Memorandum (or any supplement or amendment to them), made in reliance
upon and in conformity with information relating to the Initial
Purchaser furnished to the Company in writing by or on behalf of the
Initial Purchaser expressly for use therein. The Company acknowledges
for all purposes under this Agreement (including this paragraph and
Section 6 hereof) that the statements set forth in the third paragraph
(first four sentences), fourth paragraph (second sentence), under the
caption "Plan of Distribution" and in the last paragraph of the cover
page in any preliminary offering memorandum and in the Offering
Memorandum constitute the only written
11
<PAGE>
information furnished to the Company by or on behalf of the Initial
Purchaser expressly for use in the Offering Memorandum (or any amendment or
supplement to any of them), and that the Initial Purchaser shall not be
deemed to have provided any information (and therefore is not responsible
for any statements or omissions), pertaining to any arrangement or
agreement with respect to any party other than the Initial Purchaser. On
the date hereof, at the date of the Offering Memorandum, and any amendment
or supplement thereto (if different), and at the Closing Date, the
Indenture will conform in all material respects to the requirements of the
Trust Indenture Act of 1939, as amended, and the rules and regulations
promulgated pursuant thereto (collectively, the "TIA"), which would be
applicable to an Indenture qualified under the TIA. No contract or
document of a character required to be described in the Offering
Memorandum, were the Offering Memorandum to be the form of prospectus
contained in a registration statement under the Act on Form S-1, has not
been described as so required.
(b) No action has been taken and no statute, rule, regulation or order
has been enacted, adopted or issued by any governmental body, agency or
official which prevents the issuance of the Units, suspends the
effectiveness of the Offering Memorandum, prevents or suspends the use of
any preliminary offering memorandum or suspends the sale of the Units in
any jurisdiction referred to in Section 4(h) hereof; no injunction,
restraining order or order of any nature by any Federal or state court of
competent jurisdiction has been issued with respect to the Company which
would prevent or suspend the issuance or sale of the Units, the
effectiveness of the Offering Memorandum, or the use of any preliminary
offering memorandum or the Offering Memorandum in any jurisdiction referred
to in Section 4(h) hereof; no action, suit or proceeding before any court
or arbitrator or any governmental body, agency or official, domestic or
foreign, is pending against or, to the best knowledge of the Company, could
reasonably be expected to be threatened against the Company which, if
adversely determined, could materially interfere with or adversely affect
the issuance of the Units or in any manner draw into question the validity
of the New Credit Facility or Registration Rights Agreement, this
Agreement, the Indenture, the Shares, the Zero-Coupon Notes or the Units;
and the Company has complied, in all material respects, with every request
of the Commission, or any securities authority or agency of any
jurisdiction for additional information (to be included in the Offering
Memorandum or otherwise).
(c) The Indenture has been duly authorized by the Company and, when
duly executed and delivered by the Company in accordance with its terms,
will be a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except as rights of
indemnity or
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contribution, or both, may be limited by state and Federal laws and except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity) and except to the extent that a waiver of rights or defenses
under any usury laws may be unenforceable.
(d) The Zero-Coupon Notes have been duly authorized by the Company
and, on the Closing Date, will have been duly executed by the Company and
will, when issued, executed, authenticated and delivered in accordance with
the Indenture and paid for in accordance with the terms of this Agreement,
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as rights of
indemnity or contribution, or both, may be limited by state and Federal
laws and except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or in equity), and except to the extent that a
waiver of rights or defenses under any usury laws may be unenforceable.
The Zero-Coupon Notes will be entitled to the benefits of the Indenture and
will conform in all material respects to the descriptions thereof in the
Offering Memorandum.
(e) The Shares are fully paid, non-assessable and are not subject to
preemptive rights imposed by the Company's certificate of incorporation,
the Company's by-laws or otherwise.
(f) This Agreement has been duly authorized and validly executed and
delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms (assuming due execution and delivery by you of this
Agreement), except as rights of indemnity or contribution, or both, may be
limited by state and Federal laws and except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws affecting creditors' rights and
remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity) and
except to the extent that a waiver of rights or defenses under any usury
laws may be unenforceable.
(g) The execution and delivery of this Agreement, the Indenture and
the Units by the Company, the issuance and sale of the Units, the
performance of
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this Agreement and the Indenture and the consummation of the
transactions contemplated by this Agreement and the Indenture will not
conflict with or result in a breach or violation of (A) the charter or
bylaws of the Company or (B) any of the terms or provisions of, or
constitute a default or cause an acceleration of any obligation under or
result in the imposition or creation of (or the obligation to create or
impose) any security interest, mortgage, pledge, claim, lien, encumbrance
or adverse interest of any nature (each, a "Lien"), with respect to, any
obligation, bond, agreement, note, debenture, or other evidence of
indebtedness, or any indenture, mortgage, deed of trust or other agreement,
lease or instrument to which the Company or its subsidiaries is a party or
by which any of them is bound, or to which any properties of the Company
and its subsidiaries is or may be subject, or (C) contravene any order of
any court or governmental agency, body or official having jurisdiction over
the Company and its subsidiaries or any of their properties or violate or
conflict with any statute, rule or regulation or administrative regulation
or decree or court decree applicable to the Company and its subsidiaries or
any of their respective assets or properties except in the case of (B) or
(C) above, where such conflict, breach, violation, acceleration or default
could not reasonably be expected to result in a Material Adverse Effect (as
hereinafter defined).
(h) The New Credit Facility and the Registration Rights Agreement have
each been duly and validly authorized by each of the Company and its
subsidiaries, as applicable, and on the Closing Date will have been duly
executed and delivered by each of the Company and its subsidiaries, as
applicable, and when duly executed and delivered by each of the other
parties thereto in accordance with its terms, will be a legal, valid and
binding agreement of each of the Company and its subsidiaries, as
applicable, in accordance with its terms, except as rights of indemnity or
contribution, or both, may be limited by state and Federal laws and except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity) and except to the extent that any waiver of rights or
defenses under any usury laws may be unenforceable. The New Credit
Facility and the Registration Rights Agreement conform in all material
respects with the descriptions thereof in the Offering Memorandum.
(i) No authorization, approval or consent or order of, or filing with,
any court or governmental body, agency or official is necessary in
connection with the transactions contemplated by this Agreement, the New
Credit Facility and the Registration Rights Agreement, except such as may
be required by the
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<PAGE>
NASD or have been obtained and made under the Act, the TIA or state
securities or Blue Sky laws or regulations. None of the Company nor any of
its affiliates is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba.
(j) The Company has been duly organized, is validly existing as a
corporation under the laws of the State of Delaware, and has the requisite
power and authority to carry on its business as it is currently being
conducted or as described in the Offering Memorandum as proposed to be
conducted, and to own, lease and operate its properties, as applicable, to
authorize the offering of the Units, the Shares or the Zero-Coupon Notes,
to execute, deliver and perform this Agreement, the New Credit Facility and
the Registration Rights Agreement and to issue, sell and deliver the Units,
and the Company is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction where the
operation, ownership or leasing of property or the conduct of its business
requires such qualification, except where the failure to be so qualified
could not reasonably be expected to have a material adverse effect, whether
singly or in the aggregate, on the properties, business, results of
operations, affairs, condition (financial or otherwise), or prospects of
the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect");
(k) The consolidated capitalization of the Company is as set forth in
the Offering Memorandum, under the caption "Capitalization" in the column
"Actual" and, after consummation of the Offering, will be as set forth in
the column "As Adjusted."
(l) All of the issued and outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have been
duly authorized and validly issued, and all, except for the minority
interests disclosed in the Offering Memorandum under the caption "Business-
Organizational Structure," of the shares of capital stock of, or other
ownership interests in, the Company's subsidiaries are owned directly or
indirectly by the Company. All such shares of capital stock or other
ownership interests are fully paid and nonassessable, and are owned free
and clear of any Lien except Liens that arise under the New Credit
Facility. There are no outstanding subscriptions, rights, warrants,
options, calls, convertible or exchangeable securities, commitments of
sale, or Liens related to or entitling any person to purchase or otherwise
to acquire any shares of the capital stock of, or other ownership interest
in, any of the Company's subsidiaries (except for the minority interests
disclosed in the Offering Memorandum under the caption "Business-
Organizational Structure").
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<PAGE>
(m) None of the Company and its subsidiaries is (A) in violation of
its respective charter or bylaws or (B) in default in the performance of
any obligation, bond, agreement, debenture, note or any other evidence of
indebtedness, or any indenture, mortgage, deed of trust or other contract,
lease or other instrument to which the Company or its subsidiaries is a
party or by which any of them is bound, or to which any of the property or
assets of the Company is subject, except in the case of (B) as could not
reasonably be excepted to have a Material Adverse Effect.
(n) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, pending against or
affecting the Company or its subsidiaries or any of their respective assets
or properties, which is required to be disclosed in the Offering Memorandum
(except as disclosed therein), or which could have a Material Adverse
Effect, or which might materially and adversely affect the performance by
the Company of its obligations pursuant to this Agreement or the
transactions contemplated hereby or thereby and, to the best knowledge of
the Company, no such action, suit or proceeding is contemplated or
threatened.
(o) (i) The Company and its subsidiaries are not in violation of any
Federal, state or local laws and regulations relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of toxic
or hazardous substances, materials or wastes, or petroleum and petroleum
products ("Materials of Environmental Concern"), or otherwise relating to
the protection of human health and safety, or the use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws"), which violation includes, but is not
limited to, noncompliance with, or lack of, any permits or other
governmental authorizations, except to the extent that any such violation
could not reasonably be expected to have a Material Adverse Effect or
otherwise require disclosure in the Offering Memorandum; and (ii) (A) the
Company and its subsidiaries have not received any communication (written
or oral), whether from a governmental authority or otherwise, alleging any
such violation or noncompliance, and, to the best knowledge of the Company,
there are no circumstances, either past, present or that are reasonably
foreseeable, that may lead to such violation in the future, (B) there is no
pending or, to the best knowledge of the Company, threatened claim, action,
investigation or notice (written or oral) by any person or entity alleging
potential liability for investigatory, cleanup, or governmental responses
costs, or natural resources or property damages, or personal injuries,
attorney's
16
<PAGE>
fees or penalties relating to (x) the presence, or release into the
environment, of any Material of Environmental Concern at any location owned
or operated by the Company or its subsidiaries now or in the past, or (y)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law (collectively, "Environmental Claims"), and (C) to
the best knowledge of the Company, there are no past or present actions,
activities, circumstances, conditions, events or incidents that could form
the basis of any Environmental Claim against the Company and its
subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company had retained or assumed either
contractually or by operation of law, that in the case of either (A), (B)
or (C) of this subparagraph (ii) could reasonably be expected to have a
Material Adverse Effect or otherwise require disclosure in the Offering
Memorandum. In the ordinary course of its business, the Company or its
subsidiaries have conducted "Phase I assessments", which generally consist
of an investigation of environmental conditions at the subject property
(not including soil or groundwater sampling or analysis), as well as a
review of available information regarding the site and conditions at other
sites in the vicinity. Based upon these Phase I assessments the Company or
its subsidiaries have conducted additional investigations as recommended
regarding environmental conditions at the properties; on the basis of such
investigations, the Company has reasonably concluded that the costs and
liabilities identified as a result of any such investigations could not
reasonably be expected to have a Material Adverse Effect.
(p) The Company and its subsidiaries are not in violation of any
Federal, state or local law relating to discrimination in the hiring,
promotion or pay of employees nor any applicable wage or hour laws, except
as could not reasonably be expected to have a Material Adverse Effect.
There is (A) no significant unfair labor practice complaint pending against
the Company or its subsidiaries or, to the best knowledge of the Company,
threatened against any of them, before the National Labor Relations Board
or any state or local labor relations board, and no material grievance or
material arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or its subsidiaries
or, to the best knowledge of the Company, threatened against any of them,
and (B) no labor dispute in which the Company is involved nor, to the best
knowledge of the Company, is any labor dispute imminent, other than routine
disciplinary and grievance matters. The Company and its subsidiaries are
in compliance with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and published
interpretations thereunder, except for such non-compliance as could not
reasonably be expected to result in a Material Adverse Effect.
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<PAGE>
(q) Except as could not reasonably be expected to have a Material
Adverse Effect, each of the Company and each of its subsidiaries has good
and marketable title, free and clear of all Liens (except for Permitted
Liens (as defined in the Indenture)), to all property and assets described
in the Offering Memorandum as being owned by it and such properties and
assets are in the condition and suitable for use as so described. All
leases to which any of the Company and its subsidiaries is a party are
valid and binding and no default has occurred and is continuing thereunder
(in the case of defaults by persons other than the Company or its
subsidiaries, to the best knowledge of the Company), which could result in
a Material Adverse Effect, and the Company and its subsidiaries enjoy
peaceful and undisturbed possession under all such leases to which any of
them is a party as lessee with such exceptions as do not interfere with the
use made or proposed to be made by the Company and its subsidiaries.
(r) The Company and its subsidiaries maintain insurance at least in
such amounts and covering at least such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar businesses
in similar industries.
(s) Ernst & Young LLP, the firm of accountants that has certified or
shall certify the applicable consolidated financial statements of the
Company and its subsidiaries and the other financial statements included or
to be included as part of the Offering Memorandum, are independent public
accountants with respect to the Company and its subsidiaries, as would be
required under the Act. The consolidated financial statements and the
other financial statements, together with related schedules and notes, set
forth in the Offering Memorandum, comply as to form in all material
respects with the requirements applicable to registration statements on
Form S-1 under the Act and fairly present the consolidated financial
position of the Company and the financial position of its subsidiaries at
the respective dates indicated and the results of their operations and
their cash flows, as applicable, for the respective periods indicated, and
were prepared in accordance with generally accepted accounting principles
in the United States of America ("GAAP"), consistently applied throughout
such periods subject in the case of interim statements to normal recurring
adjustments. The consolidated historical ratios of earnings to fixed
charges of the Company and the consolidated pro forma ratios of earnings to
fixed charges of the Company included in the Offering Memorandum under the
caption "Selected Consolidated Financial Information" have been calculated
in compliance with Item 503(d) of the Commission's Regulation S-K. The
other financial and statistical information and data included in the
Offering Memorandum, historical and pro forma, are accurately presented
18
<PAGE>
and prepared on a basis consistent with the financial statements and the
books and records of the Company and its subsidiaries.
(t) Subsequent to the respective dates as of which information is
given in the Offering Memorandum and up to the Closing Date, except as set
forth in the Offering Memorandum, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material to the Company and its subsidiaries taken as
a whole, nor entered into any transaction not in the ordinary course of
business and there has not been, singly or in the aggregate, any material
adverse change, or any development which could reasonably be expected to
involve a material adverse change, in the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of the
Company and its subsidiaries taken as a whole (a "Material Adverse
Change").
(u) The Company and each of its subsidiaries have filed (or have had
filed on their behalf) all material tax returns required to be filed by any
of them prior to the date hereof under applicable law, other than those
filings being contested in good faith. All such tax returns and amendments
thereto are true, correct and complete in all material respects. The
Company and each of its subsidiaries have paid (or have had paid on their
behalf) all material taxes, including all Federal, state, local and foreign
taxes, and other assessments of a similar nature (whether imposed directly
or through withholding), including any interest, additions to tax, or
penalties applicable thereto, other than those taxes being contested in
good faith and for which adequate reserves have been provided or those
currently payable without penalty or interest. To the best of the
Company's and its subsidiaries' knowledge there are no tax items of a
material nature that are currently under examination by the Internal
Revenue Service or any other domestic or foreign governmental authority
responsible for the administration of any such taxes.
(v) (i) The Company and each of its subsidiaries has all
certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals or rights (each, an "Authorization"), of
and from, and has made all declarations and filings with, all Federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, necessary or required to
own, lease, license and use its properties and assets and to conduct its
business in the manner described in the Offering Memorandum, except to the
extent that the failure to obtain or file could not reasonably be expected
to have a Material Adverse Effect, (ii) all such Authorizations are valid
and in full force and effect, except as could not reasonably be expected to
have a Material Adverse
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Effect, (iii) the Company and its subsidiaries are in compliance in all
material respects with the terms and conditions of all such Authorizations
and with the rules and regulations of the regulatory authorities and
governing bodies having jurisdiction with respect thereto and (iv) the
Company and its subsidiaries have received no notice of proceedings
relating to the revocation or modification of any such Authorization. The
Company and its subsidiaries possess the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
(collectively, "Intellectual Property"), presently employed by them in
connection with the businesses now operated by them, and the Company and
its subsidiaries have not received any notice of infringement of or
conflict with asserted rights of others with respect to the foregoing
except as could not reasonably be expected to have a Material Adverse
Effect. The use of such Intellectual Property in connection with the
business and operations of the Company and its subsidiaries does not
infringe on the rights of any person.
(w) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(x) Neither the Company and its subsidiaries nor any agent acting on
their behalf has taken or will take any action that is reasonably likely to
cause the issuance or sale of the Units to violate Regulation G, T, U, or X
of the Board of Governors of the Federal Reserve System, in each case as in
effect on the Closing Date.
(y) Neither the Company nor any of its subsidiaries is (i) an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended, or
(ii) a "holding company" or a "subsidiary company" of a holding company, or
an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
20
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(z) No holder of any security of the Company or its subsidiaries has
any right to require registration of any security of the Company except for
the rights under the Registration Rights Agreement and the Stockholders'
Agreement. No existing holder of any security of the Company or its
subsidiaries has or will have any right to require registration of such
security by virtue of the transactions contemplated by this Agreement.
(aa) Except as disclosed in the Offering Memorandum, there are no
business relationships or related party transactions which would be
required to be disclosed therein by Item 404 of Regulation S-K of the
Commission if the Offering Memorandum were a prospectus contained in a
registration statement on Form S-1 filed under the Act.
(bb) On the Closing Date, the Units will have been approved for
inclusion on the PORTAL system, subject to official notice of issuance.
(cc) Neither the Company nor any affiliate (as such term is defined in
Rule 501(b) under the Act) of the Company has, directly or through any
agent, sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any "security" (as defined in the Act) which is
or will be integrated with the sale of the Units in a manner that would
require registration of the offering and sale of the Units under the Act.
(dd) Neither the Company nor any of its subsidiaries and any officer,
director or other person (other than you, as to whom the Company and its
subsidiaries make no representation), acting on their behalf has engaged,
in connection with the offering of the Units, in any form of general
solicitation or general advertising, including but not limited to the
methods described in Rule 502(c) under the Act.
(ee) Assuming the accuracy of your representations contained in
Section 3 hereof and your compliance with your agreements therein set
forth; it is not necessary, in connection with the sale and delivery of the
Units to you and the offer and resale of the Units by you, in each case in
the manner contemplated by this Agreement and the Offering Memorandum, to
register the Units, the Shares or the Zero-Coupon Notes under the Act or to
qualify the Indenture under the TIA.
(ff) The Company has delivered to the Initial Purchaser a true and
correct copy of the New Credit Facility in the form substantially as it
will be executed and delivered on the Closing Date, together with all
related agreements
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and all schedules and exhibits thereto, and there have been no amendments,
alterations, modifications or waivers of any of the provisions of the New
Credit Facility from the form which has been delivered to the Initial
Purchaser; there exists as of the date hereof (after giving effect to the
transactions contemplated by the New Credit Facility), no event or
condition which would constitute a default or an event of default (in each
case as defined in the New Credit Facility), under the New Credit Facility
which would result in a Material Adverse Effect or materially adversely
effect the ability of the Company to consummate the transactions
contemplated by this Agreement.
(gg) Each certificate signed by any officer of any of the Company and
delivered to the Initial Purchaser or counsel for the Initial Purchaser in
connection with the transactions contemplated by this Agreement shall be
deemed to be a representation and warranty by the Company to the Initial
Purchaser as to the matters covered thereby.
(hh) At the Closing Date after giving effect to the transactions
contemplated hereby, (a) the Company's assets will exceed its liabilities
and (b) the Company will be solvent, will be able to pay its debts as they
mature, will own property with fair saleable value greater than the amount
required to pay its debts as they come due and will have capital sufficient
to carry on its business as then constituted.
(ii) CEL Golf Group, Inc., a Georgia corporation and wholly owned
subsidiary of the Company does not currently have, and has not engaged in,
any business.
6. Indemnification.
(a) The Company, agrees to indemnify and hold harmless (i) the
Initial Purchaser and (ii) each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act), the
Initial Purchaser (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the
respective officers, directors, partners, employees, representatives and
agents of the Initial Purchaser or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as
an "Indemnified Person"), to the fullest extent lawful, from and against
any and all losses, claims, damages, judgments, actions, expenses and other
liabilities (collectively, "Liabilities"), including without limitation and
as incurred, reimbursement of all reasonable costs of investigating,
preparing, pursuing or defending any claim or action, or any investigation
or proceeding by any
22
<PAGE>
governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Person, directly
or indirectly caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (including any amendment
or supplement thereto), or any preliminary offering memorandum, or any
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, except
insofar as such Liabilities are caused by an untrue statement or omission
or alleged untrue statement or omission that is (x) made in reliance upon
and in conformity with information relating to the Initial Purchaser
furnished in writing to the Company by or on behalf of the Initial
Purchaser expressly for use in any preliminary offering memorandum or the
Offering Memorandum (or any amendment or supplement thereto), or (y) with
respect to the Initial Purchaser, made in any preliminary offering
memorandum if a copy of the Offering Memorandum (as amended or
supplemented, if the Company shall have furnished the Initial Purchaser
with such amendments or supplements thereto on a timely basis), was not
delivered by or on behalf of such Initial Purchaser to the person asserting
the Liabilities, if required by law to have been so delivered by the
Initial Purchaser seeking indemnification, at or prior to the written
confirmation of the sale of the Units, and it shall be finally determined
by a court of competent jurisdiction, in a judgment not subject to appeal
or review, that the Offering Memorandum (as so amended or supplemented),
would have completely corrected such untrue statement or omission. The
Company shall notify you promptly of the institution, threat or assertion
of any claim, proceeding (including any governmental investigation), or
litigation in connection with the matters addressed by this Agreement which
involves the Company or an Indemnified Person.
(b) In case any action or proceeding (for all purposes of this Section
6, including any governmental investigation), shall be brought or asserted
against any of the Indemnified Persons with respect to which indemnity may
be sought against the Company, such Indemnified Person shall promptly
notify the Company in writing; provided, that the failure to give such
notice shall not relieve the Company of its obligations pursuant to this
Agreement. Upon receiving such notice, the Company shall assume, at its
sole expense, the defense thereof, with counsel reasonably satisfactory to
such Indemnified Person and, after written notice from the Company to such
Indemnified Person of its election so to assume the defense thereof made
within five business days after receipt of the notice from the Indemnified
Person of such action or proceeding. The Company shall not be liable to
such Indemnified Person hereunder for legal expenses of other counsel
subsequently incurred by such Indemnified Person in connection with the
defense
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<PAGE>
thereof, other than costs of investigation, unless (i) the Company agrees
in writing to pay such fees and expenses, or (ii) the Company fails
promptly to assume such defense or fails to employ counsel reasonably
satisfactory to such Indemnified Person or (iii) the named parties to any
such action or proceeding (including any impleaded parties), include both
such Indemnified Person and the Company or an affiliate of the Company, and
either (x) such Indemnified Person shall have been advised by counsel that
there may be one or more legal defenses available to such Indemnified
Person that are different from or additional to those available to the
Company or such affiliate or (y) a conflict may exist between such
Indemnified Person and the Company or such affiliate. In the event of any
of clause (i), (ii) and (iii) of the immediately preceding sentence, if
such Indemnified Person notifies the Company in writing, the Company shall
not have the right to assume the defense thereof and such Indemnified
Person shall have the right to employ its own counsel in any such action
and the reasonable fees and expenses of such counsel shall be paid, as
incurred, by the Company, regardless of whether it is ultimately determined
that an Indemnified Person is not entitled to indemnification hereunder, it
being understood, however, that the Company shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings arising out of the same general allegations
or circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time
for all such Indemnified Persons. The Company agrees to be liable for any
settlement of such action or proceeding effected with the Company's prior
written consent, which consent will not be unreasonably withheld, and the
Company agrees to indemnify and hold harmless any Indemnified Person from
and against any Liabilities by reason of any settlement of any action
effected with the written consent of the Company. The Company agrees to be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than ten business days
after receipt by the Company of the aforesaid request for payment in
respect of an indemnification obligation pursuant hereto and (ii) the
Indemnified Person shall not have been reimbursed in accordance with such
request prior to the date of such settlement. The Company shall not,
without the prior written consent of each Indemnified Person, settle or
compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding
in respect of which indemnification or contribution may be sought pursuant
hereto (whether or not any Indemnified Person is a party thereto), unless
such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Person from all liability arising
out of such action, claim, litigation or proceeding.
24
<PAGE>
(c) The Initial Purchaser agrees to indemnify and hold harmless the
Company and any person controlling (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) the Company, and the officers,
directors, partners, employees, representatives and agents of each such
person, to the same extent as the foregoing indemnity from the Company to
each of the Indemnified Persons, but only with respect to claims and
actions based on information relating to the Initial Purchaser and
conforming to information furnished in writing by the Initial Purchaser
expressly for use in the Offering Memorandum or any preliminary offering
memorandum, as applicable. In case any action or proceeding (including any
governmental investigation), shall be brought or asserted against the
Company, any of its directors, any such officer, or any such controlling
person based on the Offering Memorandum or any preliminary offering
memorandum in respect of which indemnity is sought against any Initial
Purchaser pursuant to the foregoing sentence, the Initial Purchaser shall
have the rights and duties given to the Company (except that if the Company
shall have assumed the defense thereof, the Initial Purchaser shall not be
required to do so, but may employ separate counsel therein and participate
in the defense thereof but the fees and expenses of such counsel shall be
at the expense of the Initial Purchaser), and the Company, its directors,
any such officers and each such controlling person shall have the rights
and duties given to the Indemnified Person by Section 7(b) above.
(d) If the indemnification provided for in this Section 6 is finally
determined by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any Liabilities referred to herein, then
each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as
a result of such Liabilities (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 hand, from the offering of the Units 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 indemnifying parties and the indemnified party, as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Initial Purchaser (and
its related Indemnified Persons), on the other hand, shall be deemed to be
in the same proportion as the total proceeds from the Units (net of
discounts and commissions but before deducting expenses), received by the
Company bears to the total discounts and commissions received by the
Initial Purchaser, in each case as set forth in the Offering Memorandum.
The relative fault of the Company, on the one hand, and the Initial
Purchaser, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the
25
<PAGE>
omission or alleged omission to state a material fact related to
information supplied by the Company, on the one hand, or by the Initial
Purchaser, on the other, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The indemnity and contribution obligations of the Company set
forth herein shall be in addition to any liability or obligation the
Company may otherwise have to any Indemnified Person.
The Company and the Initial Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined
by pro rata allocation, or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of any Liabilities, referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 6, the Initial
Purchaser (and its related Indemnified Persons) shall not be required to
contribute, in the aggregate, any amount in excess of the amount by which
the total discounts and commissions applicable to the Units purchased by
the Initial Purchaser exceeds the amount of any damages and related
expenses which the Initial Purchaser (and its related Indemnified Persons),
has otherwise been required to pay or incur by reason of such untrue or
alleged untrue statement or omission or alleged omission.
7. Conditions to Initial Purchaser's Obligations. The obligations
of the Initial Purchaser to purchase any Units under this Agreement are subject
to the satisfaction of each of the following conditions on the Closing Date:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date. The Company
shall have performed or complied with all of its obligations and agreements
herein contained and required to be performed or complied with by it at or
prior to the Closing Date.
(b) At the Closing Date, no stop order suspending the sale of the
Units in the United States or any jurisdiction referred to in Section 4(h)
shall have been issued and no proceeding for that purpose shall have been
commenced or shall be pending or threatened.
26
<PAGE>
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency, body or official which would, as of the Closing Date, prevent the
issuance of the Units; and no injunction, restraining order or order of any
nature by any Federal or state court of competent jurisdiction shall have
been issued as of the Closing Date which would prevent the issuance of the
Units. Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any downgrading or
indication that such securities have been placed on any "watch list" for
possible downgrading, nor shall any review for a possible change that does
not indicate the direction of the possible change, in the rating accorded
any of the Company's or its subsidiaries' securities by any nationally
recognized statistical rating organization, as such term is defined for
purposes of Rule 436(g)(2) of the Act.
(d) (i) Since the earlier of the date hereof or the dates of which
information is given in the Offering Memorandum, there shall not have been
any material adverse change, (ii) since the date of the latest balance
sheet included in the Offering Memorandum, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the capital stock or debt, of the Company or
its subsidiaries and (iii) the Company shall have no liability or
obligation, direct or contingent, that is material to the Company and its
subsidiaries, taken as a whole, and which is not disclosed in the Offering
Memorandum.
(e) You shall have received a certificate of the Company, dated the
Closing Date, executed on behalf of the Company by the chief executive
officer and the principal financial officer of the Company confirming, as
of the Closing Date, the matters set forth in paragraphs (a), (b), (c) and
(d) of this Section 7.
(f) On the Closing Date, you shall have received:
(1) an opinion (satisfactory to you and your counsel), dated the
Closing Date, of Latham & Watkins, special counsel for the
Company, to the effect that:
(i) the Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under this
Agreement; this Agreement has been duly authorized by all
necessary corporate action, executed and delivered by the
Company;
27
<PAGE>
(ii) the Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the
Zero-Coupon Notes, the Indenture and the Registration
Rights Agreement and to authorize, issue, sell and deliver
the Zero-Coupon Notes; each of the Zero-Coupon Notes and
the Indenture have been duly authorized by all necessary
corporate action, executed and delivered by the Company;
(iii) when issued, executed and authenticated and delivered in
accordance with the provisions of the Indenture and paid
for by you in accordance with the terms of this Agreement,
the Zero-Coupon Notes will constitute legal, valid and
binding obligations of the Company, enforceable against the
Company in accordance with their terms and entitled to the
benefits of the Indenture, except as rights of indemnity or
contribution, or both, may be limited by laws or court
decisions and except as such enforceability may be limited
by the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws now
or hereafter in effect relating to or affecting the rights
or remedies of creditors and to general principles of
equity (regardless of whether enforcement is considered in
a proceeding at law or in equity) and the discretion of the
court before which any proceeding therefor may be brought,
and except to the extent that a waiver of rights or
defenses under any usury laws may be unenforceable;
(iv) the Indenture, assuming due authorization, execution and
delivery thereof by the Trustee will be a legal, valid and
binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as rights of
indemnity or contribution, or both, may be limited by laws
or court decisions and except as such enforceability may be
limited by the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other
similar laws now or hereafter in effect relating to or
affecting the rights or remedies of creditors and to
general principles of equity (regardless of whether
enforcement is considered in a proceeding at law or in
equity) and the discretion of the court before which any
proceeding therefor may be brought, and
28
<PAGE>
except to the extent that a waiver of rights or defenses
under any usury laws may be unenforceable;
(v) the Company is a duly incorporated and a validly existing
corporation in good standing under the laws of its
jurisdiction of organization, has the requisite corporate
power and authority to own, lease and operate its
properties and to conduct its business as described in the
Offering Memorandum;
(vi) the Company is not (a) an "investment company" or a company
"controlled" by an investment company within the meaning of
the Investment Company Act of 1940, as amended, or (b) a
"holding company" or a "subsidiary company" of a holding
company, or an "affiliate" thereof within the meaning of
the Public Utility Holding Company Act of 1935, as amended;
(vii) the descriptions set forth under the heading "Consolidated
Capitalization" in the Offering Memorandum insofar as such
statements constitute a summary of legal matters, documents
or proceedings referred to therein are accurate in all
material respects;
(viii) no authorization, approval, consent or order of, or filing
with, any court or governmental body or agency is required
for the consummation by the Company of the transactions
contemplated by this Agreement and the Registration Rights
Agreement, except that such counsel need express no opinion
with respect to state securities or Blue Sky laws or
regulations;
(ix) the execution and delivery of this Agreement, the Indenture
and the Registration Rights Agreement, the issuance and
sale of the Units, the performance of its obligations under
this Agreement, the Units, the Indenture and the
Registration Rights Agreement and the consummation of the
transactions contemplated by this Agreement, the Indenture
and the Registration Rights Agreement will not conflict
with or result in a breach or violation of any of the
charter or bylaws of the Company or the terms or provi-
29
<PAGE>
sions of, or constitute a default under, any statute, rule
or regulation or any agreement or instrument (identified to
such counsel in writing by the Company as material to the
Company and its subsidiaries, taken as a whole), any order
of any court or governmental agency, body or official
having jurisdiction over the Company or any of its
subsidiaries or any of their properties (identified to such
counsel in writing by the Company as material to the
Company and its subsidiaries, taken as a whole);
(x) the Registration Rights Agreement has been duly and validly
authorized by the Company and on the Closing Date will have
been duly executed and delivered by the Company in
accordance with its terms, and (B) assuming due
authorization, execution and delivery thereof, will be a
legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its
terms, except as rights of indemnity or contribution, or
both, may be limited by laws or court decisions and except
as such enforceability may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws now or hereafter
in effect relating to or affecting the rights or remedies
of creditors and to general principles of equity
(regardless of whether enforcement is considered in a
proceeding at law or in equity) and the discretion of the
court before which any proceeding therefor may be brought,
and except to the extent that a waiver of rights or
defenses under any usury laws may be unenforceable. The
Registration Rights Agreement conforms in all material
respects with the descriptions thereof in the Offering
Memorandum;
(xi) all of the issued and outstanding shares of capital stock
of, or other ownership interests in CGG have been duly and
validly authorized and issued, and based solely on such
counsel's review of the relevant stock records and the
recitations as to such matters in the resolutions
authorizing the issuance thereof, the shares of capital
stock of, or other ownership interests in, CGG are owned of
record directly by the Company, and are fully paid and non-
assessable, and; to the best of such counsel's knowledge,
there are no
30
<PAGE>
outstanding subscriptions, rights, warrants,
options, calls, convertible securities or commitments for
sale, or liens related to or entitling any person to
purchase or otherwise acquire any shares of capital stock
or any other equity interest in CGG;
(xii) all of the outstanding shares of capital stock of the
Company have been duly and validly authorized and issued
and are fully paid and non-assessable, and; to the best of
such counsel's knowledge there are no outstanding
subscriptions, rights, warrants, options, calls,
convertible securities or commitments for sale or liens
related to or entitling any person to purchase or otherwise
acquire any shares of capital stock or any other equity
interest in the Company, except as disclosed in the
Offering Memorandum;
(xiii) the Shares, the Zero-Coupon Notes and the Units conform in
all material respects to the description thereof in the
Offering Memorandum under the caption "Description of
Capital Stock," "Description of the Zero-Coupon Notes" and
"Description of the Units," respectively;
(xiv) assuming the accuracy of the representations and warranties
of the Initial Purchaser in Section 2(b) of this Purchase
Agreement and of the Company in Section 5(ad) of this
Purchase Agreement, the issuance and sale of the Units to
the Initial Purchaser and the offering, resale and delivery
of the Units by the Initial Purchaser, in each case, in the
manner disclosed in the Offering Memorandum, are exempt
from the registration requirements of Section 5 of the Act
and it is not necessary to qualify the Indenture under the
TIA;
(xv) although the discussion in the Offering Memorandum under
the heading "Certain Federal Income Tax Considerations"
does not purport to discuss all possible United States
Federal income tax consequences of the purchase, ownership,
and disposition of the Units, such discussion constitutes,
in all material respects, an accurate summary of the
material United States Federal income tax consequences
31
<PAGE>
of the purchase, ownership and disposition of the Units
under existing law; and
(xvi) the Shares are validly issued and authorized, and when paid
for in accordance with this Agreement, will be fully paid
and non-assessable and, except as disclosed in the Offering
Memorandum, are not subject to preemptive rights arising
under the Company's certificate of incorporation or bylaws
or to the best of such counsel's knowledge, arising by
contract or otherwise; the form of the certificate
representing the Shares complies with the requirements of
the Delaware General Corporation Law.
In giving their opinion required by subsection (f)(1) of this
Section 7, such counsel (i) may state that such opinions are limited to
matters governed by the Federal laws of the United States of America, the
laws of the States of New York and California, and the General Corporation
Law of the State of Delaware, and (ii) shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants for the
Company, your representatives and your counsel in connection with the
preparation of the Offering Memorandum and such counsel shall advise you
that, on the basis of the foregoing, although such counsel has not
independently verified the accuracy, completeness or fairness of such
statements (except as indicated above) and relying to a large extent as to
materiality on management of the Company, no facts came to such counsel's
attention that caused such counsel to believe that the Offering Memorandum
(as amended or supplemented), as of its date and as of the Closing Date
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may further state that it assumes no
responsibility for, and has not independently verified, the accuracy,
completeness or fairness of the financial statements, notes and schedules
and other financial, statistical, numerical and accounting data included in
or omitted from the Offering Memorandum.
(2) In addition, you shall be entitled to rely on an opinion in form and
substance satisfactory to you and your counsel with respect to the New
Credit Facility.
32
<PAGE>
(g) You shall have received an opinion dated the Closing Date, of
Skadden, Arps, Slate, Meagher & Flom, counsel for the Initial Purchaser, in
form and substance reasonably satisfactory to you.
(h) You shall have received letters on and as of the date hereof as
well as on and as of the Closing Date, in form and substance satisfactory
to you, from Ernst & Young LLP, independent public accountants complying
with Rule 2-01 of Regulation S-X of the Commission, with respect to the
financial statements and certain financial and statistical information
contained in the Offering Memorandum as you shall reasonably request.
(i) Prior to the Closing Date, the Company shall have furnished to you
such further information, certificates and documents as you may reasonably
request.
(j) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior to the
Closing Date.
(k) The Securities shall have been approved for inclusion on the
PORTAL system, subject to notice of official issuance.
(l) All transactions that are contemplated by the Registration Rights
Agreement and the New Credit Facility to have been consummated at or prior
to the Closing Date shall have been consummated prior to or simultaneously
with the consummation of the purchase and sale of the Units hereunder.
(m) The offering by CGG of its 11 1/2% Senior Notes due 2003 (the
"Senior Note Offering") shall have been consummated.
(n) You shall have received a certificate of the Company, dated the
Closing Date, executed on behalf of the Company, by the chief executive
officer and the chief financial officer of the Company as to the solvency
of the Company and its subsidiaries, taken as a whole, in form and
substance, satisfactory to you.
(o) The Shares shall constitute, after giving effect to the
transactions contemplated by this Agreement, five percent of the
outstanding Common Stock.
8. Effective Date of Agreement, Defaults and Termination. This
Agreement shall become effective upon the later of (i) the execution and
delivery of this Agreement by the parties hereto, and (ii) the delivery of the
Offering Memorandum to the
33
<PAGE>
Initial Purchaser for its use in connection with sales of the Units.
Notwithstanding the foregoing, this Agreement shall not become effective until
the purchase agreement for the Senior Note Offering shall have been executed and
delivered by the parties thereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchaser by notice to the Company if any of the
following has occurred: (i) subsequent to the date of the Offering Memorandum
or the date of this Agreement, any Material Adverse Change which, in the
judgment of DLJ, impairs the investment quality of the Units, (ii) any outbreak
or escalation of hostilities or other national or international calamity or
crisis or material adverse change in the financial markets of the United States
or elsewhere or any other substantial national or international calamity or
emergency if the effect of such outbreak, escalation, calamity, crisis or
emergency would, in DLJ's judgment, make it impracticable or inadvisable to
market the Units or to enforce contracts for the sale of the Units, (iii) any
suspension or limitation of trading generally in securities on the New York or
American Exchanges or the National Association of Securities Dealers Automated
Quotation National Market, PORTAL or the over-the-counter markets or any setting
of minimum prices for trading on such exchanges or markets, (iv) any declaration
of a general banking moratorium by either Federal or New York state authorities,
(v) the taking of any action by any Federal, state or local government or agency
in respect of its monetary or fiscal affairs that in DLJ's judgment has a
material adverse effect on the financial markets in the United States, and
would, in DLJ's judgment, make it impracticable or inadvisable to market the
Units or to enforce contracts for the sale of the Units, (vi) any securities of
the Company or its subsidiaries shall have been downgraded or placed on any
"watch list" for possible downgrading or reviewed for a possible change that
does not indicate the direction of the possible change by any "nationally
recognized statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) of the Act, or (vii) the enactment, publication,
decree or other promulgation of any Federal, state or local statute, regulation,
rule or order of any court or other governmental authority which would in the
judgment of DLJ have a Material Adverse Effect or make it inadvisable or
impractical to market the Units.
If this Agreement shall be terminated by the Initial Purchaser
pursuant to clause (i), (vi) or (vii) of the second paragraph of this Section 8
or because of the failure or refusal on the part of the Company to comply with
the terms or to fulfill any of the conditions of this Agreement, the Company
agrees to reimburse you for all reasonable out-of-pocket expenses (including the
reasonable fees and disbursements of counsel) incurred by you. Notwithstanding
any termination of this Agreement, the Company shall be liable for all expenses
which it agrees to pay pursuant to Section 4 hereof. If this Agreement is
terminated pursuant to this Section 8, such termination shall be without
liability of the Initial Purchaser to the Company.
34
<PAGE>
9. Notices. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to it at 3702
Via De La Valle, Suite 202, Del Mar, California 92014, with a copy to Latham &
Watkins, 633 W. Fifth Street, Suite 4000, Los Angeles, California 90071-20007,
Attention: Elizabeth A. Blendell, Esq. (b) if to the Initial Purchaser, to
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Debt Capital Markets, with a copy to Skadden, Arps,
Slate, Meagher & Flom at 300 South Grand Avenue, Suite 3400, Los Angeles,
California 90071, Attention: Gregg A. Noel, Esq. or (c) in any case to such
other address as the person to be notified may have requested in writing.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO
CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. Severability. Any determination that any provision of this
Agreement may be, or is, unenforceable shall not affect the enforceability of
the remainder of this Agreement.
12. Successors. Except as otherwise provided, this Agreement has
been and is made solely for the benefit of and shall be binding upon the
Company, the Initial Purchaser, any Indemnified Person referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "successors and assigns" shall not include
a purchaser of any of the Units from the Initial Purchaser merely because of
such purchase.
13. Certain Definitions. For purposes of this Agreement, (a)
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading and (b) "subsidiary" has the meaning set forth in Rule 405 of the
Securities Act.
14. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in one or more counterparts, the executed
counterparts shall each be deemed to be an original, and all such counterparts
shall together constitute one and the same instrument.
15. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
35
<PAGE>
16. Survival. The indemnity and contribution provisions and the
other agreements, representations and warranties of the Company, its officers
and directors and of the Initial Purchaser set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Units, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of any of the Initial
Purchaser or by or on behalf of the Company or the officers or directors of the
Company or any controlling person of the Company, (ii) acceptance of the Units
and payment for them hereunder and (iii) termination of this Agreement.
36
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
COBBLESTONE HOLDINGS, INC.
By: /s/ Stefan C. Karnavas
--------------------------------
Name: Stefan C. Karnavas
Title: Chief Financial Officer
37
<PAGE>
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ David F. Posnick
------------------------------
Name: David F. Posnick
Title: Vice President
38
<PAGE>
Exhibit 10.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JUNE 4, 1996
BY AND AMONG
COBBLESTONE HOLDINGS, INC.
AS ISSUER,
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
AS INITIAL PURCHASER
================================================================================
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), is made and
entered into as of June 4, 1996, among COBBLESTONE HOLDINGS, INC., a Delaware
corporation (the "Issuer"), and DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated May
29, 1996, between the Issuer and the Initial Purchaser (the "Purchase
Agreement"), which provides for the sale by the Issuer to the Initial Purchaser
of an aggregate of 86,000 Units, each consisting of $1,000 principal amount at
maturity of 13/1/2/% Series A Zero-Coupon Notes due 2004 (the "Notes"), and one
Share of Common Stock. In order to induce the Initial Purchaser to enter into
the Purchase Agreement, the Issuer has agreed to provide to the Initial
Purchaser and its respective direct and indirect transferees, among other
things, the registration rights for the Notes set forth in this Agreement. The
execution of this Agreement is a condition to the closing of the transactions
contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings (and, unless otherwise indicated, capitalized terms used
herein without definition shall have the respective meanings ascribed to them by
the Purchase Agreement):
Applicable Period: See Section 2(b) hereof.
-----------------
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Effectiveness Period: See Section 3(a) hereof.
--------------------
Effectiveness Target Date: See Section 4(a)(ii) hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
1
<PAGE>
Exchange Notes: See Section 2(a) hereof.
--------------
Exchange Offer: See Section 2(a) hereof.
--------------
Exchange Offer Registration Statement: See Section 2(a) hereof.
-------------------------------------
Holder: Any holder of Transfer Restricted Notes.
------
Indemnified Party: See Section 7 hereof.
-----------------
Indemnified Person: See Section 7 hereof.
------------------
Indemnifying Person: See Section 7 hereof.
-------------------
Indenture: The Indenture, dated as of June 4, 1996, between the
---------
Issuer and Norwest Bank Minnesota, National Association, as trustee,
pursuant to which the Notes are being issued, as amended or supplemented
from time to time in accordance with the terms thereof.
Initial Purchaser: See the introductory paragraph to this Agreement.
-----------------
Inspectors: See Section 3(m) hereof.
----------
Issuer: See the introductory paragraph of this Agreement.
------
Liquidated Damages: See Section 4(a) hereof.
------------------
Notes: See the introductory paragraphs to this Agreement.
-----
Participating Broker-Dealer: See Section 2(b) hereof.
---------------------------
Person or person: An individual, trustee, corporation, partnership,
------ ------
joint stock company, trust, unincorporated association, union, business
association, limited liability company, limited liability partnership, firm
or other legal entity.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with
2
<PAGE>
respect to the terms of the offering of any portion of the Exchange Notes and/or
the Transfer Restricted Notes (as applicable), covered by such Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Records: See Section 4(m) hereof.
-------
Registration Default: See Section 4(a) hereof.
--------------------
Registration Statement: Any registration statement of the Issuer,
----------------------
including, but not limited to, the Exchange Offer Registration Statement or a
registration statement of the Issuer that otherwise covers any of the Transfer
Restricted Notes pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement,
including post-effective amendments, all exhibits, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated pursuant to the Securities Act, as
--------
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 144A: Rule 144A promulgated pursuant to the Securities Act, as
---------
currently in effect, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated pursuant to the Securities Act, as
--------
such rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c) hereof.
------------
Shelf Registration: See Section 3(a) hereof.
------------------
3
<PAGE>
TIA: The Trust Indenture Act of 1939, as amended, and the rules and
---
regulations of the SEC promulgated thereunder.
Transfer Restricted Notes: The Notes upon original issuance thereof
-------------------------
and at all times subsequent thereto, until (i) a Registration Statement covering
such Notes has been declared effective by the SEC and such Notes have been
disposed of in accordance with such effective Registration Statement, (ii) such
Notes are sold in compliance with Rule 144 or (iii) such Notes cease to be
outstanding.
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Notes.
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
--------------
(a) The Issuer agrees to file with the SEC within 60 days after the
Closing Date an offer to exchange (the "Exchange Offer"), any and all of the
Transfer Restricted Notes for a like aggregate principal amount of debt
securities of the Issuer (the "Exchange Notes"), which Exchange Notes will be
(i) substantially identical in all material respects to the Notes, except that
such Exchange Notes will not contain terms with respect to transfer
restrictions, (ii) entitled to the benefits of the Indenture or a trust
indenture which is identical to the Indenture (other than such changes to the
Indenture or any such identical trust indenture as are necessary to comply with
any requirements of the SEC to effect or maintain the qualification thereof
under the TIA), and which, in either case, has been qualified under the TIA, and
(iii) registered pursuant to an effective Registration Statement in compliance
with the Securities Act. The Exchange Offer will be registered pursuant to the
Securities Act on an appropriate form of Registration Statement (the "Exchange
Offer Registration Statement"), and will comply with all applicable tender
offer rules and regulations promulgated pursuant to the Exchange Act and shall
be duly registered or qualified pursuant to all applicable state securities or
Blue Sky laws. The Exchange Offer shall not be subject to any condition, other
than that the Exchange Offer does not violate any applicable law, policy or
interpretation of the staff of the SEC. No securities shall be included in the
Exchange Offer Registration Statement other than the Transfer Restricted Notes
and the Exchange Notes. The Issuer agrees to use its reasonable best efforts to
(x) cause the Exchange Offer Registration Statement to become effective pursuant
to the Securities Act within 120 days after the Closing Date; and (y) keep the
Exchange Offer open for not less than 20 business
4
<PAGE>
days (or such longer period required by applicable law), after the date that the
notice of the Exchange Offer referred to below is mailed to Holders. Each Holder
who participates in the Exchange Offer will be required to represent that any
Exchange Notes received by it will be acquired in the ordinary course of its
business, that at the time of the consummation of the Exchange Offer such Holder
will have no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, and that such Holder is not an "affiliate"
of the Issuer within the meaning of Rule 405 of the Securities Act (or that if
it is such an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable). Each
Holder that is not a Participating Broker-Dealer will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. Each Holder that (i) is a Participating Broker-Dealer and
(ii) will receive Exchange Notes for its own account in exchange for the
Transfer Restricted Notes that it acquired as the result of market-making or
other trading activities will be required to acknowledge that it will deliver a
Prospectus as required by law in connection with any resale of such Exchange
Notes. Upon consummation of the Exchange Offer in accordance with this
Agreement, the Issuer shall have no further obligation to register Transfer
Restricted Notes pursuant to Section 3 of this Agreement.
(b) The Issuer shall 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 SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of
the Prospectus by all persons subject to the prospectus delivery requirements of
the Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Notes.
The Issuer 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 that such period
--------
shall not exceed 180 days after consummation of the Exchange Offer (or such
longer period if extended pursuant to the last paragraph of Section 5 hereof)
(the "Applicable Period").
5
<PAGE>
In connection with the Exchange Offer, the Issuer shall:
(a) mail as promptly as practicable 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) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
(c) 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
Exchange Offer shall remain open by sending to the institution and at the
address (located in the Borough of Manhattan, The City of New York)
specified in the notice, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Transfer Restricted Securities delivered for exchange and a statement that
such Holder is withdrawing his or her election to have such Transfer
Restricted Securities exchanged.
As soon as practicable after the close of the Exchange Offer, the
Issuer shall:
(i) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes so accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(c) If (1) prior to the consummation of the Exchange Offer,
applicable interpretations of the staff of the SEC do not permit the Issuer to
effect the Exchange Offer, or (2) if for any other reason the Exchange Offer is
not consummated within 165 days of the Closing Date, then the Issuer shall
promptly deliver to the Holders and the Trustee written notice thereof (the
"Shelf Notice"), and the Issuer and shall file a Registration Statement pursuant
to Section 3 hereof. Following the delivery of a Shelf Notice to the Holders of
Transfer Restricted Notes, the Issuer shall not have any further obligation to
conduct the Exchange Offer
6
<PAGE>
pursuant to this Section 2, provided, that the Issuer shall have the right,
--------
nonetheless, to proceed to consummate the Exchange Offer notwithstanding its
obligations pursuant to this Section 2(c) (and, upon such consummation, its
obligation to consummate a Shelf Registration shall terminate).
3. Shelf Registration
------------------
If the Issuer is required to deliver a Shelf Notice as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Issue shall prepare and file with the
------------------
SEC, within 60 days after such filing obligation arises, a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Transfer Restricted Notes (the "Shelf Registration"). The
Shelf Registration shall be on Form S-1 or another appropriate form permitting
registration of the Transfer Restricted Notes for resale by the Holders in the
manner or manners reasonably designated by them (including, without limitation,
one or more underwritten offerings). The Issuer shall not permit any
securities other than the Transfer Restricted Notes to be included in the Shelf
Registration. The Issuer shall use its reasonable best efforts, as described in
Section 5(b) hereof, to cause the Shelf Registration to be declared effective
pursuant to the Securities Act on or prior to 60 days after the filing of such
Shelf Registration Statement and to keep the Shelf Registration continuously
effective under the Securities Act until the earlier of (i) the date which is 36
months after the Closing Date, (ii) the date that all Transfer Restricted Notes
covered by the Shelf Registration have been sold in the manner set forth and as
contemplated in the Shelf Registration or (iii) the date that there ceases to
be outstanding any Transfer Restricted Notes (the "Effectiveness Period").
(b) Supplements and Amendments. The Issuer shall use its reasonable
--------------------------
best efforts to keep the Shelf Registration Statement continuously effective by
supplementing and amending the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Notes covered by such Registration Statement or by any
underwriter of such Transfer Restricted Notes.
7
<PAGE>
4. Liquidated Damages
------------------
(a) The Issuer and the Initial Purchaser agree that the Holders of
Transfer Restricted Notes will suffer damages if the Issuer fails to fulfill its
obligations pursuant to Section 2 or Section 3 hereof and that it would not be
possible to ascertain the extent of such damages. Accordingly, in the event of
such failure by the Issuer to fulfill such obligations, the Issuer hereby agrees
to pay liquidated damages ("Liquidated Damages"), to each Holder of Transfer
Restricted Notes under the circumstances and to the extent set forth below:
(i) if neither the Exchange Offer Registration Statement nor the
Shelf Registration has been filed with the SEC on or prior to the date
specified for such filing; or
(ii) if neither the Exchange Offer Registration Statement nor the
Shelf Registration is declared effective by the SEC on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"); or
(iii) if an Exchange Offer Registration Statement is declared
effective by the SEC, and on or prior to 45 days following the earlier of
(A) the effectiveness thereof or (B) the Effectiveness Target Date, the
Issuer has not exchanged Exchange Notes for all Notes validly tendered in
accordance with the terms of the Exchange Offer; or
(iv) the Shelf Registration has been declared effective by the SEC
and such Shelf Registration ceases to be effective or usable at any time
during the Effectiveness Period, without being succeeded on the same day
immediately by a post-effective amendment to such Shelf Registration that
cures such failure and that is itself immediately declared effective on the
same day;
(any of the foregoing, a "Registration Default"), then, with respect to the
first 90-day period following such Registration Default, the Issuer shall pay to
each Holder of Transfer Restricted Notes Liquidated Damages in an amount equal
to $0.05 per week per $1,000 principal amount of Transfer Restricted Notes held
by such Holder for each week or portion thereof that the Registration Default
continues. The amount of such Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Transfer Restricted Notes with
respect to each subsequent 90-day period until all Registration Defaults have
been cured; provided, however, that Liquidated Damages shall not at any time
-------- -------
exceed $0.25 per week per $1,000 principal amount of Transfer Restricted Notes
(regardless of whether one or
8
<PAGE>
more than one Registration Defaults has occurred and is continuing). Following
the cure of all Registration Defaults relating to any Transfer Restricted Notes,
the accrual of Liquidated Damages with respect to such Transfer Restricted
Notes will cease. A Registration Default under clause (i) above shall be cured
on the date that either the Exchange Offer Registration Statement or the Shelf
Registration is filed with the SEC; a Registration Default under clause (ii)
above shall be cured on the date that either the Exchange Offer Registration
Statement or the Shelf Registration is declared effective by the SEC; a
Registration Default under clause (iii) above shall be cured on the earlier of
the date (A) the Exchange Offer is consummated or (B) the Issuer delivers a
Shelf Notice to the Holders of Transfer Restricted Notes; and a Registration
Default under clause (iv) above shall be cured on the earlier of (A) the date
the Shelf Registration is declared effective or (B) the Effectiveness Period
expires.
(b) The Issuer shall notify the Trustee within one business day after
each and every date on which a Registration Default first occurs. Liquidated
Damages shall be paid by the Issuer to the Holders by wire transfer of
immediately available funds to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified on
or before the semi-annual interest payment date provided in the Indenture
(whether or not any interest is then payable on the Notes) and on each payment
date provided in the Indenture including, without limitation, whether upon
redemption, maturity (by acceleration or otherwise), purchase upon a change of
control or purchase upon a sale of assets. Each obligation to pay Liquidated
Damages shall be deemed to commence accruing on the date of the applicable
Registration Default and to cease accruing when all Registration Defaults have
been cured. In no event shall the Issuer pay Liquidated Damages in excess of the
applicable maximum weekly amount set forth above, regardless of whether one or
multiple Registration Defaults exist.
(c) The parties hereto agree that the Liquidated Damages provided for
in this Section 4 constitute a reasonable estimate of the damages that will be
suffered by Holders by reason of the failure to file the Exchange Offer
Registration Statement or the Shelf Registration Statement, the failure of the
Exchange Offer Registration Statement or the Shelf Registration Statement to be
declared effective, the failure to consummate the Exchange offer or the failure
of the Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Agreement.
9
<PAGE>
5. Registration Procedures
-----------------------
In connection with the registration of any Exchange Notes or Transfer
Restricted Notes pursuant to Sections 2 or 3 hereof, the Issuer shall effect
such registration to permit the sale of such Exchange Notes or Transfer
Restricted Notes (as applicable), in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Issuer shall:
(a) prepare and file with the SEC, a Registration Statement or
Registration Statements as prescribed by Section 2 or Section 3 hereof, and to
use its reasonable best efforts to cause such Registration Statement to become
effective and remain effective as provided herein; provided that, if (1) such
--------
filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in an
Exchange Offer Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any Participating Broker-
Dealer who seeks to sell Exchange Notes during the Applicable Period, before
filing any Registration Statement or Prospectus or any amendments or supplements
thereto, the Issuer shall furnish to and afford the Holders of the Transfer
Restricted Notes and each such Participating Broker-Dealer, as the case may be,
covered by such Registration Statement, their counsel, previously identified to
the Issuer and the managing underwriters, if any, a reasonable opportunity to
review copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto), proposed to be
filed (at least 3 business days prior to such filing, or such later date as is
reasonable under the circumstances). The Issuer shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto in respect of
which the Holders, pursuant to this Agreement, must be afforded an opportunity
to review prior to the filing of such document, if the Holders of a majority in
aggregate principal amount of the Transfer Restricted Notes covered by such
Registration Statement, or such Participating Broker-Dealer, as the case may be,
their counsel, or the managing underwriters, if any, shall reasonably object on
a timely basis (except that documents filed as exhibits that are incorporated by
reference or deemed to be incorporated by reference shall not be subject to such
objections);
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Offer Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be, or such shorter period as will terminate when all Transfer
Restricted Notes covered by such Registration Statement have been sold; cause
the related Prospectus to be supplemented by any required Prospectus
supplement, and as so
10
<PAGE>
supplemented to be filed pursuant to Rule 424 (or any similar provisions then in
force), under the Securities Act; and comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations of the SEC
promulgated thereunder with respect to the disposition of all securities covered
by such Registration Statement, as so amended, or in such Prospectus, as so
supplemented, and with respect to the subsequent resale of any Notes being sold
by a Participating Broker-Dealer covered by any such Prospectus; the Issuer
shall be deemed not to have used its reasonable best efforts to keep a
Registration Statement effective during the Applicable Period if they
voluntarily take any action that would result in selling Holders of the Transfer
Restricted Notes covered thereby or Participating Broker-Dealers seeking to sell
Exchange Notes not being able to sell such Transfer Restricted Notes or such
Exchange Notes during that period, unless (i) such action is required by
applicable law, or (ii) such action is taken by them in good faith and for valid
business reasons (not including avoidance of their obligations hereunder),
including the acquisition or divestiture of assets;
(c) if (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, notify the selling Holders of Transfer
Restricted Notes, or each known Participating Broker-Dealer, as the case may be,
their counsel and the managing underwriters, if any, promptly and confirm such
notice in writing, (i) when a Prospectus, any prospectus supplement or post-
effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective
(including in such notice a written statement that any Holder may, upon request,
obtain, without charge, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules,
documents incorporated or deemed to be incorporated by reference and exhibits),
(ii) of the issuance by the SEC of any stop order suspending the effectiveness
of a Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a Prospectus is required by the Securities
Act to be delivered in connection with sales of the Transfer Restricted Notes
the representations and warranties of the Issuer contained in any agreement
(including any underwriting agreement), contemplated by Section 5(l) hereof
cease to be true and correct in all material respects, (iv) of the receipt by
the Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or any
of the Transfer Restricted Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdic-
11
<PAGE>
tion, or the initiation of any proceeding for such purpose, (v) of the happening
of any event or any information becoming known that makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any 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 not misleading, and that in the case of the Prospectus, it will not
contain any 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, and
(vi) of the Issuer's reasonable determination that a post-effective amendment to
a Registration Statement would be appropriate;
(d) if (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, use its best efforts to prevent the issuance
of any order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification), of any of the Transfer
Restricted Notes or the Exchange Notes (as applicable), to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment;
(e) if a Shelf Registration is filed pursuant to Section 3 hereof and
if requested by the managing underwriters, if any, or the Holders of a majority
in aggregate principal amount of the Transfer Restricted Notes being sold in
connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information relating to
underwriters, if any, any Holder of Transfer Restricted Notes or the plan of
distribution of the Transfer Restricted Notes as the managing underwriter, if
any, or such Holders may reasonably request to be included therein, (ii) make
all required filings of such prospectus supplement or such post-effective
amendment as soon as practicable after the Issuer has received notification of
the matters to be incorporated in such prospectus supplement or post-effective
amendment pursuant to clause (i), and (iii) supplement or make amendments to
such Registration Statement with such information as required in connection with
any request made pursuant to clause (i);
12
<PAGE>
(f) if (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, furnish to each selling Holder of Transfer
Restricted Notes and to each such Participating Broker-Dealer who so requests
and to counsel and each managing underwriter, if any, without charge, one
conformed copy of the Registration Statement or Registration Statements and each
post-effective amendment thereto, including financial statements and schedules,
and, if requested, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits;
(g) if (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, deliver to each selling Holder of Transfer
Restricted Notes, or each such Participating Broker-Dealer, as the case may be,
their counsel, and the underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses (including each form of preliminary Prospectus),
and each amendment or supplement thereto and any documents incorporated by
reference therein, as such Persons may reasonably request; and, subject to the
last paragraph of this Section 5 hereof, the Issuer hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders of Transfer Restricted Notes or each such Participating Broker-
Dealer, as the case may be, and their underwriters or agents, if any, and
dealers, if any, in connection with the offering and sale of the Transfer
Restricted Notes covered by or the sale by Participating Broker-Dealers of the
Exchange Notes pursuant to such Prospectus and any amendment or supplement
thereto;
(h) prior to any public offering of Transfer Restricted Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration Statement
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its reasonable best efforts to register or qualify,
and to cooperate with the selling Holders of Transfer Restricted Notes or each
such Participating Broker-Dealer, as the case may be, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification), of such
Transfer Restricted Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions as any selling Holder, Participating Broker-Dealer,
or the managing underwriters reasonably request in writing; keep each such
registration or qualification (or exemption therefrom),
13
<PAGE>
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
held by Participating Broker-Dealers or the Transfer Restricted Notes covered by
the applicable Registration Statement; provided that the Issuer shall not be
--------
required to (A) qualify generally to do business in any jurisdiction where it is
not then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) subject itself to taxation in any such jurisdiction where it are not so
subject;
(i) if a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Transfer Restricted Notes and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company ("DTC"), and enable such
Transfer Restricted Notes to be in such denominations and registered in such
names as the managing underwriters, if any, or Holders may reasonably request at
least two business days prior to any sale of the Transfer Restricted Notes;
(j) if (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) above, as promptly as practicable prepare and
(subject to Section 5(a) hereof), file with the SEC, at the expense of the
Issuer, a supplement or post-effective amendment to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Transfer Restricted Notes
being sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not 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, in light of the circumstances under which they were made,
not misleading;
(k) prior to the effective date of the first Registration Statement
relating to the Transfer Restricted Notes, (i) provide the Trustee with
certificates for the Transfer Restricted Notes in a form eligible for deposit
with DTC and (ii) use
14
<PAGE>
its reasonable best efforts to provide a CUSIP number for the Transfer
Restricted Notes;
(l) in connection with an underwritten offering of Transfer
Restricted Notes pursuant to a Shelf Registration, enter into an underwriting
agreement as is customary in underwritten offerings and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Transfer
Restricted Notes, and in such connection, (i) make such representations and
warranties to the underwriters, with respect to the business of the Issuer and
the Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are customarily
made by issuers to underwriters in underwritten offerings, and confirm the same
if and when requested; (ii) obtain options of counsel to the Issuer and updates
thereof in form and substance reasonably satisfactory to the managing
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offering and such other matters as
may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters
and updates thereof in form and substance reasonably satisfactory to the
managing underwriters from the independent certified public accountants of the
Issuer (and, if necessary, any other independent certified public accountants of
any subsidiary of the Issuer or of any business acquired by any of them for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to each of the underwriters,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings and such other matters as are reasonably requested by underwriters as
permitted by Statement on Auditing Standards No. 72; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof (or such
other provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of outstanding Transfer Restricted Notes covered by such
Registration Statement and the managing underwriters or agents), with respect to
all parties to be indemnified pursuant to said Section. The above shall be done
at each closing under such underwriting agreement, or as and to the extent
required thereunder;
(m) if (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, make available for inspection by any selling
Holder of such
15
<PAGE>
Transfer Restricted Notes being sold, or each such Participating Broker-Dealer,
as the case may be, any underwriter participating in any such disposition of
Transfer Restricted Notes, if any, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating Broker-Dealer, as
the case may be, or underwriter (collectively, the "Inspectors"), at the offices
where normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Issuer and its
subsidiaries (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Issuer and its subsidiaries to
supply all information in each case reasonably requested by any such Inspector
in connection with such Registration Statement. Records which the Issuer
determines, in good faith, to be confidential and any Records which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors, unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in such Registration Statement, (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) the information in such Records has been made
generally available to the public other than as a result of the disclosure or
failure to safeguard by such Inspector;
(n) provide an indenture trustee for the Transfer Restricted Notes or
the Exchange Notes, as the case may be, and cause the Indenture to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Transfer Restricted Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Transfer Restricted Notes, to effect such changes to such
indenture as may be required for such indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use their best efforts to cause such
trustee to execute, all customary documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner;
(o) comply with all applicable rules and regulations of the SEC and,
as soon as reasonably practicable, make generally available to the holders of
Exchange Notes and the Holders, if any, consolidated earning statements of the
Issuer (including a condensed consolidating footnote if required under SEC
rules) (which need not be certified by an independent public accountant), that
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
16
<PAGE>
(p) If an Exchange Offer is to be consummated, upon delivery of the
Transfer Restricted Notes by Holders to the Issuer (or to such other Person as
directed by the Issuer), in exchange for the Exchange Notes, the Issuer shall
mark, or cause to be marked, on such Transfer Restricted Notes that such
Transfer Restricted Notes are being cancelled in exchange for the Exchange
Notes; in no event shall such Transfer Restricted Notes be marked as paid or
otherwise satisfied.
(q) cooperate with each seller of Transfer Restricted Notes covered
by any Registration Statement and each underwriter, if any, participating in the
disposition of such Transfer Restricted Notes and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD");
(r) use its best efforts to take all other steps necessary to effect
the registration of the Transfer Restricted Notes covered by a Registration
Statement contemplated hereby; and
(s) use its best efforts to cause the Transfer Restricted Notes or
the Exchange Notes, as applicable, covered by an effective registration
statement required by Section 2 or Section 3 hereof to be rated with the
appropriate rating agencies, if so requested by the Holders of a majority in
aggregate principal amount of Transfer Restricted Notes relating to such
registration statement or the managing underwriters in connection therewith, if
any.
The Issuer may require each seller of Transfer Restricted Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuer such information regarding such seller or Participating
Broker-Dealer and the distribution of such Transfer Restricted Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, as the
Issuer may, from time to time, reasonably request. The Issuer may exclude from
such registration the Transfer Restricted Notes or Exchange Notes of any seller
or Participating Broker-Dealer, as the case may be, who fails to furnish such
information within a reasonable time after receiving such request.
Each Holder of Transfer Restricted Notes and each Participating
Broker-Dealer agrees by acquisition of such Transfer Restricted Notes or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case may
be, that, upon receipt of any notice from the Issuer of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi)
hereof, such Holder shall forthwith discontinue disposition of such Transfer
Restricted Notes covered by such
17
<PAGE>
Registration Statement or Prospectus or such Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(j) hereof, or until it is advised in writing by the Issuer that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer shall be borne by the Issuer,
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Transfer Restricted Notes or Exchange Notes
and determination of the eligibility of the Transfer Restricted Notes or
Exchange Notes for investment under the laws of such jurisdictions (x) where the
Holders of Transfer Restricted Notes are located, in the case of the Exchange
Notes, or (y) as provided in Section 5(h) hereof, in the case of Transfer
Restricted Notes or Exchange Notes to be sold by a Participating Broker-Dealer
during the Applicable Period)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Transfer Restricted Notes or
Exchange Notes in a form eligible for deposit with DTC and of printing
Prospectuses if the printing of Prospectuses is requested by the managing
underwriters, if any, or, in respect of Transfer Restricted Notes or Exchange
Notes to be sold by any Participating Broker-Dealer during the Applicable
Period, by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Notes included in any Registration Statement or of such
Exchange Notes, as the case may be), (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Issuer, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(l)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) the fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Schedule E to the By-laws of the NASD, (vii) rating
agency fees, (viii) Securities Act liability insurance, if the Issuer desires
such insurance, (ix) fees and expenses of all other Persons retained by the
Issuer, (x) internal expenses of the Issuer, (including, without limitation, all
salaries and expenses of officers and
18
<PAGE>
employees of the Issuer performing legal or accounting duties), (xi) the expense
of any annual audit and (xii) the fees and expenses incurred in connection with
the listing of the securities to be registered on any securities exchange.
Nothing contained in this Section 6 shall create an obligation on the part of
the Issuer to pay or reimburse any Holder for any underwriting commission or
discount attributable to any such Holder's Transfer Restricted Notes included in
an underwritten offering pursuant to a Registration Statement filed in
accordance with the terms of this Agreement, or to guarantee such Holder any
profit or proceeds from the sale of such Notes.
(b) In connection with any Shelf Registration hereunder, the Issuer
shall reimburse the Holders of the Transfer Restricted Notes being registered in
such registration for the reasonable fees and disbursements of not more than one
counsel (in addition to appropriate local counsel), chosen by the Holders of a
majority in aggregate principal amount of the Transfer Restricted Notes to be
included in such Registration Statement.
7. Indemnification
---------------
The Issuer agrees to indemnify and hold harmless (i) the Initial
Purchaser, each Holder of Transfer Restricted Notes, each initial Holder of
Exchange Notes and each Participating Broker-Dealer, (ii) each person, if any,
who controls (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act), any such Person (any of the persons referred to in this
clause (ii) being hereinafter referred to as a "controlling person"), and (iii)
the respective officers, directors, partners, employees, representatives and
agents of any of such Person or any controlling person (any person referred to
in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified
Person"), to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, judgments, actions and expenses (including,
without limitation, and as incurred, reimbursement of all reasonable costs of
investigating, preparing, pursuing or defending any claim or action, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Person), directly or indirectly based upon or arising out of any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (as amended or supplemented if the Issuer
shall have furnished to such Indemnified Person any amendments or supplements
thereto), or any preliminary prospectus, arising out of or based upon any
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
19
<PAGE>
misleading, except insofar as such losses, claims, damages or liabilities arise
out of or are based upon (i) any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Indemnified Person furnished to the Issuer or any underwriter in
writing by such Indemnified Person expressly for use therein, or (ii) any untrue
statement contained in or omission from a preliminary Prospectus if a copy of
the Prospectus (as then amended or supplemented, if the Issuer shall have
furnished to or on behalf of the Holder participating in the distribution
relating to the relevant Registration Statement any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder to the person
asserting any such losses, liabilities, claims, damages or expenses who
purchased Notes, if such Prospectus (or Prospectus as amended or supplemented),
is required by law at or prior to the written confirmation of the sale of such
Notes to such person and the untrue statement contained in or omission from such
preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) or (iii) the Holder has not complied with the last
paragraph of Section 5 of this Agreement. The Issuer shall notify the Holders
promptly of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation), or litigation of which it or they
shall have become aware in connection with the matters addressed by this
Agreement which involves the Issuer or an Indemnified Person.
In connection with any Registration Statement in which a Holder of
Transfer Restricted Notes is participating, such Holder of Transfer Restricted
Notes agrees, severally and not jointly, to indemnify and hold harmless the
Issuer, each person who controls the Issuer within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act and the respective
partners, directors, officers, representatives, employees and agents of such
person or controlling person to the same extent as the foregoing indemnity from
the Issuer to each Indemnified Person, but only with reference to information
relating to such Indemnified Person furnished to the Issuer in writing by such
Indemnified Person expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary Prospectus.
The liability of any Indemnified Person pursuant to this paragraph shall in no
event exceed the net proceeds received by such Indemnified Person from sales of
Transfer Restricted Notes giving rise to such obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Party"), shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
20
<PAGE>
Person"), in writing, and the Indemnifying Person, upon request of the
Indemnified Party, shall retain counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding. In any such proceeding, any Indemnified Party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Party, unless (i) the Indemnifying Person
and the Indemnified Party shall have mutually agreed in writing to the contrary,
(ii) the Indemnifying Person failed promptly to assume the defense and employ
counsel reasonably satisfactory to the Indemnified Party or (iii) the named
parties to any such action (including any impleaded parties), include both such
Indemnified Party and the Indemnifying Person, or any affiliate of the
Indemnifying Person and such Indemnified Party shall have been reasonably
advised by counsel that either (x) there may be one or more legal defenses
available to it which are different from or additional to those available to the
Indemnifying Person or such affiliate of the Indemnifying Person or (y) a
conflict may exist between such Indemnified Party and the Indemnifying Person or
such affiliate of the Indemnifying Person (in which case the Indemnifying Person
shall not have the right to assume the defense of such action on behalf of such
Indemnified Party, it being understood, however, that the Indemnifying Person
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel), for
all such indemnified parties, which firm shall be designated in writing by those
indemnified parties who sold a majority in outstanding aggregate principal
amount of Transfer Restricted Notes sold by all such indemnified parties and any
such separate firm for the Issuer, its directors, its officers and such control
persons of the Issuer shall be designated in writing by the Issuer. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, which consent shall not be unreasonably
withheld, and the Indemnifying Party agrees to hold harmless any Indemnified
Party from any loss or liability by reason of such unconsented settlement, but
if settled with such consent or if there be a final judgment for the plaintiff,
the Indemnifying Person agrees to indemnify any Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Party is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Party, unless such settlement
includes
21
<PAGE>
an unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an Indemnified Party in respect of any
losses, claims, damages, liabilities, judgments, actions or expenses referred to
therein (other than by reason of the exceptions provided therein), then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages, liabilities,
or expenses (i) in such proportion as is appropriate to reflect the relative
benefits of the Indemnified Party on the one hand and the Indemnifying Person(s)
on the other in connection with the statements or omissions that resulted in
such losses, claims, damages, liabilities, or expenses 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 Indemnified Person(s)
and the Indemnified Party, as well as any other relevant equitable
considerations. The relative fault of the Issuer on the one hand and any
Indemnified Persons on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer or by such Indemnified Persons and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if such indemnified parties were treated as one entity for such purpose),
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, liabilities,
claims, damages, judgments, actions and expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall
an Indemnified Person be required to contribute any amount in excess of the
amount by which proceeds received by such Indemnified Person from sales of
Transfer Restricted Notes or Exchange Notes exceeds the amount of any damages
that such Indemnified Person has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the
22
<PAGE>
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.
The indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the indemnifying parties may
otherwise have to the indemnified parties referred to above. The Indemnified
Persons' obligations to contribute pursuant to this Section 7 are several in
proportion to the respective principal amount of Notes sold by each of the
Indemnified Persons hereunder and not joint.
8. Rules 144 and 144A
------------------
The Issuer covenants that it will file the reports required to be
filed by them pursuant to the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder in a timely manner and, if at any
time the Issuer is not required to file such reports, they will, upon the
request of any Holder of Transfer Restricted Notes, make available information
required by Rule 144 and Rule 144A under the Securities Act in order to permit
sales pursuant to Rule 144 and Rule 144A. The Issuer further 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 (a) Rule 144
and Rule 144A or (b) any similar rule or regulation hereafter adopted by the
SEC.
9. Underwritten Registrations
--------------------------
(a) 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 manage the offering
will be selected by the Holders of a majority in aggregate principal amount of
such Transfer Restricted Notes included in such offering and shall be reasonably
acceptable to the Issuer.
No Holder of Transfer Restricted Notes may participate in any
underwritten registration hereunder, unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney,
23
<PAGE>
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
(b) Each Holder of Transfer Restricted Notes agrees, if requested
(pursuant to a timely written notice), by the managing underwriters in an
underwritten offering or by a placement agent in a private offering of the
Issuer's debt securities, not to effect any private sale or distribution
(including a sale pursuant to Rule 144(k) or Rule 144A under the Securities Act,
but excluding non-public sales to any of its affiliates, officers, directors,
employees and controlling persons), of any of the Notes except pursuant to an
Exchange Offer, during the period beginning 10 days prior to, and ending 90 days
after, the closing date of the underwritten offering.
The foregoing provisions shall not apply to any Holder of Transfer
Restricted Notes if such Holder is prevented by applicable statute or regulation
from entering into any such agreement.
The Issuer agrees not to effect any public or private sale or
distribution of its respective debt securities (excluding commercial paper
issued in the ordinary course of business), including a sale pursuant to
Regulation D or Rule 144A under the Securities Act, during the period beginning
10 days prior to, and ending 90 days after, the closing date of each
underwritten offering made pursuant to such Registration Statement without the
written consent of the managing underwriters in an underwritten offering of
Transfer Restricted Notes covered by a Registration Statement filed pursuant to
Section 3 hereof, (provided, however, that such period shall be extended by the
-------- -------
number of days from and including the date of the giving of any notice pursuant
to Section 5(c)(v) or (c)(vi) hereof to and including the date when each seller
of Transfer Restricted Notes covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus contemplated by
Section 5(j) hereof).
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Issuer of any of its
--------
obligations under this Agreement, each Holder of Transfer Restricted Notes, in
addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchaser, in the Purchase Agreement,
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Subject to Section 4, the
Issuer agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by any of them of any of the provisions of
this Agreement and hereby further
24
<PAGE>
agree that, in the event of any action for specific performance in respect of
such breach, they shall waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. The Issuer has not, as of the date
--------------------------
hereof, and they shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Transfer Restricted Notes in this Agreement or
otherwise conflicts with the provisions hereof. The Issuer has not entered, and
will not enter, into any agreement with respect to any of its securities which
will grant to any Person piggy-back registration rights with respect to a
Registration Statement.
(c) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given, unless the Issuer has obtained the written consent of
Holders of at least a majority of the then outstanding aggregate principal
amount of Transfer Restricted Notes. Notwithstanding the foregoing, a waiver or
consent to or departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders may be given by
Holders of at least a majority in aggregate principal amount of the Transfer
Restricted Notes being sold by such Holders pursuant to such Registration
Statement; provided that the provisions of this sentence may not be amended,
--------
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(d) Notices. All notices and other communications (including,
-------
without limitation, any notices or other communications to the Trustee),
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or telecopier:
(i) if to a Holder of Transfer Restricted Notes, at the most current
address given by the Trustee to the Issuer; and
25
<PAGE>
(ii) if to the Issuer, Cobblestone Holdings, Inc., 3702 Via De La
Valle, Suite 202, Del Mar, California 92014, Attention: Chief Financial
Officer, with a copy to Latham & Watkins, 633 West 5th Street, Suite 4000,
Los Angeles, California 90071-2007, Attention: Elizabeth A. Blendell.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a nationally recognized next-day air courier, if made
by next-day air courier; and when receipt is acknowledged by the addressee, if
telecopied on a business day on such business day, if not on a business day, on
the first business day thereafter.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Notes. The Issuer agrees
that the Holders of the Notes shall be third party creditor beneficiaries to the
agreements made hereunder by the Initial Purchaser and the Issuer, and each
Holder shall have the right to enforce such agreements directly to the extent it
deems such enforcement necessary or advisable to protect its rights hereunder.
(f) 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.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF
26
<PAGE>
ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT
MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties hereto that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement, is intended by the parties hereto as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
(k) Notes Held by the Issuer or its Affiliates. Whenever the consent
------------------------------------------
or approval of Holders of a specified percentage of Transfer Restricted Notes is
required hereunder, Transfer Restricted Notes held by the Issuer, or its
affiliates (as such term is defined in Rule 405 under the Securities Act), shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
27
<PAGE>
(l) Survival. This Agreement is intended to survive the
--------
consummation of the transactions contemplated by the Purchase Agreement. The
indemnification and contribution obligations under section 7 of this Agreement
shall survive the termination of the Issuer's obligations under sections 2 and 3
of this Agreement.
28
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COBBLESTONE HOLDINGS, INC.
By: /s/ Stefan C. Karnavas
----------------------
Name: Stefan C. Karnavas
Title: Chief Financial Officer
<PAGE>
The foregoing Registration Rights
Agreement is hereby confirmed and
accepted as of the date first
above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ David F. Posnick
--------------------
Name: David F. Posnick
Title: Vice President
<PAGE>
Exhibit 10.4
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement (this "Agreement"), dated as of January
31, 1994, is by and among the parties listed on Schedule I hereto (together
with persons who become parties pursuant to Sections XIII.B and XIII.C herein,
the "Stockholders") and Cobblestone Holdings, Inc., a Delaware corporation
("Holdings").
RECITALS
--------
WHEREAS, Holdings has acquired 100% of the outstanding capital stock
of Cobblestone Golf Group, Inc., a Delaware corporation ("Cobblestone"),
pursuant to that certain Contribution Agreement (the "Contribution Agreement"),
dated as of January 31, 1994, by and among Holdings and the parties listed on
Schedule I thereto;
WHEREAS, each of the former stockholders of Cobblestone, in exchange
for contributing shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock of Cobblestone to Holdings, received an equal number of shares
of Common Stock, Series A Preferred Stock and Series B Preferred Stock of
Holdings ("Holdings Common Stock," "Holdings Series A Preferred Stock" and
"Holdings Series B Preferred Stock," respectively, and, collectively, "Holdings
Stock");
WHEREAS, it is a condition precedent to the obligations of Holdings
under the Contribution Agreement that each of the parties thereto enter into
this Agreement; and
WHEREAS, the parties hereto, consisting of the former Stockholders of
Cobblestone and certain other persons who own, or own warrants to acquire
certain shares of, Holdings Stock, desire to enter into this Agreement for the
purpose of regulating certain aspects of their relationship with regard to their
ownership of Holdings Stock on and after the date hereof;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section I. Authorization.
-------------
Each Stockholder hereby represents and warrants to Holdings and to
each other that it has full power and authority to execute, deliver and perform
its obligations under this Agreement. The execution and delivery of this
Agreement has been duly and validly authorized, and all necessary action has
been taken, to make this Agreement a valid and binding obligation of such
Stockholder, enforceable in accordance with its terms, except that the
enforcement thereof may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
<PAGE>
Section II. Certain Covenants of Holdings.
-----------------------------
When it is first legally required to do so, Holdings will register
the Holdings Common Stock and the Holdings Series A Preferred Stock under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and will keep effective such registration and will timely file such
information, documents and reports as the Securities and Exchange Commission
(the "Commission") may require or prescribe under Section 13 of the Exchange
Act. From and after the effective date of the registration statement filed by
Holdings under the Act, Holdings will (whether or not it may then be required to
do so) timely file such information, documents and reports as the Commission may
require or present under Section 13 or 15(d) (whichever is applicable) of the
Exchange Act. Immediately upon becoming subject to the reporting requirements of
either Section 13 or 15(d) of the Exchange Act, Holdings will forthwith upon
request furnish any Stockholder (i) a written statement by Holdings that it has
complied with such reporting requirements, (ii) a copy of the most recent annual
or quarterly report of Holdings, and (iii) such other reports and documents
filed by Holdings with the Commission as such Stockholder may reasonably
request. Holdings acknowledges and agrees that the purposes of the requirements
contained in this Section II are to enable any such Stockholder to comply with
the current public information requirements contained in Rule 144 and Rule 144A
under the Securities Act of 1933, as amended (the "Act"), should such
Stockholder ever wish to dispose of any of the Shares acquired by it hereunder,
without registration under the Act in reliance upon Rule 144 and Rule 144A (or
any other similar exemptive provision). In addition, Holdings will take such
other measures and file such other information, documents and reports, as shall
hereafter be required by the Commission as a condition to the availability of
Rule 144 and Rule 144A under the Act (or any similar exemptive provision
hereafter in effect).
Section III. Rights of First Refusal.
-----------------------
A. Before any shares of Holdings Stock, or any beneficial interest
therein, may be sold, transferred or assigned (including transfer by operation
of law) or pledged, hypothecated or encumbered by any of the Stockholders (a
"Selling Stockholder") (except to a bank or other lending institution to secure
loans extended by such bank or other lending institution for any purpose, which
bank or other lending institution, prior to such pledge, hypothecation or
encumbrance, agrees in writing to be bound by the provisions of this Agreement
and delivers written notice of such agreement to Holdings) such shares shall
first be offered to Holdings as set forth below.
B. The Selling Stockholder shall deliver a notice (the "Notice") to
Holdings stating (i) his bona fide intention to sell or transfer such shares,
(ii) the number of shares proposed to be sold or transferred (the "Noticed
Shares"), (iii) the price for which it is proposed to sell or transfer the
Noticed Shares (in the case of a transfer not involving a sale such price shall
be deemed to be fair market value of the Noticed Shares as determined pursuant
to Section III.D hereof) and the terms of payment of that price and other terms
and conditions of sale, and (iv) the name and address of the proposed purchaser
or transferee. A Selling Stockholder shall not effect, or attempt to effect, any
sale or other transfer for value of the Holdings Stock other than for money or
an obligation to pay money.
2
<PAGE>
C. For a period of thirty (30) days after receipt of the Notice,
Holdings (or its assignee or assignees) shall have the right to purchase all of
the Noticed Shares. The price per share of the Noticed Shares purchased by
Holdings pursuant to this Section III.C shall be, in the case of a sale, the
price per share as set forth in the Notice and, in the case of a transfer not
involving a sale, the fair market value of such shares determined pursuant to
Section III.D hereof, and the purchase shall be on the same terms and subject to
the same conditions as those set forth in the Notice. If Holdings (including its
assignee or assignees) elects not to purchase all the Noticed Shares, it shall
give written notice within the thirty (30) day period following receipt of the
Notice.
D. In the case of a transfer of shares of Holdings Stock not involving
a sale, the fair market value of the shares shall be determined in good faith by
Holdings' Board of Directors. This determination will be final and binding upon
all parties and persons claiming under or through them. Anything in this Section
III.D to the contrary notwithstanding, if a Selling Stockholder is not satisfied
with the determination of fair market value, such Stockholder may elect not to
proceed with the proposed transfer of shares of Holdings Stock not involving a
sale and retain such shares under this Agreement.
E. If Holdings (and/or any assignees of Holdings) does not elect to
purchase all of the shares of Holdings Stock to which the Notice refers as
provided in Section III.B hereof, then none of the shares shall be purchased
(unless the Selling Stockholder elects otherwise), and the Selling Stockholder
may sell or transfer all (but not less than all) of the shares to any purchaser
or transferee named in the Notice at, in the case of a sale, the price specified
in the Notice or at a higher price, provided that such sale or transfer is
consummated within five (5) months of the date of the Notice to Holdings.
F. Notwithstanding subsections A through E of this Section III,
Holdings shall not have any rights under this Section III: (i) at any time
subsequent to the closing of an underwritten public offering of the Common Stock
pursuant to a registration statement declared effective under the Act; (ii) at
any time after any equity securities of Holdings have been registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended; or (iii) as a
result of or at any time after any transfer of Holdings Common Stock in
connection with a sale of Holdings, whether such sale is effected by merger,
consolidation, sale of assets or sale of exchange of stock representing at least
fifty percent (50%) of the voting power of the stock of Holdings (in terms of
number of votes for the election of directors).
Section IV. Tag-Along Rights.
----------------
A. If Brentwood Golf Partners, L.P. (the "Partnership") or any of its
respective Affiliates (as hereinafter defined) (collectively, the "Selling
Group"), at any time or from time to time, enters into an agreement (whether
oral or written) to transfer, sell or otherwise dispose of, directly or
indirectly (a "Tag-Along Sale"), any shares of Holdings Common Stock or any
interest therein, then each other Stockholder shall have the right, but not the
obligation, to participate in such Tag-Along Sale (and to displace the Selling
Group to the extent of such participation) by selling up to the number of shares
of Holdings Stock (the "Stockholders' Allotment") equal to the product of (i)
the total number of shares of Holdings
3
<PAGE>
Stock proposed to be sold or otherwise disposed of by the Selling Group in the
Tag-Along Sale multiplied by (ii) a fraction, the numerator of which shall equal
the aggregate number of shares of Holdings Stock owned by other Stockholders who
have elected to participate in such Tag-Along Sale immediately prior to the Tag-
Along Sale and the denominator of which shall equal the sum of: (A) the
aggregate number of shares of Holdings Stock owned by members of the Selling
Group who have elected to participate in such Tag-Along Sale immediately prior
to the Tag-Along Sale; and (B) the aggregate number of shares of Holdings Stock
owned by other Stockholders who have elected to participate in such Tag-Along
Sale, immediately prior to the Tag-Along Sale.
Any such sale by any Stockholder shall be on the same terms and
conditions as the proposed Tag-Along Sale by the Selling Group; provided,
--------
however, that all selling Stockholders shall share pro rata, based upon the
- ------- --- ----
number of shares being sold by each (i) in any indemnity liabilities to the
proposed transferee or purchaser in the Tag-Along Sale (other than
representations as to unencumbered ownership of and ability to transfer the
shares being sold of any other seller in the Tag-Along Sale, which shall be the
sole responsibility of such other seller) and (ii) in any escrow for the purpose
of satisfying any such indemnity liabilities.
B. The foregoing notwithstanding, Section IV.A shall not apply to (i) any
transfer, sale or disposition of shares of Holdings Stock solely among the
Partnership and its Affiliates for a price not in excess of the original
purchase price of such shares, (ii) any distribution by the Partnership to its
partners and (iii) any merger or consolidation of Holdings with or into another
corporation or a sale of all or substantially all of the assets of Holdings
followed by its dissolution, provided that all shares of Holdings Stock subject
to this Agreement are treated the same in any such transaction.
C. The Selling Group members participating in a Tag-Along Sale or a
representative of the Selling Group (the "Selling Group Representative," which
shall be the general partner of the Partnership until the other Stockholders
are notified of the name and address of a successor representative) shall
promptly provide each Stockholder with written notice (the "Tag-Along Sale
Notice") not more than 60 nor less than 30 days prior to the proposed date of
the Tag-Along Sale (the "Tag-Along Sale Date"). In order to facilitate the
prompt delivery of the Tag-Along Sale Notices, Holdings hereby covenants to
provide the Selling Group members participating in a Tag-Along Sale or the
Selling Group Representative, as the case may be, access to stock record books
of Holdings. Each Tag-Along Sale Notice shall set forth: (i) the name and
address of each proposed transferee or purchaser of shares of Holdings Stock in
the Tag-Along Sale; (ii) the name and address of each Selling Group member
participating in the Tag-Along Sale and the number of shares of Holdings Stock
proposed to be transferred or sold by each Selling Group member; (iii) the
proposed amount and form of consideration to be paid for such shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser, (iv) the aggregate number of shares of Holdings Stock held of record
as of the close of business on the date of the Tag-Along Sale Notice (the "Tag-
Along Notice Date") by the Stockholder to whom the notice is sent and the
aggregate number of such Stockholder's shares of Holdings Stock outstanding on
the Tag-Along Notice Date; (v) the aggregate number of shares of Holdings
4
<PAGE>
Stock held of record as of the Tag-Along Notice Date by the Selling Group; (vi)
the maximum number of shares of Holdings Stock (the "Stockholder's Allotment")
that the Stockholder to whom the notice is sent is entitled to include in the
Tag-Along Sale assuming each Stockholder elected to participate in the Tag-Along
Sale and elected to sell the maximum number of shares owned by such Stockholder;
(vii) the number of shares of Holdings Stock constituting the Stockholders'
Allotment; (viii) confirmation that the proposed purchaser or transferee has
been informed of the "Tag-Along Rights" provided for herein and has agreed to
purchase shares of Holdings Stock in accordance with the terms hereof; (ix) the
Tag-Along Sale Date and (x) confirmation that, with respect to the shares of
Holdings Stock to be received by the proposed transferee or purchaser, the
proposed transferee or purchaser agrees in writing to be bound by, and covenants
that each transferee of all such shares shall be bound by, the provisions of
this Agreement (other than the provisions of this Section IV), as if it were a
member of the Selling Group.
Each Stockholder shall provide written notice (or oral notice confirmed
in writing) (the "Tag-Along Notice") to the member(s) of the Selling Group
participating in the Tag-Along Sale, or, at such Stockholder's option, to the
Selling Group Representative, no less than 15 days prior to the Tag-Along Sale
Date. The Tag-Along Notice shall set forth the number of shares of Holdings
Stock, if any, that such Stockholder desires to include in the Tag-Along Sale
(which shall not exceed such Stockholder's Allotment). The Tag-Along Notice
shall also specify the aggregate number of additional shares of Holdings Stock
owned of record as of the Tag-Along Notice Date by such Stockholder, it any,
which such Stockholder desires also to include in the Tag-Along Sale
("Additional Shares") in the event there is an aggregate undersubscription for
the entire Stockholders' Allotment. In the event there is an aggregate
undersubscription by the Stockholders for the entire Stockholders' Allotment,
the Selling Group member(s) participating in the Tag-Along Sale shall apportion
the unsubscribed shares of Holdings Stock to Stockholders whose Tag-Along
Notices specified an amount of Additional Shares, which apportionment shall be
on a pro rata basis among such Stockholders in accordance with the number of
--- ----
Additional Shares specified by all such Stockholders in their Tag-Along Notices.
The participating members of the Selling Group shall determine the
aggregate number of shares of Holdings Stock to be sold by each participating
Stockholder in any given Tag-Along Sale in accordance with the terms hereof, and
the Tag-Along Notices given by the Stockholders shall constitute their binding
respective agreements to sell such shares on the terms and conditions applicable
to such sale (including the requirements of this Section IV). If the proposed
transferee or purchaser does not purchase all of such shares on the same terms
and conditions applicable to the members of the Selling Group, then the
Partnership shall promptly offer to purchase, within five business days of the
date of such Tag-Along Sale, all such unpurchased shares on such terms and
conditions.
If a Tag-Along Notice is received by neither the members of the Selling
Group participating in the Tag-Along Sale nor the Selling Group Representative,
from a Stockholder within the 15-day period specified above, the Selling Group
members shall have the right to sell or ortherwise transfer the number of shares
of Holdings Stock specified in the Tag-Along Sale Notnice to the proposed
purchaser or transferee without any participation by such
5
<PAGE>
Stockholder, but only on the terms and conditions stated in such Tag-Along Sale
Notice and only if such sale occurs on a date within five business days of the
Tag-Along Sale Date.
D. The provisions of this Section IV shall apply regardless of the
form of consideration received in the Tag-Along Sale.
E. "Affiliate" of a specified person means any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person and, in the case of a person who is an
individual, shall include (i) members of such specified person's immediate
family (as defined in instruction 2 of Item 404(a) of Regulation S-K promulgated
by the Securities and Exchange Commission) and (ii) trusts whose trustee
and beneficiaries include only such specified person or members of such person's
immediate family as determined in accordance with the foregoing clause (i). 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.
F. The provisions of this Section IV shall terminate on the earlier
to occur of (i) the closing of an underwritten public offering of the Common
Stock pursuant to a registration statement declared effective under the Act, or
(ii) the first time at which any equity securities of Holdings have been
registered under Section 12(g) of the Exchange Act.
Section V. Drag-Along Rights.
-----------------
A. In the event the Selling Group determines to accept an offer from
any person (other than a member of the Selling Group or any Affiliate thereof)
to purchase 100% of the outstanding shares of Holdings Stock, then, subject to
paragraph C below, each of the other Stockholders shall sell, and shall cause
any Affiliate of it to sell, all shares of Holdings Stock held by it or such
Affiliate pursuant to such offer to purchase (the "Drag-Along Sale"). All
holders of Holdings Stock in such Drag-Along Sale (i) shall receive the same
consideration per share of Holdings Stock, shall be subject to the same terms
and conditions of sale and shall otherwise be treated equally or, where
appropriate, pro rata based upon the number of shares of Holdings Stock held by
--- ----
each stockholder and (ii) shall execute such documents and take such actions as
may be reasonably required by the Selling Group Representative.
Any such sale by any Stockholder shall be on the same terms and
conditions as the proposed Drag-Along Sale by the Selling Group; provided,
--------
however, that all selling Stockholders shall share pro rata, based upon the
- ------- --- ----
number of shares being sold by each, (i) in any indemnity liabilities to the
purchaser in the Drag-Along Sale (other than representations as to unecumbered
ownership of and ability to transfer the shares being sold of any other seller
in the Drag-Along Sale, which shall be the sole responsibility of such other
seller) and (ii) in any escrow for the purpose of satisfying any such indemnity
liabilities.
B. The Selling Group members participating in a Drag-Along Sale or
the Selling Group Representative shall promptly provide each Stockholder with
written notice (the "Sale
6
<PAGE>
Notice") not more than 60 nor less than 30 days prior to the date of the Drag-
Along Sale (the "Drag-Along Sale Date"). Each Sale Notice shall set forth: (i)
the name and address of each proposed transferee or purchaser of shares of
Holdings Stock in the Drag-Along Sale; (ii) the proposed amount and form of
consideration to be paid for such shares and the terms and conditions of payment
offered by each proposed transferee or purchaser, (iii) confirmation that the
proposed purchaser or transferee has been informed of the "Drag-Along Rights"
provided for herein and has agreed to purchase shares of Holdings Stock in
accordance with the terms hereof; and (iv) the Drag-Along Sale Date.
C. The provisions of this Section V shall apply regardless of the form
of consideration received in the Drag-Along Sale, and if any non-cash
consideration is proposed in the Drag-Along Sale to each member of the Selling
Group, each Stockholder shall accept its pro rata share of such non-cash
--- ----
considerations for the Holdings Stock based upon its proportional ownership of
shares of Holdings Stock; provided, however, that a Stockholder shall not be
-------- -------
required to participate in a Drag-Along Sale in which non-cash consideration is
proposed if such Stockholder is not receiving cash consideration in connection
with such Drag-Along Sale in an amount sufficient to pay the federal income tax
that would be payable if it were to participate in the Drag-Along Sale.
D. The provisions of this Section V shall apply to warrants which are
exercisable for shares of Holdings Stock the same as if such warrants had
in fact been exercised by the holders thereof prior to the initiation of a
Drag-Along Sale.
E. The provisions of this Section V shall terminate on the earlier to
occur of (i) the closing of an underwritten public offering of Holdings Common
Stock pursuant to a registration statement declared effective under the Act, or
(ii) the first time at which any equity securities of Holdings have been
registered under Section 12(g) of the Exchange Act.
Section VI. Registration Rights.
-------------------
Each of the Stockholders shall have the registration rights
provided in the Registration Rights Agreement attached hereto as Exhibit A,
which Registration Rights Agreement is hereby incorporated herein as if set
forth in full in this Agreement. Execution and delivery of this Agreement shall,
without further act of any of the parties, constitute execution and delivery of
the Registration Rights Agreement.
Section VII. Exempt Transfers.
----------------
The provisions of Section III shall not apply to a transfer of any
Holdings Stock by a Stockholder, either during his lifetime or on death by will
or intestacy, to (i) his ancestors, descendants, spouse, brothers, sisters,
nephews or nieces, (ii) any custodian or trustee for the account or benefit of
such Stockholder or such Stockholder's ancestors, descendants, spouse, brothers,
sisters, nephews or nieces, or (iii) in the case of a Stockholder which is a
corporation, an entity directly or indirectly controlled by or under common
control with such Stockholder; provided, however, that the transferee shall
-------- -------
receive and hold such Shares subject to the provisions of Section VIII hereof
and to any legends on the
7
<PAGE>
certificates evidencing such shares and there shall be no further transfer of
such Shares except in accordance herewith; and provided further, that the
----------------
transferee shall acknowledge and agree, in a writing satisfactory to Holdings,
to be bound by the terms of this Agreement and shall execute and deliver to
Holdings a letter to such effect.
Section VIII. Restriction on Public Sale.
--------------------------
Anything to the contrary herein notwithstanding, in the event
that Holdings files a registration statement with respect to an underwritten
public offering under the Act in which any class of Holdings' equity securities
is offered, a Stockholder shall not effect any public sale or distribution of
any of the shares of Holdings Stock (which shares, for the purposes of this
Section VIII, shall include any and all voting securities received by such
Stockholder as a stock dividend, stock split or other recapitalization or
similar distribution on or in respect of the shares of Holdings Stock) or any of
Holdings' other equity securities, or of any securities convertible into or
exchangeable for such securities, during the period beginning ten (10) days
before the filing of such registration statement with the Securities and
Exchange Commission and ending ninety (90) days after such registration
statement has become effective or ten (10) days after it has been withdrawn.
After the later of five (5) years from the date of this Agreement or the
completion of two (2) underwritten public offerings of Holdings' equity
securities, this Section VIII shall cease to apply.
Section IX. Other Agreements.
----------------
The parties hereto hereby acknowledge and agree that from time to
time prior to executing this Agreement, they may have entered into other
stockholder agreements, stock purchase agreements and related documents
concerning their ownership of capital stock of Cobblestone or Holdings. The
parties hereto hereby agree that the provisions of this Agreement supersede such
prior agreements to the extent such agreements conflict with the terms of this
Agreement. Notwithstanding the foregoing, to the extent such prior agreements
are not in conflict with the provisions of this agreement, the parties hereto
shall continue to be bound by the terms of such prior agreements.
Section X. Register of Securities; Removal of Restrictions on Transfer.
-----------------------------------------------------------
A. Register of Securities. Holdings or its duly appointed agent
----------------------
shall maintain separate registers for the shares of Holdings Series A Preferred
Stock, the shares of Holdings Series B Preferred Stock and the shares of
Holdings Common Stock, in which it shall register the issue and sale of all such
respective shares. Holdings may issue stop transfer instructions to such agent
and make similar notations in such register to ensure that all transfers of such
securities are made in accordance with this Agreement. All transfers of such
securities shall be recorded on the register maintained by Holdings or its
agent, and Holdings shall be entitled to regard the registered holder of such
securities as the actual holder thereof until Holdings or its agent is required
to record a transfer of such securities on its register. Subject to Sections
III and VIII hereof, Holdings or its agent shall be required to record any such
transfer when it receives the security to be transferred duly and properly
endorsed by the registered holder thereof or by its attorney duly authorized in
writing.
8
<PAGE>
B. Removal of Transfer Restrictions. Any legend endorsed on a
--------------------------------
certificate evidencing shares of Holdings Stock and the stop transfer
instructions and record notations with respect to such shares shall be removed
and Holdings shall issue a certificate without such legend to the holder of such
shares of Holdings Stock (i) if such shares are registered under the Act, or
(ii) if a notification under Regulation A under the Act is in effect with
respect thereto, or (iii) if such shares may be sold under Rule 144 or Rule 144A
under the Act.
Section XI. Enforcement.
-----------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section VIII hereof shall be inadequate and that,
in the event of any such breach or violation, Holdings and/or the Stockholders
shall be entitled to injunctive relief in addition to any other remedy, at law
or in equity, to which it may be entitled.
Section XII. Violation of Transfer Provisions.
--------------------------------
Holdings shall not be required (i) to transfer on its books any
shares of Holdings Stock which shall have been sold, transferred, assigned or
pledged in violation of any of the provisions set forth in this Agreement, or
(ii) to treat as owner of such shares of Holdings Stock or to accord the right
to vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred.
Section XIII. General Provisions.
------------------
A. Additional Provisions Specific to Warrantholders. The
------------------------------------------------
Stockholders, and any future holders of Holdings Stock, acknowledge that (i)
certain persons ("Warrantholders") have acquired warrants exercisable for
Holdings Common Stock and Holdings Series A Preferred Stock ("Warrants") and
(ii), upon exercise of the Warrants, such Warrantholders' ownership of Holdings
Stock shall be subject to certain rights and obligations described more fully in
the Warrants and the attached Schedule II, which rights and obligations are in
addition to those rights and obligations set forth in this Agreement, and to the
extent of any conflict the Warrants and Schedule II shall govern.
B. After-Acquired Shares. All of the provisions of this Agreement
---------------------
shall apply to (i) all of the shares of Holdings Stock now owned or which may be
transferred hereafter to, or owned by, any Stockholder, (ii) all shares of
Holdings Stock issued upon exercise of any of the Warrants and (iii) all
securities and instruments (A) received by a Stockholder as a dividend on or
other payment made to holders of Holdings Stock, or (B) issued in connection
with a split of Holdings Stock or as a result of any exchange for or
reclassification of Holdings Stock or a reorganization, recapitalization,
consolidation or merger. In addition, any person or entity who does not
presently own but subsequently acquires shares of Holdings Stock must become a
party to and bound by this Agreement by executing the form of Joinder attached
hereto as Exhibit B, at least to the extent necessary to give effect to the
special rights granted in Schedule II hereto.
9
<PAGE>
C. Rights and Obligations of Transferees. If a Stockholder
-------------------------------------
transfers any or all of its shares of Holdings Stock to any person, such person
and each subsequent transferee shall have the same rights hereunder (including
pursuant to Exhibit A and, if applicable, Schedule II hereto) as are given to
the Stockholder, and shall be subject to the same obligations as are imposed
upon, the Stockholder by the terms hereof (and all references herein to a
Stockholder shall include such transferee), unless otherwise provided herein.
Holdings will not record any transfer of Holdings Stock that was made in
violation of any provision of this Agreement, including, without limitation,
Exhibit A and Schedule II hereto.
D. Owner of Stockholder Shares. The person in whose name shares of
---------------------------
Holdings Stock are registered in the stock books of Holdings may be treated as
the owner thereof for all purposes, including without limitation, for the giving
of notices under this Agreement.
E. Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or if deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail:
(1) if to any Stockholder, addressed to such Stockholder at its
address is shown on the stock register maintained by Holdings, or at
such other address as such Stockholder may specify by written notice
to Holdings; or
(2) if to Holdings, at Cobblestone Holdings, Inc., 13702 Via De
La Valle, Suite 202, Del Mar, CA 92014, Attention: Steven L. Holmes,
or at such other address as Holdings may specify by written notice to
the Stockholders, with a copy to Steven L. Holmes, Cobblestone
Holdings, Inc., 13702 Via De La Valle, Suite 202, Del Mar, CA 92014.
Each such notice, request, consent or other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section XIII.E, may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the address provided herein shall be deemed to continue in effect
for all purposes hereunder.
F. Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware.
G. Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the
10
<PAGE>
remaining terms and provisions of this Agreement, and the parties hereto hereby
agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
H. Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not.
I. Modification, Amendment and Waiver. No modification or amendment
----------------------------------
of any provision of this Agreement shall be effective against Holdings or any
Stockholder unless approved in writing by a majority of the Stockholders, and,
in the case of Holdings, authorized by its Board of Directors. Furthermore, no
waiver of any provision of this Agreement shall be effective unless the party to
be charged with such waiver consents in writing thereto. The failure at any
time to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of any
of the parties thereafter to enforce each and every provision hereof in
accordance with its terms.
J. Integration. This Agreement, together with Schedule I, Schedule
-----------
II and Exhibit A hereto, constitutes the entire agreement of the parties with
respect to the subject matter hereof and thereof and supersedes all prior
agreements and negotiations with respect thereto.
K. Headings and Pronouns. The headings of the sections and
---------------------
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement. Whenever used herein,
words importing the singular shall include the plural and words importing the
masculine shall include the feminine and neuter, and vice versa, unless the
context otherwise requires.
L. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders' Agreement as of the day and year first above written.
COBBLESTONE HOLDINGS, INC.
By: /s/ David H. Wong
-------------------------
Name: David H. Wong
Its: President
/s/ Martin R. Reid
-------------------------
Martin R. Reid
/s/ John M. Sullivan
-------------------------
John M. Sullivan
/s/ Andrew Crosson
-------------------------
Andrew Crosson
/s/ Gary Dee
-------------------------
Gary Dee
/s/ Norman Goodmanson
-------------------------
Norman Goodmanson
/s/ Steven L. Holmes
-------------------------
Steven L. Holmes
/s/ James A. Husband, Jr.
-------------------------
James A. Husband, Jr.
[Signature page to Stockholders' Agreement]
-12-
<PAGE>
Brentwood Golf Partners, L.P.
By: Brentwood Buyout Parters, L.P.
Its: General Partner
By: /s/ David H. Wong
---------------------------
Name: David H. Wong
Its: General Partner
Balboa Park Management Co., Inc.
By: /s/ James A. Husband, Jr.
---------------------------
Name: James A. Husband, Jr.
Its: President
[Signature page to Stockholders' Agreement]
-13-
<PAGE>
Schedule I
Continental Bank N.A.
Martin R. Reid
John M. Sullivan
Andrew Crosson
Gary Dee
Norman Goodmanson
Steven L. Holmes
James A. Husband, Jr.
Brentwood Golf Partners, L.P.
Balboa Park Management Co., Inc.
<PAGE>
Schedule II
WARRANTHOLDERS PROVISIONS
The following provisions apply to certain persons, their assignees
and successors in interest ("Holders") who hold (x) warrants ("Warrants")
exercisable (as of the date of initial issuance of the Warrants) for an
aggregate of 5,472 shares of Holdings Common Stock and 20,000 shares of Holdings
Series A Preferred Stock and/or (y) the Holdings Stock issued upon exercise of a
Warrant. The Warrants were initially issued on January 31, 1994 to Continental
Bank N.A. In the event this Schedule II conflicts with the foregoing
Stockholders' Agreement (the "Agreement") and/or the Warrants, the provisions of
this Schedule II shall govern. Capitalized terms used herein shall have the
meanings ascribed to them in the Stockholders' Agreement or, if not defined
therein, the Warrants.
Section I. Registration Rights.
-------------------
A. Scope of registration rights. Notwithstanding anything to the
----------------------------
contrary in the Agreement or the Registration Rights Agreement, the Holders
shall be entitled to include their respective shares of Holdings Common Stock
and Holdings Series A Preferred Stock in registrations under the Act of Holdings
Common Stock or Holdings Series A Preferred Stock, as applicable, subject to
the exceptions contained in the first paragraph of Section 2 of the Registration
Rights Agreement. The registration rights provisions set forth in the Agreement
and the Registration Rights Agreement (including the indemnification provisions
set forth therein), as amended by this Schedule II, shall apply to registrations
of both Holdings Common Stock and Holdings Series A Preferred Stock. Holdings
shall not grant to any present or future stockholder of Holdings any rights to
register any securities of Holdings under the Act that are inconsistent with, or
not subordinate to or pari passu with, the registration rights set forth in the
---- -----
Agreement and this Schedule II, unless Holdings shall concurrently grant to the
Holders identical pari passu rights. The Holders shall also enjoy the benefits
---- -----
of Section 4.2(a) of the Warrants.
B. Cut Back. Notwithstanding anything to the contrary in the Agreement
--------
or the Registration Rights Agreement, after giving effect to any cutback of
Elected Shares (as defined in the Registration Rights Agreement), any additional
shares held by the Holders which would have been included in the registration
but for the pro rata cut back among Selling Stockholders may be included in such
--- ----
registration, if, in the opinion of the managing underwriter, such additional
shares can be included without adversely affecting the underwritten offering.
C. Representations and Warranties of Holders. The Holders shall not
-----------------------------------------
be required to make any representations or agreements in connection with a sale
of their Holdings Stock pursuant to a registration statement beyond
representations related to each Holder's unencumbered ownership of and ability
to transfer Holdings Stock and agreements to execute customary underwriting
agreements.
<PAGE>
D. Expenses. To the maximum extent permitted by then-applicable blue
--------
sky laws, Holdings shall bear all expenses (excluding any underwriting discount
and commissions) of any registration required to be effected under the terms of
the Warrants, including the legal fees of the Holders (provided that Holdings
shall be obligated to bear the legal fees of only a single counsel for all of
the Holders as a group in an amount not to exceed $10,000 for any registration).
Section II. Tag-Along Rights.
----------------
A. Liability of Holders. To the extent any Holder is required to make
--------------------
representations or give indemnities in connection with any Tag-Along Sale
(excluding those that relate to their unencumbered ownership of and ability to
transfer the Holdings Stock held by such Holder), each Holder's sole liability
with respect thereto shall be limited to its pro rata share of any escrow which
--- ----
is funded by or held back from the Selling Stockholders in connection with such
Tag-Along Sale. Furthermore without the consent of the affected selling Holder,
no selling Holder's proportionate share of any such escrow established in
connection with a given Tag-Along Sale shall exceed 10% of the expected
aggregate gross sale proceeds to such selling Holder from such sale (whether or
not other Selling Stockholders participate to a greater extent in such escrow),
and the sale documents for such Tag-Along Sale shall expressly limit the
liability of the Holders as set forth in the preceding paragraph.
B. Scope of Tag-Along Rights. The Holders tag-along rights, as set
-------------------------
forth in the Agreement, shall also apply to sales of Holdings Series A Preferred
Stock by the Selling Group.
Furthermore, such tag-along rights shall survive an initial public
offering for a period of two years only with respect to sales made by the
Selling Group (whether individually or in a series of similar sales) of shares
representing 10% or more of the then-outstanding Holdings Series A Preferred
Stock or Holdings Common Stock, as calculated on a fully diluted basis.
Notwithstanding the foregoing, any such shares of Holdings Stock held by the
Partnership may be distributed to the Partnership's partners during such
two-year period without being subject to the tag-along provisions. Each Holder
must bear all of its own expenses in connection with a Tag-Along Sale.
Section III. Drag-Along Rights.
-----------------
A. Liability of Holders. The liability of each Holder in connection
--------------------
with any Drag-Along Sale shall be limited on the same terms and conditions as
set forth in Section II(A), except that the figure of 10% shall be 5% for
purposes of any Drag-Along Sale.
B. Consideration. No Holder shall be required to accept consideration
-------------
in any Drag-Along Sale in any form other than cash or marketable securities,
except that not more than 20% of the total consideration may be in the form of
non-marketable securities, notes or similar consideration (provided that each
Holder, in its sole discretion, shall have the option to accept non-marketable
securities, notes and similar consideration which would comprise
2
<PAGE>
more than 20% of the total consideration to be received by such Holder, and
provided further that the Holders shall not, in any event, be required to accept
any form of consideration which any such Holder could not legally accept and
hold). Holdings shall bear all expenses of any Drag-Along Sale (provided that
Holdings shall be obligated to bear the legal fees of only a single counsel for
all of the Holders as a group in an amount not to exceed $10,000 for any
Drag-Along Sale).
Section IV. Right of First Refusal.
----------------------
The Warrant Shares shall not be subject to the provisions of
Section III of the Agreement; provided, however, that no Holder shall sell,
-------- -------
transfer or otherwise dispose of any Warrant Shares to any third party (other
than to any other stockholder of Holdings or to the Holders) without the express
written consent of Holdings, which consent (except as noted below) shall not be
unreasonably withheld or delayed.
Notwithstanding the foregoing, any refusal to consent by Holdings
shall be deemed reasonable and maybe withheld in Holdings' sole and absolute
discretion if the proposed transferee is (i) a Competitor (as defined below) of
Holdings or (ii) a firm or person whose primary business (or, if such firm or
person is part of a larger group of businesses, the primary business of such
group of businesses) consists of sponsoring leveraged transactions or making
venture capital investments or organizing investment funds whose primary
business consists of sponsoring leveraged transactions or making venture capital
investments. "Competitor" shall mean any person or entity who (i) engages in the
business of owning, operating or developing golf courses in the United States or
otherwise engages in a business that is substantially similar thereto, or (ii)
owns, manages, operates or otherwise controls any person or entity who engages
in the activities described in the immediately preceding clause (i) (except that
a person or entity who owns less than 5% of the outstanding publicly traded
voting stock of an entity who engages in such activities shall not be deemed a
Competitor solely by reason of such ownership).
3
<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT
Section 1. Definitions. Terms defined in the foregoing Stockholders'
-----------
Agreement (the "Agreement") are used as therein defined unless otherwise defined
in this Exhibit A. In addition, the following terms shall have the meanings
indicated:
"Commission" means the Securities and Exchange Commission, or
any other federal agency then administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
Section 2. Rights of Stockholders. If at any time Holdings proposes to
----------------------
register (other than a registration (1) on Form S-8 or any successor form
thereto; (2) of debt securities of Holdings; (3) of Preferred Stock of Holdings;
or (4) of securities for the purpose of consummating any acquisition by Holdings
including a registration on Form S-4 (or any successor form thereto)) any
public offering of shares of its capital stock under the Securities Act,
Holdings will give written notice to each Stockholder of its intention so to do
at least twenty (20) days prior to the filing of the registration statement.
A. In the event of an underwritten public offering:
(1) If the representative of the underwriters participating
in the sale and distribution of Holdings' securities covered by said
registration statement agrees that a number of shares of outstanding Holdings
Common Stock (the "Permissible Secondary Shares") may be included in the
offering covered by the registration statement, Holdings' notice shall afford
each Stockholder an opportunity to elect to include in such filing all or any
part of the shares of Holdings Common Stock then owned by such Stockholder. Each
Stockholder shall have fifteen (15) days after receipt of Holdings' notice to
notify Holdings in writing of the number of shares of Holdings Common Stock (the
"Elected Shares") which such Stockholder elects to include in the offering. The
Elected Shares shall be included in the offering to the extent permitted by the
representative. If the aggregate number of Elected Shares that each such
electing Stockholder and any other holders of securities of Holdings possessing
registration rights desire to include in such filing exceeds the number of
Permissible Secondary Shares, then such Stockholder shall, subject to any
priority available to other holders of securities which was not granted in
violation of the Agreement or the Warrants (as defined therein), be entitled to
include that number of shares of Holdings Common Stock that bears the same ratio
to the number of Permissible Secondary Shares as the number of Elected Shares of
Holdings Common Stock that Stockholder desires to include bears to the number of
Elected Shares that all eligible holders of securities desire to include. Such
representative may increase or decease the number of Permissible Secondary
Shares at any time until all shares of Holdings Common Stock included in such
registration shall have been sold by such underwriters.
A-1
<PAGE>
(2) The inclusion in such filing of shares of Holdings Common
Stock shall be upon the condition that such electing Stockholder sells his
shares of Holdings Common Stock to the underwriters on the same terms and
conditions as Holdings and other selling holders.
(3) Holdings shall afford each Stockholder the right to
participate in each underwritten registration.
B. In the event of any public offering, whether or not underwritten:
(1) Each Stockholder shall have fifteen (15) days after receipt
of Holdings' notice to notify Holdings in writing of the number of shares of
Holdings Common Stock that are owned by him which such Stockholder elects to
include in the offering.
(2) Holdings will use its best efforts to prepare and file with
the Commission a registration statement with respect to such shares of Holdings
Common Stock and shall cause such registration statement to become effective, to
prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until the earlier of the
sale of all shares of Holdings Common Stock covered thereby and the expiration
of a period of 9 months after its effective date and to comply with the
provisions of the Securities Act with respect to the disposition of all shares
of Holdings Common Stock covered by such registration statement. In the event
that any shares of Holdings Common Stock included in a registration statement
subject to, or required by, this Exhibit A remain unsold at the end of such
period, Holdings may file a post-effective amendment to the registration
statement for the purpose of deregistering such shares.
(3) Holdings will furnish to each Stockholder so many copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such
Stockholder may reasonably request.
(4) Holdings will use its best efforts to register or qualify
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions (not exceeding ten (10) in
number) as such electing Stockholder shall request, and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Stockholder to consummate the disposition in such jurisdictions of the shares of
Holdings Common Stock covered by the registration statement; provided, however,
-------- -------
that Holdings shall not be obligated, by reason thereof, to qualify as a foreign
corporation or file any general consent to service of process under the laws of
any such jurisdiction or subject itself to taxation as doing business in any
such jurisdiction.
(5) Holdings shall notify each Stockholder when the
registration statement covering the offering of the shares of Holdings Common
Stock to be registered has been filed with the Commission under the Securities
Act and when it has been made effective by order of the Commission.
A-2
<PAGE>
Section 3. Obligations of Stockholders. To include any shares of
---------------------------
Holdings Common Stock in any registration, each Stockholder shall:
(1) cooperate with Holdings in preparing each
such registration and execute all such agreements as any representative of the
underwriters may deem reasonably necessary in favor of the underwriters;
(2) promptly supply Holdings with all information,
documents, representations and agreements as the underwriters or Holdings may
deem reasonably necessary in connection with such registration; and
(3) agree in writing not to sell or transfer any
shares of the capital stock of Holdings not included in such registration during
the period beginning ten (10) days prior to the filing and ending ninety (90)
days after the effective date of such registration without the underwriters' or
Holdings' consent.
Section 4. Completion of Offering Not Required. Anything
-----------------------------------
herein to the contrary notwithstanding, Holdings shall have no obligation to the
Stockholders if the Board of Directors of Holdings determines, for any reason,
not to complete any proposed public offering of its securities.
Section 5. Registration Expenses. The costs and expenses (other than
---------------------
underwriting discount or commission and such fees for counsel, printing,
registration and other fees as state securities officials may require that each
Stockholder pay) of all registrations and qualifications under the Securities
Act, and of all other actions that Holdings is required to take or effect
pursuant to this Registration Rights Agreement, shall be paid by Holdings
(including, without limitation, all registration and filing fees, printing
expenses, costs of special audits incident to or required by any such
registration, fees and disbursements of counsel for Holdings).
Section 6. Indemnification by Company. In the event of any
--------------------------
registration under the Securities Act of any offering including shares of
Holdings Common Stock, Holdings hereby agrees to indemnify and hold harmless
each Stockholder, and each other person or entity that controls such Stockholder
and each such Stockholder's officers, directors and employees, against any
losses, claims, damages or liabilities, joint or several, to which such
Stockholder and/or person or entity may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained, on the
effective date thereof, in any registration statement under which shares of
Holdings Common Stock were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein or any amendment or
supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any failure or alleged failure of Holdings to
comply with any applicable statute, rule or regulation in connection with the
registration statement or the offering, and will reimburse such Stockholder
and/or such person or entity for any legal or other expenses reasonably incurred
A-3
<PAGE>
by such Stockholder and/or such person or entity in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding; provided, that Holdings 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 or omission or alleged
omission made in such registration statement, said preliminary of final
prospectus or said amendment or supplement in reliance upon and in strict
conformity with written information furnished by such Stockholder and/or such
person or entity on behalf of such Stockholder in such Stockholder's capacity as
such specifically for use in the preparation thereof.
Section 7. Indemnification by Stockholders. In the event of any
-------------------------------
registration under the Securities Act of any offering including shares of
Holdings Common Stock, each Stockholder hereby agrees to indemnify and hold
harmless Holdings, and each other person, if any, who controls Holdings within
the meaning of the Securities Act and each other person (including each
underwriter, and each other person, if any, who controls such underwriter) who
participates in the offering of such Holdings Common Stock against any losses,
claims, damages or liabilities, joint or several, to which Holdings, such
controlling person or participating person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which an
offering of such Holdings Common Stock was registered under the Securities Act,
in any preliminary prospectus or final prospectus contained therein, or in any
amendment or supplement thereto, 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 not misleading, and will
reimburse Holdings and each such controlling person or participating person for
any legal or other expenses reasonably incurred by Holdings or such controlling
person or participating person in connection with investigating or defending any
such loss, claim, damage, liability or proceeding; provided that each
--------
Stockholder will be liable in any such case to the extent, and only 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 or omission or alleged
omission made in such registration statement, said preliminary or final
prospectus or said amendment or supplement in reliance upon and in strict
conformity with written information furnished by such Stockholder in his
capacity as such specifically for use in the preparation thereof.
A-4
<PAGE>
Exhibit B
JOINDER
Reference is made to the Stockholders' Agreement (the "Agreement") dated as
of January 31, 1994 among Continental Bank N.A., Cobblestone Holdings, Inc. and
certain other parties listed on Schedule I thereto. All capitalized terms used
but not otherwise defined herein are used with the meanings ascribed to such
terms in the Agreement.
The undersigned is the [successor] [assignee] of [a Warrant representing
the right to receive] _______ shares of Common Stock and ___________ shares of
Series A Preferred Stock (the "Transferred Securities") formerly owned by
________________ (the "Transferor")[, representing [the entire] [a portion of
the] Warrant formerly owned by the Transferor]. The undersigned hereby joins the
Agreement as a party thereto with respect to the Transferred Securities,
entitled to the rights and benefits of, and subject to the obligations of, the
Transferor with respect to the Transferred Securities.
The undersigned's address for notices is ______________
_________________________________________________________________.
Dated this ____ day of ______________, 19__.
_______________________________
By: ___________________________
Name: _____________________
Its: ______________________
The undersigned, who is the Transferor referred to above, acknowledges and
agrees that it has transferred the Transferred Securities to the entity referred
to above.
Dated this ____ day of ______________, 19__.
By: ___________________________
Name: _____________________
Its: ______________________
<PAGE>
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
This Agreement is made as of the ___ day of ______ 1996, by and between
Cobblestone Holdings, Inc., a Delaware Corporation ("the Company"), and the
undersigned Director of the Company (the "Indemnitee"), with reference to the
following facts:
The Indemnitee is currently serving as a Director of the Company and the
Company wishes the Indemnitee to continue in such capacity. The Indemnitee is
willing, under certain circumstances, to continue serving as a Director of the
Company.
The Indemnitee has indicated that he does not regard the indemnities
available under the Company's By-Laws as adequate to protect him against the
risks associated with his service to the Company and has noted that the
directors' and officers' liability insurance policy of the Company has numerous
exclusions and a deductible and thus does not adequately protect the Indemnitee.
In this connection the Company and the Indemnitee now agree they should enter
into this Indemnification Agreement in order to provide greater protection to
Indemnitee against such risks of service to the Company.
Section 145 of the General Corporation Law of the State of Delaware, under
which law the Company is organized, empowers corporations to indemnify a person
serving as a director, officer, employee or agent of the corporation and a
person who serves at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, and said Section 145 and the By-Laws of the Company specify
that the indemnification set forth in said Section 145 and in the By-Laws,
respectively, shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
In order to induce the Indemnitee to continue to serve as a Director of the
Company and in consideration of his continued service, the Company hereby agrees
to indemnify the Indemnitee as follows:
1. Indemnity. The Company will indemnify the Indemnitee, his
---------
executors, administrators or assigns, for any Expenses (as defined below)
which the Indemnitee is or becomes legally obligated to pay in connection
with any Proceeding. As used in this Agreement the term "Proceeding" shall
include any threatened, pending or completed claim, action, suit or
proceeding, whether brought by or in the right of the Company or otherwise
and whether of a civil, criminal, administrative or investigative nature,
in which the Indemnitee may be or may have been involved as a party or
otherwise, by reason of the fact that Indemnitee is or was a director or
officer of the Company, by reason of any actual or alleged error or
misstatement or misleading statement made or suffered by the Indemnitee, by
reason of any action taken by him or of any inaction on his part while
acting as such director or officer, or by reason of the fact that he was
serving at the request of the Company as a director, trustee, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise; provided,
<PAGE>
that in each such case Indemnitee acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
Company, and, in the case of a criminal proceeding, in addition had no
reasonable cause to believe that his conduct was unlawful. As used in this
Agreement, the term "other enterprise" shall include (without limitation)
employee benefit plans and administrative committees thereof, and the term
"fines" shall include (without limitations) any excise tax assessed with
respect to any employee benefit plan.
2. Expenses. As used in this Agreement, the term "Expenses" shall
--------
include, without limitation, damages, judgments, fines, penalties,
settlements and costs, attorneys' fees and disbursements and costs of
attachment or similar bonds, investigations, and any expenses of
establishing a right to indemnification under this Agreement.
3. Enforcement. If a claim or request under this Agreement is not
-----------
paid by the Company, or on its behalf, within thirty days after a written
claim or request has been received by the Company, the Indemnitee may at
any time thereafter bring suit against the Company to recover the unpaid
amount of the claim or request and if successful in whole or in part, the
Indemnitee shall be entitled to be paid also the Expenses of prosecuting
such suit. The Company shall have the right to recoup from the Indemnitee
the amount of any item or items of Expenses theretofore paid by the Company
pursuant to this Agreement, to the extent such Expenses are not reasonable
in nature or amounts; provided, however, that the Company shall have the
burden of proving such Expenses to be unreasonable. The burden of proving
that the Indemnitee is not entitled to indemnification for any other reason
shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
5. Exclusions. The Company shall not be liable under this Agreement
----------
to pay any Expenses in connection with any claim made against the
Indemnitee:
(a) to the extent that payment is actually made to the Indemnitee
under a valid, enforceable and collectible insurance policy;
(b) to the extent that the Indemnitee is indemnified and actually
paid otherwise than pursuant to this Agreement;
2
<PAGE>
(c) in connection with a judicial action by or in the right of
the Company, in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Company unless and
only to the extent that any court in which such action was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper;
(d) if it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable to the
Indemnitee's in fact having gained any personal profit or advantage to
which he was not legally entitled;
(e) for a disgorgement of profits made from the purchase and sale
by the Indemnitee of securities pursuant to Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any state statutory law or common law;
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as
to any claims upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the Indemnitee shall establish that he
committed (i) acts of active and deliberate dishonesty, (ii) with
actual dishonest purpose and intent, (iii) which acts were material to
the cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is
prohibited by applicable law from paying as indemnity or for any other
reason.
6. Indemnification of Expenses of Successful Party. Notwithstanding
-----------------------------------------------
any other provision of this Agreement, to the extent that the Indemnitee
has been successful on the merits or otherwise in defense of any Proceeding
or in defense of any claim, issue or matter therein, including dismissal
without prejudice, Indemnitee shall be indemnified against any and all
Expenses incurred in connection therewith.
7. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the
Company
3
<PAGE>
shall nevertheless indemnify the Indemnitee for the portion of such
Expenses to which the Indemnitee is entitled.
8. Advance of Expenses. Expenses incurred by the Indemnitee in
-------------------
connection with any Proceeding, except the amount of any settlement, shall
be paid by the Company in advance upon request of the Indemnitee that the
Company pay such Expenses. The Indemnitee hereby undertakes to repay to
the Company the amount of any Expenses theretofore paid by the Company to
the extent that it is ultimately determined that such Expenses were not
reasonable or that the Indemnitee is not entitled to indemnification.
9. Approval of Expenses. No Expenses for which indemnity shall be
--------------------
sought under this Agreement, other than those in respect of judgments and
verdicts actually rendered, shall be incurred without the prior consent of
the Company, which consent shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition precedent to his
---------------
right to be indemnified under this Agreement, shall give to the Company
notice in writing as soon as practicable of any claim made against him for
which indemnity will or could be sought under this Agreement. Notice to
the Company shall be given at its principal office and shall be directed to
the Corporate Secretary (or such other address as the Company shall
designate in writing to the Indemnitee); notice shall be deemed received if
sent by prepaid mail properly addressed, the date of such notice being the
date postmarked. In addition, the Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be
within the Indemnitee's power.
11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one instrument.
12. Indemnification Hereunder Not Exclusive. Nothing herein shall be
---------------------------------------
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Certificate of Incorporation or
By-Laws of the Company and amendments thereto or under law.
13. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with Delaware law.
14. Saving Clause. Wherever there is conflict between any provision
-------------
of this Agreement and any applicable present or future statute, law or
regulation contrary to which the Company and the Indemnitee have no legal
right to contract, the latter shall prevail, but in such event the affected
provisions of this Agreement
4
<PAGE>
shall be curtailed and restricted only to the extent necessary to bring
them within applicable legal requirements.
15. Coverage. The provisions of this Agreement shall apply with
--------
respect to the Indemnitee's service as a Director of the Company prior to
the date of this Agreement and with respect to all periods of such service
after the date of this Agreement, even though the Indemnitee may have
ceased to be a Director of the Company.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
COBBLESTONE HOLDINGS, INC.
By:
-----------------------------
Stefan C. Karnavas
Chief Financial Officer
------------------------------
(Name of Director)
S-1
<PAGE>
EXHIBIT 12.1
COMPUTATION OF DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
FISCAL YEAR ENDED SEPTEMBER 30, 31,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loss before income tax.. $(846,102) $ (906,461) $ (497,812) $(1,661,663) $(2,438,480)
Interest expense........ 529,720 3,515,752 8,019,072 3,205,346 5,118,027
--------- ---------- ---------- ----------- -----------
Earnings (Loss) to
cover fixed charges.. (316,382) 2,609,291 7,521,260 1,543,683 2,679,547
========= ========== ========== =========== ===========
Interest expense........ 529,720 3,515,752 8,019,072 3,205,346 5,118,027
--------- ---------- ---------- ----------- -----------
Fixed Charges......... 529,720 3,515,752 8,019,072 3,205,346 5,118,027
========= ========== ========== =========== ===========
Deficiency of Earnings
to Cover Fixed
Charges(1)............. $ 846,102 $ 906,461 $ 497,812 $ 1,661,663 $ 2,438,480
========= ========== ========== =========== ===========
</TABLE>
- ---------------------
(1) Represents the amount earnings are deficient to cover the fixed charges.
This was calculated by subtracting the earnings from fixed charges.
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF COBBLESTONE HOLDINGS, INC.
Cobblestone Golf Group, Inc.
Escondido Consulting, Inc.
Cobblestone Texas, Inc.
Pecan Grove Golf Club, Inc.
Foothills Holding Company, Inc.
Bellows Golf Group, Inc.
Carmel Mountain Ranch Golf Club, Inc.
OVLC Management Corp.
OVLC Financial Corp.
CSR Golf Group, Inc.
Lakeway Golf Clubs, Inc.
Woodcrest Golf Clubs, Inc.
Virginia Golf Country Club, Inc.
Ocean Vista Land Company
Golf Course Inns of America, Inc.
Oceanside Golf Management Corp.
Whispering Palms Country Club Joint Venture
Lakeway Clubs, Inc.
The Liquor Club at Pecan Grove, Inc.
TGFC Corporation
C-RHK, Inc.
CEL Golf Group, Inc.
SWC Golf Club, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 8, 1995 with respect to Cobblestone
Holdings, Inc., our report dated July 3, 1996 with respect to Lakeway Country
Club, our combined report dated June 21, 1996 with respect to Stonebridge
Country Club Inc, and The Ranch Country Club, Inc., our report dated July 19,
1996 with respect to Brandermill Country Club, L.P., our report dated July 19,
1996 with respect to Pecan Grove Plantation Country Club, Inc., our report
dated July 19, 1996 with respect to Ocean Vista Land Company, and our report
dated July 19, 1996 with respect to Saticoy Regional Golf Course, in the
Registration Statement (Form S-4) of Cobblestone Holdings, Inc. dated August
1, 1996.
ERNST & YOUNG LLP
San Diego, California
July 30, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Cobblestone Holdings, Inc. of our report
dated July 26, 1996 relating to the financial statements of Sweetwater Golf
Partnership, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Houston, Texas
July 30, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Cobblestone Holdings, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 12, 1994, relating to the
financial statements of the Brandermill Country Club, L.P. which is contained
in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Richmond, Virginia
July 31, 1996
<PAGE>
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 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)
_____________________________
COBBLESTONE GOLF GROUP, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 95-4391248
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COBBLESTONE GOLF GROUP, INC.
3702 VIA DE LA VALLE, SUITE 202
DEL MAR, CALIFORNIA 92014
(Address of principal executive offices) (Zip code)
_____________________________
$70,000,000
11 1/2% SENIOR NOTES DUE 2003
(Title of the indenture securities)
================================================================================
<PAGE>
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 3-15 of this Form T-1 because the obligor is
not in default as provided under Item 13.
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 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.*
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.*
d. A copy of the certificate of the Comptroller of
the Currency dated
<PAGE>
May 1, 1983, authorizing Norwest Bank Minneapolis,
National Association, to act as fiduciary.*
<PAGE>
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. A copy of the certificate dated May 10, 1983 of name change
from Northwestern National Bank Minneapolis to Norwest
Bank Minneapolis, National Association.*
Exhibit 9. A copy of the certificate dated January 11, 1988, of name
change from Norwest Bank Minneapolis, National Association
to Norwest Bank Minnesota, National Association.*
* Incorporated by reference to the exhibit of the same number filed with
the registration statement number 33-66086.
<PAGE>
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 27th day of June, 1996.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Raymond S. Haverstock
---------------------------
Raymond S. Haverstock
Vice President
<PAGE>
EXHIBIT 6
June 27, 1996
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 or State 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
Raymond S. Haverstock
Vice President
<PAGE>
Federal Financial Institutions Examination Council
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
Expires March 31, 1999
- --------------------------------------------------------------------------------
[LOGO]
Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices - FFIEC 031
Report at the close of business March 31, 1996
This report is required by law: 12 U.S.C. (S)324 (State member banks); 12 U.S.C.
(S)1817 (State nonmember banks); and 12 U.S.C. (S)161 (National banks).
(960331)
- -----------
(RCRI 9999)
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustee) for State nonmember banks and three directors for State
member and National banks.
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.
I, Mark P. Wagener, Director of Bank & Service Accounting
------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with
the instructions issed by the appropriate Federal regulatory authority and are
true to the best of my knowledge and belief.
/s/ Mark P. Wagener
- ----------------------------------
Signature of Officer Authorized to Sign Report
4/26/96
- ----------------------------------
Date of Signature
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/
- ----------------------------------
Director (Trustee)
/s/
- ----------------------------------
Director (Trustee)
/s/
- ----------------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Banks: Return the original and one copy to the appropriate Federal
Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return
address envelope, return the original only to the FDIC, c/o Quality Data
Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number 0 5 2 0 8
---------------
(RCRI 9050)
Banks should affix the address label in this space.
NORWEST BANK MINNESOTA, NATIONAL ASSN.
- --------------------------------------------
Legal Title of Bank (TEXT 9010)
MINNEAPOLIS
- --------------------------------------------
City (TEXT 9130)
MN 55479-0016
- --------------------------------------------
State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE>
FFIEC 031
Page i
2
Consolidated Reports of Condition and Income for
A Bank with Domestic and Foreign Offices
- --------------------------------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
Signature Page Cover
Report of Income
- ----------------
<S> <C>
Schedule RI - Income Statement ............... R1-1, 2, 3
Schedule RI-A - Changes in Equity Capital .......... RI-4
Schedule RI-B - Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses ........................................ RI-4, 5
Schedule RI-C - Applicable Income Taxes by
Taxing Authority ................................. RI-5
Schedule RI-D - Income from International
Operations ....................................... RI-6
Schedule RI-E - Explanations .................... RI-7, 8
Report of Condition
- -------------------
Schedule RC - Balance Sheet ..................... RC-1, 2
Schedule RC-A - Cash and Balances Due From
Depository Institutions .......................... RC-3
Schedule RC-B - Securities ................... RC-3, 4, 5
Schedule RC-C - Loans and Lease Financing
Receivables:
Part I. Loans and Leases ................... RC-6, 7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only) ........................... RC-7a, 7b
Schedule RC-D - Trading Assets and Liabilities
(to be completed only by selected banks) ......... RC-8
Schedule RC-E - Deposit Liabilities ........ RC-9, 10, 11
Schedule RC-F - Other Assets ...................... RC-11
Schedule RC-G - Other Liabilities ................. RC-11
Schedule RC-H - Selected Balance Sheet Items
for Domestic Offices ............................ RC-12
Schedule RC-I - Selected Assets and Liabilities of
IBFs ............................................ RC-13
Schedule RC-K - Quarterly Averages ................ RC-13
Schedule RC-L - Off-Balance Sheet
Items ................................... RC-14, 15, 16
Schedule RC-M - Memoranda ..................... RC-17, 18
Schedule RC-N - Past Due and Nonaccrual Loans,
Leases, and Other Assets .................... RC-19, 20
Schedule RC-O - Other Data for Deposit
Insurance Assessments ....................... RC-21, 22
Schedule RC-R - Regulatory Capital ............ RC-23, 24
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Condition and Income ............................ RC-25
Special Report (to be completed by all banks)
Schedule RC-J - Repricing Opportunities (sent only to
and to be completed only by savings banks)
</TABLE>
Disclosure of Estimated Burden
The estimated average burden associated with this infomration collection is 32.2
hours per respondent and is estimated to vary from 15 to 230 hours per response,
depending on individual circumstances. Burden estimates include the time for
reviewing instructions, gathering and maintaining data in the required form, and
completing the information collection, but exclude the time for compiling and
maintaining business records in the normal course of a respondent's activities.
Comments concerning the accuracy of this burden estimate and suggestions for
reducing this burden should be directed to the Office of Information and
Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503, and
to one of the following:
Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219
Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429
For information or assistance, National and State nonmember banks should contact
the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington, D.C.
20429, toll free on (800) 688-FDIC(3342), Monday through Friday between 8:00
a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 3
Transit Number: 91000019
</TABLE>
Consolidated Report of Income
for the period January 1, 1996 - March 31, 1996
All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.
Schedule RI - Income Statement
<TABLE>
<CAPTION>
I480 -
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income:
a. Interest and fee income on loans:
(1) In domestic offices: RIAD
(a) Loans secured by real estate__________________________________________________________4011.. 79,875 1.a.1a
(b) Loans to depository institutions______________________________________________________4019.. 4,266 1.a.1b
(c) Loans to finance agricultural production and other loans to farmers___________________4024.. 286 1.a.1c
(d) Commercial and industrial loans_______________________________________________________4012.. 73,340 1.a.1d
(e) Acceptances of other banks____________________________________________________________4026.. 88 1.a.1e
(f) Loans to individuals for household, family, and other personal expenditures:
(1) Credit cards and related plans____________________________________________________4054.. 5,750 1.a.1f1
(2) Other_____________________________________________________________________________4055.. 14,502 1.a.1f2
(g) Loans to foreign governments and official institutions________________________________4056.. 0 1.a.1g
(h) Obligations (other than securities and leases) of states and political
subdivisions in the U.S.:
(1) Taxable obligations_______________________________________________________________4503.. 3 1.a.1h1
(2) Tax-exempt obligations____________________________________________________________4504.. 482 1.a.1h2
(i) All other loans in domestic offices___________________________________________________4058.. 282 1.a.1i
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs______________________________4059.. 2,421 1.a.2
b. Income from lease financing receivables:
(1) Taxable leases____________________________________________________________________4505.. 9,744 1.b.1
(2) Tax-exempt leases_________________________________________________________________4307.. 98 1.b.2
c. Interest income on balances due from depository institutions:(1)
(1) In domestic offices_______________________________________________________________4105.. 49 1.c.1
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs_____________________4106.. 29 1.c.2
d. Interest and divident income on securities:
(1) U.S. Treasury securities and U.S. Government agency and corporation
obligations_______________________________________________________________________4027.. 17,391 1.d.1
(2) Securities issued by states and political subdivisions in the U.S.:
(a) Taxable securities____________________________________________________________4506.. 28 1.d.2a
(b) Tax-exempt securities_________________________________________________________4507.. 1,735 1.d.2b
(3) Other domestic debt securities____________________________________________________3657.. 401 1.d.3
(4) Foreign debt securities___________________________________________________________3658.. 0 1.d.4
(5) Equity securities (including investments in mutual funds)_________________________3659.. 4,542 1.d.5
e. Interest income from trading assets___________________________________________________4069.. 2,107 1.e
</TABLE>
- --------
(1) Includes interest income on time certificates of deposit not held for
trading.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 2
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 4
Transit Number: 91000019
</TABLE>
<TABLE>
<CAPTION>
Schedule RI - Continued
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Interest income (continued)
f. Interest income on federal funds sold and securities purchased
under agreements to resell in domestic offices of the bank RIAD Year-to-date
and of its Edge and Agreement subsidiaries, and in IBFs______________________4020. . 64,777 . . . . . . . 1.f
g. Total interest income (sum of items 1.a through 1.f)_________________________4107. . 282,196 . . . . . . . 1.g
2. Interest expense:
a. Interest on deposits:
(1) Interest on deposits in domestic offices:
(a) Transaction accounts (NOW accounts, ATS accounts, and
telephone and preauthorized transfer accounts) ______________________4508. . 2,844 . . . . . . . 2.a.1a
(b) Nontransaction accounts:
(1) Money market deposit accounts (MMDAs)_____________________________4509. . 10,380 . . . . . . . 2.a.1b1
(2) Other savings deposits____________________________________________4511. . 1,696 . . . . . . . 2.a.1b2
(3) Time certificates of deposit of $ 100,000 or more_________________4174. . 2,732 . . . . . . . 2.a.1b3
(4) All other time deposits___________________________________________4512. . 25,437 . . . . . . . 2.a.1b4
(2) Interest on deposits in foreign offices, Edge and
Agreement subsidiaries, and IBFs__________________________________________4172. . 7,688 . . . . . . . 2.a.2
b. Expense of federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs___________________________4180. . 62,237 . . . . . . . 2.b
c. Interest on demand notes issued to the U.S. Treasury, trading
liabilities, and other borrowed money_________________________________________4185. . 36,716 . . . . . . . 2.c
d. Interest on mortgage indebtedness and obligations under
capitalized leases____________________________________________________________4072. . 26 . . . . . . . 2.d
e. Interest on subordinated notes and debentures_________________________________4200. . 2,466 . . . . . . . 2.e
f. Total interest expense (sum of items 2.a through 2.e)_________________________4073. . 152,222 . . . . . . . 2.f
3. Net interest income (item 1.g minus 2.f)_________________________________________4074. . . . . . . . 129,974 3.
4. Provisions:
a. Provision for loan and lease losses___________________________________________4230. . . . . . . . 4,762 4.a
b. Provision for allocated transfer risk_________________________________________4243. . . . . . . . 0 4.b
5. Noninterest income:
a. Income from fiduciary activities______________________________________________4070. . 43,257 . . . . . . . 5.a
b. Service charges on deposit accounts in domestic offices_______________________4080. . 19,037 . . . . . . . 5.b
c. Trading revenue (must equal Schedule RI, sum of Memorandum
items 8.a through 8.d)________________________________________________________A220. . (20,258) . . . . . . . 5.c
d. Other foreign transaction gain (losses)_______________________________________4076. . 547 . . . . . . . 5.d
e. Not applicable
f. Other noninterest income:
(1) Other fee income__________________________________________________________5407. . 30,637 . . . . . . . 5.f.1
(2) All other noninterest income*_____________________________________________5408. . 16,211 . . . . . . . 5.f.2
g. Total noninterest income (sum of items 5.a through 5.f)_______________________4076. . . . . . . 89,431 5.g
6. a. Realized gains (losses) on held-to-maturity securities________________________3521. . . . . . . 0 6.a
b. Realized gains (losses) on available-for-sale securities______________________3196. . . . . . . 6,666 6.b
7. Noninterest expense:
a. Salaries and employee benefits________________________________________________4135. . 76,555 . . . . . . . 7.a
b. Expenses of premises and fixed assets (net of rental income)
(excluding salaries and employee benefits and mortgage
interest)_____________________________________________________________________4217. . 19,505 . . . . . . . 7.b
c. Other noninterest expense*____________________________________________________4092. . 75,737 . . . . . . . 7.c
d. Total noninterest expense (sum of items 7.a through 7.c)______________________4093. . . . . . . 171,797 7.d
8. Income (loss) before income taxes and extraordinary items and
other adjustments (item 3 plus or minus items 4.a, 4.b, 5.g,
6.a, 6.b, and 7.d)_______________________________________________________________4301. . . . . . . 49,512 8.
9. Applicable income taxes (on item 8)______________________________________________4302. . . . . . . 16,869 9.
10. Income (loss) before extraordinary items and other adjustments
(item 8 minus 9)_________________________________________________________________4300. . . . . . . 32,643 10.
___________
</TABLE>
*Describe on Schedule RI-E - Explanations.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 3
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 5
Transit Number: 91000019
</TABLE>
Schedule RI - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11. Extraordinary items and other adjustments:
RIAD Year-to-date
a. Extraordinary items and other adjustments, gross of income ----
taxes * ____________________________________________________________4310. . 0 . . . . . . . . . 11.a
b. Applicable income taxes (on item 11.a) * ___________________________4315. . 0 . . . . . . . . . 11.b
c. Extraordinary items and other adjustments, net of
income taxes (item 11.a minus 11.b)_________________________________4320. . . . . . . . 0 11.c
12. Net income (loss) (sum of items 10 and 11.c)____________________________4340. . . . . . . . 32,643 12.
</TABLE>
<TABLE>
<CAPTION>
Memoranda
I481 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD Year-to-date
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired ----
after August 7, 1986, that is not deductible for federal income tax purposes____________________4513. . 2 M.1
2. Income from the sale and servicing of mutual funds and annuities in domestic
offices (included in Schedule RI, item 8)_______________________________________________________8431. . 496 M.2
3. Not applicable
4. Not applicable
Number
5. Number of full-time equivalent employees on payroll at end of current period (round to ------
nearest whole number)___________________________________________________________________________4150. . 5,607 M.5
6. Not applicable
7. If the reporting bank has restated its balance sheet as a result of applying push down MM DD YY
accounting this calendar year, report the date of the bank's acquisition________________________9106. . N/A M.7
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments)
(Sum of Memorandum items 8.a through 8.d must equal Schedule RI, item 5.c): RIAD Year-to-date
----
a. Interest rate exposures_____________________________________________________________________8757. . ( 23,362) M.8.a
b. Foreign exchange exposures__________________________________________________________________8758. . 2,104 M.8.b
c. Equity security and index exposures_________________________________________________________8759. . 0 M.8.c
d. Commodity and other exposures_______________________________________________________________8760. . 0 M.8.d
9. Impact on income of off-balance sheet derivatives held for purposes other than trading:
a. Net increase (decrease) to interest income__________________________________________________8761. . ( 89) M.9.a
b. Net (increase) decrease to interest income__________________________________________________8762. . ( 4,918) M.9.b
c. Other (noninterest) allocations_____________________________________________________________8763. . 0 M.9.c
10.Credit losses on off-balance sheet derivatives (see instructions)_______________________________A251. . 0 M.10
</TABLE>
- --------
* Describe on Schedule RI-E - Explanations.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 4
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 6.
Transit Number: 91000019
</TABLE>
<TABLE>
<CAPTION>
Schedule RI - A - Changes in Equity Capital
Indicate decreases and losses in parentheses. I483 ( -
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total equity capital originally reported in the December 31, 1995, Reports of RIAD
----
Condition and Income____________________________________________________________________________3215.. 1,125,067 1.
2. Equity capital adjustments from amended Reports of Income, net * _______________________________3216.. 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2)____________________________3217.. 1,125,067 3.
4. Net income (loss) (must equal Schedule RI, item 12)_____________________________________________4340.. 32,643 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net______________________________4346.. 0 5.
6. Changes incident to business combinations, net__________________________________________________4356.. 0 6.
7. LESS: Cash dividends declared on preferred stock_______________________________________________4470.. 0 7.
8. LESS: Cash dividends declared on common stock__________________________________________________4460.. 15,000 8.
9. Cumulative effect of changes in accounting principles from prior years * (see
instructions for this schedule)_________________________________________________________________4411.. 0 9.
10. Corrections of material accounting errors from prior years * (see instructions for
this schedule)__________________________________________________________________________________4412.. 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities________________8433.. ( 7,513) 11.
12. Foreign currency translation adjustments________________________________________________________4414.. 2 12.
13. Other transactions with parent holding company * (not included in items 5, 7, or
8 above)________________________________________________________________________________________4415.. 0 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal
Schedule RC, item 28)___________________________________________________________________________3210.. 1,135,199 14.
_______________
* Describe on Schedule RI-E - Explanations.
</TABLE>
<TABLE>
<CAPTION>
Schedule RI - B - Charge-offs and Recoveries and Changes in Allowance
for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
Part I excludes charge-offs and recoveries through the allocated transfer risk reserve.
I486 ( -
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------calendar year-to-date--------------------
(Column A) (Column B)
Charge-offs Recoveries
--------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate: RIAD RIAD
---- ----
a. To U.S. addressees (domicile)_________________________4651.. 380 4661.. 889 1.a
b. To non-U.S. addressees (domicile)_____________________4652.. 0 4662.. 0 1.b
2. Loans to depository institutions and acceptances of
other banks:
a. To U.S. banks and other U.S. depository
institutions__________________________________________4653.. 0 4663.. 0 2.a
b. To foreign banks______________________________________4654.. 0 4664.. 0 2.b
3. Loans to finance agricultural production and other
loans to farmers_________________________________________4655.. 0 4665.. 3 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile)_________________________4645.. 4,637 4617.. 1,291 4.a
b. To non-U.S. addressees (domicile)_____________________4646.. 0 4618.. 181 4.b
5. Loans to individuals for household, family, and other
personal expenditures:
a. Credit cards and related plans________________________4656.. 360 4666.. 59 5.a
b. Other (includes single payment, installment, and
all student loans)____________________________________4657.. 1,711 4667.. 587 5.b
6. Loans to foreign governments and official
institutions_____________________________________________4643.. 344 4627.. 63 6.
7. All other loans__________________________________________4644.. 0 4628.. 0 7.
8. Lease financing receivables:
a. Of U.S. addressees (domicile)_________________________4658.. 545 4668.. 229 8.a
b. Of non-U.S. addressees (domicile)_____________________4659.. 0 4669.. 0 8.b
9. Total (sum of items 1 through 8)_________________________4635.. 7,977 4605.. 3,302 9.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 5
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 7
Transit Number: 91000019
</TABLE>
Schedule RI-B - Continued
Part I. Continued
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
----------------calendar year-to-date----------------
(Column A) (Column B)
Charge-offs Recoveries
-------------------- -----------------------------
1.-3. Not applicable.
RIAD RIAD
4. Loans to finance commercial real estate, construction, ---- ----
and land development activities (not secured by real
estate) included in Schedule RI-B, part I,
items 4 and 7, above_____________________________________________________5409. . 0 5410. . 0 M.4
5. Loans secured by real estate in domestic offices
(included in Schedule RI-B, part I, item 1, above):
a. Construction and land development____________________________________3582. . 0 3583. . 0 M.5.a
b. Secured by farmland__________________________________________________3584. . 0 3585. . 0 M.5.b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4
family residential properties and extended
under lines of credit____________________________________________5411. . 0 5412. . 0 M.5.c1
(2) All other loans secured by 1-4 family
residential properties___________________________________________5413. . 303 5414. . 98 M.5.c2
d. Secured by multifamily (5 or more) residential
properties___________________________________________________________3588. . 0 3589. . 0 M.5.d
e. Secured by nonfarm nonresidential properties_________________________3590. . 77 3591. . 791 M.5.e
</TABLE>
<TABLE>
<CAPTION>
Part II. Changes in Allowance for Loan and Lease Losses
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD
----
1. Balance originally reported in the December 31, 1995, Reports of Condition and Income___________3124. . 187,020 1.
2. Recoveries (must equal part I, item 9, column B above)__________________________________________4605. . 3,302 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above)__________________________________4635. . 7,977 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)__________________________4230. . 4,762 4.
5. Adjustments * (see instructions for this schedule)______________________________________________4815. . ( 2) 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC,
item 4.b)_______________________________________________________________________________________3123. . 187,105 6.
- --------
* Describe on Schedule RI-E - Explanations.
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-C - Applicable Income Taxes by Taxing Authority
I489 (-
Schedule RI-C is to be reported with the December Report of Income. Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD
----
1. Federal_________________________________________________________________________________________4780. . N/A 1.
2. State and local_________________________________________________________________________________4790. . N/A 2.
3. Foreign_________________________________________________________________________________________4795. . N/A 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b)______________4770. . N/A 4.
RIAD
----
5. Deferred portion of item 4_____________________________4772 N/A . . . . . . . 5.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 6
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 8
Transit Number: 91000019
</TABLE>
Schedule RI-D - Income from International Operations
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.
Part I. Estimated Income from International Operations
<TABLE>
<CAPTION>
I492 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, RIAD Year-to-date
and IBFs: ----
a. Interest income booked________________________________________________________________________4837.. N/A 1.a
b. Interest expense booked_______________________________________________________________________4838.. N/A 1.b
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries,
and IBFs (item 1.a minus 1.b)_________________________________________________________________4839.. N/A 1.c
2. Adjustments for booking location of international operations:
a. Net interest income attributable to international operations booked at domestic offices_______4840.. N/A 2.a
b. Net interest income attributable to domestic business booked at foreign
offices_______________________________________________________________________________________4841.. N/A 2.b
c. Net booking location adjustment (item 2.a minus 2.b)__________________________________________4842.. N/A 2.c
3. Noninterest income and expense attributable to international operations:
a. Noninterest income attributable to international operations___________________________________4097.. N/A 3.a
b. Provision for loan and lease losses attributable to international operations__________________4235.. N/A 3.b
c. Other noninterest expense attributable to international operations____________________________4239.. N/A 3.c
d. Net noninterest income (expense) attributable to international operations
(item 3.a minus 3.b and 3.c)__________________________________________________________________4843.. N/A 3.d
4. Estimated pretax income attributable to international operations before capital allocation
adjustment (sum of items 1.c, 2.c, and 3.d)______________________________________________________4844.. N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to
reflect the effects of equity capital on overall bank funding costs______________________________4845.. N/A 5.
6. Estimated pretax income attributable to international operations after capital allocation
adjustment (sum of items 4 and 5)________________________________________________________________4846.. N/A 6.
7. Income taxes attributable to income from international operations as estimated in item 6_________4797.. N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7)___________________4341.. N/A 8.
</TABLE>
<TABLE>
<CAPTION>
Memoranda
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Intracompany interest income included in item 1.a above__________________________________________4847.. N/A M.1
2. Intracompany interest expense included in item 1.b above_________________________________________4848.. N/A M.2
</TABLE>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RIAD Year-to-date
----
1. Interest income booked at IBFs___________________________________________________________________4849.. N/A 1.
2. Interest expense booked at IBFs__________________________________________________________________4850.. N/A 2.
3. Noninterest income attributable to international operations booked at domestic offices
(excluding IBFs):
a. Gains (losses) and extraordinary items________________________________________________________5491.. N/A 3.a
b. Fees and other noninterest income_____________________________________________________________5492.. N/A 3.b
4. Provision for loan and lease losses attributable to international operations booked at
domestic offices (excluding IBFs)________________________________________________________________4852.. N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic
offices (excluding IBFs)_________________________________________________________________________4853.. N/A 5.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 7
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 9
Transit Number: 91000019
</TABLE>
Schedule RI-E - Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.
Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other noninterest
income and other noninterest expense in Schedule RI.
(See instructions for details.)
<TABLE>
<CAPTION>
I495 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2))
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): RIAD Year-to-date
------
a. Net gains on other real estate owned__________________________________________________________5415.. N/A 1.a
b. Net gains on sales of loans___________________________________________________________________5416.. N/A 1.b
c. Net gains on sales of premises and fixed assets_______________________________________________5417.. N/A 1.c
Itemize and describe the three largest other amounts that exceed 10% of
Schedule RI, item 5.f.(2):
TEXT RIAD
---- ------
d. 4461: Gain on Sales of Loan Servicing Rights______________________________________________4461.. 6,754 1.d
e. 4462: Processing Fees_____________________________________________________________________4462.. 4,761 1.e
f. 4463: Rental Income_______________________________________________________________________4463.. 2,016 1.f
2. Other noninterest expense (from Schedule RI, item 7.c):
a. Amortization expense of intangible assets_____________________________________________________4531.. 1,579 2.a
Report amounts that exceed 10% of Schedule RI, item 7.c:
b. Net losses on other real estate owned_________________________________________________________5418.. N/A 2.b
c. Net losses on sales of loans__________________________________________________________________5419.. N/A 2.c
a. Net losses on sales of premises and fixed assets______________________________________________5420.. N/A 2.d
Itemize and describe the three largest other amounts that exceed 10% of
Schedule RI, item 7.c:
TEXT RIAD
---- ------
e. 4464: Processing Fees_____________________________________________________________________4464.. 22,195 2.e
f. 4467: ____________________________________________________________________________________4467.. N/A 2.f
f. 4468: ____________________________________________________________________________________4468.. N/A 2.g
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and applicable
income tax effect (from Schedule RI, item 11.b) (itemize and describe all extraordinary
items and other adjustments):
TEXT RIAD
---- ------
a. (1) 4469: _______________________________________ ................................. 4469.. 0 3.a.1
(2) Applicable income tax effect__________________4486 .. 0 .......... 3.a.2
b. (1) 4487: _______________________________________ ................................. 4487.. 0 3.b.1
(2) Applicable income tax effect__________________4488 .. 0 .......... 3.b.2
c. (1) 4489: _______________________________________ ................................. 4489.. 0 3.c.1
(2) Applicable income tax effect__________________4491 .. 0 .......... 3.c.2
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A,
item 2) (itemize and describe all adjustments):
TEXT RIAD
---- ------
a. 4492: ______________________________________________________________________________________4492.. N/A 4.a
b. 4493: ______________________________________________________________________________________4493.. N/A 4.b
5. Cumulative effect of changes in accounting principles from prior years (from Schedule
RI-A, item 9) (itemize and describe all changes in accounting principles):
TEXT RIAD
---- ------
a. 4494: ______________________________________________________________________________________4494.. N/A 5.a
b. 4495: ______________________________________________________________________________________4495.. N/A 5.b
6. Corrections of material accounting errors from prior years (from Schedule RI-A, item
10) (itemize and describe all corrections):
TEXT RIAD
---- ------
a. 4496: ______________________________________________________________________________________4496.. N/A 6.a
b. 4497: ______________________________________________________________________________________4497.. N/A 6.b
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 8
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 10
Transit Number: 91000019
</TABLE>
Schedule RI-E - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) (itemize
and describe all such transactions):
TEXT RIAD Year-to-date
a. 4498: ____________________________________________________________________________________ 4498.. N/A 7.a
b. 4499: ____________________________________________________________________________________ 4499.. N/A 7.b
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II,
item 5) (itemize and describe all adjustments):
TEXT
a. 4521: Sale of Loans_______________________________________________________________________ 4521.. ( 2) 8.a
b. 4522: ____________________________________________________________________________________ 4522.. N/A 8.b
I498 I499 (-
</TABLE>
9. Other explanations (the space below is provided for the bank to briefly
describe, at its option, any other significant items affecting the Report of
Income):
No comment: X (RIAD 4769)
Other explanations (please type or print clearly):
(TEXT 4769)
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 11
Transit Number: 91000019
</TABLE>
Consolidated Report of Condition for Insured Commercial and
State-Chartered Savings Banks for March 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
<TABLE>
<CAPTION>
C400 (-)
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
a. Noninterest-bearing balances and currency and coin (1)______________________________________0081. . 799,948 1.a
b. Interest-bearing balances (2)_______________________________________________________________0071. . 8,680 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)__________________________________1754. . 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)________________________________1773. . 1,248,762 2.b
3. Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in 1BFs:
a. Federal funds sold__________________________________________________________________________0276. . 4,849,904 3.a
b. Securities purchased under agreements to resell_____________________________________________0277. . 166,612 3.b
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income RCFD
(from Schedule RC-C)________________________2122. . 9,047,263 . . . . . . . 4.a
b. LESS: Allowance for loan and lease losses___3123. . 187,105 . . . . . . . 4.b
c. LESS: Allocated transfer risk reserve_______3128. . 0 . . . . . . . 4.c
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c)_________________________________________2125. . 8,860,158 4.d
5. Trading assets (from Schedule RC-D)_____________________________________________________________3545. . 218,920 5.
6. Premises and fixed assets (including capitalized leases)________________________________________2145. . 109,833 6.
7. Other real estate owned (from Schedule RC-M)____________________________________________________2150. . 3,507 7.
8. Investments in unconsolidated subsidiaries and associated companies (from
Schedule RC-M)__________________________________________________________________________________2130. . 0 8.
9. Customers' liability to this bank on acceptances outstanding____________________________________2155. . 26,494 9.
10. Intangible assets (from Schedule RC-M)__________________________________________________________2143. . 12,617 10.
11. Other assets (from Schedule RC-F)_______________________________________________________________2160. . 241,962 11.
12. Total assets (sum of items 1 through 11)________________________________________________________2170. . 16,547,397 12.
____________
1) Includes cash items in process of collection and unposted debits.
2) Includes time certificates of deposit not held for trading.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 2
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 12
Transit Number: 91000019
Schedule RC - Continued
</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
----
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I)___________2200.. 7,689,048 13.a
RCON
----
(1) Noninterest-bearing (1)________________________________________6631.. 2,511,465 ............ 13.a.1
(2) Interest-bearing_______________________________________________6636.. 5,177,583 ............ 13.a.2
RCFN
----
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)_2200 1,153,638 13.b
RCFN
----
(1) Noninterest-bearing ___________________________________________6631.. 14,651 ............ 13.b.1
(2) Interest-bearing_______________________________________________6636.. 1,138,987 ............ 13.b.2
14. Federal funds purchased and securities sold under agreements to repurchase in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: RCFD
----
a. Federal funds purchased_____________________________________________________________________0278.. 2,757,413 14.a
b. Securities sold under agreements to repurchase______________________________________________0279.. 604,944 14.b
RCON
----
15. a. Demand notes issued to the U.S. Treasury____________________________________________________2840.. 166,014 15.a
RCFD
----
b. Trading liabilities (from Schedule RC-D)____________________________________________________3548.. 15,346 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less_______________________________________________2332.. 80,846 16.a
b. With a remaining maturity of more than one year_____________________________________________2333.. 2,288,426 16.b
17. Mortgage indebtedness and obligations under capitalized leases__________________________________2910.. 1,171 17.
18. Bank's liability on acceptances executed and outstanding________________________________________2920.. 26,494 18.
19. Subordinated notes and debentures_______________________________________________________________3200.. 161,695 19.
20. Other liabilities (from Schedule RC-G)__________________________________________________________2930.. 467,163 20.
21. Total liabilities (sum of items 13 through 20)__________________________________________________2948.. 15,412,198 21.
22. Limited-life preferred stock and related surplus________________________________________________3282.. 0 22.
EQUITY CAPITAL
RCFD
----
23. Perpetual preferred stock and related surplus___________________________________________________3838.. 0 23.
24. Common stock____________________________________________________________________________________3230.. 100,000 24.
25. Surplus (exclude all surplus related to preferred stock_________________________________________3839.. 594,981 25.
26. a. Undivided profits and capital reserves______________________________________________________3632.. 431,558 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities______________________8434.. 9,005 26.b
27. Cumulative foreign currency translation adjustments_____________________________________________3284.. (345) 27.
28. Total equity capital (sum of items 23 through 27)_______________________________________________3210.. 1.135,199 28.
29. Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21, 22, and 28)___________________________________________________________________3300.. 16,547,397 29.
MEMORANDUM
To be reported only with the March Report of Condition.
RCFD Number
---- ------
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external auditors as
of any date during 1995_________________________________________________________________________6724.. 2 M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- --------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 3
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 13
Transit Number: 91000019
</TABLE>
<TABLE>
<CAPTION>
Schedule RC - A - Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
C405 ( -
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Column A) (Column B)
Consolidated Bank Domestic Offices
-------------------------- -------------------------
RCFD RCON
1. Cash items in process of collection, unposted ---- ------
debits, and currency and coin_____________________________0022.. 661,057 ............ 1.
a. Cash items in process of collection and unposted
debits_________________________________________________ ............ 0020.. 569,258 1.a
b. Currency and coin______________________________________ ............ 0080.. 91,778 1.b
2. Balances due from depository institutions in the U.S._____ ............ 0082.. 81,946 2.
a. U.S. branches and agencies of foreign banks
(including their IBFs)_________________________________0083.. 0 ............ 2.a
b. Other commercial banks in the U.S. and other
depository institutions in the U.S. (including
their IBFs)____________________________________________0085.. 90,620 ............ 2.b
3. Balances due from banks in foreign countries and
foreign central banks_____________________________________ ............ 0070.. 7,549 3.
a. Foreign branches of other U.S. banks___________________0073.. 7,549 ............ 3.a
b. Other banks in foreign countries and foreign
central banks__________________________________________0074.. 2,714 ............ 3.b
4. Balances due from Federal Reserve Banks___________________0090.. 46,688 0090.. 46,451 4.
5. Total (sum of items 1 through 4) (total of column A
must equal Schedule RC, sum of items 1.a and 1.b)_________0010.. 808,628 0010.. 796,982 5.
- -----------------------------------------------------------------------------------------------------------------------------------
Memorandum
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
------
1. Noninterest-bearing balances due from commercial banks in the U.S.
(included in item 2, column B above)_________________________________________________________0050.. 74,367 M.1
Schedule RC-B - Securities
Exclude assets held for trading.
C410 ( -
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity Available-for-sale
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value (1)
________________ ____________________ ________________________ _____________________________
<S> <C> <C> <C> <C> <C> <C>
RCFD RCFD RCFD RCFD
1. U.S. Treasury ------ ------ ------ ------
securities_____________0211.. 0 0213.. 0 1286.. 285,450 1287.. 286,976 1.
2. U.S. Government
agency and
corporation
obligations (exclude
mortgage-backed
securities):
a. Issued by U.S. RCFD RCFD RCFD RCFD
Government ------ ------ ------ ------
agencies (2)________1289.. 0 1290.. 0 1291.. 0 1293.. 0 2.a
b. Issued by U.S.
Government-
sponsored
agencies (3)________1294.. 0 1295.. 0 1297.. 11,725 1298.. 11,678 2.b
- ------------
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home Loan Bank
System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing Corporation,
Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 4
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 14
Transit Number: 91000019
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B - Continued
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value (1)
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3. Securities issued by
states and political
subdivisions in the U.S.:
a. General RCFD RCFD RCFD RCFD
obligations_____1676.. 0 1677.. 0 1678.. 21,741 1679.. 22,097 3.a
b. Revenue
obligations_____1681.. 0 1686.. 0 1690.. 78,332 1691.. 81,852 3.b
c. Industrial
development
and similar
obligations_____1694.. 0 1695.. 0 1696.. 4,500 1697.. 5,170 3.c
4. Mortgage-backed
securities (MBS):
a. Pass-through
securities:
(1) Guaranteed
by GNMA_____1698.. 0 1699.. 0 1701.. 82,072 1702.. 83,608 4a1
(2) Issued by
FNMA and
FHLMC_______1703.. 0 1705.. 0 1706.. 430,355 1707.. 437,175 4a2
(3) Other pass-
through
securities__1709.. 0 1710.. 0 1711.. 0 1713.. 0 4a3
b. Other mortgage-
backed securities
(include CMOs,
REMICs, and
stripped MBS):
(1) Issued or
guaranteed
by FNMA, or RCFD RCFD RCFD RCFD
GNMA____________1714.. 0 1715.. 0 1716.. 26,261 1717.. 26,300 4b1
(2) Collateralized
by MBS issued
or guaranteed
by FNMA,
FHLMC, RCFD RCFD RCFD RCFD
or GNMA_____1718.. 0 1719.. 0 1731.. 41 1732.. 41 4b2
(3) All other
mortgage-
backed
securities_1733.. 0 1734.. 0 1735.. 108 1736.. 108 4b3
5. Other debt securities:
a. Other domestic
debt RCFD RCFD RCFD RCFD
securities______1737.. 0 1738.. 0 1739.. 2,149 1741.. 2,207 5.a
b. Foreign debt
securities______1742.. 0 1743.. 0 1744.. 0 1746.. 0 5.b
6. Equity securities:
a. Investments
in mutual RCFD RCFD RCFD RCFD
funds__________ .. . . . . . . . . . .. . . . . . . . . . 1747.. 143 1748.. 143 6.a
b. Other equity
securities
with readily
determinable
fair values____ .. . . . . . . . . . .. . . . . . . . . . 1749.. 0 1751.. 0 6.b
c. All other
equity
securities(1)__ .. . . . . . . . . . .. . . . . . . . . . 1752.. 291,407 1753.. 291,407 6.c
7. Total (sum of items
1 through 6) (total
of column A must
equal Schedule RC,
item 2.a)(total
of column D must
equal Schedule RC,
item 2.b)__________1754.. 0 1771.. 0 1772.. 1,234,284 1773.. 1,248,762 7.
</TABLE>
- --------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.c, column D.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 5
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 15
Transit Number: 91000019
</TABLE>
Schedule RC-B - Continued
Memoranda
<TABLE>
<CAPTION>
C412 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
1. Pledged securities (2)__________________________________________________________________________0416.. 120,386 M.1
2. Maturity and repricing data for debt securities (2,3,4)(excluding those in nonaccrual status):
a. Fixed rate debt securities with a remaining maturity of:
(1) Three months or less____________________________________________________________________0343.. 173,710 M.2.a1
(2) Over three months through 12 months_____________________________________________________0344.. 123,524 M.2.a2
(3) Over one year through five years________________________________________________________0345.. 15,063 M.2.a3
(4) Over five years_________________________________________________________________________0346.. 457,854 M.2.a4
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a(4))_______0347.. 770,151 M.2.a5
b. Floating rate debt securities with a repricing frequency of:
(1) Quarterly or more frequently____________________________________________________________4544.. 106,107 M.2.b1
(2) Annually or more frequently, but less frequently than quarterly_________________________4545.. 80,954 M.2.b2
(3) Every five years or more frequently, but less frequently than annually__________________4551.. 0 M.2.b3
(4) Less frequently than every five years___________________________________________________4552.. 0 M.2.b4
(5) Total floating rate debt securities (sum of Memorandum items 2.b(1) through 2.b(4))_____4553.. 187,061 M.2.b5
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt
securities from Schedule RC-8, sum of items 1 through 5, columns A and D, minus nonaccrual
debt securities included in Schedule RC-N, item 9, column C)________________________________0393.. 957,212 M.2.c
3. Not applicable__________________________________________________________________________________ ......
4. Held to maturity debt securities restructured and in compliance with modified terms (included
in Schedule RC-B, items 3 through 5, column A above)____________________________________________5365.. 0 M.4
5. Not applicable__________________________________________________________________________________ ......
6. Floating rate debt securities with a remaining maturity of one year or less (2,4) (included in
Memorandum items 2.b.(1) through 2.b.(4) above)_________________________________________________5519.. 901 M.6
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or
trading securities during the calendar year-to-date (report the amortized cost at date of sale
or transfer)____________________________________________________________________________________1778.. 0 M.7
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale accounts
in Schedule RC-B, item 4.b):
a. Amortized cost______________________________________________________________________________8780.. 115 M.8.a
b. Fair value__________________________________________________________________________________8781.. 109 M.8.b
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in Schedule
RC-B, items 2,3, and 5):
a. Amortized cost______________________________________________________________________________8782.. 3,502 M.9.a
b. Fair value__________________________________________________________________________________8783.. 3,456 M.9.b
- ---------
</TABLE>
(2) Includes held-to-maturity securities at amortized cost and available-for-
sale securities at fair value.
(3) Excludes equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(4) Memorandum items 2 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 6
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 16
Transit Number: 91000019
Schedule RC-C - Loans and Lease Financing Receivables
Part I. Loans and Leases
Do not deduct the allowance for loan and lease losses from amounts reported in
this schedule. Report total loans and leases, net of unearned income. Exclude
assets held for trading.
</TABLE>
<TABLE>
<CAPTION> C415 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
RCFD Consolidated Bank RCON Domestic Offices
---- ----------------- ---- ----------------
<S> <C> <C> <C> <C> <C>
1. Loans secured by real estate___________________________________________1410.. 3,520,733 .......... 1.
a. Construction and land development__________________________________ .......... 1415.. 34,868 1.a
b. Secured by farmland (including farm residential and other
improvements)____________________________________________________ .......... 1420.. 1,640 1.b
c. Secured by 1-4 family residential properties:
(1) Revolving, open-end loans secured by 1-4 family
residential properties and extended under lines
of credit______________________________________________________ .......... 1797.. 103,321 1.c1
(2) All other loans secured by 1-4 family
residential properties:
(a) Secured by first liens_____________________________________ .......... 5367.. 2,637,682 1.c2a
(b) Secured by junior liens____________________________________ .......... 5368.. 301,422 1.c2b
d. Secured by multifamily (5 or more) residential properties__________ .......... 1460.. 57,978 1.d
e. Secured by nonfarm nonresidential properties_______________________ .......... 1480.. 383,822 1.e
2. Loans to depository institutions:
a. To commercial banks in the U.S.____________________________________ .......... 1505.. 35,153 2.a
(1) To U.S. branches and agencies of foreign banks_________________1506.. 0 .......... 2.a1
(2) To other commercial banks in the U.S.__________________________1507.. 40,935 .......... 2.a2
b. To other depository institutions in the U.S._______________________1517.. 0 1517.. 0 2.b
c. To banks in foreign countries______________________________________ .......... 1510.. 466 2.c
(1) To foreign branches of other U.S. banks________________________1513.. 265 .......... 2.c1
(2) To other banks in foreign countries____________________________1516.. 73,193 .......... 2.c2
3. Loans to finance agricultural production and other loans
to farmers___________________________________________________________1590.. 19,942 1590.. 19,942 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile)______________________________________1763.. 3,117,994 1763.. 3,081,820 4.a
b. To non-U.S. addressees (domicile)__________________________________1764.. 45,174 1764.. 1,259 4.b
5. Acceptances of other banks:
a. Of U.S. banks______________________________________________________1756.. 0 1756.. 0 5.a
b. Of foreign banks___________________________________________________1757.. 2,351 1757.. 2,351 5.b
6. Loans to individuals for household, family, and other personal
expenditures (i.e., consumer loans) (includes purchased
paper)_______________________________________________________________ .......... 1975.. 1,001,690 6.
a. Credit cards and related plans (includes check credit and other
revolving credit plans___________________________________________2008.. 194,157 .......... 6.a
b. Other (includes single payment, installment, and all student
loans)___________________________________________________________2011.. 807,803 .......... 6.b
7. Loans to foreign governments and official institutions (including
foreign central banks)_______________________________________________2081.. 5,000 2081.. 5,000 7.
8. Obligations (other than securities and leases) of states and
political subdivisions in the U.S. (includes nonrated
industrial development obligations)__________________________________2107.. 22,612 2107.. 22,612 8.
9. Other loans____________________________________________________________1563.. 549,365 .......... 9.
a. Loans for purchasing or carrying securities (secured and
unsecured)_______________________________________________________ .......... 1545.. 32,160 9.a
b. All other loans (exclude consumer loans)___________________________ .......... 1564.. 517,205 9.b
10. Lease financing receivables (net of unearned income)___________________ .......... 2165.. 650,824 10.
a. Of U.S. addressess (domicile)_______________________________________2182.. 650,824 .......... 10.a
b. Of non-U.S. addressees (domicile)___________________________________2183.. 0 .......... 10.b
11. LESS: Any unearned income on loans reflected in items 1-9 above________2123.. 3,085 2123.. 2,062 11.
12. Total loans and leases, net of unearned income (sum of items 1
through 10 minus item 11) (total of column A must equal Schedule RC,
item 4.a)______________________________________________________________2122.. 9,047,263 2122.. 8,889,153 12.
</TABLE>
- --------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 7
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 17
</TABLE>
Transit Number: 91000019
Schedule RC - C - Continued
Part I. Continued
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Consolidated Bank Domestic Offices
--------------------------- -----------------------------
<S> <C> <C> <C>
RCFD RCON
---- ----
1. Commercial paper included in Schedule RC-C, part I,
above____________________________________________________1496.. 0 1496.. 0 M.1
2. Loans and leases restructured and in compliance with
modified terms (included in Schedule RC-C, part I,
above, and not reported as past due or nonaccrual
in Schedule RC-N, Memorandum item 1):
a. Loans secured by real estate:
(1) To U.S. addressees (domicile)_____________________1687.. 0 M.2.a1
(2) To non-U.S. addressees (domicile)_________________1689.. 0 M.2.a2
b. All other loans and all lease financing receivables
(exclude loans to individuals for household, family,
and other personal expenditures)______________________8691.. 0 M.2.b
c. Commercial and industrial loans to and lease
financing receivables of non-U.S. addressees
(domicile) included in Memorandum item 2.b above______8692.. 0 M.2.c
3. Maturity and repricing data for loans and leases (1)
(excluding those in nonaccrual status):
a. Fixed rate loans and leases with a remaining maturity
of:
(1) Three months or less______________________________0348.. 3,492,538 M.3.a1
(2) Over three months through 12 months_______________0349.. 583,439 M.3.a2
(3) Over one year through five years__________________0356.. 1,710,367 M.3.a3
(4) Over five years___________________________________0357.. 934,727 M.3.a4
(5) Total fixed rate loans and leases (sum of
Memorandum items 3.a.(1) through 3.a.(4))_________0358.. 6,721,071 M.3.a5
b. Floating rate loans with a repricing frequency of:
(1) Quarterly or more frequently______________________4554.. 1,986,188 M.3.b1
(2) Annually or more frequently, but less frequently
than quarterly____________________________________4555.. 273,537 M.3.b2
(3) Every five years or more frequently, but less
frequently than annually__________________________4561.. 20,782 M.3.b3
(4) Less frequently than every five years_____________4564.. 0 M.3.b4
(5) Total floating rate loans (sum of Memorandum
items 3.b.(1) through 3.b.(4))____________________4567.. 2,280,507 M.3.b5
c. Total loans and leases (sum of Memorandum items
3.a.(5) and 3.b.(5)) (must equal the sum of total
loans and leases, net, from Schedule RC-C, part I,
item 12, plus unearned income from Schedule RC-C,
part item I, item 11, minus total nonaccrual loans and
leases from Schedule RC-N, sum of items 1 through 8,
column C)_____________________________________________1479.. 9,001,578 M.3.c
d. Floating rate loans with a remaining maturity of
one year or less (included in Memorandum items 3.b.(1)
through 3.b.(4) above)________________________________A246.. 658,691 M.3.d
4. Loans to finance commercial real estate, construction,
and land development activities (not secured by real
estate) included in Schedule RC-C, part I, items 4 and
9, column A, page RC-6 (2)_______________________________2746.. 0 M.4
5. Loans and leases held for sale (included in
Schedule RC-C, part I, above)____________________________5369.. 1,701,670 M.5
6. Adjustable rate closed-end loans secured by first liens
on 1-4 family residential properties (included in
Schedule RC-C, part I, item 1.c.(2)(a), column B,
page RC-6)________________________________________________ ............ 5370.. 397,465 M.6
- -----------------
(1) Memorandum item 3 is not applicable to savings banks that must complete supplemental Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 8
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 18
Transit Number: 91000019
</TABLE>
Schedule RC-D - Trading Assets and Liabilities
<TABLE>
<CAPTION>
Schedule RC-D is to be completed only by banks with $1 billion or more in total assets or with $2 billion or more in par/notional
amount of off-balance sheet derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e, columns A through D).
C420 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
RCON
----
1. U.S. Treasury securities in domestic offices____________________________________________________3531. . 188,479 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude
mortgage-backed securities)_____________________________________________________________________3532. . N/A 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic
offices_________________________________________________________________________________________3533. . N/A 3.
4. Mortgage-backed securities (MBS) in domestic offices:
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA_________________________3534. . 19,490 4.a
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or
GNMA (include CMOs, REMICs, and stripped MBS)________________________________________________3535. . N/A 4.b
c. All other mortgage-backed securities_________________________________________________________3536. . N/A 4.c
5. Other debt securities in domestic offices_______________________________________________________3537. . N/A 5.
6. Certificates of deposit in domestic offices_____________________________________________________3538. . N/A 6.
7. Commercial paper in domestic offices____________________________________________________________3539. . N/A 7.
8. Bankers acceptances in domestic offices_________________________________________________________3540. . N/A 8.
9. Other trading assets in domestic offices________________________________________________________3541. . N/A 9.
RCFN
----
10. Trading assets in foreign offices_______________________________________________________________3542. . N/A 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and
equity contracts: RCON
----
a. In domestic offices__________________________________________________________________________3543. . 10,951 11.a
RCFN
----
b. In foreign offices___________________________________________________________________________3544. . N/A 11.b
RCFD
----
12. Total trading assets (sum of items 1 through 11)
(must equal Schedule RC, item 5)________________________________________________________________3545. . 218,920 12.
LIABILITIES
13. Liability for short positions___________________________________________________________________3546. . 4,745 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and
equity contracts________________________________________________________________________________3547. . 10,601 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC,
item 15.b)______________________________________________________________________________________3548. . 15,346 15.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC: 9
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 19
Transit Number: 91000019
</TABLE>
Schedule RC-E - Deposit Liabilities
Part I. Deposits in Domestic Offices
<TABLE>
<CAPTION>
C425 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
--------------Transaction Accounts-------------- --Nontransaction Accounts--
(Column A) (Column B) (Column C)
Total transaction Memo: Total demand
accounts (including total deposits (included in Total nontransaction
demand deposits) column A) accounts (including MMDAs)
- ---------------------------------------------------- ------------------------- --------------------- ---------------------------
<S> <C> <C> <C>
Deposits of: RCON RCON RCON
---- ---- ----
1. Individuals, partnerships and corporations__________2201.. 3,168,529 2240.. 2,127,218 2346.. 4,120,216 1.
2. U.S. Government_____________________________________2202.. 23,933 2280.. 23,933 2520.. 0 2.
3. States and political subdivisions in the U.S._______2203.. 29,811 2290.. 24,414 2530.. 10,559 3.
4. Commercial banks in the U.S.________________________2206.. 284,025 2310.. 284,025 2550.. 100 4.
5. Other depository institutions in the U.S.___________2207.. 6,857 2312.. 6,857 2349.. 0 5.
6. Banks in foreign countries__________________________2213.. 14,291 2320.. 14,291 2236.. 0 6.
7. Foreign governments and official institutions
(including foreign central banks)___________________2216.. 0 2300.. 0 2377.. 0 7.
8. Certified and official checks_______________________2330.. 30,727 2330.. 30,727 ........... 8.
9. Total (sum of items 1 through 8) (sum of
columns A and C must equal Schedule RC,
item 13.a)__________________________________________2215.. 3,558,173 2210.. 2,511,465 2385.. 4,130,875 9.
</TABLE>
Memoranda
<TABLE>
<CAPTION> Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
1. Selected components of total deposits (i.e., sum of item 9, column A and C): ----
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts___________________________6835.. 553,583 M.1.a
b. Total brokered deposits_______________________________________________________________________2365.. 0 M.1.b
c. Fully insured brokered deposits (included in Memorandum item 1.b above):
(1) Issued in denominations lf less than $100,000_____________________________________________2343.. 0 M.1.c1
(2) Issued either in denominations of $100,000 or in denominations greater than
$100,000 and participated out by the broker in shares of $100,000 or less_________________2344.. 0 M.1.c2
d. Maturity data for brokered deposits:
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining
maturity of one year or less (included in Memorandum item 1.c.(1) above)__________________A243.. 0 M.1.d1
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining
maturity of one year or less (included in Memorandum item 1.b above)______________________A244.. 0 M.1.d2
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S.
reported in item 3 above which are secured or collateralized as required under state law)_____5590.. 34,792 M.1.e
2. Components of total nontransaction accounts (sum of Memorandum items 2.a through 2.d
must equal item 9, column C above):
a. Savings deposits:
(1) Money market deposit accounts (MMDAs)_____________________________________________________6810.. 1,715,121 M.2.a1
(2) Other savings deposits (excludes MMDAs)___________________________________________________0352.. 428,864 M.2.a2
b. Total time deposits of less than $100,000_____________________________________________________6648.. 1,736,275 M.2.b
c. Time certificates of deposit of $100,000______________________________________________________6645.. 170,411 M.2.c
d. Open-account time deposits of $100,000 or more________________________________________________6646.. 80,204 M.2.d
3. All NOW accounts (included in column A above)____________________________________________________2398.. 1,046,708 M.3
4. Not applicable
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 10
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 20
Transit Number: 91000019
</TABLE>
Schedule RC - E - Continued
Part I. Continued
Memoranda (Continued)
<TABLE>
<CAPTION> Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000 (sum of Memorandum
items 5.a.(1) through 5.b.(3) must equal Memorandum item 2.b above): (1)
a. Fixed rate time deposits of less than $100,000 with a remaining maturity of: RCON
(1) Three months or less_________________________________________________________________A225. . 194,917 M.5.a1
(2) Over three months through 12 months__________________________________________________A226. . 749,354 M.5.a2
(3) Over one year________________________________________________________________________A227. . 792,004 M.5.a3
b. Floating rate time deposits of less than $100,000 with a repricing frequency of:
(1) Quarterly or more frequently_________________________________________________________A228. . 0 M.5.b1
(2) Annually or more frequently, but less frequently than quarterly______________________A229. . 0 M.5.b2
(3) Less frequently than annually________________________________________________________A230. . 0 M.5.b3
c. Floating rate time deposits of less than $100,000 with a remaining maturity of
one year or less (included in Memorandum items 5.b.(1) through 5.b.(3) above)____________A231. . 0 M.5.c
6. Maturity and repricing data for time deposits of $100,000 or more (i.e., time
certificates of deposit of $100,000 or more and open-account time deposits of
$100,000 or more) (sum of Memorandum items 6.a.(1) through 6.b.(4) must equal
the sum of Memorandum items 2.c and 2.d above): (1)
a. Fixed rate time deposits of $100,000 or more with a remaining maturity of:
(1) Three months or less_________________________________________________________________A232. . 104,590 M.6.a1
(2) Over three months through 12 months__________________________________________________A233. . 75,660 M.6.a2
(3) Over one year through five years_____________________________________________________A234. . 64,039 M.6.a3
(4) Over five years______________________________________________________________________A235. . 6,326 M.6.a4
b. Floating rate time deposits of $100,000 or more with a repricing frequency of:
(1) Quarterly or more frequently_________________________________________________________A236. . 0 M.6.b1
(2) Annually or more frequently, but less frequently than quarterly______________________A237. . 0 M.6.b2
(3) Every five years or more frequently, but less frequently annually____________________A238. . 0 M.6.b3
(4) Less frequently than every five years________________________________________________A239. . 0 M.6.b4
c. Floating rate time deposits of $100,000 or more with a remaining maturity of
one year or less (included in Memorandum items 6.b.(1) through 6.b.(4) above)____________A240. . 0 M.6.c
</TABLE>
- --------
(1) Memorandum items 5 and 6 are not applicable to savings banks that must
complete supplemental Schedule RC-J.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 1
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 21
Transit Number: 91000019
</TABLE>
Schedule RC-E - Continued
Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits of : RCFN
____
1. Individuals, partnerships, and corporations______________________________________________________2621. . 354,003 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks)___________________________________2623. . 767,632 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks,
including their IBFs)____________________________________________________________________________2625. . 31,449 3.
4. Foreign governments and official institutions (including foreign central banks)__________________2650. . 0 4.
5. Certified and official checks____________________________________________________________________2330. . 82 5.
6. All other deposits_______________________________________________________________________________2668. . 472 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b)_____________________________2200. . 1,153,638 7.
</TABLE>
Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFN
----
1. Time deposits with a remaining maturity of one year or less (included in Part II,
item 7 above)___________________________________________________________________________________A245. . 1,096,600 M.1
</TABLE>
Schedule RC-F - Other Assets
<TABLE>
<CAPTION>
C430 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
----
1. Income earned, not collected on loans___________________________________________________________2164. . 52,572 1.
2. Net deferred tax assets (1)_____________________________________________________________________2148. . 0 2.
3. Excess residential mortgage servicing fees receivable___________________________________________5371. . 0 3.
4. Other (itemize and describe amounts that exceed 25% of this item)_______________________________2168. . 189,390 4.
TEXT RCFD
---- ----
a. 3549: ____________________________________________ 3549 . . N/A . . . . . . 4.a
b. 3550: ____________________________________________ 3550 . . N/A . . . . . . 4.b
c. 3551: ____________________________________________ 3551 . . N/A . . . . . . 4.c
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11)______________________________2160. . 241,962 5.
</TABLE>
Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
----
1. Deferred tax assets disallowed for regulatory capital purposes__________________________________5610. . 0 M.1
</TABLE>
Schedule RC-G - Other Liabilities
<TABLE>
<CAPTION>
C435 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCON
----
1. a. Interest accrued and unpaid on deposits in domestic offices (2)_____________________________3645. . 29,080 1.a
RCFD
----
1. b. Other expenses accrued and unpaid (includes accrued
income taxes payable)_______________________________________________________________________3646. . 292,093 1.b
2. Net deferred tax liabilities (1)________________________________________________________________3049. . 124,500 2.
3. Minority interest in consolidated subsidiaries__________________________________________________3000. . 1,049 3.
4. Other (itemize and describe amounts that exceed 25% of this item)_______________________________2938. . 20,441 4.
TEXT RCFD
---- ----
a. 3552: Unearned Income
___________________________________________ 3552. . 12,645 . . . . . . 4.a
b. 3553: ___________________________________________ 3553. . N/A . . . . . . 4.b
c. 3554: ___________________________________________ 3554. . N/A . . . . . . 4.c
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20)______________________________2930. . 467,163 5.
_______________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 12
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 22
Transit Number: 91000019
</TABLE>
Schedule RC-H - Selected Balance Sheet Items for Domestic Offices
C440 (-
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic Offices
--------------------
RCON
----
1. Customers' liability to this bank on acceptances outstanding____________________________________2155.. 13,761 1.
2. Bank's liability on acceptances executed and outstanding________________________________________2920.. 13,761 2.
3. Federal funds sold and securities purchased under agreements to resell__________________________1350.. 5,016,516 3.
4. Federal funds purchased and securities sold under agreements to repurchase______________________2800.. 3,362,357 4.
5. Other borrowed money____________________________________________________________________________3190.. 2,369,272 5.
EITHER
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs_____________________2163.. N/A 6.
OR
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs_______________________2941.. 972,744 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and
IBFs)___________________________________________________________________________________________2192.. 16,387,885 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and
IBFs)___________________________________________________________________________________________3129.. 14,279,942 9.
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices.
10. U.S. Treasury securities________________________________________________________________________1779.. 286,976 10.
11. U.S. Government agency and corporation obligations (excludes mortgage-backed securities)________1785.. 11,678 11.
12. Securities issued by states and political subdivisions in the U.S.______________________________1786.. 109,119 12.
13. Mortgage-backed securities (MBS):
a. Pass-through securities:
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA____________________________________________1787.. 520,783 13.a.1
(2) Other pass-through securities___________________________________________________________1869.. 0 13.a.2
b. Other mortgage-backed securities (including CMOs, REMICs, and stripped MBS):
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA____________________________________________1877.. 26,341 13.b.1
(2) Other pass-through securities___________________________________________________________2253.. 108 13.b.2
14. Other domestic debt securities__________________________________________________________________3159.. 2,207 14.
15. Foreign debt securities_________________________________________________________________________3160.. 0 15.
16. Equity securities:
a. Investments in mutual funds_________________________________________________________________3161.. 143 16.a
b. Other equity securities with readily determinable fair values_______________________________3162.. 0 16.b
c. All other equity securities_________________________________________________________________3169.. 291,407 16.c
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16)___________3170.. 1,248,762 17.
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
EITHER
1. Net due from the IBF of the domestic offices of the reporting bank______________________________3051.. N/A M.1
OR
2. Net due to the IBF of the domestic offices of the reporting bank________________________________3059.. 0 M.2
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 13
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 23
Transit Number: 91000019
</TABLE>
Schedule RC-I - Selected Assets and Liabilities of IBFs
To be completed only by banks with IBFs and other "foreign" offices.
<TABLE>
<CAPTION>
C 445 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFN
----
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12)___________________2133.. N/A 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part 1,
item 12, column A)______________________________________________________________________________2076.. N/A 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4,
column A)_______________________________________________________________________________________2077.. N/A 3.
4. Total IBF liabilities (component of Schedule RC, item 21)_______________________________________2898.. N/A 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule
RC-E, part II, items 2 and 3)___________________________________________________________________2379.. N/A 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5,
and 6)__________________________________________________________________________________________2381.. N/A 6.
Schedule RC-K - Quarterly Averages (1)
C455 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS RCFD
----
1. Interest-bearing balances due from depository institutions_______________________________________3381.. 5,998 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2)_______________3382.. 1,001,802 2.
3. Securities issued by states and political subdivisions in the U.S.(2)____________________________3383.. 103,328 3.
4. a. Other debt securities(2)______________________________________________________________________3647.. 17,456 4.a
b. Equity securities (3) (includes investments in mutual funds and Federal Reserve stock)________3648.. 272,439 4.b
5. Federal funds sold and securities purchased under agreements to resell in domestic
offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs______________________3365.. 4,677,186 5.
6. Loans:
a. Loans in domestic offices: RCON
----
(1) Total loans_______________________________________________________________________________3360.. 9,994,223 6.a.1
(2) Loans secured by real estate______________________________________________________________3385.. 4,398,072 6.a.2
(3) Loans to finance agricultural production and other loans to farmers_______________________3386.. 18,110 6.a.3
(4) Commercial and industrial loans___________________________________________________________3387.. 3,607,561 6.a.4
(5) Loans to individuals for household, family, and other personal expenditures_______________3388.. 1,024,361 6.a.5
RCFN
b. Total loans in foreign offices, Edge and Agreement subsidiaries, ----
and IBFs_______________________________________________________________________________________3360.. 130,108 6.b
RCFD
7. Trading ----
assets___________________________________________________________________________________________3401.. 134,219 7.
8. Lease financing receivables (net of unearned income)_____________________________________________3484.. 651,401 8.
9. Total assets(4)__________________________________________________________________________________3468.. 17,547,871 9.
LIABILITIES
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS RCON
accounts, and telephone and preauthorized transfer accounts) (exclude demand ----
deposits)_______________________________________________________________________________________3485.. 1,004,412 10.
11. Nontransaction accounts in domestic offices:
a. Money market deposit accounts (MMDAs)________________________________________________________3486.. 1,697,619 11.a
b. Other savings deposits_______________________________________________________________________3487.. 418,939 11.b
c. Time certificates of deposit of $100,000 or more_____________________________________________3345.. 172,740 11.c
d. All other time deposits______________________________________________________________________3469.. 1,917,949 11.d
RCFN
12. Interest-bearing deposits in foreign offices, Edge and Agreement ----
subsidiaries, and IBFs__________________________________________________________________________3404.. 619,999 12.
RCFD
13. Federal funds purchased and securities sold under agreements to repurchase in ----
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs____________3353.. 4,694,049 13.
14. Other borrowed money____________________________________________________________________________3355.. 2,498,775 14.
</TABLE>
______________
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures
(i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RI - 14
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 24
Transit Number: 91000019
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L - Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts reported
in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk.
C460 ( -
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
----
1. Unused commitments:
a. Revolving, open-end lines secured by 1-4 family residential properties,
e.g., home equity lines_______________________________________________________3814. . 158,989 1.a
b. Credit card lines_____________________________________________________________3815. . 0 1.b
c. Commercial real estate, construction, and land development:
(1) Commitments to fund loans secured by real estate__________________________3816. . 43,972 1.c.1
(2) Commitments to fund loans not secured by real estate______________________6550. . 38 1.c.2
d. Securities underwriting_______________________________________________________3817. . 0 1.d
e. Other unused commitments______________________________________________________3818. . 3,576,381 1.e
2. Financial standby letters of credit and foreign office guarantees________________3819. . 723,895 2.
a. Amount of financial standby letter of credit RCFD
----
conveyed to others________________________________3820. . 286,936 . . . . . . . 2.a
3. Performance standby letters of credit and foreign office guarantees______________3821. . 67,278 3.
a. Amount of performance standby letters of credit RCFD
----
conveyed to others________________________________3822. . 18,113 . . . . . . . 3.a
4. Commercial and similar letters of credit_________________________________________3411. . 404,317 4.
5. Participations in acceptances (as described in the instructions) conveyed to others
by the reporting bank____________________________________________________________3428. . 0 5.
6. Participations in acceptances (as described in the instructions) acquired by the
(nonaccepting) bank______________________________________________________________3429. . 0 6.
7. Securities borrowed______________________________________________________________3432. . 3,027,443 7.
8. Securities lent (including customers' securities lent where the customer is
indemnified against loss by the reporting bank)__________________________________3433. . 207,795 8.
9. Loans transferred (i.e., sold or swapped) with recourse that have been treated
as sold for Call Report purposes:
a. FNMA and FHLMC residential mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the
report date_______________________________________________________________3650. . 25,817 9.a.1
(2) Amount of recourse exposure on these mortgages as of the report date______3651. . 25,817 9.a.2
b. Private (nongoverment-issued or -guaranteed) residential mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the report
date______________________________________________________________________3652. . 0 9.b.1
(2) Amount of recourse exposure on these mortgages as of the report date______3653. . 0 9.b.2
c. Farmer Mac agricultural mortgage loan pools:
(1) Outstanding principal balance of mortgages transferred as of the report
date______________________________________________________________________3654. . 0 9.c.1
(2) Amount of recourse exposure on these mortgages as of the report date______3655. . 0 9.c.2
d. Small business obligations transferred with recourse under Section 208 of the
Riegle Community Development and Regulatory Improvement Act of 1994:
(1) Outstanding principal balance of small business obligations transferred as
of the report date________________________________________________________A249. . 0 9.d.1
(2) Amount of retained recourse on these obligations as of the report date____A250. . 0 9.d.2
10. When-issued securities:
a. Gross commitments to purchase_________________________________________________3434. . 0 10.a
b. Gross commitments to sell_____________________________________________________3435. . 0 10.b
11. Spot foreign exchange contracts__________________________________________________8765. . 320,819 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC,
item 28, "Total equity capital")_________________________________________________3430. . 0 12.
TEXT RCFD
---- ----
a. 3555:______________________________________________3555. . N/A . . . . . . . . . 12.a
b. 3556:______________________________________________3556. . N/A . . . . . . . . . 12.b
c. 3557:______________________________________________3557. . N/A . . . . . . . . . 12.c
d. 3558:______________________________________________3558. . N/A . . . . . . . . . 12.d
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 15
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 25
Transit Number: 91000019
</TABLE>
Schedule RC-L - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives)
(itemize and describe each component of this item over 25% of Schedule RC,
item 28, "Total equity capital")________________________________________________5591. . 0 13.
TEXT RCON
---- ----
a. 5592: _______________________________________________5592. . N/A . . . . . . 13.a
b. 5593: _______________________________________________5593. . N/A . . . . . . 13.b
c. 5594: _______________________________________________5594. . N/A . . . . . . 13.c
d. 5595: _______________________________________________5595. . N/A . . . . . . 13.d
</TABLE>
<TABLE>
<CAPTION>
C461 (-
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Off-balance Sheet Equity Commodity
Derivatives Interest Rate Foreign Exchange Derivative And Other
Position Indicators Contracts Contracts Contracts Contracts
- ------------------------------------------------------ -------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
14. Gross amounts (e.g.,
notional amounts)(for
each column, sum of
items 14.a through 14.e
must equal sum of items
15, 16.a, and 16.b):
a. Futures contracts__ 249,100 1,000 0 0 14.a
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
b. Forward contracts__ 0 358,121 0 0 14.b
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
c. Exchange-traded
option contracts:
(1) Written
options________ 0 0 0 0 14.c1
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
(2) Purchased
options________ 0 0 0 0
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708 14.c2
d. Over-the-counter
option contracts:
(1) Written
options________ 1,017,628 50,131 0 0 14.d1
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
(2) Purchased
options________ 598,342 25,617 0 0 14.d2
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
e. Swaps______________ 4,323,376 55,108 0 0 14.e
RCFD 3450 RCFD 3826 RCFD 8719 RCFD 8720
15. Total gross notional
amount of derivative
contracts held for
trading_______________ 3,315,446 485,758 0 0 15.
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
16. Total gross notional
amount of derivative
contracts held for
purposes other than
trading:
a. Contracts marked
to market__________ 0 4,219 0 0 16.a
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
b. Contracts not
marked to market___ 2,918,000 0 0 0 16.b
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 16
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 26
Transit Number: 91000019
</TABLE>
Schedule RC-L - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Off Balance Sheet Equity Commodity
Derivatives Position Interest Rate Foreign Exchange Derivative And Other
Indicators Contracts Contracts Contracts Contracts
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
X. Gross fair
values of
derivative
contracts:
a. Contracts
held for
trading: RCFD RCFD RCFD RCFD
---- ---- ---- ----
(1) Gross
positive
fair
value___________8733.. 7,124 8734.. 3,826 8735.. 0 8736.. 0 17.a1
(2) Gross
negative
fair
value___________8737.. 6,287 8738.. 4,312 8739.. 0 8740.. 0 17.a2
b. Contracts
held for
purposes
other than
trading that
are marked to
market:
(1) Gross
positive
fair
value___________8741.. 0 8742.. 0 8743.. 0 8744.. 0 17.b1
(2) Gross
negative
fair
value___________8745.. 0 8746.. 0 8747.. 0 8748.. 0 17.b2
c. Contracts
held for
purposes
other than
trading that
are not
marked
to market:
(1) Gross
positive
fair
value___________8749.. 11,495 8750.. 0 8751.. 0 8752.. 0 17.c1
(2) Gross
negative
fair
value___________8753.. 34,370 8754.. 0 8755.. 0 8756.. 0 17.c2
</TABLE>
Memoranda
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
----
1.-2. Not applicable_______________________________________________________________________________ . . . . . . .
3. Unused commitments with an original maturity exceeding one year that are reported
in Schedule RC-L, items 1.a through 1.e above (report only the unused portions of
commitments that are fee paid or otherwise legally binding)_____________________________________3833. . 3,336,356 M.3
RCFD
a. Participations in commitments with an original ----
maturity exceeding one year conveyed to others______3834. . 58,699 . . . . . . . M.3a
4. To be completed only by banks with $1 billion or more in total assets:
Standby letters of credit and foreign office guarantees (both financial and
performance) issued to non-U.S. addressees (domicile) included in Schedule RC-L,
items 2 and 3, above____________________________________________________________________________3377. . 150 M.4
5. Installment loans to individuals for household, family, and other personal
expenditures that have been securitized and sold without recourse (with servicing
retained), amounts outstanding by type of loan:
a. Loans to purchase private passenger automobiles (to be completed for the September
report only)_________________________________________________________________________________2741. . N/A M.5.a
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY)___________________________________2742. . 0 M.5.b
c. All other consumer installment credit (including mobile home loans) (to be completed
for the September report only)_______________________________________________________________2743. . N/A M.5.c
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 17
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 27
Transit Number: 91000019
</TABLE>
Schedule RC - M - Memoranda
<TABLE>
<CAPTION>
C465
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors,
principal shareholders, and their related interests as of the report date:
a. Aggregate amount of all extensions of credit to all executive officers, directors, RCFD
----
principal shareholders, and their related interests_________________________________________6164. . 35,324 1.a
b. Number of executive officers, directors, and principal
shareholders to whom the amount of all extensions of
credit by the reporting bank (including extensions of
credit to related interest) equals or exceeds the
lesser of $500,000 or 5 percent of total capital RCFD Number
---- ------
as defined for this purpose in agency regulations____6165 6 . . . . . 1.b
2. Federal funds sold and securities purchased under agreements to resell with U.S.
branches and agencies of foreign banks (1) (included in Schedule RC,
items 3.a and 3.b)______________________________________________________________________________3405. . 0 2.
3. Not applicable.
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for
others (include both retained servicing and purchased servicing):
a. Mortgages serviced under a GNMA contract____________________________________________________5500. . 0 4.a
b. Mortgage serviced under a FHLMC contract:
(1) Serviced with recourse to servicer______________________________________________________5501. . 0 4.b.1
(2) Serviced without recourse to servicer___________________________________________________5502. . 0 4.b.2
c. Mortgage serviced under a FNMA contract:
(1) Serviced under a regular option contract________________________________________________5503. . 0 4.c.1
(2) Serviced under a special option contract________________________________________________5504. . 0 4.c.2
d. Mortgage serviced under other servicing contracts___________________________________________5505. . 0 4.d
5. To be completed only by banks with $1 billion or more in total assets:
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b
must equal Schedule RC, item 9):
a. U.S. addressees (domicile)__________________________________________________________________2103. . 19,935 5.a
b. Non-U.S. addressees (domicile)______________________________________________________________2104. . 6,559 5.b
6. Intangible assets:
a. Mortgage servicing rights___________________________________________________________________3164. . 0 6.a
b. Other identifiable intangible assets:
(1) Purchased credit card relationships_____________________________________________________5506. . 0 6.b.1
(2) All other identifiable intangible assets________________________________________________5507. . 491 6.b.2
c. Goodwill____________________________________________________________________________________3163. . 12,126 6.c
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10)______________________2143. . 12,617 6.d
e. Amount of intangible assets (included in item 6.b.(2) above) that have been
grandfathered or are otherwise qualifying for regulatory capital purposes___________________6442. . 0 6.e
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to
redeem the debt_________________________________________________________________________________3295. . 0 7.
</TABLE>
______________
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 18
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 28
Transit Number: 91000019
</TABLE>
Schedule RC-M - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RCFD
8. a. Other real estate owned: ----
(1) Direct and indirect investments in real estate ventures_________________________________5372. . 0 8.a.1
RCON
(2) All other real estate owned: ----
(a) Construction and land development in domestic offices_______________________________5508. . 0 8.a.2a
(b) Farmland in domestic offices________________________________________________________5509. . 0 8.a.2b
(c) 1-4 family residential properties in domestic offices_______________________________5510. . 3,327 8.a.2c
(d) Multifamily (5 or more) residential properties in domestic offices__________________5511. . 0 8.a.2d
(e) Nonfarm nonresidential properties in domestic offices_______________________________5512. . 180 8.a.2e
RCFN
(f) In foreign ----
offices_____________________________________________________________________________5513. . 0 8.a.2f
RCFD
(3) Total (sum of items 8.a.(1) and 8.a.(2)) ----
(must equal Schedule RC, item 7)________________________________________________________2150. . 3,507 8.a.3
b. Investments in unconsolidated subsidiaries and associated companies:
(1) Direct and indirect investments in real estate ventures_________________________________5374. . 0 8.b.1
(2) All other investments in unconsolidated subsidiaries and associated companies___________5375. . 0 8.b.2
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8)_______________2130. . 0 8.b.3
c. Total assets of unconsolidated subsidiaries and associate companies_________________________5376. . 0 8.c
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC,
item 23, "Perpetual preferred stock and related surplus"________________________________________3778. . 0 9.
10. Mutual fund and annuity sale in domestic offices during the quarter (include
proprietary, private label, and third party mutual funds):
RCON
----
a. Money market funds__________________________________________________________________________6441. . 3,324,154 10.a
b. Equity securities funds_____________________________________________________________________8427. . 0 10.b
c. Debt securities funds_______________________________________________________________________8428. . 0 10.c
d. Other mutual funds__________________________________________________________________________8429. . 31,178 10.d
e. Annuities___________________________________________________________________________________8430. . 12,612 10.e
f. Sales of proprietary mutual funds and annuities (included in items 10.a through
10.e above)_________________________________________________________________________________8784. . 2,933,010 10.f
</TABLE>
Memorandum
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Interbank holdings of capital instruments (to be completed for the December report only):
RCFD
----
a. Reciprocal holdings of banking organizations' capital instruments_________________3836. . N/A M.1.a
b. Nonreciprocal holdings of banking organizations' capital instruments______________3837. . N/A M.1.b
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 19
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 29
Transit Number: 91000019
</TABLE>
Schedule RC-N - Past Due and Nonaccrual Loans, Leases, and Other Assets
The FFIEC regards the information reported in all of Memorandum item 1, in
items 1 through 10, column A, and in Memorandum items 2 through 4, column A,
as confidential.
<TABLE>
<CAPTION> C470 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
--------(Column A)-------- -------(Column B)------- --(Column C)---
Past due 30 through 89 Past due 90 days or more Nonaccrual
days and still accruing and still accruing
-------------------------- ------------------------ ---------------
RCFD RCFD RCFD
---- ---- ----
1. Loans secured by real estate:
a. To U.S. addressees (domicile)_____________ 1245.. 14,529 1246.. 2,904 1247.. 10,623 1.a
b. To non-U.S. addressees (domicile)_________ 1248.. 0 1249.. 0 1250.. 0 1.b
2. Loans to depository institutions and
acceptances of other banks:
a. To U.S. banks and other U.S.
depository institutions___________________ 5377.. 0 5378.. 0 5379.. 0 2.a
b. To foreign banks__________________________ 5380.. 0 5381.. 0 5382.. 0 2.b
3. Loans to finance agricultural production
and other loans to farmers___________________ 1594.. 0 1597.. 2 1583.. 0 3.
4. Commercial and industrial loans:
a. To U.S. addressees (domicile)_____________ 1251.. 51,906 1252.. 0 1253.. 15,562 4.a
b. To non-U.S. addressees (domicile)_________ 1254.. 0 1255.. 0 1256.. 0 4.b
5. Loans to individuals for household,
family, and other personal expenditures:
a. Credit cards and related plans____________ 5383.. 288 5384.. 895 5385.. 0 5.a
b. Other (includes single payment,
installment, and all student loans)_______ 5386.. 7,182 5387.. 1,193 5388.. 98 5.b
6. Loans to foreign governments and
official institutions________________________ 5389.. 0 5390.. 0 5391.. 0 6.
7. All other loans______________________________ 5459.. 387 5460.. 38 5461.. 7,911 7.
8. Lease financing receivables:
a. Of U.S. addressees (domicile)_____________ 1257.. 0 1258.. 0 1259.. 14,576 8.a
b. Of non-U.S. addressees (domicile)_________ 1271.. 0 1272.. 0 1791.. 0 8.b
9. Debt securities and other assets (exclude
other real estate owned and other
repossessed assets)__________________________ 3505.. 0 3506.. 0 3507.. 0 9.
====================================================================================================================================
</TABLE>
Amounts reported in items 1 through 8 above include guaranteed portions of past
due and nonaccrual loans and leases. Report in item 10 below certain guaranteed
loans and leases that have already been included in the amounts reported in
items 1 through 8.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
10. Loans and leases reported in items 1
through 8 above which are wholly or RCFD RCFD RCFD
partially guaranteed by the U.S. ---- ---- ----
Government___________________________________ 5612.. 683 5613.. 50 5614.. 507 10.
a. Guaranteed portion of loans and leases
included in item 10 above_________________ 5615.. 559 5616.. 48 5617.. 328 10.a
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 20
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 30
</TABLE>
Transit Number: 91000019
Schedule RC-N - Continued
<TABLE>
<CAPTION>
Memoranda C473 (-
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
-------(Column A)-------- --------(Column B)-------- --------(Column C)-------
Past due 30 through 89 Past due 90 days or more Nonaccrual
days and still accruing and still accruing
------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Restructured Loans and Leases included in
Schedule RC-N, items 1 through 8, above RCFD RCFD RCFD
(and not reported in Schedule RC-C, ---- ---- ----
Part I, Memorandum item 2)_______________________1658.. 0 1659.. 0 1661.. 0 M.1
2. Loans to finance commercial real estate,
construction, and land development
activities (not secured by real estate)
included in Schedule RC-N, items 4 and
7, above_________________________________________6558.. 0 6559.. 0 6560.. 0 M.2
3. Loans secured by real estate in domestic
offices (included in Schedule RC-N, item RCON RCON RCON
1, above): ---- ---- ----
a. Construction and land development_____________2759.. 0 2769.. 0 3492.. 145 M.3a
b. Secured by farmland___________________________3493.. 89 3494.. 0 3495.. 0 M.3b
c. Secured by 1-4 family residential
properties:
(1) Revolving, open-end loans secured
by 1-4 family residential properties
and extended under lines of credit________5398.. 0 5399.. 146 5400.. 0 M.3c1
(2) All other loans secured by 1-4
family residential properties_____________5401.. 12,476 5402.. 2,758 5403.. 7,161 M.3c2
d. Secured by multifamily (5 or more)
residential properties________________________3499.. 0 3500.. 0 3501.. 1,168 M.3d
e. Secured by nonfarm nonresidential
properties____________________________________3502.. 1,964 3503.. 0 3504.. 2,149 M.3e
</TABLE>
<TABLE>
<CAPTION>
--------(Column A)-------- --------(Column B)--------
Past due 30 through 89 Past due 90 days or more
days
-------------------------- --------------------------
<S> <C> <C> <C> <C>
4. Interest rate, foreign exchange rate, and
other commodity and equity contracts: RCFD RCFD
a. Book value of amounts carried as ---- ----
assets________________________________________3522.. 0 3528.. 0 M.4.a
e. Replacement cost of contracts with a
positive replacement cost_____________________3529.. 0 3530.. 0 M.4.b
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC- 21
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 31
Transit Number: 91000019
Schedule RC-O - Other Data for Deposit Insurance Assessments
</TABLE>
<TABLE>
<CAPTION>
C475 (-)
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Unposted debits (see instructions): RCON
----
a. Actual amount of all unposted debits____________________________________________0030.. N/A 1.a
OR
b. Separate amount of unposted debits:
(1) Actual amount of unposted debits to demand deposits_________________________0031.. 0 1.b1
(2) Actual amount of unposted debits to time and savings deposits (1)___________0032.. 0 1.b2
2. Unposted credits (see instructions):
a. Actual amount of all unposted credits___________________________________________3510.. N/A 2.a
OR
b. Separate amount of unposted credits:
(1) Actual amount of unposted credits to demand deposits________________________3512.. 0 2.b1
(2) Actual amount of unposted credits to time and savings deposits (1)__________3514.. 0 1.b2
3. Uninvested trust funds (cash) held in bank's own trust department (not included in
total deposits in domestic offices)________________________________________________3520.. 0 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in
Puerto Rico and U.S. territories and possessions (not included in total deposits):
a. Demand deposits of consolidated subsidiaries____________________________________2211.. 17,265 4.a
b. Time and savings deposits (1) of consolidated subsidiaries______________________2351.. 0 4.b
c. Interest accrued and unpaid on deposits of consolidated subsidiaries____________5514.. 0 4.c
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions:
a. Demand deposits in insured branches (included in Schedule RC-E, part II)________2229.. 0 5.a
b. Time and savings deposits (1) in insured branches (included in Schedule RC-E,
part II)________________________________________________________________________2383.. 0 5.a
c. Interest accrued and unpaid on deposits in insured branches (included in
Schedule RC-G, item 1.b)________________________________________________________5515.. 0 5.c
Item 6 is not applicable to state nonmember banks that have not been authorized
by the Federal Reserve to act as pass-through correspondents.
6. Reserve balances actually passed through to the Federal Reserve by the
reporting bank on behalf of its respondent depository institutions that are
also reflected as deposit liabilities of the reporting bank: RCON
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, ----
Memorandum item 4.a)____________________________________________________________2314.. 341 6.a
b. Amount reflected in time and savings deposits (1) (included in Schedule RC-E,
Part I, Memorandum item 4.b)____________________________________________________2315.. 0 6.b
7. Unamortized premiums and discounts on time and savings deposits:(1)
a. Unamortized premiums____________________________________________________________5516.. 59 7.a
b. Unamortized discounts___________________________________________________________5517.. 28,532 7.b
8. To be completed by banks with "Oakar deposits."
Total "Adjusted Attributable Deposits" of all institutions acquired under
Section 5(d)(3) of the Federal Deposit Insurance Act (from most recent FDIC Oakar
Transaction Worksheet(s))__________________________________________________________5518.. 2,403,177 8.
9. Deposits in lifeline accounts______________________________________________________ ......................... 9.
10.Benefit-responsive "Depository Institution Investment Contracts" (included in
total deposits in domestic offices)________________________________________________8432.. 0 10.
___________________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction accounts and all
transaction accounts other than demand deposits.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 22
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 32
Transit Number: 91000019
</TABLE>
Schedule RC-O - Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11. Adjustments to demand deposits reported in Schedule RC-E for certain reciprocal
demand balances:
a. Amount by which demand deposits would be reduced if reciprocal demand balances RCON
between the reporting bank and savings associations were reported on a net basis ----
rather than a gross basis in Schedule RC-E__________________________________________________8785 0 11.a
b. Amount by which demand deposits would be increased if reciprocal demand balances
between the reporting bank and U.S. branches and agencies of foreign banks were
reported on a gross basis rather than a net basis in Schedule RC-E__________________________A181 0 11.b
c. Amount by which demand deposits would be reduced if cash items in process of
collection were included in the calculation of net reciprocal demand balances
between the reporting bank and the domestic offices of U.S. banks and savings
associations in Schedule RC-E_______________________________________________________________A182 0 11.c
</TABLE>
Memoranda
<TABLE>
<CAPTION>
(to be completed each quarter except as noted) Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Total deposits in domestic offices of the bank
(sum of Memorandum items 1.a.(1) and 1.b.(1) must equal Schedule RC, item 13.a):
a. Deposit accounts of $100,000 or less___________________________________________RCON
----
(1) Amount of deposit accounts of $100,000 or less_____________________________2702. . 4,942,185 M.1a1
(2) Number of deposit accounts of $100,000 or less RCON Number
---- ------
(to be completed for the June report only)______3779. . N/A . . . . . M.1a2
b. Deposit accounts of more than $100,000:
(1) Amount of deposit accounts of more than $100,000___________________________2710. . 2,746,863 M.1b1
(2) Number of deposit accounts of more than RCON Number
---- ------
$100,000________________________________________2722. . 5,998 . . . . . M.1b2
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by
multiplying the number of deposit accounts of more than $100,000 reported
in Memorandum item 1.b.(2) above by $100,000 and subtracting the result
from the amount of deposit accounts of more than $100,000 reported in
Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a RCON YES NO
method or procedure for determining a better estimate of uninsured ----
deposits than the estimate described above_____________________________________6861. . X M.2.a
b. If the box marked YES has been checked, report the estimate of uninsured
deposits determined by using your bank's method or procedure___________________5597. . N/A M.2.b
C477
- ------------------------------------------------------------------------------------------------------------------------------------
Person to whom questions about the Reports of Condition and Income should be
directed:
</TABLE> 612 667 9895
Chris Hupp, SUPERVISOR REG REPORTING
- --------------------------------------------------------------------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
<PAGE>
<TABLE>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 23
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 33
Transit Number: 91000019
</TABLE>
SCHEDULE RC-R - REGULATORY CAPITAL
<TABLE>
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC, item
12, for June 30, 1995, must complete items 2 through 9 and memoranda items 1 and 2. Banks with assets of less than $1 billion must
complete items 1 through 3 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
1. Test for determining the extent to which Schedule RC-R must be completed. To C480
be completed only by banks with total assets of less than $1 billion. RCFD YES No
Indicate in the appropriate box at the right whether the bank has total ---- --- --
capital greater than or equal to eight percent of adjusted total assets________6056 N/A N/A 1.
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government agency
obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan and lease losses
and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 and 3 below. If the box marked No
has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Subordinated Debt (1) and
Items 2 and 3 are to be completed by all banks. Intermediated Term Other Limited-Life
Preferred Stock Capital Instruments
------------------------- -------------------
<S> <C> <C>
2. Subordinated debt (1) and other Limited-Life capital
instruments (original weighted average maturity of at
least five years) with a remaining maturity of: RCFD RCFD
---- ----
a. One year or less______________________________________3780. . 1,508 3786. . 0 2.a
b. Over one year through two years_______________________3781. . 8 3787. . 0 2.b
c. Over two years through three years____________________3782. . 8 3788. . 0 2.c
d. Over three years through four years___________________3783. . 8 3789. . 0 2.d
e. Over four years through five years____________________3784. . 8 3790. . 0 2.e
f. Over five years_______________________________________3785. . 160,155 3791. . 0 2.f
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3. Amounts used in calculating regulatory capital ratios
(report amounts determined by the bank for its own
internal regulatory capital analyses): RCFD
----
a. Tier 1 capital________________________________________8274. . 1,114,626 3.a
b. Tier 2 capital________________________________________8275. . 301,688 3.b
c. Total rick-based capital______________________________3792. . 1,416,314 3.c
d. Excess allowance for loan and lease losses____________A222. . 45,590 3.d
e. Risk-weighted assets__________________________________A223. . 11,275,633 3.e
f. "Average total assets"________________________________A224. . 17,534,721 3.f
Items 4-9 and Memoranda items 1 and 2 are to be completed
by banks that answered NO to item 1 above and by banks
with total assets of $1 billion or more.
</TABLE>
<TABLE>
<CAPTION>
(Column A) (Column B)
Assets Recorded on the Credit Equivalent Amount
Balance Sheet of Off-Balance Sheet Items(2)
---------------------- -----------------------------
<S> <C> <C>
4. Assets and credit equivalent amounts of off-balance
sheet items assigned to the Zero percent risk category:
a. Assets recorded on the balance sheet:
(1) Securities issued by, other claims on, and
claims unconditionally guaranteed by, the U.S.
Government and its agencies and other DECD RCFD RCFD
central governments______________________________ ---- ----
3794. . 556,001 . . . . . . . 4.a.1
(2) All other__________________________________________3795. . 182,772 . . . . . . . 4.a.2
b. Credit equivalent amount of off-balance sheet items____ . . . . . 3796. . 0 4.b
_____________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount assets reported in column A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Norwest Bank Minnesota, N.A. Call Date: 03/31/96 ST-BK: 27-4095 FFIEC 031
Sixth Street and Marquette Avenue Page RC - 24
Minneapolis, MN 55479 Vendor ID: D CERT: 05208 34
Transit Number: 91000019
SCHEDULE RC-R - Continued
</TABLE>
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------------------
(Column A) (Column B)
Assets Recorded on the Credit Equivalent Amount
Balance Sheet of Off-Balance Sheet Items (1)
---------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 20 percent risk category:
a. Assets recorded on the balance sheet:
(1) Claims conditionally guaranteed by the U.S. Government RCFD RCFD
and its agencies and other OECD central governments______________3798.. 769,044 ............ 5.a.1
(2) Claims collateralized by securities issued by the U.S.
Government and its agencies and other OECD central governments;
by securities issued by U.S. Government-sponsored agencies;
and by cash on deposit___________________________________________3799.. 0 ............ 5.a.2
(3) All other________________________________________________________3800.. 6,597,084 ............ 5.a.3
b. Credit equivalent amount of off-balance sheet items__________________ ............ 3801.. 570,283 5.b
6. Assets and credit equivalent amounts of off-balance sheet items
assigned to the 50 percent risk category:
a. Assets recorded on the balance sheet_________________________________3802.. 2,024,083 ............ 6.a
b. Credit equivalent amount of off-balance sheet items__________________ ............ 3803.. 125,737 6.b
7. Assets and credit equivalent amounts of off-balance sheet items assigned
to the 100 percent risk category:
a. Assets recorded on the balance sheet_________________________________3804.. 6,583,563 ............ 7.a
b. Credit equivalent amount of off-balance sheet items__________________ ............ 3805.. 2,088,083 7.b
8. On-balance sheet assets values excluded from the calculation of
the risk-based capital ratio(2)_________________________________________3806.. 21,955 ............ 8.
9. Total assets recorded on the balance sheet (sum of items 4.a, 5.a, 6.a,
7.a, and 8, column A) (must equal Schedule RC, item 12 plus items 4.b
and 4.c)________________________________________________________________3807.. 16,734,502 ............ 9.
Memoranda Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------------
1. Current credit exposure across all off-balance sheet derivative RCFD
contracts covered by the risk-based capital standards___________________8764.. 22,275 M.1.
---------------------------------With a remaining maturity of---------------------------------
(Column A) (Column B) (Column C)
Over one year
One year or less through five years Over five years
----------------------------- ---------------------------- -----------------------------
2. Notional principal amounts
of off-balance sheet
derivative contracts:(3) RCFD RCFD RCFD
a. Interest rate contracts_____3809.. 2,190,447 8766.. 1,451,188 8767.. 570,083 M.2a
b. Foreign exchange
contracts___________________3812.. 395,100 8769.. 36,627 8770.. N/A M.2b
c. Gold contracts______________8771.. N/A 8772.. N/A 8773.. N/A M.2c
d. Other precious metals
contracts___________________8774.. N/A 8775.. N/A 8776.. N/A M.2d
e. Other commodity contracts___8777.. N/A 8778.. N/A 8779.. N/A M.2e
f. Equity derivative contracts_A000.. N/A A001.. N/A A002.. N/A M.2f
</TABLE>
________________
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of
available-for-sale securities in item 8 and report the amortized cost of
these securities in items 4 through 7 above. Item 8 also includes on-balance
sheet asset values (or portions thereof) of off-balance sheet interest rate,
foreign exchange rate, and commodity contracts and those contracts (e.g.
future contracts) not subject to risk-based capital. Exclude from item 8
margin accounts and accrued receivables as well as any portion of the
allowance for loan and lease losses in excess of the amounts that may be
included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Tender for Exchange
13 1/2% Series A Senior Zero-Coupon Notes due 2004
of
COBBLESTONE HOLDINGS, INC.
Pursuant to the Prospectus dated , 1996
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1996 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY HOLDINGS IN ITS SOLE DISCRETION, IN WHICH
CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO
WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent is:
Norwest Bank Minnesota, National Association
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Ser.
Minneapolis, MN 55480-1517 Minneapolis, MN
By Hand or Overnight Courier: By Facsimile (for Eligible
Institutions only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated , 1996 (the
"Prospectus"), of Cobblestone Holdings, Inc., a Delaware corporation
("Holdings"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together with the Prospectus constitutes Holdings' offer (the "Exchange
Offer") to exchange $1,000 principal amount of its 13 1/2% Series B Senior
Zero-Coupon Notes due 2004 (the "Exchange Notes") for each $1,000 principal
amount of its outstanding 13 1/2% Series A Senior Zero-Coupon Notes due 2004
(the "Private Notes"). Recipients of the Prospectus should read the
requirements described in such Prospectus with respect to eligibility to
participate in the Exchange Offer. Capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered owner of all the Private Notes and the
undersigned represents that it has received from each beneficial owner of
Private Notes ("Beneficial Owners") a duly completed and executed form of
"Instruction to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Private Notes (i) if
certificates representing Private Notes are to be forwarded herewith, (ii) if
delivery of Private Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Procedures for Tendering," or (iii) if a tender is made pursuant to the
guaranteed delivery procedures in the section of the Prospectus entitled "The
Exchange Offer--Guaranteed Delivery Procedures."
The undersigned hereby represents and warrants that the information received
from the beneficial owners is accurately reflected in the boxes entitled
"Beneficial Owner(s)--Purchaser Status" and "Beneficial Owner(s)--Residence."
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Private Notes promptly and
instruct such registered holder of Private Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder of Private Notes. The transfer of record ownership may take
considerable time.
In order to properly complete this Letter of Transmittal, a holder of
Private Notes must (i) complete the box entitled "Description of Private
Notes," (ii) complete the boxes entitled "Beneficial Owner(s)--Purchaser
Status" and "Beneficial Owner(s)--Residence", (iii) if appropriate, check and
complete the boxes relating to book-entry transfer, guaranteed delivery,
Special Issuance Instructions and Special Delivery Instructions, (iv) sign the
Letter of Transmittal by completing the box entitled "Sign Here" and (v)
complete the Substitute Form W-9. Each holder of Private Notes should
carefully read the detailed instructions below prior to completing the Letter
of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for exchange
must complete columns (1) through (3) in the box below entitled "Description
of Private Notes," complete the boxes entitled and sign the box below entitled
"Sign Here." If only those columns are completed, such holder of Private Notes
will have tendered for exchange all Private Notes listed in column (3) below.
If the holder of Private Notes wishes to tender for exchange less than all of
such Private Notes, column (4) must be completed in full. In such case, such
holder of Private Notes should refer to Instruction 5.
<PAGE>
DESCRIPTION OF PRIVATE NOTES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(1) (2) (3) (4)
PRINCIPAL
PRIVATE AMOUNT
NOTE AGGREGATE TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED NUMBER(S) PRINCIPAL FOR EXCHANGE
HOLDER(S) OF PRIVATE NOTE(S), EXACTLY AS (ATTACH AMOUNT (MUST BE IN
NAME(S) SIGNED REPRESENTED INTEGRAL
APPEAR(S) ON PRIVATE NOTE CERTIFICATE(S) LIST IF BY MULTIPLES OF
(PLEASE FILL IN, IF BLANK) NECESSARY) CERTIFICATE(S)/1/ $1,000)/2/
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
1. Unless indicated in the column "Principal Amount Tendered For Exchange," any
tendering Holder of 13 1/2% Series A Senior Zero-Coupon Notes due 2004 will
be deemed to have tendered the entire aggregate principal amount represented
by the column labelled "Aggregate Principal Amount Represented by
Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 13 1/2% Series
A Senior Zero-Coupon Notes due 2004. All other tenders must be in integral
multiples of $1,000.
<PAGE>
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s): ______________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
Account Number (if delivered by book-entry transfer): ______________________
[_] 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: ___________________________________________________________________
___________________________________________________________________
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if
the Exchange Notes issued in
exchange for Private Notes,
certificates for Private Notes
in a principal amount not
exchanged for Exchange Notes, or
Private Notes (if any) not
tendered for exchange, are to be
issued in the name of someone
other than the undersigned or
(ii) if Private Notes tendered
by book-entry transfer which are
not exchanged are to be returned
by credit to an account
maintained at DTC.
Issue to:
Name ____________________________
(Please Print)
Address _________________________
_________________________________
_________________________________
(Include Zip Code)
_________________________________
(Tax Identification or Social
Security No.)
Credit Private Notes not
exchanged and delivered by book-
entry transfer to DTC account
set forth below:
_________________________________
(Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 8)
To be completed ONLY if the
Exchange Notes issued in
exchange for Private Notes,
certificates for Private Notes
in a principal amount not
exchanged for Exchange Notes, or
Private Notes (if any) not
tendered for exchange, are to be
mailed or delivered (i) to
someone other than the
undersigned or (ii) to the
undersigned at an address other
than the address shown below the
undersigned's signature.
Mail or delivered to:
Name ____________________________
(Please Print)
Address _________________________
_________________________________
_________________________________
(Include Zip Code)
_________________________________
(Tax Identification or Social
Security No.)
<PAGE>
BENEFICIAL OWNER(S)--RESIDENCE
<TABLE>
- ----------------------------------------------------------------------------------------
<S> <C>
STATE OF DOMICILE/PRINCIPAL PLACE OF BUSINESS
OF PRINCIPAL AMOUNT OF PRIVATE NOTES
EACH BENEFICIAL OWNER OF PRIVATE NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER(S)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
BENEFICIAL OWNER(S)--PURCHASER STATUS
The beneficial owner of each of the Private Notes described herein is
(check the box that applies):
[_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in
accordance with Rule 904 of the Securities Act
[_] Other (describe)
-------------------------------------------------------
------------------------------------------------------------------------
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Pursuant to the offer by Cobblestone Holdings, Inc., a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1996 (the "Prospectus") and this Letter of Transmittal
(the "Letter of Transmittal"), which together with the Prospectus constitutes
the Holdings' offer (the "Exchange Offer") to exchange $1,000 principal amount
of its 13 1/2% Series B Senior Zero-Coupon Notes due 2004 (the "Exchange
Notes") for each $1,000 principal amount of its outstanding 13 1/2% Series A
Senior Zero-Coupon Notes due 2004 (the "Private Notes"), the undersigned
hereby tenders to Holdings for exchange the Private Notes indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Private Notes tendered for exchange herewith,
the undersigned will have irrevocably sold, assigned, transferred and
exchanged, to Holdings, all right, title and interest in, to and under all of
the Private Notes tendered for exchange hereby, and hereby will have appointed
the Exchange Agent as the true and lawful agent and attorney-in-fact (with
full knowledge that the Exchange Agent also acts as agent of Holdings) of such
holder of Private Notes with respect to such Private Notes, with full power of
substitution to (i) deliver certificates representing such Private Notes, or
transfer ownership of such Private Notes on the account books maintained by
DTC (together, in any such case, with all accompanying evidences of transfer
and authenticity), to Holdings, (ii) present and deliver such Private Notes
for transfer on the books of Holdings and (iii) receive all benefits and
otherwise exercise all rights and incidents of beneficial ownership with
respect to such Private Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be
deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned is
the owner; (ii) has a net long position within the meaning of Rule 14e-4 under
the Securities Exchange Act as amended ("Rule 14e-4") equal to or greater than
the principal amount of Private Notes tendered hereby; (iii) the tender of
such Private Notes complies with Rule 14e-4 (to the extent that Rule 14e-4 is
applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Private Notes and (v)
that when such Private Notes are accepted for exchange by Holdings, Holdings
will acquire good and marketable title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon receipt, execute and deliver any additional
documents deemed by the Exchange Agent or Holdings to be necessary or
desirable to complete the exchange, assignment and transfer of the Private
Notes tendered for exchange hereby.
By tendering, the undersigned hereby further represents to Holdings that (i)
the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any beneficial owner(s) of such Private
Notes in connection with the Exchange Offer will be acquired by the
undersigned and such beneficial owner(s) in the ordinary course of business of
the undersigned, (ii) the undersigned have no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes,
(iii) the undersigned and each beneficial owner acknowledge and agree that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) the undersigned and each beneficial owner understand that a
secondary resale transaction described in clause (iii) above and any resales
of Exchange Notes obtained by the undersigned in exchange for the Private
Notes acquired by the undersigned directly from Holdings should be covered by
an effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (vi) neither the undersigned nor any beneficial owner is
an "affiliate," as defined under Rule 405 under the Securities Act, of
Holdings. If the undersigned is a broker-dealer that will receive
<PAGE>
Exchange Notes for its own account in exchange for Private Notes that were
acquired as a result of market-making activities or other trading activities,
it acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act 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.
For purposes of the Exchange Offer, Holdings will be deemed to have accepted
for exchange, and to have exchanged, validly tendered Private Notes, if, as
and when Holdings gives oral or written notice thereof to the Exchange Agent.
Tenders of Private Notes for exchange may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders" in the Prospectus. Any Private Notes tendered by
the undersigned and not accepted for exchange will be returned to the
undersigned at the address set forth above unless otherwise indicated in the
box above entitled "Special Delivery Instructions" as promptly as practicable
after the Expiration Date.
The undersigned acknowledges that Holdings' acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described
in the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the
undersigned and Holdings upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that Holdings has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Private Notes from the name of the holder of Private Note(s)
thereof if Holdings does not accept for exchange any of the Private Notes so
tendered for exchange or if such transfer would not be in compliance with any
transfer restrictions applicable to such Private Note(s).
IN ORDER TO VALIDLY TENDER PRIVATE NOTES FOR EXCHANGE, HOLDERS OF PRIVATE
NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or agreed
to be conferred shall survive the death, incapacity, or dissolution of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Private Notes is irrevocable.
<PAGE>
SIGN HERE
- --------------------------------------------------------------------------------
(Signature(s) of Owner(s))
Date: , 1996
Must be signed by the registered holder(s) of Private Notes exactly as
name(s) appear(s) on certificate(s) representing the Private Notes or on a
security position listing or by person(s) authorized to become registered
Private Note holder(s) by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, please provide the following information. (See
Instruction 6).
Name(s): _______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title): _________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Principal place of business (if different from address listed above): __________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.: ( ) _____________________________________________
Tax Identification or Social Security Nos.: ____________________________________
Please complete Substitute Form W-9
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by Instruction 1)
Authorized Signature: __________________________________________________________
Dated: _________________________________________________________________________
Name and Title: ________________________________________________________________
(Please Print)
Name of Firm: __________________________________________________________________
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the Unites States, or (3)
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under
the Securities Exchange Act of 1934 which is a member of one of the following
recognized Signature Guarantee Programs (an "Eligible Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Private
Notes tendered herewith and such registered holder(s) have not completed the
box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (ii) if such Private
Notes are tendered for the account of an Eligible Institution. IN ALL OTHER
CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders
of Private Notes (i) if certificates are to be forwarded herewith or (ii) if
tenders are to be made pursuant to the procedures for tender by book-entry
transfer or guaranteed delivery set forth in the section of the Prospectus
entitled "The Exchange Offer." Certificates for all physically tendered
Private Notes or any timely confirmation of a book-entry transfer (a "Book-
Entry Confirmation"), as well as a properly completed and duly executed copy
of this Letter of Transmittal or facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth on the cover of this Letter of Transmittal prior to
5:00 p.m., New York City time, on the Expiration Date. Holders of Private
Notes who elect to tender Private Notes and (i) whose Private Notes are not
immediately available or (ii) who cannot deliver the Private Notes, this
Letter of Transmittal or other required documents to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date, must tender their
Private Notes according to the guaranteed delivery procedures set forth in the
Prospectus. Holders may have such tender effected if: (a) such tender is made
through an Eligible Institution; (b) prior to 5:00 p.m., New York City time,
on the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Private
Notes, the certificate numbers(s) of such Private Notes and the principal
amount of Private Notes tendered for exchange, stating that tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, this Letter of Transmittal (or a
facsimile thereof), together with the certificate(s) representing such Private
Notes (or a Book-Entry Confirmation), in proper form for transfer, and any
other documents required by this Letter of Transmittal, will be deposited by
such Eligible Institution with the Exchange Agent; and (c) a properly executed
Letter of Transmittal (or a facsimile hereof), as well as the certificate(s)
for all tendered Private Notes in proper form for transfer or a Book-Entry
Confirmation, together with any other documents required by this Letter of
Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF PRIVATE NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NEITHER THIS LETTER OF TRANSMITTAL NOR ANY PRIVATE NOTES SHOULD BE SENT TO
HOLDINGS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Private Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Private Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled "Description
of Private Notes" above is inadequate, the certificate numbers and principal
amounts of the Private Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Private Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a
notice of withdrawal of Private Notes must (i) specify the name of the person
who tendered the Private Notes to be withdrawn (the "Depositor"), (ii)
identify the Private Notes to be withdrawn (including the certificate number
or numbers and aggregate principal amount of such Private Notes), and (iii) be
signed by the holder of Private Notes in the same manner as the original
signature on the Letter of Transmittal by which such Private Notes were
tendered (including any required signature guarantees). All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by Holdings in its sole discretion, whose determination
shall be final and binding on all parties. Any Private Notes so withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Private
Notes so withdrawn are validly retendered. Properly withdrawn Private Notes
may be retendered by following one of the procedures described in the section
of the Prospectus entitled "The Exchange Offer--Procedures for Tendering" at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to
be made with respect to less than the entire principal amount of any Private
Notes, fill in the principal amount of Private Notes which are tendered for
exchange in column (4) of the box entitled "Description of Private Notes," as
more fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of
the principal amount of the Private Notes, will be sent to the holders of
Private Notes unless otherwise indicated in the appropriate box on this Letter
of Transmittal as promptly as practicable after the expiration or termination
of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND ENDORSEMENTS.
(a) The signature(s) of the holder of Private Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Private Notes without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal and any necessary or
required documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Private
Notes listed and transmitted hereby, no endorsements of Private Notes or bond
powers are required. If, however, Private Notes not tendered or not accepted,
are to be issued or returned in the name of a person other than the holder of
Private Notes, then the Private Notes transmitted hereby must be endorsed or
accompanied by a properly completed bond power, in a form satisfactory to
Holdings, in either case signed exactly as the name(s) of the holder of
Private Notes appear(s) on the Private Notes. Signatures on such Private Notes
or bond powers must be guaranteed by an Eligible Institution (unless signed by
an Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by Holdings,
evidence satisfactory to Holdings of their authority to so act must be
submitted with this Letter of Transmittal.
<PAGE>
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Private Notes listed, the Private Notes must be endorsed
or accompanied by a properly completed bond power, in either case signed by
such registered holder exactly as the name(s) of the registered holder of
Private Notes appear(s) on the certificates. Signatures on such Private Notes
or bond powers must be guaranteed by an Eligible Institution (unless signed by
an Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, Holdings will
pay all transfer taxes, if any, applicable to the exchange of Private Notes
pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the Private 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 exemptions
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued
or sent to someone other than the holder of Private Notes or to an address
other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Holders of Private Notes tendering Private
Notes by book-entry transfer may request that Private Notes not accepted be
credited to such account maintained at DTC as such holder of Private Notes may
designate.
9. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by Holdings in its
sole discretion, which determination will be final and binding. Holdings
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes Holdings' acceptance of which would, in the
opinion of counsel for Holdings, be unlawful. Holdings also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
Private Notes. Holdings' interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Private Notes must be cured
within such time as Holdings shall determine. Although Holdings intends to
notify holders of defects or irregularities with respect to tenders of Private
Notes, neither Holdings, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Private Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Private Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have
not been cured or waived will be returned by the Exchange Agent to the
tendering holders, unless otherwise provided in this Letter of Transmittal, as
soon as practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. Holdings reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer--Conditions" in the Prospectus in the case of any Private Notes
tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any tendering Holder
whose Private Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address listed below for further
instructions:
Norwest Bank Minnesota,
National Association
Corporate Trust Operations
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113
(612) 667-9764
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<PAGE>
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Private Notes whose
tendered Private Notes are accepted for exchange may be subject to backup
withholding unless the holder provides Holdings (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Private
Notes is awaiting a TIN) and that (A) the holder of Private Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or
(B) the Internal Revenue Service has notified the holder of Private Notes that
he or she is no longer subject to backup withholding; or (ii) an adequate
basis for exemption from backup withholding. If such holder of Private Notes
is an individual, the TIN is such holder's social security number. If the
Exchange Agent is not provided with the correct taxpayer identification
number, the holder of Private Notes may be subject to certain penalties
imposed by the Internal Revenue Service.
Certain holders of Private Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and reporting requirements. Exempt holders of Private Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify
as an exempt recipient by submitting to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for
additional instructions.
If backup withholding applies, Holdings is required to withhold 31% of any
payment made to the holder of Private Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
The holder of Private Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Private Notes. If the Private Notes are held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for additional guidance regarding which number to report.
<PAGE>
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
13 1/2% SERIES A SENIOR ZERO-COUPON NOTES DUE 2004
OF COBBLESTONE HOLDINGS, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1996 (the "Prospectus") of Cobblestone Holdings, Inc., a Delaware corporation
("Holdings"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute Holdings' offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 13 1/2% Series A
Senior Zero-Coupon Notes due 2004 (the "Private Notes") held by you for the
account of the undersigned.
The aggregate face amount of the Private Notes held by you for the account
of the undersigned is (fill in amount):
$ of the Private Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Private Notes held by you for the account of the
undersigned (insert principal amount of Private Notes to be tendered, if any):
$ of the Private Notes.
[_] NOT to TENDER any Private Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Private Notes held by you for
the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner of the Private Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state) , (ii) the undersigned is acquiring the Exchange Notes
in the ordinary course of business of the undersigned, (iii) the undersigned
has no arrangement or understanding with any person to participate in the
distribution of Exchange Notes, (iv) the undersigned acknowledges that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended, in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the Staff of the Securities and Exchange
Commission set forth in certain no-action letters (See the section of the
Prospectus entitled "The Exchange Offer--Resale of the Exchange Notes"), (v)
the undersigned understands that a secondary resale transaction described in
clause (iv) above and any resales of Exchange Notes obtained by the
undersigned in exchange for the Private Notes acquired by the undersigned
directly from Holdings should be covered by an effective registration
statement containing the selling securityholder information required by Item
507 or Item 508, if applicable, of Regulation S-K of the Commission, (vi) the
undersigned is not an "affiliate," as defined in Rule 405 under the Securities
Act, of Holdings, and (vii) if the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Private Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act 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; (b) to agree, on behalf of the undersigned,
as set forth in the Letter of Transmittal; and (c) to take such other action
as necessary under the Prospectus or the Letter of Transmittal to effect the
valid tender of Private Notes.
<PAGE>
The purchaser status of the undersigned is (check the box that applies):
[_] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[_] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[_] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Private Notes outside the United States in accordance
with Rule 904 of the Securities Act
[_] Other (describe)
----------------------------------------------------------
- -------------------------------------------------------------------------------
SIGN HERE
Name of Beneficial Owner(s):
---------------------------------------------------
- -------------------------------------------------------------------------------
Signature(s):
------------------------------------------------------------------
- -------------------------------------------------------------------------------
Name(s) (please print):
--------------------------------------------------------
- -------------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Principal place of business (if different from address listed above):
----------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone Number(s):
-----------------------------------------------------------
- -------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number(s):
--------------------------
- -------------------------------------------------------------------------------
Date:
--------------------------------------------------------------------------
<PAGE>
PAYER'S NAME:
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND ------------------------
SUBSTITUTE CERTIFY BY SIGNING AND
DATING BELOW Social Security Number
FORM W-9
DEPARTMENT OF
THE TREASURY OR
INTERNAL REVENUE
SERVICE
------------------------
PAYER'S REQUEST Employer Identification
FOR TAXPAYER Number
IDENTIFICATION --------------------------------------------------------
NUMBER (TIN) PART 2--Certification Under Penalties PART 3 --
of Perjury, I certify that:
(1) The number shown on this form is Awaiting TIN [_]
my current taxpayer
identification number (or I am
waiting for a number to be issued
to me) and
(2) I am not subject to backup
withholding either because I have
not been notified by the Internal
Revenue Service (the "IRS") that
I am subject to backup
withholding as a result of a
failure to report all interest or
dividends, or the IRS has
notified me that I am no longer
subject to backup withholding.
--------------------------------------------------------
Certificate instructions--You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding be-
cause of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you are subject to backup withholding
you receive another notification from the IRS stat-
ing that you are no longer subject to backup with-
holding, do not cross out item (2).
SIGNATURE __________________________ DATE _____________
NAME ___________________________________________________
ADDRESS ________________________________________________
CITY ___________________ STATE _______ ZIP CODE _______
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
PAYOR'S NAME: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver such an
application in the near future. I understand that if I do not provide a
taxpayer identification number with sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide such a
number.
---------------------------------------------------------- ------------
Signature Date
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
13 1/2% SERIES A SENIOR ZERO-COUPON NOTES DUE 2004
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY
HOLDER OF 13 1/2% SERIES A SENIOR ZERO-COUPON NOTES DUE 2004 (THE "PRIVATE
NOTES") OF COBBLESTONE HOLDINGS, INC., A DELAWARE CORPORATION (THE
"COMPANY"), WHO WISHES TO TENDER PRIVATE NOTES PURSUANT TO HOLDINGS'
EXCHANGE OFFER, AS DEFINED IN THE PROSPECTUS DATED , 1996 (THE
"PROSPECTUS") AND (i) WHOSE PRIVATE NOTES ARE NOT IMMEDIATELY AVAILABLE OR
(ii) WHO CANNOT DELIVER SUCH PRIVATE NOTES OR ANY OTHER DOCUMENTS REQUIRED
BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE (AS DEFINED
IN THE PROSPECTUS) OR (iii) WHO CANNOT COMPLY WITH THE BOOK-ENTRY TRANSFER
PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE
EXCHANGE OFFER--GUARANTEED DELIVERY PROCEDURES" IN THE PROSPECTUS.
COBBLESTONE HOLDINGS, INC.
NOTICE OF GUARANTEED DELIVERY
To: Norwest Bank Minnesota, National Association, the Exchange Agent
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Ser.
Minneapolis, MN 55480-1517 Minneapolis, MN
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions
only):
Norwest Bank Minnesota, (612) 667-4927
National Association
Corporate Trust Operations Confirm Receipt of Notice of
Norwest Center Guaranteed Delivery by Telephone:
Sixth and Marquette
Minneapolis, MN 55479-0113 (612) 667-9764
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Holdings upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Private Notes
specified below pursuant to the guaranteed delivery procedures set forth under
the caption "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus. By so tendering, the undersigned does hereby make, at and as of
the date hereof, the representations and warranties of a tendering Holder of
Private Notes set forth in the Letter or Transmittal. The undersigned hereby
tenders the Private Notes listed below:
<TABLE>
<S> <C>
CERTIFICATE NUMBERS PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
If Private Notes will be tendered SIGN HERE
by book-entry transfer:
-------------------------------------
Signature(s)
Name of Tendering Institution:
-------------------------------------
- -------------------------------------
-------------------------------------
Name(s) (Please Print)
The Depository Trust Company
Account No.:
-------------------------
-------------------------------------
-------------------------------------
Address
-------------------------------------
Zip Code
-------------------------------------
Area Code and Telephone No.
Date:
--------------------------------
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee Medallion
Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Private Notes tendered
hereby in proper form for transfer, or confirmation of the book-entry transfer
of such Private Notes into the Exchange Agent's account at the Depository
Trust Company, pursuant to the procedure for book-entry transfer set forth in
the Prospectus, and any other required documents, all by 5:00 p.m., New York
City time, on the fifth New York Stock Exchange trading day following the
Expiration Date (as defined in the Prospectus).
SIGN HERE
-------------------------------------
Name of Firm
-------------------------------------
Authorized Signature
-------------------------------------
Name (Please print)
-------------------------------------
-------------------------------------
Address
-------------------------------------
Zip Code
-------------------------------------
Area Code and Telephone No.
Date:
--------------------------------
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL SURRENDER OF
CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at one of its addresses set forth on the cover hereof prior
to the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service, properly insured. If such delivery is by
mail, it is recommended that the Holder use properly insured, registered mail
with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should
be sent to Holdings.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF SIGNATURES.
If this Notice of Guaranteed Delivery is signed by the registered Holder(s) of
the Private Notes referred to herein, then the signature must correspond with
the name(s) as written on the face of the Private Notes without alteration,
enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Private Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered Holder(s) appear(s) on the face of the Private Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by Holdings, evidence satisfactory
to Holdings of their authority so to act must be submitted with this Notice of
Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- -----------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- -----------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one of
the individuals(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust The actual
account that is owner(1)
not a legal or valid
trust under State law
5. Sole proprietorship The owner(3)
account
==================================================
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF --
- --------------------------------------------------
6. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative or
trustee unless
the legal entity
itself is not
designated in the
account title.)(4)
7. Corporate The corporation
8. Religious, charitable, The organization
or educational
organization account
9. Partnership The partnership
10. Association, club, or The organization
other tax-exempt
organization
11. A broker or registered The broker or
nominee nominee
12. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State
or local government,
school district, or
prison) that receives
agricultural program
payments
===================================================
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show individual name, but may also enter the business or "doing business
as" name. Use either individual's social security number or employer
identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under Section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A state, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under Section 584(a).
. A trust exempt from tax under Section 664 or described in Section 4947.
. An entity registered at all times during the tax year under the
Investment Company Act of 1940.
. A foreign central bank of issue.
. A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
. A futures commission merchant registered with the Commodity Futures
Trading Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under Section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends
under Section 852).
. Payments described in Section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under Section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid by you.
Exempt payees described above should file Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE SUBSTITUTE FORM W-9 WITH THE
PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE
OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. If you are a
nonresident alien not subject to backup withholding, submit a completed Form
W-8, Certificate of Foreign Status.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see Sections 6041, 6041(A)(a), 6042, 6044, 6045,
6049, 6050A and 6050N, and the regulations thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of certain taxable payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are sub-
ject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING .--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certi-
fications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TINS.--If the requester discloses or uses the TINs in violation
of Federal law, the requester may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
